Nought out of 10 for innovation

Here is my comment from this week’s Fund Strategy.

A key factor determining the health of any economy is its capacity to innovate. This means not only its ability to come up with new ideas but also to put them into practice.

From this perspective, the section of Alistair Darling’s budget speech that dealt with innovation was much more important than small changes to personal taxes. It contained many measures, but none of them were up to much.

Among Darling’s proposals were tax breaks on patents held in Britain, unspecified help to the computer games sector, promoting technology and innovation centres, and setting up a £35m university enterprise fund. He also took Nissan’s decision to build electric cars in Sunderland as a vote of confidence in Britain and talked about the expansion of the university sector.

Much of this is either small in scale or irrelevant to the question of innovation. The expansion of universities is mainly about keeping young people off the dole. To the extent that university education is being subordinated to the needs of the economy, it is a retrograde step rather than a positive one. It turns universities into second-rate training institutions rather than allowing them to perform their traditional role of educating students.

The various technology centres the government has announced are of relatively small scale. Britain spends less than 2% of its GDP on research and development, European Union figures show, in contrast to more innovative countries such as Finland, Japan, South Korea and Sweden, which spend over 3%.

In this context it should be remembered that innovation has enormous social benefits. As Christina Romer, President Obama’s chief economic adviser, argued at a conference last week, it has large positive externalities. Greater innovation not only benefits the companies involved in producing and selling products but also has a wider positive impact. For example, mobile phones have transformed the lives of individuals and businesses way beyond those involved in the mobile phone sector.

Promoting innovation should be a top priority of any incoming government.