The aim of this paper is to analyse past and present EU policies towards innovation and knowledge diffusion and confront them with policies in other major industrialised countries. The confrontation we make primarily regards the innovative performance of the EU relative to the US and Japan, and points to a certain gap between Europe and the other two countries, especially in terms of the ability to transform innovation into commercial success.
We outline the fundamental trade-off of RTD policy, namely providing incentives to innovate, which requires the appropriation of the returns to innovation, and ensuring the diffusion of knowledge, which is larger, the less knowledge is appropriable. The review of policies over the last two decades points to a shift in emphasis of policy, from one side of the trade-off to the other, namely from the focus on incentives to innovate to a focus on diffusion. The main idea of policy is now to create an environment favourable to innovation and knowledge diffusion. For this purpose, networks should be developed within the economy: in particular the relationships between firms and
universities or other knowledge institutions have to be intensified.
What we show in the report is that, while the shift in emphasis has helped point to some previously neglected problems in innovative activities, it has also led to a lack of precise policy recommendation. It seems that all actions that favour relationships have to be adopted; networks have to be developed but the adequate type, size and institutional context of networks does not appear to be much discussed. In addition, the motivation for agents to take part in networks seem to be neglected, while this is essential for such networks to be created in the first place. In other words, the incentives to take part in innovative activities, and in particular the possibility to appropriate some of the returns from the innovation arising in the network, have to be specified. We show that the consideration of intangible assets brings new insights into the debate.