A look in the mirror: CEE innovation gap
The EU faces a dual challenge in tech innovation. Not only does it lag behind the US and China, but there is also a significant divide within the bloc itself, with Central and Eastern Europe (CEE) trailing behind their Western counterparts.
According to the 2023 European Innovation Scoreboard, all CEE countries fall below the EU average in overall innovation. Estonia and Slovenia are closest to the EU average, while others, including Czechia, Lithuania, and Hungary, are categorized as 'moderate innovators'; the rest are labeled 'emerging innovators'.
This innovation gap is not limited to traditional R&D investment. The ICT sector, crucial for tech innovation, generally invests more in non-R&D innovation. In the CEE, only Lithuania, Czechia, and Estonia demonstrate promise with higher non-R&D innovation expenditures than the EU average. In terms of firm R&D investment, which includes expenditures in business and per person employed, only Czechia surpasses the EU average.
In the innovators' graph, which tracks SMEs introducing product and business process innovations, only Czechia, Croatia, Slovenia, and Lithuania exceed the EU average.
When considering intellectual assets, including PCT patent applications, trademark applications, and design applications, Estonia leads among CEE countries, with moderate innovators like Bulgaria and Poland also ranking high.
Venture capital, essential for startups and ICT innovation, shows positive signs. Croatia, Estonia, and Lithuania outperform the EU average in this area.
Challenges to Solve in the CEE
Reversing brain-drain. Despite a higher-than-average number of ICT graduates, most CEE countries, except Estonia, face a shortage of ICT specialists. While these specialists may not be emigrating, they often work for locally-based foreign companies. A strategic approach to reversing brain drain and attracting new talent from third countries is crucial. Currently, few CEE countries are well-prepared to smoothly integrate new immigrants, a task local governments must confront directly.
Thinking globally, acting locally - at least partially. Most CEE country startups are globally oriented due to small internal markets and complex regulatory environments across Europe. Unfortunately, this orientation is necessary for survival rather than local economic development. While competing with Silicon Valley is virtually impossible, CEE politicians should consider ways to make their tax and regulatory environments more favorable for tech companies and digital nomads.
More funding for R&D alone won’t solve existing issues. A mix of cultural and administrative factors, including risk aversion, regulatory burdens, and a lack of motivation to commercialize innovation, hampers the EU's talent potential to compete globally. These problems are even more pronounced in the CEE. Believing that more funding alone can solve issues in innovation culture and productivity in science institutions or businesses is a significant political error. Without necessary changes in institutional functioning, accountability, and evaluation of results, additional R&D funding may only lead to innovation-washing, not true innovation potential.
