Monday, 9 July 2012

EC: €8.1 billion investment in research and innovation

The European Commission (EC) today announced a "€8.1 billion investment in research and innovation to create growth and jobs".

According to the statement, "The European Commission has today announced the final and biggest ever set of calls for proposals for research under its Seventh Framework Programme (FP7)" and "The funding – which is open to organisations and businesses in all EU Member States and partner countries - makes up the lion's share of the EU's proposed €10.8 billion research budget for 2013".

Interestingly, part of the statement also reads "The high level of competition for EU funding makes sure that taxpayers' money goes to the best projects that tackle issues that concern all of us."

And finally "The €8.1 billion announced today is expected to leverage an additional €6 billion of public and private investment in research, and estimated to increase employment by 210,000 in the short-term and generate, over a 15 year period, an additional €75 billion in growth."

Well, there is good growth and bad growth (growth can be very expensive indeed as any CEO could tell you) and no, this is not good use of taxpayer money and leaves the door very open to possible corruption, but perhaps more importantly, to malinvestment with little or no control over the eventual outcome (good or poor). It is nothing short of the EC controlling who should receive a portion of tax payer money, a matter best left for the free market to decide. The EC should instead cut taxes by a similar amount and leave it up to businesses and individuals how they want to invest and spend their money. As Adam Smith said back in 1776:

The directors of such [joint-stock] companies, however, being the managers rather of other
people’s money than of their own, it cannot well be expected, that they should watch over it with
the same anxious vigilance with which the partners in a private copartnery frequently watch over
their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not
for their master’s honour, and very easily give themselves a dispensation from having it.
Negligence and profusion, therefore, must always prevail, more or less, in the management of the
affairs of such a company.
— Adam Smith (1776)

The same principles certainly apply to government entities and the EC, perhaps even more so as they are even farther away from the daily operations of the entities they channel money to.

On the same note, it would be very wise not forget about Michael Jensen's "agency costs" and "empire building".

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