R&D Benchmark Comparisons between the EU and Japan

John de Boer (University of Tokyo & GLOCOM Platform)

Less than a year ago the European Commission (EC) published an interesting report entitled, "Towards a European Research Area: Indicators for benchmarking of national research policies". The study compared EU performance in four theme areas related to research and development in science and technology with Japan and the United States. The results of which aimed to proved that the EU was well on its way to becoming the most competitive and dynamic knowledge based economy in the world. This week's EU report will provide a synthesis of these findings so as to provide a picture of how the EU stands in this field in comparison to Japan.

The first theme that the EC sought to measure was labeled "Human Resources in R&D and Attractiveness of S&T Professions". The main reason behind taking up this theme was due to the belief that a country's workforce needs constant upgrading in order to maintain its competitive edge. Towards this end the EC measured the number and type of researchers existing in the total workforce. The decision to focus on researchers as an indicator was attributed to the belief that, "research workers were both responsible for producing and exploiting knowledge".

The findings indicated that the presence of researchers in the total EU workforce (5.3 per 1,000) was considerably lower than that of Japan (9.3) and the US (8.1). Among the EU countries there were three broad groups. The first was composed of Finland and Sweden, which had the highest levels of researchers in their workforce, 10.92 and 8.44 respectively. All other EU countries had rates lower than that of Japan and the US.

However, when it came to measuring the rate of increase in the total number of researchers, Japan fell far below the EU average of 2.89/1000 recording only 2.57. Those topping the list were Ireland at 16.51 and Finland at 12.68 with the US also above Japan. The EU average was 6.27 new researchers per 1,000 workers.

The EC also examined the number of new science and technology PhDs between 24-35 years of age. According to their analysis, the European Union had slightly more new S&T PhDs per thousand between the age of 24-35 with 0.55 than that of Japan, which was significantly lower at 0.24. On the other hand, the United States was generating 0.47 new PhDs. Once again Sweden and Finland stood at the top of the rankings with 1.17 and 0.97 new S&T PhDs. Incidentally, German also posted high results with 0.75 new PhDs.

Despite these results, however, measures of growth in the number of new PhDs between the EU, Japan and the US between 1998 and 1999 indicated that the number increased in Japan by 0.74% while it decreased in Finland by 4.51%. The EU average settled at a positive 0.37% with Portugal tipping the scales by marking a 12.12% growth rate.

The second theme that the EC measured was the level of public and private investment in R&D. This theme was considered central due to the conviction that competitiveness depended primarily on the production, distribution and exploitation of knowledge. For this the EC looked to the share of R&D expenditure in GDP. The results, based on figures from 1995, indicated that R&D intensity was much higher in the US and Japan than it was in the EU. In Japan, R&D expenditure accounted for 2.91% of the GDP and 2.61% in the US. For the EU, levels dipped considerably to 1.92% with Sweden and Finland spending the most at 3.7% and 3.3% respectively. The three lowest spenders on R&D were Greece (0.51%), Portugal (0.78%) and Spain (0.9%). The average annual growth in R&D spending was also higher in Japan and the US as compared to the EU with Japan showing a 4.13% growth rate and the US a 5.55% increase. The EU rate was positive at 3.03% with Finland claiming the top position with an increase of 13.02% and France (0.62%) and the UK (1.23%) scraped the bottom of the list.

The EC also looked at the amount of money that the industry was spending on R&D as a percentage of its industrial output. The effort made by industries to finance R&D was considerably lower in the EU (1.4%) as compared to the US (2.1%) and Japan (2.5%). On an individual country basis however, Swedish and Finish companies topped the list having financed 3.98% and 3.18% of R&D respectively. In addition to this, the share of the annual governmental budget allocated to R&D also ranked the EU below Japan and the US. While the Japanese government allocated 3.86% of its annual budget to R&D and the USG 4.2%, the EU only invested 1.99% of its resources in research and development. In terms of Europe, France spent the most allocating 4.95% of its budget and Greece the least with only 0.76% going to fund R&D.

Under this theme, the EC also took special interest to investigate the volume of venture capital investment in early stages (seed and start-up) in relation to GDP. According to this investigation the EU provided significantly less venture capital in the early stages as compared to Japan and the US. While the US topped the list spending 1.16 per 1,000 GDP and Japan 0.99 the EU only dedicated 0.38. In fact, Austria, Portugal and Italy hardly invested anything on ventures.

The third theme that the EC undertook to investigate was Scientific and Technological Productivity. As quantifiable indicators the EC looked to measure the number of patents and the number of scientific publications and citations. According to these figures all three had approximately the same number of patents registered at EU patent offices in 2000 with Japan having 134, the EU 133 and the US 144. However, in terms of annual growth rates Japan (9.44%) was at the bottom of the list along with Austria and France. Ireland topped the list with a 58.67% growth rate.

In terms of the number of scientific publications the majority of EU countries were above that of Japan and the US. While Japan ranked just above Spain with only 498 scientific publications per million population, the US had 708 and Sweden, Denmark and Finland all numbered above 1,000. In order to estimate the regard to which Japanese, US and EU publications were afforded, EC data indicated that while Japanese publications were cited only 1,520 times the EU and US publications were both cited over 10,000 times.

The final theme attempted to measure the impact of R&D on economic competitiveness and employment. This was done by judging the ratio between work capacity and production. In terms of labor productivity Japan ranked 15 out of 18 countries with the US ranking 7th. Luxembourg and Belgium demonstrated the highest levels of productivity. In terms of the share of total employment in high-tech industries, unlike common perception, the EU (7.7%) outranked both Japan (6.24%) and the US (5.30%).

The final indicator that the EC documented was the level of growth in the country's market share of exports in high-tech products. In this category, as suspected, the US and Japan led all countries securing 19.75% and 9,95% respectively. The next European countries in line were France (7.39%) and Germany (7.32%). Greece, Portugal and Spain captured the lowest market share with all ranking below 0.59% of the global high-tech market.

Overall, this report revealed one important factor, namely that the EU is highly fragmented between heavily R&D oriented countries such as Finland and Sweden and those that have had little to do with the high-tech sector. In terms of its comparisons with Japan, the figures seem to indicate that despite Japan's 10% share of the high-tech market its future competitiveness in the industry may be in question. Partly due to the fact that it has few researchers in S&T as compared to some European countries and also due to the fact that their work is rarely cited in comparison to publications issued in the EU and US. Although this is most likely attributable to the language factor, it is a troubling issue, which needs to be rectified if Japan desires to maintain its status as an industry leader.

From a social perspective, this report also uncovers some interesting facts. Namely that the EU is divided into various regions that specialize in different industries. It is evident that Nordic countries have chosen to make their competitive edge known in the area of R&D, which obviously produces high value added items. On the other hand, countries such as Portugal, Greece and Spain are finding it difficult to emerge from their low skilled status. The growing gap between low ranking countries and higher ranking European countries is no doubt troubling news as it will become harder for countries such as Spain, Greece and Portugal to maintain their standard of living if they are unable to compete in the highly rewarding fields of science and technology. Although efforts have been made by them to invest more in R&D the playing field remains considerably skewed. The real test of the European Union will be whether it is able to level out these differences. To that end, it will be interesting to see how these figures transform in ten years time, hopefully for the better.