Three Big Ideas #34
Why patience pays off, friction-free trade, and shattering silos
Welcome to our weekly Three Big Ideas roundup, in which we serve up a curated selection of ideas (and our takes on them) in entrepreneurship, innovation, science and technology, handpicked by the team.
🔬 Eamonn Ives, Research Director
We all know that a dog isn’t just for Christmas. Nor too – fresh academic evidence suggests – should R&D be, if firms investing in it want to stay innovative, that is. In a new paper, the authors assembled a rich dataset of 743 Irish firms, observed each year between 2012 and 2018. Among their results, they found that “persistent investment in R&D is critical for small firms to fully realise the innovation gains derived from the ‘learning effects’ and ‘success breeds success’ mechanisms.” In other words, it isn’t enough for a firm to suddenly decide that it can flip a magic R&D switch and have innovation follow as a result. Rather, it underscores the idea that innovation requires time, trial and error, and consistency to yield results.
That wasn’t the study’s only finding, however. They also examined the role of R&D ‘diversity’ in successful innovation – with diversity determined by how many ‘Research Priority Areas’ any given R&D spending was focused on. (Research Priority Areas are a list of 14 variables, developed by the Irish Government, and include things like Manufacturing Competitiveness, Innovation in Services and Business Processes and Data Analytics, Management, Security and Privacy.) Ultimately, what the authors found was that having a more diverse R&D portfolio led to lower innovation returns – as they put it, “higher R&D diversity can lead a firm to become the so-called ‘jack-of-all-trades, master of none’.”
What lessons can we take away from this? First, if firms are serious about innovation, they need to engage in it constantly – the effects of R&D spending appear to compound over time, and businesses hoping that a sudden spike in investment will yield returns may end up disappointed. Second, R&D spending also seems to be most effective when it is more targeted on a single problem.
Just this week, the Government announced the steps it was taking to move towards ten-year funding cycles for R&D – which, it says, “will better support the ability to form long-term partnerships with industry, build and develop skills and talent, and foster international collaborations.” While we shouldn’t take this as a given, the results of this latest paper should give us confidence that we’re headed in a better direction.
📦 Philip Salter, Founder
Tariffs make headlines, but they aren’t the only blockers to international trade. Non-tariff barriers are now the more significant barrier globally, with broader and often less visible negative impacts on trade, welfare, and economic efficiency.
For the UK, the lowest of the low-hanging fruit is reducing barriers with the European Union. A new paper from Aston University puts some numbers on the sectoral trade gains from Mutual Recognition of Conformity Assessment (MRCA). In other words, mutual recognition for testing (e.g., a lab checking that a toy’s paint contains no lead), inspection (e.g. an expert visiting a factory to see that fire-doors work), and certification (e.g. an accredited body issuing a formal certificate saying, “this toaster meets Regulation 123”).
The authors use bilateral trade data for 2010-2023 and a gravity model to find that clauses on Mutual Recognition of Conformity Assessment raise exports by about 9.8% on average. The gains are concentrated in sectors that rely heavily on third-party conformity assessment and that have high value per unit (for example, electrical machinery, general industrial machinery, dairy products and clothing), and can exceed 30-50% for some products.
There are a handful of areas where MRCAs would be a net negative – e.g. rail locomotives, where system-level safety approvals are not fully covered by MRCA, so firms live with two regimes yet lose the home-market preference they once enjoyed – but they are the exceptions that prove the rule.
The UK-EU trade deal is a great first step, but to really get trade flowing will require some further deep thinking and recognition.
🌐 Anastasia Bektimirova, Head of Science and Technology
If you spotted my X thread capturing some insights from a panel on science-based startups and entrepreneurial scientists at last week’s ARIA Summit, you caught just one slice of what made the whole event so interesting. Another panel – with Hayaatun Sillem (CEO of the Royal Academy of Engineering), Tom Kalil (CEO of Renaissance Philanthropy and former Deputy Director for Policy at the White House Office for Science and Technology under Presidents Clinton and Obama) and Dan Cole (ARIA’s Chief of Staff) – unpacked a tension in our innovation ecosystem: a system with specialised silos up against problems that often demand collaboration.
Since the Industrial Revolution, we’ve developed institutions that have become increasingly siloed. And, as Hayaatun noted, “we tend to have a real attachment” to that.
“We really prize the intellectual discovery end of the research and innovation ecosystem. And when you learn to cherish the application, deployment end, you realise you need all of those different groups to come together or you just can't achieve that… [Collaboration is] the only way we are going to solve the incredibly important and wicked problems that we face or exploit the exhilarating opportunities."
Tom observed that “the world has problems, but universities have departments,” and governments are organised along similar lines. These organisational boundaries exist for a reason – specialisation helps us cope with complexity – but crossing them isn’t costless, so there needs to be sufficient reason to do it.
The panel highlighted examples of effective cross-sector collaboration, with the COVID-19 pandemic as perhaps the most powerful recent case. When faced with an utterly compelling, shared goal, people can overcome hardwired resistance in remarkable ways. But a more challenging question is what happens “in peace time” – how do we maintain that collaborative spirit without a crisis driving us?
ARIA’s approach “ripped up the rule book,” which was described as an “utterly radical act.” Unlike traditional funders who often come with detailed specifications about who’s allowed to participate, ARIA doesn’t define people by career stage, experience, papers or patents. Instead, they focus on understanding “what you offer, what your motivations are” and consider individuals in the context of wider teams. ARIA-supported collaborations tend to involve such diverse expertise that traditional funding mechanisms struggle to support them. They also have a teaming platform which has already proven its value by bringing people together to spark collaborations that would be unlikely to happen otherwise.
A challenge ARIA faces is maintaining its distinctive approach while finding the right “docking interface” with the rest of the innovation ecosystem to ensure that its potential delivers real impact. I like to think about that challenge and ways to respond to it as another type of “product” that could come out of ARIA. If some approaches ARIA tries prove successful, they could become a model not just for ARIA, but for other science funding bodies, like the research councils, to adopt as well.
The panel closed with advice for anyone wanting to enable better collaboration in their own work. First, be mindful of who you’re spending time with – if everyone agrees with you, you’re probably missing out. Second, seek out your harshest critics as unexpected allies. And third, when tackling complex problems, think carefully about the minimum “coalition of the willing and able” needed to make progress: who needs to be involved, what steps they need to take, and how to make it as easy as possible for them to say yes.