Brexit is taking centre stage in the run-up to the election. But the next government will also need to grapple with economic, social and political challenges that have faced the UK for much longer.
The last decade has seen the lowest productivity growth since the 18th century, keeping wages down and preventing standards of living from improving. Inequality remains stubbornly high. Voter turnout has started to increase after hitting a historic low in 2001, but we’re now grappling with a “Brexit divide”, threatening greater polarisation, tension, and disillusionment with democracy.
What links these problems? The idea that parts of the country are being “left behind” is a cliche, but it holds some truth. The issue is not just that people and places have been forgotten by a distant political elite, but that they are cut off from the economic frontier: the knowledge economy.
In the past, economic growth was driven by tangible products such as steel, coal and textiles. In 2019 the knowledge economy - data, networks, and digital products - is the most important driver of economic growth.
In a modern economy like the UK’s, knowledge plays a decisive role in production, distribution and consumption. Our most successful firms rely on creative and highly skilled employees, alongside sophisticated use of technology, to produce products and services, and get them to where they’re needed. Unlike the huge corporations of the past, which owned physical assets like railroads and oil distilleries, knowledge economy leaders get their edge through ‘intangible’ assets like intellectual property and data. It’s these highly innovative businesses that are driving UK growth.
The problem is that this high-speed economy passes most UK residents by. While they might use the products it creates - smart devices, digital content, online services - they can’t take part as makers or shapers.
That’s because the knowledge economy is highly concentrated in some parts of the UK. For example, the so-called ‘golden triangle’ of Oxford, Cambridge and London attracts over 40% of government funding for research. And the problem is getting worse, not better. We’re seeing innovation activity and resources become even more concentrated in leading places. At the same time, the biggest technology firms are getting more powerful. Their ability to hoard data and control access to markets and information makes them a potential threat to democracy.
History suggests that new production methods don’t have to be concentrated in an elite frontier - they can transform whole economies. Fordist mass production spread to almost all sectors and helped to drive growth in rich and poor countries alike. We need the knowledge economy to spread in the same way.
Yet experience shows us that we can’t expect the benefits of an innovation-led knowledge economy to simply trickle down to the rest of the population. Neither can we solve the inequalities we are facing just by redistributing the gains.
Instead, we need to broaden access to the resources, opportunities, and capabilities of production. We need to create a new economic order that is more equal, by giving more people the capital and skills that will allow them to benefit from the knowledge economy.
Creating a radically more inclusive knowledge economy should be a priority for the next government. All the main parties have already signalled that they want innovation to be a priority. But so far, there is little evidence that any political party has really grasped the ways in which innovation is transforming our economy and society, still less proposed a coherent response to it.
The next government needs to recognise that the challenges we are facing - low productivity, increasing inequality, declining trust in politics - are closely linked to the knowledge economy. To solve them, we need to change how the knowledge economy works.
Read Nesta's responses to each of the party manifestos. Where we analyse how each party responds to these three key challenges, and we suggest ways that they can use innovation to make the knowledge economy far more inclusive.