Remember the scene from Back to the Future III, when Clara Clayton, Doc Brown’s lady-friend, beautifully portrayed by Mary Steenburgen, is trying to hitch a ride on the 88-mph train heading straight for 1985? The train keeps moving in leaps, leaving the poor Clara flabbergasted and gasping for air while trying to climb over a heap of wood and sneak into the locomotive to alert the two protagonists to her presence. Every time she seems to be a step closer, the train suddenly accelerates knocking her off her feet, again and again. Well, it’s a little like that when you think about innovation in Poland
by Beata Socha
Ill-equipped and underfunded, the Polish innovation sector keeps racing against the clock in a desperate attempt not to get caught up in the “middle-income trap,” a real buzzword at present. It is hopelessly trying to catch up with the international giants which have unlimited resources and far less red tape than Polish firms have to cut through.
Yes, high-tech stands for only 5 percent of Poland’s exports, which is very low. Yes, there were no Polish companies in Boston Consulting Group’s most innovative firms ranking in 2013. But does it follow that Polish companies don’t innovate? They do, only on foreign licenses. Poland has been one of the top outsourcing destinations over the past decade or so, including for the IT and R&D industries. Take Samsung’s R&D centers, already present in four Polish cities, which have been churning out new specs for devices and apps since 2000.
Polish: good or bad?
Can we then call these apps and appliances Polish? Not really, even though it was the sweat and tears of Polish engineers that made Samsung tablets and their Android operational system competitive against Apple’s iPads. And now Poles buy them in bulk.
“Poles import from other countries products that other Poles have invented,” said Alicja Adamczak, president of Poland’s patent office.
The problem might be that Poles are not huge fans of the “Made in Poland” label. “A businessman looking to buy technology assumes that ‘Polish’ means ‘bad’ and starts looking abroad,” said Professor Janusz Czapiński, a social psychologist.
No wonder, then, that the innovation business is so underfunded. According to GE’s Innovation Barometer survey carried out in 2012, out of the 25 countries examined, Poland is at the very bottom in terms of the accessibility of private financing for innovators. Only 23 percent of respondents said that “private investors are supportive of companies that need funds to innovate,” meanwhile the average was 59 percent.
The respondents painted a similarly gloomy picture when asked about government support (again, the lowest spot in the ranking, with only 23 percent of those polled saying they are happy with the government’s involvement, against the 47 percent average) as well as the educational model in Poland. Only Japan came in lower when asked if universities help shape tomorrow’s innovators.
This would indicate that Polish R&D gets little support either from the tight-fisted government, or from the greedy, short-sighted capitalists. Neither can Poles expect future generations to be more innovative, because apparently their teachers just don’t get it. Any Polish-made advancements must therefore be attributed to either individual genius or a remarkable stroke of luck. Of course, it could also mean that complaining is Poles’ second nature.
Silicon Valley needed
Truth be told, the Polish government spends less on science than most other European countries, at least in absolute terms. Still, as much as two-thirds of all R&D funding comes from the state and only a third is privately financed. Furthermore, the portion of GDP devoted to fostering innovation keeps getting bigger each year. In 2013, 0.9 percent of Poland’s GDP was earmarked for innovation. By 2020, the government wants to increase that slice to 2 percent of GDP, roughly the EU average.
The government has said that it will spend PLN 6.5 billion on Polish science in 2014, with PLN 5 billion coming from state coffers and PLN 1.5 billion from EU funds. The EU has indeed been more than generous to Polish companies and science institutes. Over the next seven years, they can count on nearly €10 billion from EU money.
“The spending on R&D in the ICT sector has increased threefold over the past three years. … The biotechnology industry received 20 percent more R&D outlays,” said Dominik Rozkrut, vice president of Central Statistical Office (GUS) in Szczecin.
With all this funding flowing in, why can’t Poles cultivate their own Silicon Valley?
It’s not OK to fail
One reason is the very nature of these funds. As shown above, Polish R&D is fed mostly with tax money. And tax payers aren’t really into risky ventures. “In Silicon Valley they have this saying: ‘it’s OK to fail.’ In Poland, however, how do you tell the tax payers that an endeavor financed with their money failed?” said Jacek Tomkiewicz, professor of economics at Kozminski University.
But working on cutting-edge stuff needs money being spent quickly and flexibly, and tax money allows neither. “The state’s role is to fund base research, invest in human capital, organize mentoring programs and create a friendly business environment,” Tomkiewicz said.
There is, however, a lot of skepticism going round as to whether pumping all this money into science makes Poles more innovative. What does come out of the R&D pipeline?
Most of the funds for science are distributed mainly by two institutions: the National Research and Development Centre (NCBiR) based in Warsaw, and the National Science Centre (NCN) in Kraków. While the NCBiR focuses more on turning scientific discoveries into business value, NCN finances predominantly base research.
Luckily, the effects of base research are not easy to measure, or we’d be in trouble. There is little accountability in base research: a researcher procures a grant, works on his dissertation or papers for 3-5 years and then… poof. The money is gone but no one expects any real results in return.
“As long as you keep your books in check, spend the right amount on manpower, equipment etc., you are covered,” said one researcher who chose to remain anonymous. And so the bulk of these resources simply goes to advancing scientific careers – producing papers and dissertations.
The money can, however, be used for the production of more tangible investments. Eight Warsaw science faculties and institutes, led by the Warsaw University of Technology, have banded together to open a joint laboratory, called the Center for Advanced Materials and Technologies (CEZAMAT). The center’s purpose is to facilitate high-tech research and development in the field of nanotechnology, semiconductor microsystems, photonics and biotechnology.
“We want to focus predominantly on research that can produce useful results, which means they will have commercial applications. Secondly, we focus on cooperation between researchers representing various scientific fields. This is where we see CEZAMAT’s strength as well as opportunity for creating innovation,” Romuald Beck, science vice president of CEZAMAT, said.
The consortium will use EU funds as well as their own to build a nearly 22,000-sqm complex in Warsaw with state-of-the-art labs. The project received over €76 million from European Regional Development Fund in addition to the €13.5 million of local funds. Construction has just been launched and the building is expected to be delivered by the end of 2015.
Creating a nurturing environment for scientists is all well and good, but business doesn’t always want to wait for scientists to come up with an invention. They want their innovation now, before competitors get their hands on them. And if you can’t finance these risky endeavors with public money, what then? How can you get more private venture capitalists and business angels involved in developing new tech? It’s not easy, especially if your tax system supports importing innovation rather than unearthing it at home.
For example, Polish businesses get over 50 percent write-offs for purchasing and implementing technology no older than five years old. Purchasing, not developing, mind you. The only companies that enjoy tax breaks for R&D spending are major research centers, with revenues of €1.2 million, at least 20 percent of which comes from selling R&D services or intellectual property rights.
“An increasing number of countries see that designing and implementing a system of mixed incentives is crucial to creating for businesspeople the conditions to plan their R&D long-term. EU subsidies, awarded through competitions and limited in their scope by subsequent budget perspectives, don’t allow them to do that,” said Magdalena Burnat-Mikosz, a partner at Deloitte. “Meanwhile, an effective tax relief for R&D is still at early planning stages, and Poland keeps trailing innovative economies,” she added.
Hub and room
Although Poland’s tax system does little to encourage private institutions to spend money on R&D, some venture capitalists are beginning to pop up here and there, looking for innovative ideas and energy to make them happen.
Deutsche Telekom (DT) has recently opened an entirely commercial enterprise, an innovation center (including a start-up incubator and accelerator and venture fund) called Hub:Raum. Unlike regular, publicly-funded tech parks, its scope of activity goes beyond offering office space to start-ups at preferential rates.
The center also invests capital (up to €30,000 of pre-seed capital plus up to €50,000 of seed capital over the first six months of partnership). In exchange DT gets up to 20 percent of the seed enterprise, just as any venture capitalist would. If the project proves successful, more financing is available from VC fund T-Venture.
Kraków is the second location for DT’s Hub:Raum, the first one being Berlin. The Kraków hub aims at attracting businesses from the entire CEE region.
“We realize that it is hard for fledgling firms to find a place to work. We cater to their needs by offering over 1,000 sqm of space, virtually unlimited access to Deutsche Telecom experts and mentors, marketing campaigns as well as good coffee. We welcome all those interested in innovation,” said Jakub Probola, head of Hub:Raum for CEE.
What is also noteworthy in this initiative is the emphasis it puts on disseminating knowledge: if you take an active part in the community by organizing workshops or by mentoring other start-ups, you pay only PLN 150 per desk per month, as opposed to PLN 600 if you don’t.
You might wonder, why would anyone go to such trouble to make people exchange ideas and knowledge? Don’t people do that on their own? Look at social websites and memes – after all, an insightful comment can make it around the world in a matter of hours. Isn’t cooperation a part of our nature?
Unfortunately, not for Poles. They are considered (by other Poles nonetheless) as highly uncooperative. They are ambitious and entrepreneurial (there are some 1.7 million SMEs active in Poland) but extremely distrustful. This is partly the fault of the communist system, which relied on a network of “snitches” keeping tabs on their neighbors and coworkers. But it is also propagated by the current education system, which promotes individualism and not collaboration.
“Poland scores really high in terms of literacy and numeracy, as evidenced by Poland’s 13th position in the global PISA ranking of 15-year-olds, higher than Germany or the US. But what happens after that?” said Michał Boni, former minister of digitization.
Not much. Children grow up, go to universities and continue to excel, alone. “We often encourage students to write their MA theses in pairs or groups. But it happens very rarely. They just don’t trust one another,” Tomkiewicz said.
That is also probably why universities have such a hard time finding business partners, something the government has been trying to remedy for years by introducing a number of programs aimed at binding business with science.
“Scientists do come up with new technologies, but these rarely see the light of day. Companies need to get involved in such projects at an early stage, before an invention is commercialized,” said Dominik Jankowski, Enterprise Europe Network coordinator at the University of Warsaw’s Technology Transfer Centre (UOTT).
“The University of Warsaw sold five technologies over the past five years,” Jankowski added. So the universities are active, but business needs to cooperate.
How do you make business cooperate? “In the Intelligent Development program [part of the EU’s 2014-2020 financial perspective] companies will get the money to order research from companies. It is no longer Science-to-Business, but Business-to-Science,” Boni said.
Creating clusters is by far the best way to foster innovation. The Polish government has been hard at work to make that happen, building tech parks anywhere it can. There are one or two new tech parks being built in Poland each year.
But what good will they do if the only reason Poles have for banding together is to access EU money?
“Clusters are hooked up with an IV drip to EU funds,” said Bohdan Wyżnikiewicz, vice-president of the Polish Economists Society (TEP). But as soon as the money dries up, 80 percent of all clusters fall apart. Again, mainly because of Poles’ distrust of one another.
Trust issues aside, does it really make sense to build all this space in the most remote and small backwaters in the hope that they will spark some tech genius with their fiber optic internet and preferential rents? Wouldn’t it make more sense to foster innovation where it already exists?
Pulling the weight
Mazowieckie voivodship is by far the most innovative part of Poland. It pulls the weight of the entire country, attracting 50 percent of Poland’s FDI.
It is in fact the only Polish region that made it to the next-to-last “moderate innovator” category, with all the other regions still classified in the bottom cluster, euphemistically called “modest innovators” in the latest Innovation Union Scoreboard.
But the new 2014-2020 Intelligent Development program will see nearly 90 percent of all resources allocated to Poland’s underdeveloped regions. The question is: What is Poland’s priority when it comes to innovation? Fighting inequality on a national level or helping those few brighter areas on the country’s map to catch up with the EU, not to mention the rest of the world?
The 88-mph train is almost at the Ravine, so if Poland wants to hitch that ride, it’ll have to do better.