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In a post-Covid world, the UK can’t be a tech also-ran

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In a post-Covid world, the UK can't be a tech also-ran Posted by David Smith at 09:00 AMCategory: David Smith's other articles My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. It has always struck me as hugely impressive that even as the Second World War was raging, serious thought was being given to the post-war economy. The Beveridge report, which provided the foundations of the modern welfare state, was published in 1942. The Bretton Woods conference, which provided the template for the post war international financial system, including the International Monetary Fund and World Bank, was in July 1944. The question is whether we are planning similarly, for the post-Covid world, or just trying wearily to get over the line to some kind of

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In a post-Covid world, the UK can't be a tech also-ran

Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt.

It has always struck me as hugely impressive that even as the Second World War was raging, serious thought was being given to the post-war economy. The Beveridge report, which provided the foundations of the modern welfare state, was published in 1942. The Bretton Woods conference, which provided the template for the post war international financial system, including the International Monetary Fund and World Bank, was in July 1944.

The question is whether we are planning similarly, for the post-Covid world, or just trying wearily to get over the line to some kind of normality. The pre-Covid world, to remind you, was one in which Britain had suffered a decade of productivity stagnation and, since the 2016 EU referendum, very weak business investment.

To know what needs to be done, you have to be aware of where you are starting from. If you asked a lot of people in Britain, they would probably take the view that when it comes to science, technology and so-called knowledge-based industries, we do pretty well.

This has been reinforced by the successful development of the Oxford/AstraZeneca vaccine, though other countries have also developed vaccines. Cambridge, also sometimes known as Silicon Fen, stands out as hugely successful, as does London’s fintech (financial technology) sector.

Boris Johnson, in his foreword to the latest Tech Nation annual report, described the UK as “Europe’s number one tech nation” Tech Nation is the body that provides a “growth platform” for UK tech companies and leaders. The prime minister’s boast appears to be based on the fact that there was more than £10bn of inward investment into UK technology businesses in 2019.

We should be optimistic about things that this country is good at, but how close to reality is this boosterish assessment of the UK?

Richard Jones, professor of materials physics and innovation policy at Manchester University, came to prominence last year when one of his papers was quoted approvingly by Dominic Cummings, Johnson’s former chief of staff, last year.

In a blog on his website, Soft Machines, ‘How does the UK rank as a knowledge economy?’, he draws on data from the science and engineering indicators published by America’s National Science Board. It looks at five high R & D (research and development) intensive industries, aircraft; computer, electronic, and optical products; pharmaceuticals; scientific R&D services; and software publishing.

It also includes, as Jones notes, eight medium-high R&D intensive industries: chemicals; electrical equipment; information technology (IT) services; machinery and equipment; medical and dental instruments; motor vehicles; railroad and other transportation; and weapons, as well as some knowledge-intensive services. The UK’s performance relative to other countries is a bit of a jolt for those who believe the “number one tech nation” boast.

“From this plot we can see that the UK is a small but not completely negligible part of the world advanced economy,” Jones writes. “This is perhaps a useful perspective from which to view some of the current talk of world-beating ‘global Britain’.”

The alarming thing is the extent of the UK’s drop in global market share in these knowledge-intensive sectors since the mid-2000s. While all countries have lost knowledge-intensive market share as a result of the rise of China, the drop in the UK’s market share, 46%, is bigger than that for America, 19%, and the rest of the EU, 13%.

There is another measure, cited by Jones, which provides even more cause for concern. This is Britain’s ranking relative to population, in value-added in knowledge and technology intensive industries. In 2002, the UK’s ranking was 12th in the world, behind Ireland, whose ranking may be swelled by multinationals taking advantage of its low corporate tax regime, but also below Switzerland, Singapore, Finland, America, Japan, Sweden, Israel, Taiwan, Denmark and France.

By 2018, the latest figures, the UK had dropped to 17th place, behind these but also behind Germany, Belgium, Norway, Australia and South Korea. On this measure, Britain is a very long way from being the number one tech nation in Europe, let alone the world. We are, sad to say, an also-ran.

What can be done about it? For decades R & D spending in the UK has been too low, in spite of efforts, such as the R & D tax credit, to boost it. Not since the early 1980s has this country spent 2% of gross domestic product (GDP) on R & D. The latest figure is 1.7%. The government has a target of raising it to 2.4% by 2027, though it is not entirely clear how this will be achieved, and that would merely take it to the current average of OECD advanced economies. Germany spends 3.1% of GDP on R & D, America 2.8% and France 2.2%.

Jones’s strong point, in other papers, is that it is only by addressing Britain’s low level of R & D spending can we address the country’s poor productivity performance. He also believes that it is the key to reducing the country’s regional imbalances.

In a paper last year for Nesta, formerly the national endowment for science, technology and the arts, co-written with Tom Forth, he argued that the UK needs not just more R & D spending, but a better regional spread.
As the report, ‘The Missing £4 Billion, how to make R & D work for the whole UK’ put it: “There are two economies in the UK. Much of London, South East England and the East of England has a highly productive, prosperous knowledge-based economy. But in the Midlands and the North of England, in much of South West England and in Wales and Northern Ireland, the economy lags behind our competitors in Northern Europe.”

It is hard to argue with that, or its conclusion that: “The UK’s research base has many strengths, some truly world leading. But three main shortcomings currently inhibit it from playing its full role in economic growth. It is too small for the size of the country, it is relatively weak in translational research and industrial R&D, and it is too geographically concentrated in already prosperous parts of the country, often at a distance from where business conducts R&D.”

Can this be turned around? The first requirement is a tilting of the balance of government R & D spending toward the regions. Nearly half of it at present is in the “golden triangle” covered by Oxford, Cambridge and London. The second is a more general boost in such spending, which probably does more good than most expensive infrastructure projects. The final requirement, always difficult for politicians, is a realistic assessment, not just of our strengths, but also our many weaknesses.

In a post-Covid world, the UK can't be a tech also-ran
David Smith
David Smith is economics editor of The Sunday Times. His website is http://economicsuk.com . His latest book is Something Will Turn Up.

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