The open method of coordination and the innovation process in the EU.

Autor: Bartłomiej Baryła


In the last decades, the world witnessed the amazing growth of the large parts of the previously underdeveloped countries of Asia. South Korea, Taiwan, Malaysia and recently China made a big step forward and catch up with the developed world within one generation. There was no precedence in the contemporary history of such radical and rapid progress. Most of these facts were described, by the western journalists and analysts, as the result of human capital investments and hard work ethics of Asians (Fagerberg, 1994). Another popular explanation and the one based on the sociological research is that the rapid growth is a result of unprecedented investments in high technology. Progress was achieved because there was a synergy between social and technological sides of the development. With the introduction of some network-based solutions, there came the reforms of the academia and re-structuralizing the financing of the technological growth (Keller, 2004). The ubiquity of technology and innovation helped to lift millions from the poverty and challenged the old centers of technology, as Europe.The growth of the importance of the research and development policies in industrial and service innovations put this subject at the center of the policy debate in most industrialized countries. The ever-growing competition between USA, Japan and the European Union become even more challenging with the entrance of China and India on the arena of global industrial competition. This challenge was recognized by the European Commission which initiated the Lisbon Strategy (Begg, Boeri, Csaba, 2005). Set of policies which should recreate the economy of the European Union for knowledge-based economy.
However, from the very beginning the Lisbon Strategy was a failure (Begg, Boeri, Csaba, 2005). Almost no country kept one of the crucial promises of improving the R&D spending to the budget level of 3%. While the policy was failing, the other competitors in the global arena were increasing the spending and financing the groundbreaking research. This impotency can be understood while we consider that Europe had to digest another problem for a time being. The last enlargement set a huge burden on the common budget (Csaba, 2007). First the preparation for the enlargement and than social tension on the work market and the recession in the biggest economies in the “Old Europe” diverted the process of innovation to the internal social issues. The EU needs a new direction, a new target to reach and a new challenge. The growing doubts about the European identity are being fostered on the ground of enlargement and slower economic progress. All those negative processes can be averted by outlining a new direction. The Lisbon Strategy tried to do so but failed due to flaws in design of this set of policies. New challenges with bigger and more complex organization must be approached with new set of tools. The open method of coordination is such a tool.

The Open Method of Coordination

Open method of co-ordination is a middle way between the need for efficiency and the need for compromise. In the European Union of 6 or 12 (mostly higly developed states) most of the policies might have been debated, re-debated, rephrased, rewritten and it would not take too much time. The end policy was usually fit to the characteristic of unity, diversity and efficiency. In the European Union of 27 (mostly catching-up states), the on-going policy debate would render the process virtually into infinity. That danger has been seen by the policymakers and the European Union decision making process was altered to fit the new situation better. Beginning with the veto rejection, and introduction of the qualified majority voting in numerous areas, the European Union inevitable drifted to the implementation process of particular coordination policies (Moravscik, 1991).
The perfect policy on the supranational level combines the input from all participatory countries and the virtue of unity and efficiency. It is considerably easier to introduce the policy fitted just for one country, or to ignore the demand from some smaller countries and launch a “big-size-fits-all model” of policy solutions but the middle way solution needs a completely fresh approach for multi-country organization like the European Union. “By focusing on process flexibility rather than on macro-institutional flexibility, the open method of co-ordination (OMC) is a practically oriented policy instrument that provides very concrete mechanisms in order to address this balance”
(Borras, Jacobsson, 2004)
The primary reason behind the introduction of the OMC was the establishment of common (and advanced) policies on the community level. As long as the shared policies were limited to “big-politics”, the implementation process might have been oversight by the country level administrative institutions. From the introduction of the Economic and Monetary Union the need for efficient and effective policies in social and economic areas on the community level became more and more urgent.
Another reason lies in the accountability problem. One of the few permanent leitmotivs in the EU politics is the “democracy deficit” (Moravcsik, 2002). The lack of transparency and complexity of the decision making process created the feeling that there is no democratic representation in Brussels. (Scott and Trubek, 2002 after Borras, Jacobsson, 2004). The folkway ideas recreate the Commission and the European Parliament as the soul-less, massive bureaucracy organizations with no connection with the common person. The discussions about this problem (CEC, 2001) make the need for new way of governing more urgent than ever before. “The OMC became a new and flexible instrument able to introduce more democratic parameters in decision-making, and to regain the lost popular confidence in the European integration project by inducing further political action complementing the Community method” (Borras, Jacobsson, 2004)
The open method of coordination is not a completely new project (alike procedures were mentioned in both Maastricht Treaty and Amsterdam Treaty). It brings together conditions outlined in dispersed treaties and rules of procedures. The main procedures of this method are: “common guidelines to be translated into national policy, combined with periodic monitoring, evaluation and peer review organized as mutual learning processes and accompanied by indicators and benchmarks as means of comparing best practice” (European Council 2000: 12 after Borras, Jacobsson, 2004).
Certain characteristics of the open method of coordination must be delineated. It is more intergovernmental than most of the EU common policies. It is based on willingness of particular subjects to be under scrutiny of this policy and the central agencies of the EU institutions have limited jurisdiction over coordinated policies confined to the monitoring phases (Borras, Jacobsson, 2004:189). It is mostly based on peer review and proliferation of good practices. The most crucial characteristic lies in the actors involved. The different levels of governmental agencies, local governance, European agencies, private enterprises, NGOs all involved in highly participatory process of networking people and ideas which foster learning, modeling and duplicating best practices. The OMC is based on the following principles voluntarism, subsidiarity, flexibility, participation, policy integration, and multi-level integration (Jacobsson and Schmid 2003).

Is the innovation policy suitable for the OMC?

Mentioned in the introductory part, the Lisbon Strategy delineated over a hundred indicators to be measured and improved for the EU member countries to catch up with the biggest competitors in the innovation field. The goals were for example: to improve human capital, to improve mobility among workers in the EMU zone, to provide more flexible social security measures, to increase the service sector and so on. One of the highest level indicators was Research and development (R&D) sector spending at the level over 3%. It was not just the role of the state budget as all private sector spending would be included. However at the same time a new debate emerged about the connection between innovation and overall spending for R&D.
One of the biggest doubts about financing the research on the community level bt also on the national level was that the R&D is not about progress but it is about loosing money in non-effective programs of basic research. However, “R&D consist of basic research, applied research and experimental development, and can be accurately defined as their combination” (Török 2005). Those three basic dimensions of R&D are not connected in linear fashion. The better explanatory model would be a circle model where the outcome of the applied research influences both basic research and experimental development.
Much discussed and quite influential triple helix model (Leydesdorff, 2005) takes into account that science, technology, research are often indistinguishable (and similarly its institutional counterparts of the government, universities and industry). This is the most accurate description of the reality but its dynamic character and complexity were of little use in policy making under fixed parameters of standard regulations. However, such complex network of interdependence is a perfect fit for the open method of coordination.
Another factor contributing to the applicability of the open method of coordination to the innovation policy is the measurement problem. The main goal of the Lisbon Strategy was to make the European economy the most competitiveness in the world through innovation in science and technology. The measuring of such vague term was especially challenging.
Almost all of the indicators measuring competitiveness currently in use have serious disadvantage, for example ranking lists. Most of them return surprising data as the list measuring the share of high-tech products in the manufacturing exports which positions Mexico and Hungary in the first 10 and New Zealand and Norway in the last 10 (Török 2005). This is just a proof that ranking based on just one indicator might be biased by some minor factors specific to particular country (as high export volume of non-renewable materials as oil in case of Norway, which diminishes the impact of high-tech export). Another indicator of competitiveness: the technology balance of payment reflects very well the ratio of import and export of technology but do not differentiate between technologies. It is biased against the fast developing countries which are attracting foreign direct investments which bring technology and know-how.
Synthesis measurement composed from the set of variables is also a challenging task. Some of R&D indicators are intuitive and simple (number of publication, citation index, number of patents), some are more complex (the quality of educational system, fiscal climate, entrepreneurial activity). As some researchers reconfirm this findings, “most indicators currently in use are more or less inaccurate for measuring inputs and outputs of R&D and the innovation process” (Török 2005:96). That is why we need a synthesis which would be proof to outliers and biases of single-indicator measurements. The same way we need another coordination method for the new challenges.
One of the most popular indicators is GERD (gross domestic expenditure on research and development) which was used as a benchmark for the Lisbon Strategy. The GERD to GDP ratio is a measurement to differentiate the countries to four groups: the leaders, followers, midfield and the marginals. The use of another indicator BERD (business) and ratio between BERD and GERD is a reliable indicator of country R&D input. These indicators, together with the researchers per thousand people are the key input indicator in R&D. On the output side there is usually number of publications and patents but ultimately the perfect output indicator would be the successful level of innovation implementation. The success of innovation is understood as an increase in productivity and efficiency with the use of newly acquired technology or process. Only through complex proceedings of the open method of coordination such measurements may be used for efficient planning and utilizing certain solutions from different member countries.

The EU and innovation policy

The European Union has many projects and ideas for innovation oriented Europe of the future. The European Research Area, Science and Society Action Plan (Banda, 2002), designing of the common biotechnology policy and the Framework programs which proved a powerful tool for bringing the resources, the ideas and the minds onto the same page. Such programs are driven only through the effort of interested scientists, as some of the opinions surely outlined (van Dyck, 2002), but creation of a friendly environment should be the role of every government. The regulatory body should have not point the direction for the research to follow but to provide the science with means to pursue the goals established by science itself for the good not only of applied science but also for basic research. The myriad of programs and virtually unlimited founding pose as big threat as limited imagination. To coordinate financing efforts and to follow all the requirements of the EU subsidiarity the open method of coordination seems the best solution. Otherwise, the uncoordinated efforts would have the same effect as a mistreatment of a seriously wounded patient.
The money flow and the policy framework must be in accordance to the need of researchers and flexible enough to accommodate any scientific revolution. The example of biotechnology may be the most illustrative. The seminal discovery of a DNA structure enabled biologists and chemists for thousands of inventions. “The birth of Louise Brown through in vitro fertilization (IVF) in 1978 was a major milestone in infertility treatment. It dramatically changed the treatment options for infertile couples, and techniques for assisted reproduction have evolved rapidly since then. In a short span of 20 years, IVF has become the cornerstone of reproductive medicine, and IVF clinics today routinely perform techniques which were thought to belong to the realm of science fiction a generation ago” (Malpani and Malpani 2004). Subsequently the development of Gamete Intra-fallopian Transfer and recently Preimplantation genetic diagnosis and Preimplantation Genetic Haplotyping were the unthinkable discoveries that pose much more serious policy questions than widely debated stem cell research and genetically modified food. Without a policy framework the reserachers would be stopped just meters from curing incurable diseases.
Another serious European problem is a skyrocketing increase in student enrollment (especially in eastern parts of the Union), which delayed the transformation from teaching-oriented to research-focus universities is one of the symptoms of a need for an intervention form the “able” state or the union itself. The poor government policy towards the higher education sector, lead to the inflation of students’ number and devaluation of higher education diploma. Additionally in many European countries, the business has low demand for R&D production, there are just few small innovative firms and there are no vast resources of venture capital which could stimulate growth.
The main challenge for the policy of innovation (and R&D and education) is the multi-levelity and complexity. Throughout the process in which there are literally hundreds of subjects engaged. From a single scientist, research team, R&D division in a corporation, university, to a local government, state and finally international bodies like OECD and the EU. For each level, different expectations are to be met, different roles of separate levels are to be coordinated and assessment criteria are to be established. The lowest, the most active and basic level of single team or a scientist is the most creative and goal oriented subject. It defines the targets, the objectives of the scientific research and conducts it in a proper manner. The middle level of Universities, companies and local government is responsible for helping the researchers with the organizational side of the process. Providing the founding, coordinating the larger scale effort, creating the incentives for the specific field of science. The highest level of governments and international organization is responsible for creating the framework for the both lower levels; creating the friendly environment of law and administrative rules which does not inhibits the creative process. This level is also responsible for the organizing money for the long-lasting, big, international and interregional projects. The role of the EU is of specific flavor. It cannot replace the state in its responsibilities towards the society and finance the research directly. It cannot create a policy on its own since it is a creation and tool of the member states. It main responsibilities were to set some benchmarks for the achievements of the member states for them to compare and adjust certain innovative policies. It was changed in the beginning of the 2003 when the previous policy of comparison became openly ineffective. The new procedures for benchmarking were introduced. “This means that benchmarking was about to adopt a systemic perspective and will therefore be extended in two directions. First, it will look at all mechanisms which have an impact on research policies (e.g. public programmes, the education and research system, or financial structures). Second, it will incorporate the wider policy framework, taking into account issues such as employment or taxation.” (Keiser and Prange, 2004:253)
The responsibilities of the EU were not limited to regulation of the process. The vast powers of soft regulations and agenda setting were used to enhance the interregional trans-border cooperation for cluster creation. The technological clusters brings together related industries to improve cooperation on single firm level. The spatial proximity eases the process of invention through knowledge dissemination and synergy of working minds. Biotechnology firms close to universities are “well fed” with the graduate students in chemistry, biology, computer science and social scientists. The proximity of pharmaceutical industries is enabling new inventions to find market use and availability of venture capital makes the risk projects easier to finance. Such clustering was being written into the innovation policy of the EU.
The EU, looking for its subject of action was refocused on the regional dimensions of the Europe. Together with the expectations for higher competition between them and cooperation at the same time, certain regional innovation-through-cooperation programs were created. The financial side being secured from the billions Euro budget of the Framework Programs left the EU with the task of creating incentives for cooperation. Regulations on the community level led to enhancing its regional activities; “to the so-called Network of Innovating Regions in Europe (IRE), the Transregional Innovation Projects (TRIPS)” (Keiser and Prange, 2005). Later the European Commission’s relaunched regional innovation policy in the framework of the Regional Innovation Strategies and Regional Innovation and Technology Transfer Strategies. This set of actions together with defining specific technological fields of highest community importance such as biotechnology, information technology, material sciences and telecommunications created the clusters of interdependent industries
High specificity of each regions, complexity of the inter-level relations in innovation policy, high financing demand makes innovation policy perfect for the open method of coordination. However, the goals of the OMC are being hindered by the very same factors (Keiser and Prange, 2004:261). To create a vertical policy coordination with no above-regional influence with the learning process pushed to the same level the level of integration in industry sphere must be much higher than it is today. Otherwise the imagined bottom-top policy regulation flows does not happen. The EU remains as the bureaucratic platform for policy considerations, which are rarely implemented. With the help of newly designed projects as the European Research Areas and specific programs as the Science and Society or European Strategy on Life Sciences and Biotechnology there is a chance that the tool of the open method of coordination will be utilized in a more efficient manner in the future.

Final notes

Many have said that such policy as innovation policy is not suitable for the community level managing; that innovations should be driven from the company level; that the process should have the bottom-top direction rather than the opposite one. Nevertheless, there is a considerable literature (compare Török, 2005) proving that some of the most remarkable developments and innovations were financed through public budget. The role of the state should not be minimized to the redistribution of the wealth; it should be the agency for progress and advancement of a nation.
The problems with managing the progress through innovation may in fact be the fault of the highest possible complexity of the innovation process. The business, state, technological progress and the public reaction; the knowledge disparity, coordination problems and peer competitiveness; innovation dissemination, market feedback and educational flexibility; all these processes (and they are just a fraction of the whole picture) together and separate are of the most importance in policy making, all of these processes are interrelated and interdependent. If we take into consideration that such process matrix is present on micro, mezzo and macro level of societal affairs the overall picture might as well be unmanageable.
The OMC was created for the challenges of the modern governance and, as for today, we do not have any better tool to address such complexity. The policies will evolve and the OMC will evolve accordingly and that is the most important feature of this “policy innovation”.

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