December 2, 2019

In 2017, the Conservative manifesto was… interesting. That didn’t work out for them, so this time round they went for boring instead.

With the polls narrowing there’s a question as to whether this approach will work any better. But if the current government is returned next week, might we see a more radical agenda emerge into the light?

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If anyone in this administration has big ideas it’s Dominic Cummings. That much is clear from his blog, an in-depth guide to his thinking and influences. He stopped blogging when he followed Boris Johnson into Downing Street.

But last week there was a new post. This was mostly about Brexit and the election campaign, but there was an intriguing post-script:

“If you’re interested in ideas about how the new government could really change our economy for the better, making it more productive and fairer, you’ll find this paper interesting. It has many ideas about long-term productivity, science, technology, how to help regions outside the south-east and so on, by a professor of physics in Sheffield: A Resurgence of the Regions: rebuilding innovation capacity across the whole UK.”

The media love to portray Cummings as some kind of Bond villain, so is this professor — one Richard Jones — his mad scientist?

In a word, no. The media, finding no hint of insanity in Jones’ work, tried to make something of his political differences with Cummings instead. That’s a shame, because the real story is whether the paper, having been endorsed by Boris Johnson’s licenced thinker, represents the Conservatives’ real manifesto.

I’ve read it and agree with the following assessment by Stian Westlake, a Whitehall advisor on innovation policy:

“The mini-storm over Dom Cummings citing @RichardALJones’s recent paper on innovation policy prompted me to re-read it, and *boy* is it good. I agree with more or less everything, and as a bonus it is delightfully written…

“On a couple of occasions I’ve been asked by a new science minister ‘what should I read on innovation?’, and it was always quite a hard question to answer. But now, I’d just say ‘read that’.”

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It begins with an unsparing look at the weaknesses of the British economy. Basically, the UK is two economies: there’s our thriving capital, surrounded by a prosperous hinterland; and then there’s ‘Outer Britain’ (as officialdom once called it), which is stuck in what Jones calls a “low innovation, low skills, low wage equilibrium”.

Outside the orbit of London, neither business nor the state puts enough investment into skills, innovation and infrastructure. That’s because there’s not enough demand for these things. At the same time, the high-productivity enterprises that might supply the necessary demand don’t set up shop here because the necessary skills etc can’t be supplied. It’s a chicken-and-egg situation.

Britain beyond the South East is working hard and creating jobs, but people and communities don’t just need work, but prospects too — a chance to get on, not just get by. For that to happen a ‘jobs miracle’ is not enough, we also need a productivity revolution — a shift to a high innovation, high skills, high wage equilibrium.

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The state can’t achieve this alone, it ultimately depends on private enterprise. However, government can provide the catalyst.

Jones observes that “the industrial strategy of the Conservative administrations between 1979 and 1997 was not to have an industrial strategy”. This continued until the dog-end of the New Labour years. This was deliberate; industrial policy was associated with failures of post-war planning and the strife-torn industrial relations of the Sixties and Seventies.

And yet, it became abundantly clear that the industrial non-strategy of the Eighties and onward was broken too. Not only has the UK’s established economic model not worked for most of the country, it was also implicated in the devastating crash of 2008.

In the course of our current decade, there’s been a big shift in Conservative thought. In 2016, a new Department of Business, Energy and Industrial strategy was created — its name signalling the end of an old taboo. And even though ‘regionalism’ has remained a forbidden term, concepts such as the Northern Powerhouse have been actively promoted as part of a decentralising agenda.

Then there’s the U-turn on research spending. After a long period of decline, the Government wants more public and private sector investment in science and innovation. Its manifesto commits to a “target of 2.4 per cent of GDP being spent on R&D across the economy”.

Furthermore, there’s a new consensus that investment in science and technology can’t just be limited to academic research in Britain’s universities. Our higher education sector is one of strongest in the world, but we are weak in what the paper describes as “translational research” — i.e. turning knowledge into innovation, and innovation into enterprise.

Countries such as Germany have strong translational research institutions, a key component in the ecosystem of universities, leading-edge companies, supply chains, providers of technical education and the networks through which individuals, businesses and organisations cooperate and compete to build local economies. Jones calls this the “industrial commons” — which is intact and flourishing in some parts of the country, but hollowed-out in others by decades of de-industrialisation, political centralisation and under-investment.

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In this decade, there are signs that Whitehall and Westminster have woken up to this reality. We’ve seen significant decentralisation of power and resources; industrial policy, as mentioned, is firmly back on the agenda; and support for innovation includes funding for a growing network of Catapult centres — institutions which specialise in translational research and the regeneration of our industrial commons.

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So, does that mean that Richard Jones’ programme for regional revival is being implemented?

Yes and no. Some of the elements are definitely in place — but we’ve yet to see a full and conscious commitment to the most revolutionary aspects of his argument.

For instance, he’s not just calling for more funding for research (including translational research) but a sea-change in how it’s allocated. The established approach is “place blind”. This principle is that instead of ensuring a particular geographical spread of resources, the money should go to where the decision-makers think it will be most productively used. That’s sounds fair, but in practice it tends to pile further advantages on those areas that already have the edge on everywhere else. When it comes to R&D that means the so-called ‘golden triangle’ of London, Oxford and Cambridge.

Jones sees this is an example of the Matthew Effect — named after a verse in Saint Matthew’s Gospel:

“For to every one who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away.”

When it comes to individual funding decisions, choosing a location with top universities, leading-edge companies and a highly skilled workforce maybe entirely rational, but it ignores the bigger picture which is the need to build capacity in more than just one part of the country.

To make that change, geographical neutrality must be abandoned — along with the investment decision models that embed the Matthew Effect in their underlying assumptions. This needs to apply to the funding of skills and infrastructure as well as research. Furthermore all these forms of investment need to be coordinated with one another on the basis of direct knowledge of local economic needs. Thus further decentralisation of decision-making power over these resources is a key test of just how seriously Government takes this agenda. If power-hoarding departments like the Treasury aren’t howling in rage, then we’ll know the reformers aren’t pushing hard enough.

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Increasing the supply of productivity boosting inputs is only half the battle. Professor Jones emphasises the other half which is all about stimulating demand. As well as the usual ways in which government encourages companies to move to priority areas there is something that it can do directly, which is use its vast power as a policy maker, regulator and purchaser to make markets in leading edge products and services.

That’s exactly what happened with success stories such as offshore wind power. As well as investing in relevant skills, infrastructure and technology development, the government has mandated the purchase of renewable energy at a guaranteed price — thus enabling private-sector investment. With the industry established, competitive auctions for the right to build new wind farms then put pressure on developers and manufacturers to cut their costs. Today, the industry is close to being subsidy free.

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The public sector spends vast sums of money with external suppliers every year — Jones quotes a figure of £255 billion. Government also influences procurement in regulated industries such as energy. Last week, Boris Johnson said that public procurement should be used to support British industry. But it’s important that this isn’t a matter of mere ‘propping-up’ — both central and local government must use its economic clout strategically to nurture clusters of innovation throughout the country.

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But isn’t this all a tad protectionist? In fact, isn’t it downright statist?

Well, yes, it is protectionist up to a point, but no more so than what our competitors, the Americans, Germans and Chinese, have been doing for decades. The UK, having suffered persistently high trade deficits and multiple currency devaluations, needs to worry less about free trade purity and more about how we’re going to earn our living as a country.

As for the charge of statism, the fact is that the state is, and always will be, the biggest customer in the economy. Big private companies don’t just purchase goods and services on short-term cost calculations alone, they use their clout to influence and develop supply chains that meet their long-term strategic needs. So why on Earth wouldn’t HMG want to do the same?

That’s especially true given the enormous challenges facing us as a nation. Professor Jones mentions the challenge of decarbonising the economy without bankrupting it and also the urgent need for productivity breakthroughs in health and social care. I’d add three further challenges to the list: the controversial goal of building millions of new homes over the next twenty years; the public transport solutions desperately needed to rescue our traffic-choked towns and cities; and the ecological revolution required to restore life to our degraded landscapes and seascapes. 

The idea that the state shouldn’t use its purchasing power to encourage the innovation upon which all this depends is frankly insane.

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