15 February 2016
Article, News

The knowledge paradox: Is investment in R&D really necessary?

The Netherlands will have to heavily invest in research and development over the coming years, according to the Confederation of Netherlands Industry and Employers (VNO-NCW) and the Association for Small and Medium-sized Businesses (MKB-Nederland), during the presentation of a research report into manufacturing, ꞌNederland Maakt!ꞌ (Netherlands manufactures). In this report, the employers’ organisations highlighted the importance of investment in R&D for the continued development of industry in the Netherlands. However, is investment in R&D really the solution?

According to the employers’ organisation VNO-NCW and MKB-Nederland, the Netherlands’ industry performs well at an international level, but the competitiveness of various sectors is under continuous pressure. They also believe in the importance of strengthening the position of industry in the Netherlands. According to these organisations, research and development plays a key role in stimulating the potential for companies to innovate and grow. During the presentation of the research report ꞌNederland Maakt!ꞌ to the Minister of Economic Affairs, Henk Kamp, they also called on politicians to make considerable investments in R&D over the coming years.

The research report demonstrates that industry and R&D activities are inextricably linked. According to VNO-NCW and MKB-Nederland, industry accounts for almost one quarter of the gross domestic product (GDP) and almost 50 percent of exports. This refutes the prevailing image of the declining share of industry in the Dutch economy. However, this can be explained by the fact that traditional industrial firms are becoming ever more active in the service sector and this trend is not always found in the statistics. According to the employers’ organisations, industry plays a decisive linking role in the Dutch economy. Therefore the report recommended a full commitment to research and development.

Knowledge paradox

However, Dries Faems, Professor in Innovation & Organisation at the Economics and Business Administration Department at the University of Groningen, doubts whether commitment to R&D is the ultimate answer to stimulating the manufacturing industry. Research and development does not automatically lead to further innovation, but rather to the ꞌknowledge paradoxꞌ or the so-called ꞌvalley of deathꞌ. Europe excels in the development of new technology due to its spending on R&D, but is often unsuccessful in transforming this technology into commercial products with which companies can actually earn money.

Faems emphasised the fact that R&D is becoming less and less a necessary condition for innovation. He referred to the OECD statistics which showed that 30% of innovative companies in the Netherlands that do not invest in R&D still successfully manage to launch products or services that are new. A study into innovation by the University of Groningen and the Northern Netherlands Provinces Alliance of 270 medium and small business (SMB) in the Netherlands reached similar conclusions. On the other hand, this does seem to show that greater investment in R&D does actually create a radical increase in the innovative capabilities in the SMB sector. However, it also shows that 22 percent of small to medium-sized businesses that are successful in launching radically new products do not invest in R&D themselves.

Therefore the question is whether there should be investment in R&D or just innovation? Investment in R&D does lead to new technology and the capacity for innovation. However, even without investment in R&D, more and more companies are managing to successfully innovate.