Innovation—an Opportunity Central Europe Is Unable to Exploit

Central European politicians who want to appear modern and forward-thinking pepper their speeches with the term “innovation.” Yet both for them and for their audiences the term fails to conjure up something specific, freshly emerged from a lab or a research center. Even fewer people are aware of the fact that it’s one thing to come up with an idea but quite another to turn novelty value into a project that is successful and sustainable in business terms. This can be illustrated by the example of Slovak politicians who, to mark the start of their EU Council presidency, posed for photographers next to a flying automobile even though state policy made no contribution to its development.

Apart from making positive noises, governments are usually not expected to do much in the field of innovation. Basically, they ought to keep out of its way. In Central Europe, practical innovation and applied research have benefited from the skills and talent of individuals or smaller companies rather than from any thought-through long-term state policies. What has also helped is the fact that some major multinational companies have been setting up research centers in the region, pulling a great many creative and inventive individuals into their orbit.

A good example of the first type of support is the collaboration between Saule Technologies, a Polish company, and the young scientist Olga Malinkiewicz, the inventor of a new type of solar panel. At an early stage support came mainly from European and domestic private funds, currently it is provided by a Japanese investor. General Electric, which has opened a number of research and development centers in Poland and Hungary, illustrates the second kind of support.

Sometimes innovation and its practical application converge around a regional university (e.g. nanotechnology in Liberec), on other occasions a region may be blessed with far-sighted local leadership that believes in making a long-term investment in innovation. While the Czech city of Brno, for example, has benefited from a high concentration of university and research facilities, in Cracow in Poland the establishment of service centers by companies such as Cisco or the local company Comarch has generated a vibrant ecosystem of start-ups and investors, many comfortably straddling the distance between Silicon Valley and Central Europe.

Of course everyone would love to build a new Silicon Valley but Central European governments have not been able to provide suitable conditions. This is because they want to keep as much control as possible over funds designated for research and development. In addition, the old socialist thinking according to which everyone deserves to be rewarded equally still survives in state administration. This is one reason why the Polish invention of a cheap way of producing the revolutionary new material graphene has run aground, as several state institutions were unable to reach agreement on funding, and on the direction of research and its application in practice. Furthermore, the state was reluctant to inject a lot of money into the project. The main investor, the half state-owned copper company KGHM, quite naturally did not regard this as their priority. As a result, news of Polish graphene has dried up of late.

Most recently the Polish government has committed to supporting innovation as part of a major program (known as the Morawiecki Plan, after the deputy prime minister for development) aimed at increasing the competitiveness of the economy. The first two specific steps include a program for the development of electric buses and electromobility, an area in which Polish companies have some experience. And since all the country’s manufacturers start from a more or less level playing field, chances are that they will succeed.

Another idea is the proposal to forge closer ties between theoretical research and business by awarding academic degrees not only for theoretical research but also to those who focus on practical work.

However, a genuine revolution could come about only if the state was prepared to radically transform the system of subsidies for science and research and if, instead of giving everyone the same small amount, it identified priority areas for funding. This would increase the chances of international and, indeed, global success, since private venture capital willing to embark on this sort of project is still scarce in Central Europe and businesses and state budgets tend to rely more on EU funding through programs such as JEREMIE, aimed at supporting micro and medium enterprises.

Those championing a fundamental transformation in the way science and research is funded in the Czech Republic include Markus Dettenhofer of the Brno-based Ceitec research center and Daniel Munich of the Cerge-El institute. However, politicians seem to be cautious about promoting and supporting promising projects and adjusting the system of research subsidies in a way that would give successful initiatives a real chance. Instead they just look for photo opportunities with people who have already accomplished something off their own bat.

Another example of innovation not inspired by the government is the trendy term Industry 4.0 (or Economy 4.0). It refers to the wide-ranging digitalization of production, which will deprive Central Europe of the advantage of cheap labor in the medium term. In this case innovation consists not only in introducing new digital components and artificial intelligence into the production process but also—and especially— in being involved in the development of new machines. Given that Germany, the Czechs’ major business and industry partner, is at the helm of Industry 4.0, this is an opportunity we can ill afford to miss. Nevertheless, changing the way politicians and civil servants think would be an innovation in itself, and it would be extremely difficult if not impossible to achieve. As elsewhere in Europe, regulators in the Czech Republic or Hungary have been wary of the shared taxi service Uber, a workhorse of a new type of shared economy, as well as of other fashionable innovations that involve the use of privately-owned entities in flexible business models based on mobile apps. However, critics see this as replacing “hardcore” jobs with a system that forces employees to become entrepreneurs, taking on more risk.

Start-ups and their associated ecosystem have turned into a mantra and a cliché. So far, the recent acquisition by IBM of Hungary’s U:stream is the only global success story featuring a local company. Talking to investors, the first thing you hear is that our local innovators may be great engineers or programmers but that nobody has given them solid grounding in the business side of things or helped increase their ability to sell or practically implement an idea or a product.

The Skype effect, i.e. radical local innovation transformed into successful business models leading to reinvestment in local innovation, applies primarily to the Baltics and, even more importantly, seems to be a long way off. Some state policy would not go amiss, despite the large numbers of managers and economists produced by universities. The problem is, they seem ill-equipped for practical life.

And last but not least, there is a cultural problem, which no government can resolve. Silicon Valley values risk takers highly even if they happened to have failed a few times in the process. In Central Europe, if you have failed in any way, you are almost invariably written off. However, if we are to make progress in terms of innovation, we must start by thinking about success in an innovative way, too. And this, I suspect, is not something that is taught at any university.