In today's crisis there is an opportunity for change. It would be a crime to waste that chance. With the global economy in turmoil, a new administration in Washington and new leadership coming to Brussels this year, the rules for economic policy are being rewritten. Much of the thinking so far has been short-term, reacting to the immediate financial crisis or industrial dislocation. Saving jobs is essential, but so is creating new jobs. We urge that, while debating the various rescue plans, our political leaders also give thought to the longer-term question of how, in this global knowledge economy, we create and distribute value, and how we can sustain economic growth.

The numbers tell us that small companies and start-up businesses in developed economies are the real engines of economic growth, creating more new jobs than large companies. Many of those new positions are in technology businesses that owe their existence to research carried out over a decade or more, often in universities. These universities and small companies often work together, with the local affiliates of multinational companies, in dynamic innovation clusters: London, Cambridge, Stockholm, Zurich, Barcelona, to name a few.

The broad picture is one of a virtuous cycle of public/private innovation with local roots but global impact. Our most important, game-changing innovations have come this way. The birth and growth of the PC and Internet, the advent of lifesaving new biotechnologies and medicines, fertile experimentation in alternative energies and sustainable chemistry -- all stem from good collaboration between private industry and public research. What's more, the recent history of technological innovation shows that entrepreneurs certainly did not sit on their hands during earlier recessions. There's no telling what transformational innovations are now in the labs, waiting to get out into the market.

That wait will be long if political leaders do not take far-seeing actions now. Based on our varied experiences in European academia, policy and industry, we propose the following for leadership in innovation:

Support funding: Early-stage venture capital is chronically scarce in Europe -- about a third as great, as a percentage of GDP, as in the U.S. Now the financial crisis threatens even that small amount. It's time to scale up, on a European stage, some of the successful schemes for public/private partnership in seed and growth financing that have been pioneered across Europe. Examples include Britain's University Challenge Scheme of 1999, which provided matching funds for private investment in university spin-out companies, and the Flemish Investment Board, whose co-funding has made the university at Leuven a potent biotechnology incubator.

Support innovative companies: Technology start-ups in Europe face a cocktail of costs that can kill them at birth. First are the lab or engineering expenses for their new products and services. But second is the burden of social charges, taxation and red tape that many European countries impose on all businesses. European governments need to lighten this burden for our young, innovative companies. An example is a French initiative, begun in 2004, that has provided temporary tax and social-charge breaks to more than 2,000 new tech companies. Other countries could emulate and expand on this idea. On the EU level, research, financing and state-aid policies could give a special, favorable status to projects involving young, innovative companies.

Invest in education: Europe spends too little on higher education -- about half as much, as a percentage of GDP, as the U.S. and Japan. Just as there is now talk of spending money on physical infrastructure such as roads and railways to maintain economic activity, we should look closely at our intellectual infrastructure: our universities.

Celebrate entrepreneurs. Many Europeans are risk-averse. And no wonder: In Europe we lack visible role models that potential innovators can look up to, and seek advice from. Europe must put more effort into trumpeting the successes of its innovators. One start is the ACES Academic Enterprise Awards, the first pan-European program to recognize excellence in university spin-out companies. But more-extensive programs -- adding entrepreneurship to our school curricula, and publicly rewarding and applauding successful entrepreneurs -- are needed. And we should make it easier for them to benefit from their success, by reviewing policies for share options and gains.

There is much more to be done. Europe needs to encourage, not hamper, innovation. And money counts. The U.S. stimulus plan will likely include funding for such innovative activities as e-health systems, educational networks and energy research. EU leaders also have a stimulus plan. If a sizable portion of that money and effort goes toward long-term, sustainable innovation, it could endow Europe with a bright future.

Mr. Brown, dean of Insead, and Mr. Courtois, president of Microsoft International, are members of the Science Business Innovation Board.

originally found

http://online.wsj.com/article/SB123440185965175441.html

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