A place for local mission-oriented innovation in the UK’s evolving industrial strategy?


Illustrated with a Case Study on Bristol’s Digital Creative Industries

Julie McLaren, Independent Research Consultant.


Introduction

Industrial policy has seen a return to fashion in the past few decades. In the UK this was initially marked by the launch of a new Industrial Strategy in 2017 operated out of the Department for Business, Energy and Industrial Strategy (BEIS)¹ and has since been surpassed by a Treasury-led plan for growth² including its emphasis on ‘levelling up’. Both stress the role of research and innovation (alongside infrastructure and skills) as a key driver of productivity and future economic growth; however with unresolved elements in how national innovation activity is best supported and coordinated. We see this for example in the shifts in emphasis in national policy from driving innovation at sector level (as in the initial UK Industrial Strategy), to investment in underpinning future technologies and/or problem focused mission-oriented innovation (UCL, 2019). The recently launched Innovation Strategy³ provides some clarity if only by recognising all of the above forms as playing a role but it leaves questions unanswered about how different approaches to innovation policy and investment might best be coordinated and at what level.

An area where there are inconsistencies and missed opportunities in the approach is how national policy ‘meets’ more localised drivers and strengths for generating innovation that is more geographically distributed. With the initial Industrial Strategy the UK Government signalled its desire to combine top-down direction with bottom-up innovation; however, the ‘Place Pillar’ was where the 2017 Industrial Strategy was at its weakest. The more recent Innovation Strategy includes a strong signal on place but without a clear plan for how this is to operationalised beyond targeted windfalls of investment. What is clear, is that the government’s current approach to ‘place’ would benefit from a greater focus and understanding of innovation as a discovery process (Rodick, 2004), and specifically one that is grounded in places.

This piece was written in early 2021 and has been updated to reflect more recent policy developments. It considers ‘mission-oriented’ innovation policy from the other end of the telescope, by looking at the City of Bristol and its niche in the Digital Creative Industries. The premise is that with the right conditions, place-based innovation can take its own organic mission-focused approach to value creation and that public and private sector actors in Bristol have provided this directionality over several decades via collaboration in the area of Digital Creative Industries. Through fostering a local creative economic ecosystem that has been underpinned by experimentation and collaboration, key actors in the City have effectively developed its capability and international standing in this area. This has been achieved in part by exploiting specific opportunities in the national-level Industrial Strategy (including those set out in the Sector Deal for the Creative Industries (Bazelgette, 2017), the UKRI-led Creative Industries Clusters Programme and Audiences of the Future and wider Arts and Culture funding, thereby joining up opportunities that are otherwise siloed by Whitehall departments. The mission-centred approach pursued for the Digital Creative Industries in Bristol has also been in spite of the fragility in the UK infrastructure for local economic growth of which Local Economic Partnerships (LEPs) and Local Industrial Strategies are a part.

While the UK pursuit of an industrial policy has been a positive development, there remains more to do with respect to Place. The new funding pots announced as part of Build Back Better, including the Levelling Up Fund and the Community Prosperity Fund, have a role to play. However, it is not clear how they will intersect with other sources of funding and investment for innovation. What this piece aims to illustrate is that the UK government can best strengthen this element by further empowering local market-shaping, mission-oriented activity alongside shifting away from ‘market failure’ approaches that act as a counterforce to a strong, local innovation-focused approach.

UK Industrial Strategy, mission-oriented approaches, and conceptualisations of place

The UK has placed a stronger emphasis on industrial policy over the past decade, first with its 2017 Industrial Strategy which has more recently been replaced by the 2021 Build Back Better Plan for Growth and a new Innovation Strategy.

Since the 1980s, the dominant thinking about innovation policy in market-driven economies has been that the state should have little role to play in directing growth or creating value. UK industrial policy predominantly follows this neo-classical approach to economic development, which materialises in a ‘market-failure’ approach to government policy and decision making. This works from the premise that markets are efficient and therefore government investment is justified only where there are market failures such as positive or negative externalities or where the state provides support via ‘horizontal’ industrial policy e.g. to promote early ‘blue-sky’ research or invest in infrastructure and other public works (Nathan & Overman, 2013).

Increasingly this approach is being questioned both for its assumptions about static efficiency and its inadequacy in justifying or explaining the active role that the state has played in actually shaping markets, not merely fixing them when they fail, and in creating public value (Mazzucato, 2018). This critique draws on various economic theorists who recognise the more dynamic nature of innovation and the proactive roles of state actors in economic growth (Polanyi, 2001 [1944]Schumpeter, 2002 [1934]) and has informed recent conceptualisations of mission-oriented approaches to innovation as an important element of revitalised industrial policy (Mazzucato, 2018UCL, 2019).

While much of the literature on industrial policy assumes the primacy of national governments and policy actors (Aiginger, 2015Rodrik, 2008), others argue that it is the regional or subnational scale where industrial policy “hits the ground” and that it is here where strong state involvement has been largely absent i.e. in building regional capabilities and local institutions (Hildreth & Bailey, 2014Schrock & Wolf-Powers, 2019). There are different conceptualisations of space and place in the Industrial Policy literature. There are those who argue industrial policy should be ‘space-neutral,’ a position couched in the neoclassical model which would argue that resource will flow to wherever gains can be achieved, and resources are cheaper. Others suggest that industrial policy should follow a ‘place-based’ approach that emphasises regional characteristics and therefore that central governments should support local areas to develop their capabilities, institutions, and strengths (Bailey et al, 2018).

In the UK, the ‘space-neutral’ conceptualisation has dominated the policy landscape for many decades reflecting a prevailing centralist approach. The way Whitehall is structured through thematic departments reinforces this in that no one single department looks holistically at issues facing particular places. In the 1980s and 90s this was counterbalanced by the Regional Development Agencies (RDAs) undertaking this role albeit for their respective geographical domains. However, this model was overhauled in 2010 by the Coalition Government with the result being a central department with primary responsibility for innovation and growth, the creation of a network of Local Economic Partnerships (LEPs) replacing the former RDAs, and the establishment of new Combined Authorities and ‘devolution deals’ between localities and central government. All of this gave an impression of a government wishing to empower city leaders to deliver growth and jobs. However, given it was introduced hand-in-hand with challenging austerity measures for many it is was considered little more than empty rhetoric (Hildreth & Bailey, 2014Fothergill, et al 2017).

This provides context for the inconsistencies in the 2017 Industrial Strategy. While it included an emphasis on ‘Place,’ which aligned with other policies of Theresa May’s government such as City Deals for example, ultimately it lacked the substance to back it up. The Industrial Strategy Council recognised this short-coming along with the added uncertainties that Brexit and Covid-19 presented for regional innovation and growth (McCann, 2020). The Council has since been disbanded and the Innovation Strategy launched, though it too struggles with what role place(s) can and should play in shaping innovation and driving growth.   

Mission-oriented approaches offer a different conceptual frame for driving innovation and value creation, recognising that it essentially lies in the collaboration between purposeful organisations – including public, private and third sector (Mazzucato, 2018Rodick, 2004). This process can be explored as an organic, bottom-up one, with the economic vision lying at multiple levels of governance, including the local level. Embedding this understanding in a more mission-focused innovation strategy could help bridge national drivers and with local strengths.

Bristol’s mission-oriented approach to Digital Creative Industries

Mission-oriented policy frameworks have a number of characteristics: they are ambitious and well-defined; include a portfolio of projects by driving multiple bottom-up solutions; and involve different sectors and types and actors in innovation and require joined up policy making (Mazzucato, 2018). In this way, Bristol’s Digital Creative Industries can be seen as the result of a locally-led, organic mission-oriented framework involving multiple actors, that has shaped a direction and identity for the city as a digital and creative hot-house.

Bristol is seen as a jewel in the crown in the UK’s Creative Industries (see, for example, Sir Peter Bazalgette’s Independent Review of the Creative Industries in 2017). In its 2018 Creative Nation report Nesta estimated that there are 4,375 creative businesses in Bristol employing more than 16,000 people. This includes international names like Aardman Animations. Its creative industries contribute £496M p.a. to the local economy, almost 5% of the total GVA (Mateos Garcia et al, 2018). Bristol’s strength in this sector can be traced to instances of significant state investment in its creative infrastructure, the establishment of a strong network of relationships across cultural, commercial, educational, and civic organisations, and the bringing about of a portfolio of externally funded innovation projects. Overtime, these patterns of collaborative activity have culminated in an organically formed innovation infrastructure that has been key in helping draw in investment from a range of sources.

Institutional investment in the cultural and creative sector can be traced back as far as the arrival of the BBC in 1934. However, creative institutional strength has deepened significantly over the past four decades with a key early milestone being Bristol City Council, BFI, and Arts Council investment in the Watershed Arts Centre in the early 1980s. The Watershed brand and its pivot to a digital creativity hub from the late 1990s led to its establishment as a critical ‘anchor institution’ in Bristol’s creative infrastructure (Presence, 2019).

While local state funding has played a role, for example in the early stages of setting up Watershed, the conditions that enable a high degree of strategic coordination between these actors rely on a less formalised cross-sector coalition. This is enabled in part through key actors who act as policy entrepreneurs and the ability of individuals and organisations to cross-fertilise and seed new activities from old by horse-trading between existing pots of funding to securing more ambitious sources of future funding. This includes Industrial Strategy R&D Funding and Strength in Places funding, Arts Council NPO Funding and other sources including European Regional Development Funding (ERDF) and DCMS.

By working in this ground-up way, Bristol is effectively ‘joining up’ policy across a range of government domains to create a local economic ecosystem and generate a portfolio of projects that underpin its goal of innovation and economic growth in Digital Creative Industries. This goal is reflected in several policy documents and websites for public and third sector bodies including Bristol Creative Industries Network and One City Plan 2020.  In many respects it is a living, dynamic strategy that evolves and adapts to the conditions and opportunities that surround it.

The underside of this approach, and this is becoming increasingly the case as the government launches several new place-based pots of funding, is that it is inefficient given the time and effort expended by different actors to bid into competitive funding pots. There are alternative ways to resource the same process and enable mission-oriented outcomes at this place-based level.

What next for local industrial strategies?

With the 2017 UK Industrial Strategy came a new policy instrument in the form of Local Industrial Strategies which aimed to establish new ways of working between national and local government. Led by Mayoral combined authorities or Local Economic Partnerships these are designed to “promote the coordination of local economic policy and national funding streams” (BEIS, 2018).

The decision to depart from the current Industrial Strategy framework has left the status of these local strategies unclear. Likewise, the question as to whether cities or regions will receive any additional resources to help them maximise the new pots of funding announced at part of Build Back Better, or indeed to integrate these opportunities with existing plans and other funding sources including R&D funding.

To be truly effective, the government should be strengthening (and not weakening) multilevel governance to effectively underpin the process of discovery and experimentation that drives innovation (Rodick, 2004). Doing so would help bolster what Hildreth and Bailey refer to as the ‘missing middle’ space between national and local government (Hildreth & Bailey, 2014).

In the case of Bristol’s Digital Creative Industries, the type of mission-oriented activity that has been a key ingredient of their success has been quite an informal process, reliant on the resourcefulness and creativity of individuals and organisations, but this capability to develop knowledge and innovation opportunities could be further strengthened (Barca, 2011). For this to work, it would need to be more effectively aligned with other sources of funding and opportunity including competitively distributed R&D funding. This might involve ensuring local engagement can continue to evolve alongside the current Build Back Better and Innovation Strategy approach with the resources to facilitate social networks and institutional collaboration. Doing so would create the conditions for strategic co-operation and empower local areas with the tools and resources to drive their own mission-oriented innovation goals.

Conclusion

Bristol’s development of its Digital Creative Industries provides a case study for how mission-oriented innovation can be directed in a more ‘bottom up’ organic way. This has required the vision and energy of a range of local actors including state sponsors, commercial organisations, universities, community-led groups, and policy entrepreneurs. By building relationships grounded in deep cooperation, they have enabled Bristol to position itself well in the context of national and international opportunities for investment in this sector.  It is at this level that modern industrial policy can be understood as a process of discovery and experimentation with firms and the state engaging in strategic coordination to build on a region’s strengths (Rodick 2004).

The UK’s overall approach to innovation policy continues to operate in a predominantly neoclassical, ‘space-neutral’ framework though now with several different pots of funding directed towards “levelling up” but without a systematic plan for doing so. This overall approach is likely to encounter the same challenge of connecting national plans with local innovation and ongoing inconsistencies in how the UK government conceptualises place may ultimately hamper its ability to make this connection. This approach evidently hasn’t worked historically, as illustrated by the productivity gap between places and spatial inequalities that result (UK2070 Commission), and the new Plan for Growth looks likely to perpetuate the same uneven outcomes.

Places are dynamic and shaped by a range of different forces and opportunities. UK economic and innovation policies need to find ways to work with that dynamism and enable market-shaping approaches. Key to this are the ways in which government seeks to set out a compelling vision for generating public value and also in how they establish a balanced partnership between central government and localities in driving forward innovation and economic development. The configuration and balance of resources within the UK Industrial Strategy, and now with the Build Back Better: Plan for Growth and Innovation Strategy, at this early stage at least, suggests we are not quite there yet.

 


¹The UK Industrial Strategy (BEIS, 2017) included emphasis on funding for joint projects between businesses and researchers via the Industrial Strategy Challenge Fund. This was accompanied by a commitment to increase spending on R&D to 2.4% by 2027 that was confirmed in the R&D Roadmap (BEIS, 2020).

²HMT launched ‘Build back better: Our Plan for Growth’ in March 2021. In parallel the BEIS-led UK Industrial Strategy Council was disbanded.

³The Innovation Strategy published July 2021 includes emphasis on support for business sectors, future technologies and missions. 

⁴The Industrial Strategy (BEIS, 2017) included five Pillars: Ideas, People, Infrastructure, Business Environment and Place. More recently the Industrial Strategy Council has indicated the need to strengthen the Place pillar, particularly in the context of Covid-19 and Brexit (McCann, 2020)

⁵What is now the Department for Business, Energy and Industrial Strategy (BEIS).

⁶Examples include: Industrial Strategy Challenge Fund (ISCF) Creative Industries Cluster funding (£6.8M); ISCF Audience of the Future VR Lab (£2M); Arts Council and ERDF funding for a Network for Creative Enterprises (£1M); Arts Council Funded Visual Arts Fund (£1M+); Bristol Digital Futures Institute funding (£100M including £29M from UKRI/Research England) and most recently the My World Creative Hub (£46M including £30M from the UKRI Strength in Places Fund)

Photo by Nathan Riley