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Stian Westlake: the quiet rebirth of industrial policy

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Nesta's Stian Westlake sets out how indust
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  • 1. Through a glass, darklyThe quiet rebirth of industrial policyStian Westlake, Nesta T: @stianwestlake

2. The problem1201151101051009590850 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 161980199019732008Productivity growth after major UK recessionsYear 1 Year 2 Year 3 Year 4Quarters since start of recession 3. The first rule of industrialpolicy club is you do nottalk about industrial policyclub 4. How to talk about industrial policy a guidefor politiciansThis is not about pickingwinners; it's about backingtechnological leaders, creatingcapacities, and building on thestrengths of the economy Peter MandelsonThis isn't about 'picking winners'.It's about picking the races inwhich to focus scarce resources on,and Government doing what onlyit can do, but doing it better George Freeman 5. A common element isinnovation%/yr, 1990-20072.521.510.50Labour qualityInnovation:67% ofgrowthCapitalinvestmentInvestment ininnovationTFP (widerbenefits ofinnovation)TotalMake-up of UK economic growthSource: Nesta, The Innovation Index (2009-12)UK Business growth, 2004-08InnovatorsNon-innovatorsRevenue growth, %/yr121086420ProductInnovationProcessInnovationSource: Nesta, The Vital Six Per Cent (2009)WiderInnovation 6. The governments to-dolist 7. Innovation policy is technocratic 8. with a narrow audienceFuturistsRomanticsCreativesRealistsSceptics19%12%19%34%16%TechnophilesLike the word innovationLess concerned about pace of change or controversyDisproportionately male, ABC1Innovation : it makes a country greatUnlikely to be involved in innovationOlder, C2DEEarly adopters, creativeInterested in innovation to the extent it solves problemsthey care aboutYounger, less politicalNot excited by innovation per seCare about the ethical &social context of innovationsAware of drawbacks : desocialisation, throwaway cultureConcerned about impacts of radical innovation on jobs & thefutureWorried about impact of innovation on consumerism andemploymentMore female, C2DE 9. Technocratic innovation policy is aFaustian bargain+ Consistency ofpolicy (cf NHS)Safe fromideologyRing-fencing ofscience budgetNot part of thenationalnarrativeA hard sell at atime ofausterity 10. Opening the OvertonWindow 11. 1. Go largePublic technological development spending, 2013 As share of GDPInnovate UK 440m579mTEKES(Finland)OCS (Israel)$450m0.2%0.02%0.15% 12. 1. Go largeWhat might you do? What would you need to believe?To match Finlands level of publicinvestment: 10bn on research 3bn on Innovate UK ~100mn on risk capital(You could perhaps save a couple ofbillion by cutting R&D tax credits)That you can find ~8bn fromsomewhere: good luck.That the UKs economy caninternalise the benefits.That you can keep it up. 13. 2. Go downstreamUK Experimental development has decreased from 54% of the total R&Dfunded by government to 24% over 20 years. Basic R&D funding has increased by more than 5 times, theequivalent of a 9% annual growth rate. In nominal terms, experimental development funding has decreasedby almost 20%.USA US Federal funding has maintained a much larger share ofdevelopment spending, falling from 68% to 52% over the sameperiod. In nominal terms, spending on development has increased by60%.DevelopmentApplied researchBasic researchDevelopmentApplied researchBasic research 14. 2. Go downstreamWhat might you do? What would you need to believe?14Redirect funding from ResearchCouncils to Innovate UK(Arrow projects, supply chainvouchers, more SBRI?)Increase HEIF at the expense of QRThat you can find ~8bn fromsomewhere: good luck.That UK businesses can rise to thechallenge.That you can keep it up. 15. 3. Get in on the upside(sort of)State revenuesAUD$430m650m100s m 16. 3. Get in on the upsideWhat might you do? What would you need to believe?Get Innovate UK and RCs to takestakes in companies they fund (orroyalties, or income-contingentloans).Perhaps borrow up-front againstfuture revenues to allow anincrease in innovation funding.That our investments will be asgood as Israels or Finlands orperhaps they need to be better.That the bureaucratic hurdlesarent too big.That company behaviour wont bebadly distorted. 17. But money isnt everythingWhats going onhere? 18. 4 & 5. Germany or AustriaUK businesses have trouble growing(Nesta/NIESR)Some sectors are uncompetitive(banking?)New technologies wont increaseproductivity without disruptiveinnovation (Field)Businesses use excessively high hurdlerates (Christensen)UK businesses have trouble growing(Nesta/NIESR)Buybacks may discourage R&D (Lazonick)Intangibles are undervalued and R&D fallsin the year CEO options vest (Kay, Edmans)UKs skills problem is longstanding andwell-known (Leitch Review)German businesses self-organise 19. 4 & 5. Germany or AustriaWhat might you do? What might you do?Reform Anglo-Saxon capitalism State investment bank Establish state pension fundsand invest them in illiquid assets Spend on apprenticeships Put workers on boards Delegate BIS power to localbusiness chambers Split up HM Treasury!(But: can you make BritainGermany? Would you want to?)Abolish Innovate UK, R&D taxcredits, etc (except for SMEs or newbusinesses?)Use the proceeds to reduce taxPrioritise regulatory barriers to newentrantsExempt SMEs from various taxes(But: goes against a lot of what weknow about innovation.) 20. 6. Citizen innovationEight per cent of people inthe UK are user innovatorsLucas Industries, 1970Eric von Hippel+ 21. 7. Get creativeThe UK creative economy is fast-growing,internationallycompetitive and bigIt is relatively cheap to promoteIt is complementary to many STEMskillsUK industrial policy in this area(shhh!) seems to have workedWhat might you do?Direct public funding to arts andculture, and relevant STEM: BBC commissioning STEAM crossover skills andprojects Generous arts funding Platform development(Good luck selling this to thepublic.) 22. 8. Go greenWhat might you do? Major investment in energyR&D Downstream investment toincrease deployment of low-carbontech Recapitalise the GreenInvestment Bank Prizes and challenges 23. 9. Gimme clusters!What might you do? Intervene in property marketsand planning systems to helpclusters grow Provide better localinfrastructure (FTTP, fablabs,incubators) Sponsor business networking Delegate more power to localgovernment 24. the how matters too 25. So what should we do?2. Get more value from public tech funding Emulate Finlands TEKES and Israels OCSby seeking capped repayment fromsuccessful technology grants. Allocate 1 per cent of Innovate UKsbudget to market intelligence andtechnology futures.1. Rebalance government funding away fromresearch towards development. Reallocate 0.5 billion from researchcouncils to Innovate UK. Government investment in research anddevelopment should be more prioritisedtowards downstream investment.3. Fix the wiring of government to makebetter industrial policy possible. Split up the Treasury, moving budgetaryresponsibility to a Prime MinistersDepartment and economic and industrialpolicy to a new Ministry for Growth. Expand the use of randomisation andtestbeds in economic policy they shouldbe the default.4. Fight short-termism. Work with the LSE and banks toencourage companies to provide betterinformation about intangibles and tofacilitate lending against them. Make a clearer distinction in the Budgetbetween government investment andcurrent spending and increase theformer.

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