A random statistic: the value of property in London’s most upmarket borough, Kensington and Chelsea, is now greater than that of all property in Scotland, Wales and Northern Ireland combined.
This monstrous imbalance is one manifestation of an economic value system that rewards short-term gain over sustainable growth. Rather than making patient investments that generate innovation and create lasting value, the bankers, oligarchs and hedge fund managers are taking the risk-free option of sinking their cash into exclusive bricks and mortar.
The links between finance and innovation were explored in the EU-funded Framework Programme 7 project FINNOV – Finance, Innovation and Growth: Changing Patterns and Policy Implications, which concluded last year. Researchers from seven European universities analysed to what extent financial activities promote or impede industrial development and innovation. One major conclusion: rather than a positive contribution, parts of the financial services sector are extracting value at the expense of industrial growth.
As a result, the economy has been starved of investment in the innovation that is needed to spur development of the industries of the future, and generate long-term, sustainable and balanced growth.
Distributing rewards
Mariana Mazzucato, an economist and professor of science and technology at Sussex University, project leader of FINNOV, summed up by saying there should be “greater distribution of rewards to the contributors to the innovation process, aligned to the time and energy they risk making it a success.”
For evidence of the time and energy – plus the grit and determination – it takes to deliver innovation to market, look no further than our top story this week on how busy some of the Science|Business Academic Enterprise Awards (ACES) alumni have been in the last twelve months.
Winners of ACES represent the cream of European university science and technology, and are some of Europe’s most energetic entrepreneurs. These are critical ingredients of the mix of course, but what their efforts of the past year highlight is the huge number of other elements that need to fall into place (and the risk they won’t) to commercialise a piece of basic research.
The barriers ACES alumni have come up against underline the need for structural reforms to create a more innovation-friendly environment. This includes improving access to finance, but also calls for other measures to shift perceptions so that innovation is seen as a ‘value’ rather than a risk.
Value investment in R&D
Amongst FINNOV’s suggestions are changes to tax rules to push the balance of rewards towards innovators who create lasting value and away from those extracting short-term value and making speculative gains; and measures to help credit markets create valuation tools that take account of indicators such as investment in R&D.
The crying need for reform is stressed in the 2014 Global Competitiveness Report, published yesterday by the World Economic Forum (WEF), which concludes innovation and strong institutional environments are increasingly influencing the competitiveness of national economies.
Innovation is becoming ever more critical in terms of an economy’s ability to foster future prosperity, according to Klaus Schwab, Founder and Executive Chairman of (WEF). The traditional distinction between countries being ‘developed’ or ‘less developed’ will gradually disappear, Schwab said. “We will instead refer to them much more in terms of being ‘innovation rich’ versus ‘innovation poor’ countries.”
This illustrates how vital it is to get on with the process of creating a framework that de-risks and fosters innovation – and makes this form of value creation a more attractive investment than static piles of astronomically-expensive bricks and mortar.
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