1. (SBU) SUMMARY: TAKEN IN SCHUMPETERIAN TERMS, ITALY IS
POORLY POSITIONED AT PRESENT TO GENERATE OR BENEFIT IN EARLY
STAGES FROM THE "LONG WAVES" OF RESEARCH, INVENTION, AND
INNOVATION WHICH CHARACTERIZE MAJOR TECHNOLOGICAL PARADIGM
SHIFTS LIKE INFORMATION COMMUNICATION TECHNOLOGY (ICT),
BIOTECHNOLOGY, OR NANOTECHNOLOGY. WHILE ITALY CAN AND DOES
GENERATE SCIENTIFIC BREAKTHROUGHS, ESPECIALLY IN
HISTORICALLY STRONG DISCIPLINES SUCH AS MEDICINE AND
PHYSICS, AND CAN PRODUCE BRILLIANT INNOVATIONS, IT DOES NOT
HAVE AT PRESENT EITHER THE NECESSARY LEVEL OF R AND D
FUNDING AT THE NATIONAL LEVEL OR THE CRITICAL MASS OF
KNOWLEDGE CHARACTERISTIC OF INTERNATIONAL TECHNOLOGY
CLUSTERS. ITALIAN ATTEMPTS TO BUILD THESE LINKS TO DATE -
VIA SCIENCE AND TECHNOLOGY PARKS, CENTERS OF EXCELLENCE OR
DESIGNATED TECHNOLOGY "POLES" OR REGIONS - HAVE ACHIEVED
LIMITED SUCCESS. ITALIAN INDUSTRY CONTINUES TO PLACE TOO
MUCH CONFIDENCE ON HIGH TECHNOLOGY TO GROW NEXT GENERATION
BUSINESS, WHETHER NEW OR TRANSFORMATIONS OF EXISTING
INDUSTRIES. LAST, THE CULTURE OF RESEARCHERS IN ITALY -
HIGHLY INDEPENDENT, COMPETITIVE - CONTINUES TO CONFOUND
UNCLASSIFIED

PAGE 03 ROME 02330 01 OF 06 310644Z
EFFORTS TO DERIVE ECONOMIC RETURNS FROM PUBLIC INVESTMENT.
THE REFORMS OF MINISTER FOR EDUCATION, UNIVERSITY AND
RESEARCH (MIUR) LETIZIA MORATTI ARE INTENDED TO IMPROVE THE
EFFICIENCY OF RESEARCH "THROUGHPUTS" TO INDUSTRY, AND TO
CONVINCE INDUSTRY TO INVEST MORE IN R AND D, IN ACCORDANCE
WITH EU STRATEGIES. THE RESIGNATION OF FORMER CNR PRESIDENT
LUCIO BIANCO (REF D), UNDER FIRE FROM THE MINISTER FOR THE
LAST HALF YEAR, COULD BE A SIGNIFICANT STEP ALONG THE PATH
TO REFORM. NEW CNR COMMISSIONER DESIGNATE ADRIANO DE MAIO
TOLD US ON MAY 20 THAT HE PLANS TO MOVE ON MORATTI'S PROGRAM
WITH A MINIMUM OF TALK AND A MAXIMUM OF ACTION. END
SUMMARY.



--------------------------


CNR REFORM REDUX? BACKGROUND AND STATUS


--------------------------





2. (U) ON JAN. 31, 2003 THE COUNCIL OF MINISTERS ISSUED A
DRAFT DECREE TO REFORM THREE RESEARCH INSTITUTES (THE
NATIONAL RESEARCH COUNCIL - CNR, THE SPACE AGENCY - ASI, AND
THE NATIONAL INSTITUTE OF ASTROPHYSICS - INAF). WHILE
REFORM FOR ASI AND INAF IMPLIES MINOR CHANGES, THE CNR WOULD
BE RADICALLY RESTRUCTURED, AND THE COUNCIL OF MINISTERS
DECIDED TO APPOINT A COMMISSIONER (PROF. ADRIANO DE MAIO) TO
OVERSEE THE REFORM. CURRENT CNR PRESIDENT LUCIO BIANCO
APPEALED TO THE ADMINISTRATIVE REGIONAL COURT (TAR) WHICH
SUSPENDED HIS DISMISSAL ON FEB. 20. ON MAY 13, BIANCO
RESIGNED WHEN HE LEARNED THAT THE RESEARCH REFORM PROPOSAL
HAD BEEN SUPPORTED BY THE TECHNICAL ADVISORS OF THE COUNCIL
OF MINISTERS, WHICH APPROVED THE REFORM LAW DECREES ON MAY
16 (REF D).
UNCLASSIFIED

PAGE 04 ROME 02330 01 OF 06 310644Z



3. (U) THE LATEST REORGANIZATION CONFIRMED A SERIES OF
INITIATIVES THAT DATES FROM 1999 (REFS A-C). THE 1999
REFORM, WHICH CONSOLIDATED THE MORE-THAN-300 INSTITUTES OF
CNR INTO 108, TURNED OUT TO SIMPLY RENAME THE HEADS OF THE
INSTITUTES TO DIVISION DIRECTOR POSITIONS AND FAILED TO
ACHIEVE THE ECONOMIES OF SCALE OR INTERDISCIPLINARY ACTIVITY
INTENDED BY THE REFORM. ONE POSITIVE ACHIEVEMENT WAS THE
INTRODUCTION OF A PEER-REVIEW SYSTEM FOR THE EVALUATION OF
RESEARCH PROPOSALS.



4. (U) CNR WAS HELD UP TO PUBLIC SCRUTINY FOR ITS MORIBUND
WAYS SEVERAL TIMES IN THE FALL OF 2001 IN NATURE MAGAZINE,
PARTICULARLY IN ITS INTERNATIONAL SEARCH FOR NEW CNR
INSTITUTE DIRECTORS, ALL OF WHOM TURNED OUT ULTIMATELY TO BE
ITALIAN AND FORMER CNR DIRECTORS. ACCORDING TO A PRESS
ARTICLE, THE CORTE DEI CONTI (THE SUPREME ADMINISTRATIVE
COURT) COMMENTED ON THE CNR REFORM IN AUGUST 2002: "108
INSTITUTES SURVIVED A REFORM WHICH ESSENTIALLY WAS LIMITED
TO AGGREGATIONS WITHOUT A STRATEGIC DESIGN AND JUST MOVED
INSTITUTES INTO OTHER INSTITUTES INSTEAD OF CLOSING THEM.
MOREOVER, THE FACT THAT THE INSTITUTES ARE LOCATED
[GEOGRAPHICALLY] FAR FROM EACH OTHER INCREASES THE RISK OF
DUPLICATIVE ACTIVITY THAT WAS TYPICAL OF THE PREVIOUS CNR
ORGANIZATION AND THUS SUBSTANTIALLY BETRAYS THE AIM OF THE

UNCLASSIFIED

UNCLASSIFIED PTQ8139

PAGE 01 ROME 02330 02 OF 06 310645Z
ACTION OES-00

INFO LOG-00 AID-00 CIAE-00 DINT-00 DODE-00 DOEE-00 SRPP-00
EB-00 EUR-00 E-00 UTED-00 VC-00 TEDE-00 INR-00
IO-00 L-00 VCE-00 AC-01 NSAE-00 NSCE-00 NSF-01
OIC-02 PM-00 PRS-00 ACE-00 SP-00 SSO-00 SS-00
TEST-00 T-00 USIE-00 EPAE-00 PMB-00 G-00 SAS-00
/004W


--------------------------

6D7D50 310645Z /21
R 280806Z MAY 03
FM AMEMBASSY ROME
TO SECSTATE WASHDC 0103
USDOC WASHDC
WHITE HOUSE WASHDC
INFO AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 02 OF 06 ROME 002330

SIPDIS

PARIS FOR NSF REP SCHINDEL
DEPT FOR OES/STC AND STAS, EUR/WE

WHITE HOUSE FOR OSTP
USDOC FOR TA MILLICK

SENSITIVE
UNCLASSIFIED

PAGE 02 ROME 02330 02 OF 06 310645Z

E.O. 12958: N/A
TAGS: TSPL KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY IT ITTSPL ITTSPL ITTSPL ITTSPL ITTSPL
SUBJECT: SWEEPING ITALIAN RESEARCH REFORMS SWEEP OUT CNR
PRESIDENT BIANCO BUT MAY NOT SWEEP IN INDUSTRIAL INNOVATION

REFORM." CNR HAS 8082 EMPLOYEES, 4319 RESEARCHERS, 2643
TECHNICIANS, AND 1120 ADMINISTRATIVE PERSONNEL. FOR 2003,
THE CNR WILL RECEIVE 544 MILLION EURO AND SPEND 413 MILLION
IN SALARIES, AND 50 MILLION IN OPERATIONS AND MAINTENANCE.
ONLY 81 MILLION EURO ARE LEFT FOR RESEARCH PROJECTS.



--------------------------


THE 2003 REFORM - HIGHLIGHTS


--------------------------





5. (U) RESEARCH MINISTER MORATTI'S 2003 REFORM REORGANIZES
THE CNR INTO EIGHT LARGER DEPARTMENTS THAT WOULD USE BOTH
PUBLIC AND PRIVATE FUNDS FOR OPERATIONS AND RESEARCH. THE
DEPARTMENTS, ALSO CALLED "MACRO-AREAS", WILL BE:

1) BIOTECHNOLOGIES
2) MEDICAL SCIENCE AND TECHNOLOGIES
3) MATERIALS SCIENCE AND TECHNOLOGIES (INCLUDING
NANOTECHNOLOGIES)
4) ENVIRONMENT AND EARTH SCIENCES AND TECHNOLOGIES
5) INFORMATION AND COMMUNICATION SCIENCES AND TECHNOLOGIES
6) ADVANCED PRODUCTION SYSTEM SCIENCES AND TECHNOLOGIES
7) JURIDICAL AND ECONOMIC SCIENCES
8) HUMANISTIC SCIENCES

UNCLASSIFIED

PAGE 03 ROME 02330 02 OF 06 310645Z
THE EIGHT DEPARTMENTS WILL 1) COORDINATE THE INSTITUTES
WITHOUT DUPLICATION OF ACTIVITY; 2) ALLOCATE FUNDS ACCORDING
TO THE PROGRAMS AUTHORIZED BY A NEW ADMINISTRATIVE BOARD; 3)
ENTER INTO THE EUROPEAN EXCELLENCE NETWORK, AND PROMOTE
INTERNATIONAL CONTACTS; AND 4) SUPPORT COOPERATION WITH THE
INDUSTRIAL SECTOR.



6. (U) THE NEW REFORM ALSO PROVIDES FOR:
- CREATION OF AN ADMINISTRATIVE BOARD - A GOVERNING BODY -
COMPOSED OF THE CNR PRESIDENT AND SIX PROMINENT
SCIENTISTS/MANAGERS NOMINATED BY THE MINISTRY, THE STATE-
REGION CONFERENCE, THE UNIVERSITIES RECTORS CONFERENCE, THE
CHAMBERS OF COMMERCE, AND CONFINDUSTRIA (INDUSTRIES
ASSOCIATION).
- A NEW SCIENTIFIC COUNCIL (20 MEMBERS NOMINATED BY THE
ADMINISTRATIVE BOARD, THE CNR PRESIDENT, THE CNR
RESEARCHERS, AND THE NATIONAL COUNCIL OF ECONOMY AND LABOR)
- A NEW EVALUATION COMMITTEE (EIGHT CNR-EXTERNAL MEMBERS
NOMINATED BY THE MINISTRY, THE STATE-REGION CONFERENCE, THE
UNIVERSITIES RECTORS CONFERENCE, THE CHAMBERS OF COMMERCE)
- A NEW COUNCIL OF DEPARTMENTS DIRECTORS (CNR PRESIDENT, DG,
AND DIRECTORS)
- A NEW AUDITORS' COMMITTEE (THREE MEMBERS NOMINATED BY THE
RESEARCH MINISTRY AND BY THE ECONOMY MINISTRY)



--------------------------



--------------------------


ITALIAN SCIENTISTS ARE DIVIDED BY WHOSE OX IS GORED


--------------------------



--------------------------





7. (SBU) RESEARCHERS ARE DIVIDED INTO TWO GROUPS: ONE
GROUP FAVORING MORATTI'S REFORM WROTE THE MINISTER A LETTER
UNCLASSIFIED

PAGE 04 ROME 02330 02 OF 06 310645Z
LAST FEBRUARY OFFERING COOPERATION TO IMPROVE THE ITALIAN
RESEARCH SYSTEM. ACCORDING TO THE PRESS, THIS GROUP
SUPPORTS THE REFORM'S CONCENTRATION OF FUNDS TO A FEW
SPECIFIC OBJECTIVES, AND THE INTEGRATION OF ITALIAN RESEARCH
INTO THE EU RESEARCH NETWORK. THIS GROUP INCLUDES ENZO
BOSCHI, THE PRESIDENT OF THE NATIONAL INSTITUTE OF
GEOPHYSICS, ENRICO GARACI, THE PRESIDENT OF THE NATIONAL
INSTITUTE OF HEALTH, SERGIO VETRELLA, THE PRESIDENT OF THE
ITALIAN SPACE AGENCY, AND ENZO IAROCCI, THE PRESIDENT OF THE
NATIONAL INSTITUTE OF PHYSICS.



8. (SBU) SCIENTISTS OPPOSING MORATTI'S REFORM - MAINLY CNR
RESEARCHERS - BELIEVE THE PLAN WILL INTRODUCE TOP-DOWN
GOVERNMENT CONTROL OF RESEARCH PRIORITIES AND THUS CHANGE
THE PRESENT ARRANGEMENT OF ALLOWING CNR RESEARCHERS TO
DEVELOP THEIR OWN AGENDA AND PROJECTS BOTTOM-UP. ON FEB.
12, 2003, PROF. BIANCO SAID THAT "THIS GOVERNMENT
(BERLUSCONI'S) CUTS THE FUNDS AND PILOTS THE MANAGEMENT OF
WHAT IS LEFT." IN PARTICULAR, BIANCO AND OTHER MEMBERS OF
THE CURRENT BOARD OF DIRECTORS, OPPOSED THE CREATION OF THE
NEW DEPARTMENTS, WHICH WOULD INCREASE THE "CENTRAL
BUREAUCRACY". COMMENT: ACTUALLY, THE WHOLE POINT OF THE
MORATTI REFORM IS TO REDUCE THE CNR BUREAUCRACY, WHICH WAS
UNRESPONSIVE TO DIRECT INSTRUCTIONS FROM THE MINISTRY DURING
BIANCO'S TENURE. END COMMENT.

UNCLASSIFIED

UNCLASSIFIED PTQ8140

PAGE 01 ROME 02330 03 OF 06 310645Z
ACTION OES-00

INFO LOG-00 AID-00 CIAE-00 DINT-00 DODE-00 DOEE-00 SRPP-00
EB-00 EUR-00 E-00 UTED-00 VC-00 TEDE-00 INR-00
IO-00 L-00 VCE-00 AC-01 NSAE-00 NSCE-00 NSF-01
OIC-02 PM-00 PRS-00 ACE-00 SP-00 SSO-00 SS-00
TEST-00 T-00 USIE-00 EPAE-00 PMB-00 G-00 SAS-00
/004W


--------------------------

6D7D5B 310645Z /21
R 280806Z MAY 03
FM AMEMBASSY ROME
TO SECSTATE WASHDC 0104
USDOC WASHDC
WHITE HOUSE WASHDC
INFO AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 03 OF 06 ROME 002330

SIPDIS

PARIS FOR NSF REP SCHINDEL
DEPT FOR OES/STC AND STAS, EUR/WE

WHITE HOUSE FOR OSTP
USDOC FOR TA MILLICK

SENSITIVE
UNCLASSIFIED

PAGE 02 ROME 02330 03 OF 06 310645Z

E.O. 12958: N/A
TAGS: TSPL KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY IT ITTSPL ITTSPL ITTSPL ITTSPL ITTSPL
SUBJECT: SWEEPING ITALIAN RESEARCH REFORMS SWEEP OUT CNR
PRESIDENT BIANCO BUT MAY NOT SWEEP IN INDUSTRIAL INNOVATION



--------------------------



--------------------------


RESEARCHERS: TURN IN YOUR LAB COATS AND TEST TUBES!


--------------------------



--------------------------





9. (U) BIANCO AND RESEARCHERS OPPOSED TO THE MORATTI REFORM
ORGANIZED ON FEB. 12, 2003 A DEMONSTRATION IN FRONT OF THE
PARLIAMENT, WHERE THEY LEFT THEIR WHITE COATS AND LAB TUBES.
THEY CLAIMED THE REFORM WAS PREPARED WITHOUT CONSULTING CNR
RESEARCHERS, AND INTRODUCED NEW GOVERNMENT CONTROLS IN A
LESS-AND-LESS FUNDED RESEARCH ENVIRONMENT. NOTE: MEMBERS
OF THE CENTER-LEFT MINORITY COALITION WERE REPORTED TO BE
PART OF THE DEMONSTRATION. END NOTE. MORATTI EXPLAINED TO
THE PARLIAMENT THAT CNR HAD TO BE GOVERNED TEMPORARILY BY A
COMMISSIONER BECAUSE PRESIDENT BIANCO STRONGLY OPPOSED THE
REFORM. BIANCO REPLIED THAT HE HAD REPEATEDLY ASKED THE
MINISTER TO ADDRESS THE PRO'S AND CON'S OF THE 1999 REFORMS
AND CNR COMMENTS ON THE 2002 RESEARCH GUIDELINES ISSUED BY
MORATTI.



10. (U) ON MARCH 11, BIANCO EXPLAINED THE RESEARCHERS'
PERPLEXITY ABOUT THE MORATTI REFORMS BEFORE THE PARLIAMENT
AND THE MINISTER. ACCORDING TO THE PRESS, THE FINAL LAW
DECREES APPROVED ON MAY 16 HAVE INCORPORATED A FEW CHANGES
DURING THEIR APPROVAL PROCEDURE THROUGH SIX PARLIAMENTARY
UNCLASSIFIED

PAGE 03 ROME 02330 03 OF 06 310645Z
COMMITTEES. THE FINAL TEXT IS NOT YET AVAILABLE.



11. (SBU) ON MAY 20, PROF. ADRIANO DE MAIO, WHO WILL BE
APPOINTED AS CNR COMMISSIONER THE WEEK OF MAY 26 - TOLD
ESTCOUNS HIS PRIORITIES FOR THE CNR REFORM:
- DEVOTE MORE CNR FUNDS TO RESEARCH, BY REDUCING THE
ADMINISTRATIVE STAFF AND COSTLY NON-RESEARCH
INFRASTRUCTURES.
- TRANSFORM CNR IN A RESEARCH AGENCY AND ENCOURAGE MOBILITY
OF RESEARCHERS FROM UNIVERSITIES TO CNR TO ALLOW YOUNGER
RESEARCHERS TO FLOW TO CNR.
- IMPLEMENT AN EVALUATION SYSTEM FOR RESEARCH RESULTS.
- CONCENTRATE FUNDS IN FEW STRATEGIC SECTORS (DE MAIO
MENTIONED: NEW MATERIALS, NANOTECHNOLOGY, ICT, ENERGY)
WHICH COULD DEVELOP INDUSTRIAL APPLICATIONS, AND IN FEW
CENTERS OF "EXCELLENCE" (E.G.: LECCE, MILAN, TRENTO,
TRIESTE, AND NAPLES).



12. (SBU) COMMENT: WE DO NOT KNOW HOW FAR DE MAIO WILL BE
ABLE TO GO, ESPECIALLY IN REDUCING OR MOVING LONG-ENTRENCHED
CNR BUREAUCRATS AND ADMINISTRATORS TO OTHER MINISTRIES; OR
CONCENTRATING THE FUNDS IN ONE CENTER PER STRATEGIC SECTOR,
THEREBY EXPECTING THE ITALIAN RESEARCHERS TO OVERCOME THEIR
OFTEN DISADVANTAGEOUS COMPETITION AND AVERSION TO MOVE FROM
NORTH TO SOUTH. HOWEVER, DE MAIO APPEARED EXPERIENCED AND
EAGER TO ACT, AND WAS CERTAINLY OPTIMISTIC ABOUT REACHING
HIS TARGETS GIVEN THE RESEARCH MINISTER'S SUPPORT. END
COMMENT.



--------------------------


GUIDELINES FOR RESEARCH EVALUATION
UNCLASSIFIED

PAGE 04 ROME 02330 03 OF 06 310645Z


--------------------------





13. (U) AS PART OF THE 2003 REFORM, MINISTER MORATTI ALSO
RELEASED NEW GUIDELINES FOR EVALUATION OF RESEARCH PROPOSALS
AND RESULTS. NOTE. RESEARCH EVALUATION WAS INTRODUCED FOR
THE FIRST TIME IN THE 1999 REFORM, BUT ONLY FOR PROPOSALS
(I.E. NO RESEARCH FINDINGS NEEDED TO BE REPORTED BY
SUPPORTED RESEARCHERS). END NOTE. THE GUIDELINES PROVIDE
FOR THE APPOINTMENT OF ABOUT 150 PEER-REVIEWERS "WHO MUST BE
EXTERNAL TO THE GOI RESEARCH INSTITUTES" AND SHOULD INCLUDE
FOREIGN RESEARCHERS. THE EVALUATION WILL INCLUDE QUALITY,
ORIGINALITY, INNOVATION, INTERNATIONAL COOPERATION, AND THE
ECONOMIC IMPACT OF SUPPORTED PROJECTS.



--------------------------


2002 GOI PUBLIC RESEARCH FUNDS


--------------------------


AGENCY MILLIONS EURO

ASI - ITALIAN SPACE AGENCY 638
CNR 544
INFN - NUCLEAR PHYSICS 287
INFM - PHYSICS OF MATTER 24
INGV - GEOPHYSICS AND VULCANOLOGY 21
OGS - OCEANOGRAPHY AND GEOPHYSICS 11

UNCLASSIFIED

UNCLASSIFIED PTQ8141

PAGE 01 ROME 02330 04 OF 06 310646Z
ACTION OES-00

INFO LOG-00 AID-00 CIAE-00 DINT-00 DODE-00 DOEE-00 SRPP-00
EB-00 EUR-00 E-00 UTED-00 VC-00 TEDE-00 INR-00
IO-00 L-00 VCE-00 AC-01 NSAE-00 NSCE-00 NSF-01
OIC-02 PM-00 PRS-00 ACE-00 SP-00 SSO-00 SS-00
TEST-00 T-00 USIE-00 EPAE-00 PMB-00 G-00 SAS-00
/004W


--------------------------

6D7D60 310646Z /21
R 280806Z MAY 03
FM AMEMBASSY ROME
TO SECSTATE WASHDC 0105
USDOC WASHDC
WHITE HOUSE WASHDC
INFO AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 04 OF 06 ROME 002330

SIPDIS

PARIS FOR NSF REP SCHINDEL
DEPT FOR OES/STC AND STAS, EUR/WE

WHITE HOUSE FOR OSTP
USDOC FOR TA MILLICK

SENSITIVE
UNCLASSIFIED

PAGE 02 ROME 02330 04 OF 06 310646Z

E.O. 12958: N/A
TAGS: TSPL KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY IT ITTSPL ITTSPL ITTSPL ITTSPL ITTSPL
SUBJECT: SWEEPING ITALIAN RESEARCH REFORMS SWEEP OUT CNR
PRESIDENT BIANCO BUT MAY NOT SWEEP IN INDUSTRIAL INNOVATION

INAF - ASTROPHYSICS 8
UNIVERSITY 134
ISS - INSTITUTE OF HEALTH 7
IRCSS - BIOMEDICAL RESEARCH 183


--------------------------


TOTAL 1,857

NOTE: EMBASSY HAS LITTLE CONFIDENCE IN THE COMPLETENESS AND
RELIABILITY OF THESE FIGURES, WHICH HAVE BEEN TAKEN FROM
SEVERAL BOTH PRIVATE AND PUBLIC SOURCES. END NOTE.


--------------------------



--------------------------


THE OTHER SIDE OF THE COIN - INDUSTRIAL INNOVATION


--------------------------



--------------------------





14. (U) IN SPITE OF ITS PRE-ELECTION PROMISES, THE
BERLUSCONI GOVERNMENT SINCE 2001 HAS NOT TRANSLATED ITS
RHETORICAL SUPPORT FOR SCIENCE AND INNOVATION INTO A BETTER-
FUNDED, MORE COMPETITIVE RESEARCH PROGRAM FOR ITALY. GOI
RESEARCH FUNDING, ADJUSTED FOR INFLATION, IS STILL IN
DECLINE: COMPARED TO 2002 LEVEL, CNR FUNDS WILL DECLINE BY 2
PCT IN 2003 AND BY AS MUCH AS 10 PCT IN 2004. IN ADDITION,
THERE IS A LOW INDUSTRIAL RESEARCH CAPACITY AND A LOW
MEASURED INVESTMENT BY SME COMPANIES IN R AND D.
UNCOMPETITIVE SALARIES AND BUREAUCRACY IN RESEARCH AGENCIES
HAVE CONTRIBUTED TO A "BRAIN DRAIN" OF TOP ITALIAN
UNCLASSIFIED

PAGE 03 ROME 02330 04 OF 06 310646Z
SCIENTISTS TO THE U.S. AND OTHER COUNTRIES.



15. (U) SOMEWHAT UNREALISTICALLY, THE INDUSTRIAL COMMUNITY,
DESPITE THE LOW OVERALL EXPENDITURES ON R AND D, AND TWENTY
YEARS OF LOW RANKING IN INNOVATION AND COMPETITIVENESS IN
OECD AND EU STATISTICS, CONTINUES TO BELIEVE R AND D SHOULD
DRIVE THE FUTURE OF ITALIAN INDUSTRY. ITALY'S CHIEF
FINANCIAL PAPER "IL SOLE-24 ORE," HAS FEATURED MANY ARTICLES
ON THE SHORTCOMINGS OF THE ITALIAN RESEARCH SYSTEMS IN THE
LAST THREE MONTHS. LOW TOTAL INVESTMENT IN R AND D, POOR
LINKAGES BETWEEN RESEARCH AND INDUSTRY (TRUE OF BOTH CNR
INSTITUTES AND UNIVERSITIES), COMPOUNDING FACTORS, WHICH
OFTEN SLOW INVESTMENT (INFLEXIBLE LABOR, GOVERNMENT
BUREAUCRACY), AGING INDUSTRIES LIKE CHEMICALS, AND SLOW
ENTRY INTO TECHNOLOGY PARADIGM SHIFT ARENAS LIKE ICT AND
BIOTECHNOLOGY, ALL SUGGEST CHANGE IS NEEDED.
CONFINDUSTRIA'S VICE PRESIDENT GIANCARLO CERUTTI HAS CALLED
ON THE ITALIAN GOVERNMENT TO CREATE A BRIDGE BETWEEN THE
WORLD OF INDUSTRY AND THAT OF THE UNIVERSITY. OTHERS SEE IN
PATENT LAW AND PRACTICE A KEY IMPEDIMENT, POINTING OUT THAT
THE PRODUCTIVITY OF ITALIAN RESEARCHERS, MEASURED IN
SCIENTIFIC CITATIONS PER EURO INVESTED IS SECOND IN THE G-7
TO ONLY GREAT BRITAIN. HOWEVER, IN TERMS OF PATENTS, ITALY
LAGS THE LEADERS BADLY. IN THE LAST FIVE YEARS, THE NUMBER
OF PATENTS FILED BY CNR HAS DECLINED 41 PCT WITH RESPECT TO
THE PRECEDING FIVE YEARS.



16. (U) EVEN FEWER PATENTS FIND THEIR WAY TO INNOVATIONS.
ACCORDING TO A MARCH 2003 PRESS REPORT, CNR MANAGES TO
LICENSE AND TRANSFER ONLY 20 PERCENT OF PATENTS FILED; THE
POLITECNICO IN MILAN HAS LICENSED ONLY ONE PATENT IN THE
UNCLASSIFIED

PAGE 04 ROME 02330 04 OF 06 310646Z
LAST THREE YEARS. CNR TRANSFERS TO INDUSTRY ONLY 7 PCT OF
THE PATENTS TRANSFERRED OR LICENSED BY MIT. FROM SALES AND
ROYALTIES OF PATENTS MIT DERIVES 10 PCT OF ITS ANNUAL BUDGET
WHILE CNR DERIVES LESS THAN 0.1 PCT OF ITS RESEARCH BUDGET
FROM SUCH TRANSFERS. TO PUT THE NAIL IN THE ITALIAN
INNOVATION COFFIN, IN TERMS OF RESEARCH-BASED SPIN-OFF'S, SO
FAR CNR HAS LAUNCHED ONLY 3, THE POLITECNICO ONLY 2, WHILE
AMERICAN UNIVERSITIES LAUNCHED 450 IN THE YEAR 2000 ALONE.



17. (U) ALL COMMENTATORS AGREE ON THE LACK OF SYNERGY
BETWEEN RESEARCHERS, INDUSTRIAL INNOVATORS, AND THE
FINANCIAL AND GOVERNMENT COMMUNITIES. MOST INDUSTRIALISTS
ARE QUICK TO BLAME THE GOVERNMENT AND LOW LEVELS OF PUBLICLY
FUNDED RESEARCH, BUT THE BLAME, IF ANY IS TO BE ATTRIBUTED,
HAS TO BE SHARED. ACCORDING TO THE 2002 EUROPEAN INNOVATION
SCOREBOARD, NONE OF THE TOP TEN REGIONS FOR INNOVATION IN
EUROPE IS IN ITALY. AMONG FOURTEEN INDICATORS IN THE EU
(E.G. SCIENCE AND ENGINEERING GRADUATES /20-29 YEARS;
POPULATION WITH TERTIARY EDUCATION; PUBLIC R AND D/GDP;
BUSINESS R AND D/GDP; HIGH TECH MANUFACTURING VALUE ADDED,
ETC), ITALY LEADS IN NO CATEGORY. WHILE THE OVERALL REPORT
IS FLAWED, AND INDICATORS GENERALLY NOT INTEGRATED DUE TO
DIFFERENT TIME PERIODS FOR DATA SETS, ITALY IS NEAR THE
BOTTOM OF THE EU LADDER IN PERCENTAGE OF POPULATION WITH

UNCLASSIFIED

UNCLASSIFIED PTQ8142

PAGE 01 ROME 02330 05 OF 06 310646Z
ACTION OES-00

INFO LOG-00 AID-00 CIAE-00 DINT-00 DODE-00 DOEE-00 SRPP-00
EB-00 EUR-00 E-00 UTED-00 VC-00 TEDE-00 INR-00
IO-00 L-00 VCE-00 AC-01 NSAE-00 NSCE-00 NSF-01
OIC-02 PM-00 PRS-00 ACE-00 SP-00 SSO-00 SS-00
TEST-00 T-00 USIE-00 EPAE-00 PMB-00 G-00 SAS-00
/004W


--------------------------

6D7D68 310646Z /21
R 280806Z MAY 03
FM AMEMBASSY ROME
TO SECSTATE WASHDC 0106
USDOC WASHDC
WHITE HOUSE WASHDC
INFO AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 05 OF 06 ROME 002330

SIPDIS

PARIS FOR NSF REP SCHINDEL
DEPT FOR OES/STC AND STAS, EUR/WE

WHITE HOUSE FOR OSTP
USDOC FOR TA MILLICK

SENSITIVE
UNCLASSIFIED

PAGE 02 ROME 02330 05 OF 06 310646Z

E.O. 12958: N/A
TAGS: TSPL KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY IT ITTSPL ITTSPL ITTSPL ITTSPL ITTSPL
SUBJECT: SWEEPING ITALIAN RESEARCH REFORMS SWEEP OUT CNR
PRESIDENT BIANCO BUT MAY NOT SWEEP IN INDUSTRIAL INNOVATION

TERTIARY EDUCATION (25-64 YEARS OF AGE - 10.3 PCT COMPARED
TO THE EU AVERAGE OF 21.2 PCT) AND KNOWLEDGE CREATING
BUSINESS EXPENDITURES ON R AND D. YET ITALY IS NEAR THE EU
AVERAGE IN PERCENTAGE OF EMPLOYMENT IN MEDIUM HIGH TECH
MANUFACTURING (2001 DATA) AND EMPLOYMENT IN HIGH TECH
SERVICES.



18. (U) ATTEMPTS TO STRENGTHEN THE LINKAGE BETWEEN THE
RESEARCH COMMUNITY AND INDUSTRIAL SECTORS ARE MANY, FROM
RESEARCH CONTRACTS AWARDED TO UNIVERSITIES, TO THE
ESTABLISHMENT OF A NATIONAL NETWORK OF TECHNOLOGY AND
SCIENCE PARKS, TO THE DESIGNATION OF NATIONAL CENTERS OF
EXCELLENCE (A PROJECT BEGUN TWO YEARS AGO, WHICH HAS LARGELY
COLLAPSED), TO THE DESIGNATION BY THE MARKETING OF RESEARCH
OF ITALIAN REGIONS AS "POLES" FOR TECHNOLOGY INNOVATIONS
(E.G. TORINO FOR ICT, VENETO FOR NANOTECHNOLOGIES). THE
DATA OVERALL SUGGESTS THAT WHILE THESE GOVERNMENT LED AND
FINANCED INTERVENTIONS YIELD SOME RESULTS, THE PROBLEMS
IDENTIFIED ABOVE PERSIST. IN A RECENT VISIT TO THE
UNIVERSITY OF TRIESTE AND THE AREA SCIENCE PARK, ESTCOUNS
REVIEWED DATA WHICH SUGGEST THAT THE "HIGH-TECH" STRATEGY OF
THE REGION OF FRIULI-VENEZIA-GIULIA IN THE NORTHEAST OF
ITALY HAS SIGNIFICANT SHORTCOMINGS. A REVIEW OF THE
TRADITIONAL INDUSTRIES OF THE REGION--FURNITURE, PAPER, FOOD
INDUSTRIES-- AND THE INVESTMENT STRATEGIES OF THE AREA PARK
UNCLASSIFIED

PAGE 03 ROME 02330 05 OF 06 310646Z
AND THE SURROUNDING INTERNATIONAL RESEARCH CENTERS - ICGEB
AND ICTP, MADE CLEAR THAT THERE ARE MANY OPPORTUNITIES FOR
EDUCATION IN SCIENCE AND ENGINEERING, BUT MANY FEWER FOR
RELEVANT EMPLOYMENT IN LOCAL INDUSTRY. ACCORDINGLY, TRIESTE
EXPERIENCES AN "OUT-MIGRATION" OF ITS BEST-EDUCATED TO
MILANO, TORINO, AND HIGH-TECH AREAS OUTSIDE OF ITALY.
WITHIN THE SCIENCE PARK ITSELF THERE ARE A NUMBER OF SPIN-
OFF COMPANIES, BUT THEIR PRODUCTION IS MORE LIKELY TO BE
RELATED TO THE RESEARCH CENTERS THAN TO LOCAL INDUSTRY.
ACCORDINGLY, THEY STAY SMALL, HAVE CUSTOMERS OUT-OF-THE-
REGION, AND LITTLE PROSPECT FOR GROWTH. THEY REMAIN IN THE
SCIENCE PARK FOR THE SIMPLE REASON OF SUBSIDIZED SPACE FOR
LABS AND OFFICE. SINCE THE SCIENCE PARK DOES NOT HAVE A
LIMIT ON THE TIME PERIOD SPIN-OFFS MAY REMAIN UNDER
SUBSIDIZED CONDITIONS (A GO AND GROW POLICY) A SMALL COMPANY
PROVIDING A HIGHLY SPECIALIZED PRODUCT, LIKE TESTING OR
DIAGNOSTIC EQUIPMENT, WITH A LIMITED MARKET CAN SURVIVE
UNDER THESE SUBSIDY CONDITIONS-POTENTIALLY TAKING SPACE FROM
NEWER SPIN-OFFS WITH BETTER PROSPECTS FOR GROWTH. NOR HAS
AREA SCIENCE PARK OR THE REGION DEVELOPED A SUCCESSFUL
INTERNAL MARKETING STRATEGY OR INCENTIVES TO ATTRACT FOREIGN
COMPANIES OR INVESTMENTS TO CREATE A SERIOUS INTERNATIONAL
INNOVATION CLUSTER. THE SAME STORY COULD BE TOLD FOR OTHER
SCIENCE OR TECHNOLOGY PARKS IN ITALY, WITH AREA PARK IN
TRIESTE, THE OLDEST, BEST DOCUMENTED, AND GENERALLY REGARDED
AS THE MOST SUCCESSFUL.



--------------------------


WHY DOES ITALY BEAT THE ODDS?


--------------------------



UNCLASSIFIED

PAGE 04 ROME 02330 05 OF 06 310646Z


19. (U) DESPITE ALL THESE NEGATIVES--LOW DOMESTIC PUBLIC AND
PRIVATE R AND D, POOR LINKAGES BETWEEN RESEARCHERS AND
INDUSTRY, LOW LEVELS OF INNOVATION AND FEW REGIONAL
INNOVATION CLUSTERS--IT REMAINS TRUE THAT ITALIAN RESEARCH
IS HIGHLY REGARDED INTERNATIONALLY, AND THAT ITALIAN
MANUFACTURED GOODS HAVE A REPUTATION FOR HIGH QUALITY.
EXPLANATIONS LIE IN THE EVIL WAYS OF AVERAGING, AND IN THE
STRUCTURE OF MEASURING R AND D AND INNOVATION.



20. (SBU) WHILE ONLY ANECDOTAL DATA IS AVAILABLE, INTERVIEWS
WITH UNIVERSITY AND INSTITUTE RESEARCHERS POINT IN SEVERAL
CONSISTENT DIRECTIONS. FIRST IS A GENERATION GAP, WITH MANY
RESEARCHERS NOW IN MID-CAREER BRINGING MORE INTERNATIONAL
EXPERIENCE (AND ASSOCIATED EXTERNAL FUNDING) TO THEIR
LABORATORIES. THE MORE COMPETITIVE NATURE OF INTERNATIONAL
FUNDS HAS SHARPENED THE QUALITY OF RESEARCH PROPOSALS AND
THE NEED FOR QUALITY RESULTS. ALTHOUGH NO RELIABLE DATA ON
EXTRAMURAL FUNDING IS AVAILABLE (DE MAIO CONFIRMED THIS ON
MAY 20), EMBASSY BELIEVES THAT FUNDING FROM EU AND NON-EU
SOURCES LIKE NIH COMPRISE A SIGNIFICANT PART OF THE
FINANCIAL RESOURCES OF THE BEST ITALIAN RESEARCHERS,
CREATING A TWO-TIER SYSTEM WHICH SOME RESEARCHERS RECEIVE
SIGNIFICANTLY LARGER SHARES OF FUNDING BASED ON QUALITY OF
RESEARCH. THE DISTRIBUTION OF FUNDING IN ITALY WOULD BE AN
INTERESTING TOPIC FOR STUDY. WHILE THERE IS NOTHING

UNCLASSIFIED

UNCLASSIFIED PTQ8143

PAGE 01 ROME 02330 06 OF 06 310647Z
ACTION OES-00

INFO LOG-00 AID-00 CIAE-00 DINT-00 DODE-00 DOEE-00 SRPP-00
EB-00 EUR-00 E-00 UTED-00 VC-00 TEDE-00 INR-00
IO-00 L-00 VCE-00 AC-01 NSAE-00 NSCE-00 NSF-01
OIC-02 PM-00 PRS-00 ACE-00 SP-00 SSO-00 SS-00
TEST-00 T-00 USIE-00 EPAE-00 PMB-00 G-00 SAS-00
/004W


--------------------------

6D7D6F 310647Z /21
R 280806Z MAY 03
FM AMEMBASSY ROME
TO SECSTATE WASHDC 0107
USDOC WASHDC
WHITE HOUSE WASHDC
INFO AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 06 OF 06 ROME 002330

SIPDIS

PARIS FOR NSF REP SCHINDEL
DEPT FOR OES/STC AND STAS, EUR/WE

WHITE HOUSE FOR OSTP
USDOC FOR TA MILLICK

SENSITIVE
UNCLASSIFIED

PAGE 02 ROME 02330 06 OF 06 310647Z

E.O. 12958: N/A
TAGS: TSPL KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY KSCA TBIO TPHY IT ITTSPL ITTSPL ITTSPL ITTSPL ITTSPL
SUBJECT: SWEEPING ITALIAN RESEARCH REFORMS SWEEP OUT CNR
PRESIDENT BIANCO BUT MAY NOT SWEEP IN INDUSTRIAL INNOVATION

PARTICULARLY NEW OR STARTLING ABOUT THIS FINDING, IT DOES
HELP EXPLAIN HOW SOME WORLD-CLASS ITALIAN SCIENTISTS STAY
WORLD-CLASS. IT ALSO SUPPORTS THE CONVICTION OF MINISTER
MORATTI AND MANY OF THE SCIENTISTS WE KNOW THAT THERE IS A
CONSIDERABLE DRAG EFFECT OF LESS PRODUCTIVE RESEARCHERS ON
INSTITUTE AND UNIVERSITY PAYROLLS.



21. (U) EXPLAINING WHY ITALY CONTINUES TO SUCCEED WITH
INNOVATION IN INDUSTRY REQUIRES ADDITIONAL UNDERSTANDINGS.
CHARACTERIZED BY SMES, WITH MOST COMPANIES HAVING FEWER THAN
100 EMPLOYEES, ITALIAN INDUSTRY IS AGILE BUT HAS LITTLE IN-
HOUSE MONEY AVAILABLE FOR APPLIED RESEARCH DEPARTMENTS,
NEVER MIND RESEARCH LABS ENGAGED IN FUNDAMENTAL RESEARCH.
SINCE THIS KIND OF RANDD IS THE FORM TYPICALLY MEASURED BY
STATISTICAL SURVEYS OF INNOVATION AT THE FIRM LEVEL, IT'S
NOT SURPRISING THAT ITALY SCORES LOW, NEAR THE BOTTOM OF THE
OECD. HOWEVER, TWO IMPORTANT FORMS OF INCREMENTAL
INNOVATION ARE OVERLOOKED OR ONLY INCOMPLETELY CAPTURED BY
THE USUAL STATISTICAL REPORTS. FIRST IS ONGOING PRODUCT
DEVELOPMENT, WHICH EVEN SMALL FIRMS DO AS A MATTER OF
SURVIVAL, CHANGING MATERIALS, ASSEMBLY PROCEDURES, FIT AND
FINISH (PAINTS, COATINGS, POLISHING OF SURFACES), AND
IMPROVING QUALITY CONTROL TO REDUCE PRODUCTION COSTS,
INCREASE RELIABILITY, AND IMPROVE COMPETITIVENESS IN THE
MARKET PLACE. THE SECOND INNOVATION STRATEGY OFTEN ONLY
UNCLASSIFIED

PAGE 03 ROME 02330 06 OF 06 310647Z
INCOMPLETELY CAPTURED BY STATISTICS IS THE INTRODUCTION OF
NEW PRODUCTION METHODS VIA NEW MANUFACTURING PROCESSES AND
EQUIPMENT. OFTEN NO R AND D IS REQUIRED, BECAUSE THE
TECHNOLOGIES ARE SUFFICIENTLY MATURE AND ALREADY
DEMONSTRATED. FOR A SMALL COMPANY, NEW PRODUCTION MACHINERY
CAN SUBSTANTIALLY REDUCE COSTS BY USING LESS MATERIALS STOCK
IN PRODUCTION (FURNITURE MANUFACTURING, FOR EXAMPLE),
INCREASING UNIFORMITY AND FIT OF COMPONENTS, AND BY
INCREASING WORKER PRODUCTIVITY AND HENCE REDUCING COSTS PER
UNIT OF OUTPUT. AND OF COURSE, SMALL AGILE FIRMS ENGAGED IN
CUSTOM PRODUCTION OFTEN FACE THE NEED TO INVENT TOOLS AND
TECHNOLOGIES TO MEET THE NEEDS OF DIVERSE CLIENTS, AND THEIR
"WETWARE" IS OFTEN MORE IMPORTANT THEN THEIR EQUIPMENT BASE.



--------------------------


CONCLUSION - MISSING OR CATCHING THE WAVE?


--------------------------





22. (SBU) ITALIAN R AND D FROM BASIC SCIENCE TO INDUSTRIAL
INNOVATION HAS TWO FLAWS AND TWO STRENGTHS. THE FLAWS ARE
TOO LITTLE MONEY OVERALL, AND A BELIEF BY THE GOVERNMENT
THAT SHIFTING SOME MONEY FROM BASIC RESEARCH TO APPLIED
RESEARCH OF COMMERCIAL RELEVANCE WILL BE ENOUGH TO ENCOURAGE
INDUSTRY TO MORE ACTIVELY "PULL" RESEARCH RESULTS INTO THE
ITALIAN ECONOMY. HOWEVER, LEAVING ASIDE BIG PLAYERS LIKE
PARASTATAL FINMECCANICA, WHICH INVESTED 350 MILLION EUROS IN
R AND D LAST YEAR, FEW ITALIAN COMPANIES HAVE THE KNOW-HOW
OR AVAILABLE MONEY TO LOOK VERY FAR UPSTREAM FOR NEW
TECHNOLOGIES. EVEN FINMECCANICA DENIES TWO-THIRDS OF ITS
TOTAL R AND D REPORTED EXPENDITURES OF ONE BILLION EUROS
FROM PUBLIC SOURCES, MAINTAINS NO BASIC RESEARCH STRUCTURES,
UNCLASSIFIED

PAGE 04 ROME 02330 06 OF 06 310647Z
AND JUST SIX MONTHS AGO INITIATED ITS FIRST EVER STRATEGIC
MAPPING OF TECHNOLOGY NEEDS AND ACQUISITION TARGETS.
GIANCARLO GRASSO, THE FIRST CTO, TOLD ESTCOUN MAY 21 THAT
FINMECCANICA IS STILL ABOUT DECLARATION OF INTENT THAN
ACCOMPLISHMENT.



23. (SBU) ITALIAN STRENGTHS ARE AT EXACT OPPOSITE ENDS OF
DISCOVERY-INVENTION-INNOVATION PROCESS, AND THIS EXPLAINS
THE LARGE GAP BETWEEN THE INTERESTS OF RESEARCH INSTITUTES
AND INDUSTRY, THE HISTORICALLY LOW LEVELS OF SUCCESSFUL
COOPERATION BETWEEN THEM, AND THE GREAT DIFFICULTY THE
ITALIAN GOVERNMENT OR THE COMBINATION OF LOCAL, REGIONAL,
AND NATIONAL GOVERNMENTS WILL FACE IN CREATING THE SHORTER
AND MORE NUMEROUS LINKAGES THAT WOULD FOSTER KNOWLEDGE
CLUSTERS AT THE RELEVANT INTERFACES OF RESEARCH AND
INDUSTRY, AND IN ATTRACTING INTERNATIONAL COMPANIES AND
INVESTMENT CAPITAL NEEDED TO CREATE THE CRITICAL MASS NEEDED
FOR A GLOBALLY COMPETITIVE INTERNATIONAL CLUSTER. ITALY HAS
A LONG WAY TO GO IF IT WANTS TO CATCH THE NEXT LONG WAVE.
SKODON

UNCLASSIFIED

>
2003ROME02330 - Classification: UNCLASSIFIED