A competitive and resilient Europe requires transitioning from sectoral to systemic thinking

Research and innovation policy has for decades been designed with the single purpose of enhancing research investment, and the route to this goal has generally been assumed to be through industrial development, write Katherine Richardson and Andrea Renda.

Katherine Richardson is leader of the University of Copenhagen’s Sustainability Science Centre and chair of the European Commission’s expert group on the economic and societal impact of research and innovation (ESIR). Andrea Renda is director of research at the Centre for European Policy Studies (CEPS) and ESIR vice-chair.

As a consequence, a focus on the commercialisation of research results is now integral to the DNA of every publicly-supported research institute in Europe. While important, this focus alone must not be allowed to dictate future research and innovation policy. 

Moreover, a reductionist legacy we inherited from Sir Isaac Newton has engendered a persistent focus on maximising individual sectors’ efficiency – with little if any consideration of the interactions that each sector has on the overall system within which it is embedded.  

The neoclassical economic philosophy that has been so prominent in public policy in recent decades well demonstrates the problem of isolating system components, when it assumes that the well-being of an individual can be proxied by their income and is independent of the wellbeing of others. 

Likewise, a focus on maximising economic growth of individual countries or regions assumes that the wellbeing in those countries is independent of the wellbeing in others. 

However, in an age when human activities impact and shape living conditions on Earth – and as the socio-economic systems that we seek to optimise are embedded in the planet Earth ecosystem – this reductionist approach is no longer fit for purpose.  

Increasingly, it is not sufficient to maximise the efficiency of one component of the socio-economic system. Time and again, we are forced to consider the interactions of our activities with sectors that we did not previously consider to be part of our own remit.  

Complex adaptive systems, including our socio-economic systems, evolve in response to the combined effects of the interactions of activities within them. Some of these interactions are assigned a price signal and accounted for in economic models, often as “externalities”. However, this approach fails to consider all system-wide impacts.  

We need to acknowledge that our socio-economic systems are a part of the Earth system – that we are not above nature but a part of it. With the exception of energy, we can consider the Earth as a closed system that sets the biophysical limits of the socio-economic systems we seek to improve through research and innovation policy. 

This is well illustrated by the latest World Economic Forum’s global risks report, where the 4 greatest risks for economic development on a 10-year time scale are identified as extreme weather events, critical changes to Earth systems, biodiversity loss and ecosystem collapse, and natural resource shortages.  

If the socio-economic systems of future generations are to thrive, research and innovation policy must aim at maximising the societal value gained by using the Earth’s limited natural resources while minimising environmental and social costs (including the non-equitable distribution of the benefits).  

One example is New Zealand’s Living Standards Framework, based on the preservation and nurturing of “four capitals” (natural, human, social, financial/physical), designed to help policymakers focus on sustainable intergenerational wellbeing.  

While in a global market it would be economically most efficient to encourage regional and local specialisation based on the most available natural resources, recent pandemic-led supply chain interruptions and geo-political tensions surrounding the Russian invasion of Ukraine demonstrate the vulnerability of global production equilibria, and illustrate the dangers of focusing exclusively on economic efficiency. 

The natural resource limits imposed by the Earth as a closed system are shared with the global community. Catalysing the development of robust and competitive societies for the future will, therefore, continue to require international collaboration between governments and also with the private sector.  

Can the next FP10 be designed in a way that allows the EU to partner more easily with member states, private foundations and corporations, and international organisations in the pursuit of global public goods? Can the EU potentially take a leading role in orchestrating these complex partnerships?  

Given these considerations, to what degree can the EU afford to let other world regions dominate in the development of new and potentially critical technologies and infrastructure? What other regions can we allow ourselves to be dependent upon? Will our friends of today also be our friends in the future?  

Being a leader in research and innovation requires investment, and money is also a limited resource. What types of investment will create cross-sector results that can best foster the development of robust, resilient, and competitive societies in the future EU? 

At the intra-EU level, the greatest technological advances are likely achieved with a limited number of highly supported centres of research excellence in specific fields. However, long-term resilience is likely better served with a wider geographic distribution of resources.  

How should these considerations be balanced to best ensure that the future EU is both economically and socially resilient – i.e., that the societal value generated by EU research is shared by all of its regions and citizens? 

Finally, we need to respect that research and innovation policy is embedded with the wider EU policy framework. The potential of EU research and innovation rests ultimately on its researchers, their educational backgrounds and the conditions in which they are allowed to operate. Thus, research and innovation policy cannot be considered in isolation from other policy sectors, including education. 

Moving from sectoral to systemic thinking in the design of research and innovation policy does not, of course, make decision-making easier. Decision-making must be based, more than ever, on the art of compromise, where the value generated by a decision is weighed against its potential societal costs.  

Despite the difficulties it entails, a systemic approach to decision-making in research and innovation policy, as in all other sectors, seems the most suitable approach to enable a future EU that is both competitive and resilient. Climate change, biodiversity loss, and social inequality illustrate with shocking clarity the dangers of a sectoral approach.