By forming Life Science Marketing Strategy Implementation Board, the UK government has clearly acknowledged the need to keep inward investment flowing. Now it has asked the National Endowment for Science, Technology & the Arts to come up with a new index of innovation achievement. But by any measure, says NESTA’s Sami Mahroum, the UK is moving up.
NESTA’s Sami Mahroum: consensus on the healthy state of UK innovation.
This year, the EIS welcomes the UK to the club, ranking it 6th among the most innovative European nations and 8th worldwide ahead of the US. This ranking is supported by another less official, but increasingly popular, index, the Global Innovation Index (GII) developed by INSEAD, the Paris business school. This innovation index ranks the UK 3rd among nations in terms of its innovativeness, tailgating the US and Germany but ahead of Finland, Sweden and Switzerland. Another innovation index, created by FORA, a Danish public research agency, ranks the UK 6th worldwide in terms of innovation performance and capacity.
Intrigued by this growing consensus on the healthy state of UK innovation, the UK Government is now intent to come up with an official innovation index for the UK and has called in its recent White Paper Innovation Nation on NESTA, the National Endowment for Science, Technology & the Arts, to create such an index. NESTA aims to get the official UK innovation index out by 2010.
From a policy perspective, what is more interesting about these indices is not the ranking as much as how the countries on the top made it there. Cost is a big part of the story. While Finland and Sweden pay a hefty fee, investing over 3.5 per cent of their GDP on R&D activities, at 1.8 per cent the UK slips in rather cheaply. The other two frontrunners, Denmark and Switzerland, spend less than Finland and Sweden at around 2.4 per cent and 2.9 per cent of their GDP, respectively. While it is true that R&D spending is not the only investment involved in innovation, it is also true that it is probably the only investment made with innovation in mind.
A broader, but less direct, innovation investment is higher education. Here too the UK comes out as more efficient. While it spends 1 per cent of its GDP on higher education and R&D in higher education institutions, Sweden spends 1.7 per cent of its GDP and yet achieves more or less the same returns. In fact, the UK has higher graduation rates than Sweden (39 per cent vs. 37 per cent) and retains a remarkable output. With only 1 per cent of the world’s population, the UK produces 8 per cent of the world’s scientific papers and receives 11 per cent of the world’s citations for those papers, and six of its higher education institutions are in Europe’s top ten.
How does the UK do it?
So how does the UK make it to the first division of the innovative countries league at a lower cost? A large part of the answer lies in how the UK benefits from the investments made by other nations. The UK is at the receiving end of significant foreign investment in its R&D and human resources base, and as a result a large share of its innovation cost is in effect subsidised by other countries. Such foreign investments tend to be more efficient and more productive than local R&D, and can partly explain the higher efficiency of UK innovation investments.
The UK is a top destination for global R&D, with an outstanding 27 per cent of its business R&D financed from abroad, compared with a negligible share in Finland (1 per cent) and Sweden (5 per cent). In fact, foreign affiliates’ expenditure on R&D in the UK represents 40 per cent of all business expenditure on R&D in the country, compared with 27 per cent in Sweden and 25 per cent in Finland. The UK has also a very high share of foreign ownership of domestic inventions: 40 per cent of its domestic patents are owned by foreign companies, compared with 20 per cent in Sweden and less than 10 per cent in Finland.
R&D is not the most important investment in innovation; talent, however, is. Talent is expensive to produce, hard to retain and takes up the largest share of R&D costs. It is also the number one driver of international R&D. The UK is doing remarkably well in gaining world’s subsidy in this regard. Thanks to its talent biased immigration system, it has a higher share of foreign-born highly skilled persons (around 18.8 per cent of total highly skilled population) than most its EU countries, including Finland and Sweden. It is also a host for a large number of foreign PhD students (36.7 per cent) as well as a large number of foreign academic staff (19.1 Per cent). Over half (52.1 per cent) of newly arrived foreign-born immigrants are professional and managerial.
What countries need to become more innovative is the ability to tap into and leverage on global investments in talent and R&D. This requires attracting more international R&D and opening up national institutions to foreign talent. While both Finland and Sweden are big R&D spenders on the international scene, their knowledge bases remain largely national, especially their talent base. The UK has been doing very well in leveraging on foreign R&D investments and foreign talent to improve its innovation performance. In this regard, the UK government was right in not adhering to the Lisbon spending target, and instead choosing to draw on existing national and international resources to move up the innovation ladder.
Dr. Sami Mahroum is a Senior Policy Analyst at NESTA and heads its ‘Innovation and Place’ research programme.
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