Digital Agenda in Central Europe

In many ways Central Europe is a startup region. In the last 25 years it managed to have its core democratic and market institutions built in a process of continuous trial, error and iteration. Its success has been determined by passion for change, courage to challenge the status quo and by big ideas. But can it build on it further by introduction of comprehensive innovation policies? This is seen as the only chance to catch up (if not to leapfrog) the top 15 EU economies.

All of the region’s countries have succeeded immensely in terms of economic and democratic progress. Over the last few years, a number of successful companies have emerged in the region, such as Czech Avast, Hungarian Prezi, and Slovakian ESET. They have managed to become global leaders in their respective sectors, but the question still remains to what extent these are just individual stories of success and how we could build a system that would support innovation within the region. Another interesting question is whether we should reach for the stars, and compete with giants from the Silicon Valley, or simply settle for what we have—and instead of leading in innovation be just a back office for those showing the way.

Today, region’s challengers operate in an ecosystem that is overall rated as less innovative than many others on the continent. European Union countries can be divided into four groups, depending on their innovation performance: 1) innovation leaders, 2) innovation followers, 3) moderate innovators and 4) modest innovators. Central European countries are within the moderate innovators group. However, some examples prove their potential and, more importantly, signal the existence of best policy practices to learn from and to scale towards. In that respect, countries in the region have progressed quickly in the last ten years, but still have a long way to go before they will advance to innovation leaders.

Governments in general understand the importance of innovation, but still need to develop new policies or implement existing ones to reduce the differences between EU member states. Central Europe’s spending on research and development activities is about 1% of the region’s gross domestic product, which is half the rate in the Western EU, not to mention the BRIC economies. Central Europe is far behind the Europe 2020 strategy, which sets the goal of 3% investment in R&D by 2020.

Countries of Central and Eastern Europe have plenty of work ahead of them to catch up with the EU average. The Czech Republic has already made a lot of progress, while Hungary, Slovakia and Poland still need more time and effort. The Visegrad countries are doing well in some indicators of the Digital Agenda, such as a fixed broadband coverage and the number of people using the Internet. “Without a free access to broadband Internet, companies like NNG, Prezi and Ustream would not have managed to reach hundreds of millions of users in the world,” declared recently Bridge Budapest, a Hungarian high-tech association, when Hungarian government tried to tax the Internet.

The region has been criticized for poor level of eGovernance, high mobile Internet prices, small penetration of business-fixed broadband and problems with intellectual property rights. “ I had great problems with patents and intellectual property,” claims Marek Novak, Czech innovator, one of the New Europe 100 challengers named by Res Publica, Financial Times, Google and the International Visegrad Fund, who is developing a home doctor device. “Recently I attended several training courses about this, but a lot of my friends are discouraged by how the topic is complicated, how expensive it is to protect their intellectual property effectively,” he adds.

Innovation is a key driver for strengthening Central Europe’s competitiveness and it is a top policy priority for the European Union. Fostering innovation should be systemic rather than a linear process, which involves many different players and is happening over an extended period of time. “If Central Europe wants to be at the top and keep its innovators, we should transform our systems to match European rules on programs such as Horizon 2020 and those of the European Commission on SMEs,” claims Dita Charanzová, Czech Member of the European Parliament, “we must also reform the regulations that govern how public institutions can open, and support the creation of companies whose goals are commercial. It must be easier for researchers to join entrepreneurs in founding new firms, without encountering problems of academic status or ownership of ideas created in academic, scientific, and computer laboratories.”

While countries in the regions share a similar past and common experience in catching up with the European Union, there has been no regional approach to increase competitiveness in the field of Digital Economy. The only attempt has been made by the Slovak Presidency of the Visegrad Group, which promoted the Digital Agenda as one of the priority areas of its Presidency. While it is a good start, the Slovak presidency has been criticized for formulating questions, rather than proposing solutions.

In terms of national politics Czech Republic has the National Policy of Research, Development and Innovation for 2009–2015, which deals with education, innovation and R&D. Hungary developed the National Research-Development and Innovation Strategy 2020, raising awareness about the importance of technological and knowledge innovation and creating appropriate economic environment for promoting innovation in Hungary. The Slovak Republic has no strategy since the end of Innovation Strategy for the Slovak Republic for 2007–2013. In Poland there is the Operational Programme Smart Growth which promotes innovative entrepreneurship and development of new business models for Polish companies.

What we are still fighting with is the stereotypical thinking that Central Europe is mostly a place for outsourcing. There are not enough projects created and developed here. “This is due to the lack of so-called smart money, or money from experienced investors, former entrepreneurs, who in addition to money also offer their knowledge, mentoring, and who are truly familiar with the process of formation and development of products. We are still building an ecosystem in Poland and in the region,” admits Kamila Sidor, CEO & founder of Geek Girls Carrots, a community for women interested in ICT. “But I believe that this is changing. Many developers are leaving for the West, and I hope that they will come back—with their knowledge and skills—and will be ready to grow back on Polish soil, so that we in turn can offer the world a lot of great things,” she adds.

And to some extent this is already happening. “The most critical reasons [to come back to Poland] were given by my colleagues, who pointed out the promise of the 2014–2020 European Union funds that may be used by entrepreneurs and companies for innovative technologies and their employment in production,” adds Olga Malinkiewicz, Polish scientist/entrepreneur working in the area of photovoltaics.

For many years now Central Europe has been trying to re-create itself as the region of innovation. There are important factors that need to be taken into account and which may contribute to change:

• education and skills of the CEE labor force
• awakening strategic regulatory approaches and governmental agendas focused on modernization
• the potential of EU structural funds that are going to be invested in the region in the next 7 years (e.g. for Poland €72.5 billion, within which €20 billion will go towards innovation and boosting entrepreneurship) individual cases and best practices that (if scaled and sufficiently recognized) could give a new face to the economic image of the region

Data on innovation performance that we gathered for the last issue of Visegrad Insight on new economy in New Europe still shows distance of all V4 countries towards EU27 average. This applies to human resources benchmarks, firm activity or productivity. Performance of individual countries also varies. For instance Slovakia outperforms not only V4, but EU27 average when it comes to doctoral graduates, while Hungary and Poland record half or less in the same ranking. R&D expenditure in business sector in Poland is twice the average of the EU27 while all other V4 countries are close to the European average. Czech expenditures for R&D are the highest from public sources. Hungary on the other hand beats the record revenues from licenses and patents from abroad which still remains a goal for all other countries.

For the moment, however, none of the four counties demonstrate a coherent plan to make innovation key factor of growth. “There is a potential, for sure, but it would be hard to explain to an average voter why innovation matters,” points out Leszek Grabarczyk, deputy director of the National Centre for Research and Development in Poland, also listed as one of NE100 challengers, “what we would need are not tons of paperwork called strategies, but a sound reason for technological progress that USA or Israel have put forward many decades ago.” They defined the goal as the need to be sufficiently technologically advanced in order to defend themselves from external threats. That is indeed a reason any voter can accept and support. Would Central Europe redefine its drive for innovation as a way to develop technologies that would neutralize foreign interference in energy supplies, information war or new military threats? Time will show, but the time to make this decision is right now.