R&D investment in left-behind regions is not a levelling-up panacea

Growth in competitiveness, employment, incomes and regional attractiveness occurs only when policy is aligned with local need, says Simon Collinson

April 20, 2022
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The UK now has levelling up as a core objective of its research and development investment strategy. And in committing £40 billion to its sprawling strategy between 2022-23 and 2024-25, the government has signalled what it thinks are some of the solutions to regional disparities in economic performance and social welfare.

Bridging the long-standing “valley of death” between academic research and business R&D – and, specifically, between universities and their local economies – is part of the plan. The aspiration is to create “private-public-academic partnerships which will aim to replicate the Stanford-Silicon Valley and MIT-Greater Boston models of clustering research excellence and its direct adoption by allied industries”.

However, this runs the risk of trying to kill two birds with one stone and missing both. Investing in R&D to stimulate local economic growth has mixed effects and different impacts in different kinds of regional economies.

There are clearly positive effects. Public sector R&D can attract new private investment, boost innovation diffusion and improve local productivity. The last of these, measured in gross value added (GVA) per capita, is a central measure of economic performance. But not everyone benefits from a high figure. Growing the number of R&D-intensive firms will lift both GVA per capita and consumption-driven multipliers through increased demand for local services. But it will also spark an influx of higher-skilled, higher-income earners, driving up house prices and displacing lower-skilled workers to areas with fewer employment options.

R&D-intensive firms are also likely to bring fewer local supply-chain linkages and lower multiplier benefits for small firms in the region, compared with a new manufacturing plant, for example. This is the kind of challenging trade-off that regional governments grapple with, usually without the capacity or capability to evaluate and balance outcomes. Raising regional productivity often comes at the cost of higher inequality.

So when any government puts Boston on a pedestal, they should note that in its recent past, it had the worst income inequality of any major US city. A 2015 study by the Federal Reserve Bank of Boston showed that the “median net worth for non-immigrant African-American households in the Greater Boston region was $8, versus $247,500 for White households”. A staggering disparity.

There is a strong need for policy interventions to be guided by a robust understanding of the very different growth constraints and opportunities of local regions, as well as past evaluations and experience of R&D investment as a stimulus for local growth.

R&D investments do have the potential to drive improvements in the innovative capabilities of other local firms, stimulating new technologies, processes and management practices. However, a positive cycle of growth in firm-level competitiveness, employment, incomes and regional attractiveness can evolve only when the R&D investments are aligned with the innovation needs of local firms.

Local knowledge will also be required to make the most of the pilot “innovation accelerators” planned for Birmingham, Glasgow and Manchester. These will “build on the R&D strengths of each area and help boost economic growth by growing R&D strengths, attracting private investment, boosting innovation diffusion, and maximising the combined economic impact of R&D institutions”. But while central government is asking regions to nominate their own strengths to build on, the Levelling Up White Paper gives a strong steer: health innovation and advanced materials in Greater Manchester, mobility technologies and data-driven population health in the West Midlands and advanced manufacturing in Glasgow. Not much decision-making has been devolved to regions in recent years, and many commentators are not optimistic about the future.

Sidestepping the question of what an equal share of the two-year, £100 million innovation accelerator budget will really buy, there are several issues for regional universities – which do not get much of a mention in the White Paper.

The first is who gets the money. A key aim is clearly to improve a region’s capacity to translate university R&D into firm-level innovation. But the onus is placed squarely on local authorities to manage levelling up. Will they be put in charge of both the £100 million and large amounts of the minimum 55 per cent of funding from the Department for Business, Energy and Industrial Strategy that must now be spent outside the greater south-east?

If so, this would have considerable implications for the structure of UK Research and Innovation and its relationship with BEIS. If universities were being commissioned by combined authorities to work with local firms, this would also have implications for their strategic and political focus as they attempted to maintain the difficult balance of being relevant globally, nationally and locally.

This, in turn, is linked to the question of emphasis. In relation to innovation accelerators and other R&D funding streams, how much are regions expected to invest in the “supply side” of science, technology and new knowledge, compared with the “demand side” of firms? Will new investments focus on blue-sky, science-led moonshots, aimed at establishing new, future-oriented clusters? Or will near-market technology, business support and training dominate?

The pros, cons and local impacts of each vary significantly according to the unique growth challenges and opportunities in each region. Hopefully those at the heart of the policy process understand this. Hopefully they understand the necessary trade-offs between levelling up the science base, boosting regional productivity and reducing socio-economic inequality.

Otherwise, all this investment may serve only to make the UK an even more unequal place to live.

Simon Collinson is deputy pro vice-chancellor, director of City-REDI and professor of international business and innovation at the University of Birmingham.

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