I have a new post up at the Sheffield Political Economy Research Institute’s blog – Rebuilding the UK’s innovation economy. It’s a more tightly edited version of my earlier post on Soft Machines with the same title.
Category: General
Rebuilding the UK’s innovation economy
The UK’s innovation system is currently under-performing; the amount of resource devoted to private sector R&D has been too low compared to competitors for many years, and the situation shows no sign of improving. My last post discussed the changes in the UK economy that have led us to this situation, which contributes to the deep-seated problems of the UK economy of very poor productivity performance and persistent current account deficits. What can we do to improve things? Here I suggest three steps.
1. Stop making things worse.
Firstly, we should recognise the damage that has been done to the countries innovative capacity by the structural shortcomings of our economy and stop making things worse. R&D capacity – including private sector R&D – is a national asset, and we should try and correct the perverse incentives that lead to its destruction. Continue reading “Rebuilding the UK’s innovation economy”
Why R&D matters
The takeover bid for the UK/Swedish pharmaceutical company AstraZeneca by US giant Pfizer has given rare political prominence to the issue of UK-based research and development capacity. Underlying much opposition to the deal is the fear that the combined entity will seek to cut costs, and that R&D expenditure will be first in the firing line. This fear is entirely well-founded; since Pfizer took over Wyeth in 2009 it has reduced total R&D spend from $11bn to $6.7bn, and in the UK Pfizer’s cost-cutting reputation was sealed by the closure of its Sandwich R&D facility in 2011. Nor is the importance of AstraZeneca to UK R&D capacity overstated. In the latest EU R&D scoreboard, of the top world 100 companies by R&D expenditure, only 2 are British. One of these is AstraZeneca, and the other GSK. And, if the deal goes ahead and does result in a significant reduction in UK R&D capacity, it wouldn’t be an isolated event. It would be the culmination of a 30 year decline in UK business R&D intensity, which has taken the UK from being one of the most R&D intensive economies in the developed world, to one of the least.
My recent paper “The UK’s Innovation Deficit and How to repair it” analysed this decline in detail and related it to changes in the wider political economy. One response I’ve had to the paper was to regard this decline in R&D intensity as something to be welcomed. In this view, R&D is a legacy of an earlier era of heavy industry and monolithic corporations, now obsolete in a world of open innovation, where valuable intellectual property is more likely to be a brand identity than a new drug or a new electronic device.
I think this view is quite wrong. This doesn’t mean that I think that those kinds of innovation that arise without formal research and development are not important; innovations in the way we organise ourselves, to give one example, can create enormous value. Of course, R&D in its modern sense is just such a social innovation. Continue reading “Why R&D matters”
The economics of innovation stagnation
What would an advanced economy look like if technological innovation began to dry up? Economic growth would begin to slow, and we’d expect the shortage of opportunities for new, lucrative investments to lead to a period of persistently lower rates of return on capital. The prices of existing income-yielding assets would rise, and as wealth-holders hunted out increasingly rare higher yielding investment opportunities we’d expect to see a series of asset price bubbles. As truly transformative technologies became rarer, when new technologies did come along we might see them being associated with hype and inflated expectations. Perhaps we’d also begin to see growing inequality, as a less dynamic economy cemented the advantages of the already wealthy and gave fewer opportunities to talented outsiders. It’s a picture, perhaps, that begins to remind us of the characteristics of the developed economies now – difficulties summed up in the phrase “secular stagnation”. Could it be that, despite the widespread belief that technology continues to accelerate, that innovation stagnation, at least in part, underlies some of our current economic difficulties?
Growth in real GDP per person across the G7 nations. GDP data and predictions from the IMF World Economic Outlook 2014 database, population estimates from the UN World Population prospects 2012. The solid line is the best fit to the 1980 – 2008 data of a logistic function of the form A/(1+exp(-(T-T0)/B)); the dotted line represents constant annual growth of 2.6%.
The data is clear that growth in the richest economies of the world, the economies operating at the technological leading edge, was slowing down even before the recent financial crisis. Continue reading “The economics of innovation stagnation”
Moving beyond nuclear power’s troubled history
It’s easy to be ambivalent about nuclear power, as my last post illustrated. Nuclear power does provide a low carbon source of energy at scale – if we are serious about decarbonising our energy systems we are going to need a new wave of nuclear power stations, not least to replace an earlier generation of ageing reactors. But nuclear enthusiasts seriously underestimate the scale of the problems that need to be overcome to achieve a large scale expansion of nuclear power. Civil nuclear power has a troubled history everywhere; in Japan consequences of the Fukushima disaster are very much part of current affairs, whose repercussions have spread to countries like Germany. To move beyond this troubled history, to a future in which nuclear power does provide safe and affordable low-carbon energy, we need to understand how this technology got to its current state.
The way in which the technology of civil nuclear power has unfolded was not inevitable; it was the result of the specific circumstances in which it was born and developed. In this sense nuclear power is a great example of the way in which technological trajectories are not pre-ordained; there are many possible paths that nuclear energy could have gone down. What has happened is an example of “technological lock-in” – the particular historical environment in which nuclear power was born put the technology on one particular trajectory, from which it is difficult to make a big jump (as argued in this article by Robin Cowan). This is important because it explains why the current state of the technology is probably not the best place to be given the problems we need to solve.
We can’t understand where we are with nuclear power without appreciating its roots in military technology. Continue reading “Moving beyond nuclear power’s troubled history”
Nuclear vs Solar
One slightly dispiriting feature of the current environmental movement is the sniping between “old” environmentalists, opposed to nuclear power, and “new” environmentalists who embrace it, about the relative merits of nuclear and solar as low carbon energy sources. Here’s a commentary on that dispute, in the form of a pair of graphs. In fact, it’s two versions of one graph, showing the world consumption of low carbon energy from solar, nuclear and wind over the last forty years or so, the data taken from the BP Statistical Review of World Energy 2013.
The first graph is the case for nuclear. Only nuclear energy makes any dent at all in the world’s total energy consumption (about 22500 TWh of electricity in total was generated in the world in 2012, with more energy consumed directly as oil and gas). Although nuclear generation has dropped off significantly in the last year or two following the Fukushima accident, the experience of the 1970’s and 80’s shows that it is possible to add significant capacity in a reasonable timescale. Nuclear provides the world with a significant amount of low-carbon energy that it’s foolish to imagine can be quickly replaced by renewables.
The second graph is the case for solar. It is the same graph as the first one, but with a logarithmic axis (on this plot constant fractional growth shows up as an increasing straight-line). This shows that world solar energy consumption is increasing at a greater than exponential rate. For the last five years, solar energy consumption has been growing at a rate of 66% a year compounded. (Wind-power is also growing exponentially, but currently at a slower rate than solar). Although in absolute terms, solar energy is only now at the stage that nuclear was in 1971, its growth rate now is much higher than the maximum growth rate for nuclear in the period of its big build out, which was 30% a year compounded in the five years to 1975. And even before Fukushima, the growth in nuclear energy was stagnating, as new nuclear build only just kept up with the decommissioning of the first generation of nuclear plants. Looking at this graph, solar overtaking nuclear by 2020 doesn’t seem an unreasonable extrapolation.
The case for pessimism is made by Roger Pielke, who points out, from the same data set, that the process of decarbonising the world’s energy supply is essentially stagnating, with the proportion of energy consumption from low carbon sources reaching a high point of 13.3% in 1999, from which it has very gently declined.
Of course, looking backwards at historical energy consumption figures can only take us so far in understanding what’s likely to happen next. For that, we need to look at likely future technical developments and at the economic environment. There is a lot of potential for improvement in both these technologies; not enough research and development has been done on any kind of energy technology in the last few years, as I discussed here before – We sold out our energy future.
On the economics, it has to be stressed that the progress we’ve seen with both nuclear and solar has been the result of large-scale state action. In the case of solar, subsidies in Europe have driven installations, while subsidised capital in China has allowed it rapidly to build up a large solar panel manufacturing industry. The nuclear industry has everywhere been closely tied up with the state, with fairly opaque finances.
But one thing sets apart nuclear and solar. The cost of solar power has been steadily falling, with the prospect of grid parity – the moment when solar generated electricity is cheaper than electricity from the grid – imminent in favoured parts of the world, as discussed in a recent FT Analysis article (£). This provides some justification for the subsidies – usually, with any technology, the more you make of something, the cheaper it becomes; solar shows just such a positive learning curve.
For nuclear, on the other hand, the more we install, the costlier it seems to get. Even in France, widely perceived to have been the most effective nuclear building program, with widespread standardisation and big economies of scale, analysis shows that the learning curve is negative, according to this study by Grubler in Energy Policy (£).
What is urgent now is to get the low-carbon fraction of our energy supply growing again. My own view is that this will require new nuclear build, even if only to replace the obsolete plants now being decommissioned. But for nuclear new build to happen at any scale we need to understand and reverse nuclear’s negative learning curve, and learn how to build nuclear plants cheaply and safely. And while the current growth rate of solar is impressive, we need to remember what a low base it is starting from, and continue to innovate, so that the growth rate can continue to the point at which solar is making a significant contribution.
Decelerating change in the pharmaceutical industry
Medical progress will have come to a complete halt by the year 2329. I reach this anti-Kurzweilian conclusion from a 2012 paper – Diagnosing the decline in pharmaceutical R&D efficiency – which demonstrates that, far from showing an accelerating rate of innovation, the pharmaceutical industry has for the last 60 years been seeing exponentially diminishing returns on its research and development effort. At the date of the anti-singularity, the cost of developing a single new drug will have exceeded the world’s total economic output. The extrapolation is ludicrous, of course, but the problem is not. By 2010 it took an average of $2.17 billion in R&D spending to introduce a single new drug, including the cost of all the failures. This cost per new drug has been following a kind of reverse Moore’s law, increasing exponentially in real terms at a rate of 7.6% a year since 1950, corresponding to a doubling time of a bit more than 9 years (see this plot from the paper cited above). This trend is puzzling – our knowledge of life sciences has been revolutionised during this period, while the opportunities provided by robotics and IT, allowing approaches like rapid throughput screening and large scale chemoinformatics, have been eagerly seized on by the industry. Despite all this new science and enabling technology, the anti-Moore’s law trend of diminishing R&D returns continues inexorably.
This should worry us. The failure to find effective therapies for widespread and devastating conditions – Alzheimer’s, to take just one example – leads to enormous human suffering. The escalating cost of developing new drugs is ultimately passed on to society through their pricing, leading to strains on national healthcare systems that will become more acute as populations age. As a second-order effect, scientists should be concerned in case the drying up of medical innovation casts doubt on some of the justifications for government spending on fundamental life sciences research. And, of course, a healthy and innovative pharmaceutical industry is itself important for economic growth, particularly here in the UK, where it remains the one truly internationally competitive high technology sector of the economy. So what can be done to speed up innovation in this vital sector? Continue reading “Decelerating change in the pharmaceutical industry”
Innovation policy and long term economic growth in the UK – a story in four graphs
I have a post up on the blog of the Sheffield Political Economy Research Institute – The failures of supply side innovation policy – discussing the connection between recent innovation policy in the UK and our current crisis of economic growth. Rather than cross-posting it here, I tell the same story in four graphs.
1. The UK’s current growth crisis follows a sustained period of national disinvestment in R&D
Red, left axis. The percentage deviation of real GDP per person from the 1948-1979 trend line, corresponding to 2.57% annual growth. Sources: solid line, 2012 National Accounts. Dotted line, March 2013 estimates from the Office for Budgetary Responsibility.
Blue, right axis. Total R&D intensity, all sectors, as percentage of GDP. Data: Eurostat.
Fulfilling the promises of emerging biotechnologies
At the end of last year, the Nuffield Foundation for Bioethics published a report on the ethics of emerging biotechnologies, called Emerging Biotechnologies: technology, choice and the public good. I was on the working party for that report, and this piece reflects a personal view about some of its findings. A shorter version was published in Research Fortnight (subscription required).
In a speech at the Royal Society last November George Osborne said that, as Chancellor of the Exchequer, it is his job “to focus on the economic benefits of scientific excellence”. He then listed eight key technologies that he challenged the scientific community in Britain to lead the world in, and for which he promised continuing financial support. Among these technologies were synthetic biology, regenerative medicine and agri-science, key examples of what a recent report from the Nuffield Council for Bioethics calls emerging biotechnologies. Picking technology winners is clearly high on the UK science policy agenda, and this kind of list will increasingly inform the science funding choices the government and its agencies, like the research councils, make. So the focus of the Nuffield’s report, on how those choices are made and what kind of ethics should guide them, couldn’t be more timely.
These emerging technologies are not short of promises. According to Osborne, synthetic biology will have an £11 billion market by 2016 producing new medicines, biofuels and food – “they say that synthetic biology will heal us, heat and feed us.” Continue reading “Fulfilling the promises of emerging biotechnologies”
We sold out our energy future
Everyone should know that the industrial society we live in depends on access to plentiful, convenient, cheap energy – the last two hundred years of rapid economic growth has been underpinned by the large scale use of fossil fuels. And everyone should know that the effect of burning those fossil fuels has been to markedly increase the carbon dioxide content of the atmosphere, resulting in a changing climate, with potentially dangerous but still uncertain consequences. But a transition from fossil fuels to low carbon sources of energy isn’t going to take place quickly; existing low carbon energy sources are expensive and difficult to scale up. So rather than pushing on with the politically difficult, slow and expensive business of deploying current low carbon energy sources, why don’t we wait until technology brings us a new generation of cheaper and more scalable low carbon energy? Presumably, one might think, since we’ve known about these issues for some time, we’ve been spending the last twenty years energetically doing research into new energy technologies?
Alas, no. As my graph shows, the decade from 1980 saw a worldwide decline in the fraction of GDP major industrial countries devoted to government funded energy research, development, and demonstration, with only Japan sustaining anything like its earlier intensity of energy research into the 1990s. It was only in the second half of the decade after 2000 that we began to see a recovery, though in the UK and the USA a rapid upturn following the 2007 financial crisis has fallen away again. A rapid post-2000 growth of energy RD&D in Korea is an exception to the general picture. There’s a good discussion of the situation in the USA in a paper by Kamman and Nemet – Reversing the incredible shrinking energy R&D budget. But the largest fall by far was in the UK, where at its low point, the fraction of national resource devoted to energy RD&D fell, in 2003, to an astonishing 0.2% of its value at the 1981 high point.
