Shedding new light on innovation policy

17th August, 2017

Industrial strategy is one of the big issues for the What Works Centre and its local partners and innovation is one of the main themes of industrial strategies in the UK, and around the world.

Public policy plays a number of important roles in supporting innovation - see this debate between Mariana Mazzucato and Stian Westlake for a good intro. And as I wrote back in January, it's equally important that we understand what the most effective tools are.

The good news for the UK is that we are - slowly - building an evidence base on what works for promoting innovation, as well as other pillars of industrial policy. What's more, what we have suggests some current UK programmes work pretty well.

Our latest case study summarises Innovate UK's programmes of support for microbusinesses and SMEs: mainly grants but also loans, awarded on a competitive basis, either to individual firms, or to promote partnerships with other companies or with universities.

Using standard UK administrative data, evaluators were able to set supported firms alongside similar non-supported companies, then compare how the two groups did. This 'difference in difference' approach is one of the methods we endorse, as it meets our minimum standards for good evaluation.

Encouragingly, Innovate UK's programmes seem to have raised treated firms' survival prospects (by 14 percentage points), employment (an extra 32 staff on average), and possibly sales too (although this result is less robust). These positive effects are biggest for 2-5 year old companies and those aged 6-19 year olds. That is, these programmes seem to have helped innovative firms to scale.

This is another helpful piece of the industrial strategy puzzle, for several reasons.

First, in our innovation evidence review back in 2015, we found lots of evidence that these kinds of programmes raised firms' R&D - but rather less evidence on growth impacts further down the line. Now we have good UK evidence of those growth and scaling impacts.

Second, we already know that the UK's R&D tax credit system is pretty effective in stimulating firms' patenting. We can now add good evidence on grants and loans alongside that.

Third, we can set these innovation findings alongside other evidence on business support programmes - where again, we have a decent stock of UK evidence, with several programmes (e.g. on export support) showing positive impacts.

Finally, it's reassuring to see that evidence for these types of innovation support programmes in the UK broadly lines up with what we've found for OECD countries as a whole. We've had a number of conversations with policymakers worried that innovation programmes are very context-specific, so results from one country won't generalise to others. This may be true in some cases. But for grants, loans and tax credits, what we know suggests that what works across the OECD also works in the UK. 

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