We lead the world in the adoption of various digital advances, such as contactless payments, and are ranked the fifth most digitised economy by the ITU – significantly above the US. We are one of the foremost nations for internet usage and ecommerce, at the forefront of the fintech and computer gaming industries, and renowned in artificial intelligence research.
Yet this positive picture is marred by some substantial negatives. While many of our firms are in the vanguard of digital technology, British businesses in general have been surprisingly tardy in integrating readily-available tools such as radio tagging, electronic invoicing and cloud computing, not to mention more complex systems like industrial robots.
This slow diffusion of innovation is linked with familiar concerns about meagre investment in research and development by British businesses, which is significantly below comparable nations, and may be to blame for our stagnant productivity over the past decade.
The net effect is substantial forgone GDP, estimated at many tens of billions per year, and lower living standards than need be the case. Moreover, the future economic consequences of failing to compete against countries such as Germany – which has rallied manufacturers around the somewhat facile but useful notion of ‘Industrie 4.0’ – will not be pleasant.
Some have argued persuasively that the answer is greater focus on digital infrastructure and skills. Certainly, these are important areas (although our own recent research suggests that improved infrastructure alone may not boost growth or productivity). However, my view is that we need more attention to three areas in particular:
First, and most important, we must encourage greater adoption of existing digital technologies by established firms. The recent Industrial Strategy contained some welcome new incentives, such as increased R&D tax credit, but these will likely be inadequate to raise R&D to the OECD average. We also need to remember that innovation is much more than scientific R&D, and that if firms conflate the two, there is a danger that some will conclude that it is not relevant to them.
A wider definition of R&D may help combat this, as would increased awareness within businesses of the benefits of innovation in general and of digital tools in particular. We should therefore remind executives and shareholders that innovative companies grow twice as fast, both in employment and sales, as firms that fail to innovate; that greater use of online data is associated with greater productivity; and that companies which gather and analyse customer data report being more innovative than their competitors.
More fundamentally, however, we need to understand better why British firms do not innovate - including questions such as whether shareholder behaviour and executive remuneration might be discouraging innovation investment through short-termism.
Second, we should aim to make the UK the best place in the world for new businesses to start and scale. A large part of the UK’s digital innovation success story is due to our entrepreneurs, who not only bring new goods and services to market directly, but also exert indirect pressure on established industries.
Much of the UK already has a very positive startup environment, supported by more world-leading universities, more tech meetups, and more investment in digital technology than anywhere else in Europe. (Indeed, Nesta’s own Digital City Index found London to be the best city in Europe for digital startups, based on the richness and fertility of its ecosystem.)
However, more can be done both at local and national levels to improve conditions further across the UK - not least by ensuring a supply of highly-skilled, adventurous, digital talent.
Efforts to improve corporate-startup collaboration, including innovative procurement, would also help: ther are tremendous opportunities for mutual benefit here, yet while increasing numbers of large corporates realise that collaboration with startups is the best way for them to weather the gales of digital disruption, it remains difficult to get right.
Third, we must inform public attitudes towards digitisation. Nesta’s Readie programme found that many people in the UK are still reluctant to embrace digital technologies - with older people, those living outside of London, and women feeling least confident.
Many anxieties – such as data theft, the abuse of privacy and the monopolistic control of information by the tech giants – clearly have some justification. Other concerns, however, have been overblown; in particular, there has been much false alarmism about job losses through automation.
The UK has a long history of innovation, but this can’t be taken for granted. If we are to maximise our potential and remain competitive we need to ensure the barriers above are addressed.
If we can achieve this then not only will we retain the title of digital pioneers, but actually reap the benefit of these innovations.
(Photo by Oli Scarff/Getty Images)