While there is broad consensus that there should be a geographic shift in the balance of R&D spending, there is less agreement on where it should be spent to have the greatest impact.
Public sector spending on R&D in the UK is very concentrated: 41 per cent is spent in the ‘Golden Triangle’ between Oxford, Cambridge and London. In last week’s Budget the Government committed to increase R&D spending from 1.7 per cent to 2.4 per cent of GDP by 2027, to help it achieve its goal of levelling up the whole country.
However, while there is broad consensus that there should be a geographic shift in the balance of R&D spending, there is less agreement on where it should be spent to have the greatest impact.
To help answer this, Centre for Cities has analysed innovation statistics from several different data sources for the Connected Places Catapult to provide a framework for policymakers follow. Here are five key takeaways from the data.
How to measure R&D and innovation?
The data on R&D and innovation at the local level is scarce and there are many ways to measure innovative activities. The indices referred to in this blog encompass the following indicators:
The indices are built using z-scores for the underlying measures and normalised to 100.
Not all places in Great Britain have the same ability to house and to grow their innovative capacities by developing new products and services that spur the economy. This depends on the “stock” of people, facilities or skills they already have in a place.
Figure 1 below shows a map of the innovative capacities of Great Britain’s cities and largest towns. You can see large variation in their innovative capacity, with those greener circles in the Greater South East performing better than their purple Northern counterparts. This map should influence decisions about which places to prioritise for further public R&D investment. Mainly in places outside the ‘Golden Triangle’ – to facilitate regional redistribution – but with a strong innovative capacity.
Figure 1 Innovative capacity across Great Britain’s cities
Note: the index was constructed using seven indicators: (1) Private employment in Science and Technology (%), (2) Business births per 10,000 population, (3) Business churn, (4) Venture capital offices per 10,000 population, (5) Number of STEM academic staff per 10,000 population, (6) Average rating of university STEM submissions to the REF, (7) University-affiliated spin-offs/ start-ups per 10,000 population
Source: Centre for Cities own calculations for the innovative capacity index based on the indicators in the info box. Census, 2011. ONS, 2017. ONS, 2018. TechNation, 2020. REF, HESA, 2014-2018. Intellectual Property Office, 2017. European Patent Office, 2017-2018.
Universities receive a significant proportion of public R&D spending, and it is often assumed that their work creates local economic growth.
But figure 2 below compares workplace wages in a city (as an indicator for the economic performance) with the local university’s innovation strength. From this it seems that the reality is less clear-cut: Whether a city a university strong in research and innovation does not inevitably dictate how successful its wider economy is.
Figure 2 Workplace wages and university innovation strength across GB’s cities
Note: the index was constructed using three indicators: (1) Number of STEM academic staff per 10,000 population, (2) Average rating of university STEM submissions to the REF, (3) University-affiliated spin-offs/ start-ups per 10,000 population
Source: Centre for Cities own calculations for university innovation strength index based on the indicators in the info box. Census, 2011. ONS, 2017. ONS, 2018. 2020. REF, HESA, 2014-2018.
There are plenty of places – such as Preston, Cardiff or Coventry – that score well for university innovation but poorly on wages. On the other hand, places such as Slough, Aldershot or Crawley have no world-leading research university but offer people higher than average wages.
One possible explanation for the weak link between excelling universities and the economic success of a place may be that a lot of research conducted in universities is theoretical and less applied to the real world. While theoretical research is very important for economic performance in the long run, it does not necessarily link to immediate product development or fast market access. Also, the research breakthroughs that take place within universities may then be transformed into products in other cities with a stronger business base. For example, while the University of Manchester invented graphene, much of its commercial application into products now takes place in South Korea – not Manchester.
So, to benefit the local economy, public R&D investment targeting universities should focus more on applied research that benefits the broader market.
However, the relationship between the innovative capacity of businesses and the strength of their local economies is much clearer. Places with more innovative businesses perform generally better on workplace wages than those with innovative universities. This may be because the innovative activities of firms have a more direct local impact – more educated workers, higher wages etc.
Development activities in firms do more frequently lead to immediate product or service development which often benefits local supply chains raising wages and strengthening the local economy. Because of this, public R&D investment should specifically target businesses to increase the innovative capacity of the private sector.
Note: the index was constructed using four indicators: (1) Private employment in Science and Technology (%), (2) Business births per 10,000 population, (3) Business churn, (4) Venture capital offices per 10,000 population
Source: Centre for Cities own calculations for business innovation strength index based on the indicators in the info box. Census, 2011. ONS, 2017. ONS, 2018. TechNation, 2020.
3. Innovative activity in a city does not automatically translate into economic growth
R&D spending is often used to increase local economic growth and to directly benefit the place where innovative activities occur. But innovation output, either through patents or trademarks registered or both, does not always equate to wider outcomes in the place as shown in Figure 4 below.
Note: the index was constructed using two indicators: (1) patent applications per 10,000, (2) patent applications concentration, by field
Source Centre for Cities own calculations for patent strength index based on the indicators in the info box. Intellectual Property Office, 2017. European Patent Office, 2017-2018.
Oxford, Cambridge and Coventry, for instance, have very high innovation outputs when it comes to patents but have not the high wages one would expect. A similar pattern is seen in Figure 3: Cities such as Liverpool or Brighton have high business innovation strength but comparatively lower workplace wages.
Programmes and policies targeting R&D and innovation will have to investigate how the knowledge created locally can benefit the place and how to reach higher levels of diffusion and knowledge transfer in the area.
4. Before investing in innovation, some places will require an uplift of the skills of their workforce
As shown in previous figures, not all places in the UK possess the same capacity to transform innovative activities into outputs. Often, places with low innovative capacities are lacking crucial “ingredients” to perform well such as their ability to attract businesses and to provide employment opportunities to individuals.
Figure 5 below shows that, in general, places with access to a larger pool of skilled workers and stronger jobs density perform better than those with a smaller pool and lower density.
This also holds for patents, trademarks and broader business innovation indicators. Therefore, before targeting the innovative capacity of weaker places through increased public R&D investment, these places require other interventions such as investment in skills or public infrastructure.
The planned increase in public R&D spending is a welcome way to level up the UK. Caution must be used however when deciding on where to spend the money. Many places – particularly in the North and Midlands – need investments in skills of their population and infrastructure first. Not all places in the UK have a decent innovative capacity to transform R&D investments into outputs.
Because there is a strong link between business innovation strength and the economic success of a place, any further investments in R&D must consider how to maximise innovation activities in the private sector and how to increase business spending on R&D.
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