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Greece, innovation and the European Union

June 28th, 2011 by Graham Attwell

As long ago as 2001, I was contracted to undertake a study of private- public partnership in Greece. This was not into PPPs as then being implemented by the UK Blair government, but rather at looking at partnerships between private sector organisations, academic and research institutions and the State for research and development and innovation.

My conclusions were fairly stark. Far from helping boost research and development in Greece, EU policies as designed to support R and D in the rich north European economies were distorting R and D in Greece and actually inhibiting innovation.

I was looking again at the report yesterday and much of it seems to be still relevant today, especially for those seeking to understand the Greek economic collapse.

Below I provide the conclusion to the report. The whole report can be downloaded from the link at the bottom of the page.

“That there are problems in developing collaborative research and development in Greece is without question. At a policy level these are summed up by the evaluation report on Structural Funds in Greece for the period 1994-1999:

  • Lack of co-ordination between the bodies in charge of public research and those in charge of private research
  • Gap between Universities and enterprises
  • In  many regions there seems to be a lack of co-ordination of the science and technology policy between departments of industry and departments of education
  • In some regions there is overlap and inadequate co-ordination between national and regional measures
  • There is little involvement of the regional RTDI actors, private sector in particular, in policy planning.

Morgan draws attention to the issue of  the quality of the institutional setting as one of the main reason for  regional underdevelopment. Certainly there are problems in co-ordinating policy and in bureaucratisation of government in Greece. The development of science parks has been held up for a number of years due to lack of poli9tcvical agreement. The politicising of policy advisors and of the civil serviced militates against continuity in policy and development, and to an ensuing lack of the confidence required for investment. Whilst it would appear to be true that there is a lack of competence and know-how amongst regional administrations, the centralisation of the Greek system does not allow the development of such pools of competence and experience.

Equally it is easy to blame the lack of private sector investment from Greek companies on the failure to develop an entrepreneurial and research culture.

However, this overlooks a number of basic issues. The structure of Greek industry is atypical within the EU and much more akin to that of the southern Mediterranean countries – such as Turkey, Cyprus, Tunisia and Morocco see Table 2).

Table 2 Size-class structure of European enterprises by Country, 1995.

Country Enterprises

(1,000)

Average

enterprise size

Size-class

dominance

Austria 145 13 SME
Belgium 410 7 Large
Denmark 150 9 SME
Finland 340 3 Large
France 1,965 7 Large
Germany 2,670 9 Large
Greece 690 3 Micro
Ireland 130 9 SME
Italy 3,365 4 Micro
Luxembourg 15 11 SME
The Netherlands 390 11 SME
Portugal 580 5 SME
Spain 2,200 5 Micro
Sweden 415 5 SME
UK 2,565 8 Large
Iceland 15 4 SME
Norway 210 5 SME
Switzerland 190 13 SME

Source: EIM Small Business Research and Consultancy, European Observatory for SMEs, 1996

The small number of large companies are largely inward investments. Research and development for these companies is usually located in their ‘home’ state, rather than in Greece. Neither do they build up networks for research with local small and medium enterprises. The Greek economy is predominantly agriculture and services based and is dominated by micro enterprises. However, the structure of EU funding is designed to support industry and commerce in north Europe with a completely different industrial and economic structure. This would not be so serious a problem if it was not for the almost total reliance on structural funds to support research and development activities. One of the most surprising policy issues is that all the major Greek political parties have allowed the EC to dominate policy so completely.

There has been considerable discussion of the problems of what are somewhat euphuistically referred to as the “Less Favoured Regions”. The outcomes of those discussion are summarised in the Table below.

Table 3. Ten structural factors affecting the Regional Innovation Systems in LFRs
1.   Shortcomings relating to the capacity of firms in the regions to identify their needs for innovation (and the technical knowledge required to assess them) and lack of structured expression of the latent demand for innovation together with lower quality and quantity of scientific and technological infrastructure.
2.  Scarcity or lack of technological intermediaries capable of identifying and ‘federating’ local business demand for innovation (and R&TD) and channelling it towards regional/national/international sources of innovation (and R&DT) which may give response to these demands.
3.  Poorly developed financial systems (traditional banking practices) with few funds available for risk or seed capital (and poorly adapted to the terms and risks of the process of innovation in firms) to finance innovation, defined as ‘long-term intangible industrial investments with an associated high financial risk’ (Muldur 1992).
4.  Lack of a dynamic business services sector offering services to firms to promote the dissemination of technology in areas where firms have, as a rule, only weak internal resources for the independent development of technological innovation (Capellin 1989/ 9).
5.  Weak co-operation links between the public and private sectors, and the lack of an entrepreneurial culture prone to inter-firm co-operation (absence of economies of scale and business critical masses which may make profitable certain local innovation efforts).
6. Sectoral specialisation in traditional industries with little inclination for innovation and predominance of small family firms with weak links to the international market.
7.  Small and relatively closed markets with unsophisticated demand, which do not encourage innovation.
8.  Little participation in international R&TDI networks, scarcely developed communications networks, difficulties in attracting skilled labour and accessing external know-how.
9.   Few large (multinationals) firms undertaking R&D with poor links with the local economy.
10. Low levels of public assistance for innovation and aid schemes poorly adapted to local SMEs innovation needs

Source: Landabaso, 1997.

Most of these problems apply in Greece – although it is notable that venture capital appears to be relatively easily obtainable.

The question is how to overcome these problems and whether the present European structural policies are adequate and suited to the needs of the Greek economy.

Morgan (1999) points out how university departments from relatively new universities, for example, which do not have a long tradition of university-industry collaboration, use new funding to strengthen research activities which do not always reflect the needs of the regional firms.

He also says that the regional firms, often small, family-owned and competing among themselves in relatively closed markets, do not have a tradition of co-operation and trust either among themselves or with the regional R&TD infrastructure, particularly universities, In short, the regional innovation system in these regions does not have either the necessary interfaces and co-operation mechanisms for the supply-demand matching to happen, or the appropriate conditions for the exploitation of synergies and co-operation among the scarce regional R&TD actors which could eventually fill gaps and avoid duplications. In this situation, investing more money in the creation of new technology centres, for example, without previously co-ordinating and adapting the work of existing ones, risks further distorting the system.

In this situation reliance on state funding is almost inevitable and should not necessarily be seen as a bad thing. However the critical issue is whether public funding is being used towards a strategy of sustainable and indigenous development and how that funding is planned, administered and evaluated.

Sofouli points out the contradictions in the use of European funding and the rigid guidelines which appear to be designed for the industrial systems of north Europe. There are frequent conflicts between the development aims and funding and the rulings on competition. Even where it is agreed that the granting of funding will not break competition rules, the need for official approval causes long bureaucratic delays.

More fundamentally micro enterprises are unable to raise the match funding required by many of the structural funds, whilst the infrastructure and skills for new networks does not always exist.

It could also be argued that the EU funding through development projects is focused towards technological and industrial  development, rather than enhancing the service sector which is far more important in Greece. Patiniotis (2001) is critical of what he sees as the technological determinism inherent in European funding and development policies.

The underlying justification for present policies lies in a direct link between research and development activities within the industrial economy and the innovation which is seen as critical to future economic growth and to unemployment. Yet it can be argued that Greek companies are nothing if not innovative. However, research and development tends to be brought in from abroad utilising the extensive Greek Diaspora. However, the emphasis in the structural programmes on demonstration projects  prevents the use of many funds to support accessing technology from abroad.

It is interesting to note that Greek universities do have very extensive links with other European and international institutions. The relatively high education levels are also an issue as is the very high levels of business start ups and company creation, linked to the availability of finance capital.

One sector which has been acknowledged for innovation in Greece is the Information technology industry. However, what is interesting here is that most companies in this industry throughout Europe are small or micro industries (European IT Observatory, 2001) and that in Greece this sector is almost entirely focused on software services rather than production. However even here new programme for the development of the new economy which aims to provide seed capital for the establishment of small companies in the ICT sector is being impeded because the programme regulations require those very same companies to provide match funding – in other words to provide the capital that they lack in the first place (Sofouli, 2001). Sofouli goes on to say that the need for approval of new research projects by EPAN – the Greek office for competition is holding up innovation.

A further issue is that of geographical location. Greece is often referred to as being a peripheral economy. This raises the question of peripheral to what. Certainly the structure of the economy is peripheral in terms of the north European industrial economy. Equally Greece is geographically peripheral within the European Union. However within its own traditional spheres of influence and trade – in the Mediterranean and as the gateway to the Bosphorus, Greece is anything but peripheral.

More thoughtful research is need to develop policies which can promote research and development and innovation through PPPs in Greece and as to how European policy is formulated and implemented. This is not just a question for Greece – or the other so-called ‘Less Favoured Regions’. With the planned expansion of the EU the Greek economic structures will cease to be isolated and may well represent a model for the new Member States in The European Union.  However, in order to undertake this task a major policy weakness needs to be addressed. This is the issue of evaluation. Our research suggests that present evaluation polices and practice – based on the requirements of the European funding programmes and focused on summative systems evaluation – are inadequate. This is not to denigrate the purpose and intent of the present evaluation regime in ensuring public value for money and contract compliance – nor to question the methods being used. But the data presently being collected and the tools for analysis do not provide policymakers – in Greece and in the EU – with sufficient  information or knowledge to develop the policies so evidently need to support innovation with the Greek economic and social system. Neither do they provide researchers with the basic information needed to undertake more fundamental research into development processes in an economy and society such as Greece. Finally the present evaluation regime is not providing the formative evaluation and feedback so desperately required by project promoters and developers and fails to provide the arena to capitalise on present development and experiences.

In conclusion why does Greece have a flourishing culture of start up enterprises and economic activity despite all the problems outlined above? Nikitas Patiniotis (2001) suggests it lays with the people themselves:

“The Greek people are innovative and take risks – especially in terms of time. Money is always short and is controlled by the government. Most companies are started by one or two people. Greek SMEs use family  resources. The biggest indigenous company in Greece is Intracom which was started 15 years ago by one person. Risk taking in Greece is a survival technique.” “

You can download the full report here.

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2 Responses to “Greece, innovation and the European Union”

  1. George Bekiaridis says:

    I agree allmost 100%. Doing business in Greece is a big chalenge especially when you are young and don’t have any strong connections with people having power (governmental and economic).

    At this time Greece faces a situation where everybody should rethink and change. Mainly the issue is political and problem of wrong attitudes grew up over the years and secondly is economic. Bureaucracy dominates the economy we feed a huge (compared with other EU countriues) public sector. Last decade we had the time to change but we didn’t do a lot, so no we are forced to do changes in very short time and that affects (to worst) the lives of the majority of Greeks.

    I hope all of these will drive us to be a better society and country but I’m afraid that a whole generation will need to sacrifice its dreams and future….

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