University of Reading (UK)

July 1997 - JMWP 09.97 

Abstract - The Information Technology (IT) revolution has accelerate the internationalising of production by decreasing transport costs, developing telecommunications, and favouring the implementation of a flexible automated production system. At European level, the 1970s microelectronic revolution has clearly underlined the European lag in high-tech sectors since the IT European market is clearly characterised by a strong penetration of American multinationals as well as by low rates of technological innovation. After both political (i.e. member states) and economic (i.e. European companies) actors have unsuccessfully tried to fill this gap, the regional integration option (i.e. the European Union - EU) seems to be the more suitable solution. Indeed, the European IT market started developing its own features after the launch of the European Strategic Programme for Research in Information Technology (ESPRIT). Within this framework, this paper will look at the regional co-operative initiative (i.e. ESPRIT) both as the starting point of the EU high-tech policy and as a further step towards a full European integration.

The development of IT applications (e.g. Computer Aid Design (CAD), Computer Aid Manufacturing (CAM), numerical control machine tools and industrial robotics) has led to perform a flexible automated production, able to combine high productivity and varied production. The movement towards a Flexible Manufacturing System (FMS) increased as a consequence of Research and Development (R&D) progresses. Indeed, implementation costs are going down augmenting the competitive advantage of using this philosophy of production. This explains the growing importance of linking R&D institutions and the business world .

However, if the 1970s technological revolution has highlighted the economic strength of the US and Japan, it has also shown the European technology lag clearly. The European lag is mainly evident in the lack of intra-European trade in advanced technology since the largest European firms prefer the American giants than other European companies as partners. Because of the large number of agreements between American and European firms, the US has highly penetrated into the European market. Indeed, in the attempt to reduce the distance between the US and Europe, in the mid-1980s the EU created its technology policy by launching the European Strategic Programme for Research in Information Technology (ESPRIT).

For this reason, I will argue that, following the IT revolution, Europe found itself behind in the advanced industrial sectors and it has attempted to fill this gap by promoting regional co-operative initiatives (as ESPRIT). In order to develop my argument, I will focus, first, on the European lag and its fundamental causes and then on the European reaction (i.e. the European technology policy, particularly ESPRIT). For this purpose, I will illustrate the path of the European technology policy and how this led to the launch of ESPRIT, and I will also analyse the programme in details by highlighting its organisation, aims and further developments.

In the 1980s, the European manufacturing industry became aware of its weak position in the IT market. The 1975 trade surplus in IT turned in a deficit within a decade, whilst the Japanese Very Large Scale Integration (VLSI) project was almost completed and IBM controlled 50% of the European computer market (Jowett and Rothwell: 1986, 47).

In international manufacturing markets, the expansion of US firms in Europe between the mid-1950s and the mid-1970s was determined by advantages of internationalising production. The fall in transport and communication costs as well as innovations in industrial organisation plaid a great role in leading the movement towards international production. The data in table 1 show that, even if European firms attempted to re-organise their production internationally, they have been less effective than American multinational corporations (MNCs) since the latter were more prepared to face this change than the former. After World War II, the US was the major world economy. Even if later this leadership started being questioned, American multinationals were in a strong position compared, for instance, the European. Indeed, as illustrated in table 1, if we take into account the European countries as a single actor, their share of production is equal to 35.9%, while the US counts by its own 42.43%.

The European backwards in IT was attributed to several factors such as companies’ behaviour and public support. On one hand, it was argued that European companies’ strategies do not take in the right account world markets, world competition and world opportunities. On the other hand, the national procurement policies aimed at supporting IT national champions were felt inadequate compared to the scale and efficacy of the US support, which, de facto, cut off non-US producers from the American domestic market. As it will be better argued in the next section, these national policies played a crucial role in structuring the European IT market in terms of competition rules and production possibilities.

Both these different perspectives explain the European lag in IT by highlighting the lack of strategic alliances within Europe in the knowledge intensive industry. Despite a long history of economic integration, in a survey, covering the period 1980-85, the Centre d’Etudes et de Recherches sur les Enterprises Multinationales (CEREM) found out that inter-European firm agreements in IT covered only one quarter of the total percentage (Mylteka and Delapierre in Dunning: 1988, 129). Moreover, it was found out that, in the majority of the cases, the partner of the European firms were American companies. There is not, for instance, European competitor to Calma’s VLSI applications in the market for trade CAD system. For this reason, the need to develop CAD system in Europe concerns further inputs these new techniques could give to the automation of European manufacturing industry. In Europe, this industry would not take off under the current conditions since the American versions of CAD do not perform productively outside the US business environment.

A main explanation of the lack of intra-EU co-operation in IT relies on the different conception of R&D activities in Europe and in the US. Indeed, it may be argued that the European backwards is due to the scarce links between science and business in Europe, whilst research institutes and companies collaborate in both the US and Japan. In Europe, culture and public policy have marked the separation between research and business since they are felt as different domains of the human operating. However, recently the EU educational policy is attempting to change this situation by involving research institutes and companies in any of its programme.

The cost of R&D in high-tech exceeds the total foreseeable turnover deriving from the product. Thus, this expenditure is worth only if the product will be sold on a market enlarged by co-operation agreements between enterprises. Table 2 illustrated the R&D spending relative to turnover for some American and European companies. As shown in it, the American multinationals, as General Motors and Boeing, have a better ratio of R&D expenditures to turnover since the percentage of these expenditures they lose is small (2.6% General Motors and 3.1% Boeing) compared with the European companies (31% TeleSciences and 26,6% Policy Management System). Thus, American MNCs’ revenue in R&D is quite high.

Indeed, as argued by Arrow (1969 in Dunning and Robson (eds.): 1988, 131), market exchanges in IT are more costly than intra-firm exchanges. Thus inter-firm agreements may be a middle way in order to achieve these results. In Europe, inter-firm agreements may be enhanced by the existence of the European Union. First, they would be less risky since uncertainty would be reduced by setting up the rules of the game within the EU framework; second, firms would take advantage of economies of scale in their production process, while remaining separate identities; finally, these activities would be less costly by the presence of EU programmes. This may explain why the European lag in IT started reducing during the 1980s, when the Union intervened by launching its own technology policy. Indeed, as illustrated in table 3, the intra-trade among the 12-top European IT firms increased since these firms concluded between them as many agreements (71 on a total of 214) as with the US.

(Number of Agreements and Percentage of Total)

In analysing the European reaction to the technology lag, I will focus on ESPRIT rather than other EU programmes. The reasons for this choice mainly rely on the role this programme played in the evolution of the European technology policy. Indeed, by launching ESPRIT, at regional level the EU substituted itself to national member states in the technology policy-making since, as stated by the European law, once the Union enlarges its juridical competence to a new field, in that field, the member states’ domestic jurisdiction is reduced. As I will better argued below, this implies a rise in the speed of regional integration when considering the augmented power of the supranational (i.e. the EU) on the national (i.e. member states) level and the attempt to eliminate structural differences within the region (i.e. Southern vs. Northern Europe). Moreover, under ESPRIT I (1984-1987), a European dimension in CIM research and industry started developing, augmenting the economic growth and competitiveness of the region (see table 3).

The increasing costs of research and the technology gap between Europe and, above all, the US led to the development of intra-European co-operation. Only in a later stage of European integration, the Community advanced technology policies had a legal base. For the first time in 1987, art.130F of the Single European Act (SEA) gives specific powers to the Community in order to strengthen the scientific and technological base of European industry and to encourage it to become more competitive at international level (Single European Act 1987 Title VI, Article 130F in Freeman, Sharp and Walker (eds.): 1991, 59).

Until that time, the Community policy aiming to promote the development of advanced technology, excluding nuclear power (covered by the Euratom Treaty, 1957) and iron and steel (covered by ECSC, 1951), were based upon the generic art. 235 of the Treaty of Rome:

If action by the Community should prove necessary to attain, in the course of the operation of the common market, one of the objectives of the Community and this Treaty has not provided the necessary powers, The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament, take the appropriate measures (General and Final Provisions, Treaty on the European Economic Community, Rome 1957).

For this reason one of the main problems racing from this legally confused situation was the competition between member states and Brussels. Indeed, once European members were aware of their backwards in IT, they started launching national programmes aiming to support the development of big national companies operating in this field (e.g. Siemens in West Germany, ICL in the UK, and STET in Italy). Mainly launched in the period 1960-80, these programmes did not achieve their goals since the companies supported by them were not competitive with their American counterparts in size and strategy. Moreover, these national policies provoked a disintegration of the European market by creating barriers both in trade (i.e. tariffs) and technology (i.e. different standards). The immediate breakthrough was the reduction in the possibility of large-scale, low cost transnational business. On the other hand, in the attempt of cutting research costs and increasing European competitiveness in IT, in 1970 the European Commission crated a co-ordination office in advanced technology, which did not have greater success than the national programmes. It was in this framework that Bull, Philips and Siemens failed in order to pool their computer resources and form UNITADA (a medium-term programme on the application, development and production of data processing systems).

Between 1979-80, economic and political forces met in a series of Round Table discussions organised by the Commissioner for Industry, Etienne Davignon. Inspired by the MITI’s (Ministry of International Trade and Industry - Japan) ability to involve private firms in public planning and by the need to increase inter-firm collaboration in Europe, Davignon invited 12 of Europe’s largest IT firms in order to set the main guidelines for a successful European policy in advanced technology (1). The direct outcome of this series of meeting was the creation of an Executive Community whose member included the 12 participant firms (i.e. Siemens, AEG and Nixdorf from Germany; GEC, ICL and Plessey from the UK; Olivetti e STET from Italy; Philips from the Netherlands; and Thomson, CGE, and Bull from France). The established guidelines concerned the promotion of intra-European industrial co-operation at pre-competitive stage, the development of European norms and standards, and the commitment to increase European competitiveness in advanced technology by the end of the 1980s and 1990s by providing the necessary technology base. In this sense, it is possible to say that the speed of the movement towards European integration was increased as European firms’ competitiveness and growth in the IT sector were stimulated. The concrete breakthrough was the launch of ESPRIT in 1984.

Critiques to the programme and new developments in the European IT industry provoked the launch of ESPRIT II (1987-1991), which emphasised more IT applications technologies, technology transfer, and the role of SMEs, and ESPRIT III (1991-1994), which focused mainly on engineering, intensive applications and, again, basic research. Following this revision, ESPRIT is seen as providing the basic technologies for applications relevant to other specific EU programmes in IT (i.e. RACE and EUREKA). Indeed, the pre-competitive research is a focal point of the second (i.e. ESPRIT II) and third (i.e. ESPRIT III) phase of the programme.

An IT Task Force within the Commission was in charge of the day-to-day running of ESPRIT. Within it, the presence of both member states and companies representatives was guaranteed. The former are grouped in the Management Committee in order to provide links with the IT national R&D programmes, whilst the latter are grouped in the ESPRIT Advisory Board. This balanced solution seems to be the reason of the success of ESPRIT compared to the failures of both the previous national and Community IT programmes. This balance is maintained also in the budget sharing since the Community and the participants contribute in the same percentage (i.e. 50% per each).

Because of the pervasive character of IT technology, ESPRIT IV (1994-1998) is a Community Research and Technological Development (RTD) programme which was integrated into the Fourth Framework Programme for Community Action (1994-98), aiming at "defining scientific and technical objectives, setting priorities and budgets, setting out the main action lines" (OECD: 1989, 153). The integration of ESPRIT into the Framework of European activities has more strongly linked this programme with other EU actions and objectives. Moreover, the legal basis of ESPRIT (which now is defined as an "action line" of the Framework) is more stable when looking at the enlargement of majority voting. Within the Fourth Framework Programme, the ESPRIT budget (2,035 million ECU) represent (see graph 1) over 15% of the total budget for the overall Framework. As illustrated in graph 2, this budget is in turn sub-devised into eight technological fields. (European Commission: 1996)

For each of these technological fields there are calls for project proposals, which are examined and eventually accepted and financed. Each project must involve at least two independent enterprises, universities, and research organisations from separate member states or states associated with the Fourth Framework Programme and the research results may be shared by all the participants in any project and the other ESPRIT participants outside that project.

The inclusion of ESPRIT in the Fourth Framework shows the move of this programme away from the technology push approach (characterising earlier RTD programmes) and accordingly the effort to respond to the requirements of the market and IT users by creating co-operation between users and researchers. The EU RTD programme aims to fill the technology gap and increase competitiveness and growth in IT. This goal presents several detailed aims. First of all, ESPRIT aims to guarantee a European home-grown markets in generic technologies such as clean manufacturing techniques applicable in many industry. This will avoid European technological dependency and the American and Japanese transnational corporations (TNCs’) dominance. A second crucial aim is to enable European firms to implement economies of scale in R&D through collaboration among them. Indeed, collaboration reduces costs and risks since the product cycles have got shorter and the costs of development have raised. Third, ESPRIT aims to spread ideas all over Europe by funding exchange of scientists such as the Joint European Tours (JET) (a high costly nuclear fusion programme). By creating these opportunities the programme tends also to reduce differences within the EU, when considering that, through these exchanges, European less developed countries (i.e. Portugal and Greece) can get access to new scientific projects and results. De facto, ESPRIT has also created advantages for firms from European developed countries when considering the complementary strategy built by Olivetti (an Italian office machinery’s multinational) through ESPRIT. The Italian company was highly involved in inter-firm co-operation agreements and used to seek its partners mainly in the US. After its participation in some ESPRIT projects, Olivetti has established close links to Bull and Siemens, increasing its presence in the European inter-firm agreements. Moreover, as shown in table 4, the response to the programme by the 12-top European IT firms has been quite high since the first phase of ESPRIT. Table 4 illustrates the number of projects run in ESPRIT I, in which each one of the 12 top-European IT firms was involved and the percentage rates of national participation (e.g. the number of projects Philips was involved in is 24, this means that Philips participation accounts for 53.8% of total Dutch participation in EPRIT). Moreover, these links have created a network between the big-12 firms and small and medium enterprises (SMEs). In the Computer Integrated Manufacturing (CIM) industry this network between the big-12 firms, SMEs and the European majors automobile and aerospace companies has generated a project aiming to define an open systems architecture for CIM.

(In number of projects)

Yet, since the launch of ESPRIT in the 1980s, the EU has attempted to involve universities and research institutes in its IT policy in order to eliminate the barriers between R&D institutions and companies, and in order to create conditions similar to those existing in the United States and Japan. As illustrated in table 5, this attempt, at least in the first period, has been quite successful when considering that the increasing number of projects in which universities and research institutes were involved with Big-12 firms (column 1), no-Big 12 firms (column 3) and both together (column 2) increased year by year.

(In Number of Projects)

Although ESPRIT was quite successful in its early stages, some years after its implementation some reservations were expressed. First, it was argued that, by emphasising research the Commission was missing the point of the European lag: marketing and product development. Second, other critiques concerned the ESPRIT funding method, that, by limiting the Commission financial participation to 50%, it would deter the small companies. For this reason, in ESPRIT IV it has been tried to provide ways of participation to the SMEs by calling for ad hoc exploration awards helping to cover the costs of preparing a complete proposal for a normal call. However, even within these new provisions, the SMEs are not fully able to participate to the actual calls of the programme. Fourth, there was no formal clause directly excluding non-European-owned multinationals (i.e. IBM and ITT). This last point provoked a long debate which ended up in a compromise. It was decided that non-European-owned multinationals based in Europe are allowed to participate in ESPRIT. The ratio of this decision relies on the fact that, even if pressures from US multinationals (e.g. IBM) had a big influence on the final decision, non-European-owned firms are part of the European market. However, non European-owned firms are not entitled to get financial support from the programme even if they can participate in it.

IT revolution and applications are changing the production process by moving towards a flexible system where high productivity and varied production are easily conciliated. However, if these changes in knowledge structure, have marked the expansion of American large multinational corporations (MNCs), they have also clearly underlined the European dependency in knowledge-based production. Indeed, the European market is mainly dominated by American giants which use the strategy of concluding agreements with European firms in order to penetrate it.

After having found out abut its lag, the EU attempted to change this situation by intervening in the advanced technology. In the European action, the launch of ESPRIT in the mid-1980s, marked a turning point in the creation of the European technology policy. As widely underlined above, the EU intervention in this filed has a particular meaning since the Union has been more successful than states and firms. Indeed, both national policies and firms’ attempts of co-operation failed to fill the gap, whilst, the European technology policy is the only experiment which still continues to produce new solutions according to the changeable conditions. This is clearly illustrated by the revision of ESPRIT and its integration into the Framework for Community Action since this programme (now labelled as an action line) has a more firm legal base and closer links with other EU long and medium term goals. Thus, with the legally recognition of the Union as the policy-maker in the technological field, these developments marked a further step towards the full European integration. With ESPRIT, the EU enlarged its competence to another area, covered before by the member states’ legislation aiming at protecting national interests. This implies that Union decisions prevail on member states’ legislation in this sectors and that member states are loosing their sovereignty in favour of a regional integration option. For this reason, this programme can be considered a further step towards a full European integration since, by it, the EU political and juridical competence has been enlarged to IT. Indeed, member states cannot launch anymore national IT policies without Brussels authorisation and, in the European IT market, firms are required to follow the standards fixed at regional level.

Moreover, as ESPRIT is based upon inter-firm collaboration in IT under the Union supervision, the EU is dealing with structural disequilibria (South vs. North) in order to implemented a smooth integration. This collaboration component of ESPRIT framework has also led to the creation of a network between European firms, which allows to better organise competitiveness strategies and regional growth. However, even considering the positive results of the European technology policy, it is important to remember that the big American giants are still dominant in Europe and that they are allowed to participate in ESPRIT. Indeed, as stated above, non-European-owned firms can take part to ESPRIT without financial support from the programme projects since they are considered elements of the European IT market. By limiting the effects of a European policy, this situation clearly illustrated how strong the American interests are in Europe if they were able to condition the policy-making process.

(1) The analogy with the MITI’s action is made in order to highlight that in Davignon’s idea the EU should have plaid a role as strong as the Japanese MITI since in Europe national states’ and firms’ attempts to develop a European IT market and policy failed. Of course, it should be clear that, by operating at different level (i.e. EU at regional and MITI at national) the two institutional structures are different. Back to (1)

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ã Copyright 1997. Jean Monnet Chair of European Comparative Politics.

Grazia D. Santangelo. Ph.D student, Department of Economic, University of Reading

G.D.Santangelo@reading.ac.uk