Not Good News On European R&D

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This is not very encouraging:

European spending on re-search and development is falling further behind target, widening the innovation gap between the EU and competitors such as the US and Japan, two studies show.

North American and Asian companies are outpacing European businesses in R&D investment and spending more in high-technology sectors, according to data to be released on Friday by the European Commission’s research directorate.

It is doubly not very encouraging due to a point made in a paper which Brad Setser points us to. The paper is the U.S. and Global Imbalances: Can Dark Matter Prevent a Big Bang? by Ricardo Hausmann and Fredrico Sturzenegger. Basically they argue that the net US financial position is not as dire as it seems due to the existance of ‘dark matter’ (or in more converntional terms, due to the part of the iceberg which isn’t visible and measured). US assets they argue are conventionally undervalued due to the presence of ‘hard to measure’ components. Central to their argument is this point:

We would say that EuroDisney in reality is not worth 100 million (what BEA would value it) but four times that (the capitalized value at our 5% rate of the 20 million per year that it earns). BEA is missing this and therefore grossly understates net assets. Why can EuroDisney earn such a return? Because the investment comes with a substantial amount of know-how, brand recognition, expertise, research and development and also with our good friends Mickey and Donald. This know-how is a source of dark matter. It explains why the US can earn more on its assets than it pays on its liabilities and why foreigners cannot do the same.

I would say the argument that ‘foreigners’ are unable to leverage “know-how, brand recognition, expertise, research and development” is a ridiculously simplistic one, and it almost stretches the bounds of credulity that someone might believe this, but that having been said, if here in Europe we continually fail to maintain our R&D pace it will not be such a silly argument at some stage in the foreseeable future.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

4 thoughts on “Not Good News On European R&D”

  1. And all the European countries are talking about now is the UK rebate and the huge handouts to rich French farmers. Do we really believe that maintaining all those subsidies will keep the European economy going?

  3. You mean the future of Europe is not agriculture?

    You could have fooled me.

    But the french and Germans are very smart not only being the engines of the EU but also their leaders.

    Hopefully you guys will end up where you want to be.

    Wave when you get there…

  4. oh boy, another one of those explanations by the people who brought us the paradigm shift in capitalism circa 1999 internet bubble time.
    it started again in foreign affairs early this year, explaining that the negative savings rate of us consumers is really nothing to worry about as their net worth is increasing due to rising house prices.
    now this. dark matter. i especially love the example on what dark matter constitutes: EURO DISNEY. the darkest stain on the otherwise pretty good run of the disney corp in the last 20 years. being kept alive by some saudi princes and commercial banks.
    and it still doesn’t explain what will happen when chinaman central bank says: enough, i will sell my treasuries. or to put it differently mr greenspan printing money and nobody wanting to buy it.

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