The UK economy needs greater diffusion of innovation, not just new inventions.
By Michael Kitson, University Senior Lecturer in International Macroeconomics at Cambridge Judge Business School
A consortium of prestigious science, business and research organisations is calling on the next Prime Minister to ensure that the UK remains a leader in research, development and innovation. And who can argue with that?
Yet the problem with much highly
touted “innovation policy”, including in the UK, is that attention is
focused on the generation of innovations rather than their diffusion
throughout the economy – into regions and sectors that most need the added
productivity that innovation can deliver.
Such a focus on creation rather than breadth of application will do little to address the regional and sectoral disparity in economic performance that plagues the UK, as I have outlined in a paper just published (“Innovation policy and place: a critical assessment”) in the Cambridge Journal of Regions, Economy and Society.
Instead, policymakers need new
approaches – and metrics – to spread innovation to all regions and economic
sectors (not just “high tech” firms), to build networks appropriate
to local economies, and to adopt long-term plans that aren’t shattered by
short-term changes or temporary shocks.
This will be difficult – but this
does not negate its necessity. Such diffusion should penetrate all parts of the
economy, including “traditional” sectors such as retail and
manufacturing. It can also be strengthened through ties with local “anchors”
such as hospitals and universities: often seen as innovation generators, such
institutions act as key sources of local resilience and expertise that enhance
the local adoption of innovations created elsewhere.
The consortium urging renewed
commitment to R&D spending in the UK want the next Prime Minister who
emerges from the Conservative Party leadership contest to build on the
government’s current target to boost R&D spending to 2.4 per cent of GDP by
2027, with a longer-term aim of three per cent of GDP – as already exceeded in
such countries as Germany, Israel, South Korea and Japan.
“If we lose the momentum behind the commitment to investing 2.4 per cent of GDP, we will be left behind by our competitors,” the president of the Royal Society, Professor Sir Venki Ramakrishnan, told the BBC, following the joint statement from a coalition that includes the Royal Society, the British Academy, the Confederation of British Industry (CBI), the Royal Academy of Engineering, and Universities UK.
Yet the UK is already being left
behind by other countries, according to many economic measures. The slowdown in
UK productivity since the financial crisis of the last decade has been
particularly stark, exceeding the slowdown in other G7 countries. A more
granular look, highlighted in Bank of England research, shows that the
productivity gap between the top and bottom-performing companies is far larger
in the UK than it is in Germany, France and the UK – including in the services
sector, supposedly Britain’s crown jewel.
So why is innovation diffusion a
key to reversing this? Since the Industrial Revolution two centuries ago, the dispersion
of innovation has had a far greater economic impact than the initial generation
of such innovation. This is not really surprising, as the “innovation-using”
sectors are far larger than the “innovation-generating” sectors: take
the use of the steam engine in factories in the 19th century, and the use of
mobile devices today. The huge economic benefits come not through invention but
by use throughout the economy.
The focus of government attention
when it comes to R&D has centred mostly on the need for more STEM (science,
technology, engineering and mathematics) education, and the need to
commercialise science through patents, spin-outs and other tech transfer
Again, it’s difficult to argue
against this – and that makes such a focus politically convenient: it is simple
to understand, with clear links and processes, and is relatively
uncontroversial as few politicians publicly oppose scientific progress.
But this approach often conflates
technology (the technological aspect of products and services) with innovation,
which the then-titled Department for Innovation, Universities & Skills described
in 2008 as “the successful exploitation of new ideas”.
The policies usually promoted by the UK
government (among other countries) often neglects the “exploitation”
aspect of that very apt definition. The focus on innovation creation is
narrowly focused on a small range of sectors and a small number of firms – and
even some of the most innovative and successful tech firms employ a relatively
small number of people when looked at through a historical prism. Apple,
Facebook and Google parent Alphabet top the current league tables for revenue
So how can better diffusion of innovation be
measured? The key focus should be on long-term impact: not a narrow focus on
hard economic indicators, but on behavioural change and innovation trajectories
that provide better evidence of long-term development and transformation.
Such a focus may provide little short-term
boost to ambitious politicians, but will in the long-term provide a greater
boost to UK economic success – across the whole country – than a quick fix of