A New Government — A New R&D Landscape?
By Dr George Dibb — UCL Institute for Innovation & Public Purpose and UCL Public Policy
Over the recent Christmas break, broadsheet newspapers were full of new and eye-catching policy announcements being trailed by the new Johnson Government. Unusually, perhaps, research and development (R&D) and innovation policy was also in the spotlight. For those of you too busy eating Quality Street to read The Telegraph, there were calls to “rip up decades-old public spending rules” and proposals to build an “MIT of the North” in The Times, and Dominic Cummings’ “high-risk high-reward” research organisation and doubling of public investment in science in the Financial Times. But this is all set against what appears to be the dominant backdrop — at least in the short-term — of this new government which is around “levelling up” the regions and raising productivity outside the southeast.
But what does this mean when we get down to details? A lot of work has been done in the last few years around the formation of UKRI, the development of Greg Clark’s Industrial Strategy and the deployment of the associated Industrial Strategy Challenge Funds. Was this all for naught? And what is the future of the so-called “golden triangle” of science between London, Oxford and Cambridge?
Future of the Industrial Strategy
Let’s start at the basics. The government is still bound to the 2050 net-zero CO2 emission target and has retained the previous commitment to increase gross (public + private) investment in R&D to 2.4% of GDP. I’ve written elsewhere that aiming to be average (the 2.4% number comes from average R&D investment of OECD countries) within a decade is hardly ground-breaking in aspiration. That said, it will be impossible to hit net-zero or 2.4% targets without some kind of strategy that leverages policy to drive private sector behaviour.
Whether it is called this or not, this government will have an Industrial Strategy.
The PM’s advisor Dominic Cummings has his fingerprints across a lot of the Christmas-time briefings to newspapers. In the past, he has written extensively about the need to strategically invest in transformational technologies to solve big systemic challenges. Those familiar with the Industrial Strategy framed around four ‘Grand Challenges’ and the work of the UCL Commission on Mission Oriented Innovation and Industrial Strategy (chaired by Mariana Mazzucato and David Willetts) will recognise this type of language.
Hopefully, this government won’t waste valuable time repeating the problem-finding and -defining of the last Industrial Strategy and will retain the grand challenges; an ageing society, the future of mobility, AI and data economy, and clean growth.
New Ideas for Innovation
Establishing an ARPA-like organisation in the UK is an interesting proposition; there is much to learn from ARPA and how it has worked in the US innovation system. We have to recognise, however, that innovation in the UK is structurally different to the US; we do not have a huge network of public laboratories already operating close-to-market, nor does the UK have a ready customer for innovation akin to the US military. We mustn’t fall into the trap of thinking that what made ARPA great was lone scientists working on basic research empowered to dream big by unrestricted funding. Certainly, the operational structure of ARPA and the way they delivered their funding matters. Two things really made ARPA so transformational: firstly, a belief that the public sector is key to steering innovation led growth (this is what makes it attractive to work in government); and secondly, that ARPAs spanned the entire innovation chain from basic research, through application and all the way into procurement.
A UK ARPA should learn from the US model — not replicate it — and should be given a close-to-market, challenge-focussed role, rather than being targeted at basic research or in the defence sector.
Looking again at the Treasury’s spending rules is also a welcome development. The HMT Green Book is the framework for how policies are assessed on a basis of cost-benefit analysis (CBA). Work at the UCL Institute for Innovation and Public Purpose has shown that it is hard in such a framework to be able to capture spill-over effects and structural changes to the economy that result from policy interventions — indeed, CBA calculations would likely halt any bold “moon-shot” policies before they are launched.
Tearing up the green book means developing new metrics that go beyond the focus on cost-benefit analysis and net present value. The government have clearly raised this as a way to direct more funding away from London and into the North and Midlands, but we need a new framework that is fit for purpose, not simply a mechanism that will swing with political trends.
The Shape of Government — The Shape of Investment
Beyond manifesto commitments, we are expecting a radical, post-Brexit, shake-up of Whitehall departments and machinery in February. There are early discussions about an enlarged economic super-ministry made up of BEIS and DIT. Putting economic strategy at the heart of government and linking it more horizontally to the direction of innovation, makes a lot of sense and is why many economies have both a Ministry of Finance (our Treasury) and a Ministry of the Economy.
As Mariana Mazzucato and I wrote in a recent piece, to work, such an Economic Ministry must have strategic agenda setting powers at the heart of government to rival the belt-tightening processes of the Treasury.
Putting innovation at the centre of the economic strategy means that it is essential to keep responsibility for R&D in the central economic ministry and not moved to the Department for Education with universities (as is being discussed). It is also central to make sure that carbon neutrality targets and climate change be managed as part of the economics strategy, and not in the periphery of the environment department that can be too easily ignored. After all, the green transition needed for 2050 will have to reshape our economy.
As the UK leaves the European Union (pending trade negotiations) it will also be tasked with redesigning or recreating the various pots of funding and regulation currently overseen by Brussels. Most importantly, the European Investment Bank (EIB) and European Regional Development Fund (ERDF) — both major mechanisms of EU inward investment to the UK — will have to be replaced. Previously, EU funding for local areas has been distributed on the basis of deprivation, yet if the UK’s replacement funding — the Shared Prosperity Fund — is distributed using a metric of productivity growth, this will result in a radically different spread of the funding.
Simply replacing a regional fund with another regional fund will not suffice — how the money is distributed matters as much as where.
A new public bank is especially urgent in light of the UK’s post-Brexit loss of European Investment Bank investment – the source of over €50 billion investment in the UK over the past decade. Post-Brexit the government will urgently need to assess how patient finance can be maintained to the vital areas that the EIB has invested in from energy (including new offshore windfarms), infrastructure (such as Crossrail), and higher education (including the new UCL East campus). We know that the provision of patient finance is absolutely critical to a successful and functioning innovation ecosystem.
Where next?
With industrial strategy making a return to policy around the world and a renewed focus on innovation policy in the EU and UK, this year looks set to be a bumper one for wonks who read the Industrial Strategy from cover to cover. There’s a lot to commend in having a new focus on the R&D system in the context of the UK economy, and as we leave the EU this government will have a huge amount of discretion in how they design the frameworks that replace Brussels. We’ll soon see if this transformation is as practically radical as its political rhetoric.
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George Dibb is Head of Industrial Strategy & Policy Engagement at the UCL Institute for Innovation and Public Purpose & UCL Public Policy (OVPR)
