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There are two stylised facts that headline the many discussions on innovation I’ve been part of in recent years. The first is that the UK Government spends less on R&D than the OECD average (something it has committed and recommitted to addressing). The second is that almost half of existing spend is spent in the ‘Golden Triangle’ between London, Oxford and Cambridge. And so the Government has committed to spend more of this increased money outside of the Greater South East.
These are noble goals – innovation is the driver of productivity growth. But the trap practitioners that have joined these discussions tend to fall into is seeing the spending of the money as the end goal, rather than dealing with the reasons why innovation lags in certain parts of the country. Spend more public money on R&D, the argument goes, and economic growth will be accelerated across the country.
This may well be right, at least in part, but there are a number of assumptions that are wrapped up in this that such discussions should spend more time thinking about. The purpose of this blog is to highlight these assumptions in order to better inform what we don’t know and how policy makers should think about the problem.
While it’s well known that public spending on R&D (an input) is concentrated in the Greater South East, what is less well known – because it is difficult to measure – is how levels of innovation (an output) vary across the country. And even more importantly for policy, we haven’t got a good idea as to why this is the case.
Good policy identifies the causes of this, then targets these causes. Without defining the problem it seems hard to offer a targeted solution as to how any increased spend can be most effectively used. Centre for Cities has made a start, but there is much work to be done.
In conversations I’ve been party to practitioners tend to conflate how innovation is used and where it originates. These conversations tend to assume that innovation is developed and applied in the same place, without giving much acknowledgement to the role of applying innovations that have been developed elsewhere. The two are likely to require very different policy approaches.
At the heart of the argument to distribute R&D spending more evenly is the assumption that this will have a local economic impact. I’m always surprised at how clear cut discussants expect this to be.
Take the Oxford-Astra Zeneca covid vaccine. This ‘pure science’ innovation seems likely to bring ginormous benefit to both human prosperity and the global economy. But the benefit to the city of Oxford seems slight. Now this is a somewhat extreme example. But it does show that we at least have to stop and think about the mechanism that we expect innovations to have a local economic impact, rather than assuming they happen.
Models such as the Sheffield Advanced Manufacturing Research Centre (AMRC) take a more practical, ‘translational’ approach. The local impacts are clearer to see, which suggests we should look to expand this approach, but these local impacts appear to be modest.
And we must be wary about conflating policy goals – we should definitely be encouraging this sort of innovation even if it doesn’t have much of a local impact. The AMRC’s innovations are applied elsewhere in the UK, which is a good thing for the UK economy, while the non-local benefits of the vaccine development are obvious. This raises a thorny question about who should support institutions like the AMRC – is it local or national government? Local and national industrial strategies produced under the May Government suffered from this tension.
Even if we assume we have the issues to all of the questions above, and they point to spending more public R&D to help the levelling-up agenda, then what policy levers should we pull? This too is very unclear.
In absence of this knowledge, a number of roundtables I’ve been at on R&D over the years descend very quickly into a bunfight between universities on funding and REF scores (which grade universities’ research impact).
Research work done by universities is obviously important (see above), but does it have a local economic impact? It’s often assumed to be the case, and while there is some evidence it is certainly not clear cut. Should more Catapult centres be set up instead? Should the focus be on encouraging collaboration between bodies (some positive evidence here)? Or should we create innovation funds that businesses bid into, or give top ups to R&D tax credits in certain parts of the country?
Thinking though the idea of funds exposes a fundamental problem that struggling places are likely to have in encouraging innovation and offers an answer the question of why levels of innovation are low in some places – they haven’t got many innovative firms. This is not because places like Blackburn and Bradford (using low productivity is a sign of low levels of innovation) have got lots of firms that aren’t innovating currently, but would do if only they had a leg up from public funds. It’s because such places have struggled to attract these firms to them in the first place. By extension, an innovation fund, or more R&D money to the University of Bradford for that matter, isn’t likely to have much impact. While policy should aim to make existing businesses with the potential to innovate to do so, there are more fundamental challenges here that won’t be solved by more public R&D spending.
While not as flashy as R&D policy, this suggests that more traditional policies should get more attention when talking about innovation. Skills is the biggest one. And research suggests density is important too, meaning that planning has got an important role to play in encouraging new ideas and their application (this paper on the impact of prohibition on innovation in America is fascinating).
The purpose of this piece is not to show that policy thinking is necessarily wrong, but to show how it is built on a number of assumptions that are breezily assumed to be true. Increasing R&D spending to fall in line with other developed countries seems like a sensible thing to do. But the questions set above need more debate and research, informed by the work of people like Paul Nightingale, Tom Forth, Richard Jones, Anna Valero and Stian Westlake and his former colleagues at Nesta, if we are to see a greater geographic spread of this spending translate into more successful economies across the country.
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