Innovation and public intervention during the COVID-19 crisis

Once the innovation machine has been launched, “the inherent structure of the mechanisms leads the machine to grow more powerful and productive with the passage of time.” (Baumol,2002; p12-13)

The COVID-19 pandemic provides a first-class opportunity for innovation to shine. Innovation can offer the solutions to demanding problems in an attempt to mitigate the freedoms lost in daily life (e.g. teleconferencing, online shops etc.) whilst providing a launchpad for a balanced path, leading to further equitable growth and prosperity. However, the global pandemic also offers a platform for intellectual speculation – let aside market speculation – not only on the magnitude and scale of the pandemic but also on the upcoming economic implications. This is indeed an unprecedented time in human history that may make the Great Depression look not so “great” and therefore a phenomenal public intervention to support innovation is required to address the repercussions of the crisis.

During the current crisis, aggregate demand has fallen while some commodities have become scarce. If we further add pre-existing liquidity pressures, difficulties in securing appropriate financing and uncertainty about the future, it comes to no surprise that investments in R&D have been also affected. Nonetheless, these circumstances may benefit those who are innovative, agile and willing to adapt their business and R&D strategies, whilst promoting technological improvement and collaboration. Maintaining or increasing R&D expenditure may offer firms, and in particular SMEs, an important competitive advantage when the economy starts to recover, as the firms that maintained R&D investments can take a larger part of the post-crisis growth in demand. A characteristic example is the Denmark-based robotics company Blue Ocean Robotics which has preserved if not increased its R&D investment accompanied by a significant increase in the demand for its autonomous robots that can kill COVID-19 with UV-C light. The company expects an increase in its sales in 2020 and 2021.

During uncertainty it is not about the complacent but the risk takers, it is not the about the fittest to survive, but who best adapts to a changing environment through innovation. During the current crisis, we see firms innovating across all sectors irrespective of whether or not their operations lie in the forefront of the fight against the virus. Biotechnology and pharmaceutical companies have tremendously invested in research to fight COVID-19, may this be research on potential vaccines, medications or protective/diagnostic equipment. For example, the UK based company Primerdesign, a subsidiary of Novacyt, has developed real time PCR kits as a means to detect COVID-19 whereas the Glasgow-based company Wideblue has designed and developed capnometers that can help the NHS identify patients in need of ventilators. Talking of ventilators, another UK company, Cambridge Consultants, has developed an emergency ventilator for use across the NHS in just 6 weeks when it would normally take years! Manufacturing and service companies have also come up with innovative solutions. The UK-based gin producer company 58 Gin adjusted their production lines to the production of hand sanitizer they named “Hand Ginitizer” under the fear of running out of business whereas the Chinese e-commerce giant JD (formerly known as 360buy) has developed a drone programme to speed deliveries to remote areas of China. Lastly, we can further add small businesses like pubs, restaurants and privately-owned retail shops which rushed to embed e-shopping facilities in their websites if they did not even build a website for the first time since their foundation. Innovation in the pandemic has been indeed ubiquitous.

So, what can the State do to support R&D and innovation during, and after, the current crisis? In the bluntest of terms, a significant cash injection to the private sector, in particular to those firms mostly at risk. This will be an essential and perhaps most poignant action. Without government intervention, some organisations might fall at the first hurdle before innovation becomes even an option. In the UK, the government has indeed announced £1.25 billion of support for innovation of which a great proportion is being delivered by Innovate UK part of UK Research & Innovation. Such support is hoped to keep firms innovating and ensure that firms will be most prepared in the aftermath of the pandemic.

The UK is not alone in this as many other European countries have also aimed to drive innovation amidst the crisis. Public funds can help the private sector to better exploit and commercialise inventions, promoting firm-level growth, keeping as much as possible the employment rate unaltered and avoiding a landslide in the rates of economic growth. Moreover, for private firms, increased R&D effort can enhance their dynamic capabilities and make them more resilient therefore consisting a means of insurance policy to defend against any future adversities.

Policy makers should promote socially desirable options that can ensure long-term economic resilience and prosperity through innovation even if this comes at the expense of sub-optimal short-term fixes. Hence, efforts should not stop here, and this should be seen as an initial step for further R&D support. The initial response will mitigate any immediate shocks to the R&D sector, but we should push and be receptive for more long-term innovation funding. Keeping in mind that R&D takes time to pay off, we should all be equipped with a lot of patience before tangible outcomes are observed (see Impact of Public Support for Innovation on Firm Outcomes (BEIS, 2017), see also Innovative Events (Nathan & Rosso, 2019)). To this end, stable and longevous national Science and Technology strategies may be the best way to tackle future crises similar to the current one. We are in this together and, in times of uncertainty and variability, let’s embrace innovation as the one constant that will drive us out of the crisis and mitigate its negative consequences.

References

Baumol, W.J., 2002. The Free Market Innovation Machine: Analyzing the Growth Miracle of Capitalism. Princeton University Press: Princeton, New Jersey.

BEIS, 2017. The Impact of Public Support for Innovation on Firm Outcomes. BEIS Research Paper Number 3.

Nathan, M., Rosso, A., 2019. Innovative Events. CEP Discussion Paper No 1607.