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Neil O’Brien is MP for Harborough

Consider your smartphone. In one sense, a triumph of free market innovation. In another, a product of the US military-industrial complex.

As the left-wing economist Marianna Mazzacato points out, many technologies in your phone were developed by the US government for military use. The GPS you use to navigate to the chippy was developed to land nukes accurately on Soviet military targets. The internet we use to look at cat gifs was originally ARPANET, intended to make military communications resilient to nuclear attack.

Around the year 2000, the US Defence Advanced Projects Authority invested in research to develop a voice-activated assistant for the military. The technology was later commercialised and sold to Apple.

There are several lessons from the iPhone story: the role government can play in research by “pulling through” new technologies and commissioning things. The non-linear nature of research and the unpredictable way new technologies multiply one another.

I’m mentioning this now because government is thinking big about science, research and innovation.

Dominic Cummings now-famous blogpost seeking: “Data scientists and software developers, PhDs… in maths or physics… Weirdos and misfits with odd skills” made people notice it, but the Prime Minister’s intent has been pretty clear: the biggest new spending commitment announced during the election was to invest an extra £3.2 billion a year in on Research and Development (R&D) by 2023.

Boris Johnson is right to increase investment in R&D: we’ve slid from being a leading investor in research to somewhere at the back of the pack. Looking at public and private investment as a share of GDP, between the early 1980s and 2015 we plummeted down the OECD league table, from the 3rd heaviest investor to the 23rd.

Relatively poor countries like Slovenia and the Czech Republic now invest more of their national income in science. China substantially more. Leading innovators like Israel, Korea and Switzerland are racing away, investing twice as much as us. We spend just under 1.7 per cent GDP on R&D, and the Government’s goal is to get us up to the OECD average, around 2.4 per cent.

This matters because economists have increasingly recognised the central role of innovation in driving economic growth. Indeed, in 2018 Paul Romer won the economics Nobel Prize for his work on this point.

Government investment in R&D stimulates private sector investment: as we saw with the iPhone, innovations created for one reason by government can be repurposed by businesses. More researchers means a bigger pool of talent for firms to draw on. So the Prime Minister is quite right to invest more.

But we also need to change the way that the Government invests. There are two big problems that stop government investment having the beneficial effect it should.

Problem one: the Government’s spending is concentrated in the so called “golden triangle” of Oxford, Cambridge and London, rather than helping to “level up” poorer places where it might have more impact.

Problem two: UK government spending is weighted towards early stage, foundational research, rather than close-to-market development work (More “R” than “D” as it were). For decades politicians have lamented how breakthroughs made in Britain get commercialised elsewhere. But part of the problem is that we’re investing in a way that means they get the benefit of our research: of the money government spends on R&D in Britain 13 per cent goes on later phase development. In the US it’s 45 per cent, and in China 56 per cent.

These two problems are linked. “Pure” research tends be focussed on top universities in the golden triangle, rather than in firms themselves. That’s why the private sector’s own investment in research is much more balanced across the country than the government’s.

In London, for every pound of R&D investment by government and universities, the private sector invests just over a pound. In the West Midlands the ratio is quite different: businesses are investing five pounds for every government pound.

In 2017, the South East and London accounted for a third of all private business investment in R&D, and the midlands and north also accounted for a third. But the South East and London got 39 per cent of government and university investment, while the north and midlands got just 28 per cent.

This imbalance is driven by the core science budget: the Research Councils (which fund projects) and Quality Related “QR” funding, which universities allocate.

Of these core funding streams, a government analysis suggests nearly half (46 per cent) of grants in England have been going to just three cities: Oxford, Cambridge and London. As Professor Wilsdon of the University of Sheffield told a recent Select Committee inquiry: “there are observable trends towards greater concentration over the last 20 years.”

The graph of the top of this piece shows that per head, the big winners from the core science budget were London, the South East and Scotland, the three richest parts of the UK, where constraints on growth like housing costs and congestion bite hardest.

The graph also shows that when government spends in ways that are more joined up with industry, there’s a more even spread. Funding through Innovate UK (which does things like giving research grants to start up firms) sees places like the North East, South West and East Midlands doing relatively better. But this sort of spend is currently just a small part of the budget.

What to do about our two problems?

First, scale up existing funding channels that are more commercially focussed and better spread. Make sure a good proportion of the extra money goes to bodies like Innovate UK and things like SMART grants to start up firms.

Second, develop new channels that help pull through demand, which the US is so good at. Do what the Connell Review implied, and create a ringfenced budget to procure innovative products, as the US does. I’ve met firms who have used the US SBIR scheme and it has transformed their prospects to be able to say they have a contract with the US government.

Third, do more to build up research centres which genuinely bridge academia and industry. Richard Jones widely-discussed paper is right to say we should try to build on the success of places like the Advanced Manufacturing Centre in Sheffield and the Warwick Manufacturing Group. More mission-oriented centres like the Faraday Institution might be part of this. Government should review which of the “Catapult” centres are worth building on or not.

Fourth, we need to rethink university funding and incentives. Far more of universities’ research budgets should reflect their industrial work. For example, last year about three per cent of Oxford’s grants from Research England funded work with industry. Things like the Higher Education Innovation Fund, which supports work with business, should be a much larger share of their funding. Professional esteem and rankings should change too. One business-minded Vice Chancellor of a northern university lamented to me that his work to spin out new businesses and attract investment was given no value compared to the Research Excellence Framework rankings.

I could go on. There’s loads we can do to make research investment more effective. It’s great to have a dynamic new government that’s interested in and investing in research. If we play our cards right, we can create all kinds of opportunities for people right across the country.

25 comments for: Neil O’Brien: R & D. We invest disproportionately in the first at the expense of the second. Here’s how to improve.

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