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Living on an island: keep calm and think local

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As the UK prepares for life outside the EU, what can it learn from other island-based countries to boost its economy?

When the UK government published its 'R&D Roadmap' in the summer, business secretary Alok Sharma said he wanted to “start a big conversation” over where research, development and innovation (RDI) should go. This conversation is clearly now meant to go forward under the post-Brexit mantra of ‘Global Britain’ and, for technology, the more specific goal of creating a ‘science superpower’.

However, is this not merely facile and potentially counterproductive sloganeering? Should the government frame its priorities differently, particularly as any strategy must now also account for the Covid-19 outbreak? Other countries – including other islands, like the UK – seem to be putting much more stress on internal challenges.

The UK’s overarching global emphasis tends to colour much of what the Roadmap discusses with a sense of trying to be all things to all men. This point was highlighted in a response lodged by the Wellcome Trust in October. While aware of the country’s need to rethink its place in the world, it cautions: “The UK must use its resources strategically”.

Dr Sheuli Porkess, executive director of research, medical and innovation at the Association of the British Pharmaceutical Industry, adds: “You can say you are going to build a world-leading ‘something’ but by the time you have done it, is it still world-leading? Is it still what industry wants? Has someone else done it better in the meantime? The UK has to have the humility and confidence to be able to look elsewhere and ask, ‘Are they doing it better?’”

Beyond that, however, there is a risk of downplaying more local concerns. For evidence of that, we can consider elements of what is currently being developed, discussed or rolled out in five island countries: Australia, Indonesia, Japan, New Zealand and Singapore. While what follows necessarily cherry-picks from their planning, the choices are potentially fruitful.

All RDI planning must address widely recognised technological megatrends such as artificial intelligence and the fourth industrial revolution (aka Industry 4.0).

There are other current drivers. James L Schoff, a senior fellow specialising in US-Japan relations at Carnegie Asia, recently described the one that has the highest socioeconomic profile thus: “The world is shifting from a technoglobalist-oriented economic and innovation framework premised on reducing barriers to trade, investment, and supply chain development amid harmonised multilateral standards.

“The techno-nationalist framework taking its place is prompting countries to intervene more frequently in trade and technological affairs to give their own high-tech industry leaders an advantage over those of other countries.”

The US and China are the two countries driving this trend and, while it may be very unwelcome, as Schoff also notes, there is a ‘prisoner’s dilemma’ in ignoring it “because the worst outcome for a nation would be eschewing techno-nationalist policies when others pursue them.”

Running alongside this, a greater emphasis is being placed on ‘whole of society’ thinking. It is often accompanied by a belief that a government’s actions should more clearly reflect national identity at every level (with the main driver for the UK’s own innovation policy review, Brexit, being perhaps the best example anywhere).

However, many countries – and notably many island countries – have further reasons to rebalance their economies. As an emerging economy, Indonesia needs to upgrade the industries that have powered rising GDP so far and, like the UK, ‘level up’ parts of the archipelago that have not so far reaped as many of the benefits as others. As an advanced economy, Australia needs to pivot to offset an anticipated decline in the value that commodities exports contribute to GDP and continue to grow what is today the main sector of its economy: services. Its policymakers therefore see digitisation and other forms of innovation as important; New Zealand has similar concerns over output from mining and agriculture).

Throw Covid-19 into this already heavy soup. Strategies must consider how consequent economic scarring can perhaps be healed by either accelerating and expanding existing internal RDI programmes or adding new ones. Small and medium-sized enterprises (SMEs) are seen as most vulnerable here.

How might some of the resulting techniques potentially contribute to Sharma’s big conversation?

1. The watching brief (Singapore)

One surprising finding of the OECD’s regular ranking of R&D as a percentage of GDP is that Singapore scores below average: 1.8 per cent vs 2.4 per cent in 2018. The government is nevertheless a longstanding internal investor in innovation.

It switched its national strategic priority from attracting inward investment to stimulating the local technology economy in the late 1990s, largely directing its campaign through a series of five-year plans. The latest, ‘Research Innovation and Enterprise 2020’ (RIE2020) is about to expire and its successor will be announced in December. RIE2020 has been worth SG$19bn (£10.8bn) and the next programme is expected to be as large, although what constraints Covid-19 emergency spending imposes remain to be seen.

Singapore has historically been a user of two techniques that are now more widely seen as potential tools to mitigate economic scarring in less aggressively directed countries: grant funding, and a major role for the government as a customer as well as a source of stimulus.

Some aspects of the Singapore strategy already have UK counterparts, such as the use of grand challenges based around public-sector research and innovation, so expect RIE2025 to be closely watched in Whitehall. What Singapore ultimately decides to add within the plan as a result of Covid-19 (though it could still be addressed separately) is also being monitored elsewhere.

2. Rethinking definitions (Australia)

“The last six weeks have been probably at a peak in the dynamism of change and I’d just say, ‘Well, if only we could do this day in, day out for a decade, where would Australia be in terms of GDP per capita? Where would we be in terms of sovereign capability and industrial advantage? And where would we be in terms of the future of work for our kids?’ I think we’d be in a pretty nice place.”

Andrew Stevens, chair of state agency, Innovation and Science Australia, was discussing innovation in business practices that were driven by the Covid-19 pandemic – with 38 per cent of Australian businesses having already responded to a survey that they had adopted new processes to continue working, starting with, say, bricks-and-mortar to e-retailing and working up.

Stevens links this to a greater emphasis he believes local RDI policy should place on ‘non-R&D innovation’, and which ISA had begun to promote before the outbreak, culminating in its ‘Stimulating business investment in innovation’ report.

His argument is that the non-R&D component represents as great a proportion of local innovation as that which meets the OECD’s formal R&D definition.

Significantly, this type of innovation takes the form of “asset-light, customer-loyalty-focused business models, where investment in intangible assets (which includes those developed through R&D) is growing in importance” and can be adopted by SMEs as well as large companies.

While this debate is not new, Covid-19 and the vulnerability of SMEs is giving it a particular impetus with non-R&D seen as useful tool for post-pandemic economic recovery.

On that same point, Stevens is also pushing the government to direct more funding through grants than tax incentives, providing the non-R&D stimulus for projects that might last 5-10 years so that practices and concepts can mature.

Allied to this, Australia is in the throes of a debate over how its R&D tax incentives are defined and can (or sometimes cannot) be reclaimed. Is it better instead to simply direct the money where needed?

3. Entry level (Indonesia)

Indonesia offers a deeper example of the SME adoption challenge that Stevens wants given greater priority. Both countries suffer from a far lower awareness of digital and Industry 4.0 technologies and tools among smaller companies than their local technology agencies would like.

A new report on Indonesia’s innovation strategy, commissioned by the Ministry of Finance and the Asian Development Bank, found: “Industry consultations suggest that firms are not very aware of emerging technologies and their potential applications with, for example, only 35 per cent of survey respondents being aware of AI.”

Given the global hype around the topic, that is particularly alarming, and, as a result, the authors describe a local communications-led strategy supported by five pillars: advanced innovation infrastructure and institutions; awareness of the business value of new technologies; technology transfer and technical support for firms; low-cost plug-and-play technology for Indonesian firms; and, a tech-savvy workforce.

In many respects, this programme is similar to initiatives that have rolled out in the UK (and the UK provides some specific inspiration). Meanwhile, the need to generate more technology workers and STEM is universal. However, the fourth point of tailoring specific entry-level tools and services for the local market does seem useful.

One frequent criticism of the education-led programmes that are needed to seed Industry 4.0 in terms of, say, next-generation tools and automation is that the classroom contains lots of shiny toys, but there are not simple examples that participants can take away to get them started. These, as the report notes, will frequently need to be tailored to the demands of a local economy.

4. Societal shift (Japan)

Japan has long been a major R&D investor. Its policy infrastructure links industry-driven expenditure to government policy driven by the Council for Science, Technology and Innovation. The council’s influence is expected to continue under recently installed Prime Minister Yoshihide Suga, with innovation and a Silicon Valley-style model having featured prominently within the third ‘structural reform’ arrow of his predecessor’s Abenomics programme.

There is a problem. While Japan’s R&D spend exceeds the OECD average, both government and industry have been concerned for some time that these efforts are not translating into enough new products, services and, by extension, GDP growth. Meanwhile, the current technology megatrends demand ‘agile’ responses, and Japan is trying to address how it may face issues that are more about culture than communication.

Recent research by consultants at McKinsey and Company identifies issues with R&D and other business practices that once served Japan companies well. “[Their] approach owes much to the incremental, continuous-improvement philosophy that underpins lean management, as pioneered by Toyota and widely used by the country’s manufacturers,” the consultants note. “It is possible, however, that the informal, flexible, and continually evolving working structures adopted by agile teams are a poor fit with the culture of many Japanese firms, where organisations tend to be hierarchical and emphasise detailed planning prior to execution.”

Similarly, a history of conducting R&D predominantly internally across large engineering teams means that Japanese companies are less familiar with the idea of forming and joining multi-enterprise ecosystems.

Agile changes have been achieved but the intrinsic nature of local business practices needs to be challenged with direction from central policy as much to promote change as anything else. An honest appraisal of where even formally beneficial business practices is needed, an issue that also gets raised on the fringes of the RDI debate in the UK but which is seldom placed front and centre.

However, Japan is also making plans to take this digital infrastructure into its society as part of a concept termed Society 5.0. Given the demographic challenge posed by its ageing population, healthcare plays a core role, but innovation for domestic use is also being prioritised across mobility, fintech, and infrastructure as well as within industry.  

5. A sense of identity (New Zealand)

Before accumulating international kudos for her Covid-19 strategy and her recent landslide election victory, New Zealand Prime Minister Jacinda Ardern was best known for her criticisms of traditional capitalist models and launching 2019’s ‘wellbeing’ budget.

New Zealand’s draft Research, Science and Innovation Strategy was released for consultation in September 2019 and, though that process has closed, Covid-19 has intervened before its results in terms of policy have really become clear.

Much of what that draft contained was familiar; R&D tax incentives, promoting international science links (the country’s geographical ‘isolation’ is a frequent policy concern) and the development of public institutions and infrastructure.

Beyond there is discussion over how to enable start-ups scaling and, mirroring discussions in Australia, distinctions in terms of the type of innovation between ‘frontier’ work (extending existing global knowledge) and ‘behind the frontier’ (using existing knowledge to improve processes).

Yet in perhaps an especial contrast with the UK and its global/superpower approach, the overarching principles are intended to be extremely local, clustered around a highly localised social platform. The particular needs of and potential contribution from the Maori community are also a vital part of this philosophy.

Again, this reflects the desire among countries to create policies that have broad outreach beyond their frontiers but that also address the whole of society within them.

As an island nation, the UK talks a lot about its character. ‘The spirit of the Blitz’ and ‘Keep Calm and Carry On’ have been evoked frequently during the pandemic. When it comes to technology, the local often drifts into second place. The ‘levelling-up’ agenda and how it can be advanced do feature as a discussion topic within the R&D Roadmap, however, though circumstances now give it even greater priority.

To its credit, the UK has historically developed many policies – particularly in terms of technology education – that have influenced thinking elsewhere in the world, and for reasons more than simply notions of an ‘anglosphere’ or the residuals of empire. However, these countries may at least be matching and potentially surpassing Britain’s efforts when it comes to delivering benefits locally.

While not all these strategies may exactly fit the UK’s needs, perhaps the time has arrived for the UK to focus the big conversation at the smaller scale. 

Government

12 Priorities for New Zealand (a contrast with ‘Global Britain’)

1. Growing and sharing New Zealand’s prosperity.

2. Supporting thriving and sustainable regions.

3. Transitioning to a clean, green carbon-​neutral New Zealand.

4. Delivering responsible government with a broader measure of success.

5. Ensuring everybody who is able to is earning, learning, caring or volunteering.

6. Supporting healthier, safer, more connected communities.

7. Ensuring everyone has a warm, dry home.

8. Making New Zealand the best place in the world to be a child.

9. Delivering transparent, transformative and compassionate government.

10. Building a closer partnership with Maori.

11. Valuing who we are as a country.

12. Creating an international reputation to be proud of.

 

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