Great Britain needs a growth strategy for the second machine age

Here’s some good news about the UK: The country is adept at innovation. According to the latest Global Innovation Index, Great Britain ranks fourth in the world behind Switzerland, the USA and Sweden. The country is particularly strong in the fields of creativity, research, financial services and infrastructure. Gold stars for Google DeepMind, Cambridge University and the newly opened Elizabeth railway line.

And here’s a not-so-radical idea whenever Britain next has serious government: build on those strengths to maximize their benefits. Ministers should do much more to support risk-taking researchers and entrepreneurs, business development and job creation. Instead, they seem more intent on spoiling pension-hungry advocacy groups and bankers fixated on corporate welfare and tax cuts. This makes the government sound like a deadbeat Thatcher tribute band that no longer resonates with our times. It’s too hard for Big Bang 2.0 and too easy for the second machine age.

As the authors of the GII rightly point out, two major changes are transforming the world economy: the digitalization of everything and the profound scientific revolution in artificial intelligence, quantum and biotechnology. “In the next 10 to 20 years we will see tremendous opportunities in both of these areas, and those nations that are better prepared will benefit the most,” says Soumitra Dutta, Dean of Saïd Business School in Oxford and co-author of the GII -report.

Given its strengths in research and innovation, the UK is well placed to benefit from both of these changes. To do this, however, it has to be sharpened in at least four areas.

First, it needs to double basic research. Some of Britain’s universities are world-class: Cambridge remains the world’s most intensive science and technology cluster, according to the GII. In UK Research and Innovation, the UK has one research funding body that, rhetorically at least, takes a more agile approach to supporting more outlandish research. ARIA, the fledgling Moonshot research agency, is also a novel experiment deserving of sustained funding and support.

However, a big cloud obscuring the sunlit highlands is the likelihood that Britain will lose access to the €95 billion science program Horizon Europe. The uncertainty about the future relationship has already caused several cross-border research projects to fail. Replacement money is not enough: the government should do everything it can to ensure the UK stays connected to this collaborative European network.

This fits with the second need: Britain must remain open to the world. While ministers may have been shouting about Global Britain, there are too many echoes from Little England to be heard offshore. In fairness, the government’s skilled worker visa scheme has helped protect the UK’s vibrant start-up scene. Tech Nation found that non-British nationals helped launch 18 per cent of all UK tech companies. At the moment, the UK remains the third most important start-up market in the world after the US and China. But the UK needs the multinational spinouts now emerging from DeepMind to stay in the UK rather than spin off to the US, Canada, France or Singapore.

Third, the UK should further incentivize the adoption of innovation to boost productivity. Be The Business, an independent business agency, is right to point out that the biggest gains would come from encouraging the 60 percent of mid-market companies to up their game. But the UK also needs to get smarter when it comes to supporting its most dynamic and productive new businesses. Long-promised reforms to free up institutional funds to invest more in venture capital should come into effect.

Fourth is smart regulation. This is not the same as no regulation, as ideological throwbacks suggest. While US regulators have often been stuck in the pockets of manufacturers, their EU counterparts have been overweight consumers. The UK has an opportunity to take a pragmatic third way in areas such as autonomous driving and data governance. Worryingly, such initiatives appear to be faltering and must be pursued consistently.

A former Tory minister told me it was “ridiculous” for Liz Truss to rail against an “anti-growth coalition”. After all, the Prime Minister was part of a government that put up trade barriers to Britain’s largest export market and discouraged enterprising EU workers from moving to Britain.

The UK performs poorly in the GII ranking of political and business stability. Rather than shift the blame, Downing Street must take responsibility for developing a holistic 21st century growth strategy worthy of the name.

john.thornhill@ft.com