Innovation’s steady course… downward

6 september 2012 - The first decade of the century was a ‘lost decade for innovation’, UK’s NESTA-chief Geoff Mulgan concludes. He has the statistics to prove it: innovation expenses in the UK declined with £24 billion last year.

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."