Innovation and inspiration-part 2

2 02 2010

During today’s economic downturn, innovation will be more important than ever. The sooner far-sighted strategies are developed and implemented by government, business and other agencies, the more a better world will be within humanity’s reach. It is not innovation that creates inequality, but the social choices of institutions. We distinguish innovation from fiscal, regulatory, legal and cap-and-trade responses to today’s challenges. Unlike these technocratic measures, innovation has the potential, at least, to increase wealth and opportunity for everyone: it is not a zero-sum game. Big Potatoes: The London Manifesto for Innovation


This blog has long argued that the UK requires a radical change for the better in its approach to innovation. I am delighted to recommend a new report, Big Potatoes: the London Manifesto for Innovation,which you can register for here, which proposes a 14 point programme for innovation.


What next for UK banking? Not learning from the past apparently

15 12 2009

uk after the recessionI was at this event yesterday jointly organised by the New Statesman and Barclays Bank and addressed by representatives by the three main political parties. John Varley, the Chief Executive of Barclays Bank, began by arguing that banks should adopt more social responsibility, by which I think he means not to get into the same mess as last year again.

Two things struck me from the discussion. The first is that there is hardly a cigarette paper’s difference between the three parties on the issue of banks or by implication in their understanding of the recession. They all supported the populist tax on bonuses (described privately to me by one senior banker there as ‘puerile’). They all agree that there should be more competition in banking, better management of risk  and better regulation. One wonders yet again why there are three parties when there are virtually no policy differences between them. The cosy atmosphere was upset only marginally by John Snow asking why no bankers were in jail yet.

The second problem is that in this discussion, supposedly about the future of banking, there was disappointingly no discussion about the role that banks could be playing in the regeneration of the UK economy.  The whole discussion was about  not repeating the mistakes of the past rather than tackling the problems of the future. Lord Myners, Labour’s  Financial Services Secretary to the Treasury, mentioned in passing that there no longer appeared to be a blockage in banks financing business, although the cost of credit was perhaps too high. The banks say that there is less demand for credit from business. If there is little demand for credit this should warn us that the economy is unlikely to see a fast recovery from the recession.

The main lessons from the recession appear to be passing the parties by. The financial bubble, as I have argued before, was not the product of too much risk taking but too much risk aversion. Investors were seeking ways of making money through apparently safe new financial ‘products’ rather than through investment in apparently riskier new industries and new technologies.

The government now effectively controls two of the major banks in the UK. It would be a good idea if it could enter into some major planning exercise to encourage investment from these banks in the kind of infrastructural projects that the UK desperately needs. It would also be a good idea to encourage these banks to set more investment aside for innovation and those areas of the UK economy which have the most promise.

None of the parties is facing up to the real problem facing the UK economy, what is going to be the engine of growth if financial services does not recover its dynamism, a prospect which appears to be receding all the time. Banks have a role in solving this problem, but the leadership has to come from politicians and there is precious little sign of that at the moment.

We need real growth not sustainable growth

3 12 2009
It is not clear how the UK will earn its living in the years to come        Financial Times  3/12/2009
A new survey of the state of the UK’s economy has drawn a bleak, if not surprising , picture of the weaknesses of the UK economy as we begin to come out of the recession. The survey, carried by the FT today and over the next few days, reveals that despite all the claims of New Labour to have turned the UK economy into something more dynamic the truth is that the long-term trends of sluggish growth and the disappearance of manufacturing have if anything gone faster under New Labour than before:
  • Growth since 1997 has averaged just over 2%, slightly less than in the previous 20 years
  • Manufacturing has shrunk from 20% of the economy in 1997 to 12% now
  • The growth areas of the UK economy have been business and financial services, real estate and public services-all financed directly or indirectly from the proceeds of the financial bubble.
  • Around 2/3 of jobs created under New Labour have been in the public sector-which bodes badly for employment prospects if public spending is cut
To add to the ominous character of this survey a timely piece of new research by two academics at Kent University has looked at the experience of recessions around the world over the period 1960-2000 and concludes that deep recessions such as the one we are currently experiencing have profoundly negative impacts on productivity for years after the recessions are over. 

Our main findings show that, cumulatively, from the last year of the recession up to fours years after, recessions have significant negative productivity effects. These effects, however, arise as a combination of different mechanisms. Recessions tend to increase the level of frontier TFP (technology growth and efficiency) but decrease the rate of technical progress. The combination of these two effects is a fall in frontier productivity relative to the one that would have prevailed without a recession. Recessions also increase significantly technical inefficiency in the economy. Finally, deep and long-lasting recessions tend to have larger impacts on productivity, although the mechanisms differ from standard recessions.

 There are key debates to be had still about to what extent the UK needs to restore manufacturing as opposed to services, and also whether cuts in public spending are necessary and in what areas. However, one thing is crystal clear, that whatever route the UK has to take to recover a growth dynamic it is going to be very hard work. The dawning recognition that this is the case, and the absence of any coherent plan to achieve it,  must be one reason at least why those arguing for a more sustainable (ie environmentally focused ) economy are influential today. For a clear explanation of what the sustainable economists have in mind for us this new report spells it out. 
   The traditional function of investment, framed around increasing labour productivity, is likely to diminish in importance. Innovation will still be vital, but it will need to be targeted more carefully towards sustainability goals. Specifically, investments will need to focus on resource productivity, renewable energy, clean technology, green business, climate adaptation and ecosystem enhancement. These are precisely the kind of targets that emerge from the consensus around a global Green New Deal. Foregoing consumption growth seems inevitable if we are to sustain this enhanced need for ecological investment. 

 The necessity of ‘foregoing consumption growth’ in favour of saving the planet is, in this context, a convenient way of also avoiding the issue of tackling the stagnation of advanced economies such as the UK’s. The question of how to create a turn around in the UK economy should not get sidetracked by the sustainable growth lobby. The solution to all our problems, including environmental ones, involves greater control over our environment, through scientific and technological breakthroughs and through greater productivity of labour, which creates more human time to focus on new challenges rather than slogging away at the old ones. 

Economic growth and its discontents

2 11 2009

Speech given by me at Battle of Ideas Conference 31 October 2009 in debate with Lord Skidelsky and others

Continued economic growth is important because it means that the productivity of labour increases, we get more for less, we get more control over our lives and we become less vulnerable to the vagaries of nature and of fortune.

The whole idea of economic growth is under attack from many quarters. Sociologists such as Richard Layard represent an anti-consumerist trend. Layard argues that economic growth and its consequent material benefits do not make us happy. I would like Layard to do a survey of the millions made unemployed through this recession to see how much happier they are now that they have lost the benefits of a wage. Do we really think that poverty will make us happier?

Environmentalists argue that economic growth is inducing climate change and irrevocably damaging the world around us. These people are in reality scientific progress deniers. They do not believe that we can grow our way out of problems. Yet it is China, the fastest growing economy in the world, which is adopting and developing alternative forms of energy at a faster rate than anywhere else. It is economic growth that is driving this and making it possible.

There are also those who argue that scientific and material progress are too prone to risks and dangers to pursue safely. They question whether such things as GM foods, nuclear power or the pharmaceutical industry are not doing more harm than good. Their campaigns against scientific progress slow down and discourage investment and development delaying the benefits that progress can bring.

All of these trends have one thing in common. They represent a loss of belief in humanity and its  ability to change, adapt and grow economically and materially. Why is continued economic growth so essential? I would argue that there is a necessity argument but also  philosophical and social reasons why we need to push for further and faster economic growth.

When is enough enough? Not yet! The average global wage according to the World Bank was around £5000 before the recession began. This means that were growth to stop now and everybody to receive the average wage we would all have the standard of living of a UK pensioner without any savings. Just to get to the reasonable but not luxurious average wage in the UK of £25,000 would mean a fivefold increase globally. This means that we need of necessity further economic growth to raise the average standard of living.

Of course, many millions of people in the developing countries are way below even the average wage and require a bigger leg up. But even in the developed western economies there is still a need for the creation of extra resources. Poverty, deprivation and lack of sufficient services exist in many areas of life. My father-in -law for example was recently refused a life saving operation from the NHS essentially because it was too expensive.

From a philosophical point of view it is important that we understand how inimical anti-growth sentiments are to the whole tradition of western civilisation. The Book of Genesis says that man shall have dominion over nature and urges us to ‘go forth and multiply’. We are turning our back on what has enabled us to crawl from the swamps and into the relative comfort of the modern world, our ability to tame the hostile environment we found ourselves in. David Attenborough made this about turn explicit when he blamed the Bible for climate change earlier this year.

Many of the discontents that people have with economic growth are connected to failures of the market economy rather than growth itself. The market is often an inefficent producer and distributor. It is a system based on production for profit rather than to meet the needs of society. The market can create environmental problems and pollution. It is unstable and contains within it continued recessionary tendencies as we are experiencing now. It is often wasteful and irrational and it produces and reproduces inequality because of the division between those who own wealth and those who do not.

But the problems of how the market economy works should not blind us to the benefits of continued economic growth. We could end up throwing away the growth baby with the market bathwater.

Anti-growth sentiments turn reality on its head. Far from creating problems all human civilisation, culture and progress have been built on economic development. The most economically dynamic and successful countries have always been the most innovative, the most culturally dynamic and the most progressive in every way. The alternative is also true, that economically stagnant or backward countries have less going for them across the board. Turning our back on growth means turning our back on what makes us most human, our ability to exercise dominion over the world we live in.

Mandelson’s ‘industrial activism’ to boost innovation-too little too late

14 10 2009

images[3]I am finding it increasingly difficult not to like Peter. He is a key fixer in a long tradition of manipulative politicians going back to Francis Walsingham under Elizabeth the First. There is an element of pantomime about him, somebody the public likes to boo or hiss when he appears on the stage. He has chosen to throw his weight behind the project to stop Labour sinking without trace. There is something quixotic and admirable about this, whatever one thinks of Labour.

 Listening to him speak at this event yesterday it became clear that he is converted to a policy of ‘industrial activism’, that is the government taking a leading role in the nurturing and development of innovation and investement. This new initiative on bioscience looks on the surface like a good idea. It is important for the state to use its resources and authority to enable economic development as I have argued before on these pages.

The problem with Labour’s  current attempts to move from financial to real engineering is that they are too little too late. The sums of money being made available by the state for assistance to new businesses and innovation are tiny relative to the scale of the problem. Nor is this just a problem at the  state level. As a society the UK has little appetite for risk. As Mandelson pointed out in his speech, investment in research and development in the UK is lower than for many of the UK’s competitors.

Labour has come late to industrial activism. For most of the past twelve years the main focus of government activity has been on boosting spending on health and education. This extra spending was financed largely by the expansion of financial services and an increase in debt, in other words through spending the money that Chinese people have been earning.

At least in part, the focus on health and education was in response to market research which indicated that these were the areas that people in the UK were most concerned about. It is all very well for governments to respond to the wishes of its electorate. To some extent this is both inevitable and desirable. However there is another part of government responsibility which Labour has largely evaded, that of leadership. There are key areas of the UK economy which have required investment and support, such as nuclear power stations, better roads, investment in GM and other new technologies, which the government backed off from because they were unpopular. Rather than trying to win the arguments for these various key projects the government caved in, often ordering lengthy inquiries and further tests rather than risk making itself unpopular.

The Stevenage bioscience project which Mandelson announced yesterday is aimed at boosting the development of the UK’s drug industry. Yet the pharmaceutical industry has been vilified over the years in many quarters and its products, such as the MMR vaccine, held up as public dangers. When Blair was confronted with this vilification he famously declined to say whether he would give his son the MMR vaccine, thus encouraging those who irrationally opposed its use.

The UK government going forward has to take a more activist role in planning the shape of the UK economy. Its role has to encompass persuasion and leadership to convince an often sceptical public of the long term benefits of innovation in energy, technology and science.

Finding water on the Moon, an inspiration to us all

24 09 2009

moon1Readers of this blog will know that I have a deep interest in space travel. (Although I am not terribly good in aeroplanes so I cannot imagine I will be first in line for a moon trip). So it was exciting to read this morning that an Indian space probe appears to have discovered water on the Moon.

NASA has plans to build a permanent manned colony on the Moon within twenty years, although the Obama regime has been pouring cold water on these plans as the country’s economic crisis has deteriorated. If the plans were to go ahead then the presence of water would make a huge amount of difference to the viability of a permanent presence there. As today’s report indicated, availability of water would not only provide drinking water and enable crop irrigation but also permit the extraction of oxygen for breathing and hydrogen as an energy source.

A second reason for being excited about this discovery, if it is verified, is that it was made by an Indian lunar mission, its first in fact. As an emerging nation India has jumped ahead in the exploration stakes, not only of the US but also its main emerging rival, China. How inspiring it must be for the Indian people to know they are responsible for this discovery.

It is the inspirational aspect of space travel which is probably the most important aspect of it. As John F Kennedy understood, space travel has many potential economic benefits and acts as a huge boost to innovation, but its capacity to uplift and inspire stands above all of that. For an emerging country like India this success will encourage developments in other areas of life. It gives everybody a lift.

It may also be a harbinger for the 21st century in other ways. The inclusion of China and India in the G20 intergovernmental talks this weekend, and the raised status of this grouping, show how quickly emerging nations have become central to the governance of the world. The emerging rivalry between India and China, added to the international cooperation which the space programme demands, could give space exploration the edge which the rivalry between the US and the Soviet Union did in the last century. That rivalry pushed technology to its limits and landed men on the Moon. Perhaps this time we will cast our net far deeper into space.

Mars Attack-why we need a manned mission to Mars

20 07 2009

mars1This blog has already said most of what it wanted to say about the moon landing long before the 40th anniversary. So let us discuss Mars instead.

Here are ten reasons why we should support a manned mission to Mars as soon as possible.

1. Because it is there.

2. Because setting ourselves this task would prove that we humans have not lost our fundamental urge to explore the world around us. The Times today argues that curing cancer is the modern equivalent of the moon landing. Keeping people alive longer is a laudable mission, but space travel speaks to a different set of human ambitions. It does not have to be one or the other.

3. Because it would require an enormous amount of courage on the part of those taking part which would inspire the whole world. As Buzz Aldrin, one of the moon walkers in 1969 said recently

I believe that a mission to Mars would need a commitment to a permanent settlement of people who have signed up to spend the whole of their career on the planet…we are talking about pilgrims, the sort of people who left (England)on the Mayflower.

4. Because it would require international cooperation on a vast scale.

5. Because in the course of solving the numerous scientific, human and technological problems that currently stand in the way of such a trip we would discover many new things about our world and about ourselves.

6. Because a colony on Mars would be a stepping stone for the exploration of the rest of the Universe.

7. Because we would be taking a calculated risk at a time when risk taking has a bad name. A Mars mission would challenge the safety first culture which dominates many cultures today.

8. Because if any natural disaster affected the earth we would need somewhere to escape to.

9. Because if we do not do it the Chinese will anyway. Not being involved would prove that we in Britain had abandoned any pretence to being of any significance in the modern world. As Buzz Aldrin says, ‘a vibrant nation explores or expires’.

10. Because a colony on Mars would change our perception of ourselves in the Universe.