The most competitive economies in the World are those which invest in research and development (R&D) and focus on driving innovation. Unfortunately, as several research studies have shown, Wales does not perform well in terms of generating or developing innovation and this, in turn, impacts on the nation’s economic performance.
For example, a recent report from NESTA pointed out that Wales is one of three UK economic areas with low R&D intensity in key sectors. Official government statistics also reveal that over the last fifteen years, Welsh businesses have been responsible for only 2% of business expenditure on R&D in the UK.
The UK Innovation Survey showed that only 34% of Welsh firms were classed as innovation active in 2016-18 as compared to 38% for the UK. Businesses in Wales also have lower levels of internal R&D than businesses in any other nation or region apart from Scotland.
This shouldn’t be too much of a surprise as Wales has traditionally received less than its fair share of funding for R&D and innovation from UK Government sources. For example, despite having 5% of the UK population, Welsh universities received only 2.7% of UK research council funding in 2018-19, and Welsh businesses and universities have only won 2.6% of the innovation grants awarded by Innovate UK since 2004.
As a result of this continuous low investment, Wales has a long-term innovation problem which has yet to be solved properly by any of the key stakeholder groups including higher education, private business and government.
That is not to say that Wales does not have some great pockets of R&D expertise but unfortunately, it lacks the strength in depth especially in terms of having the capacity and experience to compete successfully at the UK and international levels.
Given this, and the previous habit for government to invest R&D funding within the more prosperous UK regions such as London, South East England, and the East of England, it is likely that the poorer parts of the economy – including Wales – will continue to lose out on tens of millions of pounds of R&D and innovation funding every year unless something radical is done.
Whilst the Welsh Government has recently consulted on a new innovation strategy, it is unlikely that with public sector cuts on the horizon that any substantial public funding from Cardiff Bay will become available to support the aims of this strategy.
Therefore, as this column has argued many times over the years, it seems that the only viable solution for the Welsh Government to deal with this issue is to press harder for UK research and innovation funding to be devolved to remedy the regional imbalance in government R&D spending and to attract higher level of business innovation funding. But Welsh Government cannot do that alone and if Wales is to influence the mandarins of Whitehall that this is required especially during a time when the UK economy will be shrinking, then it is also time for Welsh universities and businesses to stick their heads above the parapet and join them to make the case for all R&D and innovation funding across the UK to be more fairly distributed than we have seen in the past.
More importantly, Wales should work alongside the Northern Powerhouse and the Midlands Engine areas that have also suffered under the current financial arrangements and have been unable to deliver the type of economic growth that would be expected from regions which have a real competitive advantage in key technological areas.
Some would argue that now is not the time to ask for such changes given that the UK economy is about to enter a recession. However, this has been an issue since the first Welsh Government was established and I remember presenting a paper 21 years ago to the Economic Development Committee of the then National Assembly on this very problem. Fast Forward to 2022 and if we still have this unfairness in R&D and innovation funding in Wales which is affecting the competitiveness of the nation, then the time has come for politicians, as well as academics and businesspeople, to make their voices heard in the corridors of Whitehall and to say that this needs to be addressed as a matter of urgency if the Welsh economy is to fulfil its enormous potential.