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The European Union is struggling to turn its scientific prowess into economic gains, according to a biennial European Commission review of European R&D performance.

The 770-page report says Europe lags behind the United States and China in high-tech industries, despite strong scientific output and high public investment. It argues that Horizon Europe, the forthcoming successor to the €77 billion Horizon 2020 research funding program, should bolster innovation by supporting tech startups and plowing money into research partnerships with the private sector. The Commission published the report today alongside a €1.85 trillion proposal for a postpandemic recovery plan, which calls for €94.4 billion to be spent on Horizon Europe from 2021 to 2027.

According to the report, EU researchers produce one-fifth of the world’s most cited publications, whereas the United States leads with 31.3%. China is third, at 17.5%. And EU public sector R&D spending, as a percentage of gross domestic product, is second only to South Korea, although the European Union falls to fourth place, in a tie with China, when private sector investment is factored in, behind South Korea, Japan, and the United States.

Yet this strong scholarly output and public investment isn’t producing the high-tech economy the Commission wants to see. The report finds that for every billion-dollar startup in Europe, there are eight in the United States and four in China. Information and communication technologies (ICTs) add less value to the EU economy than in South Korea, Japan, the United States, or China, and the EU ICT sector also spends less on R&D.

“In Europe we have been relatively good at putting resources into basic research that has led to an increase in patenting [and] an increase in publications,” says Andrés Rodríguez-Pose, an economic geographer at the London School of Economics. “We have been much less proficient in terms of having a comprehensive and European-wide innovation policy.” In R&D, European governments “have put resources mainly on the ‘R,’ and very often they have forgotten about the ‘D,’” he adds.

To encourage businesses to invest in new technologies, the European Union funds industrial research partnerships worth billions of euros in fields such as clean aviation and hydrogen fuel cells. It also offers direct grants to tech startups, and when Horizon Europe launches next year, it plans to offer them equity investments, too.

But Hans-Olaf Henkel, a former member of the European Parliament and former president of the Leibniz Association, says he’s seen this all before. Though he’s in favor of funding bottom-up, basic research, Henkel argues that since the 1980s, EU research programs have fundamentally been about one thing, “to catch up” in economic competitiveness, first with Japan, then the United States, and now China. “The only thing they do is put money at the expense of taxpayers into gigantic programs,” he says. “When it fails, they put even more money into these programs.”