George Freeman is a co-founder of the 2020 Group, co-chair of the Innovation Economy, Commission and MP for Mid-Norfolk.
Last Friday in Cambridge, the Chancellor delivered a seminal speech setting out his commitment to science, technology and innovation as central to the Government’s long term economic plan. Setting out a ten year Budget for Science, and a series of new announcements signalling the commitment of a future Conservative Government to science and innovation, the Chancellor defined another key foundation of the ‘Osbornomics’ which is driving such a strong economic recovery.
Some Conservatives may ask: is this ‘White Heat of Technology’ stuff really what a Conservative Government should be doing? Didn’t we chuck ‘industrial policy’ out in the 1980s? But this would be to miss the key elements of the Chancellor’s speech, and the policies he has backed in the last four years to drive innovation-led growth: resolute cutting of non-productive public sector employment, incentivising and deregulating entrepreneurship, creating tax incentives for high risk capital and start-up finance, and long term investment in the UK’s leadership in technologies such as aerospace, genetics, precision engineering, bio-informatics, and BigData with the potential to create not just new companies and jobs and revenues but whole new industries.
This isn’t old style 1960’s ‘industrial policy’ – picking winners and subsiding factories in the wrong regions over beer and sandwiches. The Chancellor’s vision is light years from the failed industrial corporatism of Harold Wilson or Ted Heath, in three key ways:
- It is fundamentally about entrepreneurship and creating a landscape for private enterprise to flourish;
- It is unashamedly global and competitive in outlook – not protectionist,
- It is encouraging technology and innovation to help reform the way Government works to dramatically improve public sector productivity.
This is a modern industrial strategy for innovation which is helping deliver the highest rate of growth in the G20, and winning plaudits from Davos to Daventry.
Take the Life Science Industrial Strategy, for example, under which the Government has embraced a 10 year plan for harnessing the power of genetics and hospital data to make the UK the global lead in 21st century bio-medicine: the best place in the world to design, test and adopt the new ‘Personalised’ drugs and diagnostics of tomorrow, in return for a New Deal on procurement so that, in return for quicker access to the NHS to prove new technologies, the NHS gets the new drugs at a discounted price. Since launching the strategy, the UK has attracted over £2 billion of new start-up investment into the life science sector, and secured major commitments from global Pharma to invest and locate here.
Having come to politics after a 15 year career starting and financing high growth technology businesses, I’ve seen first-hand the scale of the growth we are sitting on. In the Cambridge cluster alone, where I spent my career, we now have:
- 14 companies started in the last 20 years worth over $1billion;
- 1,500 technology-based firms, employing almost 60,000 people.
Add to that the wider regional strengths of the Eastern Region – the A11 Innovation Corridor with the Hethel Engineering Centre Lotus Formula 1 cluster; offshore energy; telecoms and the world class Norwich Research Park, with over 2500 Research scientists in Nutrition, Cleantech and Biomedicine, and you can see why the Chancellor said he wanted to make the ‘Cambridge Phenomeonon’ the British phenomenon.
Given the scale of the debt crisis we inherited from Labour, after a boom in credit-financed consumerism and public sector employment, we are going to have to trade our way out of this by making and selling to the fastest growing parts of the world the ‘smart’ goods and services that only we can do.
That means refocusing our energy on emerging markets.The growth in the emerging economies is startling. As Jim O’Neill documents in his latest book The BRIC Road to Growth, emerging markets have accounted for 70 per cent of all world growth in GDP since 2000. Even with slower growth rates, the decade from 2040-50 will see the combined might of the BRIC countries overtake the G7. In 2011, the GDP of the BRIC countries surged by $2.3 trillion: as O’Neill points out, this is like adding another Italy to the global economy. In one year. China alone has been adding the equivalent of another Spain every year.
But we are starting from a woefully low base. According to the CBI, even though the value of total UK exports to the BRICs rose by 42 per cent between 2008 and 2011, they still made up only seven per cent of total UK exports in 2011, with China comprising just three per cent. The Chancellor’s recent measures to help boost exports (creating the most competitive export finance in Europe by doubling the amount of lending available to £3 billion and cutting the typical interest rates charged on that lending by a third) are exactly what we need to help the UK trade our way back out of debt dependency.
We are not going to compete with China and India and Brazil and Russia on low cost manufacturing. We are going to have to trade on the things we do best, which can’t easily be bought or assembled overnight like a factory: our knowledge economy, our deep science and innovation base, our globally trusted legal framework for venture financing. Things like the Lotus sports car I sat in recently: powered by high performance, low emission fuels made by genetically modified bugs able to convert agricultural waste into biofuel. All designed and manufactured in Norfolk. That’s life sciences – the science of life – working for you.
I believe the UK faces a stark choice about our future economic direction. We can either become an increasingly ageing, statist, tired old Western European ‘welfare-democracy’, with ever higher taxes and state spending to pay for ever larger welfare states and healthcare costs. Or we can seize the opportunity of the financial crisis and rebuild an economic model based not on the old model of public sector employment and welfare but on embracing and allowing the spirit of entrepreneurship and potential of technology to drive reform in our public services, and growth in our global trade and exports.
By becoming a test bed of the new technologies which are transforming the 21st century, and actively encouraging them to help reform our public services, we could accelerate public sector efficiency, private sector growth, and exports to the fastest emerging economies, and unlock a whole new cycle of global growth and prosperity.
The UK in 2010 was like so many ailing big corporates whose share price starts to sag as its model becomes increasingly unsustainable, and its customers start to drift to more innovative new entrants. But UK plc has vast assets on its balance sheet. We just need to restructure the business to release the talents of our people, draw in investment, embrace new models, and become more entrepreneurial: making Britain a global crucible of innovation to export again to the world.
What the Chancellor signaled on Friday was that he ‘gets’ that science, technology and innovation are the drivers of competitiveness and productivity and competitive advantage in modern economies. That’s why, despite the restraint in public spending in so many areas, the Government has protected the science budget over this Parliament, and the next – now committing £7 billion in the next Parliament to underpin long term global confidence in our science base.
But George Osborne’s focus on entrepreneurship, the power of technology and innovation to profoundly reform Government, and our ability to compete and trade in the Global Race with emerging markets makes this very different from the failed industrial policies of the 1970s.
The Chancellor showed last week that he is committed to using every lever at his disposal to build an ‘Innovation Economy’: one in which the public sector does it all it can by way of both core science investment and procurement and reform of public services to create a landscape in which innovation can flourish.
That is our best hope for long term global economic recovery and prosperity.