Europe bets R&D spending will bring jobs to battered economy

European Commission President Ursula von der Leyen has proposed a €1.85 trillion budget that bets on science.


The European Union wants a massive dose of research spending to lift it out of what could be the worst recession in its history. Last week, as part of a €1.85 trillion budget and pandemic recovery proposal, the European Commission, the EU executive arm, unveiled plans to pump €94.4 billion into research over 7 years, nearly €11 billion more than originally planned for the program, called Horizon Europe. But not everyone thinks the money is the best medicine.

The Commission says R&D spending will drive productivity, employment, and competitiveness. Based on its own models, it has estimated that Horizon 2020, the €80 billion predecessor to Horizon Europe, will ultimately create up to 179,000 jobs and add €400 billion to €600 billion to gross domestic product (GDP) by 2030. Likewise, the new infusion “will ensure that we come out stronger from this crisis,” said EU research commissioner Mariya Gabriel in a statement.

But Julia Lane, an economist at New York University who studies the effects of R&D spending, says Europe is not tracking the data needed to justify its predictions and, in any case, its numbers aren’t credible. If the return on R&D investment for GDP is that good, “why don’t they just shut the entire economy down and move it into that?” she asks. “Just on the face of it, it’s a ludicrous number.”

The Horizon Europe budget still has to be negotiated with national governments. But the Commission wants €13.5 billion of the research money to be spent fast, within 4 years, on projects in four broad categories: health; climate, energy, and mobility; digital, industry, and space; and the new European Innovation Council (EIC). The Commission will define specific topics and call for grant proposals from researchers; it will also consider making equity investments in startups through EIC

In the short term, research to curtail the pandemic will do the most to help the economy, says Thomas Estermann, head of funding policy at the European University Association, a lobby group. “Each week of confinement and lockdown has a tremendous economic impact,” he says. “The solution to the crisis will clearly come from research.” The money won’t be available until January 2021, however, and only a tiny portion of the €13.5 billion is likely to fund COVID-19 treatments or vaccines.

In the long term, the value of R&D spending is plain to everyone, says Robert-Jan Smits, president of the Eindhoven University of Technology and former head of the Commission’s research policy department. “If I ask a person here in the streets, ‘What are the sources that bring us prosperity and wealth?’ he or she will say, ‘education and technology,’” he says. “It’s not even rocket science.”

While at the Commission, Smits brought in economists to develop one of the models that predicts economic outcomes based on historical data. The model, called NEMESIS, “can calculate for each investment, each euro that you invest in science and innovation at EU level, what will be the impact—even on jobs, even on growth,” he says.

But without detailed accounting from research centers, it is impossible to make reasonable estimates of job creation, says Lane, who in a former role at the U.S. National Science Foundation helped develop metrics to track job creation from the Obama administration’s 2009 stimulus package, which put billions into research. She says setting up the infrastructure to do that in the United States took years.

According to Lane, the U.S. data show some impact: For example, researchers are more likely to found successful startups, which contribute disproportionately to job creation and productivity. But more than 10 years later it still isn’t clear what kinds of science funding work best, she says. Europe, meanwhile, has “wasted the last 10 years” by failing to set up similar procedures, she says.

Smits agrees that tracking the immediate impact of research investment is “a bit complex.” But he argues that identifying longer term impacts in models is “doable,” because NEMESIS, unlike conventional models, factors in R&D spending. “I find it just completely bizarre that people still work in the finance ministries with models which are not giving any recognition to key technologies, which are changing our lives on a daily basis,” Smits says.

Hans-Olaf Henkel, a former member of the European Parliament and former president of the Leibniz Association, an association of German research institutes, objects to the Commission’s top-down approach to stimulating the economy. “Any kind of centralized Brussels program, in my view, is doomed to fail,” he says. He argues politicians don’t know what kind of science is most likely to succeed, and should therefore concentrate on bottom-up funding. “They should let the scientists do their creative work and not come up with political goals.” The €13 billion European Research Council, one of the few parts of Horizon 2020 that focuses on bottom-up funding and is meant to be immune from political interference, was originally slated to get a €3.6 billion rise in Horizon Europe, but the reallocation of money under the new budget puts that figure in doubt.

Regardless of how the new budget shakes out, Andrés Rodríguez-Pose, an economic geographer at the London School of Economics, points out that EU grants are “a drop in the sea.” Most R&D funding in Europe comes from the private sector, and most of the rest comes from national governments, not the European Union. “The capacity of the EU institutions to shape the way research is done in Europe is limited,” he says.

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