Is the old continent falling behind in research and innovation? The claim is often made, but some European countries are even more innovative than the U.S. Europe has many bright minds, but not everyone succeeds in turning their good ideas into business models. Apple, Alphabet, Meta: The tech pioneers of the world are all American, or so it seems. According to the warnings that have been piling up, Europe is being left on the sidelines. But is Europe really falling behind the U.S., and does the continent really lack innovation?
In 1990, the average economic output per capita in today’s EU was $21,700, adjusted for inflation at 2015 prices. In the U.S. it was $39,200, in Switzerland $70,000. Since then, real economic output in the U.S. has increased by 66% and in the EU by 57%. In other words, the two have neither moved closer nor further apart. Switzerland recorded an increase of «just» 28%.
However, the level of economic power has remained very different. Per capita economic output in Switzerland averaged $90,000 last year, compared with $65,000 in the U.S. and $34,200 in the EU.
Productivity and innovation as drivers of growth
But what are the causes behind this difference in prosperity, and does it really make sense to compare the EU and the U.S. as a whole?
Economic output is the result of the interaction between labor and capital. How efficiently this is used depends on productivity, which in turn is strongly determined by the level of technological progress and the available knowledge (the quality of «human capital» as economists like to call it).
If we look at productivity per hour worked, it had converged between the U.S. and the «old» EU countries by the end of the 1990s. Since then, however, the EU countries have fallen behind again. It is reasonable to assume that this has to do with a lack of innovative strength.
Inventive spirit in the north and in the «Blue Banana»
First of all, innovation requires invention. If the inventors and the companies or research institutions associated with them expect greater economic potential from exclusivity and want to prevent competitors from using the same idea, they have it patented.
In the case of patents that are registered internationally, it can be assumed that their recipients attribute a relatively high and concrete innovation potential to them. Fortunately, these can be assigned to the place of residence of the patent applicant. The NZZ has thus calculated a measure of the «invention intensity» of the various countries and regions of Europe for the following analysis, namely how many patents were filed internationally on average per million inhabitants per year in the five years from 2017 to 2021.
If we look at the map of international patent applications, we see first a north-south and an east-west divide, which roughly corresponds to the degree of economic development. Northern Europe, which is highly developed and relies heavily on education and science, has the highest concentration of patents, while Portuguese, Spanish, southern Italian and eastern European regions fall behind.
Second, the geographical distribution of «invention intensity» in Europe is similar to the so-called «blue banana.» This is a densely populated European metropolitan area that stretches from England through the Benelux countries, the Rhine and Ruhr regions via Frankfurt, Stuttgart, Munich and the Swiss urban areas to northern Italy.
The geographical concentration of international inventions is also impressively demonstrated by the north-south divide in Germany. In many regions of Baden-Württemberg and Bavaria, the invention intensity measured in this way is at least 15 times higher than in northeastern Germany.
In Switzerland, the cantons of Basel-Stadt, Neuchâtel, Zug and Aargau stand out in particular.
A closer look shows that a particularly large number of international patent applications are filed by research and technology-intensive companies. Roche is the largest applicant in Basel, the pharmaceutical producer Cilag in Zug and ABB in the canton of Aargau. In Neuchâtel, the American tobacco company Philipp Morris operates a research center that has registered many patents in the field of e-cigarettes.
The same applies to Germany: Siemens is the most important patent applicant in Munich, BASF in Ludwigshafen, Merck in Darmstadt, and Jena stands out in eastern Germany thanks to Carl Zeiss Meditec.
Aggregated at country level, it can be seen that European countries are not generally less innovative than the U.S. All Nordic countries except Norway, which is rich in raw materials, as well as the Netherlands, Germany and Austria even have a higher invention intensity than the U.S. Switzerland is the most innovative country with 5,502 patents compared to 1,525 in the U.S. However, the average in the U.S. is not a particularly suitable benchmark, as innovative strength appears to be concentrated geographically. The invention intensity is likely to be higher in Silicon Valley than in Switzerland.
More innovative than the U.S. thanks to a lot of research
In addition to the presence of large, internationally active companies, it is technology-oriented universities and their institutes that contribute to invention in Europe. The statistical correlation between expenditure on research and development and patent applications per capita is very high at the country level. The correlation is 0.9 for F&E capital expenditure by companies and 0.74 for F&E expenditure by the public sector (perfect would be a correlation with a value of 1.0). Where there is patenting, there is also research – and research is the prerequisite for new knowledge and new products.
So, there is no lack of inventiveness and research in central parts of Europe. But are patent applications a good indicator of the innovative strength of a company or an entire region?
The path from invention to innovation is not necessarily straightforward. The fact that an invention is registered for patenting internationally in one location does not mean that it will lead to a marketable innovation in the same place. What is invented at Siemens in Munich may be used in the U.S. and brought to market.
An important innovation by a tech company is not necessarily based on inventions that were made locally. In computer technology and software development, innovation tends to take place sequentially. Programmers build on the code of other programmers, for example, and develop it further.
Patents could even be a hindrance here, as they create knowledge monopolies. Companies in these sectors usually only patent for strategic reasons, for example to defend themselves in court cases or to strategically protect an area and deter competitors.
However, patent protection is crucial in the pharmaceutical, biotech and medtech sectors, which are central to Switzerland. Patents protect research-intensive products from imitation. It is also important for startups in this area to have patents.
Invention is not the same as innovation
Patents are therefore a good indicator of a region’s invention and research intensity, but more patents do not always mean more innovation. The correlation between invention intensity and the proportion of companies with market novelties identified in a cross-country survey by the EU Commission is medium at 0.63.
This is probably due to the fact that among the innovative companies, there are many small and medium-sized companies launching new products. Smaller companies, in particu…
