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) Read the rest of this entry »