How the EU CHIPS Act Could Build “Innovation Capacity” in Europe

EU is funding research on green stuff? Let's just add that angle to our project even though we don't care about it one bit.

You'll also notice how the money always goes to the big ancient established corporations and never to start-ups.

Can confirm. Have worked at EU companies that do just that. No innovation comes out, just paperwork, and taxpayer money goes into the pockets of the system savvy and well connected entrepreneurs. There's also middle-men who will do the paperwork for you if you give them a cut.

It's basically a bureaucratic driven form of wealth transfer if you know how to play the game.

For example, the EU announces "We have €20B to be divided between companies who can make the EU have a 30% share in worldwide semiconductor production by 2030".

Then, in 2030, you see to what extent the goal was achieved, and if so, get every company to say how they helped achieve the goal. Then you have a bunch of experts vote to divide up the pie based on who contributed what.

Companies who do paperwork and nothing else will turn out to not be major contributors. Companies who churn out millions of useless chips which are outdated before they even hit shelves and end up in landfill will also not be seen as big contributors by the expert pool.

Obviously, companies need the investment upfront to go do the task - but investors will bridge the gap in most cases - ie. "I'll pay for this semiconductor factory now, as long as you give me the €4B that I expect you will probably be awarded when it turns out you produced half the semiconductors between now and 2030".

It is a solved problem. It has been solved by free market economy. The EU is not into that.

In terms of innovation there is nothing interesting happening. There no will to create anything resembling something that could become a product. That is by design, the EU literally pushes on that direction.

One of the stipulations of many of these grants is that some large percentage of funds have to go directly to costs associated with the research: paying employees, buying equipment, renting office space, whatever. I don't remember what the actual number usually is, but it's a pretty high percentage, something like 80 or 90%. It's fairly low risk because, if I understand correctly, you get paid even if the result isn't particularly useful. But if your company has a track record of good results, they're more likely to get more grants in the future.

Big corporations wouldn't touch this with a ten foot pool because they expect much higher profit margins than 10 or 20%. Unless it's funding something they were planning to do anyways, in which case it might make sense. I think the company that does the research is usually free to commercialize the tech if they want to.

  It seems that nearly every big EU funded investment program seems to have all the funds slurped up by companies that specialize in grant applications and doing as little as possible to get the government funding, while doing not much of any use to anyone.

A great VC quote about a big Canadian startup in it's death throes:

  .the failure ... is indicative of Canada’s “nascent venture ecosystem,” which is racked by “incestuous” relationships stemming from extensive Crown institution involvement in the sector.
  “Canada needs to figure out how to get the politics out of its capital. It does feel cautious and political. You don’t want cautious and political in a crisis. 
  Decisions around the table felt like they were coloured by: ‘How we’re connected to this and who will think this and I don’t want blame for this.’ It caused people to sit on their hands.”

And that doesn't even get into the tax credit and granting regimes (superusters) that have completely corrupted how any corporate R&D gets done.

In pharmaceuticals and biotech, Denmark, France, and Switzerland are all significant R&D centers with a strong public-private relationship.

In aerospace, the EU has always been decently competitive.

Same thing in automotive R&D (EV notwithstanding).

If you're comparing with Electronics hubs like Japan, SK, and Taiwan, a lot of that is also due to a number of Electronics industry players being located out West and significant diasporas of Japanese, SK, and Taiwanese nationals ended up working in those industries in their heyday and were able to finagle FDI through a mix of diasporas networking within the US and the Old Country and some level of government involvement.

Similar things happened in the EU Pharma industry with a number of French/German/British educated scientists working in Boston+NJ and returning to their home country down the line.

EU's big lead on EUV tech with ASML partly came out of US government/industry partnership (EUV LLC in the 1990s), which is why we could restrict them even now from selling to China.

For the last part though I'm not sure - is the gap in important technologies really growing ?

By technological gap, I mean real technological progress - smartphones app or any forever money losing business like Uber don't qualify neither.

Eventually someone like Elon Musk or Steve Jobs notices that there are some new products or processes or algorithms now available that weren't before, and they realize that that unblocks them from doing something that maybe people have wanted to do for a long time but they couldn't.

Sometimes companies might do some original research of their own. It does happen, but Universities have the advantage of a lot of really smart people willing to work for very little money, plus they have open communication with a diverse collection of peers and they're all trying to publish results not hide them away. So, they can generally get more done with less money.

If the government grants enable someone somewhere to make a billion dollars, that's considered money well spent because it grows the economy and they collect more tax revenue somewhere and maybe the Billionaires will even fund the re-election campaigns of their congressional representatives and everyone lives happily ever after. That's just how the system works.

(I think big pharmaceutical companies may be an exception in that I think they often are funded directly by the government to work on whatever the NIH thinks is important, such as cancer, diabetes, etc.. instead of what the drug companies would rather work on, like male pattern baldness. I don't know much about drug research so I can't really comment there.)

[1] https://seekingalpha.com/news/3926368-intel-ceo-says-italy-s...