Whatever happened to innovation?

In the run-up to the UK General Election, spiked will publish a series of essays reposing political issues. The aim of the ‘Question Everything’ essays is to encourage people to rethink the past, the present and the future. In this fourth essay, James Woudhuysen explores the roots of the establishment’s neglect of scientific and technological innovation, and calls for the creation of new industries for the twenty-first century.

One morning recently, I found myself trying to board a Central Line on London Transport (LT) in the morning, during the rush hour. The platform was impossibly packed with commuters, and bare wiring stood out from the curved walls that encased it. People could barely walk, still less get on a crowded train. But once on, blaring announcements to ‘pass down inside the cars and use up all the available space’ came not just from the train’s intercom, but also – at the same time, overlaid on the first – from an LT woman on the platform with a loudhailer.

So great is the weakness of infrastructure in Britain today that any amount of crowd control is now deemed proper. Yet while more and more people use London’s tube, announcements and signs aimed at compressing and redirecting those people can only do so much. The fact is that, in the second decade of the twenty-first century, Britain and its capital simply need more frequent trains, new and newly reliable signaling systems, roomier rolling stock, and new, fast-running railway lines. Technological innovation, not the elitist management of the plebs’ behaviour, is the way forward in transport services.

Further station instructions telling you what not to do can do little more than irritate. Worse, the authorities’ sloth in developing new, innovatory transport connections means that, today, it is not alarmist to see the Central Line during rush hour as a fire waiting to happen.

This is what the failure to innovate in a hectic modern society really means now. It means an unacceptable level of risk, endured by passengers who are provided no litterbins, but instead told contemptuously, as if they were garbage: ‘Take Your Litter With You.’

Yet apart from the occasional piece of rhetoric about innovation, in which merely repeating the word with enough optimism is supposed to amount to a coherent policy, innovation has yet seriously to be debated in the General Election. At one level, of course, this is all very British, and has been the trend for many decades. After all, Harold Wilson’s famous ‘white heat’ speech, endorsing a scientific and technological ‘revolution’, only captured the popular imagination a long time ago, in 1963. But there are new reasons for today’s neglect of innovation.

It is nearly 30 years since each member of Margaret Thatcher’s Cabinet was given a book related to innovation to read. That book was the American academic Martin Wiener’s English Culture and the Decline of the Industrial Spirit 1850-1980 (1). In the Thatcher years, some parts of the British elite came to agree with Wiener that, way back in the nineteenth century, British science and industry had effectively been lost on the playing fields of Eton. There also appeared no alternative to Thatcherite deindustrialisation. Thirty years on, however, times have changed. The insouciance of New Labour towards manufacturing is agreed by Labour and Conservative alike to have gone too far.

Even the Tories today regard manufacturing as slightly sexy, and it is anyway widely acknowledged that most manufacturers now offer important services as well as products. Nevertheless, while the rebalancing of the British economy away from financial services now enjoys the formal support of all political parties, innovation is, compared with taxes and expenditure and ‘efficiency measures’, barely discussed. Partly because of the low pound, UK manufacturing has recently been growing at the fastest rate for 15 years. Yet the party-political disdain for a serious set-to on innovation has taken the vapidity of Election 2010 to a fresh nadir.

In turn, the reasons for this shameful turn of events turn out to be quite revealing. First, though, we must understand today’s politics of the gesture in innovation.

Gestures in innovation

In his Budget, chancellor Alistair Darling said that Crossrail around London, and High-Speed 2, linking London to Scotland by fast train, would together create 100,000 jobs. Darling will also invest £2billion in a new bank for infrastructure – to back green projects, of course. In IT, among other measures, Gordon Brown has promised ‘to make Britain the leading superfast broadband digital power’ [sic], creating ‘100 per cent access to every home’ (2).

What are we to make of these initiatives? After all, Tyne and Wear is to get nearly £600million for light rail, Leeds will get more than £200million for buses, and trams in the West Midland will get more than £80million (all vehicles, no doubt, will be fully equipped with announcements about how to behave). And it is not just in transport, or IT, that there is some movement. The government has announced:

* the Centre for Medical Research and Innovation, a £250million complex to be built at St Pancras, London (3);

* £97.4million for the development of the synchrotron at the Harwell Science and Innovation Campus, Oxfordshire, where light beams are used to study every kind of material (4);

* the launch of UK Space Agency, which will replace the British National Space Centre and bring all UK civil space activities under one single management (5).

This is all well and good. And it is also well and good that public spending on R&D has moved from about £5.5billion in the mid-1990s to nearly £8billion in 2007-8; and that the proportion of that R&D which is ‘basic’ – carried out purely for the advance of knowledge – has moved up from about 30 per cent in the mid-1990s to more than 40 per cent in 2005-6 (6).

Yet the fact is that all these projects, and the upward trend in R&D statistics, are gestures that are too little, too late, and too slow in execution. Projects that get backing in the tens or hundreds of millions sound ambitious – until we compare them with Britain’s GDP of £1.4 trillion. It is true that many of New Labour’s latest local transport projects are, conveniently enough, in northern marginal seats. But of more significance is that, as a fraction of GDP, UK public spending on R&D stagnated at about 0.7 per cent from 1997-8 to 2007-8, while business spending declined below 1.2 per cent of GDP over the same period (7).

Innovation continues in Britain, but in the credit crunch it is much more faltering than rebounding. Perhaps more importantly, innovation has very little social prominence: it is only done here and there, and has none of the weight in public life that, say, banks have, or the National Health Service, or the country’s much-vaunted creative industries (8).

Scientific and technological innovation is not felt creative. What is upheld instead is each and every government campaign to change the way you live. Yes, the Central Office of Information’s (CoI’s) 2009 expenditure of £208million on advertising is a smaller outlay than some of the state’s bigger new rail projects (if they actually happen). But that £208million still makes the CoI the largest advertiser in Britain. While commercial advertisers caught by the recession have been cutting budgets, the CoI registered a 13 per cent increase in advertising expenditure in 2009 (9).

In practice, officials value the art of the patronising ‘nudge’ to the masses more highly than the science and technology of innovation.

Elbow-like and ubiquitous, government campaigns about your behaviour dominate British consciousness in a way that the possibilities with innovation do not. Likewise, the ‘innovation’ of new state regulations in IT is held a more pressing matter than the provision of IT. Last month, childcare expert Professor Tanya Byron advocated a new Council for Child Internet Safety, a new ratings system for computer games, locks on children’s mobile phones to prevent them watching the internet, and a ‘huge’ public information campaign on children and the web. The government immediately gave her proposals enthusiastic backing.

Genuine innovation, consistently advocated and debated, is an afterthought among British officials. Is that because it is thought too expensive, or too risky, especially in a downturn? Certainly. Is cutting back ‘waste’ of all sorts automatically preferred to creating new products and services? Yes. Have regulations, like the target mentality and the ceaseless propaganda aimed at raising ‘awareness’, gained a kind of unstoppable dynamic of their own, to the detriment of innovation? They have. Are the Cabinet and the shadow Cabinet dominated by people with little experience of science, technology or even business? Yes.

Yet while all these explanations hold water, there is something deeper at work. As the concepts of consumer society and service economy have loomed larger in the mind of the authorities, so their concept of innovation has diminished.

The ‘consumer society’ sidelines innovation

After the end of the Cold War, political parties worldwide went over to a fully market-dominated view of society. The market was eternalised, and different systems of production came off the agenda. As prosperity appeared to mount, most economic discussion in America and Britain came to focus on final consumer demand, not on supply-side innovation. Housing, consumer services and mobile phones captured much of the limelight. In Britain under New Labour, even voters came more and more to be treated like consumers.

Changes in mobile phones, in the delivery of music and in the internet in the home underpinned the fetishised view that markets alone could effortlessly bring about very rapid innovations. Programmed in North America, very cheaply manufactured in China – this mix appeared to confirm the power of markets. Yet in fact the impulse to state intervention in markets was never very far behind the market-orientated consensus on economics. Let’s not forget that Tony Blair came to power promising his Third Way.

For continuing critics of capitalism, however, even the system’s excesses and weaknesses came themselves to be described in the language of ‘market failure’. Not for nothing did page one of the government’s 2008 Stern review on the economics of climate change insist that such change was ‘the greatest example of market failure we have ever seen’. Thus when the credit crunch lent a big boost to the cause of government regulation, measures to redress market failure were themselves framed in the reputed logic of the market.

Out of this whole process, the categories of consumer society – and, more recently, personal greed – have expanded. Compared with the idea of innovation, these categories tower over the brains of bureaucrats, and over the thought of society as a whole. Few, for example, see failure to innovate outside the arena of finance as in any way a cause of today’s economic downturn, even if they will ruefully concede that, too often, innovation itself can be a casualty of such a downturn. Instead, political economy has been reduced to consumer habits of buying and use, to consumer behaviour, its psychology and its economics, to consumer depletion of the planet and its resources, to population and its control. And that is why the scope for scientific and technological innovation is now unconsciously taken as very, very narrow. Price signals, not railway signals, dominate the mindset of politicians and civil servants alike.

Take, if you must, February’s consultation by the Office of the Gas and Electricity Markets (Ofgem), the regulator, on the future of energy. Titled Project Discovery: Options for Delivering Secure and Sustainable Energy Supplies, it runs, in typical regulator style, to more than 100 pages. For Ofgem, global financial crisis, tough environmental targets, increasing gas import dependency and the closure of ageing power stations have together ‘cast reasonable doubt’ on the ability of current energy arrangements ‘to deliver secure and sustainable energy supplies’ (10). But Ofgem’s measures to deal with Britain’s looming power gap have nothing to do with innovation, and everything to do with market intervention. It proposes ‘to promote low carbon investment by reducing carbon price uncertainty with a minimum carbon price, and to strengthen investment signals through improving short-term price signals in both the gas and electricity markets’. And, just in case you understood that, it wants ‘enhanced obligations’ of energy suppliers and system operators, along with a centralised market for wind and other forms of renewable energy, and possibly clever kinds of tenders; or, in extremis, a full-blown central buyer of electricity capacity, energy and gas storage (11).

Whatever the issue, Ofgem would rather tweak the way energy is bought and sold than put forward innovatory ways of making the stuff. The words technology or technological appear 53 times in its narrative; the words market and price appear, respectively, 411 and 417 times. Consumer demand and magical price ‘signals’ to suppliers pretty much comprise the whole Ofgem universe (average staff numbers in 2008-9: 310).

This kind of consumerist myopia about innovation is one thing. But there is another, closely related, component of the sidelining of innovation from British public consciousness. Particularly since the Thatcher years, the UK’s broad shift from manufacturing to services has acted so as to make R&D seem less relevant to UK plc, if only because R&D in services has hardly any role there.

The ‘service economy’ sidelines innovation

What the UK government defines as ‘service industries’ take no fewer than 21.66million, or 84 per cent, of the 25.73million employee jobs in Great Britain (12). However, they account for just 76 per cent of what is termed Gross Value Added (13).

It is hard to raise productivity in services. R&D there is intractably weak not just in Britain, but also right around the world. In the twenty-first century, the big challenge of taking the labour out of labour-intensive services is bigger than ever, no matter how much IT has been poured in. The R&D in services is just not there to help modernise them any time soon.

For proof, look at some of the figures for R&D intensity – R&D expenditure as a percentage of sales revenues – for some major private sector service providers based in, or active in, Britain today (14):

R&D expenditure as a percentage of sales revenues

With the exception of BT, this is a dismal scene.

It gets worse. Away from big firms, most small and medium enterprises are in services, not manufacturing. And these SMEs, who are major employers in Britain, in 2005 accounted for just 3.3 per cent of UK business expenditure on R&D (15). And who else provides services in volume? Why, the public sector. And here the record with R&D and innovation is very weak, and with major IT projects, very often disastrous.

During the 1980s, what used to have been discussed as a standard of living moved to being treated as a high quality of life. In a Britain of lifestyles, the weight of consumer services rose compared to the weight of consumer goods: while the share of total consumer spending in 1970 on services was 35 per cent in 1970, in 2009 it reached 52 per cent (16). Yet services of all descriptions remained labour-intensive; few became hi-tech. If we think of construction services, which build much more than houses, or we think of business-to-business services and finance, there isn’t much meaningful innovation to point to. Think, for example, how long it still takes to process a cheque, or an international payment abroad.

The fact that more Portuguese are involved in the NHS, more Poles in UK construction, and more English speakers in call centres in India only confirms the point. Services remain defined more by exacting regimes of labour utilisation than by exciting breakthroughs in innovation.

Today’s capitalism finds it easier to push men and women around than it does exerting force on the physical world. And in the physical world, capitalism finds it easier to push electrons around than it does materials or energy. In a sense, then, innovation in services has been reduced to a series of more or (frequently) less radical makeovers in IT. So on London Transport, Oyster cards make a bit of a difference; yet for all the opportunity in something more substantive, like remote medical diagnosis and treatment (‘telemedicine’), little has happened. Of course, there are IT giants such as Amazon, Apple, Blackberry, Facebook and Google, and also IBM, Infosys, Ocado and Wal-Mart; but, outside the military, the world can hardly boast even half an alphabet of large, really innovative service providers.

No wonder innovation has receded into the intellectual background of Britain’s policymaking elite. In its mind, innovation in services is either done by IT wizards in California or India, or has proved too difficult (the UK public sector). British retailers can offer loyalty cards, smarter cards are coming, and media platforms can play new tricks (though watch out for the end of analogue TV in 2012 – preparations already look too little, too late). But even in consumer services, stasis obtains, and it’s felt that not too much can be expected of innovation.

As for innovation with the Prodigal Son of manufacturing, that is now felt to deserve a bit of rhetoric. But for cold-blooded beancounters, Asia’s low-cost operating conditions alone will always limit the potential of a UK manufacturing revival, and will likewise limit the potential for manufacturing innovation.

Whole new sectors needed

A new report on competitiveness and growth by sector, compiled by the McKinsey Global Institute, at least has some realism about what I have called gestures in innovation (17). Interestingly, the MGI frames its discussion of the potential of different economic sectors in terms of jobs. It has been widely quoted in its observation that ‘many policymakers are pinning their hopes today on innovative new sectors such as cleantech as the answer to the challenges of competitiveness, growth, and jobs. Yet such sectors are too small to make a difference to economy-wide growth. Even mature semiconductor sectors account for 0.5 per cent or less of developed economies’ employment.’ (18)

At the factual level this is all fair enough. Yet the argument merely highlights how familiar so called ‘innovative’ industries such as cleantech and IT are. Initiatives there will not really create jobs, because these are not new, all-conquering industries. The point about innovation is that, apart from being worth pursuing in its own right, it can create completely new arenas for the production of wealth. Recycling, home insulation, renewable energy, chips and fibre optics don’t really count as these. Likewise, Alistair Darling’s 100,000 jobs around Crossrail and High Speed 2 will make only a marginal difference to the total of 2.5million people who are officially unemployed.

In technology, it bears repeating, innovations typically mean science-based changes in process or in product. Frequently, process and product innovations are accompanied by changes in organisation. The biggest innovations, however, bring about whole new industries, such as television, or nuclear power. In the twenty-first century, there are some important contenders for new industries – genomic medicine, for example. But the challenge is to find, across more than a handful of sectors, a series of mutually reinforcing innovations that make a lot more new industries mature rapidly, so as to create millions of new jobs. Such innovations, indeed, will also serve to win back mass confidence in what human ingenuity can achieve.

McKinsey is right that ‘services will continue to be critical for job creation’ (19). Insofar, then, as innovation has an economic role in leading Britain out of the credit crunch, it might not only continue to revitalise manufacturing, extractive industries and agriculture, but also create fresh, hi-tech service sectors, where work is neither backward nor labour-intensive, but rather is plentiful, and adds a great deal of value.

To create such sectors could turn out to be the great task of the new century. Certainly the provision of completely new transport, IT, energy and also water services – not just for consumers, but also for the private and public sectors as well – will be critical. Fresh approaches to hi-tech health and geriatric care, and to hi-tech housing (possibly leased as a service), will also be very significant. If we think simply about the cleaning of clothes, houses, workplaces, other facilities, facades, signage, lights and streets – where are the robots, or even Germany’s ruthless technologies of spraying, cleansing and rubbish collection? Or pause for a moment on the tawdry, disorganised state of Britain’s services to tourists. And then, on top of all this, there is a great need for qualitatively higher levels of efficiency and service in education, social services and postal services, in Town Halls, and in all parts of the public sector.

If the sectors appear prosaic and discovering a series of mutually reinforcing innovations for them looks really tough, that’s just the point. Manufacturing is important to Britain but, for the most part, we do live in a service economy. It is time to think big in services, too.

Learning from abroad

There is much to be learned, especially from developments in Japan, America and Germany.

Faced with an ageing population but graced with a business system that, unlike Wall Street or private venture capitalists, doesn’t always insist on immediate results, Japan has poured more and more money into R&D. Yet even in robotics, where Japan has a world lead, little has been achieved outside industry: service robots have yet properly to enter Japanese hospitals, still less Japanese homes.

More than a year after Lehman Brothers collapsed, a revival of that American institution, venture capital, has occurred – although things still look quite shaky. By contrast, venture capital in the UK is on its knees. Yet British capitalism has, in principle, plenty of finance with which to assist innovators. Darling’s budget speech trumpeted the establishment of UK Finance for Growth – yet another reorganisation of the government’s £4billion investment support for SMEs, complete with a new Growth Capital Fund, which, eventually worth £500million, will supply private capital to the Britain’s fast-growing companies. Terrific! But when the credit crunch broke, the size of the UK government rescue package to banks, most of which consisted of loans and debt guarantees, was £500billion. Nobody can say that finance for innovation in the UK is intrinsically tricky, so long as these figures continue to indicate the priorities of the state.

Now consider apprentices, and the German experience.

In his report to the Conservatives on Britain’s prospects with hi-tech exports, inventor Sir James Dyson welcomes the Tories’ commitment to fund a tripling of apprenticeships to 30,000 places a year (20). Yet though he is right to want to ‘reform the curriculum to teach pure science, rather than “How Science Works” or “Science for Citizenship”’, Dyson is somewhat vague about what these 30,000 apprentices might actually do. In brief, he has in mind hi-tech manufacturing for export, even if he supplies, in more than 50 pages, a box on energy (‘low carbon technologies’), and an even smaller box on healthcare (‘harnessing public services to encourage innovation’). Yet once we take into account the need for innovation in consumer, business and public services, 30,000 apprentices a year seems far too modest.

Yet in Germany experience with apprentices has become rather mixed. The country trains too many young hairdressers, and about a quarter of its general teen trainees don’t get offered a job in the private sector, and so tend towards long-term joblessness. Meanwhile, retraining older workers has proved even tougher (21).

Conclusion

For innovation in Britain there can be no glib answers. Obviously the country cannot go it alone in new technology, and must understand both the strengths and the weaknesses of other countries’ approaches to innovation. Obviously, too, new forms of collaboration with China and India seem set to emerge. But innovation, including innovation in services, is too important to tomorrow’s older people and its children to be left in the hands of experts, and outside political debate.

The debate on innovation should not go round the usual circles of ‘public or private?’, or ‘the state cannot pick winners’, or ‘we need to ring fence R&D budgets for the long term’. In a deadbeat service economy, what is required in the first place is a kulturkampf, a cultural struggle, to ridicule authoritiarian platform announcements and behaviour control, and instead establish a challenging, really ambitious, take-no-prisoners concept of innovation.

In and after the election, every adult can and must get passionate about what innovation could do.

James Woudhuysen is author, with Joe Kaplinsky, of Energise! A Future for Energy Innovation, published by Beautiful Books. (Buy this book from Amazon(UK).) He is also a contributor to BIG POTATOES: The London Manifesto for Innovation.

(1) English Culture and the Decline of the Industrial Spirit 1850-1980, Martin Wiener, Penguin, 1981

(2) Speech on Building Britain’s Digital Future, 22 March 2010

(3) Government announces £250m support for new centre for medical innovation; sets out priorities for strengthening british industry, Central Office of Information, 25 March 2010

(4) £100m for jewel in UK science crown , Department for Business, Innovation and Skills, 30 March 2010

(5) UK Space Agency

(6) pp9, 15, Figures 1.1 and 1.7, The Scientific Century, The Royal Society, 9 March 2010

(7) p21, figure 1.12, Ibid

(8) For the latest official definition of creative industries, see here.

(9) COI overtakes P&G with £208m annual adspend, Marketing, 23 March 2010

(10) ACTION NEEDED TO ENSURE BRITAIN’S ENERGY SUPPLIES REMAIN SECURE, Ofgem, 3 February 2010, on

(11) pp32-50, Project Discovery: Options for delivering secure and sustainable energy supplies, Ofgem, 3 February 2010

(12) p27, Table 3.3, Monthly digest of statistics, Office for National Statistics (ONS), 765, September 2009

(13) p254, Table 16.4,Annual abstract of statistics, No 145, ONS 2009

(14) The 2009 R&D Scoreboard: the top 1,000 UK and 1,000 global companies by R&D investment – company data, Department for Business Innovation & Skills, March 2010

(15) Entrepreneurship and innovation policy: retrospect and prospect, V Uberoi and others, Options for Britain: cross-cutting policy issues, Wiley-Blackwell, 2010.

(16) p13, Consumer Trends, Q4 2009, ONS, 30 March 2010

(17) How to compete and grow: A sector guide to policy, McKinsey Global Institute, March 2010

(18) Ibid, p12

(19) Ibid, p11

(20) p25, Ingenious Britain: Making the UK the leading high tech exporter in Europe, James Dyson, Conservative Party, 9 March 2010

(21) See The Apprentice: Germany’s Answer to Jobless Youth, Business Week, 7 October 2009