Implications of Rachel Reeves’s Mais Lecture for Science & Innovation Policy

There will be a general election in the UK this year, and it is not impossible (to say the least) that the Labour opposition will form the next government. What might such a government’s policies imply for science and innovation policy? There are some important clues in a recent, lengthy speech – the 2024 Mais Lecture – given by the Shadow Chancellor of the Exchequer, Rachel Reeves, in which she sets out her economic priors.

In the speech, Reeves sets out in her view, the underlying problems of the UK economy – slow productivity growth leading to wage stagnation, low investment levels, poor skills (especially intermediate and technical) and “vast regional disparities, with all of England’s biggest cities outside London having productivity levels below the national average”. I think this analysis is now approaching being a consensus view – see, for example, this recent publication – The Productivity Agenda – from The Productivity Institute.

Interestingly, Reeves resists the temptation to blame everything on the current government, stressing that this situation reflects long-standing weaknesses, which began in the early 1990’s, which were not sufficiently challenged by the Labour governments of the late 90’s and 00’s, and then were made much worse in the 2010’s by Austerity, Brexit, and post-pandemic policy instability. Singling out Conservative Chancellor of the Exchequer Nigel Lawson as the author of policies that were both wrong in principle and badly executed, she identifies this period as the root of “an unprecedented surge in inequality between places and people which endures today. The decline or disappearance of whole industries, leaving enduring social and economic costs and hollowing out our industrial strength. And – crucially – diminishing returns for growth and productivity.”

To add to our problems, Reeves stresses that the external environment the UK now faces is much more challenging than in previous decades, with geopolitical instability reviving the basic question of national security, uncertainties from new technologies like AI, and the challenges of climate instability and the net zero energy transition. She is blunt in saying “globalisation, as we once knew it, is dead”“a growth model reliant on geopolitical stability is a growth model resting on increasingly shallow foundations.”

What comes next? For Reeves, the new questions are “how Britain can pay its way in the world; of our productive capacity; of how to drive innovation and diffusion throughout our economy; of the regional distribution of work and opportunity; of how to mobilise investment, develop skills and tackle inefficiencies to modernise a sclerotic economy; and of energy security”, and the answers are to be found what economist Dani Rodrik calls “productivism”.

In practise, this means an industrial strategy which, recognising the limits of central government’s information and capacity to act, works in partnership. This needs to have both a sector focus – building on the UK’s existing areas of comparative advantage and its strategic needs – and a regional focus, working with local and regional government to support the development of clusters and the realisation of agglomeration benefits.

In terms of the mechanics of the approach, Reeves anticipates that this central mission of government – restoring economic growth – will be driven from the Treasury, through a a beefed up “Enterprise and Growth” unit. To realise these ambitions, she identifies three areas of focus – recreating macroeconomic stability, investment – particularly in partnership with the private sector, and reform – of the planning system, housing, skills, the labour market and regional governance.

Innovation is a central part of Reeves’s vision for increased investment, partly through the familiar call for more capital to flow to university spin-outs. But there is also a call for more focus on the diffusion of new technologies across the whole economy, including what Reeves has long called the “everyday economy”. In my view, this is correct, but will need new institutions, or the adaptation of existing ones (as I argued, with Eoin O’Sullivan: “What’s missing in the UK’s R&D landscape – institutions to build innovation capacity”). There is a very sensible commitment to a ten year funding cycle for R&D institutions, essential not least because some confidence in the longevity of programmes is essential to give the private sector the confidence to co-invest.

This was quite a dense speech, and the commentary around it – including the pre-briefing from Labour – was particularly misleading. I think it would be a mistake to underestimate how much of a break it represents from the conventional economic wisdom of the past three decades, though the details of the policy programme remain to be filled in, and, as many have commented, its implementation in a very tough fiscal environment is going to be challenging. Our current R&D landscape isn’t ideally configured to support these aspirations and the UK’s current challenges (as I argue in my long piece “Science and innovation policy for hard times: an overview of the UK’s Research and Development landscape”); I’d anticipate some reshaping to support the “missions” that are intended to give some structure to the Labour programme. And, as Reeves says unequivocally, of these missions, the goal of restoring productivity and economic growth is foundational.