Leading thinkers on the left should give the coalition more credit for implementing many of Labour’s innovation policies, says universities and science minister David Willetts.
The classic, neoliberal doctrine about the role of government in industry is that it should fund only basic science and research, and help to ensure that the supply side of the economy works smoothly, removing barriers such as labour market regulations and promoting investment through tax reliefs. It should also invest in education, although university autonomy protects students from attempts to steer them into some courses over others.
These are important responsibilities and they share an important feature: they don’t involve the government taking any particular view. Here in the UK there are particularly strong limits to ministerial discretion. The Haldane principle rightly restricts ministers’ powers to intervene in how research funding is allocated, and the Higher Education Funding Council for England is a barrier between our autonomous universities and the raw power of government to allocate funding. The result is a strong set of ‘horizontal’ policies that apply across the economy. They are not ‘vertical’, as that would be picking winners—and we know that can all too easily lead to losers picking the pockets of governments.
But this neoliberal doctrine has never been the full story and isn’t how any major economy operates. Governments can do more. Two recent books, by David Sainsbury (Progressive Capitalism: How to achieve economic growth, liberty and social justice) and Mariana Mazzucato (The Entrepreneurial State: Debunking public vs private sector myths), are spirited and cogent critiques of the doctrine. I agree with much in both of them. Indeed, my main criticism is the writers’ failure to recognise that the coalition is doing much of what they advocate.
That is not to say that we are riding roughshod over the principles protecting the autonomy of our universities or the role of peer review in allocating funding. And the battle for free and flexible markets is never over. But governments can be much more active in driving forward the application of research than neoliberalism allows, especially in promoting emerging general-purpose technologies.
The crucial step is to recognise that in addition to its remit to tackle market failures, the government has a crucial role to play as the bearer of risks that are too great for any individual or business to shoulder. That is why the principle of mutual insurance underpins the NHS and our social-security system. But bearing risk is equally important when it comes to promoting innovation and emerging technologies.
We used to stop funding technologies long before they were ready for commercialisation—and then beat ourselves up for having a less entrepreneurial and more risk-averse culture than the United States. The American reality, as Mazzucato persuasively shows, is that federal and state agencies have traditionally supported technologies much closer to market than we have.
Back in the 1950s, the Cold war and the space race meant that the US Department of Defense was pushing for ever-faster integrated circuits and greater computing capacity. This led to funding for firms such as Intel, and the birth of Silicon Valley. Later, federal funding for research into computer networking at Stanford University was instrumental in the development of the technologies that became Cisco. And the algorithm that turned Google into such a colossal success was funded by a National Science Foundation grant.
This powerful creative role for government agencies can be seen beyond the IT and defence industries. In the decade before President Ronald Reagan’s Orphan Drug Act of 1983, fewer than 10 new drugs and products for rare diseases made it to market. Since the act, the Office of Orphan Products Development has successfully launched more than 400.
This ethos is as old as the US itself: in The Federalist Papers, published in the late 1780s, the great Alexander Hamilton, America’s first secretary of the Treasury, called on the federal government to drive scientific and technological advances. This is very different from Thomas Jefferson’s contemporaneous picture of a nation of sturdy independent farmers—and it is why the US has been neatly described as a Hamiltonian state hidden behind Jeffersonian rhetoric. So it is that, in innovation, the hand of public agencies is often hidden behind a rhetoric that attributes all these gains to the lone endeavour of sturdy individualists.
So agencies such as the National Institutes of Health and the NSF fund projects closer to market than our research councils do. This is one reason for our so-called valley of death. One response would have been to give our research councils a more ambitious remit. The alternative solution, rightly adopted by David Sainsbury in his time as the previous government’s science minister, was to create the Technology Strategy Board. It takes on some of the risks that in the US are borne by the Defense Advanced Research Projects Agency and the NIH. And it has thrived under the coalition, despite inevitable financial constraints.
We have gone even further to try to create a network of institutions filling the gap between upstream research and full commercialisation. In a report produced for my party in opposition, the engineer James Dyson proposed something along the lines of the German Fraunhofer institutes, shared R&D facilities co-funded by government and business. At the same time, the computing entrepreneur Hermann Hauser recommended something very similar in a report for then business secretary Peter Mandelson. And we have got on and implemented their recommendations: we have a thriving network of seven Catapult centres (and one UK Fraunhofer centre, in Glasgow) with more to come.
We have also brought in catalyst funds, which for the first time link funding from research councils and the TSB to every step on the innovation ladder from lab to market. The Biomedical Catalyst was announced in the Strategy for UK Life Sciences in December 2011. In the first three rounds it has awarded more than £120 million to 150 projects, matched with about £80m from industry. This successful model has now been extended, with further catalyst funds launched in industrial biotechnology and agri-tech.
Another way we can link our very best researchers to business and commercial application is through the Research Partnership Investment Fund, which is well on its way to being an established part of the landscape. The £300m so far allocated from the fund has levered over £825m in industry co-investment, thus providing more than £1 billion for R&D collaborations between universities, businesses and charities. We have added £200m to the fund for 2015 to 2017. Expressions of interest for the latest call, for £100m, are now being assessed. Successful projects will be announced this summer, and HEFCE will issue another call later in the year. It is a great example of public investment crowding in private investment—just what Mazzucato calls for.
I was also concerned that valuable public research institutes, the responsibility of many different sponsoring departments, could be under threat. So we have set out the so-called Manchester guidelines across Whitehall, ensuring that decisions taken about the future of such institutes are made in full recognition of the importance of their role.
But strengthening our network of intermediate institutions is just the start. After that come the tricky decisions about what to support and where. David Sainsbury fears that we are not so focused on these, but again we have made great progress. Chancellor George Osborne and I have set out eight great technologies in which we have strong scientific capability and real business opportunities. We have given them sustained support, starting with £600m for 2012 to 2015. These general-purpose technologies are inherently disruptive, giving the lie to the idea that such initiatives tend to just back incumbents.
The nuclear industry is another example. We have given the National Nuclear Laboratory, which had been reduced to doing only project-based research, a new remit for nuclear research and collaboration with other centres of excellence in the UK.
Meanwhile, I was able to move forward on space right away because, interestingly, the UK Space Agency is closer to the US model. It is a targeted combination of the expertise of a research council and the business-focused mind-set of the TSB, funding both science and commercial R&D. We have used that model to give a real boost to the UK space industry. And our £60m for the aerospace company Reaction Engines is an example of our willingness to take some of the risks involved in developing a disruptive technology.
It’s not just about people and businesses. Local Enterprise Partnerships, supplemented by City Deals, have been crucial in funding different regions of the country. They led, for example, to the chancellor’s recent announcement of substantial investment in Harwell, Culham and Begbroke as part of the Oxford City Deal. We have also made big investments in Daresbury and the Manchester cluster.
As we do all this, I do not forget the importance of maintaining our science and research base. We have protected the £4.6bn a year ring-fenced for science, and now have the fantastic opportunity of massive sustained capital investment in science guaranteed at £1.1bn a year, rising with inflation each year to 2020. We will shortly be launching a consultation on how best to invest that money.
This week I have announced substantial investments, subject to the completion of international negotiations, of about £100m in the Square Kilometre Array and about 10 per cent of the construction costs of the European Spallation Source, amounting to spending of about £165m up to 2021. This will ensure that our scientists can continue to access world-class facilities. We have also just published a report by Erkko Autio from Imperial College London’s business school showing how big science helps drive innovation—tying in perfectly with our aims.
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David Willetts is minister for universities and science.