(IndustryWire via NewsEdge) In the dying days of 2005, a Soyuz rocket blasted off from Baikonur, in Kazakhstan, carrying the first of what are intended to be 30 satellites. When it is operational in 2010, the Galileo system, run by the European Union and the European Space Agency, is meant to compete with America's Global Positioning System (GPS) for in-car navigation, air-traffic control and cargo tracking.
Two months later, the European Commission president, Jose Manuel Barroso, unveiled a plan for a new European Institute of Technology (EIT). This is supposed to be Europe's answer to the Massachusetts Institute of Technology, a centre of academic excellence and generator of start-up companies. In April, President Jacques Chirac announced that the French and German governments would pour 600m euros ($750m) over five years into several high-tech projects, the costliest of which is Quaero ('I search' in Latin), an internet search engine intended to compete with (you guessed it) an American company: Google.
Almost by accident, Europe has begun a policy of shoring up its information-technology sector through a handful of large, publicly financed high-tech projects designed to catch up with America. This has happened before. Airbus was created with public money to break Boeing's grip on the civil-aircraft market. But the new projects have even bolder aims: to increase European competitiveness, improve the use of information technology and to create thousands of start-ups. There is no doubt that Europe needs a good kick-start in all these areas. It tends to be less good at exploiting IT use, which may explain why productivity growth has been flat, whereas America's has accelerated. On average, Europe spends a smaller share of GDP on research and development than America. Its universities are falling behind America's in many ways, including the numbers of software and computer engineers they produce.
But can big public projects solve such problems‾ Henning Kagermann, boss of SAP, one of the few European companies to dominate any IT business, says there is a case for public investment in research that companies will not do because it is too expensive or has too long a pay-back period. This was, after all, the argument used to justify America's investment in the internet and in GPS (the Pentagon owns the GPS satellites). But Europe's record of government investment in IT is dismal. Remember Minitel and Prestel, respectively the French and British online rivals to the internet‾ They are best forgotten. The case for putting taxpayers' money into IT projects that companies will not themselves finance might justify Europe's me-too satellite-navigation system. But internet search engines are different. Most R&D is done by companies, often small ones. The 90m euros that France and Germany are putting into Quaero is peanuts compared with Google's capital spending of around $1 billion a year.
America's investment in the Internet has been repaid many times over in taxes collected from Internet companies or the people who work in them. Europeans argue that the same thing will happen with their new projects. One study suggests that Galileo will create 140,000 jobs, and the EIT is supposed to spin off lots of new firms. But, partly because it would take too long for a new university to establish credibility and partly because EU governments all wanted it to be on their territory, the EIT will not have a campus that could become the centre of a high-tech cluster, as Stanford is for Silicon Valley. Instead, it will be a networked university, which may not attract the best professors and students and may replicate the work of existing universities.
Europeans make two economic arguments in response. First, as the head of development of Europe's main satellite-maker recently told the BBC, the EU provides competition to what would otherwise be American monopolies. This is demonstrated by Airbus, until recently a great European success story. It may also be applicable to Galileo. The GPS system is a monopoly: if anything goes wrong with it, consumers will have no alternative. But this thinking does not work in the case of Quaero. Google has many competitors, even if no big one is European.
Second, Europeans say that public investment will be justified by technological leapfrogging. Again, they have a partial point. GPS is accurate to within about 15 feet (five meters); fine for navigating a car but too imprecise for pedestrians. Galileo will be accurate to three feet. It can give you directions inside a building, and will turn your personal position into a commodity that can be used or abused (maybe a mixed blessing). Google can search the text of a billion documents but cannot yet search audio material or videos. Quaero will do so: it will process podcasts, television broadcasts, and the rest of the video and audio material that the internet now carries. But this technology is not unique to Quaero and it does not need public money to develop it. Several small firms are working with video-searching technology. The chances are that one day their products will be incorporated into commercial search engines.
It may seem churlish to criticize projects that seek to catch up with the world's market leader when Europe is struggling to improve its use of IT. But in 20 years' time, Europe will be competing with India and China at least as much as with America. And the continent's real problems lie in such things as a lack of entrepreneurial spirit, weak links between universities, business and government, an underdeveloped venture-capital industry, a cumbersome patent process and red tape that ties small companies in knots. Systemic changes are needed, not a clutch of high-tech projects that will barely touch these bigger worries - and may end up wasting a lot of public money.
c 2006 Economist Intelligence Unit
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