The economic slump is not going away. The Coalition government likes to say that the glue holding it together is its commitment to eliminating the structural public deficit over four years.
But its confidence that deficit reduction alone boosts private investment and innovation is waning.
There is a marked change of tone; a recognition that there needs to be something akin to a growth, or even an industrial policy as well – until very recently anathema to any right thinking conservative.
But even that framework is insufficient. For high growth sectors there needs to be a paradigm shift towards a truly innovative economic policy.
Some key building blocks are in place. Some fantastic businesses are located in Britain. We have some of the world’s leading universities and best science research centres. Our huge banks do not lack talent – just vision.
Yet the whole is less than the sum of the parts. In my view, the key failures in the economy are in the modes of coordination – which conventional industrial policy does not address: ideas, credit and resources do not flow with the speed, scale and energy that they should. There are too many blockages because too many economic actors do not know what their counterparts need and want.
First, our banks do not finance innovative sectors or grow entrepreneurship in small and medium sized enterprises. Banks would be able to increase returns for their lending and investment for their clients, themselves and the economy if they better understood which capital structures best fit the needs of their users – SMEs, large firms and retail.
Second, the intellectual property (IP) system is increasingly the cornerstone of the contemporary knowledge-based economy – but continuous court rulings and overzealous protection of intellectual property rights threaten progress. The government must push ahead with plans to implement exceptions and limitations to IP ownership rights. Doing so could provide a significant boost to digital entrepreneurship.
Third, our firms are lacking absorptive capacity for academic knowledge, whilst our science and technology policy lacks understanding of firms. The task is to enhance the private use of knowledge generated in our public research organisations, and in particular universities. This must move beyond ‘science push policies’ and pay attention to the needs of users of academic knowledge.
The systemic coordination failure between our businesses, banks, universities and so forth, demonstrates an urgent need for joined-up policies. This necessitates a clearly defined challenge. But for challenge-led policies, government needs to create excitement through ‘big campaigns’ around which everyone can coalesce – this is also something our conventional industrial policy agenda does not address.
We must all become part of a campaign to build our innovative markets, sectors and places. In the past it has been innovation in general purpose technologies that has unleashed economic upswings – transformative technologies such as the steam engine, railways, electrification and mass production.
Joint action is urgently needed across all parts of the economy and government to unleash the power of the disruptive technologies that will drive innovation for the 21st century – areas such as green growth, health and Big Data. There is no other way. The government’s infrastructure plan must be implemented in a way that supports the frontier innovation that will build Britain’s future. The new Catapult Centres of the Technology Strategy Board must also be fit for purpose to raise the potential of our innovation ecosystem.
The austerity policy has lost sight of what exactly drives growth – namely innovation. With the UK in nearly continuous recession and concerns around the government’s budget deficit, we are not going far and fast enough to create a 21st-centruy framework for recovery, growth and prosperity.
The UK growth strategy launched a year ago – and recently re-launched one year on by Business Secretary, Vince Cable – is not ambitious, bold, and enterprising enough. Where is the big campaign? Who is joining?
When David Cameron said “your country needs you”, and urged Britons to “pull together” in the national interest, it seemed unlikely that he really understood the new economy of co-creation where we all share, combine and renew each other’s resources and capabilities.
Pulling together is not about accepting unemployment, cuts to pay and child benefits, a withdrawal of state support from education. Nor is it about accepting increased inequality in access to technology, health care and property markets. Cameron’s view of government is old fashioned, still embedded in viewing its citizens and markets as passive, rather than co-creators.
Neither the government nor the free market can turn the UK economy around. Nor can our businesses, banks or universities. Government needs to adopt the mantle of the enterprising state and immerse itself in solving the co-ordination failures that disable the innovation ecosystem – from an inflexible IPR regime to an all too stand-alone banking system.
We need some genuine pulling together in order to build the right conditions for the British business success stories of the future.
Professor Birgitte Andersen is director of the Big Innovation Centre, an initiative of The Work Foundation and Lancaster University www.biginnovationcentre.com