Should local areas support innovation prizes?

4th October, 2018

Last week we posted the second of a series of blogs pulling out lessons from our recent report on developing effective local industrial strategies. I thought it might be interesting to produce some companion blogs looking at things we didn’t end up covering in that report, including some reflections on the evidence challenges and other issues that led us to drop them.

My feeling, which has been reinforced by discussion with others, is that the most glaring omission probably relates to the 'Grand Challenges'. For those less familiar with the term, the Government’s Industrial Strategy describes four Grand Challenges which it aims to address to keep the UK ‘at the forefront of the industries of the future’: Artificial Intelligence and the data economy, mobility, clean growth, and the ageing society.

The Strategy stresses the importance of collaboration between businesses, academia, civil society, and the government to meet these challenges effectively. What does this mean for local governments, as they start to think about their Local Industrial Strategies?

One challenge for us in drawing up our report is that at least part of the answer to this question could be very context-specific. While I strongly believe that places can learn a lot from each other when it comes to, say, business support, or getting young people back into work, the Grand Challenges feel different. The way in which a local area can contribute to the national Artificial Intelligence challenge, for example, may come down to the activities of a small handful of firms.

It can be even trickier to think about how, or indeed whether, local policy should be used to help that small handful of firms. To help try to inform our thinking here, one of the things the team did was to look at what we know about innovation prizes. Innovation prizes are offered by governments or public institutions to encourage new players to take new approaches to particularly thorny problems:  how did sailors measure longitude to accurately gauge their location, in the days before GPS? How can we cool the London Underground within the constraints of the existing infrastructure? How can we rethink the current plastics system and eliminate plastic packaging waste?

We were already aware of a helpful  review from NESTA which suggests that such prizes may spur innovation by engaging a wider range of actors than those traditionally addressing a given problem and that they do lead to an increase in the number and quality of patents.

We wondered whether the literature would have much to say on the role, if any, of local areas in supporting such prizes. Our primary scoping suggested not, and a little further reflection suggests why: how could local areas have any confidence that they would capture the employment associated with innovations that emerge in response to the prize? Especially given that the goal of innovation prizes is to draw tougher new actors to work on a problem. Even if a local area has existing strengths, it's not clear that these new actors, incentivized by the prize, need be local. And given that the probability of winning isn’t necessarily high, prizes may well need to be large to provide sufficient incentives. All of this adds up to potentially high local costs and few local benefits.

Prizes for solving very specific local problems (e.g. air conditioning on the London underground) might change this balance but it feels like those kinds of opportunities are likely to be rare and only apply to our biggest cities.

I do think there are lessons to be learned from thinking about local innovation prizes that extrapolate to the Grand Challenges. In particular, if areas are going to commit local resources, the case for support for Grand Challenge-orientated interventions needs to be based on a careful assessment of likely costs and benefits. Fortunately, our report does provide lots of suggestions on ways to use evidence and analysis to help inform those kinds of assessments.

So while we don’t spend a lot of time directly addressing the Grand Challenges, the principles that we set out still have a lot to say on how local areas might approach these questions in drawing up their LIS. Finally, it’s important to note that the equation changes again when we start to think about local areas bidding for national resources to contribute to Grand Challenges. But that is an issue for another day. 

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