A business park outside Harlow, in Essex, was the scene for one of the transformational discoveries of the 20th century – Sir Charles Kao, a Hong Kong citizen working at the now defunct Standard Telecommunications Laboratories, laid the groundwork for the use of optical fibres for communication. It’s difficult to overstate the scale of the impact of this work, for which Kao received the 2009 Nobel Prize. It’s through optical fibres that the huge data flows of the global internet pass. It’s not just streaming video that this has made possible – the internet has created globalisation as we now know it, with the internationalisation of manufacturing supply chains.
And yet, for all the transformative effect Kao’s invention of optical fibres has had, the world trade in optical fibres is worth just $11bn – 0.05% of the total. Looking more broadly at the technologies that underpin optical communication - the photonics industry in the UK is worth £15.2bn; a useful, and high value contribution, but relatively small in the context of the whole economy.
Beyond photonics, the modern economy is built on a range of similar such scientific advances. The ubiquitous mobile phones that we use to connect to the internet themselves depend on a whole series of other scientific advances that underpin the ability to manufacture integrated circuits on a scale close to atomic and access the constellation of satellites that comprises GPS.
This underlies a paradox in how we should think about the economic effect of research: its fruits can be absolutely transformative, but it is surprisingly difficult to pin down a monetary value to any individual advance.
There is a literature that attempts to derive an average value on the economic return of research. Plausible rates of social return are at least of the order 40p per year on an original £1 invested, but there are serious methodological difficulties here in accounting for time lags between invention and impact, and for attributing broad economic effects to specific inventions.
But in any case, we need to get beyond thinking of the research system as some kind of sausage machine, where money is put in at one end and economic value emerges at the other. We need much more detailed thinking through about who does research and what kind of research gets done, thinking through the relationship between knowledge production upstream, and downstream knowledge use, and the ways the development in the private sector, which directly produces new products and services, relates to fundamental and applied research in the public sector.
The Royal Society report identifies four different ways in which research has an impact on the economy. The first is the direct effect of new knowledge and ideas – in new devices, new materials, new medicines – often things that can be patented and create direct value for their inventors and manufacturers, as well as benefitting their users. A second contribution of new knowledge is as the background to the process of continuous improvement by which machines, devices and techniques get more efficient, driving continuous improvements in productivity.
It's not enough for new knowledge to be created – it has to be used. Here the role of skilled and knowledgeable people is crucial. The most technologically advanced places, where research from around the world is most effectively translated into economic benefit, are characterised by concentrations of skilled technicians, engineers and applied scientists.
Finally, some of the most significant economic impacts of research can be indirect, rather than the result of the direct monetisation of inventions. Science generates important societal benefits, ranging from national security and environmental protection, to public health. The recent covid pandemic offers a compelling example – the firm Moderna made about $20bn profit from its covid vaccine. But, even leaving aside the humanitarian benefits of the lives saved from the vaccines produced by Moderna, AstraZeneca and Pfizer/BioNTech, these sums are hugely outweighed by the economic value created by the ability to reopen the world’s economy earlier.
At a time when the UK is struggling with low productivity growth and facing new challenges – such as the need to create an affordable net zero energy system and deal with the consequences of climate change – the need to understand the various mechanisms through which research is translated into economic and wider benefits is greater than ever.
This blog post accompanies the publication of the Society's Science and the economy which makes the case that a better understanding of how science and innovation lead to economic impact is needed to ensure a productive and flourishing future economy. This report was created as part of the Science 2040 programme, which seeks to articulate the value of science to society and advocates for a long term vision for UK science.
