Demanding growth: why the UK needs a recovery plan based on growth and innovation

Recovery from the recession will require an imaginative approach from government. Traditional intervention policies have sought to prop up old industries. But such short-term fixes will not produce long-term growth. Instead, government policy should focus on innovation and growth, supporting innovative sectors that have the potential for strong growth once the recovery begins. It is a move away from corrective intervention towards creative intervention. Acting decisively and intelligently is necessary to transform an economy that had become unduly reliant on financial services. This is not about a return to post-war industrial policy, where government tried to ‘pick winners'. Rather it is about being willing to create the conditions in which innovation can flourish. These conditions will include the development of networks and may mean a degree of cooperation rather than competition initially. There are good examples of where such a policy has worked. The Finnish telecommunications industry, including Nokia, grew from a national economic strategy developed in the recession which followed the collapse of the Soviet Union. In Britain, defence equipment is developed through a planned market approach which helps to develop the latest military hardware. Even the growth of Silicon Valley as the hub of international IT was partly a spin-off from the subsidised American defence industries. Our response to the recession should not seek to build national champions. But it should support new areas of emerging demand, where important long-term trends are giving rise to new markets. Three areas for potential growth are especially promising: the green economy; creative industries; and healthcare, including services for an ageing society and biotechnology. NESTA believes that these are all areas of high future demand, significant existing strengths, and strong technological changes. The green economy and healthcare could have a combined market size of £93 billion by 2013, with the creative industries alone contributing £85 billion to GDP. Success in these areas requires the government to support and empower businesses through a combination of infrastructure development, regulation that actively encourages growth, and the use of government procurement to stimulate demand. Procurement, in particular, is successfully used to support innovative small businesses in countries like South Korea and the United States. Such a recovery plan can deliver good results at relatively low cost, provided it is well-targeted. Upgrading our broadband network would cost a third of the price of a third runway at Heathrow. Carefully targeting existing funding would transform the environment for industries in the three targeted areas. In the Appendix, we show how a very specific targeting at one creative industry, videogames, could help create new jobs with extra investment, tax credits and education, at an extra cost of just over £15 million. We estimate that this sort of support, across the creative industries, could help create over 100,000 new jobs by 2013.