Innovation gap with US & Japan

The data used for the 2007 EIS (Figure 7) shows that the US and Japan are still ahead of the EU, but the innovation gaps have been declining. [1] The EU-US gap has dropped significantly between 2003 and 2006 and shows a further but very modest reduction in 2007. The EU-Japan gap first increased in 2004 and then dropped more significantly between 2004 and 2006 and very modestly in 2007.

There are 15 indicators with full data for the US and EU, and of these the US performs better than the EU in 11 indicators (Table 1), while the EU scores above the US in 4 indicators (S&E graduates, employment in medium-high and high-tech manufacturing, community trademarks and community designs). Although the US is leading in 11 indicators, on 9 of these indicators the US is outperformed by at least one European country. Only in tertiary education and USPTO patents the US is performing better than any European country.

Japan performs better than the EU in 12 indicators, while the EU only scores above Japan in 2 indicators (community trademarks and community designs). Although Japan is leading in 12 indicators, on 9 of these indicators Japan is outperformed by at least one European country. Only in tertiary education, USPTO patents and triad patenting Japan is performing better than any European country.

For the EU, EU ‘innovation leaders’, US and Japan the latest available data are shown (cf. Annexes A and B). For indicator 3.4 for the EU and the EU ‘innovation leaders’ data for 2005 are used instead of the 2006 data as shown in Annex A. European early-venture capital data fluctuate on average by 150% between 2005 and 2006 turning a long-lasting EU-US gap suddenly in an EU-US lead assuming an the same US performance in 2006 as in 2005. Pending the release of 2006 US data showing the true nature of this possible lag reversal, we have adopted to compare performance levels in 2005.

Figure 8 shows those areas where there is an increasing or stable EU lead over the US, where there is a decreasing gap and where there is an increasing gap. The EU is experiencing a stable lead with the US in Community designs where it would be expected to have a home advantage over the US. The EU is increasing its lead in S&E graduates, medium-high and high-tech manufacturing employment and Community trademarks. For community trademarks a similar home advantage applies for Community designs, but here the EU is steadily increasing its lead from having about twice as many new Community trademarks in 2002 to more than 3 times as many new Community trademarks in 2006. The increase in the lead in S&E graduates and medium-high and high-tech manufacturing employment is more moderate.

The EU is experiencing a gap in all other indicators, but this gap is decreasing for the broadband penetration rate, early-stage venture capital [2], ICT expenditures and triad patents. The gap for the broadband penetration rate has almost disappeared in 2006, with the US having only about 10% more broadband lines per 100 population as compared to almost 100% in 2002-2003. The gap for ICT expenditures has also almost disappeared with the US GDP spending share on ICT only about 5% higher than that of the EU. For early-stage venture capital we first see an overall decline, but with some periods of increase which may reflect the cyclical nature of venture capital markets. Nevertheless the gap remains large, with the GDP share of early-stage venture capital still being more than 50% higher in the US. The gap for triad patents has been steadily decreasing since 2000, when the US had more than twice the amount of triad patents per million population. In 2006 the US still had 60% more triad patents per million population, the gap thus remains large.

The EU-US gap is stable for population with tertiary education, business R&D, medium-high and high-tech manufacturing R&D, EPO patents and USPTO patents. The gap is smallest for the share of medium-high and high-tech manufacturing R&D, but given the fact that most R&D expenditures in the manufacturing sector come from so-called high-tech and medium-high-tech manufacturing industries, it should not come as a surprise that these shares are almost equal in the US and the EU as both have similar R&D specialisation patterns. The EU is experiencing a gap in EPO patents despite its home advantage, and a large gap in USPTO patents where the US has a home advantage. The decreasing gap in Triad patents may therefore be a more important indicator. There is a large gap in business R&D expenditures, 1.17% of EU GDP as compared to 1.87% in the US which is not becoming smaller. The EU-US gap in the share of population with tertiary education is also large with almost 40% of US adults in 2005 having completed a tertiary education as compared to 23% in the EU in 2006. This gap might be an indicator of a relative shortage of the supply of advanced skills in Europe, but differences in US and European educational systems might lead to relatively overrated US scores on this indicator.
The EU-US gap is increasing in public R&D expenditures and exports of high-tech products. Up until 2001 the EU was leading in public R&D expenditures, but in 2002 this lead turned into a small but increasing gap. This switch in leadership was both caused by a decline in the public R&D intensity in the EU and an increase in public R&D intensity in the US, in particular by decreasing EU R&D expenditures and increasing US R&D expenditures in the government sector (GOVERD). The US is also increasing its lead in high-tech exports, in particular from 2005 to 2006.

The trends in the EU-Japan innovation gap show greater stability with no significant changes in the indicators for population with tertiary education, public R&D expenditures, medium/high-tech manufacturing R&D, ICT expenditures, exports of high-tech products, employment in medium/high-tech manufacturing, USPTO patents and triad patents.  As is the case with the US, the EU is experiencing an increasing lead over Japan in Community trademarks and Community designs (Figure 9). The EU-Japan gap is decreasing in S&E graduates and broadband penetration. The share of S&E graduates is almost equal in the EU and Japan in 2006. Japan is still enjoying a lead in broadband penetration but this lead disappearing fast. The EU-Japan gap is increasing for business R&D expenditures and EPO patents.

[1] A direct comparison of the 2003-2006 gaps shown in Figure 7 with those reported in the EIS 2006 report is not possible for several reasons. First, not for all indicators data has been updated with one year, for some indicators data either could not be updated or the update is for more than one year, so the gap shown for 2006 in Figure 2007 will be different from the gap shown in the EIS 2006 report. Second, last year the gap was calculated as the difference between the SII using all indicators, thus by comparing the SII for the EU with the estimated SII scores for the US and Japan. This year, in order to improve the comparability, the gap is calculated as the difference between the SII scores only using those indicators for which data are available for the US respectively Japan.