Image source: Harry Mitchell
If British innovation could drive British growth, it would have already happened, says David Edgerton
First it was the budget, then it was the regulators. Now they have come for UK Research and Innovation. The government’s mission for UKRI’s next leader, Ian Chapman, is growth, growth, growth.
But UK research policy has been focused on growth for decades. The brilliant British science base would—it was and still is believed—bring forth innovations that, when taken up by entrepreneurs, transform the economy.
Yet despite 40 years of growth-oriented public R&D spending, and lavish subsidies to private R&D, and generous support for spinouts and small and medium-sized enterprises (SMEs), and venture capital, the economy has grown more slowly than before, with productivity growth flatlining since the 2008 financial crisis.
Put another way, where are the world-beating British enterprises and products born from government-funded research programmes and spinouts? Don’t say the chip designer Arm—it is not British-owned, and doesn’t owe its success to public research funding. The reality is that at best, one gets talk of unicorn valuations, not significant turnover or employment.
This growth model has already failed. However, Labour’s answer is, as with economic policy more generally, to double down on past Tory policies, pretending they were never applied or were applied incompetently.
R&D in reality
Actually, the UK needs very different innovation and economic policies, ones directed at goals such as improving efficiency, dealing with climate change and improving wellbeing, not at growth per se.
Current policies won’t bring any of this, and they won’t create growth, either. To understand why, we need to understand the cardinal—and, alas, little-known—principles of the economics of innovation.
First, do not expect university research, where the bulk of UKRI funding goes, to be a significant source of innovations. Why should it be? Even Silicon Valley was never just university spinouts.
Most innovation comes from a few giant companies, not SMEs or spinouts. The top five industrial R&D spenders are the tech giants Amazon, Alphabet, Meta, Apple and Microsoft, which in 2022 collectively invested the equivalent of more than £150 billion. Old sectors also remain important: of the 50 companies with the biggest R&D budgets, nine are huge carmakers.
Second, most of the innovations that drive a nation’s economic growth will come from overseas. Even if all the UK’s growth were driven by putting innovations to work, they would mainly be foreign innovations.
False assumptions
We should thus not expect a positive correlation between national innovation and national growth. In fact, the correlation is largely negative, because rich, innovating countries grow slowly, while some poorer countries grow fast by imitating rich ones.
I know from experience that many find this suggestion almost blasphemous. I only say, please go and look at the data.
The argument that R&D is needed to absorb overseas innovations is an untested assertion. It will doubtless be true in some cases, but not in others, probably most, given the importance of multinationals and straightforward transfers. It is not supported by national-level data.
In any case, the UK government’s main growth polices involve inviting foreign enterprises to invest, which does not require domestic R&D. Was AstraZeneca’s decision not to expand its Speke vaccine plant down to some weakness in life-sciences research? Does Google DeepMind attract data centres to the UK? Were Japanese car firms drawn by the strength of UK automotive R&D?
Real solutions for real needs
The unthinking assumption that national innovation is or should be the main driver of national growth, so central to UK science-policy discussions, rests on the hidden assumption that the UK is the world in microcosm. But it isn’t—it is a small part of an interdependent world.
It also rests on a grotesque overestimation of British innovative power. The UK does some 2 per cent of world R&D, has relatively low research intensity, and few of its national firms are global players.
It is exceptional in the extent to which industrial R&D is funded from overseas and carried out by foreign-owned or highly multinational enterprises. The pharmaceutical companies AstraZeneca and GSK—the only UK-based firms in the top 50 R&D spenders—do more than half of that work overseas.
Delusions of science-superpower grandeur and false assumptions about innovation and growth may be comforting, but will butter no parsnips. We need innovation in innovation policy, based on the evidence, to get a policy for growth with a chance of working.
That means finding ways to drive change, to create new products and ways of doing things that meet not abstract demands for growth, but the needs of the British people. It is not rocket science.
David Edgerton is Hans Rausing professor of the history of science and technology at King ’ s College London.
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