R&D does drive growth – just not in the way you think
A response to David Edgerton.
David Edgerton’s recent piece, UKRI’s economic mission is built on a delusion, tries to land a big blow: economic growth doesn’t automatically follow from national R&D spending. But the implication – that a lack of commercial success somehow represents a failure of R&D policy – risks misunderstanding how research drives innovation and improved living standards.
This matters because, if we take this line of argument to its logical conclusion, we risk undermining the very capabilities Britain will need to prosper in a world where technological sovereignty increasingly determines economic destiny.
The reality is more complex, and more hopeful. R&D does drive growth – not always directly, and not always where you expect, but through deeper systems of capability, absorption, and spillover. If Edgerton’s provocation is that innovation policy isn’t economic policy, ours is this: it is, when done properly.
Absorptive capacity drives diffusion
The first reason to care about R&D is simple: it doesn’t just result in better and more innovative new products and processes, it also helps countries get better at using new ideas, wherever they come from.
New technologies can only deliver economic benefits if they are adopted, and the faster countries do this, the faster they grow. Research suggests that adoption lags can explain as much as 25% of the observed productivity differences between countries.1 Given flatlining productivity has led to the UK experiencing more than a decade of economic stagnation, increasing our adoption ‘clock speed’ is surely an existential priority for a government hoping to break Britain's decade-long productivity curse.
How does investing in R&D help with adoption of innovation? Here’s where we need to keep the concept of absorptive capacity in mind. This is the idea that a country’s ability to identify, assimilate, and exploit external knowledge depends on both the strength of its research base and the full range of market incentives that drive technology deployment. All things equal, firms and nations with strong research capabilities are better able to recognise externally created value, and act on it.
Investing in research – even fundamental, non-commercial research – doesn’t just generate innovative technologies, it also builds the institutional and cognitive capacities needed to respond to and shape technological change.
In his piece, Edgerton argues that “despite 40 years of growth-oriented public R&D spending”, growth has stagnated. But GDP growth is a highly aggregated indicator with many different drivers, making it impossible to attribute changes to any one policy. Adoption is neither automatic nor simply a function of specific government interventions. Companies aren't charity cases – they adopt new technologies only when the pain of implementation is outweighed by the promise of growth, market share, or efficiency gains. In a low-growth economy with high input costs and limited room to scale, even well-developed innovations struggle to take hold.
If companies don’t feel confident investing in the UK, they won’t invest in adapting or deploying new ideas either. That’s not a failure of research – it’s a failure of the economic environment around it.
Public investment in R&D can’t fix those problems on its own. But it can’t be judged in isolation from them either. If we want innovation to land in the economy, we need a policy mix that gives firms the confidence to act: to hire, expand, and experiment. Research is necessary, but not sufficient.
Spillovers matter more than spinouts
The second reason R&D matters is that its benefits spill far beyond the boundaries of individual projects or institutions. The social return on R&D investment – the value to the wider economy – typically far exceeds the private return captured by firms through commercialisation of the innovations they develop. These diffuse social benefits are driven by labour market flows, agglomeration economics, and the spread of ideas. They are the reason why there is a clear market failure rationale for government funding of research in the first place.
Estimates vary, but research suggests that R&D expenditure can generate social returns of upwards of 50% annually, with the majority of those benefits taking the form of technological spillovers.2 Some of those researchers also find that tax incentives lead to more innovation both for the receiving firm and its technological neighbours.3 There is also a considerable amount of recent evidence suggesting that public R&D generates considerable spillovers in the form of additional private sector R&D,4 innovation,5 and even productivity.6
The true value of R&D isn't captured in the innovator's ledger but shows up in everyone else's through social returns – the rising tide that lifts boats across the entire economy. Not every project will spawn a spinout, but research builds skills, supply chains, institutional memory, and networks – important assets that diffuse across sectors and places.
A PhD student who helps develop new catalysts for hydrogen might later apply those skills in industry. A new research centre might catalyse regional growth by anchoring talent, attracting firms, or training local SMEs. These are not just positive side-effects; they are arguably the main event.
This is all the more true of public R&D expenditure, which is typically concentrated on fundamental questions the private sector would otherwise neglect.
Systems, not silos
Edgerton’s piece sets up a tension between supporting fundamental research and its commercial deployment. In practice, however, they are not in competition – they reinforce each other. Economies that are good at discovery tend also to be good at commercialisation. Why? Because they have deep pools of expertise, dense networks between academia and industry, and policy frameworks that support risk-taking.
This is the central insight of the “innovation systems” approach pioneered by scholars like Christopher Freeman and Bengt-Åke Lundvall.7 Innovation emerges not in silos, but from dynamic, institutionalised relationships between discovery, development, and deployment. In other words, you can’t have a strong translational ecosystem without a strong research base – and vice versa.
The UK has fumbled the ball twice. First, we've built research excellence without paying attention to the connective tissue that’s needed to translate it into products and services. Second, we've ignored the hard truth that British businesses face too many barriers to actually deploy the innovations we create. Fixing the research pipeline won't matter if companies can't afford to use what comes out the other end.
The real delusion
So what is the real delusion? It’s the belief that Britain can be reduced to a technology adopter operating far from the technological frontier, without investing in its own capacity to understand, adapt, and apply new innovations. That we can enjoy the fruits of innovation without nurturing an ecosystem capable of producing it. It is also the failure to recognise that a wider failure to translate innovation into growth has other causes, and that reducing the UK’s ability to produce frontier research would further damage its ability to effectively transform ideas into economic benefits.
Yes, many breakthroughs will come from abroad, and the UK needs to improve its ability to adopt technology faster regardless of where it is developed. But the nations that benefit from them will be those that are ready: with the skills, the infrastructure, and the institutions to turn knowledge into advantage.
Research isn't a quick fix or a gamble on commercial hits. It's the patient cultivation of national capabilities that allows a country to shape technological change, rather than merely react to it. The innovation dividend isn't just measured in patents or spinouts, but in our collective ability to navigate an uncertain future.
Britain faces a choice: we can retreat to the comfortable fiction that prosperity will arrive without the messy work of building deep innovation systems, or we can recognise that capability-building requires sustained commitment across cycles of political attention.
Economic growth doesn't follow automatically from R&D spending, true enough. But nations that neglect their capacity for discovery inevitably find themselves playing by someone else's rules.
That's not delusion. It's foresight.
Ben Johnson is professor of practice in research and innovation policy at the University of Strathclyde and head of science at the Centre for British Progress.
Pedro Serôdio is chief economist at the Centre for British Progress.
Comin & Hobijn (2010). An Exploration of Technology Diffusion.
Lucking, B., Bloom, N. and Van Reenen, J. (2019). Have R&D Spillovers Declined in the 21st Century?.
Dechezleprêtre, Antoine, Elias Einiö, Ralf Martin, Kieu-Trang Nguyen, and John Van Reenen (2023). Do Tax Incentives Increase Firm Innovation? An RD Design for R&D, Patents, and Spillovers.
Enrico Moretti, Claudia Steinwender, John Van Reenen (2025). The Intellectual Spoils of War? Defense R&D, Productivity, and International Spillovers.
Bongsuk Sung, Dan Zhang, Sang-Do Park, (2025). Public R&D support, innovation, and spillovers: A dynamic spatial panel approach to firms.
Dyèvre (2024). Public R&D Spillovers and Productivity Growth.
Lundvall, Bengt-Åke (2007). Innovation System Research and Policy: Where it came from and where it might go.
 | A guest post by
|
This is very good. The idea that ARM has nothing to do with the British state is absurd - Acorn founded by two Cambridge PhDs and Chis Curry (ex Royal Radar Establishment). It existed because of a rare piece of British industrial policy (though also shows the chaotic and non linear nature of innovation policy and the key role of the private sector)