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What does ‘Levelling Up’ R&D look like?

  • 19 May 2021
  • By Andy Westwood

This blog was kindly contributed by Andy Westwood, Professor of Government Practice at the University of Manchester. Andy is writing in a personal capacity and can be found at @andywwestwood on Twitter.

It is good that the authors of HEPI’s report ‘Regional Policy and R&D’ note that the UK, by most agreed measures, is significantly unbalanced economically (in terms of income, productivity and economic growth). This is what Will Jennings describes as ‘A Tale of Two Englands’, in the words of Oxford economist Paul Collier, driven by ‘a 40-year divergence in income, dignity, empowerment and finance between the metropolitan south-east and other regions.’

it is also helpful that the report recognises that R&D can potentially play a part in reviving cities and regions of the country

As the report notes ‘regional inequalities are not unique to the UK’, but it is in the depth and extent of spatial inequalities where it stands out. Furthermore as Phil McCann notes this is also ‘a geography of discontent’ that is reshaping our politics and the policies designed to address it. So it is also helpful that the report recognises that R&D can potentially play a part in reviving cities and regions of the country, though it seems a little bit more sceptical about whether it should.

The vote to leave the EU was, in part, driven by these inequalities and so too – as a political response – is the Government’s promise to ‘level them up’. According to the Government’s briefing notes alongside the recent Queen’s Speech, this is defined as:

creating new good jobs, boosting training and growing productivity in places that have seen economic decline and the loss of industry – not through a one-size-fits-all approach, but nurturing different types of economic growth and building on the different strengths that different places have.

Further details are expected in a white paper to be released shortly.

But in the time since this Government was elected in 2019 with its now 80 seat majority – increased further after the Hartlepool by-election and the continuing fall of the so called ‘red wall’ – it has been clear that a significant increase in R&D spending is likely to play a big part in its agenda. This was initially spelled out by Dominic Cummings, then chief adviser to Boris Johnson in a blog from November 2019:

If you’re interested in ideas about how the new government could really change our economy for the better, making it more productive and fairer, you’ll find this paper interesting. It has many ideas about long-term productivity, science, technology, how to help regions outside the south-east and so on, by a professor of physics in Sheffield: A Resurgence of the Regions: rebuilding innovation capacity across the whole UK.

The same blog describes the promise of an ‘unprecedented DOUBLING of the basic science budget’ and the connection between the two issues – repeated in the Conservative manifesto and in various ministerial pledges since. 

And yet the new HEPI report sets out a series of reasons why using R&D investment for ‘levelling up’ might be a bad idea – firstly (as described above) that regional inequalities are not unique to the UK and nor are concentrations of R&D investment; secondly that regional science policies haven’t ever really worked very well; and thirdly, that the levels of funding for actual R&D aren’t sufficient and this would create further deficits for regions and institutions? 

First up, the economic argument – that investing in R&D is linked to economic growth but with a series of caveats around how and where it is funded. Let’s start by considering productivity (I declare an interest as one of the directors of the ESRC’s new Productivity Institute –headquartered in Manchester but with substantial ‘spokes’ in Cambridge, London, Warwick, Cardiff and Belfast). There is little disagreement that there are significant gaps in regional productivity within England and the UK. As Bart Van Ark and Tony Venables have set out, ‘the gap in productivity across regions in the UK is much wider than among regions in other OECD countries’. Moreover, this is not just because London is ‘a high productivity outlier’ but also because ‘many large UK cities do not have the high productivity rates associated with city size in many other countries’. The cause, according to these economists, is chronic under investment in key drivers including R&D.

The Productivity Institute acknowledges both the urgency of addressing spatial inequalities not just in the different economic performances of regions but in the comparatively poor performance of second tier cities. You can see this in the Government’s ‘Plan for Growth’ and it wanting ‘every region and nation of the UK to have at least one globally competitive city, acting as hotbeds of innovation and hubs of high value activity.’

These are both economic and political priorities and R&D must play its part. Why? Could you imagine concluding the same about skills or human capital? We know it’s important but we’ve failed in the past and so we think we should just concentrate on maintaining high levels in the richest and most productive parts of the country? No I didn’t think so. R&D, alongside human capital and our universities, must be part of the solution. Siloing one off is not just a political and economic risk but a long term recipe for reduced national wealth overall as well as for continuing local and regional disconnection that creates political and social pressures throughout the country. 

Turning to analysis from Richard Jones and Tom Forth, there are specific activities as well as funding that are missing:

Government investment in R&D is highly geographically imbalanced. If the government were to spend at the same intensity in the rest of the country as it does in the wider South East of England, it would spend £4 billion more. This imbalance wastes an opportunity to use public spending to ‘level up’ areas with weaker economies and achieve economic convergence. 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. 

if we continue to concentrate public R&D funding in London, Oxford and Cambridge then we are going to need to get even more from it

The East Midlands, the West Midlands and North West England are business-led innovation regions with business R&D at or above the UK average but with lower public investment. As Jones and Forth note, ‘the UK regions and sub regions containing London, Oxford and Cambridge account for 46% of public and charitable R&D in the UK, but just 31% of business R&D and 21% of the population’. To put it another way, if we continue to concentrate public R&D funding in London, Oxford and Cambridge then we are going to need to get even more from it. Those places are going to do more to continue carrying the rest. But if we can improve productivity in the rest of the country, they won’t have to do as much and there will be more to spend across the board, including on R&D. Productivity matters. In the words of Paul Krugman it ‘isn’t everything, but in the long run it is almost everything’.

As my colleague Kieron Flanagan have already pointed out on Twitter, the report conflates public and private R&D investment to reinforce its argument. However, in the UK, public sector R&D is more geographically concentrated than (the larger) private sector R&D, so looking at totals masks the geographical concentration of public spending, including on specific institutions as opposed to wider regional spend. The same applies in the assessment of spending elsewhere where high levels of spending in California includes private sector investment. 

But for the US as a whole let us also note similar political and economic pressures to diversify federal spending on R&D. There, organisations such as Brookings have called for a series of new R&D Growth Centres and President Biden has announced big increases in federal R&D investment including a focus on ‘building next generation industries in distressed communities.’ 

But the report suggests that ‘previous attempts to use R&D for regional development have had mixed success. Too many of these initiatives began with high hopes and big ambitions but were then cut short before they had time to deliver results.’ Well, quite. We’ve never really tried, never funded anything properly and policy attention always moves on. These are multiple failures in science and regional policymaking but not a failure in the central idea itself: that more R&D can lead to more innovation, jobs and economic growth. ‘Any failures – whatever their cause – risk undermining confidence in R&D as an instrument of regional economic policy. That is not in the interest of any part of the research and innovation community.’ So let’s not attempt regional R&D policy because it might undermine confidence in R&D driving the economy regionally and nationally

So as the report seems to suggests we could just leave it as it is and keep playing to our strengths? And just keep spending 46% of an increased R&D budget on the same things in the same places? It’s better not to try and achieve anything else?

One obvious area is increasing applied or translational research throughout the country

Unsurprisingly, I disagree. There are strong arguments to try and do at least some different things with the increase. Rising budgets allow you to do more including at a scale we’ve not attempted – with a focus both on different places and different types of research. One obvious area is increasing applied or translational research throughout the country as that has been a ‘missing middle’ in our system especially when compared to other countries in the OECD such as the US or Germany. This is not the research we have tended to support with public R&D funding. At least nowhere near enough of it. 

There are two final issues that the report identifies that I’d like to consider here. The first is on fully funding the research that does take place. Unsurprisingly I agree. As the report says, ‘under the current funding model, what does it mean to level up research funding when that funding only covers part of the costs of the research?’ This is an important point. ‘If research funding in a region expands then the funding gap in that region also expands – putting greater financial pressure on those parts of the country the Government is trying to help. To quote a more recent HEPI report, ‘expanding loss-making activity merely increases any losses’. I’m not as convinced that this just compounds a deficit in underperforming, underfunded areas however. This misunderstands wider benefits and spill-overs as well as different ways of compensating for costs within universities (where much funded activity takes place). 

we should also be broadening what R&D funding supports, making better efforts at linking it to economy locally and nationally

Yes we should fund research properly, yes we should continue to fund world class research, facilities and researchers in world leading institutions in Oxford, Cambridge and London. But we should also be broadening what R&D funding supports, making better efforts at linking it to economy locally and nationally. And in all of our interests we should be making sure that increases in funding and R&D activity takes ‘place’ more seriously

Next and as the authors rightly acknowledge, any pitch for more R&D funding should not be merely in the self interest of research intensive universities wherever they happen to be located – whether in the South East or in the Midlands or the North. As they note there it can be just as hard to get academics and research leaders interested in Oldham, Blackpool or Dudley. That must change too. The politics of ‘Levelling Up’ apply in communities and places in London and in the South East and Eastern regions too of course. From inequalities in inner London to coastal communities in Clacton, Hastings or the Isle of Wight, there is a need to think more deeply about local people and places and the challenges they face. There is no reason why researchers in Oxford, Cambridge or UCL shouldn’t be focused on these any more or less than researchers in Manchester, Birmingham or Durham should be. Andres Rodrigues Pose at the LSE describes these issues and their consequences in ‘The revenge of the places that don’t matter.’ It is worth reading.

But arguably the central concern in the new HEPI report is set out here:

Unless R&D budgets are rising, the geographic redistribution of R&D investment implies that resources are taken from areas of proven success (and, presumably, political influence on matters relating to R&D) and redeployed in less successful (and, perhaps, less influential) areas on the untested hypothesis that this redeployment will generate economic benefit.

But if we take the Government at its word with promised increases to ‘more than double funding’ alongside ambitions to spend first 2.4% and then 3% of GDP on science and research then this situation need not arise. So let’s just agree that we are not in a zero sum game. That means we are able to have it both ways and to continue investing in and fully supporting world class research in London and the South East. But it also means that we can address the weaknesses in translational research and an over concentration on already prosperous areas.

I’ve spent a lot of time in this blog – as the initial report does – thinking about the economic and geographical aspects of R&D spending and its relationship to productivity and growth. But I’d like to end on the politics of it all. We know that the Government is keen to both increase R&D spending and to ‘level up’. What signal does it send to both politicians and to the people living in such places – if the academic research community says that it is not very interested in either them or the issues and challenges that they face? That either the substance of science and research or its impacts, benefits and spill-overs are for others and not for them? As Ottoline Leyser observed shortly after becoming Chief Executive of UKRI, research and science can’t just be something ‘that goes on in shiny labs over there’. Nor can it ‘sound like it’s going to take jobs away from left out, left behind communities and give them to a small number of the elite. That is a very unhelpful narrative and it is also profoundly wrong.’ 

And according to new research from Kings College London, the public appear to agree – with 61% of all voters saw inequality between places as the most serious facing Britain. Of that 67% of Labour and 59% of Conservative voters from the 2019 General Election saw the gaps between places as the most serious inequality needing to be tackled ahead of wealth, ethnicity, gender, education and age. It is R&D’s problem to solve as much as it is anyone else’s.

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