Britain needs a growth strategy for the second machine age

Here’s some good news about Britain: the country is nifty at innovation. According to the latest Global Innovation Index, the UK ranks fourth in the world behind Switzerland, the US and Sweden. The country is particularly strong in creativity, research, financial services and infrastructure. Gold stars to Google DeepMind, Cambridge university and the newly opened Elizabeth rail line.

And here’s a not-so-radical idea for whenever Britain next has a serious government: build on these strengths to maximise their benefits. Ministers should be doing far more to support risk-taking researchers and entrepreneurs, building businesses and creating jobs. Instead, they appear keener on cosseting rent-seeking vested interests and bonused-up bankers, fixated on corporate welfare and tax cuts. That makes the government sound like a tone-deaf Thatcherite tribute band that no longer resonates with our times. It is too heavy on Big Bang 2.0 and too light on second machine age.

As the GII’s authors rightly highlight, two big changes are transforming the global economy: the digitisation of everything and the deep science revolution in areas such as artificial intelligence, quantum and biotech. “Over the next 10 to 20 years we will see massive opportunities in these two areas and those nations that are better prepared for them will benefit most,” says Soumitra Dutta, dean of Oxford’s Saïd Business School and co-author of the GII report.

Given its strengths in research and innovation, Britain is well placed to capitalise on both these transformations. But to do so, it needs to sharpen up in at least four areas.

First, it needs to double down on foundational research. Some of the UK’s universities are world class: Cambridge remains the most intensive science and technological cluster in the world, according to the GII. In UK Research and Innovation, Britain has a research funding body that is pursuing a more agile approach to backing edgier research, rhetorically at least. ARIA, the fledgling moonshot research agency, is also a novel experiment that deserves sustained funding and support.

However, one big cloud darkening the sunlit uplands is the likelihood that the UK will lose access to the €95bn Horizon Europe science programme. Uncertainty over the future relationship has already capsized several cross-border research projects. Replacement money is not enough: the government should do everything possible to ensure Britain remains connected to this collaborative European network.

That chimes with the second need: the UK must remain open to the world. While ministers may have shouted about Global Britain, too many echoes of Little England have been heard offshore. To be fair, the government’s skilled workers’ visa scheme has been helping to shelter the UK’s vibrant start-up scene. Tech Nation found that non-UK nationals helped launch 18 per cent of all British tech companies. For the moment, the UK remains the world’s third hottest start-up market, behind the US and China. But Britain needs the multinational spinouts now emerging from DeepMind to stay in the UK rather than spinning off to the US, Canada, France or Singapore.

Third, Britain should further incentivise adoption of innovation to boost productivity. Be The Business, an independent business agency, rightly stresses that the biggest gains would come from encouraging the 60 per cent of middling companies to up their game. But the UK must also become savvier at backing its most dynamic, and productive, new companies. Long-promised reforms to free up institutional funds to invest more in venture capital should be enacted.

Fourth, is smart regulation. That does not equate to no regulation, as ideological throwbacks believe. While US regulators have often been in the pockets of producers, their EU counterparts have overweighted consumers. There is an opportunity for Britain to strike a pragmatic third way in areas such as autonomous driving and data governance. Worryingly, such initiatives appear in danger of stalling and need to be rigorously pursued.

One former Tory minister told me it was “ridiculous” for Liz Truss to rail against an “anti-growth coalition”. After all, the prime minister was part of a government that erected trade barriers with Britain’s biggest export market and discouraged enterprising EU workers from moving to the UK.

Britain performs poorly in the GII’s rankings on political and business stability. Rather than shifting the blame, Downing Street needs to take responsibility for developing a holistic, 21st-century growth strategy worthy of the name.

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