Evidence submitted by

Tom Hashimoto, LL.M., DPhil (Oxon), Associate Professor, Vilnius University

Arunas Burinskas, PhD, Associate Professor, Vilnius University

 

About the submission

 

We are two professors specialising in economics and management, based in Vilnius, Lithuania. Vilnius has emerged as a burgeoning FinTech hub, as exemplified by Revoluts relocation, following Brexit. Dr. Burinskas has previously served as a senior executive for a governmental agency responsible for innovation, while Dr. Hashimoto held a visiting position with a research grant focused on innovation at an international organisation based in London. Additionally, Dr. Hashimoto, originally from Japan, possesses extensive experience in Poland, a location hosting the shared services centres of many London-based global firms. Therefore, we believe our insights will complement the evidence submitted to the Committee by other members of the public with extensive experience in the UK system. Our focus will be on sharing ideas and lessons drawn from our experiences.

 

On innovation

 

To provide some context on Lithuania, our countrys innovation performance, as per the European Innovation Scoreboard 2023, is improving at a rate faster than the EU average. This progress is attributed to factors such as a relatively high percentage of the population with tertiary education, job-to-job mobility of Highly Skilled Human Resources in Science and Technology (HRST), non-R&D innovation expenditures, trademark applications, and the rise of innovative SMEs. However, a 2022 study conducted by the Ministry of Finance found that even EU funds had a minimal impact on promoting innovation; instead, their influence was primarily on consumption. We can certainly criticise the structure of various government Departments and Agencies, whose competences often span too broadly to maintain a strategic focus. In some instances, their competencies are interpreted too narrowly, limiting their ability to extend their activities into other areas of innovation.

 

As an example, in 2022, the Agency for Science, Innovation, and Technology was merged with the Lithuanian Science Agency, and the relevant parliamentary Committee oversaw the merger. Regrettably, due to the latter Agencys heavy emphasis on scientific aspects, the reform shifted the focus more toward scientific innovation rather than innovation with direct business opportunities. Consequently, innovative ideas have received limited attention within the business ecosystem and have lacked funding from the private sector. Public support for business R&D in Lithuania is notably limited in comparison to the UK, and many analysts consider this a critical point for assessing innovation policies. What we propose here is the integration of strategic thinking to enhance the scalability of innovative businesses after they have received public support. Companies like Revolut and Vinted have achieved substantial growth through successful scaling efforts. However, it appears that many Agencies often prioritise increasing the number of SMEs and entrepreneurs as the primary measure of policy success. As governing bodies responsible for setting rules and regulations, Committees should pave the way for Agencies to effectively support innovative businesses in their scaling endeavours. To accomplish this, Agencies must transition their mindset from that of angel investors to that of business
accelerators.

 

Whether it is Committees or Agencies, there is a notable tendency to inadequately address the actual needs of both the business and scientific communities in many parts of the world. Being publicly funded, regional partners often receive similar treatment regardless of their origin, and businesses that receive public funds cannot prioritise, for example, Scandinavian partners even when they are clear regional leaders in innovation. In other words, the rule-based accountability mentality of the public sector differs from the result-oriented performance assessment mentality of the private sector. If we (Committees, Agencies, and Departments) are to support the scaling of innovative businesses, rule-based governance shall be more towards principle-based governance. (Please note, considering the jurisprudence of the UK legal system, especially the concept of Equity, this remark might be redundant in the UK. However, we believe that the Liaison Committee is an ideal realm to discuss these principles of innovation scaling in applying various rules and regulations by relevant Committees.)

 

Moreover, the appointment of high-ranking officials and talent acquisition at these Agencies is a point of concern. The relevant Committees often prefer bureaucrats familiar with EU and Lithuanian procedures and rules, rather than economists and business professionals who possess a deeper understanding of the local innovation ecosystem. One interesting actor in this context is the Bank of Lithuania and its research teams. Being monetary policymaking power transferred to the European Central Bank and banking supervisory power to the European Banking Authority, the national central banks have become advocacies of research-based strategic thinking. Albeit in a limited scale, what your ‘call of evidence’ refers to ‘forward accountability’ can be seen here in collaborative activities between the Bank and various Ministries.


 

 

On AI-driven economic growth

 

The risk of automation varies significantly from one sector to another, and the impact of AI likewise differs. Given the necessary infrastructure and skillsets required to manage technological interfaces and devices, the presence of AI is expected to be more prominent in urban areas. In essence, there exists a notable disparity and uneven distribution of both the costs and benefits associated with AI adoption between cities and rural areas. Coincidentally, political parties also demonstrate disparities in their levels of support between urban and rural areas, reinforcing policy preferences that align with party lines.


 

As a committee composed proportionally, the Liaison Committee must grapple with the decision of whether the market-driven ideology espoused by Adam Smith is the path the UK should pursue. This development trajectory assumes that in the face of increasing competition from automation or AI, displaced workers are incentivised to acquire new skills and re-enter the labour market, ultimately leading to dynamic economic growth. As we have witnessed in numerous cases, it is often more adaptable and competitive workers who embrace new opportunities in evolving environments.

 

However, we are also witnessing a resurgence in demand for hand-made and local products that defy price-based competition. While self-interest and industrialism are central to Adam Smith Wealth of Nations, Smith ideas are deeply rooted in moral sentiments and the concept of sympathy. In other words, human elements and narratives have the power to resonate with consumers, and the rise of AI should not be perceived as the end of human interaction. This is particularly relevant in the post-COVID world, where many individuals yearn for social activities and connections.

 

Therefore, we recommend that the Government formulates a strategic approach to the UKs AI-driven growth that takes into account how the Government can concurrently preserve and further stimulate societal human interactions.


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