It's 2018, and the Economy's Hot...


Oct 22, 2008

This commentary originally appeared in Research Fortnight on October 22, 2008.

There's no doubt that we are in the middle of a global economic hurricane. But even at the height of the storm, we need to keep one eye on the horizon.

If the nation is to emerge from a recession in a position of strength, we should chart our course carefully now. The government bailout of the banking sector could yield a substantial payout one day—and now is the time to earmark that money for our knowledge sector.

Take an optimistic position. It is 2018, the economy has grown for the last four quarters, unemployment has begun to fall, and commodity inflation is at levels last seen at the turn of the century. Interest rates are stable at around 4 per cent, and almost exactly 10 years after the credit crunch the FTSE has just broken through the 6,000 barrier. One of the shareholders in the banking sector, the government, has seen its portfolio increase from £50 billion to £60 billion in real terms.

What should we do with this £10 billion windfall? Set up an endowment to ensure the UK's future competiveness in a global knowledge economy. A decision could be locked in now, signals sent to the wider economy, and the taxpayer bailout would have a purpose over and beyond recapitalising the banking sector.

The precise terms of this endowment would need to be specified, but its broad remit should be to sponsor high pay-off research that bridges the gap between fundamental discoveries and their application. This is a mission cribbed from the US Defense Advanced Research Projects Agency.

DARPA was established half a century ago in response to another crisis for the US—the Soviet launching of Sputnik. The agency has an enviable record of supporting projects with military and civil applications. Examples include the internet, unmanned aircraft and ball-bearing technology.

A new UK endowment should have a wider mission than DARPA does, but it should focus on supporting high-risk research with a definable and beneficial application. It would do this by supplying early stage capital and grants to small, fast-growing technology firms. Crucially, the agency would be independent from government.

Canada has successfully supported science and innovation through endowments. The Alberta Heritage Foundation for Medical Research was established in 1980 with an initial investment of CA$300 million raised from excess government oil revenues. This model has also been used in the UK through the National Endowment of Science, Technology and the Arts, which could host the new windfall fund.

The economic benefits from a strong science base are incontestable. As the UK confronts the impending recession, it is imperative that our internationally renowned science base is not damaged. Establishing an endowment from the future proceeds of the bank bailout sends a clear signal that the UK is navigating towards longterm economic success.

Jonathan Grant is president of RAND Europe, an independent, not-for-profit institution that helps improve policy and decision-making through research and analysis.

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