The Department for Business Innovation and Skills has published two benchmark studies examining challenges and barriers to innovation in the UK and returns on investments made in science and innovation.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/334369/BIS_14_852_The_Case_for_Public_Support_of_Innovation.pdf
The case for public support of innovation: at the sector, technology and challenge area levels sets out the barriers to innovation in 24 areas of economic interest, together with outlining the rationale for public support for innovation at the sectoral level.
The study provides review of the literature on different categories of issues that have been identified as inhibiting innovation in the absence of public support.
The study sets out the following eight categories:
- Character of science and technology: The size of scientific or technological problems is too great for individual private actors to tackle if markets are competitive, and may be accompanied by uncertainty, making it hard for the private sector to invest. It may be that innovation only yields return in the long run, hampering investment
- Market power: This can lead to, or be caused by, for example, the first supplier or user building insurmountable advantage, and may lead to consumer lock-in. More generally, high cost of market entry/exit
- Externalities: It is too hard to appropriate enough of the results of research or innovation to make private investment worthwhile. Innovation may depend upon the presence of external networks, which are beyond the means of innovators to create; innovation is easy for competitors to copy and there are limited opportunities to protect new ideas
- Information asymmetry: High levels of specialised technical and/ or market knowledge mean that not all the economic actors involved have the basis for making informed decisions
- Capability Failure: These failures result from the difference between the capabilities of real firms and those assumed in the idealised economic model, so that firms lack needed skills, resources, ability to learn, absorptive and analytic capacity or otherwise to capture innovation opportunities
- Network Failure: Networks are fragmented and/or broad; communication and cooperation within networks are poor. Networks may be locked in to technological regimes, markets or products by their history and capabilities and find themselves unable to transition into new technologies or businesses
- Institutional Failure: Institutions operate in ways that impede innovation. Rules and regulation are not conducive to innovation and technological development. Government policy has the same effect
- Infrastructural Failure: Insufficient human and capital investment in infrastructures critical to innovation performance by the state
The study examines these barriers to innovation in 24 selected areas, including several which are potentially applicable to the water sector – notably built environment, bioscences and Big Data.
Alongside the Report, BIS has also published a separate report - Rates of return to investment in science and innovation – which provides a comprehensive overview of the evidence relating to the rate of return to investment in science and innovation.
The Report says that the existing literature tends to estimate private rates of return to R&D investments of around 30% (mean) or 20 to 25% (median). In contrast, social returns, based on spillover benefits from R&D conducted by one agent to the productivity or output of other agents, are typically 2 to 3 times larger than private returns. It also makes the key point that investments in ‘science and innovation’ are not just limited to scientific research and development (R&D), but instead consist of a range of ‘intangible investments’ which help to drive innovation.
The report confirms that social returns are significant; normally 2 or 3 times larger than private benefit and persisting long into the future. It also shows evidence confirming that every £1 spent by government yields a return of between 20 to 50 pence per year in perpetuity.
Click here to download The case for public support of innovation: at the sector, technology and challenge area levels
Click here to download Rates of return to investment in science and innovation
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