Regions are key contributors to Europe’s economic development and are the main actors in the achievement of the Europe 2020 objectives for a smart, sustainable and inclusive growth. Most R&D expenditures and funding are provided by local public authorities. One of the most significant new trends for European regions is the concept of “smart specialisation”. Proposed in 2009 by an expert advisory group to the EU, this concept which aims to enable regional comparative advantages and supported by local technological specialisation has spread quickly. It stimulates regions to position themselves in a specific market or niche.

“Smart specialisation” is part of the EU 2020 Agenda. Having a smart specialisation strategy in place has become one of the preconditions for access to EU structural fund programmes. The aim of smart specialisation is to lead regions out of the crisis by supporting local innovation. The concept goes further than a traditional industrial policy as it is based on “entrepreneurial discovery”. This is an interactive and bottom-up process enabling public and private actors to discover market forces at the local levels and capitalise on their potential. A special smart specialisation platform was created by the European Commission to provide guidance to local authorities on to how develop and deploy such strategies.

Delivering on the new EU Cohesion policy will be a key objective and challenge for the EU in the coming 5 years. As its largest investment vehicle (depending, of course, on the success of the Juncker Fund), this policy will be essential to spur growth in poorer regions, key for investment in R&D and ICT projects and, therefore, key for the further digitalisation of the EU’s industry and economy. It will be a challenge to ensure that the funds are channelled to areas and projects in the most efficient manner. It will also be challenging to test funding requests on the basis of for example a smart specialisation strategy.

Indeed, as far as smart specialisation is concerned in the context of regional development, the main challenge is to develop a more comprehensive analysis of the concept and its economic impact. The concept is still not fully developed. It has not yet fully demonstrated its economic benefits and the methodology that should be followed to implement it. Many arguments in favour of smart specialisation have not yet been empirically verified. Economists are raising more and more concerns about potentially adverse effects of strong specialisation of local territories. Indeed, the fact that a local government favours one technology might lead to the development of inefficient activities and might encourage rent-seeking. It could also lead to the spending of public funds on activities that would have in any case been developed by private market-driven investment. Furthermore, smart specialisation of regions could lead to a decrease in competition between European territories which would paradoxically decrease the actual competitiveness and innovation of the specialised regions. This would also have a potentially negative knock-on effect on industrial/social inclusion – one of the key objectives of the reformed Cohesion policy.

Regions are undoubtedly key drivers of growth and innovation in Europe. It remains to be seen whether the development of the most dynamic regions will be done at the expense of Europe’s poorest. A careful monitoring of the economic impact of implemented EU policies is needed to ensure that the latter stay in line with the objectives sought by the EU Cohesion policy.

This topic will be debated at the European Business Summit on 6th of May.