Aug 28, 2018
How can the UK’s public research laboratories support a mission-oriented industrial strategy?
George Dibb | @GeorgeDibb
Last week it was announced that Birmingham prison was to be brought back into government control, having previously been operated by outsourcer G4S, after conditions in the prison descended into a “state of crisis”. This news brought renewed attention to the question of whether outsourcing key pieces of national infrastructure to private companies is delivering value-for-money for taxpayers.
Back in 2012, the government took another key institute back into government operation after being outsourced. Against the broader trend of outsourcing UK government contracts and services, the then Minister for Universities and Science, David Willetts (now Lord Willetts), announced that the National Physical Laboratory would be returned to government ownership after 20 years of operation by outsourcing giant Serco. Despite the Conservative-Liberal Democrat coalition’s accelerating policy of spinning-out public operations to private contractors (doubling outsourcing funding from 2010 to 2015 from £64bn to £120bn), the government decided to “spin-in” one research laboratory back into public operation.
The National Physical Laboratory (NPL) is the UK’s national lab for measurement science which, as well as holding the nation’s reference standard kilogram and atomic clock, works to develop new measurement technologies and standards. Serving as a vital piece of the innovation ecosystem, the NPL sits between academic applied research and industry, assisting in the commercialisation of new technology by supporting business with cutting-edge measurement science.
Until 1995 the NPL was run by the UK government, with members of staff being part of the civil service. However, in 1995 the NPL was spun out of government as part of a wider programme of cost-cutting. NPL Management Ltd was formed as a new company and operation was contracted to Serco, the outsourcing company that runs everything from UK nuclear early warning systems to hospitals and asylum seeker accommodation. Under Serco, costs fell (largely as a consequence of taking employees out of public sector pay scales and pension schemes) and the work of the laboratory was transformed in commercial measurement services and metrology “solutions”.
This was part of a wider trend of outsourcing, sell-offs, and state privatisations that took place across the UK in the 1980s and 1990s. In 2001, Serco was at the centre of a disastrous Private Finance Initiative (PFI) to construct a new laboratory that eventually saw the collapse of John Laing Construction, losses of over £100 million for private firms and banks, and the nationalisation of the project by government with huge costs and a decade long delay. Despite being part of the failed consortium, Serco was allowed to continue operating NPL on a for-profit basis — a classic case of nationalising losses and privatising profits.
Although the NPL is relatively small compared to the scale of outsourcing and privatisation that took place in other parts of the public sector, the difference is that in this case the government acknowledged that privatisation had been a failure and brought this important part of the innovation eco-system back into government ownership.
Upon announcing the decision, Lord Willetts stated that whoever operates this key piece of national infrastructure “should have a clear, long-term stake in the ownership and operation of [NPL] which would not be possible under the current [Serco] arrangement”.
By bringing the laboratory back into public control, the work could be more readily aligned to government research priorities
The government therefore recognised the important economic role NPL played in terms of supporting the commercialisation of technology, but also the difficult constraints placed on the lab by having to constantly justify its existence and compete for contracts. By bringing the laboratory back into public control, the work could be more readily aligned to government research priorities. The products of work at the NPL, such as international standards, are public goods with wide benefits to the economy as a whole. With no natural competitor, it’s hard to see how exposing an organisation like this to market forces can result in improved performance. This is especially the case when the operation is handed to the outsourcing industry with no long-term stake in the service’s survival and a heavily financialised model of value-extraction.
This is particularly relevant now the government are pursuing an industrial strategy structured around ‘grand challenges’, with research funding being provided through the Industrial Strategy Challenge Funds. Now under government operation, the NPL is better structured to respond to these government priorities bringing together applied research and industry around bioscience, quantum computing, battery technology and advanced manufacturing. For the industrial strategy to succeed, we need an innovation eco-system that supports all kinds of development, but one that is also responsive to the wider public policy aims of a government pursuing a mission-oriented approach to solving broad societal challenges.
With this in mind, the Institute for Innovation and Public Purpose (IIPP) has established the Commission on Mission Oriented Innovation and Industrial Strategy (MOIIS). Co-chaired by Lord David Willetts and Professor Mariana Mazzucato, the commission is made up of key UCL academics and world-leading industry experts from cross-disciplinary institutions. The idea is to map out possible missions for each of the four ‘grand challenges’ outlined in the UK Industrial Strategy, asking how the process towards solving the missions be designed to allow bottom up experimentation, what dynamic ‘metrics’ can be used to evaluate them, and how missions can deliver public value.
the secret of US innovation and competitiveness has been a ‘networked entrepreneurial state’
A key question that MOIIS is exploring is whether mission-oriented policies are best supported by specific mission-oriented public agencies. As Mariana Mazzucato has highlighted, despite the US’s image as the epitome of private sector entrepreneurism, the secret of US innovation and competitiveness has in fact been a ‘networked entrepreneurial state’ — an ecosystem of decentralised public-sector agencies across the entire innovation chain which in turn interact with private actors. Looking at equivalent bodies around the world, in general national measurement institutes remain public-sector organisations; whether that is the NMIJ in Japan, or the US’s national metrological institute, NIST, which is the world’s largest measurement laboratory, where the institute director holds a dual position as an under-secretary in the Department for Commerce. With these institutes under government control, they can be readily aligned to broader policy aims and the government’s industrial strategy.
In the UK, public research laboratories such as the NPL can therefore play an important role promoting a mission-oriented approach to industrial strategy. As well as being about public investment in innovation, a market-shaping, mission-oriented approach to policy also needs to include the wider institutional features of markets, from the regulatory framework (e.g. environmental standards), to the creation of demand for new products and services (e.g. through procurement), to the development of internationally acknowledged units, measurements and standards — which is a key function of the NPL.
There will always be a substantive debate about public ownership in various industries. But as industrial strategy makes a return in the UK, the experience of the NPL highlights the importance of having research laboratories in public ownership — and the risks of handing such vital pieces of the innovation ecosystem over to outsourcing companies with no long-term stake in the service’s survival.
Dr George Dibb is Head of Industrial Strategy & Policy Engagement at the UCL Institute for Innovation and Public Purpose.
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