Europe structurally invests too little in research & development (R&D), which puts pressure on our productivity and future prosperity. The Netherlands lags behind its neighbours, and within the Netherlands, North Holland scores lower than many other provinces.
For a strong competitive position, especially in these geopolitically turbulent times, substantial investments in R&D are necessary. North Holland contributes 21% to the Dutch economy, but R&D expenditure is lagging behind, while this is precisely where the key to growth and innovation lies. How do we stimulate more R&D investments? And what role does ROM InWest play in this? Eric van Heerwaarden, Manager Innovation at ROM InWest, advocates a targeted approach to get North Holland back on top.
In 2024, Mario Draghi published an alarming report on Europe’s declining competitiveness. He concludes that Europe has only had limited success in translating the digital revolution into higher labour productivity and that our continent is poorly positioned to bring future innovations to the market. This poses a threat to our prosperity, especially in times of ageing and increasing geopolitical instability.
Draghi argues that productivity is key; without productivity growth, we have to choose which ambitions to drop. We cannot be an innovation leader, a climate leader, and an independent player on the world stage, while also financing a strong social society. Nobel Prize winner Paul Krugman put it succinctly: 'Productivity is not everything, but in the long run it is almost everything.'
In his report, Draghi calls for three actions: (1) Reduce the innovation gap with the US; Europe invests €270 billion less in R&D annually than the US. (2) Accelerate the climate transition; without innovation, climate goals will remain out of reach. (3) Strengthen security policies and reduce international dependencies; strategic autonomy requires investment in technology. In response, the European Commission presented the Competitiveness Compass, with concrete measures to strengthen the European economy.
The Netherlands has a lot of work to do on all three action points. The climate transition is stagnating due to system boundaries, which leads to grid congestion and deindustrialization. As a result, we will not achieve the climate goals for 2030, and the target of 1.5°C warming is disappearing further and further from view. In the field of safety, there has been much discussion last year about the NATO standard, which obliges countries to spend at least 2% of their GNP on defense. The Netherlands is now just meeting this standard. It is less well known that the European Union also uses an R&D standard of 3% of the GNP. Of this, 1% must be invested by public parties and 2% by companies.
While our neighbouring countries Germany (3.1%) and Belgium (3.5%) are already meeting the R&D standard, the Netherlands remained below the European average of 2.22% in 2023 with 2.08%. The Netherlands needs to invest considerably more. An additional investment of €9.5 billion per year is needed to meet the 3% standard; €6.7 billion from the business community and €2.8 billion from the government. So there is work to be done!
R&D expenditure as % of GDP 2023 (source: Eurostat)
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Figure 1: Dutch R&D expenditure in an international context (source: Eurostat)
The image above shows that we have a lot of catching up to do. Europe is lagging behind the United States, South Korea, Japan and China. The Netherlands, in turn, scores considerably worse than comparable European countries and even pulls down the European average.
In recent years, public R&D expenditure has increased, mainly due to the National Growth Fund (NGF). Phasing out this fund will undoubtedly have a negative impact on R&D expenditure. However, there are also hopeful developments, such as larger innovation budgets at Defence and the focus on a National Technology Strategy (NTS).
For reliable regional figures, we look at CBS data from 2020. Noord-Brabant is the absolute powerhouse of the Netherlands with a total of €4.4 billion in R&D expenditure. It is striking that the government only contributes €442 million of this, while the business community invests almost €4 billion. The high-tech manufacturing industry naturally has a high R&D intensity, with ASML as an outlier: the company spent almost €3 billion on R&D in 2023 alone.
At first glance, North Holland seems to be doing well. With €3.4 billion in R&D expenditure, the province ranks second in the Netherlands. Of this, €1.25 billion comes from the government and €2.15 billion from the business sector. However, this picture is less rosy when we put the expenditure into perspective. North Holland contributes approximately 21% to the Dutch economy, but R&D expenditure amounts to only 2.01% of the Gross Regional Product (GRP). Of this, 1.27% (€2.16 billion) comes from the business sector and 0.74% (€1.26 billion) from the public sector. In relative terms, this puts North Holland only seventh in the Netherlands in terms of R&D expenditure.
Figure 2: absolute R&D expenditure in the five highest scoring Dutch provinces (million euros)(source: CBS)
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Figure 3: R&D expenditure as a share of the Gross Regional Product per province in percentages (source: CBS)
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Yes, and it shows that the Greater Amsterdam region dominates with €1.6 billion in private R&D expenditure (73% from North Holland). The other regions lag far behind: Kop van Noord-Holland (€171 million or 8%), IJmond & Zaanstreek (together €147 million or 7%), Alkmaar eo (€96 million or 4%), Gooi- en Vechtstreek (€93 million or 4%) and Agglomeration Haarlem €66 million (3%). This distribution largely corresponds to the broader economic ratios in the province. Incidentally, the CBS dataset is not complete. As a result, only private R&D expenditure is visible and the figures for IJmond and Zaanstreek had to be partly derived.
source: CBS
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Based on the 2020 figures, the business community in North Holland would have to invest an additional €1.2 billion and the government €441 million to achieve the 3% standard. Because our economy has grown strongly since then, the deficit now amounts to almost €2.2 billion per year; €1.6 billion in private R&D expenditure and €569 million in public R&D expenditure. This is a major challenge for our region, which we really have to work together on.
Figure 5: Growth in R&D expenditure needed to achieve Lisbon target.
Bold absolute figures based on 2020 in millions of euros, thin print an estimate of the required
additional R&D expenditure for 2023 based on extrapolation.
We work every day to strengthen the earning capacity of North Holland by accelerating innovations that contribute to social transitions:
As a region we need to ensure that the preconditions for innovative entrepreneurship are in place. This requires:
Do you want to contribute to a more innovative, competitive and sustainable North Holland? Are you an entrepreneur, financier, policy maker or researcher and do you think ROM InWest can mean something to you? Or you for ROM InWest? Then contact us!
Disclaimer:
Special thanks to Michael Kunst of InnovationQuarter for the background information. This article was based on the report 'The future of European Competitveness', data from Eurostat and Statistics Netherlands and scientific articles from TNO.
