What does the UK’s entrepreneurial state look like, institutionally? This is probably where ideas of the entrepreneurial state collide with the reality of the tools available.
Below, I have looked at types of legal entity that could, in theory at least, deliver the UK’s entrepreneurial state (one of the entities now closed, in 2018). This landscape is by no means complete – please see table at end for a more comprehensive but still no doubt patchy list.
Catapult network
In the aftermath of the 2008 financial crisis, the then Labour government launched a policy called ‘Going for Growth: Our Future’. The elected official in charge, Mandelson, appears to have asked a businessman, Hauser, to design structures that would support the commercialization of new technology in support of the growth policy.
Hauser had the advantage of having seen and experienced the tribulations of the European IT sector over decades – he was one of the founders of Acorn Computers, and later head of R&D at Olivetti, as well as being involved in various spin-outs and venture capital activities (Acorn, now ARM, still exists; Olivetti is long bust).
His report, published in 2010, called for the UK to create a version of the Fraunhofer-Gesellschaft (DE), ITRI (Taiwan), ETRI (South Korea), and TNO (NL). He wanted to call them Clark-Maxwell centers, after the nineteenth century Scottish physicist. The government had by that time changed; the new Conservative-Liberal coalition indeed commissioned a network of centers, dubbed the Catapult network, but they did not perhaps resemble exactly what Hauser had proposed.
The overall aim of the centers was ‘to exploit the most promising new technologies, where there is genuine UK potential to gain competitive advantage…this will help deliver the new industries, with transformational economic impact, of the future’. Each Catapult – there are now nine – is a legal entity, but there is no overarching legislation defining what they do. Governance also seems a bit confusing; each has a board, but does this board report to central government, or to Innovate UK (see below)?
I get the impression the Catapult network has expanded without perhaps obvious strategic intent, and in a piecemeal manner.
Some Catapults associated with totemic bits of the UK’s ‘rust belt’; absorbing the remnants of previous initiatives. The Centre for Process Innovation, created 2004 as part of the RDA (see below) at a former I.C.I chemicals complex, was packaged into the Catapult network. Another site which had also once belonged to I.C.I. (pharmaceuticals research department) became the location for the Medicines Discovery Catapult. The Offshore Renewable Energy (ORE) Catapult was also originally an RDA entity dating from 2002 (& at one stage occupying an old Reyrolle engineering works).
The remaining Catapults inhabit anonymous English office blocks seemingly without history (excluding the ORE, which has a Scottish base, none are as far as I am aware are located outside England).
| Entity | Annual budget | Strategy | History |
|---|---|---|---|
| Fraunhofer-Gesellschaft (DE) | €2.8bn (2020) | 7 ‘key strategic initiatives’, e.g., battery cells, programmable materials, ‘public safety’ | Founded 1949; ‘alignment to market-oriented research under contract’ introduced 1974 |
| ITRI (Taiwan) | US$600m (half government, half private sector) | 2030 Road Map – smart living, quality health, sustainable environment | Founded 1985 to support technology intensive manufacturing, focused on electronics |
| ETRI (South Korea) | US$303m (2002) | n.d. | Founded 1976 to develop new electronic devices particularly for wireless communication |
| Catapult network (UK) | £50m | None | Founded 2011 to exploit most promising new technologies, where there is genuine UK potential to gain competitive advantage |
| TNO (NL) | €38m (2020) | 9 ‘social themes’, e.g., circular economy, healthy living, energy, etc. | Founded 1932 to enable business & government to apply knowledge; substantial expansion after WWII; restructured in 1980s |
It should be pointed out that obviously the overseas examples Hauser cited had (and have) strengths and weaknesses. Given the age of the institutions, however, their biggest feature is the historical evolution of approach, reflecting economic and political realities, as well as what officials thought would work best at any given time. Accordingly, we could say these institutions are not ‘one thing’ that can suddenly be reproduced.
Indeed, one might say it was odd that Hauser described them all in one breath because they do not seem, to be honest, similar. To examine an institution such as the South Korean ETRI, founded under the Park dictatorship that was up to its neck in ‘policy-related’ loans, nationalized banks, exchange controls and chaebols – and then conclude there could be policy lessons for the UK in the 2010s – well, its seems at face value quite a stretch. Recall also South Korea’s economic catastrophe in 1997; ETRI apparently gave leave to its R&D staff and asked them to start companies. History happens, and it does presumably shape institutions.
Looking across the Channel, the Catapults probably have the greatest similarities to France’s Carnot network (created 2006 & comprised 39 institutes), rather than the above examples.
A 2017 review of the Catapult networks by EY revealed the following:
[T]he concept of Catapults is sound and, when effectively implemented, Catapults have the potential to drive innovation and economic benefit to the UK…[yet] the Catapult network’s overall lack of a clearly articulated set of objectives, or a framework for measuring impact, and the current level of operational performance, it is unlikely that the impact of the network overall has been significant so far. Hence our view, taking in to account everything we have seen, is that, to date, the Catapult network is unlikely to have provided the benefits and value for money envisaged at the outset.
2017 review by EY
That being said, the Catapult network, for its part, and unlike the overseas institutions, had existed for so little time that it had barely began its evolution. It would seem a little unrealistic to expect an entity, created only a few years before, to suddenly perform wonderfully well.
Industrial strategy-related bodies
Several entities emerged from the now defunct industrial strategy under the Conservative-Liberal coalition government (2013). Due to the fact that this strategy appears to have fallen into abeyance, they can sometimes get forgotten in discussions of innovation policy; but indeed, they are still operating (see table at end for further details).
The most striking of these entities is the British Business Bank (BBB) because, unlike other entities which are concerned with knowledge exchange and R&D funding, the bank is taking equity in firms, otherwise known as nationalization (it was legally authorized by the European Commission to provide state aid). This is obviously the most powerful means to shape the private sector, connect it to wider societal goals, and ensure benefits are retained within national borders – indeed, the definition of an entrepreneurial state.
The BBB appears to be largely concerned with administering pots of money designated by central government for particular purposes, rather than developing its own investment policies. Inevitably, any state-backed investment vehicle in the UK will be lumbered with certain activities that might not be of its own choosing, the question is the extent to which it can also carve out its own approaches.
The investment strategy is not clear to me (probably my lack of knowledge, not the fault of the bank), nor the total amount invested, but the bank supported 89,900 firms, giving an ROI of 3.6% (2018-2019), according to a recent audit. I don’t know anything about investment, but it seems a very large number of firms on its books – how can it keep track of them, let alone support them? The bank seems to be sub-contracting investment decisions to 134 ‘third party delivery partners’, rather than running its own portfolio; perhaps therein lies the ability to invest in such a large number?
Overall, policymakers evidently see the BBB’s goal as improving access to finance for SMEs. It is not seen as a means of intervening in the economy as an entrepreneur, or encouraging the modernization of industry. It is separate administratively from the aforementioned Catapult network (although it falls under the same central government department).
If we dredge the depths of ancient history, the BBB merits comparison to the National Enterprise Board (NEB). NEB was a state-backed merchant bank, or venture fund (in modern parlance) – but it regrettably only operated for about five years, 1975-1981 (never given a chance). NEB was wound down because Joseph, the relevant Conservative minister, did not like back-door nationalization, as he saw it, not because the agency was under-performing as an investment operation.
The NEB was appraised in detail by Daniel C. Kramer in 2019. Kramer wrote that the NEB managed about 150 investments over its brief life-span (c.f. BBB’s 89k investments); these were in ‘lame duck’ firms the government had lumbered it with, but also firms it bought on its own initiative (in what was a state-run venture capital operation). In this class it invested in high-tech – IT, medical diagnostics, and biotechnology. Based on his analysis of the accounts, he argues that although the rates of return achieved were not as high as the stellar US venture capitalists, NEB performance was ‘not that weak’, and it outperformed some UK-based venture capital firms of the time.
Of course, what NEB could also do, and needed to do, was take a broader view of utility, and thus develop means to balance the calls for profit, with the need to take risk, alongside wider societal goals. It presaged the ethical investment strategies found today; had it existed longer it might well have developed a genuinely innovative model of responsible venture capitalism.
It is said that NEB was modeled on the Italian IRI, which the relevant minister, Benn, admired. The salient features of IRI were that it had considerable autonomy to make investments; and while it owned controlling shares in firms, private investors also held stock (joint-stock). Neither of these features were necessarily translated across to the UK in their entirety.
BBB is not currently like the NEB. However, as with the Catapult network, the BBB is a recent creation; hence, there is no reason to believe it could not evolve through time. The potential would be there for it to become the central brain of the entrepreneurial state.
Innovate UK
The Technology Strategy Board (TSB) – created 2003, legally established 2007, renamed in 2013 as Innovate UK, and merged into a larger administrative agency (UKRI) in 2018. That larger agency is concerned with delivering funding to universities, a quite different activity in my view to an entrepreneurial state, so one could argue Innovate UK has effectively disappeared from the scene.
The TSB was initially just a group of business representatives from large firms, civil servants, and academics, appointed in 2003 with the remit of advising on a £200m industry investment program. It was only on April Fool’s Day (1 April) 2007, it was legally established as an entity via a statutory instrument, or order, under the Science & Technology Act 1965:
The Board is established and incorporated for purposes connected with research into, and the development and exploitation of, science, technology and new ideas, with the aim of increasing economic growth and improving quality of life in Our United Kingdom.
Technology Strategy Board Order 2007.
It is difficult to determine with certainty what Innovate UK actually achieved over its 11 years of existence in relation to the legally stated aims above. Looking at its own claim made in 2018, it delivered an all-time (2007-2018) taxpayer expenditure of £2.5bn; this investment ‘returned’ £18bn to the UK economy, & created 80k jobs. By my calculations, that would be an ROI of 620%, or about £31k spend per job.
Obviously, this seems a wonderful, if not implausibly high ROI; for comparison, an all-time (10 year) ROI on Google stock was about 400%, while the S&P average was around 250% over the same time frame. On the job front, mathematically speaking, if one had simply used that £2.5bn to pay people a salary of 30k p.a., one would have created only 7500 jobs.
Within Innovate UK’s legal remit, though, we must admit lay unresolved questions about whether the agency was meant to be investing in technologies, or firms, or people (or all three). I guess the agency settled primarily on delivering funds to companies in one major form – project grants to develop bits of kit – as well as encouraging information exchange among businesses.
As far as I am aware there has been no published independent appraisal of this strategy, in the manner of the EY appraisal of the Catapult network (cited above). A report from the UK’s National Audit Office that examined the UK government’s ‘business support schemes’ (including Innovate UK) delivered the following verdict:
[Schemes] lacked measurable and time-bound objectives…The [government] considers that having measurable objectives can be too prescriptive for schemes that aim to support innovation, where it is not always possible to predict how they will perform…The [government] collects ongoing information on schemes’ performance but rarely uses this to refine its support…Most schemes in our review lacked measurable objectives from the outset or evaluations of their impact to know if they are providing the most value or if they should be discontinued. Without such analysis, the [government] cannot know if its business support is providing value for money…[The] landscape of business support…has developed piecemeal and includes a mix of policy interventions administered by different departments…[there is a] need to make support better coordinated and prioritized.
It would be quite an oddity if government officials believe that innovation schemes cannot have measurable objectives, as the report indicated, because that is obviously a false belief.
I had to resort to some very rough and ready methods to gain an understanding of where Innovate UK in particular spent money, by comparing data in publicly available databases, namely, Innovate UK grants (Gateway to Research), Companies House, and the UK Gender Pay Gap data set. My preliminary guesstimates suggest that the agency placed grants in low risk settings (majority of firms in receipt of monies have *not* gone bust); the modal grant value was probably only a few thousand £; and the agency did not actively invest in firms that met gender equity goals.
Given the lack of external, published appraisal, and the absence of high-quality data, we cannot yet make assessments. But it would be concerning if an agency (ostensibly designed to encourage innovation on behalf of society) had pursued an overly-cautious investment approach that did not account for wider societal goals (although, in its defense, it has not been around long enough to really make a mark).
Conclusion
This note is a very incomplete survey of the institutional landscape that makes, and made up, the UK’s entrepreneurial state. There have been for decades, almost without break, organizations ostensibly capable of delivering an entrepreneurial state; the entrepreneurial state never went away (see table at end of this article). It seems these organizations generally did OK; a reasonable effort. Any entrepreneurial activity is risky and will have its failures (questions, though, remain over whether failures are politically feasible).
In the last 20 years, Labour governments in particular created another suite of agencies, namely, Innovate UK, the Regional Development Agencies (RDAs – discussed here), and the ETI (see table at end). Subsequent to the departure of Labour in 2010, the Conservative-Liberal coalition created the Catapult network (2011). The BBB, also recent in origin, serves purposes other than encouraging industrial renewal, but has special significance because it buys equity.
Against this record of openings, however, we must,also note the closure of the RDAs (2010) & ETI (2019) & merger of Innovate UK into UKRI in 2018 (the latter, an administrative agency that primarily delivers funding to universities). The closures & merger took place under the coalition and later Conservative administrations.
Probably overall, the spend was around £10bn for the whole lot – not much. These agencies have also barely operated long enough to establish themselves; one cannot create new & untested institutions and expect them to suddenly know what to do, and be able to do it well. There are also no published appraisals of Innovate UK, as far as I am aware – as you can see above, I had to resort to desperate efforts to mine government databases.
Overall, this illustrates a re-occurring theme in UK innovation policy – bureaucratic reorganization, and general deck-chair rearranging, coupled to a failure to fairly appraise programs. Obviously, institutions are costly and difficult to establish – and, as the overseas examples cited above show, it can take many decades to get them to work as desired. In the UK, rather than building on what exists, new entities are often created against the supposed tabula rasa.
The strategic mistake, if you like, with the Catapults, was to believe one could just transplant overseas models. Indeed, the models were cardboard cut-outs of foreign institutions, invented by UK officials. The actual institutions, just like their UK equivalents, were contingent on context and history, presumably intermittently successful, and rather more intriguing and hard to understand than was made out.
To the best of my (limited) knowledge no one thought to recruit overseas managers from the places that the UK sought to imitate. An Anglo-Dutch consortium could have been proposed with TNO, or partnership with Fraunhofer, or the South Korean center. These would have been intriguing options – learning from the reality of the overseas examples, while adapting them to the UK context. In a way, this kind of approach appeared later (2012), with the Fraunhofer node in Scotland (incidentally, it is a mystery to me why more has not been made of that node).
Turning to Innovate UK, let us not quibble over their claims of economic impact, but even by their own lights, they have had practically no impact on the UK economy overall – £18bn averaged over 11 years, or about £1.6bn p.a., is practically a rounding error in the GDP (<0.01%). Indeed, a quick Google search tells us Innovate UK’s contribution has been around that of a Swatch UK or a Monsoon in terms of financial scale, and a quarter of that of Tesco, in terms of employees. This seems a good performance (admittedly hard to know what the benchmark would be); but it would obviously be an unfair expectation that it could have transformed the economy.
As my survey suggests, there would appear to be now only two extant types of legal entity operating in this space, namely, the Catapults, and the industrial strategy bodies (perhaps there are other types I have yet to hear about – entirely possible). Given the aspiration for the Catapults was to create a UK version of the Fraunhofer, and two of the industrial strategy bodies (APC & ATI – see table below) also look a bit Fraunhofer-like, it is what it is. The BBB could play a central role in this entrepreneurial state, but is not currently tasked to do so. One cannot at present talk about BBB and the other entities in the same breath.
What we see is not world-beating – it is funded at relatively low levels; haphazardly assembled; and hampered by a lack of learning-by-doing (basic institutional memory) – overall, no shared understanding of where it has been, where it is, and where it wants to go (beyond the slogans). It is very much in the process of formation. Fraunhofer in the late 1950s, if you will; but let us not take that metaphor any further.
In light of the mistakes of the past, hopefully bureaucratic reorganization and/or the creation of new agencies will not be on the cards. Efforts could instead be made getting the existing legal entities to work better, delivering modest, if realistic goals, and advertising the various activities more cohesively. Remember how the international exemplars were built, bit by bit, over multiple decades.
The final thing to note is that all of the above were relatively insignificant interventions, taken at the scale of the entire economy. Indeed, even looking at the exemplars overseas, the German, Korean, Taiwanese, etc. economies presumably did not grow because of the strength of the entities mentioned; without denying the obvious value of undertaking high-quality scientific activities, the correlation ran the other way. It is vital, therefore, not to set economic expectations too high.
Institutional bases for the UK’s entrepreneurial state – past and present
| Entity | Legislative basis | Operating period | Activities | All-time spend | Achievements |
|---|---|---|---|---|---|
| National Research Development Corporation (NRDC) | Development of Inventions Act 1948 | 1948-1981 | Technology transfer from public to private sector (via patent licensing) | n.d. | Carbon fiber; asbestos-plastic composites; semi-conductors; commercial hovercraft; insecticides |
| Industrial Reorganization Corporation (IRC)$ | Industrial Reorganisation Corporation Act 1966 | 1966-1970 | Government-backed merchant bank that negotiated mergers between firms without necessarily taking large equity stakes. | n.d. | British Leyland (automotive); ICL (computers) |
| National Enterprise Board (NEB)* | Industry Act 1975; Industry Act 1980 | 1975-1981 | Equity purchases, firm creation & disposal (state-owned investment fund) | n.d. | Ferranti, Sinclair, Inmos, Logica (electronics); Rolls-Royce (aircraft); British Leyland (automotive) |
| British Technology Group (BTG)† | BTG Act 1991 | 1981-1995 | Technology transfer; some equity purchases & firm creation | n.d. | MRI (medical diagnostic); created IT firms, e.g., KST, Newbury Data |
| Regional Development Agencies (RDAs) | Regional Development Agencies Act 1998; Greater London Authority Act 1999 | 1998-2010 | ? | £2b p.a. (£240m p.a. on science & technology) | ? |
| Energy Technology Institute (ETI) | None; reporting lines unknown | 2007-2019 | ? | £50m p.a. | ? |
| Innovate UK | TSB Order 2007 (Science & Technology Act 1965) | 2007-2018 | R&D grants to firms | £2.5bn | ‘Returned’ £18bn to economy; created 80000 jobs – on spend of £2.5bn (i.e., ROI 620%; £31k per job)‡ |
| Catapult network | None; reporting line possibly to central government | 2011-present | Undertakes its own RD&D in consultation with firms | £1.2bn | ‘Unlikely to have provided benefits & value for money envisaged’& |
| Advanced Propulsion Centre (APC) | ? | 2013-2020 | R&D grants | £1bn | ? |
| Aerospace Technology Institute (ATI) | ? | 2013-2027 | R&D grants | £3.9bn | ? |
Notes:
Business support schemes, NAO, 2020
Kramer, 2019, State Capital and Private Enterprise: The Case of the UK National Enterprise Board
Science Think Tank 