LUDWIGSHAFEN, GERMANY – Innovation plays a crucial role in creating sustainable economic growth. Yet we continue to see, particularly in the European Union, obstacles being placed in the way of those best positioned to invent new products, services, or ways of doing business. At the heart of the issue appears to be the fear of risk. But investors, managers, and entrepreneurs must take risks if their ideas stand any chance of achieving commercial success.
Nowhere are these concerns more discussed, and less understood, than in Europe. Innovation has been placed at the heart of Europe 2020, the European Commission’s growth strategy for the EU. But, despite the fact that European scientific research is among the most advanced in the world, Europe lags behind its global competitors in its ability to bring these innovations to the market.
Regardless of how one chooses to measure innovation, three conditions must be in place for it to flourish: a skilled, educated workforce; excellent information and communications technology infrastructure; and a supportive business environment. In other words, successful innovation requires a stable and growing economy, fresh ideas, and an absence of unnecessary and burdensome regulation. The role of government is crucial. And it is a role that the EU seems to have misunderstood in at least one important respect: its attitude toward risk.
The EU has long-established institutions and processes for evaluating risk and ensuring that unacceptable risks are avoided. When policy is required but the science is unclear, regulatory decisions are increasingly based on the “precautionary principle,” which is designed to prevent situations in which serious harm could occur.
However, there is no universally accepted interpretation of the precautionary principle. North America, for example, has established a good balance between precaution and proportion. In Europe, by contrast, greater weight is placed on the avoidance of risk, which is undermining private-sector confidence in investing in innovation.
The EU’s goal – to protect human health and the environment – is laudable. But it is impossible to mitigate all risk, so aiming for this is not feasible. Rather, the precautionary principle should be used judiciously and rationally, balancing potential risks with the benefits that innovation and new technology might offer.
This notion of risk underpins economic interactions. Moreover, a policy that strives to eliminate all risk carries risks of its own. A risk-free approach to innovation makes it hard to solve vital issues like ensuring food, water, and energy security for a growing population, or even ensuring that Europe remains technologically competitive. World-changing innovations – in transport, telecommunications, medicine, and much else – are almost always the result of taking calculated risks and balancing these with the benefits that new technologies can provide.
Risk management, after all, is not simply a matter of accepting more or less risk. It is about having a better understanding of how risk works. When its nature is properly analyzed and tested, it can be effectively managed and even minimized.
Unfortunately, this does not always appear to be the EU’s approach. In its regulatory processes, science-based arguments are increasingly losing out to public opinion, while possible opportunities are undervalued. We have seen this in the European Commission’s reluctance to decide how products based on green biotechnology may be used. But there are many similar examples of legal uncertainty threatening to undermine innovation and investment across a range of technologies and industries, including chemicals, consumer products, crop protection, electronics, nutrition, and pharmaceuticals.
Given this regulatory environment, chief executives of 12 companies (including BASF), with a combined annual research-and-development budget of €21 billion ($28 billion), recently proposed the formal adoption of an “innovation principle” in European risk management and regulatory practice. The idea, conceived and developed by members of the European Risk Forum, is simple: Whenever precautionary legislation is under consideration, the impact on innovation should be fully taken into account in the policymaking process.
The innovation principle does not set out to support innovation regardless of its impact on health or the environment. Where there is real danger, precautionary considerations should be uppermost. But the principle does seek to support an evidence-based approach, relying on sound science. By embracing it, Europe can dare to innovate.