Innovation or stagnation? Lessons Australia could learn from the UK

In the UK, innovation and research has been at the forefront of the government’s economic policy agenda. bisgovuk

After decades in the wilderness, industry policy is back centrally on the economic agenda in the UK. What is striking is how the policy is being driven by strong evidence on what works from years of accumulated research by universities, government and think tanks. In the absence of such research in Australia, our current interest in industry policy faces the danger of being captured by special pleading from industry groups.

The economic problem in the UK is clear. Its economy is deeply in debt and it needs to diversify away from its reliance on the financial sector. The government’s answer to dealing with debt is massive reductions in public expenditure. At the same time, it recognises the need to grow and broaden the economy, and it is drawing on an increasingly impressive range of research into how innovation in all aspects of the public and private sectors underlies that growth. A core tenet of the new thinking is that industrial strategy relies on innovation policy.

Prime Minister Cameron, and his ministerial colleagues and advisers in business and research, are displaying a level of open-mindedness and pragmatism that decries so many years of Thatcherite economic rationalist orthodoxy by their predecessors. While their approach remains somewhat piecemeal and tentative, it compares very favourably with the industrial policies of the immediate past based primarily on light touch regulation of the City of London.

Policies include building on existing strengths outside of the financial sector. In the UK, these include a world-class university system. The science budget was preserved during recent swingeing public sector cuts. It includes supporting world-leading companies. Ten firms account for one-third of the UK’s total business expenditure on R&D, and these firms in fields such as pharmaceuticals, aerospace, and oil and gas, are recognised for their roles as national champions.

Punts are being made on investing in emerging new technologies, such as the $75 million invested in commercialising the Nobel Prize-winning discovery of graphene. Areas of “economic importance”, such as utilities and agribusiness, have been identified.

There is also significant investment in institution building. The new Francis Crick Institute in biomedical research will employ 1250 scientists and have an annual budget of $130 million. The dreadfully named “Catapult centres” will see $260 million invested in new technology and innovation research centres in areas such as high-value manufacturing and offshore renewable energy.

These initiatives are being developed in the context of a much more sophisticated understanding of the interconnected nature of modern economies. Key policy drivers include the push for encouraging greater collaboration and use of public procurement as a stimulus to innovation.

The UK government’s recent innovation strategy was strongly influenced by an excellent report produced by its Department of Business, Innovation and Skills. Entitled Innovation and Research Strategy for Growth, it outlines the economic argument for innovation policy. It draws extensively on a wide range of research findings from an increasing number of well-informed research groups. These include the National Endowment for Science, Technology and the Arts, and the UK Innovation Research Centre, a joint venture between Imperial College and Cambridge University. As well as a number of strong university-based groups researching innovation, influential organisations such as the Council for Industry and Higher Education are sponsoring and promoting research in the area. A high profile journalist, Will Hutton, has created the Big Innovation Centre, and received a great deal of corporate support, to condense and interpret research findings.

The resonance with the economic problems we face in Australia is obvious. We have a massive productivity problem and need to rebalance our economy to hedge our reliance on resources. Innovation-driven growth is the only way forward. Yet apart from a few lone voices we have never had a comprehensive innovation research capacity in Australia.

Given the significance of the issue, this is something that needs desperately to be addressed to give intellectual substance to, and convincing evidence for, our push for better industry policies. Without this, the desire of our politicians to do something will be diverted towards those with the most powerful voices, rather than the most compelling arguments.