Category: Science policy

It’s impossible for a government to talk about industrial strategy in the UK without mentioning British Leyland, the auto conglomerate effectively nationalised after going bankrupt in 1975, and which finally expired in 2007. As everyone knows British Leyland illustrates the folly of governments “picking winners”, which inevitably produces outcomes like cars with square steering wheels. So it’s not surprising that the government’s latest discussion document Green Paper: Building our Industrial Strategy begins with a disclaimer – this isn’t a 1970’s industrial strategy, but a new vision, a modern industrial strategy that doesn’t repeat the mistakes of the past.

The document isn’t actually a strategy yet, and it’s a stretch to describe much of it as new. But it is welcome, nonetheless; its analysis of the UK economy’s current position is much more candid and clear-sighted about its problems than previous government documents have felt able to be. Above all, the document focuses on the UK’s lamentable recent productivity performance (illustrated in the graph below), and the huge disparities between the performances of the UK’s different regional economies. It puts science and innovation as the first “pillar” of the strategy, and doesn’t pull punches about the current low levels of both government and private sector support for research.

UK Productivity has grown less over the last ten years than over any previous decade since the late 19th century. Decadal average labour productivity growth, data from Thomas, R and Dimsdale, N (2016) “Three Centuries of Data – Version 2.3”, Bank of England

It is a consultation document, and unlike many such, the questions don’t give the impression that the answer is already known – it does read as a genuine invitation to contribute to policy development. And what is very welcome indeed are the strong signals of high level political support: the document was launched by the Prime Minister, as “a critical part of our plan for post-Brexit Britain”, and as an exemplar of a new, active approach to government. This is in very sharp contrast to the signals coming out of the previous Conservative government.

How should we judge the success of any industrial strategy? Again, the strategy is admirably clear about how it should be judged – the Secretary of State states the objective as being “to improve living standards and economic growth by increasing productivity and driving growth across the whole country.”

I agree with this. There’s a corollary, though. Our existing situation – stagnant productivity growth, gross regional disparities in prosperity – tells us this – whatever we’ve been doing up to now, it hasn’t worked.

Industrial strategy over the decades

This is where it becomes important to look at what’s proposed in the light of what’s gone before. Continue reading “Steps towards an industrial strategy”

Today I gave a talk at Imperial College Business School on “The UK’s productivity problem – the role of innovation and R&D”. The slides can be downloaded as a PDF here. Most of the arguments will be familiar to readers of this blog and my two SPERI papers on productivity and innovation, but there are some updated plots.

The UK government’s Higher Education and Research Bill is currently working its way through parliament – it’s currently in the committee stage at the House of Lords, where it’s encountering some turbulence. A recent newspaper article by (Lord) Chris Patten – “Leave state control of Universities to China” – gives a sense of how some are perceiving the issues … “But the bill that he [Jo Johnson, Minister for Universities, Science, Research and Innovation] recommends we swallow gives the secretary of state greater power than ever to direct the course of research.”

Any discussion of who has the power to direct government funded research in the UK will very soon invoke something called the “Haldane principle”, which is held by many to be a quasi-constitutional principle upholding the autonomy of the research community and its immunity from direct political direction, and indeed the government has been at pains to affirm its adherence to this tradition, stating for example in a publication about the Bill (Higher Education and Research Bill: UKRI Vision, Principles & Governance) that “The commitment to the Haldane principle will be strengthened and protected.”

Nonetheless, the Bill itself does not refer to the Haldane principle. The Bill sets up a new body to oversee science funding, UK Research and Innovation (UKRI), and section 96 of the Bill seems pretty explicit about where power will lie. Clause 1 of section 96 states baldly “The Secretary of State may give UKRI directions about the allocation or expenditure by UKRI of grants received”. And for the avoidance of doubt, as the lawyers say, clause 4 underlines clause 1 thus: “UKRI must comply with any directions given under this section”.

So, what is the Haldane principle, and if the Haldane principle really does protect the autonomy of science, how can this be consistent with direct control the new Bill gives the Minister? To get to the bottom of this, it’s worth asking three separate questions. Firstly, what did the supposed originator of the principle, Lord Haldane, actually say? Secondly, what do people now understand by the “Haldane principle”, and what purposes are served by invoking it? And lastly, we should perhaps put aside the constitutional history and go back to first principles to ask what the proper relationship between politicians and the scientific enterprise should be.

The supposed origin of the Haldane principle is in a report written in 1918 by the “Machinery of Government Committee”, chaired by Viscount Richard Haldane. (It should perhaps be pointed out that this Haldane is not the same as the famous biologist J.B.S. Haldane, who was in fact Richard Haldane’s nephew).

This is a very famous and important report in the history of UK public administration – it established some principles of executive government still followed in the UK today, recommending the foundation of the Cabinet Office, and the creation of Ministries based around key functions, such as Education, Health, Defense, and Finance. It does talk quite extensively about research and intelligence, but it’s clear that Haldane usually means something rather different to academic science when he uses these terms. His focus is much more on what we would call the evidence base for policy.

However, Haldane does discuss the arrangements for supporting medical research, which over the years evolved into the Medical Research Council, and he commends the way the Department of Scientific and Industrial Research was arranged. The key feature here is that responsibility for spending money on research proposals rests with a Minister, who has to answer to Parliament, but that “the scientific and technical soundness of all research proposals recommended for State assistance is guaranteed by constant resort to the guidance of an Advisory Council, consisting of a small number of eminent men of science, with an Administrative Chairman”*. Some sense of the kind of research being talked about is given by the examples given – “certain enquiries into questions of urgent practical importance relating to the preservation of fish”, “the mortality and illness due to TNT poisoning”. The importance of expert advice emerges clearly, but this doesn’t read like a statement of principle about the autonomy of basic science.

So if Viscount Haldane didn’t invent the Haldane principle, who did? The historian David Edgerton (in his article “The ‘Haldane Principle’ and other invented traditions in science policy”) points the finger at the Conservative politician Lord Hailsham. He invoked the “Haldane principle” in the early 1960s to score a political point off his Labour opponents.

Clearly the Haldane principle still has considerable rhetorical power, so different meanings are attached to it by different people to the degree that these meanings support the arguments they are making. In a general sense, there’s an agreement that the Haldane principle has something to do with the protection of the operation of science from direct political interventions, but within this I’d identify two rather different versions.

In the first version, the Haldane principle relates to the devolution of decisions about scientific matters to groups of experts – the Research Councils. This is actually the version that is enshrined in current legislation, to the extent that the powers and responsibilities of the Research Councils are defined by their Royal Charters. When I talk about Research Councils here, I don’t mean the organisations in their Swindon offices – I mean the 15 or so experts who are appointed by the Minister to form each of the research councils’ governing boards (this is the position I hold for the EPSRC). These boards are, in effect, the descendants of the advisory Councils specified by Viscount Haldane – but in the current legislation they do have more independence and autonomy than Haldane implies. But this autonomy is codified in the Royal Charters that the current Higher Education and Research Bill would rescind.

This version of the Haldane principle – the devolution of technical decision-making to bodies of experts – can be thought of as an example of the wider trend in government to offload its responsibilities to technocratic bodies – the granting of independence to the Bank of England and the empowering of the Monetary Policy Committee to set interest rates being perhaps the most visible example.

But another reading of the Haldane principle takes the correct level of devolution of power to be, not to a small group of the scientific great and good, but to the broader scientific community. This comes in a strong version and a weak one. The strong version holds that the scientific enterprise (as conceptualised by Michael Polanyi as a Hayekian spontaneous order – the “independent republic of science”) should not be subject to any external steering at all, and should be configured to maximise, above all, scientific excellence (for some value of “excellence”, of course). Unsurprisingly, this view is popular amongst many elite scientists.

The weak version concedes that at the micro-level of individual research proposals, decisions should be left to peer review, but insists that larger scale, strategic decisions can and should be subject to political control. This is essentially the interpretation of the Haldane principle favoured by recent governments. Of course, in this interpretation, where the line of demarcation between strategic decisions and individual research proposals falls is crucial and contested.

If the point at issue is when, and at what level, it is appropriate for politicians to directly intervene in the selection of research projects, we should ask what purposes could be served by such intervention.

An intrinsically authoritarian government might feel that it ought to have such control on principle, without any particular instrumental purpose.

A government that was excessively concerned about its short-term popularity might seek to use such decisions to gain immediate political advantage, for example by announcing the kind of new initiatives that might attract headlines and win votes in marginal constituencies. The devolution of this kind of decision making to technocratic committees can be read as a recognition by politicians that they need to be thus protected from their own worst instincts, tied to the mast, as it were.

But if a government has an overwhelming strategic purpose, then it might feel that the urgency of that purpose might justify rather direct interventions in the direction of research. To go back to the original Haldane, it’s clear that this is the historical context of that 1918 report.

The central purpose of the state then was clear – “to defeat German militarism”. And as we look back on that war now with horror as an exemplar of futile mass slaughter, it’s easy to forget the degree to which the First World War was a scientific and technological war. Britain had relied for some decades on technology rather than mass mobilisation for its global military power, and the war was born out of a naval arms race of Dreadnoughts, torpedoes and sophisticated fire control. The war itself brought aeroplanes, tanks, submarines, chemicals for new munitions (and chemical weapons), together with state control of the means of production, and Haldane himself, as prewar War Minister, had been central in the modernisation of Britain’s armed forces to exploit these technologies.

My own view is that the elected government do have the right to intervene in the direction of research, but that such interventions need to be motivated by a clearly articulated sense of strategic purpose. For most of the twentieth century, Britain’s “Warfare State” supplied, for better or worse, just such a clear sense of purpose. What’s our urgent sense of state purpose for the 21st century?

* The gendered language leaps out, of course, but in fairness to Viscount Haldane it’s worth pointing out that the report also contains a strikingly modern section about the value of diversity and the importance of opening up senior civil service roles to women. Beatrice Webb was on the committee, as was a notably reactionary Treasury Permanent Secretary, Sir George Murray, who added a note dissenting on this section to his signature.

I’m grateful to Alice Vadrot, convenor of an STS reading group at Cambridge’s Centre for Science and Policy, and its other members, for a stimulating discussion of some of these ideas at its most recent meeting.

The politics of Trump and Brexit has drawn attention again to the phenomenon of “left-behind” communities. In the US rust belt and the UK’s northern cities, de-industrialisation and the loss of manufacturing jobs has stripped communities, not just of their economic base, but of their very sense of purpose.

But to some commentators, the focus on manufacturing is misguided sentimentality, an appeal to the discredited idea that the only proper work is making stuff in factories. These jobs, they say, have gone for ever, killed by a combination of technology and globalisation; the clock cannot be turned back and we must adjust to the new reality of service based economies, which produce economic value just as real as any widget.

I agree that the world has changed, but I want to argue that, despite that, manufacturing does have a special importance for the economic health of developed countries. It’s important, though, to understand why, if not for sentimentality or conservatism, manufacturing is important, or we’ll end up with bad and counter-productive policy prescriptions.

Manufacturing is important for three reasons. Firstly, consistently, over the long-run, manufacturing innovation remains the most reliable way of delivering sustained productivity growth, and this productivity growth spills over into other sectors and the economy more generally.

Secondly, centres of manufacturing sustain wider clusters in which tangible and intangible assets accumulate and reinforce their collective value, and where tacit knowledge is stored in networks of skilled people and effective organisations (what Shih and Pisano call the “manufacturing commons”). These networks include, not just the core manufacturers, but suppliers and maintainers of equipment, design consultancies, R&D, and so on, which in the long term are anchored by those manufacturing activities at the core of the cluster.

Of course, the same is true in other sectors too; this brings me to the third point, which is that the diversity of types of manufacturing leaves room for clusters to be geographically dispersed. Rebalancing the economy in favour of manufacturing will at the same time rebalance it geographically, reducing the gross regional imbalances in wealth and opportunities that are such a dangerous feature of the UK now.

Recognising these as the features of manufacturing that make it so important make it clear what an industrial strategy to promote it should not try and do. Its aim should not be to prop up failing industries as they currently exist – the whole point of supporting manufacturing is as a focus for innovation. Neither should there be any expectation that a manufacturing resurgence will lead to large scale mass employment on the old model. If productivity growth is to be the motivation, then this will not lead directly to large numbers of new jobs.

The point is to create value, not, in the first instance, to create jobs. But the jobs will follow, in those sectors that will support the new manufacturing activities – in design, marketing, data analytics, professional services. In fact, the characteristic of the new manufacturing is precisely that the lines between manufacturing and its associated service activities are becoming more blurred.

So an industrial strategy to support the new manufacturing needs to have, at its heart, a focus on innovation and skills, and the goal of creating a self-sustaining ecosystem. This doesn’t mean that one can ignore history – the future manufacturing specialisms of a region will reflect their past, because the nature of the assets one has to build on, in terms of existing firms, institutions and skills, will reflect that past. But equally an understanding of the transformations that technology is bringing is important too.

Manufacturing is changing, through automation and robotics, new materials and manufacturing techniques, and new modes of organising manufacturing processes in more reconfigurable and customisable ways. New business models are being developed which erode the distinction between traditional manufacturing and service industries, and underlying all these changes is the power of new digital technology, and the potential of large scale data analytics and machine learning. All these demand new (often digital) skills, better management practises, more effective mechanisms by which new technologies diffuse widely through an existing business base.

Last summer, we began the process of defining what a modern industrial strategy might look like, to support a resurgence of high value manufacturing in the traditional manufacturing heartlands of South Yorkshire and Lancashire. The outcome of this is presented in the Science and Innovation Audit commissioned by the UK government, whose report you can read here – Driving productivity growth through innovation in high value manufacturing.

As the UK government develops its own industrial strategy, I hope the policies that emerge are designed to support the right sorts of manufacturing, for the right reasons.

One positive feature of the Autumn Statement that the Chancellor of the Exchequer presented yesterday was that he gave unprecedented prominence to the UK’s serious productivity problem. What was less positive was that he had no analysis of where the problem comes from, and his proposed measures to address it are entirely inadequate.

This matters. Our ability to harness technological and other improvements to produce more value from the same inputs is the only fundamental driver for real wage increases; productivity growth drives living standards. And we rely on productivity growth to meet the future promises we’re making now – to grow our way out of our debts, and to pay for our future pensions.

In 2007, productivity had been growing steadily at 2.2% a year since before 1970. That ended with the financial crisis; in the 7 years since it has barely risen at all. The government, and its independent forecasters, the Office of Budgetary Responsibility, have spent that time confidently expecting an upturn, a resumption of the pre-crisis growth rate. But that upturn has never arrived. My plot shows that history; this shows the successive OBR predictions for a resumption of productivity growth, together with the successive disappointing outcomes.

Labour productivity according to the successive Office of Budgetary Responsibility’s Economic and Fiscal Assessments for the years indicated, showing estimates of productivity up to the time of publication of each report (solid lines), and predictions for the future (dotted lines). Data for 2010-2014 from the October 2015 OBR Forecast Evaluation Report, for 2015 and March 2016 from the March 2016 OBR Economic and Fiscal Outlook, and November 2016 from the November 2016 OBR EFO.

After seven years of anomalously slow productivity growth, it’s time to face facts and acknowledge this isn’t an anomaly, it’s the new normal. Continue reading “Time to face facts about the UK’s productivity stagnation”

If you were a well-to-do Londoner in mid-to-late-18th century London, 1 shilling and sixpence would buy you a decent seat for a night out at the opera. Alternatively, if you were a London craftsman – a cutler or a tool-maker – the same money would allow you to buy in a kilogram of the finest Sheffield steel, made by Benjamin Huntsman’s revolutionary new crucible process. A reasonable estimate of inflation since 1770 or so would put the current value of one and six at about ten pounds. I don’t get to go out in London very much, and in any case opera is far from my favourite entertainment, but I strongly suspect that £10 today would barely buy you a gin and tonic in the Covent Garden bar, let alone a seat in that historic opera house. A hundred pounds might be more like it as a minimum for a night at the London opera now – and for that money you could buy not one, but a hundred kilograms of high quality tool-steel (though more likely from China than Sheffield).

This illustrates a phenomenon first identified by the economist William Baumol – in an economy in which one sector (typically some branch of manufacturing) sees rapid productivity gains, while another sector (typically a service sector – such as entertainment in this example) does not, then the product of the sector with low productivity will see an increase in its real price. Continue reading “How cheaper steel makes nights out more expensive (and why that’s a good thing)”

My article on the UK’s productivity slowdown has now been published as a Sheffield Political Economy Research Institute Paper, and is available for download here. Here is its introduction/summary:

The UK is in the midst of an unprecedented peacetime slowdown in productivity growth, which comes on top of the nation’s long-standing productivity weakness compared to the USA, France and Germany. If this trend continues, UK living standards will continue to stagnate and the government’s ambition to eliminate the deficit will fail. Productivity growth is connected with innovation, in its broadest sense, so it is natural to explore the connection between the UK’s poor productivity performance and the low R&D intensity of its economy. More careful analyses of productivity look at the performance of individual sectors and allow some more detailed explanations of the productivity slowdown to be tested. The decline of North Sea oil and gas and the end of the financial services bubble have a special role in the UK’s poor recent performance; these do not explain all the problem, but they will provide a headwind that the economy will have to overcome over the coming years. In response, the UK government will need to take a more active role in procuring and driving technological innovation, particularly in areas where such innovation is needed to meet the strategic goals of the state. We need a new political economy of technological innovation.

The UK’s Office of National Statistics today released the latest figures for labour productivity, to the end of 2015. This shows that the apparent recovery in productivity that seemed to be getting going half way through last year was yet another false dawn; productivity has flat-lined since the financial crisis, with the Q4 2015 value actually below the peak achieved in 2007. This performance puts us on track for the worst decade in a century. Poor productivity growth translates directly into stagnating living standards and lower tax revenues for the government, meaning that, despite austerity, all their efforts to eliminate the fiscal deficit will be in vain.

As this is perhaps the most serious economic problem currently facing the UK, it’s good to see the issue becoming more widely discussed. It’s an issue I’ve been thinking about for some time; my post on the political implications of the productivity slowdown, as revealed by this March’s budget and its aftermath, is here: The political fallout of the UK’s productivity problem. Last summer, I wrote a series of blogposts exploring the origins of this productivity slowdown. I’ve written a draft paper based on a substantially revised and updated version of those posts:

Innovation, research, and the UK’s productivity crisis (1.4 MB PDF).

Labour productivity: output per hour. ONS Labour Productivity Dataset, 7 April 2016.