Sunday, March 03, 2024

China world leader in 37 of 44 critical technologies, EU missing

The Australian Strategic Policy Institute (ASPI) was formed in 2001 and the Critical Technology Tracker was launched on 1st March 2023. It identified China as having stolen a march on its competitors.

ASPI said that China's global lead extends to 37 of the 44 technologies tracked, with the country excelling in defence and space-related technologies. The United States had 7 positions.

The think-tank said "Notably, China's strides in nuclear-capable hypersonic missiles, reportedly took US intelligence by surprise in August 2021. ASPI's Critical Technology Tracker shows that, for some technologies, all of the world's top 10 leading research institutions are based in China, collectively generating nine times more high-impact research papers than the second-ranked country, most often the US."

The dataset revealed a large gap between China and the US, "as the leading two countries, and everyone else. The data then indicates a small, second-tier group of countries led by India and the UK: other countries that regularly appear in this group — in many technological fields — include South Korea, Germany, Australia, Italy, and less often, Japan."

Australia was in the top five for nine technologies; Italy (seven technologies), Iran (six), Japan (four) and Canada (four).

Russia, Singapore, Saudi Arabia, France, Malaysia and the Netherlands were in the top five for one or two technologies. Several other countries, including Spain and Turkey, make the top 10 countries but were outside the top five.

ASPI noted, "One surprising finding of the report is that Iran has surpassed countries like Japan, Canada, France and Russia to secure its place in the top five in six critical technologies."

The European Union

The European Centre for International Political Economy (ECIPE; Fredrik Erixon Oscar Guinea Oscar du Roy) say that an economy that grows at 3% per year will double in 24 years but an economy that grows at 1% per year will double only in 48 years. For a long time now, the average growth rate in mature and developed European economies has been closer to 1% than 3%.
"The EU has had positive economic growth but it has been slow in comparison with other developed economies. If European countries were states in the United States, many of them would belong to the group of poorest countries. In this Policy Brief, we rank GDP per capita in EU countries and US states, and the result is dispiriting.
The ranking of GDP per capita in 14 EU member states, which together represented 89% of EU GDP, was lower in 2021 than in 2000.
For instance, France and Germany were as rich as the 36th and the 31st US states in 2000, but twenty-one years later, French GDP per capita was lower than the 48th poorest US state, Arkansas, while German GDP per capita had fallen to become as prosperous as the 38th US state, Oklahoma. GDP per capita in Central and Eastern European countries have grown considerably but their relatively small size and lower starting point stop them from reverting the trend of relative European economic decline.
The result of this economic divergence between EU member states and US states is a growing wedge of GDP per capita between the EU and the US, which in 2021 was as large as 82%. If the trend continues, the prosperity gap between the average European and American in 2035 will be as big as between the average European and Indian today."

Francis de Véricourt, a professor of management science and founding academic director of the Institute for Deep Tech Innovation at ESMT Berlin, has said that Europe finds itself at risk of missing out on the current deep tech revolution. "Europe is falling behind in various areas of innovation such as genomics, quantum computing and artificial intelligence (AI), being outpaced by the US and China."

He says more than half of recently established deep tech companies are found in the US. In 2022, US$51bn was invested in US deep tech – more than double the European investment of around US$20bn.

"The same gap can be seen in AI (artificial intelligence). Venture firms have invested a huge €38bn (US$41.3bn) into US-based start-ups, with Europe receiving investments of €10bn.

China is also rapidly catching up, investing more in technologies such as autonomous mobility, generative AI and nuclear fusion."

Francis de Véricourt said that this innovation gap is particularly visible in space tech. In October, the European Space Agency (ESA) engaged SpaceX to launch four of Europe’s Galileo satellites in 2024. Turning to Elon Musk’s US-based company comes in the wake of delays to ESA’s own rockets.

More than two decades into the 21st century, Europe’s industrial decline shows little sign of stopping. Over that period, the economic divergence between EU member states and US states is evident in an 82% (in 2021) gap in GDP per capita between the EU and the US.

In the US, 60% of households own shares either directly or through various vehicles. In the EU it is 32%.

Since the late nineteenth century, the Wallenberg family has been Sweden's preeminent financial and industrial dynasty. The family's climb to wealth and power began when Andre Oscar (A. O.) Wallenberg (1816–1886), the son of a Lutheran bishop, founded Stockholm's Enskilda Bank (SEB) in 1856. (I worked in Wallenberg companies in Ireland and Saudi Arabia).

The EU has fallen behind the US and China in terms of economic growth and innovation, the European Round Table for Industry (ERT) warns in its latest paper, calling for a deeper integration of the EU’s single market, a capital markets union, and better incentives to invest in Europe.

The ERT (comprising 60 leading European CEOs and Chairpersons) says "Fragmentation, slow decisionmaking, short-termism and populism threaten to weaken Europe from within at a time when it needs to be strong, united and visionary if the EU is to assert its interests effectively in a more contested world. National governments will need to play their part in promoting European priorities to their citizens, communicating today’s context of mutual interest within the EU and global competition beyond it."

“The European Commission must spearhead an ‘encompassing programme’ to shape a common market across all policy areas, including energy, digital, capital, environment, and defence,” according to the ERT paper, hoping to influence the programme of the next Commission that will start its work in autumn 2024.

The ERT wants the Commission to more proactively and to “compel EU member states to promptly remove unlawful or unreasonable barriers” in the single market. Moreover, the Commission should focus more on harmonising and simplifying rules instead of making ever new ones.

"One of the key reasons why the EU is so reliant on regulations the fact that it has very little budgetary power to solve problems through subsidies or tax breaks, as the US can do."

Yann Coatanlem, co-author of ‘Le Capitalisme contre les inégalités’ in The Financial Times writes in 'Why Europe is a laggard in tech.'

"Investment in tech research and development in Europe is only one-fifth of what it is in the US and half that in China. Investment in AI is around 50 times higher in the US than in Europe. European tech is falling behind its competitors at an alarming rate."

He contrasts restructuring in the US and Europe.

"In Europe, the three tech leaders — Nokia, SAP and Ericsson — also announced restructuring plans. While a sharp decline in sales last year for Nokia, the largest European investor in tech, required immediate action, it will take the company until 2026 to implement its plan due to labour regulations in Germany, France and Finland.

SAP, Europe’s software leader, cannot react much faster and, at the same time, can only invest in AI at a rate of €500mn a year, compared with the tens of billions being invested by each of the so-called Magnificent Seven (The seven largest tech groups — Microsoft, Apple, Amazon, Alphabet, Meta, Tesla and Nvidia.)

The complexity of restructuring in Germany, for instance, can be illustrated by the two-year plan announced in October by Volkswagen. The carmaker said the plan still requires approval from its works council, which has guaranteed jobs for workers until the middle of 2025.

Restructuring matters more in tech than in any other sector. Why? Simply because frontier-tech investments are riskier. It is not uncommon to see failure rates of 80%.

The consequences are profound. As Oliver Coste shows in his book 'Europe, Tech and War,' investments that are deemed profitable in the US don’t make the cut in Europe, precisely because of the lack of cheap and swift restructuring capabilities at large companies.

At a more macro level, this diagnosis is confirmed by a McKinsey study which shows that large European companies are much less profitable than their American counterparts and that 90% of that gap can be attributed to technology-creating industries.

Tech is unpredictable, disruptive and volatile. With higher severance costs and longer delays, the costs of adaptation in Europe are about 10 times higher than in the US. After decades of greater agility, American companies have the financial means to invest in AI; European companies simply can’t compare."

At the end of January 2024, the International Monetary Fund (IMF), downgraded growth in the 20-country Euro Area. Growth is forecast at just 0.9% in 2024 and 1.7% in 2025, with the biggest country, Germany, expected to see minimal GDP growth of 0.5% in 2024.

The US has outperformed the Eurozone and the UK, with per capita output growth rates since 2003 at 26%, 18% and 12 per cent respectively.

Italy, the biggest economy in the Euro Area, for years, had virtually no growth, but the German Roland Berger Institute says that growth in 2019-2024e will be 3.6% compared with 0.45 for Germany.

Growth in 20 years in the former communist countries in Eastern Europe has had significant catchup growth that boosted the EU average.

According to the FT, Poland’s GDP per capita is nearly 70% that of Germany, up from only 42% in 2003.

Allianz, the German multinational financial services company, in January 2024 published 'Europe needs to step up its game: Lessons from the American playbook.'

"In the 25 years since the foundation of the Euro, the economic gap between the US and Eurozone has almost tripled. In 1999, the year the Euro was introduced, the US economy was 11% larger than the Eurozone in purchasing power parity (PPP) terms; this gap has since widened to 30%. Even in per capita terms, the US is leaving Europe far behind: As of 2022, the average American enjoyed real income that was 35% higher than that of the average European in purchasing power parity terms, up from 27% just before the 2008 financial crisis."

In 2022, EU research and development expenditure relative to GDP stood at 2.23% lower than in the previous year when it recorded 2.27%.

Of the 27 countries, only 6 were above or near the 3% of GDP level: Belgium; Sweden; Austria; Germany; Finland and Denmark.

Deep blue in the chart relates to business enterprises that spent 1.5% in 2022.

From the the Transistor (1947); the Integrated Circuit, also known as a microchip (1958); the Interet and putting men on the Moon (1969); the Persoanal Computer (1974); and the first commercial GPS positioning product (1984), the US has been in the lead.

Tim Berners-Lee, a British scientist, invented the World Wide Web (WWW) in 1989, while working at CERN, in Switzerland.

American entrepreneurs took advantage of the Internet for the masses, with one large market and most speaking the same language.

What became known as Silicon Valley, in California, provided funding for Internet entrepreneurs.

Forthcoming on the top global 2,500 R&D firms: "Although the EU still has several global tech companies, and remains relatively strong in the top 50, the share of EU companies in the top 2,500 R&D investors has fallen over time.

Interestingly, when comparing a panel set of 801 companies over the period 2012-2022 with the Scoreboard top 2,500 dataset, shows that only 82 new EU companies entered the Scoreboard. In comparison, China has 657 new companies in the 2022 Scoreboard that are not in the panel, the US 634 new companies, Rest of the World (RoW) 276, and Japan only 52.

This shows EU is less well placed to host new companies capable of becoming global leaders in R&D investment. The emerging gap in R&D investment in the EU vs US and China is a wake-up call to consider how EU can compete in the future in the context of interdependencies and the EU policy on open strategic autonomy, technological sovereignty and economic security."