4.3. Business environment
The business environment is key to creating the conditions necessary to allow firms to increase their productivity and compete effectively in international markets. Table 14 rovides a summary of the situation in the Basque Country with regard to these indicators. We can see that although in absolute terms, positive progress was made compared to the previous year in many indicators, in relative terms, the progress is mainly negative, with the Basque Country losing positions (however slightly) in almost all the rankings. We will now discuss the situation and trends in each of the indicators for both the last year and, as presented in Graph 14, previous years.
Compared to the reference regions, the Basque Country occupies a medium-low position in human resources in science and technology
The first group of indicators refers to aspects related to the labour resources available in the territory. In science and technology human resources, which increased slightly in the last year, the Basque Country has a strong position in comparison with the autonomous communities and cities, intermediate when compared with the European regions as a whole, and a medium–low position compared to the reference regions. In recent years, the values for this indicator have remained fairly steady, below the average for Europe and the reference regions since 2011, and some distance from Germany.
The Basque Country is correcting the relative weakness of its population in training, especially due to the high levels of students in tertiary education
When we consider the entire population between the ages of 25 and 64, we find that after the common age for formal education is reached, the education level fluctuates very little from one year to the next, increasing slightly because the young people joining the cohort have more education than the older people leaving it. Given that the highest age bands have the worst level of education (compared to other European regions, and especially the reference regions), this is one of the business environment indicators in which the Basque Country has the weakest position, in comparison with both the European regions and the reference regions. However, it is very well positioned within Spain. Nonetheless, deficiencies in the highest age bands are offset by the education levels of younger people in terms of tertiary education. Consequently, although the value of the indicator dropped slightly in the last year, which caused the Basque Country to lose positions in the ranking of European regions (falling to below 50th place), it still remains quite high compared to the reference regions and the autonomous communities and cities, and above all the territories included in the trend graph.
The position of vocational education is a little worse than tertiary education, and dropped in both value and positions in the ranking in the last year. However, even so, it is in a medium–high position when compared to the European regions and the autonomous communities and cities, and an intermediate position compared to the reference regions. Nonetheless, it should be noted that the percentage is higher than the German average.
Compared to the reference regions, the Basque Country occupies an intermediate position in the rankings for participation in vocational training and a medium-low position in continuous training
As regards the population engaged in further education, which is necessary to continue acquiring skills, on the positive side, the Basque Country’s good position in relation to both Spain and Europe as a whole, and the positive progress in recent years should be noted. Despite this good progress, the medium–low position we see compared to the reference regions may point to a relative weakness with regard to these regions, whose structural conditions are the most similar to the Basque Country. This relative weakness has been carried over for several years.
The second group of business environment indicators measures R&D capacity, both public (government and universities) and total. In other words, they also include those for the business sector, already described in the analysis of business performance. Both are included to account for the possible distortion resulting from counting the R&D investment for technology centres and CRCs as private. This explains why the relative positions in public R&D expenditure and personnel are lower than the total. In Table 14, which has data for 2015, we see that, with the exception of personnel in public R&D (which remained constant), the other three indicators had dropped in absolute terms and held or lost position in comparison with all the territories. Graph 14 makes it possible to see what happened the following year: the R&D personnel indicator increased slightly and there was a drop in the other three indicators.
There is a contraction in R&D activity, accompanied by an improvement in the efficiency or productivity of the R&D performed
This downturn in R&D activity was accompanied by an improvement in the efficiency and productivity of the R&D carried out, which is of course positive. However, it would have been even more so if the improvement in R&D productivity, rather than being the result of what economists term passive increases in productivity (in other words, increases resulting from a sharp drop in the denominator: R&D activity carried out), had come from active increases (in other words, from increases in the numerator or innovation output: patents, new products, etc.). The reduction in R&D expenditure was due, among other things, to a decline in the number of firms doing R&D (normally, those that engaged in R&D in a more occasional and less systematic manner), so that the ones that remain are more efficient. However, this shrinks the base for future R&D growth. This is particularly applicable to indicators of total R&D expenditure. Public R&D expenditure, despite having been above the European average, fell below that level beginning in 2015, the result of the decline in the last two years and the increase in Europe.
The digitisation capacities installed place the Basque Country close to Europe's leading countries, but there are shortcomings in terms of the use in households and a possible lack of ICT specialists for developing digital services
Box 2 Principal conclusions of the DESI report on the Basque Country
In line with the business environment indicators, Orkestra has prepared a report on the digitalization of the Basque economy and society, measured by means of the DESI indicator. This indicator includes five dimensions: connectivity, human capital, use of Internet, integration of digital technology in firms and digital public services. As data are not available for the European regions, the comparison is with countries. It should therefore be remembered that within these countries there are significant differences which disappear when we look at the national average.
As a whole, the Basque Country is approaching convergence with the European leaders, primarily due to its high connectivity capabilities, the level of human capital and the more than satisfactory level of integration of digital technology at firms and public administrations. In contrast, the degree of digitalization in Basque households is less than in European households.
As regards indicators of the environment, the Basque Country is correcting its relative weakness in terms of the education and training of the population as a whole (an indicator of stock which varies little from year to year), which is continuing to engage in further education (although less than in the reference regions), primarily due to the high levels of students in tertiary education. In the area of vocational education, it is notable that the percentage of students is higher than that of Germany, although it declined in the last year and stands at a medium-to-high or intermediate position in the rankings. The innovation indicators point to a downswing in inputs which, according to perceptions, may have corrected itself in the last year. This downswing has resulted in a passive increase in efficiency, but may endanger the base for future R&D growth. Lastly, digitalization indicators indicate that installed capabilities (for both connectivity and human capital) have made it possible for the Basque Country to position itself close to the leading European countries (although the data do not make it possible to analyse the regional differences within each country). However, there are still gaps in the rate of use by households and a possible lack of ICT specialists to develop digital services.
Although from Graph 14 it might be possible to interpret that this began in 2013, in reality it was probably earlier, as the jump observed in the series for the reference regions that year is due to a methodological change in how this variable is calculated in the French regions, many of which are part of the reference group.
Digital Economy and Society Index