Finding the growth elixir: how to build high-tech business clusters

By on 02/08/2021 | Updated on 02/08/2021
The Prime Minister Boris Johnson takes a tour of the UK Battery Industrialisation Centre, a key element of the government’s plan to boost its green power sector. Credit: Andrew Parsons / No 10 Downing Street / Flickr

Thriving in the pandemic, digital and science firms promise renewed growth to governments that can foster world-class tech hubs. But how can civil servants help researchers and start-ups to build successful businesses? Liz Heron learns how leading countries approach the challenge and profiles the most potent policies

With growth opportunities in many traditional industries curtailed by the ongoing COVID-19 pandemic, countries around the world are focusing on their tech sectors – where many businesses have seen huge growth as lockdowns push social and economic activity online. For years, technology and digital businesses have been generating a growing chunk of world growth; now the pandemic has supercharged these shifts, offering big rewards for those countries able to build up world-leading industries in key fields such as digital technologies, data management, pharmaceuticals and high-tech engineering.

According to researchers, the key to fostering thriving high-tech industries lies in linking cutting-edge research with the market economy, creating an ‘innovation ecosystem’ that stretches from nurturing technological research and knowledge-transfer systems to connecting venture capital firms with start-up businesses.

The Global Innovation Index 2020 – compiled by the World Intellectual Property Organisation in partnership with Cornell University and French business school INSEAD – ranks Switzerland as the most innovative economy, followed by Sweden, the US, the UK and the Netherlands; Singapore is in eighth position, and South Korea comes in tenth. But China, Vietnam, India and the Philippines have risen fastest up the ranking over recent years, and now fall within the top 50 places of the index. Meanwhile, in the EU, the European Innovation Scorecard – published in June this year, and topped by Sweden – found that two thirds of the EU’s productivity growth over recent years has been driven by innovation. 

Researching the researchers: the UK

But how can national governments best identify growth opportunities among their nascent digital and tech sectors? And which kinds of policies and services can support the development of business clusters able to compete in highly competitive global markets?

Around the world, civil servants have taken a range of approaches to the task. In 2017, for example, the UK launched an industrial strategy built around four innovation “grand challenges”: AI and the data economy; clean growth; the future of mobility; and an ageing society. While the language has changed since the ousting of former PM Theresa May, the government continues to run 23 individual challenges under a ‘Grand Challenge Fund’, backed by £2.6bn (US$3.6bn) in public funding and £3bn (US$4.1bn) in matched funding from the private sector. The strategy builds on an existing network of regional clusters, incubators and accelerators for start-ups, as well as national agencies supporting research, innovation and technology transfer.

A new centre for artificial intelligence and quantum computing near Liverpool embodies the new collaborative approach. The Hartree National Centre for Digital Innovation at the Daresbury Laboratory opened in June, with the goal of boosting innovation – and the UK’s status as a science superpower – by making cutting-edge technologies available to both industry and the public sector. A partnership between the Science and Technology Facilities Council and IBM, the centre will receive £172m (US$237m) from the government and £38m (US$52m) from the computing giant, creating 60 new jobs for scientists.

Meanwhile, the UK has been actively supporting the development of the ‘safety tech’ sector, which is achieving impressive growth rates – buoyed by a combination of public policy support and business growth initiatives (see box below).

Learn from the best: Sweden

Sweden – the highest-ranked EU nation in both the indices noted above – ensures that innovation and research and development (R&D) are prioritised through a National Innovation Council (NIC), chaired by prime minister Stefan Löfven. Sweden adopts a new research and innovation bill every four years, and spending on R&D accounts for 3.25% of GDP.

The NIC has identified three areas – digitisation, life sciences, and environment and climate technology – as crucial to tackling societal challenges through cross-sector collaboration. Connecting these topics to existing and emerging industries, five innovation partnership programmes focus on travel and transport for the next generation; smart cities; the circular and bio-based economy, life sciences; and connected industries and new materials.

Stockholm’s Rådhuset metro station exemplifies the country’s embrace of advanced technologies and good design, which focuses on digitisation, life sciences, and environment and climate technology. Credit: wikiphotographer/Flickr

The government has also invested in major research infrastructure projects, such as the MAX IV Laboratory, a synchrotron radiation facility; and the European Spallation Source, a multi-disciplinary materials research centre.

A focus on inward investment: Singapore

By contrast, Singapore prioritises attracting innovative companies – including multi-national corporations that wish to launch new ventures – and inward investment to the high-income Asian city-state. Some 30 years ago, the government began following a strategy of transitioning from a low-cost manufacturing centre to a global hub for high-tech industry, providing strong public support for private enterprise and initiative: government investment in R&D has grown more than nine-fold since 1991 to reach S$25bn (US$18bn) under the 2021-5 Research, Innovation and Enterprise (RIE) Plan.

Singapore’s scientific researchers – seen here investigating nanomaterials in partnership with US army scientists – are connected to investors and start-ups via government-backed forums and support services. Credit: US Army CCDC/Flickr

Singapore now has nine Centres of Innovation, serving sectors ranging from precision engineering to aquaculture. Linked to polytechnics and research institutes, they provide start-ups with access to scientific advisers, labs, training, consultancy and product testing services. Meanwhile the government’s Agency for Science, Technology and Research (A* STAR) runs a range of publicly-funded programmes for tech start-ups, which support the spin-off process from initial identification of products to scaling up a fledgling business.

Block 71, an innovation hub in an old factory building launched by the government in 2015, now houses more than 100 start-ups, tech incubators, and venture capital firms. And this year, the government pledged to invest S$10m (US$7m) in Corporate Venture Launchpad: a pilot programme that aims to enable multinational corporations to launch a new venture from Singapore within six months.

Acting at the right level

According to Graham Francis, senior policy lead for online safety technology and innovation at the UK’s Department for Digital, Culture, Media and Sport (DCMS), central government can play a vital role in fostering the creation of innovation ecosystems – enabling stakeholders to talk to each other, and helping to dismantle the barriers to business success. Other key roles for central government, he argues, include providing challenge funding to help start-ups access private investment, and informing firms about the wider market and policy landscape.

But some aspects of policymaking, convening and support are best handled at the city or regional level. In 2018, London mayor Sadiq Khan published a ‘roadmap’ designed to turn the UK capital – home to innovation hubs such as East London Tech City, Med City, and Imperial College London’s White City Campus – into the world’s leading ‘smart city’.

Smarter London Together set five missions for the city’s innovation ecosystem: user-centred design; data-sharing; smart infrastructure; digital skills; and collaboration. The approach, which was devised by City Hall’s first chief digital officer, Theo Blackwell, aims to fit around London’s complex and fragmented governance arrangements, decentralised services and influential private sector. Some 20 initiatives are being rolled out under the missions.

“It’s all very well for government to issue various guidelines from various departments, but we’re just closer to innovators and closer to people,” Blackwell told a recent Virtual CIO Symposium. “The way in which that interacts is really, really important, and it’s really important that we bring all that together.”

Illustrating his point, in 2019 Khan launched the London Office of Technology and Innovation, which connects tech firms with public bodies across the city. The Greater London Authority has also drafted an Emerging Technology Charter for London that spells out its commitment to common open standards, tech design built on human rights, and the legal, ethical and secure use of data. Blackwell says City Hall’s approach is about using digital, technology and data to empower Londoners to lead healthier lives; break the dependence on inflexible, expensive technology; and facilitate greater collaboration.

Evidence of efficacy

With so many different approaches operating at different levels to support a wide range of tech sectors, it’s hard to find comparable evidence on which strategies are most effective in particular environments. But a set of OECD reports on innovation in 26 countries provide some key takeaways for policymakers. And the Global Trade and Innovation Policy Alliance of 33 independent think tanks – including the Information Technology and Innovation Foundation in Washington DC – has compiled a report on its members’ views of what their nations are doing best in terms of national innovation policy, and where there is room for improvement.

Singapore has long focused on technology and entrepreneurialism as its path to continued growth, expanding public spending on R&D ninefold over the last 30 years. Credit: PXFuel

The alliance – which is committed to the view that “trade, globalisation and innovation – conducted on market-led, rules-based terms – maximise welfare for the world’s citizens”, offers a set of profiles as “model policies for other countries to adopt”. Its report also includes a summary of policies that have been successfully applied across multiple countries. For example, many countries have – like Sweden – established national organisations charged with promoting innovation; some have adopted pro-innovation taxation policies or regulatory systems; and some have set up data portals to leverage open data as a platform for innovation.

According to Nicholas A Bloom, William Eberle professor of economics at Stanford University, it is possible to identify a few core policies that tend to prove effective in most circumstances. Bloom grew interested in the topic when, serving as a policy adviser in the UK’s HM Treasury in 2001, he became frustrated at the lack of research into effective innovation and business development strategies.

“Ministers get lobbied by endless firms, academics, and other politicians,” he says. “It’s hard for them to conclude what works and what doesn’t, because each group only presents evidence favouring their own policy. I remember wishing there was some overview by an independent group based on actual research.”

Working with fellow Stanford economist Heidi Williams and John Van Reenan of Massachusetts Institute of Technology, Bloom developed an evidence-based toolkit for governments that are seeking to spark innovation – focusing on five key policies.

Finding five factors

Offer tax incentives for R&D, he says: government tax subsidies and grants are the most effective way to increase innovation as well as productivity. Studies show that reducing the price of R&D by 10% through tax incentives increases investment in innovation by the same amount over the long term.

Promote free trade: evidence from more than 40 research papers suggests that being open to international trade can spark innovation by increasing competition, allowing new ideas to spread faster and spreading the cost of innovation over a bigger market.

Support skilled migration: more funding for innovation cannot bring results without more scientists to do the research. The most direct way to increase the supply of researchers, the researchers argue, is to admit more high-skilled immigrants into the country.

Train more STEM researchers: increase the domestic supply of researchers in the long term by promoting programmes that boost the number of young people studying science, technology, engineering and maths (STEM).

And finally, provide direct grants for R&D. Government grants can target projects that are likely to have the greatest long-term benefits, according to the toolkit, with research showing a positive relationship between grants to academics and the number of patents filed by private firms.

As the world slowly emerges from the pandemic, it will become clear exactly how the global economy has evolved – and which of those changes are likely to prove enduring. But it’s already clear that high-tech businesses are likely to continue generating a large share of future growth; and the experiences of national and local governments provide some useful pointers on how public servants can help maximise that growth.

As Graham Francis of the UK’s DCMS points out, central governments have some rare and valuable tools; if civil servants can put them to work, their economies and citizens are likely to feel the benefits. “Businesses themselves recognise that government has a unique ability to convene,” he says. “And I think part of our job is to champion those people, and to grow those markets, and to connect them with the people that can use their products.”

Policy drives the safety tech sector

Keeping him safe online: the UK’s backing for its safety tech sector reflects both its social and economic policy goals. Credit: Lars Plougmann/Flickr

Support for one emerging sector – safety tech – has sprung directly out of a UK government policy to tackle the rising tide of online abuse, including child sexual exploitation, race hate and terrorism.

The Department of Digital, Culture, Media and Sport (DCMS) has taken a three-pronged approach to addressing the global problem. As well as drafting legislation that will impose a duty of care on providers of online services to protect their users from harm, it aims to ensure that these companies have the tools and services required to fulfil that duty by promoting growth in the safety tech sector and creating “safety-by-design” principles for future online platforms.

Graham Francis, senior policy lead for online safety technology and innovation at DCMS, was brought in early in the policymaking process to explore the role of safety tech in building safe online environments for users as part of a wide-ranging consultation.

“Basically, two years ago, safety tech didn’t exist,” he said. “There were lots of companies that individually did it – but as a sector, it didn’t really exist. Even in the Online Harms White Paper, we don’t talk about safety tech – rather that we think there is potential in this sector.”

To explore that potential, Francis set up an advisory group with industry to develop a safety tech “taxonomy”, and commissioned an independent sector analysis, which found that the UK had 70 companies operating in the field, with an estimated 25% of the global market. Building on this evidence base, his team hosted a round table event on how to develop the sector; and this in turn helped to establish a new trade body, the Online Safety Tech Industry Association.

In collaboration with industry, DCMS went on to publish a Safety Tech Providers Directory, support a Safety Tech Innovation Network, and launch an Online Data Safety Initiative to improve access to high-quality data for safety tech developers. It also held the world’s first Safety Tech Conference, in partnership with events company CogX.

A further sector analysis published in May this year found that, despite the pandemic, the number of safety tech companies in the UK has soared by 43% over the past year, while 500 new jobs have been created and revenues have risen by 40% to reach £314m (US$433m). It predicts that the UK’s first safety tech “unicorns” – companies worth more than US$1bn – will emerge by the mid-2020s.

The government’s work in support of the sector, notes Francis, neatly combines its social and its economic goals. “It’s one strand of government’s overall response to combatting online harm,” he says. “But it’s a really important enabling one, where we can basically be pro-tech. It’s where we say: ‘Look, there are some amazing British companies that are developing cutting-edge AI solutions, and these companies can help solve some of the biggest problems around misinformation and disinformation.’”

About Liz Heron

Liz Heron is a journalist based in London. She worked on daily newspapers for more than 16 years as an education correspondent, section editor and general news reporter. She was Education Editor of the South China Morning Post in Hong Kong and has contributed to a wide range of British media including The Independent, The Guardian and the BBC.

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