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R&D a key element to rebalance the economy, says Cambridge study

Renewed UK government spending on innovative R&D can create new industries

Research and developmentA renewed focus on innovative research and development spending by major UK departments would create new export-oriented industries and help rebalance the economy, says a new study published today at the Centre for Business Research at Cambridge Judge Business School, University of Cambridge.

In past decades, many vibrant UK technology industries including semiconductors emerged from R&D spending at the Ministry of Defence (MOD) and other departments, and future R&D spending should seek to recreate such a pipeline of innovation, says the 65-page report, entitled “Creating markets for things that don’t exist”.

“Within the funding which is labeled as ‘R&D’ very little makes it to innovative companies to develop commercial products” under current government R&D spending practices, Lord Andrew Adonis, a former cabinet member, says in a foreword to the report. Instead of spawning new innovations, the study says, much reported “R&D” spending today is used to support government decisions to procure existing products.

The report is co-published by the Centre for Business Research at Cambridge Judge Business School, University of Cambridge; the Centre for Science and Policy at Cambridge University; and the Cambridge Network, a membership organisation that serves the Cambridge high-technology cluster. The study was authored by David Connell, Senior Research Fellow at the Centre for Business Research.

Britain could jump-start its economy by emulating the recent success enjoyed by the United States in creating innovative industries, including world-beating robotic surgery devices, through defence R&D.

“This demand-led or ‘technology-pull’ process has spawned innovations which create all sorts of new markets and world-leading companies – and the UK should continue to learn from this approach,” Lord Adonis says in his foreword.

Britain’s other big spending departments could also learn from the UK’s National Health Service, which has successfully utilised a 2009 programme known as the Small Business Research Initiative (SBRI) to develop several important breakthroughs, the report said. These include a non-invasive therapy to help prevent blindness in diabetics, new technologies to give early warning of acute infections, and a range of products to help the NHS provide quality care at manageable cost to older people in their homes.

“Government departments can play an important role in driving new technology into products,” said Dr Andy Harter, Chair of the Cambridge Network.

Encouraging more departments to act as commissioners and early adopters supports some of the innovation that presses forward in the Cambridge technology cluster and other places around the UK.

The report makes a series of costed proposals for improving the overall effectiveness of the UK’s innovation policies, including establishment within the MOD of a “mini DARPA” – a reference to the Defense Advanced Research Projects Agency, set up in the US in 1958 in response to the Soviet Union’s Sputnik launch, which continues to develop new technologies for the US Defense Department.

“All parts of government are involved in innovation and the overview this report provides is an important contribution to the policy debate,” said Robert Doubleday, Director of the Centre for Science and Policy.

The study includes a detailed forensic analysis of R&D spending across government departments. It finds that since 2001, when government began a big increase in expenditure on supply-side subsidies through R&D tax credits, net business R&D expenditure (excluding these credits) as a percentage of GDP has declined by 14 per cent.

“For decades innovation policy has been based on the idea of funding R&D through grants and tax credits in order to address what economists call market failure,” concludes Connell.

But when it comes to very innovative technologies, for which there is as yet no product and no market, the concept of market failure is largely irrelevant.

That’s why, as the report’s title reflects, it’s important that R&D spending policy focus on creating new markets for things that currently don’t exist at all.