At a Policy Network-conference tackling 'the
quest for growth', Geoff Mulgan (Chief Executive of NESTA, the
National Endowment for Science Technology and the Arts) was one of
the rare speakers pointing out the importance of innovation.
He urged decision makers to get out of their trenches of either
'austerity' or 'stimulus', and turn their eyes towards that strange
and apparently contradictory policy mix that fosters innovative
growth. NESTA will shortly publish this recipe in a 'Plan I'. You
can read the speech of Mulgan here:
"Commentators and policymakers have struggled to understand the
world of innovation. We need not just a change of economic policy
but a change of political culture as well."
Beyong the binary worldview
"Much of the Western world the policy debate has polarised into a
choice between just two options: Plan A or Plan B, austerity
or stimulus. These macroeconomic choices matter greatly. But
neither addresses the UK's longer-term growth prospects. They are
familiar territory, but they miss much about the modern
economy."
"Macroeconomic strategy needs to be matched by a strategy for
innovation. Economic theory has struggled to understand the world
of software and new materials, computing and design. But there is
now a pretty broad consensus that innovation is the most important
driver of long-term productivity and prosperity (including at least
two thirds of UK productivity gains in recent years), and that
innovative businesses create more jobs and grow faster. Yet all too
often economic commentators, who can be precise about exports or
quantitative easing, resort to vague platitudes when it comes to
innovation."
"The UK has many significant strengths in innovation, from world
class firms like ARM and Rolls Royce to dynamic creative
industries. But our research shows that we face major problems of
finance, structures and culture. Nesta's
Innovation Index (which is acknowledged as the most
authoritative measure available) shows that investment in
innovation by UK businesses has fallen sharply since the financial
crisis of 2008: the most recent data suggests it declined by as
much £24 billion last year. This issue predates the credit crunch:
in the period from 2000 to 2007, businesses' investment in
innovation levelled off, investment in fixed assets fell and became
increasingly dominated by bricks and mortar at the expense of
technology, and companies accumulated cash. For many businesses,
the 2000s were less an age of innovation than an age of cash and
concrete."
A heterodox policy mix
"Commentators and policymakers are slowly waking up to
these facts, though most are more at home with the more familiar
discussions about stimulus packages, investment in infrastructure
and credit easing for small business. Fortunately there is a
lot we can learn from other countries, even if specific policies
are hard to transplant. Evidence from around the world shows that
the most successful innovation strategies combine many, often
apparently contradictory elements: generous public funding for
basic science and lively universities, but also entrepreneurial
cultures; strong industries based around complex technologies like
life sciences, as well as others like fashion and design with very
fast turnarounds; high risk investment in start-ups combined with
patient capital to help firms grow."
"Our strategies need to be equally heterodox. The steps needed
to boost innovation, and thus boost both productivity and economic
growth include a significant reshaping of financial flows - with
new funds, tax treatment, and both bank and non-bank lending which
we will set out in detail in Plan I. It will require new roles for
government procurement; a reorientation of infrastructure spending
away from rail and road and towards high speed broadband and smart
energy grids; and it will require a host of small changes to
everything from HE and schools to planning rules and public
services."
"In the short run we argue for directing forthcoming windfalls
from technology back into the innovation system; in the longer run
we argue for a shift in the balance of government spending away
from consumption and towards investment, reversing movements that
have gone in the wrong direction over the last few years."
'Scientific constituency' needed
"That will require a change of political culture as well
as economic policy. The UK has a highly influential science
lobby. But that lobby has relied too often on the inside
track, and on enlightened science ministers, rather than making its
case to the wider public. It has also tended to privilege upstream
research over downstream application. Other countries have a
broader constituency supporting innovation, and arguing for its
share of resources - and in some cases, such as Finland, Israel or
Taiwan, it is seen as vital for national survival, as well as smart
economics."
"In the UK, by contrast, these choices have been largely invisible
since the financial crisis. If they are mentioned at all, they are
presented as choices to turn to once the economy has turned around.
But this misreads both the economics and the politics: around the
world that the most successful stimulus packages have prioritised
growth sectors and technology areas rather than being wholly
neutral. And there are good reasons for thinking that it will
in fact be easier to make microeconomic changes alongside the major
dislocations and sacrifices of macroeconomic reform, rather than
apart from them. So let's get beyond Plan A and Plan B - and
turn our attention as well to what actions now will deliver the
greatest rewards in ten or twenty years' time."