The race is on

Since European leaders first articulated the goal of making Europe the most competitive knowledge-based economy in the world by 2010 in Lisbon four years ago, progress has been painfully slow. A recent European Commission report called for action to ensure the vision of a European ‘knowledge society’ did not fall by the wayside, but questions remain as to whether Europe has either the capacity or the economic and political will to make this central aspect of the Lisbon agenda a reality. By Simon Lelic

Overwhelmed by the might of the US economy, which had been built on both a recognition of the value of knowledge and a seemingly insurmountable lead in the field of information and communication technologies, and under threat from both the growing economic challenge from Asia and the slowdown in population growth in Europe, the leaders of the EU gathered in Lisbon in March 2000 and decided that something had to be done. At stake, the principals of what was then a 15-member club believed, was Europe’s unique social model, the welfare and quality of life of its citizens, and Europe’s place on the world economic and political stage. Collective action was imperative, it was decided. Only by working in concert would the member states of the EU have any chance of keeping pace with, let alone overtaking, the US, hence the need for a comprehensive, interdependent and self-reinforcing series of reforms. The resulting strategy has become known as the Lisbon agenda, ‘a strategic goal for the next decade: to become the most dynamic and competitive knowledge-based economy in the world, capable of sustainable growth with more and better jobs and greater social cohesion, and respect for the environment’.

As this oft-quoted summary of the goals articulated by the Lisbon Spring Council suggests, the Lisbon agenda remains hugely ambitious. It touches on almost all of the EU’s economic, social and environmental activities. At its heart, though, is the concept of the ‘knowledge society’, a somewhat nebulous idea that simultaneously recognises the critical importance of ICTs, e-commerce, research and development, innovation, knowledge sharing, networks and communities, heightened levels of education, lifelong learning – in short, all the things that KM practitioners have been working to develop in individual organisations for years. But according to Wim Kok, former prime minister of the Netherlands and chairman of a high-level group established at the invitation of the European Council to carry out a review of progress towards the Lisbon agenda, the knowledge society in Europe remains a distant dream. Reporting in November 2004, Kok did his best to avoid painting a picture of “unrelieved gloom”, but the overall tone of his report is indeed disheartening. “Halfway to 2010, the overall picture is very mixed,” he says. “Much needs to be done in order to prevent Lisbon from becoming a synonym for missed objectives and failed promises.”

In fairness, and as the Kok report recognises, the timing of the formulation of the Lisbon strategy couldn’t have been much worse. As he puts it, “The ink had scarcely dried on the agreement before the worldwide stock-market bubble imploded, the epicentre of which was the collapse of the overvalued American dotcom and telecom shares amid evidence of financial and corporate malpractice.” The terrorist attacks in September the following year, he continues, “further darkened the international climate”, while a worrying growth in bilateral, as opposed to multilateral, trade agreements, tensions between the US and Europe, a number of adverse environmental events, and a steady rise in oil prices have together taken their toll on European competitiveness. “The cumulative impact of all these events has been to sap European consumer and business confidence,” he writes. Of course, each of the factors Kok lists also affected other regions of the world, sometimes with even greater force than they impacted on Europe. The timing of the agreement may have been unfortunate, but as Europe’s performance is gauged in relative terms for the purposes of the Lisbon agenda, it is also largely irrelevant. There can therefore be no disguising the pervading disappointment with how far Europe has come since 2000. European Commission president José Manuel Barroso, for instance, was particularly downbeat in his response to the Kok report, describing the panel’s findings as “a realistic but worrying assessment of progress”.

The challenge facing Europe’s fledgling knowledge society, according to Kok, is rooted in several areas. International competition is intensifying, and from both flanks. As the threat from India, China et al increases, the US steadily consolidates its position as the world’s dominant knowledge-based economy. Currently, the US accounts for 74 per cent of the top 300 IT companies and 46 per cent of the top 300 companies ranked by R&D spending. What is more, declining birth rates and rising life expectancy within Europe have combined to create a greying population. By 2050, says Kok, the working-age population is projected to be 18 per cent smaller than it currently is, while the number of those aged 65 and over will have increased by 60 per cent. The potentially devastating effects on the knowledge assets of individual organisations and even industries are obvious, and the net result, according to European Commission projections, could be a 50 per cent drop in the overall economic growth rate in Europe by 2040. More immediately, EU expansion has presented its own difficulties. “The EU-25 will find some of the Lisbon targets even more challenging than the EU-15,” says Kok. New member states tend to have lower employment rates and productivity levels, for example, making the goals relating to research and development articulated in Lisbon even harder to achieve. The ten new members also trail badly in patent applications, with Slovenia and Hungary – the best among the group – making fewer than 50 applications to the European Patent Office per million inhabitants in 2001, compared with an EU average of over 150.

So great is the challenge, say some, that the Lisbon agenda should be scrapped, or at least revisited. A number of recent reports suggested that German representatives to the EU were calling for targets to be lowered, for instance; the goal, they argued, should be to adopt reforms by 2010 that would then make the targets outlined in Lisbon achievable. Similarly, the European People’s Party, a group of Christian and European Democrat MEPs, has published proposals urging a rethink of the Lisbon agenda in the light of the limited impact the EU’s competitiveness strategy has had on growth since 2000. Even Gordon Brown, chancellor of the UK, one of Europe’s star performers in recent years, admitted to the BBC that “some of the objectives [of the Lisbon agenda] are not going to be met”, while the Confederation of Swedish Enterprise, though determined to see the Lisbon strategy through, has acknowledged that, “The credibility of the whole process is at stake.” But ignoring the dissenting voices, the EC remains committed to the goals articulated in Lisbon. As Barroso has said, “The [Kok] report confirms that the Lisbon agenda provides the right diagnosis and prescribes the right cure.” The question, therefore, is how to get Europe back on track.

Visible shortcomings

Kok himself makes several calls to action in his report, and these reflect some of Europe’s most pronounced failings in its effort to turn itself into a truly knowledge-based economy. Kok, for instance, laments Europe’s production and diffusion of knowledge, a term that encompasses research and development in a corporate context but also the performance of European universities and academic researchers. Indeed, a survey by Shanghai’s Jiao Tong University of the world’s universities underlined the terrible shape of one of Europe’s primary intellectual resources. The ranking gave eight of the top ten places to American institutions, with only the UK’s Oxford and Cambridge breaking the US monopoly. The highest ranked EU university from outside Britain was the University of Utrecht, which scraped in at a lowly 39. And when you consider the discrepancy in pay (a full professor at a top UK university gets around £45,000 a year, compared to almost £100,000 in the US, and sometimes a lot more) and the level of state spending on universities (one per cent of GDP in Germany, 2.7 per cent in the US), it is not surprising that an estimated 400,000 EU-born scientific researchers feel compelled to ply their trade in the US, three out of four of whom have no plans to return.

“Clearly, European universities have a quality problem,” says Karl-Erik Sveiby, a renowned KM practitioner and keynote speaker at KM Europe 2004, which took place in Amsterdam just days after the publication of the Kok report in November last year. “To be a dean in a European university under today’s circumstances is more than a challenge; it is to be a suicide pilot.” According to Sveiby, better collaboration between European universities and European businesses is badly needed if the Lisbon agenda is to have any chance of becoming reality. The EU funds certain research projects to help encourage this, but Sveiby is adamant more can be done. Indeed, Kok recognises this in his report, calling for “creative interaction between universities, scientists and researchers on the one hand, and industry and commerce on the other” to drive technology transfer and innovation. High-tech clusters such as those of Helsinki, Cambridge and Munich are a start, he says, but Kok calls for a reduction in the administrative obstacles for moving to and within the EU for world-class scientists, researchers and their dependents. Reform is also needed of the way universities are funded if they are to climb the global rankings. The UK government has imposed tuition fees, but the move has been deeply unpopular and not enough to stop several high-profile department closures recently, notably the chemistry faculty at Exeter and the renowned architecture division at Cambridge. Funding reforms in Germany have been similarly half-hearted, and European universities remain woefully behind their American peers both in the resources available to them and the quality of their research. The consequences for Europe’s knowledge economy are grim.

In almost as bad a state is Europe’s patent system. “The quilt of national patent offices and languages means that the cost of obtaining a patent for the entire European Union is too high, a burden in particular on small firms,” wrote The Economist in November 2004. Negotiations to reform the European patent system have been underway for over a decade, with little to show for it. Patents remain inaccessible and expensive, and uncertainty over whether particularly smaller companies will be able to afford to protect their discoveries is discouraging them from investing in innovation in the first place. Again, Kok recognises the problem, and calls for urgent reform. He suggests “taking the courageous decision of choosing English as the sole language” for patents, although his recommendation has so far generated a frosty reception in Paris. A row is also brewing over a draft EU directive giving patent protection to scores of new products, which critics fear will hand control of innovative software to industry giants like Microsoft, to the detriment of small, start-up companies. The American system is far from perfect (the title of a recent book published by Princeton University Press, Innovation and Its Discontent: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About It, gives a clue to how the US patent system is currently regarded), while patent offices in China and India are struggling to cope with a flood of new applications. Nevertheless, urgent reform is needed in Europe if the patent system, a cornerstone of the knowledge economy, is not to act as a drag on progress towards 2010.

Questions also remain over how successfully the EU has engaged European businesses in its efforts to create a knowledge society. As Kok says, “The Lisbon strategy has become too broad to be understood as an interconnected narrative. Lisbon is about everything and thus about nothing. Everyone is responsible and thus no-one.” But as Andrew Wilson of Ashridge Business School points out, “Business and government need to work together to achieve a dynamic economy and a cohesive society. We cannot build a prosperous society without profitable business. At the same time, business cannot prosper in a social wasteland.” Commerce and enterprise sit at the heart of the EU’s vision of a knowledge society, yet progress has been hampered by poor communication of the goals articulated in Lisbon. As Martyn Laycock of the London Knowledge Forum says, “The agenda hasn’t been well communicated and disseminated across Europe; awareness of the importance and impacts of the agenda remains extremely low.” He feels that the progress of the knowledge agenda in European organisations has come in spite, rather than because, of the Lisbon strategy, driven more by the commercial realities of the global economy. There is momentum, he feels, but in smaller businesses and the public sector in particular, knowledge-based disciplines like KM have had a greater impact elsewhere in the world, notably the US, Canada, Australia and New Zealand. Overall, and in Laycock’s words, “Something quite dramatic needs to be done to remedy matters, and done soon.”

Reasons for hope?

The outlook seems bleak, but there are a few bright spots. A thriving KM community demonstrated by high attendance levels at events like KM Europe, a show that has been running for five years, is a positive sign, as is the presence of three European companies on 2004’s global Most Admired Knowledge Enterprise rankings (see news, page seven). Indeed, many businesses in Europe have long been working towards the goals articulated in Lisbon, consciously or not. Wilson refers to a senior representative from Cisco, who expressed the enlightened view that, “Only if industry, social partners and the public sector can work together will Europe’s workforce and citizens be equipped for life in a knowledge society.” As Wilson says, Cisco is an example of a company that is trying to do more to address the issues the Kok report highlights. “It has used its core strength to create an innovative education programme that teaches technology skills in nine languages in over 150 countries. The Cisco Networking Academy Programme is a perfect example of a corporate-community initiative that helps to bridge the gap between those who can effectively use new technology and communication tools and those who cannot.” In the EU, he continues, the main factors excluding people from the information society are poverty, poor education and lack of access to the internet. By taking a more proactive role in helping to build a knowledge society, as Cisco has, companies stand to benefit from wider access to better trained staff, higher employee satisfaction, increased competitive advantage, and a broader and more accessible marketplace in which to operate.

Also in Europe’s favour are a several unique sources of economic and social strength. As Barroso pointed out in his response to the Kok report, Europe has three of the top five countries in the World Economic Forum competitiveness ranking, and three more in the top 15. The EU also has a better record of job creation than the US since the mid-1990s. Sveiby believes the level of diversity inherent in European society will allow the continent to build on such indicators of success. “Research shows over and over again that diversity is a prerequisite for creativity and innovation,” he says. And while expansion to the east brings with it certain challenges, it also presents opportunities. The inclusion of ten new states is, again, a boon to diversity, and many former Eastern Bloc countries bring with them a refreshing propensity to welcome change. As one central European prime minister said to The Economist in November last year, “It must be so boring being prime minister of a country like Denmark. We do more reform in a single session of parliament than they do in five years.” A determination to embrace the principles and practices associated with a modern, knowledge-based economy has helped contribute to economic growth figures in countries like Poland, Estonia, the Czech Republic and Hungary that have embarrassed Germany and France. And though countries in the east have some way to go to catch up with the west in terms of ICT penetration, elsewhere in Europe there is reason for hope. Britain, for instance, is a world leader in the availability of broadband internet services.

But it is easy to get carried away. The Lisbon agenda remains a hugely ambitious, over-arching programme, and reform will be needed on numerous levels – environmental policies, pension and welfare provision, the hugely expensive regulatory climate, and more – if the far-reaching ambitions of Lisbon are to be realised. The knowledge society, so crucial to all aspects of the Lisbon agenda, is certainly a long way off. Europe’s universities are in a shocking state, as is the cumbersome patent system, while far more needs to be done to encourage buy-in to the Lisbon agenda on political, social and corporate levels. The race to 2010 is well and truly underway, but does Europe have any chance of even reaching the finish line? Laycock for one is not optimistic. “Right now, approaching the half-way stage, the main targets look very unlikely to be reached,” he says. “If the agenda is to have any chance of success, the whole thing needs to be relaunched effectively and aggressively as soon as possible.” Wilson maintains the goals articulated in Lisbon are achievable, but only if government, civil society and business make a concerted effort to work together. Businesses need to recognise that they do not stand apart from the societies in which they operate, he says. The race is already turning into a marathon rather than a sprint, and the stakes continue to mount. Barroso is already planning a mid-term review that will evaluate the “huge economic, social and environmental costs of letting Europe stagnate”. But the consequences of, as he puts it, “non-Lisbon” are already clear. In Kok’s words, “Nothing less than the future prosperity of the European model is at stake.”