Good for research? Good for publishers?

Over the next five years, the European Commission hopes to increase the share of GDP taken by R&D expenditure and to increase the share of R&D spending coming from the private sector. These targets have clear implications for science, technology, medicine (STM) content providers, particularly as academic budgets for STM content in most European markets show little sign of an upturn, and more content vendors view the private sector as a key area for growth. This article analyses some general trends in R&D spending and considers the prospects for the next few years.

Eurostat has just published its latest data on R&D expenditure,¹ in spring 2005. In general, the Eurostat data provide few signs of strong growth in the R&D market, and there is little evidence, yet, to suggest that significant growth will come from the private business sector. Other sources also point to uncertain times ahead for the European R&D sector.

R&D trends
The EU's 2010 goals for R&D expenditure were set out in the Lisbon Summit Strategy and endorsed by European Heads of State and Government in Brussels in 2002. The targets are that R&D expenditure should represent 3 per cent of EU GDP, and that at least two-thirds of this expenditure should come from the business sector. Current annual R&D expenditure will have to rise dramatically if the first target is to be met, while, on the second target, some EU countries are much further down the road than others.

Data from Eurostat shows that R&D expenditure across the EU's 25 countries increased by 3.9 per cent per year at constant prices (in real terms) between 1998 and 2003. However, more than 70 per cent of all R&D expenditure is contributed by the top three countries - UK, France, and Germany - and, in these markets, growth in R&D expenditure was well below the EU average. In the UK, average annual growth was 3.52 per cent, but in France and Germany it was only 2.36 per cent and 2.70 per cent respectively. Double-digit growth in expenditure came in smaller markets led by Estonia, Cyprus, and Hungary, while there were decreases in R&D spending in Poland and Slovakia. Only Sweden and Finland have passed the 'research intensity' target (research intensity is the share of GDP taken by R&D expenditure). In Sweden, R&D expenditure accounts for 4.27 per cent of GDP, and in Finland it represents 3.5 per cent.

Another source of spending data - the UK Department of Trade and Industry's 2004 R&D Scoreboard² - found that R&D spending in the UK increased by just 1 per cent at current prices in 2003. The Scoreboard also identifies the importance of different industries in different countries, and the impact this can have in R&D spending. The pharmaceutical companies in the UK, for example, are important in overall R&D spending, but in France and Germany they are less significant. In Germany, engineering, automotive, and chemical sectors are more important in overall R&D spending, but these sectors typically spend a lower ratio of revenues on R&D (the research intensity again) than pharmaceuticals. France has a higher percentage of pharmaceuticals companies than Germany, but it is sectors such as engineering and oil and gas that are important for R&D.

Business sector to increase share
In 2003, 55 per cent of the EU's R&D expenditure came from the business sector. The target is 67 per cent by 2010. The EU is some way behind the US and Japan where the business sector accounts for 64.4 per cent and 73.9 per cent, respectively, of R&D spend. A few EU countries have already reached the target - led by Luxembourg, where the business sector accounts for more than 90 per cent of spending. But some of the larger countries are again lagging behind. Only Germany is close to the target, at 65 per cent, while France has 52 per cent contributed by the business sector, and the UK only 47 per cent. Worryingly, with the target date looming ever closer, the EU data notes that the percentage of R&D spending accounted for by the business sector has remained virtually unchanged between 1998 and 2001.

Attempts by some governments to change the R&D spending mix between the public and private sector have also not always been welcomed by the scientific community. In France, for example, more than 8,000 scientists took to the streets on 9 March 2005 to protest against the government's proposed reforms of the science system.

The protests were against an erosion of employment rights in the public sector, but were also part of an ongoing dispute which relates to the way R&D spending is allocated. At the beginning of the year, the government promised to spend €6bn (US$8.05bn) over three years on research, but scientists say part of that will flow into private research and not into public research. Also, scientists say that 5,000 new permanent positions need to be created every year for the next five years if France is to meet the EU's target of spending 3 per cent of gross domestic product on science. The French government plans to create only 1,000 new permanent positions.

The private sector also has questions about the feasibility of the Lisbon targets. The European Round Table of Industrialists (ERT),³ comprising 45 European Industry leaders, has stated that EU legislative and regulatory burdens, among other things, are actually pushing leading companies to invest more in R&D in countries outside the European Union. One example used by the ERT is the pharmaceutical industry, a core target for European STM content companies. The ERT states: 'The outlook for EU-based pharmaceuticals R&D is troubled. Recent steps to improve conditions for pharmaceutical R&D in Europe have been particularly positive - for example, the establishment of EMEA, the London regulatory agency and the adoption of new EU legislation. However, these steps are not sufficient to bridge the growing gap between conditions in Europe and the US. In addition to facing problems in Europe arising from public under-investment in research, education, and training, pharmaceutical companies also experience a turbulent and hostile market environment, characterised by a patchwork of different national pricing and reimbursement regulations, significant market access delays for new medicines, poor reward for innovation and excessive regulatory burdens'.

The ERT is more optimistic about sectors such as IT and electronics, where the research base in the EU is still relatively strong.

Conclusions
All in all, the current trends suggest that switching more European research funds to the private sector will not be easy, while there are real concerns about future research investment in key content-using sectors such as pharmaceuticals. In addition, the emphasis on the business sector, and the challenge to commercialise investments in R&D in the next four or five years, are unlikely to improve the fortunes of the beleaguered academic market. However, like so many other European content markets, the data confirms that STM markets need to be treated on a country-by-country basis in Europe. General trends often hide significant differences in country fortunes and prospects.

David Mort is a director of IRN Research, a UK-based market research and information company specialising in the analysis of European information and content markets. He can be contacted at dmort@irn-research.com.

REFRENCES

1. Statistics in Focus, Science & Technology - R&D Expenditure in the European Union. Eurostat, February 2005.
2. 2004 R&D Scoreboard, Department of Trade & Industry, www.innovation.gov.uk/projects/rd-scoreboard/home.asp
3. URL: www.ert.be