Where are Britain’s Googles and Apples? Why has Britain, despite its well-regarded universities and its many Nobel Prizewinning scientists, produced so few world-leading companies in science-based and high-technology industries? Britain’s lag in these industries has been a matter of concern for policy-makers throughout the post-war period, and it continues to figure in the current debate about the new Government’s Industrial Strategy.
As part of this debate, attention has focused on the reasons for US supremacy in most of the high-technology industries that have come to the fore since the war, and on how far the factors which underpin that success can be replicated in Britain.
The US innovation system rests on two pillars: massive government support for basic and applied research, including technology that is too risky for the private sector, and an intensely competitive business environment that promotes a variety of approaches to commercialisation.
The wide range of sources of government funding is a strength of the US system. As a review of government support for computer research pointed out a few years ago, “Federal funding agencies differ widely in their cultures, goals, resources and perspectives, and thus in the kinds of research projects they support. The result has been a federal research establishment that has nurtured diverse approaches to research.”
Diversity and competition are hallmarks of the US innovation system – among funding agencies, among universities that compete against each other for talent and for funds, among innovation clusters such as those based in San Francisco and Boston and among firms.
In the case of the internet, a government agency explored technological possibilities that were too speculative to interest the private sector, but, as Shane Greenstein has written in his history of the project, “the commercial era of the Internet played to the strength of market-based innovation. It permitted decentralised exploration from commercial firms facing a wide array of incentives and a wide variety of idiosyncratic circumstances.” The result was “a dizzying array of applications that were not envisaged by the sponsoring government agencies”.
For the UK, catching up with the US in branches of information technology where American firms have already established a leading position is not a feasible objective. That was a lesson learned in the 1960s and 1970s when the British Government tried without success to build national champions in computers and other areas. What governments can do is to improve the organisation of publicly funded research, and to create an environment conducive to the creation and growth of new firms. As ARM has shown in microprocessor design, and Raspberry Pi in low-priced computers, there is no lack of opportunities available in parts of the market that are not dominated by US-based firms.
In the UK, most public funding for research is channelled through the seven Research Councils, which have traditionally enjoyed a high degree of autonomy in deciding which projects to support. There is also a separate agency, Innovate UK (formerly the Technology Strategy Board), which supports near-market research, generally on the basis that half the cost of the project will be borne by the recipient company.
Under plans announced by the Cameron Government in 2016, the Research Councils and Innovate UK were brought together in a new organisation, UK Research and Innovation. The new structure, the Government said, would provide “a greater focus and capacity to deliver on cross-cutting issues that are outside the core remits of the current funding bodies”. It would also improve collaboration between the research base and business.
When Theresa May became Prime Minister in July 2016, following the EU referendum, she announced plans for a new Industrial Strategy Challenge Fund that would “draw on the experience of DARPA [the US Defence department agency established in 1958 to explore frontier areas of science that were relevant to military needs] . . . and focus on the challenges, opportunities and technologies that have the potential to transform existing industries and create entirely new ones”.
How far the Government plans to go in a DARPA-like direction is not yet clear. It is possible that the it will want to infuse UK Research and Innovation with the mission to identify and address technological challenges that go beyond the scope of the research councils. An alternative would be to set up an entirely new body with a DARPA-like purpose and organisation. Any such body would have to be given substantial autonomy, connected to but independent of its sponsoring government department.
Whatever changes are made in the structure and organisation of research funding, support for the science base will remain a central ingredient in UK innovation policy. But if the Government wants to improve the commercialisation of publicly funded research, it must focus most of its attention on other features of the US business environment – access to finance for young, high-growth firms, making universities more entrepreneurial, and the promotion of competition.
This article is an extract from Lessons from the US on Innovation Policy, published by Policy Exchange