Innovation and the race for global advantage

18 January 2013

The idea of a competition for global advantage in innovative industries is gaining popularity in the UK. David Cameron, in his Lord Mayor’s banquet speech last November, claimed that “Britain is in a global race… for high-knowledge, high-value goods and jobs” and called for policy “supporting industries where we have a competitive edge and encouraging the high growth industries of the future.” That is the challenge that Ezell and Atkinson take up in their work.

Their core idea is that a global environment where multi-national corporations can easily move between nations requires countries to compete for high-value, innovative production. To win, nations need a coherent strategy for encouraging innovation in key sectors. With government funding and support for those sectors, nations can regain their edge in the global race. They argue that clear that markets alone will not provide the right incentives since they encourage short-term thinking at the expense of long-run growth.

Many countries have already committed to state support of innovation with almost fifty having innovation strategies and thirty five having specific innovation foundations. China, for example, plans to invest nearly £1 trillion in their strategic industries over the next seven years. Similarly, a 2009 survey found that a third of German firms attributed their previous two years’ success to improvements in the Government’s research and innovation policies.

Ezell’s preferred solution is an international consensus that ensures all nations share in the benefits of ‘good’ innovation policy. He expressed concern that some nations have turned to protectionism in an attempt to protect their innovative industries, which could be detrimental both for them and others. There are also efficiencies to be gained from an international reduction in the level of free-riding and duplication of research.

The roundtable’s participants agreed that innovation is at the heart of economic growth but both Ezell’s diagnosis and his proposed solution proved controversial. Participants expressed concern that a return to mercantile philosophies—putting the producer at the heart of the economy—could lead to the capture of government policy by industry groups. The roundtable was equally divided over the suggestion that the government should pick key sectors to support. Some felt that the government could never be well informed enough to pick the right sectors and, even if it were, the slow pace of government action would preclude success.
The roundtable agreed that innovation is more than primary research: they felt that a definition had to go well beyond ideas and include their commercial implementation. It was noted that some universities are full of ideas but do not pursue and commercialise them, while others are brimming with innovative startups. Participants noted that UK universities tend not to have a culture of entrepreneurship akin to that of some overseas institutions such as MIT or Harvard. Cambridge is the standout exception and participants were impressed by both the quality and volume of innovation taking place there.

That discussion led into consideration of the importance of culture, and particularly the need to accept failure on the path to success. Some felt that UK businesses have a risk aversion that prevents them from developing their ideas. It was agreed that – whatever the role of the government – skills, and national and organisational culture also need to be examined.

Reform roundtable seminar on ” Innovation economics: the race for global advantage”, with Stephen Ezell, The Information Technology and Innovation Foundation, Washington, D.C.



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