Written evidence submitted by Campaign for Science and Engineering (CaSE)(BUF48)

Executive Summary

• New evidence in a report commissioned by the Campaign for Science and Engineering shows that public investment in scientific research leads to; economic growth through an increase in private sector productivity, and beneficial economic and social impacts through increased interaction between the academic and private sectors.

• There is a complementary relationship between industry and public sector research and development (R&D). Therefore, science and innovation policy is not, and should not be seen as, a zero-sum game in which they are substitutes.

• Synergy between the public and private sectors is vital to generate that economic growth with the public sector playing an important role by connecting public and private research.

• Putting money in to UK public sector R&D attracts private investment from overseas therefore public investment in research increases rather than diminishes private sector investment.

• Publicly-funded academics are among the most outwardly engaged researchers regardless of what institution they are based at.

About the Campaign for Science and Engineering

1. The Campaign for Science & Engineering (CaSE) is a membership organisation aiming to improve the scientific and engineering health of the UK. CaSE works to ensure that science and engineering are high on the political and media agenda, and that the UK has world-leading research and education, skilled and responsible scientists and engineers, and successful innovative business. It is funded by around 750 individual members and 100 organisations including industries, universities, learned and professional organisations, and research charities.

2. The findings of a new report commissioned by CaSE and written by Jonathan Haskel and Alan Hughes are closely linked to questions in this call for evidence on university-business collaboration, and in particular questions one and five. The report provides evidence around three key questions: How does public-sector funding of the science base[1] affect private involvement? How does public science funding affect private sector productivity? What is the role of the UK science base in influencing location decisions of UK and foreign R&D business managers to invest in the UK?

Response

The strengths and weaknesses of business-university collaboration in the UK and the UK’s performance against international comparators

and

Recent BIS analysis found that the UK exhibits “a sustained, long-term pattern of under-investment in public and private research and development and publicly funded innovation”. How does this affect business-university collaboration in the UK?

1. University-business collaboration covers a broad spectrum of activity. This response is based on a CaSE commissioned report, the Economic Significance of the UK Science Base, published on 30th April 2014. The report examines only one aspect of university activity, namely attracting external income, and does not reflect upon the many university activities, including those relating to other aspects of university-business collaboration that are not intended to attract external income. Our evidence presented here has the same limits.

2. The new report extends previous studies by examining the contribution of the UK science base to our economy at the level of: industry, universities, individual researchers. It shows that, in each case, public investment in science and engineering leads to economic growth. It provides compelling evidence that public investment in scientific research leads to: economic growth through an increase in private sector productivity, and beneficial economic and social impacts through increased interaction between the academic and private sectors.

3. "The report provides clear evidence that academics receiving public sector research funding are also those most likely to engage with the private sector. It also provides compelling evidence that public and private sector research expenditures are complementary. They should not be seen as substitutes in the drive to enhance the productivity performance of the UK." Professor Alan Hughes

4. The report shows that public investment in R&D, through research council and quality related funding, is a key part of the university-business collaboration landscape. The main findings of the report are outlined below.

5. How does public-sector funding of the science base affect private involvement?

There is a strong positive correlation between public-sector funding and private involvement in research both for universities and individual researchers.

• Universities that receive higher levels of public research funding generate more research income from other sources  (e.g. charities, industry, overseas).
• Regardless of institution, individual scientists who hold  Research Council grants are more likely than non-grant  holders to be ‘outward-facing’ and interact with the wider community for example through the commercial application of their research.

6. How does public science funding affect private sector productivity?

Public investment in research increases Total Factor Productivity[2] growth at industry level.

• This effect is greatest in industries that themselves conduct significant R&D or report co-operative interactions with universities.
• This is likely to be due to a combination of two factors:  that publicly funded research is more applicable to high R&D industry sectors; and that companies are more likely to be  able to absorb and make use of publicly funded research results if they conduct R&D themselves.

7. What is the role of the UK science base in influencing location decisions of UK and foreign R&D business managers to invest in the UK?

The quality of a nation’s science base is an attractor for multinational R&D businesses.

• The most compelling evidence of this effect in the UK is that multinational pharmaceutical firms locate their laboratories near to university chemistry departments that are highly-rated by RAE for their research.

8. The findings have clear implications for science and innovation policy, including university-business collaboration.

• Public expenditure on science and engineering research is an investment that generates economic growth and should be considered as such.
• There is a complementary relationship between industry and public sector R&D meaning that science and innovation policy is not, and should not be seen as, a zero-sum game in which they are substitutes.
• Synergy between the public and private sectors is vital to generate that economic growth. The public sector can play an important role connecting public and private research.
• Putting money in to UK public sector R&D attracts private investment from overseas. Public investment in research, therefore, increases rather than diminishes private sector investment.
• Publicly-funded academics are among the most outwardly engaged researchers.

9. Based upon the evidence presented in the report, a virtuous circle can be proposed in which additional public investment in research leads to increased private sector research, which leads to an increase in absorptive capacity of the private sector to make use of public sector research, hence amplifying economic benefit to the UK.

10. The report calculates that for every £1 spent by the government on research and development (R&D), private sector R&D output rises by 20p per year in perpetuity, by raising the level of the UK knowledge base. This effect would of course be larger if the extra public spending on R&D attracted additional private spending on R&D as the report suggests.

11. For example, if government made a one-off increase in public spending on R&D of £450m (5% of its £9bn total R&D spend), market sector output would rise by £90m per year, every year. Discounting this flow of extra output at 5% per year gives a total boost of £1.8bn to business sector output.

12. This means that “sustained, long term pattern of under-investment in public R&D” is likely to have a negative effect on the level of investment in private R&D and on the location decisions of UK and foreign R&D business managers – particularly considering the very different levels of investment and signs of intent from our international competitors.

13. It is therefore concerning that the public spend on R&D in the UK is low and decreasing in real terms (in the case of the ring-fenced science budget and departmental spend on R&D) and as a percentage of GDP (which dropped from 1.77% in 2011 to 1.72% in 2012 – below the EU-28 average)[3]. This is in stark contrast to our international competitors who have clear strategies to increase public spend on R&D with some already investing closer to 3% GDP, such as USA, Germany and Japan.

14. The report examines both Funding Council and Research Council investments, confirming and extending Haskel and Wallis’ 2010 observations based on Research Council funding only and reinforcing the value of the dual funding model.  Using short time series to examine industry sector data, there is evidence of an ‘interactive’ effect of public R&D funding on economic growth i.e. that it is mediated through the private sector. The Haskel and Wallis 2010 study of whole economy effects over longer time series show a ‘non-interactive’ effect i.e. that public R&D funding has a positive effect on the economy by itself. These approaches are mutually affirming and add strength to the published evidence on this subject.

15. By examining total factor productivity, the report excludes assessment of the value of delivering highly skilled people to the employment pool by normalising for talent using a proxy of wages.  Therefore, the observed increase in private sector productivity in response to public investment in science is in addition to the benefits of employing highly skilled people.

23 April 2014