Are universities useless in supporting economic development?

We have previously considered in this blog whether university programmes of teaching and research should be aligned with economic needs, and there is a variety of views on this point. But a lecturer in St Andrews University, Dr Ross Brown, has now claimed to have discovered in his research that regardless of whether universities should do this or not, they are not effective if they do. According to a report of his research on the university’s website, Dr Brown said:

‘The strongly engrained view of universities as some kind of innovation panacea is deeply flawed. As occurred in the past when inward investment was seen as a ‘silver bullet’ for promoting economic development, university research commercialisation has been granted an equally exaggerated role in political and policy making circles. Universities are not quasi economic development agencies.’

In this short quote there are about 20 different highly arguable points, but the one Dr Brown is particularly promoting is that universities don’t materially support economic development, in that research commercialisation doesn’t have a major impact.

For a start, I don’t think I know of anyone who has ever believed that research commercialisation is the key to economic development. It is a long game, which has the capacity, often over an extended period of many years, to create value for the researchers’ institutions and for those who funded the work (often the taxpayer). When that happens – and it only happens in a minority of cases – the economic impact will often be somewhere else, typically in the place where the last major investor runs their business.

The reason why universities prompt economic development has almost nothing to do with the commercialisation of research. Universities create a cluster of intellectual capital in a place which in turn has the capacity to support the economy: skilled graduates, leadership, facilities and infrastructure, a potential for value-adding partnerships in industry R&D projects – these constitute the raw material for economic development in particular areas. Nor is it hard to find the evidence. There are truckloads of studies that show the impact on value added and economic growth contributed to regions by resident universities; indeed one such study was done by Dr Brown’s own university. There are also studies that show how some regions fail to grow economically where they do not have universities.

I must confess I have not read the original study by Dr Brown, and it may of course be that in it he pursues a quite different argument from that presented in the summary report. Even there he is quoted as recognising the impact of universities, but seems to think that this is not a critical element in assessing their capacity to stimulate growth. In reality it is crucial. The recent Aberdeen City Region Deal is almost wholly based on the capacity of the region’s universities to promote innovation. While I must declare an interest here of course, I very much doubt that the assessment is wrong.

Universities are of course not everything in the drive for economic growth. But they are a very big something.

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My goodness, we’re struggling with the innovation idea

For about the last four years we have, as a country, been courting the idea of innovation as the driver of the economy. Maybe it all started when we read Michael Porter’s argument that as an economy matures it needs to move from being investment-driven to being innovation-driven. As we digested this, our approach to competitiveness was adjusted, and the government adopted the Strategy for Science, Technology and Innovation. More recently we have obscured the innovation agenda slightly by moving the language to concepts such as a ‘smart economy’ – which sounds good but doesn’t really disclose through the label what it means; but on the whole the innovation agenda is still alive.

At any rate, I hope it is, because there is no shortage of people wanting to have a go at attacking it.  Most recently this has been Constantin Gurdgiev, the editor of the magazine Business and Finance, though in this case writing in the Sunday Times newspaper. I don’t believe that the Sunday Times has published the piece on its website, so you have to go with my summary for the present.

In a nutshell, Gurdgiev believes that as a country we are seriously wasting money. He argues that all the investment in Science Foundation Ireland will yield peanuts in terms of start-ups and commercialised intellectual property. He believes that doubling the number of PhD graduates (a key goal of the Strategy for Science, Technology and Innovation) is ‘patently absurd’; and he argues that our universities are nowhere (and will be nowhere) in terms of global competitiveness. I am finding it more difficult to identify what he is arguing for (as distinct from what he is arguing against), but it seems to be more focus on ‘communications services’; he also mentions ‘marketing, sales and distribution.’

The first thing to say about all this is that we are actually going to go nowhere at all if we are not single-minded about what we are doing. If we adopt scientific innovation as our iconic aim today, but drop that tomorrow in favour of, say, being the home of global PR, and then something else next month, we won’t be much good at any of them and we won’t be taken seriously. This country put innovation – understood as investment in high value science and technology – at the heart of its development plan three or four years ago. This is not an agenda that produces all its benefits in eight months, and we had better stay consistent, because if we give any indication of loss of resolve now we lose all credibility. Companies have invested in R&D located in Ireland on the basis that we are investing in innovation, and right now there are people in laboratories all over Ireland working on discoveries that will provide both technological innovation and commercial focus. All of that can easily travel somewhere else. And we would have very little to replace it with.

We need to get out of the mindset of bean counters, in particular the idea that what we must count is jobs. Innovation is not in the first instance about jobs. It is about economic progress, and about work, and about wealth, and about social benefits. Some of that my result in what traditionally we have called jobs, but even where innovation creates jobs the link may be too indirect to allow anyone to count anything much. But what innovation will deliver is a potential for serious economic growth. Jobs are a by-product of that.

If this country dodges the demands of an innovation economy, then we had better get ready for sustained decline. We have no other offers on the shelves, and none we could put there with much credibility. We need to be consistent, and we need to stay the course.

The search for a new economic order

Ever since the wheels began to come off the global economy last year, there has been a lot of chat about whether there should be a new model of economic policy, both for global trade and within individual countries. Furthermore, all this happened while, in an iconic moment, the Bush administration in the United States was replaced by that of Barack Obama. Much of the commentary focused on the assumption that we were experiencing a major crisis of confidence in capitalism, and that what would now happen was that free markets would be replaced by a highly regulated system. The recent G20 summit in London spent some time on all this, with the French President, Nicolas Sarkozy, in particular emphasising the need for regulation (and threatening to walk out if his approach was not adopted).

There are a lot of lazy assumptions in all of this. One of them is that the world economic order before last year was based on totally unfettered markets. Furthermore, the view that George W. Bush was a free market leader is also highly questionable; his administration was economically one of the most interventionist in US history, and presided over an intricate set of regulations, particularly post-Enron. In fact, it could be asked whether the experience of the past few years tends to show that regulation actually does not always work very well. After all, after the events at Enron and Worldcom, people were led off in handcuffs, and yet this appears to have had a minimal effect on the big bonus earners in parts of the financial sector.

Nobody can reasonably presume that nothing needs to change now. Clearly it does. But it must be questioned whether the Franco-German view of regulation (which may be no more than bureaucratisation) is the right way to go. Setting up new regulatory offices whose main effect will be to slow down decision-making and ensure it is increasingly risk-averse is almost certainly not the answer. On the other hand, encouragingthe  people holding the world’s financial levers to take crazy decisions, sometimes based on nothing more than their aspirations for another bonus is also not right. It seems right that we must look at ways in which the conduct of key persons in industry and in the financial sector can be guided into ways that benefit society.

But that won’t bring about recovery. Perhaps the newly unveiled strategy of the UK’s Secretary of State for Business, Enterprise and Regulatory Reform, Peter Mandelson, represents an interesting basis on which to consider a new role for governments to help steer both local and global markets. His strategic document published today – New Industry, New Jobs – sets out a more activist agenda for government in order to identify and support growth areas that can generate employment and prosperity. There is also an interview in the London Independent newspaper in which he explains both the opportunities and risks. In short, what is being suggested here is that growth does need at least some element of strategic planning which looks at future trends and needs and identifies areas to be targeted for growth and support. That may be a more urgent exercise than coming up with even more intricate models of regulation.