Innovation and Research Strategy for Growth

Abstract

The UK, and the world economy generally, continue to confront serious challenges. Europe as a whole is threatened by financial instability, and countries face risks and trade offs as they seek to accelerate recovery. Against this background, the UK Government aims not only to raise potential output but to generate sustained growth. This is necessary not only to tackle the effects of the recession, but also to remove longer-term weaknesses in UK development. These include sectoral imbalances, high household debt, weak investment, persistent trade deficits and constrained public spending. Growth is the connecting thread as we seek to solve these problems. The only viable way to build a strong, sustainable and balanced economy is to develop new sources of growth. Innovation in all its forms is at the heart of this. Innovation is the engine of long-term economic development because it is the channel through which improved knowledge is applied to economic processes. This paper opens by showing that economic growth theories and models converge in giving a central role to innovation. Growth rests ultimately on innovating firms. Empirical research shows that innovation, in the form of performance improvements in products, processes, services and systems, is a core condition for both for business competitiveness and the wider growth of the economy. Innovation is not costless: it requires investment and resource commitment. Investments in tangible and intangible innovation assets – such as research, design, training and skills, intellectual property, organisational and managerial abilities etc. – are needed to underpin the productivity growth that drives both GDP growth and wider welfare. A central component of this is investment by government in scientific and informational infrastructures, in education and training, and in public procurement.