In (very) simple terms, a country’s economic performance is driven by productivity. The more effective and efficient production processes are, the more we can produce. The more we can produce, the more people we need to hire. The more people we have working, the more the population can spend. And, if people are spending more, companies can sell more: and that’s how the economy grows (basically).
“Most economic growth is due to the increase in productivity” – Future Learn
But the GDP shrank by 9.9% last year: the biggest decline since the Great Frost of 1709.
How do we increase productivity so that we can get the economy out of the massive hole that COVID and the repercussions of Brexit have dug for us?
With research, development and innovation.
Why is research, development and innovation a key economic driver?
“Innovation drives economic growth. This is one of the most consistent findings in macroeconomics, and it’s been true for centuries.” – Enterprising States
You only need to look at what happened to China in the 19th century to see the part research, development and innovation plays in the rise and fall of a country’s economy.
Back in the 1500s, China was an economic force to be reckoned with. It was the strongest in the world. But its lack of free markets and refusal to prioritise innovation meant that by the 19th century, the US, Western Europe, and Japan had all overtaken the superpower. These countries had used innovation to improve productivity and were able to churn out products and services far quicker than cumbersome China could even dream of.
How innovation improves productivity (and therefore the economy)
“Most economists agree that innovation can lead to higher productivity, meaning that the same input generates a greater output in the economy. As productivity rises, more goods and services are produced — in other words, the economy grows.” – RD World
Innovation is the process of finding new ideas that change the way we live and work.
Think back to the industrial revolution where innovative technologies such as steam power and electricity transformed the way people lived and worked forever.
And more recently, innovation has led to the invention of automobiles, highways, planes, telecommunications and the internet which have all transformed how we live and work. These changes have made it cheaper and easier for businesses to produce and supply products to a wider, global audience.
“Innovations drive economic growth by helping businesses produce more with less—progress that is measured as rising productivity.” – The Hamilton Project
So, it makes sense that countries should prioritise innovation, right?
But how?
How countries nurture research, development and innovation
According to research, Switzerland is the most innovative country in the world, with the US and the UK also making it into the top five most innovative countries.
So, how do these countries prioritise research, development and innovation to boost productivity and, therefore, the economy?
How the Swiss prioritise innovation
Switzerland has created world-class research institutes that bring scientific, academic and entrepreneurial minds together to encourage innovation. They focus on high-profile innovation projects such as the solar-powered plane ‘’Solar Impulse’’ to drum up publicity and backing from global investors. And they are known for recruiting specialists, experts and people that know their field from all over the globe to work on innovative concepts and projects.
How the USA prioritise innovation
The USA spends a great deal on innovation. Public and private expenditure on research and development, was around $612 billion in 2019, the highest of any country. This money funds research, development and innovative projects and gives start-ups the chance to succeed, relatively easily. Look at Silicon Valley for example!
How the UK prioritise innovation
In the UK, the government has prioritised innovation by launching numerous innovation grants and R&D tax relief incentives.
In 2000 they launched the R&D tax credit scheme for both SMEs (SME scheme) and larger companies (RDEC scheme). The incentive allows companies, regardless of industry, to claim up to 33% of their eligible R&D costs as tax relief.
They also provide companies with the opportunity to apply for innovation grants, funded by Innovate UK, Horizon Europe and EUREKA Eurostars and win funding for their research, development and innovation projects.
Find out more about the UK’s R&D incentives
Myriad Associates are R&D tax specialists who have been filing R&D tax relief claims and winning innovation grant applications for over a decade.
Get in touch with them today to see how they can help you achieve your innovation aspirations and do your bit to help grow the economy.
Call them 0207 118 6045, visit the website, or contact them here.
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