Ben Brittain is a Policy and Data Analyst for a regional economic institute.
The Conservatives were gifted their ‘stonking majority’ by deprived constituencies that are far removed from the growth and economic power of London. The UK is a tale of two economic nations – a wealthy and highly productive London and South-East, and everywhere else, where gross value added more resembles former communist states. It was in these former mining and industrial heartlands of the Midlands and the North where working-class people lent their vote to the Conservatives to ‘get Brexit done’.
The challenge for this new government is to make the economy one whole, bridging the productivity and wage gap between London and the periphery towns of city-regions. The government will want to reward the North and Midlands for their support at the polls. But getting Brexit done is only one step. The next is to embark on a long process of economic revival in these regions, drive agglomeration within cities through transport infrastructure and skills investment.
The Government has the opportunity to level-up productivity right across the whole UK. For that, we must not look not to Silicon Valley and seek to replicate it on the Tyne – but instead look to Israel.
Today, Israel is considered an innovation superpower, with more companies listed on the NASDAQ than any other country except the United States. The Israeli success in innovative industries, such as ICT, is based on an R&D-intensive, novel-product-based, export-oriented business model. One that the UK should adopt to create a post-Brexit, R&D-heavy, exporting economy.
Israel is a hot-bed of ground-breaking technology companies such as Waze and the autonomous driving company, Mobileye, which has been snapped up by Intel for $15.3 billion. These large dominant companies are an exporting successes, but large innovative companies have to start somewhere.
Israel’s success is driven by its impressive start-up culture, and this start-up friendly ecosystem is actively fuelling an innovation economy. Israel started more than 10,000 companies between 1999 and 2014, with 2.6 per cent of these start-ups creating revenues of more than $100 million. Their success is down to reform-oriented policy makers driving change in the public sector, embedding innovation, unafraid of the role of the state as a friend to free-markets and individuals that want to start an enterprise.
The UK needs to embed five elements within its future growth framework to drive innovation. These are: support for start-ups; a substantial growth in the training of scientists and engineers; empower research-oriented civic universities and drive commercialisation within universities, expand access to venture capital, and utilise the strength of government and big-data in regional industrial strategies. All of these interact with each other to drive the process from invention to innovation.
The UK has an unrivalled higher education system that is ready to plug-in to regional economies and drive sector specialisations. To achieve this, BEIS should restart the work of the Smart Specialisation Hub and bring it in-house, to further understand how productivity is evolving in regional firms. Businesses are best placed to lead in the identification of new opportunities for growth, and many regions are already developing highly-productive sector clusters, which should not be hindered by central government imposing their own industry preferences. Instead, local industrial strategies should identify current productivity strengths and seek to implement necessary supportive interventions and create the correct ecosystem for their growth.
A culture of people, business and universities fully attuned to research and development is required, as is leveraging long-term private sector commitment. Regions should focus on what they are good at – such as the automotive industry in the West Midlands – prioritise research and innovation investment in a competitive environment, and implement policies that are strategic, based on a shared vision for regional innovation and development (such as the development of UK’s first Tesla-style battery gigafactory in the West Midlands which will build on current agglomeration).
Creating dynamic and innovative clusters in regions previously neglected and cut-off from London’s success will ensure the success of Brexit is the success of Wales, the North and the Midlands. If there are greater opportunities for high-skilled, well-paying work in innovative companies, focused on exporting, catalysed and fuelled by free-ports across the region, in industries such as space, AI, life-sciences, health and clean energy, then London will no longer suck the life out of those regions. More local residents will have better paid jobs, with more disposable income to spend in local high-streets, meaning the physicality of neglected towns in places such as Darlington and Walsall can be overcome.
The nation could be one economic success story; a real One Nation Toryism. To do that the Government will need to get Brexit done and Innovate like Israel.