Funding Innovation in the EU - A governance perspective

As expected social media powered discussions give the opportunity to develop new ideas in unconventional ways. Unconventional brainstorming on Twitter and blogs has its benefits, as it combines ideas from a plethora of people and places. After such a discussion/brainstorm which lasted for some time, Horatiu Ferchiu from Federal Europe – a planner’s view put together a small infographic imaging the skeleton frame for a European innovation and start-up fund. On it, Euronomist drafted a more detailed funding scheme describing the economic actors and tools involved. As I was coopted in an ad-hoc matter into this brainstorm, I will also try to outline some points, from my own perspective, related to governance, participation, and social structure building.

Short Intro

The basic idea of this fund, as presented by Horatiu, is to assign a small section of the EU budget to an investment fund, managed and supervised by the European Central Bank (ECB), and distributed across the member states through national (private) banking systems.

Euronomist detailed the funding scheme and noted that the funding should be divided into a sovereign fund (i.e. national government contribution to the fund, in exchange for a fixed amount of the company’s equity), and a European Investment Fund supervised by the ECB.

This resembles at some extent the way in which structural funds are organized and distributed, but brings to the table a Kickstarter-ish feeling, which would, I believe, make start-ups more comfortable with accessing the fund.

For more details please visit Horatiu’s and Euronomist’s blogs.

A governance view for an innovation and start-up European fund

While I agree with Horatiu’s and Euronomist’s point of view, I would urge further discussion on the basic governance model. The initial idea relies on existing structures in order to function: the ECB and national banking systems. This is logical as in order to keep implementation structures to a minimum, we must use existing structures. Also, this is a healthy way of insuring running-cost minimization.

At the same time, clear and well structured governance rules should be set out in order to prevent preferential treatment and insure efficiency and coherence. Let me explain.

Firstly, building the fund allocation system on national banking systems would mean that each member state would have different rules regarding allocation and especially regarding taxation (not of funds especially, but of the direct output). This could make some member states hot-spots for start-up building and innovation, while leaving others in the shadows. This would lead to further increase in disparities, not making the overall situation any different that it is now. Also, it would neglect start-ups and innovation based on international cooperation (see below).

Secondly, not all national bureaucratic/economic systems work the same, and with the same efficiency. Insuring an efficient system, for fund management that works in similar ways (national laws make it impossible to make it work in the same way) is key. The contrary would lead to the same polarization effect described above.

Participation is key

Any fund, project, policy, or programme is useless if the targeted actors do not actively participate. This is why the governance model would also have to provide the necessary tools for the independent formation of supporting participatory structures, which could ensure the reaching of targeted of actors. This type of structures should be independent of national governments, or EU institutions, and their formation should be based on voluntary association and organized in order to insure responsibility building.

Another important task of these structures would be to encourage and support international participation (based on the Territorial Cooperation objective). As any start-up or innovation can be the brainchild of multiple participants (similar to how the idea for this fund came to existence), it is important that their contributions are not to be hindered by national borders, national laws, or other structural limitations.

These support structures can be local or regional. They would be funded from the fund directly and their decision-making and expenditures should be transparent.

Digitalizing it all

The Digital Agenda (DA) becomes more real every day, insuring an integration of this fund with it is crucial. A simultaneous and coordinated action of the DA and this investment fund, would in my own opinion encourage more start-ups to take action. How well innovation, the DA and this type of fund go together goes without saying, I think.

In the end I would also like to point to an element very dear to me: job creation and work in the digital era. Digital nomadism and workshifting are not just trend words anymore (1, 2). I should know, I practice digital nomadism on a daily basis. The opportunity given by this type of fund is, I believe, a currently non existent way of sponsoring a type of work-economy that is specific to this day of age. Sponsoring location independent businesses and creating the infrastructure for them to function from anywhere, is one of the ways in which the EU can step ahead of its competitors. But about this, I will write in detail another time.

Please contact any of us involved in this brainstorm if you want to contribute or need any clarifications!