Where’s an Industrial Policy When You Want One?

A little while ago I had the pleasure of hosting the visit of Chukka Umunna (Shadow Business Minister)  to the University of Cambridge to discuss the UK’s industrial strategy or, perhaps more accurately, its lack thereof.  Over a sandwich lunch a number of us from the University debated and explored where our country has got to and what might improve the current rather woeful situation, whichever party was in power. The days of there being Government laboratories carrying out valuable research which ultimately benefitted both the public and Government (notably defence-related) are long gone, with few of the ones I grew up with surviving, (labs such as RSRE Malvern which contributed so much to the development of liquid crystalline displays) now either wound up or at least privatised and turned into a very different kind of animal. That was certainly the fate of the Malvern lab.

When I started out there were still many major blue chip companies in the UK with thriving research laboratories. My own experience with such companies focussed largely on ICI (the old Imperial Chemical Industries), who funded a number of students of mine through CASE awards and even fully funded several three year postdoc positions over the years in different areas.  However ICI first split into two, when Zeneca (now AstraZeneca) was hived off to form a new pharmaceutical and agrochemical business; then slowly it got further split and consumed until all that was left (essentially the Dulux paint business) was taken over by Akzo Nobel. Little of the original research activity is left in the UK. During past years I also interacted with Rowntrees/Nestle (all research moved to mainland Europe from the original site in York) and BP (moved from Sunbury-on-Thames to Europe and the US). Anglo-Dutch Unilever, another company I’ve worked with, does still maintain a significant UK research effort although it regularly seems to be restructured, as does Schlumberger which is not a UK company although still with a major UK research facility situated just a few fields away from where I work.

Why have these companies either vanished or shed their UK research base? In the case of ICI the original move to split into two was in large part driven by an ultimately unsuccessful hostile takeover bid by Hanson, a company which thrived on what amounted to asset stripping. Hanson certainly regularly made money out of its many acquisitions but not by pushing research or any long-term strategy. The demerger of Zeneca was an attempt to make the company less attractive to other would be sharks but in doing so the original ICI company was irreparably damaged. It limped on for another 15 years or so, but it was a shadow of its former self, no longer the ‘bellwether of the British economy’, as it was once described.

Research-intensive companies like ICI simply don’t seem to exist in the UK any more. BP, which once had an explicit blue skies research unit, killed it off 20+ years ago. This all means that the emphasis on UK research seems firmly based in our university laboratories, with a huge shift in relative levels of funding between non-academic and academic research over recent decades. Our poor innovative capacity is frequently lamented and academic scientists are often lambasted for not being more entrepreneurial. Yet these charges directed at academia are far from fair: let us hope the dreaded, if now completed, REF exercise with its Impact Case Studies, makes that clear to government critics.

Many academics have taken out patents, set up spin-outs and attempted to develop their brainchildren. Few succeed. The lack of this ‘middle ground’ of government or industrial development laboratories hinders the process; simultaneously the UK market does not make it easy for young companies to thrive. This is not a healthy ecosystem. For every ARM or what was Autonomy (both Cambridge-based companies which did make it big) there will be hundreds if not thousands that sink without trace. Our financial markets make it hard, driven as they are by pension funds and the like with short-term goals, and our would-be investors (such as venture capitalists) are nervous and under-resourced. It is a bleak world in which to try to give birth to a future industrial giant.

I am no expert in industrial policy. I found the lunchtime discussion fascinating because a huge range of technical issues around getting this right were lightly touched upon and elucidated. With the government introducing sector industrial policies which don’t align readily with the Eight Great Technologies they are simultaneously pushing, one can readily see there may be a lack of coherent thinking in Whitehall. It’s a bitty landscape but with systemic failures: how do you overcome these obstacles? If one thinks in terms of a value chain, starting at the academic’s door, how can you integrate all the necessary steps, make sure there are the necessary skilled people to serve this chain and that companies of all sizes are appropriately incorporated? These are far from trivial challenges. Of course government has eschewed even admitting to the need for an industrial strategy for many years so we should be encouraged to see both Government and opposition starting to talk about the issues and making tentative, if as-yet incoherent, steps towards identifying such a strategy.

If you want a tightly argued case about where we, as a country, have gone so lamentably wrong in the past 30 odd years and what crumbs of hope there might be for the future, I would encourage you to read a recent policy report  published by the Sheffield Political Economy Research Institute (SPERI) and written by my former Cambridge colleague (and physics professor) Richard  Jones. Richard’s PVC role at Sheffield incorporates the Innovation brief, as well as Research, and on his personal blog  he has been exploring where and how our current system got so broke over the past several years. In particular I would point you to his posts ‘Good capitalism, bad capitalism and turning science into economic benefit‘ , ‘Slouching Towards an Industrial Policy‘ and ‘Innovation policy and long term economic growth in the UK – a story in four graphs‘ if you don’t feel like reading his full analysis in the SPERI report.  But the SPERI report is a tour-de-force, particularly if you want handy numbers to reinforce your own arguments and a clear narrative to flesh out your suspicions about why the UK has slipped so far behind its competitors.

Already picked up on the Guardian Economics pages, it is to be hoped politicians of all complexions will turn to the report and digest its contents so that the future may look less bleak on this front than in the immediate past.

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2 Responses to Where’s an Industrial Policy When You Want One?

  1. Laurence Cox says:

    I would not take Richard Jones’ report at its face value. It is true that he makes some good points in comparing R&D spending, but in holding up Weinstock’s GEC as a paragon he is well off beam. The only difference between Weinstock and those who followed him was that he was good at the job he did – being an accountant. There was just as much short-termism on his watch and he made his profits by identifying undervalued companies, Plessey and Ferranti were just two examples, and buying them for cash. In both cases the companies had spent many years developing technologies that the market failed to realise the value of. Had he not shown an unusual loss of nerve at the critical moment he could even have bought BAE Systems at a very low price. I worked for GEC for 12 years in the 1980′s and 1990′s, so saw the effects of Weinstock’s management style at first hand.

  2. Laurence, I stress in my paper that both ICI and GEC had their shortcomings, and it’s interesting to hear your first hand reflections on GEC from your time working there. But the fact remains, it was a large R&D intensive company, it is no longer with us, and it has not been replaced by other, better, R&D intensive companies. The latest EU R&D scoreboard lists just two UK companies – AstraZeneca and GSK – in the top 100 R&D companies in the world, compared to 36 in the USA, 22 in Japan and 11 in Germany. For a nation that aspires to be an innovation leader, this doesn’t seem a good place to be.