Innovation

Global innovation report: How the UK must change its tune

The UK is a creative nation. But unless the government acts, it is set to fall out of the world innovation top 10. Chris Middleton explains why, and what needs to be done.

June 28, 2017

Innovation’ is a word we hear constantly these days – at conferences, workshops, and seminars, from government leaders, and in those endless LinkedIn shares that suggest the business world is little more than a series of memes and PowerPoint slides.

Yet few commentators ever explain what they mean by ‘innovation’, or explore the concept in greater depth than simply repeating the word until it becomes part of the social background noise.

But one organisation is different: it breaks innovation down into its constituent parts, putting hard statistics and comparative analysis against areas such as: technology; digital engagement; human capital; research; patents; tertiary education; investment; infrastructure; regulations; the political environment; and market/business sophistication.

These are among the elements that make the buzzword into something real and testable.

The Global Innovation Index (the GII) is an annual report published by a partnership of the World Intellectual Property Organisation (WIPO), the INSEAD business school, and the SC Johnson School of Business at Cornell University. The 2017 edition has just been released. Like its predecessors, it explores the ability of 127 separate countries to innovate by comparing their performance statistics across dozens of key areas.

Despite still being in the top 10 overall (at number five, down from three last year), the statistics reveal that the UK is tumbling down the world innovation rankings in many areas. Worse, current trends combined with Britain’s exit from the EU suggest that it will keep doing so for a long time to come, unless the government takes urgent remedial action.

But as we will explore, the figures also show that in many cases the problem is the government itself and the UK’s education system, alongside the regulatory uncertainty that is set to dominate business life in the country for at least a decade.

This article presents solutions to these problems.

What is innovation?

There are seven headline factors in any country’s ability to generate viable new ideas internally and take them to market successfully – a good working definition of innovation. The GII says these are: Institutional Effectiveness; Human Capital & Research; Infrastructure; Market Sophistication; Business Sophistication; Knowledge/Technology Outputs; and Creative Outputs.

The report breaks these down into multiple subheadings, so let’s look at some of those to explore what’s happening beneath the surface of the UK’s innovation economy.

At present, the UK is rated ninth out of 127 countries for its institutional effectiveness. That’s good news, but under the key subheading of Political Stability & Safety, the UK is now only rated 40th. Common sense suggests that the UK’s standing will fall for the foreseeable future as Whitehall wrestles with Brexit and its tense, adversarial relationships with trading partners.

Its once-stable relationships with Europe – and, via the EU, with the rest of the world – have long been key elements in the UK’s ability to attract inward investment, training, and skills, especially in new technology. So political instability combined with the UK’s perceived weakness on the world stage will have knock-on effects in these areas of the economy.

At present, the UK is strongly rated (at seventh globally) under another institutional subheading, its Regulatory Environment. But Brexit means that nearly every part of that environment will soon be in a state of flux for a decade – possibly two. So, again, it is hard to see how the UK’s standing within one of its strongest, most long-established innovation guarantors can be anything other than damaged.

The education challenge

The UK is also strongly placed (at sixth globally) under another major heading: Human Capital & Research – the environment it creates for training and education. But dig deeper into the statistics, and it’s clear that the UK’s high position in this category is misleading, because it is largely propped up by the quality of its universities, which are rated second in the world (having been overtaken by the US in recent years).

How long the UK’s many excellent universities can hold onto their position is a moot point, as academics and scientists have warned of the potential damage that Brexit and anti-immigration policies may do to foreign student numbers, university research programmes, lucrative European partnerships, and to universities’ income and status, as a result.

It’s a fantasy to assume that these things are unimportant or will be unaffected.

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While some of the UK’s universities are world class, the picture elsewhere in Human Capital & Research is troubling. The UK is only rated 22nd overall for education quality, and 25th for education expenditure as a percentage of GDP. That’s not good enough for a developed nation that seeks to be the most innovative country in the world.

According to the GII, a major weakness in the UK economy is the government’s spending on secondary education (per capita as a percentage of GDP), in which the UK is only rated 39th worldwide. And there’s worse news with the pupil/teacher ratio in British secondary schools, where the UK stands at 69th in the global league. Alongside big class sizes, a further problem is the number of pupils that go on to university: the UK is only 46th in tertiary enrolment.

These statistics prove that the government is under-investing in education, there are too few teachers in secondary schools, and too few pupils are going up to those world-beating universities – perhaps because of soaring debt levels among graduates, or perhaps because of the UK’s failings at secondary level.  BBC News reports that economically disadvantaged undergraduates are more likely to leave university before finishing their degrees.

Tinkering with the education system or handing it over, piecemeal, to private companies will only complicate the system further and turn national education into a grubby land grab for quick profits.

The ICT vs infrastructure conundrum

Under the key heading of Infrastructure, the UK’s performance is superb in parts, but lamentable in others, suggest the GII’s figures. The UK is rated the best in the world for its overall use of information and communications technologies (ICTs), and is also top in both e-participation and digital government.

That’s excellent news, so it is worrying that the government has taken an adversarial stance against the technology sector in recent months, and seems determined to undermine the encryption protocols that underpin the safety and security of the digital economy (and the concomitant trust that citizens and businesses place in it). A baffling, misguided strategy that can only damage our number-one status.

Pockets of world-beating performance aside, the UK’s infrastructure position is far from strong in some respects, says the 2017 report. Overall, the national infrastructure (including broadband and communications networks) is rated a lowly 43rd in the global league, while the UK’s gross capital formation around infrastructure investments is appalling: it is 102nd out of 127 countries.

Arguably, these figures prove that privatising networks of every kind may be good for individual company profits, but it doesn’t improve the nation’s infrastructure. Indeed, it creates economic incentives for seeing upgrades as an expensive, premium add-on – as BT has found.

So the message couldn’t be clearer: the UK is beating the world in its practical implementation of technology, but its failing infrastructure, its poor central investment in national networks of every kind, and the prevailing political mood, all seem poised to damage that global standing.

These are self-inflicted wounds.

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Sophistication – but not enough fresh thinking

Under the key headings of Market Sophistication and Business Sophistication, the UK’s performance is – unsurprisingly – rated good to strong across many areas, with some business sectors that are among the most internally competitive in the world.

No one doubts the UK’s historic strengths as a trading nation, or its global leadership in markets such as services and banking (any Brexit-induced flight of capital to Germany or France notwithstanding).

But there are a number of lurking problems that may be exacerbated by Brexit. According to the GII’s figures, Foreign Direct Investment (FDI) into the UK is already low as a percentage of GDP: the UK is a lamentable 83rd in the global league. Meanwhile, its internal investment in research and development is also poor: the UK is just 36th in the percentage of research workers within domestic enterprises, for example.

The recent techUK manifesto for digital renewal (see H&C News, passim) made the same point: the UK needs to double its R&D investment over the next five years to stand any chance of leading the world in innovation.

H&C News has published three reports on different aspects of the techUK manifesto which you can find here, here, and here

Yet despite all this, the UK still likes to think of itself as an inventive, creative nation – a fount of ideas that have changed the world. Many certainly have, so how is the UK doing today when it comes to technology output, patents, and its vaunted creative industries?

The GII reports that the UK is currently 13th in the world for knowledge and technology outputs, and fourth for creative outputs overall. That’s good news, while still leaving everything to play for.

However, an interesting picture emerges from the granular data: the UK is good at spending money on computer software as a percentage of GDP (at number four globally), and it is the world number one at certifiable business documentation, and number four at online creativity. But it is only 16th in the world patents league, 18th in new patent applications, 21st in high-tech exports, and 38th in knowledge diffusion.

In short, the UK is great at buying software, documenting standards, and uploading videos to YouTube, but it isn’t generating nearly enough new ideas or selling them to the world.

Overall, the creative industries that the UK loves to talk about only place the country at 15th globally when it comes to exports of services and goods as a percentage of national trade. However, the UK is number one when it comes to ICT business model creation, and number two at creating organisational models for ICT.

Yet more good news about the nation’s ICT usage. But the figures suggest that, while the UK is creative in countless ways, it is currently most creative with other people’s ideas – particularly when it comes to technology. A nation of consultants, not rock stars.

In the long term, that creativity will continue to stand the country in good stead. But in the medium term, it’s hard to see how the UK can avoid falling out of the global innovation top 10 – perhaps even the top 20 – over the next five to ten years, unless it:

  • centrally invests much more in secondary education
  • centrally invests in its undergraduates
  • stops seeing students as grist to the financial services mill
  • doubles its R&D investment
  • gives overseas investors and partners much greater confidence in the future
  • urgently provides clarity on its long-term regulatory plans
  • encourages FDI (Brexit will worsen an already-poor position)
  • continues to attract students and skilled workers from overseas, and stops seeing them as immigrants and scroungers
  • drops its adversarial stance against encryption and the technology sector
  • drops the bluster against its allies and trading partners.

Without these vital changes, the UK risks making a lot of noise about innovation, while squandering many chances to make its ambitions real.

Stop saying ‘innovation’ and take action. You can’t beat the world by shutting it out.