When we analyze the recent crises we usually look at the financial world as if all the answers were there, however, this is the main error of the analysts. Crises can be financial or can proceed from the real economy, however, financial solutions only fit the short-term, and long-term solutions must be provided by the real economy. Both worlds, the real world and financial world, are totally linked. That is the reason why we cannot rule with a single vision, either financial or industrial.
Long term solutions for any economy will require an improvement of competitiveness that can be sustainable if it is based on innovation.
Innovation is the result of different processes; however, as now I am writing about long-term, I am going to use R & D activity as the field of analysis.
If we analyze the main economies of the Euro zone, we will find that the effort in R & D is different in different countries. This implies that there is a structural difference between countries that will drive in a different way the evolution of the future economy at the Euro zone.
Germany and France double the expenditure in R & D of the Southern countries. The differences among economies are structural and they are driven by their governments (regardless of the political color) as we will see in the following discussion.
These differences proceed from the past. An important increase of the expenditure in R & D is not a simple matter because to have expert resources is necessary. It is not a matter of increasing the funds for the activity simply.
Related to human resources, we can see that there are important differences:
As we can see Spain and Italy have a similar number of people dedicated to R & D although the GDP of Italy is higher.
This can be better seen with the next graph that makes a comparison with the total number of jobs.
As we can see France and Spain have more people dedicated to R & D that it should be expected by the total expenditure in relation to Germany and Italy. The reasons for this fact can be linked to the political vision of innovation and the role of the states in the R & D activity. In order to take this issue into account I am going to make a comparison between the largest and the smallest economy of the analysis.
In the case of Germany, the amount of R & D performed by business enterprises is much higher in percentage, as we can see in the following graphs:
As we can see most R & D is performed by the private sector. This is not the case of Spain.
In Spain, only one half of GERD is performed by private companies. Spain has a high ratio research jobs per total jobs due to most of them are in the public administration. The effect of this fact is that innovation is father from markets in Spain than in Germany. The capability to influence the future economy of the country will be lower in Spain than in Germany because the connection of R & D and markets is much weaker.
At a fast glance, we can see how the crisis of 2007 has been focused in a very different way. While Germany increased linearly both GERD and BERD, Spain stopped the growth of the R & D expenditure in both private and public sector. This is not surprising as Spain had to face a huge financial crisis in its banking sector that implied lower and more expensive financial resources especially for the activities with higher risk. This is a clear case of how a financial problem affects not only the present real economy but the future one.
Looking at the previous graphs we can think that policies of state expenditure in R & D have not influence in the productive model, or they are inefficient, however, this is not true. The difference is not the public support but how the public support is implemented. You can see this fact in the following graphs.
Looking at this graph we can see how at the beginning of the century only less than 50 % of the performed R & D activity in Germany was financed by the industry. This implies that the rest of the activity was financed with public resources. German State was funding strongly R & D at the private sector making stronger private companies with public resources.
In Spain, we can see how the support of the state for the business enterprise R & D is anything but noticeable especially compared with the German case. Spanish industry funds almost all its R & D activity. Public financial resources for R & D (human and financial) are consumed by public institutions very far from markets.
The results of these two different models of innovation management will be seen in the future. We will see if having a lot of support from the state is better or if without having any support from the state will produce stronger companies. As a conclusion we can say that Spain has improved strongly its productivity in the last years but it was done through the salaries of the staff. Public resources have gone to restructure its financial system, and to preserve the public jobs instead of improving the future performance of the real economy. This is not surprising due to the lack of resources, however it can be surprising that this was not done in the first years of this century when its economy was growing faster than in most European countries and there were a lot of resources for this task with surplus in the public accountancy. The reasons for this fact are structural instead of temporal and it does not seem to be influenced by the political color of a certain government.