The Innovation Thing

Innovation is the key to so much of what we need to do, to move beyond recession. The OECD has just published a revealing report that points to the need for innovation more than any other strategy as to the route to growth.

The recently published OECD report on innovation reveals some interesting statistical information about how the UK government investment and support of innovation compares to other countries around the world. It is interesting to note that the report specifically argues that innovation is the single most effective way for economies to build themselves out of recession and that making cuts alone can not enable economic growth.

“Much multifactor productivity (MFP) growth is linked to innovation and improvements in efficiency. Preliminary estimates indicate that in Austria, Finland, Sweden, the United Kingdom and the United States, investment in intangible assets and MFP growth together accounted for between two-thirds and three-quarters of labour productivity growth between 1995 and 2006, thereby making innovation the main driver of growth”

It is interesting to observe in the table below that the UK compared with the United States would appear to spend a little more on direct government funding of business R&D, but provides considerably less than the US in the way of indirect, government support through R&D tax incentives.

A shift in the balance is worth exploring, but it is not an immediate and obvious policy change. The UK has very few technology businesses that grow much beyond the £20m turnover mark before they tend to be acquired by other companies, most often not British owned. There seems to be a significant gap in the UK economy between technology businesses that are £100m turnover and above and those below £20m.  This reflects the great inventiveness and creativity to be found in UK tech businesses, but also the relatively low level of ability to scale such enterprises successfully globally.

If the UK were to reflect the US stance and seek to increase R&D tax credits at the cost of current direct investment, it might have the unintended effect of diminishing the stimulus to the very sector where the UK excels which is in early stage businesses.

From a different perspective, the figures on the relationship between broadband penetration and citizen uptake of e-government services are revealing. Again, the new UK administration’s desire to make savings in public spending is clearly understandable and desirable. The simple cutting of services may certainly be a cure for inefficiency but it does not replace the necessity of service provision. What is noticeable from the OECD figures is the extent to which the UK would appear to be as far ahead in terms of Broadband penetration as countries like France, Austria, Finland but 10 or 20% behind them in terms of the development, delivery and public uptake of e-government services – the Nordic countries and the Netherlands being even further ahead with nearly 10% higher broadband penetration.

Finally, the OECD’s comments about measurement of innovation effectiveness are very revealing.  Their agenda for the measurement of innovation seems highly relevant to the UK, where our ability to be certain of the effectiveness of our innovation policies is probably better than in many of our European neighbours but would still benefit from refinement.


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