Archive for the ‘Science policy’ Category

Growth, technological innovation, and the British productivity crisis

Wednesday, January 28th, 2015

The biggest current issue in the UK’s economic situation is the continuing slump in productivity. It’s this poor productivity performance that underlies slow or no real wage growth, and that also contributes to disappointing government revenues and consequent slow progress reducing the government deficit. Yet the causes of this poor productivity performance are barely discussed, let alone understood. In the long-term, productivity growth is associated with innovation and technological progress – have we stopped being able to innovate? The ONS has recently released a set of statistics which potentially throw some light on the issue. These estimates of total factor productivity – productivity controlled for inputs of labour and capital – make clear the seriousness of the problem.

Multifactor productivity, whole economy, ONS estimates.

Total factor productivity relative to 1994, whole economy, ONS estimates


Here are the figures for the whole economy. They show that, up to 2008, total factor productivity grew steadily at around 1% a year. Then it precipitously fell, losing more than a decade’s worth of growth, and it continues to fall. This means that each year since the financial crisis, on average we have had to work harder or put in more capital to achieve the same level of economic output. A simple-minded interpretation of this would be that, rather than seeing technological progress being reflected in economic growth, we’re going backwards, we’re technologically regressing, and the only economic growth we’re seeing is because we have a larger population working longer hours.

Of course, things are more complicated than this. Many different sectors contribute to the economy – in some, we see substantial innovation and technological progress, while in others the situation is not so good. It’s the overall shape of the economy, the balance between growing and stagnating sectors, that contributes to the whole picture. The ONS figures do begin to break down total factor productivity growth into different sectors, and this begins to give some real insight into what’s wrong with the UK’s economy and what needs to be done to right it. Before I come to those details, I need to say something more about what’s being estimated here.

Where does sustainable, long term economic growth come from? (more…)

Science, Politics, and the Haldane Principle

Monday, January 5th, 2015

The UK government published a new Science and Innovation Strategy just before Christmas, in circumstances that have led to a certain amount of comment (see, for example, here and here). There’s a lot to be said about this strategy, but here I want to discuss just one aspect – the document’s extended references to the Haldane Principle. This principle is widely believed to define, in UK science policy, a certain separation between politics and science, taking detailed decisions about what science to fund out of the hands of politicians and entrusting them to experts in the Research Councils, at arms’ length from the government. The new strategy reaffirms an adherence to the Haldane Principle, but it does this in a way that will make some people worry that an attempt is being made to redefine it, to allow more direct intervention in science funding decisions by politicians in Whitehall. No-one doubts that the government of the day has, not just a right, but a duty, to set strategic directions and priorities for the science the government funds. What’s at issue are how to make the best decisions, underpinned by the best evidence, for what by definition are the uncertain outcomes of research.

The key point to recognize about the Haldane Principle is that it is – as the historian David Edgerton pointed out – an invented tradition. (more…)

What the UK government should do about science and innovation

Wednesday, November 12th, 2014

I have a new post up at the Sheffield Political Economy Research Institute’s blog – Rebuilding the UK’s innovation economy. It’s a more tightly edited version of my earlier post on Soft Machines with the same title.

Lecture on responsible innovation and the irresponsibility of not innovating

Tuesday, November 4th, 2014

Last night I gave a lecture at UCL to launch their new centre for Responsible Research and Innovation. My title was “Can innovation ever be responsible? Is it ever irresponsible not to innovate?”, and in it I attempted to put the current vogue within science policy for the idea of Responsible Research and Innovation within a broader context. If I get a moment I’ll write up the lecture as a (long) blogpost but in the meantime, here is a PDF of my slides.

Rebuilding the UK’s innovation economy

Friday, July 18th, 2014

The UK’s innovation system is currently under-performing; the amount of resource devoted to private sector R&D has been too low compared to competitors for many years, and the situation shows no sign of improving. My last post discussed the changes in the UK economy that have led us to this situation, which contributes to the deep-seated problems of the UK economy of very poor productivity performance and persistent current account deficits. What can we do to improve things? Here I suggest three steps.

1. Stop making things worse.
Firstly, we should recognise the damage that has been done to the countries innovative capacity by the structural shortcomings of our economy and stop making things worse. R&D capacity – including private sector R&D – is a national asset, and we should try and correct the perverse incentives that lead to its destruction. (more…)

Business R&D is the weak link in the UK’s innovation system

Tuesday, June 24th, 2014

What’s wrong with the UK’s innovation system is not that we don’t have a strong science base, or even that there isn’t the will to connect the science base to the companies and entrepreneurs who might want to use its outputs. The problem is that our economy isn’t assigning enough resource to pulling through the fruits of the science base into technological innovations, the innovation that will create new products and services, bring economic growth, and help solve some of the biggest social problems we face. The primary symptom of the problem is the UK’s very poor performance at business funded research and development R&D. This is the weak link in the UK’s national innovation system, and it is part of a bigger picture of short-termism and under-investment which underlie the UK economy’s serious long-term problems.

For context, it’s worth highlighting two particular features of the UK economy. The first is its very poor productivity growth: currently on one measure (annualised 6 year growth in productivity) we’re seeing the worst peace-time performance for the last 150 years. Without productivity growth, there will be no growth in average living standards, and that’s going to lead to an increasingly sour political scene.

The second is the huge current account deficit, which at 5.4% of GDP is worse than in the crisis years of the mid-1970s. Now, as then, the UK is unable to pay its way in the world. Unlike the 1970′s, though, there’s no immediate political crisis, no humiliating appeals to the IMF for a bail-out. This time round, overseas investors are happy to finance this deficit by buying UK assets. But this isn’t cost-free. An influx of overseas capital is what is currently driving a price bubble for domestic and commercial property in London, severely unbalancing the economy and leading to a growing gulf between the capital and the regions. The assets being bought include the nation’s key infrastructure in energy and transport; there will be an inevitable loss of control and sovereignty as more of this infrastructure falls into overseas ownership. Chinese money will be paying for any new generation of nuclear power stations that will be built; that will give the UK very little leverage in insisting that some of that investment is spent to create jobs in the UK, and it will be paid for by what will effectively be a tax on everyone’s electricity bills, guaranteed for 35 years.

These are long-term problems, and so is the decline in business R&D intensity. The last thirty years has seen this drop from 1.48% in 1981, to 1.09% now (measured as a percentage of GDP) (more…)

Surely there’s more to science than money?

Sunday, June 15th, 2014

How can we justify spending taxpayers’ money on science when there is so much pressure to cut public spending, and so many other popular things to spend the money on, like the National Health Service? People close to the policy-making process tend to stress that if you want to persuade HM Treasury of the need to fund science, there’s only one argument they will listen to – that science spending will lead to more economic growth. Yet the economic instrumentalism of this argument grates for many people. Surely it must be possible to justify the elevated pursuit of knowledge in less mercenary, less meretricious terms? If our political economy was different, perhaps it would be possible. But in a system in which money is increasingly seen as the measure of all things, it’s difficult to see how things could be otherwise. If you don’t like this situation, it’s not science, but broader society, that you’ve got to change.

The relentless focus on the economic justification of science is relatively recent, but that doesn’t mean that what went before was a golden age. The dominant motivation for state support of science in the twentieth century wasn’t to make money, but to win wars. (more…)

Spin-outs and venture capital won’t fill the pharma R&D gap

Saturday, May 31st, 2014

Now that Pfizer has, for the moment, been rebuffed in its attempt to take over AstraZeneca, it’s worth reflecting on the broader issues this story raised about the pharmaceutical industry in particular and technological innovation more generally. The political attention focused on the question of industrial R&D capacity was very welcome; this was the subject of my last post – Why R&D matters. Less has been said about the broader problems of innovation in the pharmaceutical industry, which I discussed in an earlier post – Decelerating change in the pharmaceutical industry. One of the responses I had to my last post argued that we shouldn’t worry about declining R&D in the pharmaceutical industry, because that represented an old model of innovation that was being rapidly superseded. In the new world, nimble start-ups, funded by far-seeing venture capitalists, are able to translate the latest results from academic life sciences into new clinical treatments in a much more cost-effective way than the old industry behemoths. It’s an appealing prospect that fits in with much currently fashionable thinking about innovation, and one can certainly find a few stories about companies founded that way that have brought useful treatments to market. The trouble is, though, if we look at the big picture, there is no evidence at all that this new approach is working.

A recent article by Matthew Herper in Forbes – The Cost Of Creating A New Drug Now $5 Billion, Pushing Big Pharma To Change – sets out pharma’s problems very starkly. (more…)

Why R&D matters

Friday, May 9th, 2014

The takeover bid for the UK/Swedish pharmaceutical company AstraZeneca by US giant Pfizer has given rare political prominence to the issue of UK-based research and development capacity. Underlying much opposition to the deal is the fear that the combined entity will seek to cut costs, and that R&D expenditure will be first in the firing line. This fear is entirely well-founded; since Pfizer took over Wyeth in 2009 it has reduced total R&D spend from $11bn to $6.7bn, and in the UK Pfizer’s cost-cutting reputation was sealed by the closure of its Sandwich R&D facility in 2011. Nor is the importance of AstraZeneca to UK R&D capacity overstated. In the latest EU R&D scoreboard, of the top world 100 companies by R&D expenditure, only 2 are British. One of these is AstraZeneca, and the other GSK. And, if the deal goes ahead and does result in a significant reduction in UK R&D capacity, it wouldn’t be an isolated event. It would be the culmination of a 30 year decline in UK business R&D intensity, which has taken the UK from being one of the most R&D intensive economies in the developed world, to one of the least.

My recent paper “The UK’s Innovation Deficit and How to repair it” analysed this decline in detail and related it to changes in the wider political economy. One response I’ve had to the paper was to regard this decline in R&D intensity as something to be welcomed. In this view, R&D is a legacy of an earlier era of heavy industry and monolithic corporations, now obsolete in a world of open innovation, where valuable intellectual property is more likely to be a brand identity than a new drug or a new electronic device.

I think this view is quite wrong. This doesn’t mean that I think that those kinds of innovation that arise without formal research and development are not important; innovations in the way we organise ourselves, to give one example, can create enormous value. Of course, R&D in its modern sense is just such a social innovation. (more…)

The economics of innovation stagnation

Saturday, May 3rd, 2014

What would an advanced economy look like if technological innovation began to dry up? Economic growth would begin to slow, and we’d expect the shortage of opportunities for new, lucrative investments to lead to a period of persistently lower rates of return on capital. The prices of existing income-yielding assets would rise, and as wealth-holders hunted out increasingly rare higher yielding investment opportunities we’d expect to see a series of asset price bubbles. As truly transformative technologies became rarer, when new technologies did come along we might see them being associated with hype and inflated expectations. Perhaps we’d also begin to see growing inequality, as a less dynamic economy cemented the advantages of the already wealthy and gave fewer opportunities to talented outsiders. It’s a picture, perhaps, that begins to remind us of the characteristics of the developed economies now – difficulties summed up in the phrase “secular stagnation”. Could it be that, despite the widespread belief that technology continues to accelerate, that innovation stagnation, at least in part, underlies some of our current economic difficulties?

G7 Real GDP per capita plot
Growth in real GDP per person across the G7 nations. GDP data and predictions from the IMF World Economic Outlook 2014 database, population estimates from the UN World Population prospects 2012. The solid line is the best fit to the 1980 – 2008 data of a logistic function of the form A/(1+exp(-(T-T0)/B)); the dotted line represents constant annual growth of 2.6%.

The data is clear that growth in the richest economies of the world, the economies operating at the technological leading edge, was slowing down even before the recent financial crisis. (more…)