Europe's twin deficits : excellence and innovation in new sectors

Over the last 15 years, open innovation has become mainstream and both public and private actors from many countries are involved in global innovation networks. This paper argues that research and innovation policies in Europe have not fully adapted to the challenges and opportunities of this global context. The paper reviews empirical evidence and concludes that the EU does not suffer from the so called "European paradox", but rather from twin deficits in excellent research and in innovation in new high growth sectors. Europe as a whole is good at producing research results, but those may be of insufficient quality to meet the needs of knowledge-based growth. In order to promote innovation, the policy mix should address Europe's twin deficits by strengthening both the production of high impact research and knowledge transformation. To this end, updated evidence on a set of related stylised facts should be produced and integrated in national and EU policy making. In order to stimulate knowledge intensive growth, more R&D and innovation in existing sectors should be combined with the development of start-ups in new sectors. As part of open innovation processes, firms tend to prefer academic partners for exploration and new to market innovation. Hence, the amount and quality of academic research remains fundamental to the innovation performance of firms and countries. Excellent researchers or academic institutions are more likely to engage in knowledge transformation, either through contract research or through commercialisation. Moreover, firms that cooperate with high impact researchers tend to generate more innovation. The US has the world strongest science base for sectors related to information and communication technologies as well as in disciplines and sectors related to medicine and health. The transatlantic "excellence gap" thus appears wider in the scientific disciplines with high innovation and growth potential.