FinancialGuy Writes!

As written in my previous post here, I was in Berlin this weekend as a part of the EUREKA German Chairmanship. The attitudes to investment in Research and Development were of interest to me.

On the one hand, the EU 2020 commitment is for 3% of annual GDP to be spent on developing new projects – innovation. This money would need to be spent in many, many areas (research labs, higher education etc) or as the policy makers would say, “up and down the value chain”.

Of course, this 3% commitment has been missed previously, and with Europe at last entering an age of austerity, it seems unlikely that spending on innovation will be going up – no matter how important the knowledge economy may be to Europe’s future.

On the other hand, it really ought to be an investment. If money is poured into certain areas to develop products, there are hopefully products emerging at the other end. Hopefully, those products are sold or somehow monetised and a return is generated on the previous investment.

I am well aware that measuring so many variables over such a long timeframe is a quagmire. But measure it they must. And since governments of the world try so hard to measure inflation, population migrations, unemployment and many others, why not this?

Why?

My previous experience in finance tells me that human nature will simply take over. If governments can see that investing 1 million (euros, pounds, krone or whatever) returns (for example) 1.8 million within 10 years, governments will be lining up to throw money at universities. We all (including civil servants!) like the idea of a good investment. Good investments make the world go round! They keep people in jobs, they provide seed capital for small businesses, they (hopefully) help us retire via our pension funds and much more.

But no. The event in Berlin seemed to have much talk about “spending”, some talk about “investing” and no talk about “returns”. Any talk of investing needs to also have talk about the returns on that investment.

Without this, it seems hard to know why governments will even make token efforts towards their 3% targets.

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