Innovation and Research Strategy for Growth

Abstract

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

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