ERCIM views on information technology in Europe, the preparation of the 5th Framework Programme and the revision of the Maastricht Treaty


July 1996

I - The current situation in the information technology sector

I . 1. - In Europe

a) European industry is far less specialised in high technology products than are its American or Japanese competitors. While such products do represent half of Germany's exports, this performance (which is comparable to that of the United States, but is much less than Japan's 70%) remains exceptional in Europe.

In the information technology (IT) sector, European industry is both weak in terms of hardware and software products and stagnant in terms of computer services. Despite significant growth in production and exports, its competitiveness has diminished and the trade deficit is now of one third of the production. Taking a base-line of 100 in 1980, the labour productivity in this sector in 1992 reached a level of 150 in Europe as opposed to 200 in the United States and 260 in Japan.

The situation is much more favourable in terms of embedded software and in telecommunications where industry has long benefited from the existence of large nationalised public operators. With the scheduled deregulation coming and the appearance of new competitors, many entrenched situations are up for change. However the transition to the Information Society described by the Bangemann Report on "Europe and the Global Information Society" may prove to be rich in opportunities for hardware manufacturers and software and service providers;

b) European research is of high quality but it remains insufficient in quantity as witnessed by : In addition, this performance seems to be deteriorating: Europe's share of scientific publications and patents filed in electronics in the United States and Europe dropped between 1981 and 1993 in favour of the fast developing Asian economies while that of the United States remained stable.

In addition, while American (IBM, Hewlett-Packard, Motorola) or Japanese (NEC, Canon, Fujitsu...) firms set up laboratories in Europe, the European computer industry invests much less (2,000 MECU in 1991) than its American (9,800 MECU) or Japanese (3,500 MECU) competitors. Between 1980 and 1990, the ratio of research expenditure to the volume of production fell from 7.2 to 6.4% in Europe while it went from 3.5 to 7.6% in Japan and from 12.2 to 17.8% in the United States. In terms of quality, the deep restructuring undergone by the major European businesses in this sector have led them to convert the orientation of their research laboratories towards applications much closer to the market.

c) There exist, however, significant reserves of creativity. As an example, the 14 European research institutes which are members of ERCIM have given rise to over 150 start-up ventures over the last ten years. But European high tech companies still face a more difficult economic environment than their American competitors:
I . 2. The evolution of the market

The generic character of information technologies has largely been confirmed these last few years. A growing number of everyday consumer goods include electronic components and software. IT now spills over from its former professional markets to occupy a fast growing place in the ordinary consumer market.

In addition, recent developments in communications have generated information flows without precedent. This is profoundly modifying the functioning of the economy and society as a whole. This new "Information Society" will profoundly influence the demand for goods and services. Existing services will need to change and new ones will appear, such as distance learning, tele-medicine, tele-purchasing and -banking, virtual museums and libraries... All these applications are high consumers of computer products and services. Already, the activities associated with the Internet and other networks constitute one of the engines for growth. Last year, while the information and communications technology market grew by 8.3% in Europe (its strongest growth for five years), network services grew by 15.7% and are expected to remain among the strongest segments of the market. Companies active in this field such as Ericsson, Nokia, or SAP have shown spectacular progress in the meantime.

Despite these latter success stories and although the share of Europe in the world IT market (32% in 1995) is of the same order as that of the United States (34.2%), the world scene remains incontestably dominated by the United States as much in terms of innovation as in terms of commercial power. In 1993, the American share of patents filed in Europe in computer-related subjects reached 50.9% while that of Europe was only 26.1%. Firms such as Microsoft and Intel pursue their ascension and now rank 14th and 15th in the world-wide top 100 enterprises as established recently by the Financial Times.

The second element marking the decade has been the extraordinary dynamism of certain Asian countries (Korea, Hong-Kong, Taiwan, Singapore) which are now major partners both on the industrial and commercial level. They also constitute the principal source of technology "acquired" by the United States and, in the Financial Times classification cited above, Singapore Telecom (54th) ranks higher than the European giant, Siemens (62nd). Moreover between 1981 and 1991, these countries multiplied their research expenditures by a factor of 5 and they now represent 20% of Japan's research potential. Gradually, it is the whole of Southeast Asia which is being drawn into an accelerated process of development making this region one of the most attractive markets for the years to come, as well as an increasingly relevant research partner.

I . 3. Action by Public Authorities

I. 3.1. At the National Level

The economic difficulties experienced in European countries could not help but affect public R&D budgets which, except for Germany, have most often stagnated or decreased. Faced with a difficult budgetary situation, public research organisations have been encouraged by their governments to increase their own revenues and to orient their research towards issues of direct interest to industry. The multiplication of short-term contracts only makes the definition of coherent and ambitious scientific policy more difficult.

Just recently, an awareness of the stakes in the Information Society has led to the launching of some major incentive programmes (in France, the Netherlands, Germany, the United Kingdom, Denmark...). But these programmes which combine both State and regional funding remain biased towards the enhancement of existing technologies rather than the search for really innovative solutions.

I. 3.2. At the European Community Level

The Community's R&D activities are now grouped under the "Framework Programme for Research and Technological Development and Demonstration" (FP) and have been considerably reinforced since the beginning of the 1980s. Their annual budget tripled between 1984 and 1994 to nearly 2500 MECU which constitutes approximately 3% of the R&D expenditures of the Member States. This amount may seem modest but represents essentially incentive funding (up to 50%) for trans-national projects. The effect of this funding is all the more important when the national budgets are the most restricted. Today, in France, Community funding is greater than the national public incentive one.

At the same time, the content of the FP has also considerably evolved. Initially it was aimed at the reinforcement of the scientific and technological bases of European industry and focused especially in the fields of energy and IT. But increasingly its priorities have turned towards the satisfaction of social demand (the environment, medicine, socio-economic research...). More precisely:

a) programmes directly related to industrial competitiveness (IT, industrial technologies, energy) have seen their share fall from 80% in the 2nd FP to 62% in the 4th FP. The projects selected are closer and closer to market demands, and 'vertical' partnerships associating technology users and providers are favoured;

b) information technologies' share of FP funding has decreased regularly since 1987 from 42% in the 2nd FP to 28% in the 4th FP. And within the corresponding programmes, the place of long-term research has been gradually reduced. On the other hand, the participation of research organisations in "Esprit" has increased from 12% for the 2nd FP to 16% for the 3rd FP thus alleviating, to a certain degree, the narrowness of the national contributions while strengthening their orientation towards more market-oriented applications;

c) with regard to networks and multimedia applications, the accent is on demand from the public sector (air traffic control, administrations, health systems, road traffic, libraries...);

d) the part of the budget attributed to training and mobility of researchers fell from 8.8% in the 3rd FP to 6% in the 4th FP;

e) the allocation to international co-operation in 4th FP was insufficient. Besides, it was oriented primarily towards agriculture, health, and the environment on the one hand (and very little for high tech) and towards geographic areas which are not strategic neither for information technologies nor European industrial competitiveness on the other hand.

Just as the priorities of the FP have evolved, so too have the beneficiaries. A particular effort has been made toward SMEs whose share has gone from 18.7% in the 2nd FP to 21% in the 3rd FP. By contrast, the share for large enterprises has decreased from 41.1% to 30%. This effect is even more marked in the Esprit Programme where the share for large companies has fallen from 50.6% to 39.8% while that for SMEs has increased from 23.8% to 30.4%.

In terms of FP management, the call for proposals and assessment procedures have been greatly improved. But although the scientific and technical criteria remain of primary importance in the selection of projects, political considerations (the balance between Member States, regional development...), which are not directly related to the reinforcement of Europe's industrial competitiveness are also taken into consideration.

Lastly, the extension of the objectives of FP has been accompanied by a certain dispersion of the available funds among the different Commission Directorates, some of whose areas of competence may overlap. Those Directorates are thus compelled to make significant efforts to co-ordinate not only among themselves but also with other policy-making Directorates (especially the one in charge of external affairs).

I. 4. Conclusion

It does not seem that long-term planning is sufficiently addressed, either at the national or Community level. One commonly admitted opinion would suggest that by virtue of the principle of "subsidiarity", the financing of long-term research should be primarily assured by the Member States. In fact, a rigorous application of this principle would lead rather to the opposite conclusion:

a) long-term research satisfies without difficulty the basic requirements of the Community's R&D policy which are transnationality and non distortion of competition. In particular, the added value of European networks of researchers has been amply demonstrated;

b) by contrast, the Community's increasingly market-oriented R&D policy runs into difficulties which hinder its viability : Thus, it is in no way obvious that, for equivalent means, supporting close to the market R&D and demonstration projects can better be undertaken at Community rather than at Member State level.

Lastly , the growing implication of R&D in the satisfaction of social needs which has marked the 4th FP will undoubtedly be confirmed in the 5th FP and cannot be questioned. This is a major challenge for Information Technologies. The researchers involved must no longer limit their activity to sub-domains clearly defined by tradition. A major concern is the integration of their knowledge and their results into wider systems which supposes a good understanding of the phenomena involved. Scientific and technical culture and opening up to the world thus become increasingly necessary to the success of a project. This kind of evolution does not occur without the emergence of new problems: Thus some of the orientations on which the Community's R&D policy has been founded during the past few years have to be reconsidered. Beyond the current debates on the additional funding for the 4th FP and on the research-industry task-forces that the Commission proposed last year (cf. Appendix), the preparation of the 5th FP and the revision of the Maastricht Treaty to be undertaken soon provide an opportunity to reflect on the Community's R&D policy. This reflection should take into account the lessons learned from the application of the 4th FP.

II - Objectives for the 5th FP

The structure or the balance of the 5th FP will not be commented upon at this stage. The purpose here is, within the frame of the Maastricht Treaty as it stands, to suggest and put forward some guiding principles.

The relationship between research and industry and the satisfaction of social demand are once again at the heart of the problem. The first point concerns both Title XIII (Industry) and Title XV (Research and Technological Development) of the Treaty. According to Title XIII, "the Community and Member States ensure that the conditions necessary for the competitiveness of the Community's industry exist ". For that purpose, their action aims in particular to "favour a better exploitation of the industrial potential of policies of innovation, research and technological development .... The Community shall contribute to the achievement of the objectives through the policies and activities it pursues under other provisions of this Treaty " but "specific measures" may also be decided as long as they do not lead to a distortion of competition.

This possibility has not been much used up till now and, over time, the FP which is covered by Title XV of the Treaty has become the principal instrument of industrial policy.

However, the R&D policy has wider objectives as defined in Article 130F [[section]]1 of the Treaty:

. "to strengthen the scientific and technological bases of Community industry and encourage it to become more competitive at international level, while promoting all research activities deemed necessary, by virtue of other Chapters of this Treaty",

and also quite specific forms of activity (Article 130F [[section]]2) since the Community should limit itself to

. "encourage undertakings, research centres and universities in their research and technological development activities of high quality; it shall support their efforts to co-operate with one another, aiming, notably, at enabling undertakings to exploit the internal market potential to the full... "

The preparation of the 5th FP could be the occasion the get closer to the spirit of the Treaty in order to fully implement its dispositions. In the context of what will probably be a very limited budget, this requires a re-focusing for which the principle of subsidiarity turns out to be a very useful guide. In this regard, certain general orientations can already be sketched:

a) to reinforce the scientific and technological bases of Community industrial competitiveness by:
b) concentrate the funding directly linked to the competitiveness of industry and services in fast growing markets;

c) make European R&D and industry more open to the world by increasing and re-orienting the funding of international co-operation and improving the synergy with the technical co-operation programmes of the DG I and DG VIII (Activity 2);

d) leave more responsibility to local authorities for the "dissemination and optimisation of the results of activities in Community research" (Activity 3) and for telematic applications aimed at the public sector, both for reasons of efficiency and to respect the principle of subsidiarity;

e) define more precisely the frame for the participation of R&D to the satisfaction of the needs of society. In particular :
III - Suggestions for the revision of the Maastricht Treaty

The Single European Act did not include any specific title for industry, but the Maastricht Treaty does. However, the text of Title XIII remains on the timid side and, without putting aside the currently recognised limits to public intervention in the economy, it could be adapted in order to increase the Commission's autonomy and its possibilities for action in industrial matters.

On the opposite the Community's R&D policy has the benefit of a long-standing legitimacy. However the current institutional arrangement is rather cumbersome, and the efficiency of the Community's actions could undoubtedly benefit from some modifications to Title XV. For example:

a) redefining the Community's R&D policy objectives (Article 130 F) along the following lines:
b) redefining the content of the FP to better reflect its objectives rather than its means. In particular, the notion of "activities" as stated in Article 130 G should be reconsidered;

c) streamlining of the decision-making processes while trying to reconcile simplicity and flexibility. In the present scheme, at least 4 decisions are required before opening a call for proposals :
The first two of these steps could easily be merged. It could be agreed that the FP defines the objectives, fixes the relevant priorities, the means deemed necessary, determines the rules for participation and the dissemination of research results. The FP could be articulated in about 20 homogeneous budgetary lines and adopted following the co-decision procedure. To achieve this, it would suffice to invert the contents of Article 130 J with those of [[section]]3 and 4 of Article 130 I. The Treaty would, in the process, become clearer and more coherent.

Beyond this, a number of hypotheses might be considered, some of which relate more to institutional practices than to the revision of text of the Treaty:

i) either to put an end to the confusion between a FP budgetary line and a specific programme which marked the 3rd and 4th FP and can be found neither in the Single European Act nor in the Maastricht Treaty. Each such line could include several specific programmes which may be proposed by the Commission at any point during the period covered by the FP. The number of programmes will increase but their coherence will also be enhanced. The adjective "specific" regains its full meaning and the FP becomes more flexible. This is a return to the situation as it was at the time of the 2nd FP (cf. Appendix). No further modification of the Treaty is necessary;

ii) or each line could represent a single specific program. There would be only one global decision to establish for each programme (or line) the administrative frame: management committee type and working rules, percentage of funding for administrative costs, horizontal actions, etc. This decision would be made by the Council after consulting the European Parliament. Working out the technical content could be left to the management committees.

A part of the funds would be blocked for a time, and released in the course of the FP in order to either reinforce the current activities or to launch new ones. In the case of simple reinforcement of previous activities, the Council could make the decision simply after consulting the Parliament.

New activities using either the uncommitted (Solution i) or blocked (Solution ii) funds could be undertaken in the frame of complementary programmes (Article130 K), participations (Article 130 I) or inter-line specific programmes. They could be decided upon by the Council in co-operation with the Parliament insofar as they do not substantially alter the FP. If important modifications to the FP have to be considered then the co-decision procedure must be followed.

Such a mechanism would reconcile the flexibility which the Commission seeks through its "task-forces" with the control which Member States wish to maintain over the Community's activities.

d) more generally, the control over the implementation of programmes by the Council and the Parliament could undoubtedly be improved. But the debate over the role of the management committees function goes beyond the field of research and a certain prudence is called for.

The same attitude should prevail with regard to the Council's voting rules (unanimity or qualified majority). Experience has shown that the length of the decision-making process is less the result of the Council's procedures than that of the divergence of views which may arise between the various institutions within the Community. In this regard, the content of the Commission's proposals is the determining factor. A solution to this problem could be envisaged in the context of the overall balance of powers within the Community's institutions and, in particular, in relation to a possible sharing of the power of initiative.

Annexe

Research-Industry Task Forces

I - The origins

The current discussion on the European RTD policy seems to focus on the Research-Industry Task Forces. The idea itself is not new. Besides the well structured General Directorates, the Commission has always been able to mobilise the necessary human resources in order to face new problems. The best known example is perhaps the Task Force : "Human resources, education, training and youth", that preceeded the creation of the DG XXII which is now responsible for this domain.

The initial objective of the Research-Industry Task Forces, however, is slightly different. Its origin can in fact be traced to the Commission communication dated 19 October 1994: "Achieving coordination through cooperation" in which the Commission called for a " new flexibility to overcome the rigid barriers between programmes."

At the Research Council meeting of 10 March 1995, Mrs. Cresson announced the creation of the first five Task Forces which had the objective not only to reinforce the competitiveness of industry but also to improve the comprehension of the Community research by the European citizens. The suggested method to reach this goal consisted in concentrating resources on some domains that industry thought important and to achieve a better coordination of the efforts in the FP as well as in the Member States.

A working paper of the Commission, dated 26 October 1995, on the state of the advancement of work carried out by the Task Forces describes their mission :
To date, the Commission has created the following seven Task Forces : An eighth Task Force on water technology is under preparation.

Not all the Task Forces are in the same state of advancement concerning their reports, but pressumably they will all lead to proposals for complementary projects, financing or programmes. The most advanced ones (aeroplane, train, intermodality) are now oriented towards large-scale demonstration projects.

II - The problems

The Commission's initiative of establishing Task Forces raises several problems :

a) the choice of priority domains is not an easy task but the selection seems to emerge more from a traditional sector-related logic rather than from a multi-disciplinary approach which could have justified an innovation in the management. In fact, most of the selected topics are already covered by a part of some specific programmes. It seems as if the adopted strategy consists in reinforcing the strong points rather than to make up for the lacks or to be present in fast growing markets. The privileged sector is transport, in which Europe already has a strong position on the technological side. In 1993, 63,2% of the patents in Europe concerning the transport sector where from European origin. In comparison, this figure was only 26% for the IT field;

b) these orientations have been adopted by the Commission without consulting the Member States. This fact also poses a problem. If, beyond a simple coordination between General Directorates a certain coordination of efforts and resources of the Member States is sought, Member States must be involved in the process at an early stage. The article 130H of the Maastricht Treaty binds the Commission to this effect;

c) Finally, carrying out the projects or complementary programmes, proposed by the Task Forces poses multiple problems of a financial and institutional nature. In fact, these activities can be carried out in different ways:

- in the framework of existing specific programmes. The budget being constant, a revision of the work-programmes should take place, with suppression of activities engaged or foreseen, and a reorientation according to the requests of the Task Forces. Such a reconsideration requires the agreement of the management committees which is difficult to obtain as shown by the experience of Brite-Euram.

The situation would certainly be much easier to handle if a substantial financial complement to the 4th FP could be foreseen. Unfortunately this is not the case. The 700 MECUs originally expected may be reduced to about 200 MECUs to be distributed to half a dozen specific programmes. Under these conditions, it seems difficult to finance large-scale demonstration projects.

Independently from these budgetary problems, the projects of the Task Forces within the specific programmes, will come up against the same difficulties encountered by the "targeted projects" which the Commission wanted to introduce in the 3rd FP. The ESTA was well aware of these problems when it recommended to the Commission that the Task Forces should be distinguished from the current programmes;

- in the framework of new programmes, as either i) specific programmes, ii) complementary programmes or iii) participations. The Maastricht Treaty is in fact unambiguous: all research and development as well as demonstration projects should be included in the framework programme following the three procedures above (articles 130 I, K, L of the Maastricht Treaty. The activities outside the framework programme (APAS) that had existed before 1994 were abolished and it seems difficult to come back to this point in the framework of the revision of the Maastricht Treaty.

In practice, only the specific programmes have actually been used. The Task Forces can provide the methods to experience complementary programmes or participations. The Commission will certainly prefer complementary programmes whose budgets have to be completed by contributions of the Member States. On the contrary, the Member States will be more in favour of participations of the Commission to programmes which they would have the initiative and control. In any case, the Member States will benefit only in a very unequal way from such "participation" programmes, and they can only be accepted by the Council in the framework of a "global package" where each of them could find its interest. The effect of the concentration of resources would in this case be lower than expected. It will thus be difficult to rapidly make use of the Task Forces' propositions in the 4th FP, all the more if the amount effectively available for the new programmes is reduced.

The situation is more open for the 5th FP. First of all, one may wonder about the reasons for the lack of flexibility of the 4th FP that the Commission has very justly denounced. There are multiple reasons for this. The inherent inertia of big administrations, the slowness of decision processes imposed by the Maastricht Treaty, the particular interests of the Member States are often invoked... However, there is a point that has rarely been raised, whose introduction into the 3rd FP has highly contributed to rigidify the current structures. It concerns the identification between a budget line of the Framework Programme and a specific programme. To simplify the procedure, in order to reduce the number of necessary decisions, it was agreed that each budget line of the FP should be the object of one specific programme. These specific programmes were the only to be decided upon as soon as possible after the adoption of the FP and for its duration. The drawback of this simplifying innovation was obviously a certain sclerosis of the FP which could adapt only with difficulty to the rapid evolution of a changing economic and social environment. The same point was outlined by the ESTA in its advice to the Commission already cited: "new developments occur continually and not every four years".

Such a rigidity leads also to endow the specific programmes with encyclopaedic work-programmes for fear of forgetting essential elements, this contributes to the lack of clear objectives and to overfragmentations of the tasks.

Finally, due to "the patriotism of committees", the specific programmes tend to behave as autonomous units that are more concerned about extending their field of competence than to share them. The result is duplication of efforts and the need for intensified coordination of the projects.

It would be interesting to investigate the possibility of returning to the situation that preceeded the 3rd FP, where several specific programmes coexisted on one line and where one programme could make use of a number of lines. Such an evolution is not at all contrary to the Treaty. It would provide the wished flexibility at the price however of an increased workload of the Council.