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Eight options for a radical innovation policy

“It’s good as far as it goes, but it’s not very radical.” People often say this when the Government, or for the matter the Opposition, publish any sort of innovation policy proposal.

It’s usually a fair comment. British innovation policy has been pretty technocratic and steady-as-she-goes for 20 years and more. You’d be hard-pressed to find much difference between the views of the three main Westminster parties when it comes to innovation.

So how about a bit of radicalism?

By way of provocation, here are eight alternatives for how to do innovation policy. Each one represents a departure from the way we do things – or to put it another way, it’s radical.

I’ve also tried to spell out some practical policy things a government could do to make them work, and what you need to believe for each one to be a good idea. Of course, you could do more than one of these – but I think it’s helpful to split out the different ways in which one might be radical.

So imagine you’re the UK’s Science and Innovation Minister, crack open the Overton Window and enjoy.

1. Go large

Innovation policy as usual, but much more so. Increase the science budget, the TSB budget and R&D tax credits.

If you wanted to do innovation policy on the scale of, say, the Finnish government, you’d need to spend: £10bn a year on research (approximately double what we spend now), £3bn on Innovate UK (a six- or sevenfold increase), probably a few hundred million more on various forms of risk capital. (You could recoup a bit of this, but not much, by cutting R&D tax credits if you truly want to emulate Finland.)

What you need to believe: (a) You can cut about £8 billion of spending somewhere else (good luck), or borrow more to pay for it (perhaps works if you subscribe to Modern Monetary Theory); (b) the UK can internalise some of the benefits – otherwise it’s just a glorified foreign aid programme for rich countries, providing free ideas that the USA, Germany and China will commercialise. You’re counting on a tidal wave of money to blast away the barriers to business adoption of science identified by Richard Lambert and so many others; (c) You can keep it up. As John Van Reenen observed in the context of the US, increasing research spending and then dropping it again is almost as ineffective as not increasing it at all.

2. Go downstream

A massive reorientation of public resources from research to development, which the UK is widely thought to be bad at.

You might take, say, a billion or two from the research councils and give it to TSB (now Innovate UK). You would use this to fund Witty-style “arrow projects”, an innovation procurement voucher scheme for businesses, a big increase in SBRI, and perhaps an innovation loans scheme of the sort run by TEKES in Finland.

What you need to believe: Well, first of all you’d go down in history as the science minister who destroyed British science – can you live with that? What’s more, you need to believe that you can scale up the TSB so rapidly, which is no mean feat organisationally.

One other thing. You need to believe that UK plc will adapt to take advantage of the new money. If not, you’ve thrown a thousand post-docs on the streets for no reason.

3. Get in on the upside

Take a leaf out of Mariana Mazzucato’s The Entrepreneurial State, and make sure government gets a share in successful innovations that it funds. Use this to invest more in innovation.

What would you do? Reform government the RCs and TSB so they invest rather than grant, using golden shares, income-contigent loans, royalties and so on. If you’re willing to borrow some money up-front to pump-prime your programmes, this would mean you could spend much more on supporting innovation without making cuts elsewhere, since you’d get occasional windfalls to replenish your funds.

What you need to believe: that this will administratively possible, and that the stakes the government takes will in fact be valuable (I’m a sceptic, but I might be wrong).

4. The Teutonic pivot

 Germany does innovation pretty well, so we could try to be more like them. Dust off your copy of Will Hutton’s bestselling The State We’re In and give it a whirl.

What would you do? Reform Anglo-Saxon capitalism to make it more long-termist (tax rapid equity transactions, investment of state pension funds in corporate equity and debt, set up a big state investment bank). Invest in apprenticeships and put workers on boards to build a strong, well-represented class of industrial workers.

What you have to believe: that it’s possible to change a country’s variety of capitalism by concerted government action. You’ll also need help from your ministerial colleagues – most of these measures lie outside the science and innovation brief.

5. The Austrian pivot

Conclude that the 17-year dalliance with industrial policy was a mistake and scrap everything that doesn’t correct simple market failures in as straightforward a way as possible.

What would you do? Abolish Innovate UK, R&D tax credits, and the various public investment funds that exist. Fund basic research and science education, and use the savings (probably less than £1bn) to cut taxes.

What you need to believe: that everything we’d thought we learnt about the failure of deregulated markets since 2008 was wrong. You’d also need to reject the now widely accepted idea that most major innovations rely on government support.

6. Citizen innovation

End technocratic innovation policy and empower ordinary people to both innovate and decide the direction of innovation funding.

What would you do? Use public ballots, crowdfunding, or citizens’ juries to allocate research priorities. Build a popular case for higher innovation funding to address big causes like cancer or climate change. If you can genuinely engage a lot of people, you might be able to levy higher taxes to fund more science. Fund maker spaces and provide grants for garden-shed inventors.

What you have to believe: that you can mobilise citizens effectively, and that the additional participation is worth the disruption. That backing garden shed inventors and user innovators is good value for money.

7. Get creative

Innovation is nothing without creativity – and it’s often cheaper to fund than science. Back Britain’s creatives to make innovation flourish.

Increase spending on the arts, culture and arts education (more funding for the Arts Council, for art degrees, and for technologies that support it, like superfast broadband). Support the creative industries. Back design skills and encourage firms to use them. Get the money from Research Council spending. It’s a crass to say that paintbrushes are cheaper than particle accelerators, but there’s a grain of truth in it, and a little money could go a long way.

What you have to believe: that the creative spillovers you’re hoping for will actually appear. This may also be a hard sell given the public’s lukewarm opinion of public arts funding.

8. Go green

Focus innovation policy on one mission – decarbonizing the economy and mitigating the effects of climate change.

Use public procurement and regulation to offer a market for green technologies and energy innovations. Invest significantly in energy R&D, which is currently piffling. Back social innovations to encourage a greener society. Direct a significant proportion of both research and development funding to environmental technologies.

What you have to believe: That you can direct funding effectively (cf Nixon’s War on Cancer). That you can tolerate the disruption to other fields of research that will presumably get less funding. And that you can make a political case for it.

I’m sure I’ve missed a few: a hyper-local, cluster-based policy that puts all control and funding in the hands of local government? A policy based on giving total autonomy to researchers, tearing up the rules of academic managerialism and hoping for great things? A nationwide Lucas Plan led by the labour movement? If you can think of any other radical pivots for UK innovation policy, please let me know.

 

UPDATE:

Professor Richard Jones (whose blog on innovation policy you should read) points out that we also need the option "Go East Asian", since the East Asian model of the developmental state is very different from Germany's. Here's a first stab.

9. Look East!

Establish a dirigiste developmental state along the lines of Korea, Taiwan or Singapore.

Set up a powerful ministry of growth with responsible for industrial policy, business finance and horizon scanning (you might need to break up the Treasury to do this). Shift resources from basic research to supporting development (along the lines of option 2), and create a more corporatist, long-termist financial system with one or more state investment banks (along the lines of option 4). Double down on the rhetoric of David Willetts' Eight Great Technologies speech, and actively choose sector and technologies in which to invest, rather than abstractly funding "excellence" across diverse sectors. Link this to clear policy priorities, along the lines of option 8.

What you have to believe: Like option 4, this involves a change to the UK's variety of capitalism, which might or might not work. If British culture is different from German culture, it's even more different from that of East and South-East Asian countries, in particular when it comes to political consensus and business-government relationships. You also need to believe that state direction of the economy into particular sectors and technologies will work - the old "picking winners" argument. in which we continue to talk ourselves around in circles.

 

UPDATE 2:

Thinking about it, I missed at least two more - so here are numbers 10 and 11: "Moar Entrepreneurs!!" and "Gimme Clusters".

10. Moar Entrepreneurs!!

Who doesn't love entrepreneurs? Perhaps if we make it easier for sharp-eyed, quick-witted small businesspeople, their dash and vim will produce the innovations that big incumbents can't.

Radically restructure government innovation support - R&D tax credits and TSB grants especially - so they only go to small firms. Or even more radically, only to small and young firms. Improve the supply of risk capital so that small business can scale up quicker. (Depending on your ideological preferences, you could do this either with VC tax-breaks and coinvestment, or with a state investment bank.) Ruthlessly enforce targets for government procurement from small firms. And slash the regulatory and tax on small or new businesses (Californian visitors often propose derogations from employment law for new firms; the Centre for Policy Studies recently recommended letting SMEs off corporation tax and CGT

What you have to believe: That small businesses really are the driver of innovation. The evidence on this is weak, to say the least. Or that you can target your policies more precisely on high-growth businesses, which do seem to make more of a difference. But the really big-bang policies, like tax exemption, are much harder to apply selectivly to high-growth SMEs.

11. Gimme Clusters

We've known for over a century that innovation seems to happen in particular places. The recent triumphs of Silicon Valley and its emulators in Israel, Berlin and East London have put clusters at the forefront of policymakers' minds. So why not double down on cluster policy?

The first rule of Cluster Club (kind of obvious, but reproduced everywhere as a blinding insight) is that you can't build clusters from scratch, you can only encourage them. If you wanted to take encouraging clusters to a "radical" scale, you could intervene in property markets when you see a cluster emerging to make it easier for relevant firms to set up (Tech City has done this to some extent; in Singapore and Dubai you can see it taken to a lavish scale). You could restructure planning laws to make it easier for cities like Cambridge (though one wonk who suggested this was subsequently forced to skip the country). You could invest selectively in high-tech infrastructure - a local public utility to supply FTTH broadband in Tech City or Cambridge, perhaps? Re-opening the Varsity Line between Cambridge and Oxford? And you could spend more on setting up Catapult-like business-university collaborations in these areas.

What you have to believe: that the policies will work. Cluster policy is a bit of a paradox: everyone likes clusters but it's very hard to know which if any cluster policies work, especially since there's a widespread belief that extreme cluster policy (setting up technopoles in the middle of nowhere) is a non-starter.

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Author

Stian Westlake

Stian Westlake

Stian Westlake

Executive Director of Policy and Research

Stian led Nesta's Policy and Research team. His research interests included the measurement of innovation and its effects on productivity, the role of high-growth businesses in the e...

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