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Election campaigns ignore what matters most – technological change

My Times column argues that only high-tech innovation will give us the cash to fund our future, so why won’t Cameron or Miliband talk about it?


Fifty years ago yesterday, a young computer expert called Gordon Moore pointed out that the number of transistors on a silicon chip seemed to be doubling every year or two and that if this went on it would “lead to such wonders as home computers . . . and personal portable communications equipment”.

Today, for the cost of an hour of work on the average wage, you can buy about a trillion times as much computing power as you could when Moore wrote his article. The result has had a huge impact on our standard of living, indeed it is one of the biggest factors behind world economic growth in the past half century.

Back in the 1950s the American economist Robert Solow calculated that 87 per cent of economic growth came not from applying more capital or more labour, but from innovation making people more productive. It’s probably even higher today. New materials, new machines and new ideas to cut costs enable people to spend less time fulfilling more of their needs: that’s what growth means.

Technological change is the chief reason that economic growth for the world as a whole shows no sign of reaching a plateau but keeps marching up at 3-5 per cent a year. Innovation is the main reason the percentage of the world population living in absolute poverty has more than halved in 35 years. And hostility to innovation is one of the reasons for Europe’s current stagnation.

Yet innovation has featured in this general election barely at all. It seems to be of little interest to the party leaders or their audiences. This is most peculiar, when you think about it, because it will be what will make the British people better off in 2020 than they are today: really better off, rather than having simply run up more debt, that is. If innovation grinds to a halt then so will growth and deficit reduction and the rise of the NHS budget and all the other things the leaders talk about.

On innovation policy the Conservatives (and David Willetts in particular) have reason to be proud of their record. Despite tough budget constraints, their science spending, and their encouragement for translating ideas into business ventures, have been impressive: Innovate UK; the Longitude prize; the talk of “eight great technologies”; the “patent box”; tech clusters and the surge in business start-ups. More telling still is that Gordon Brown, for all his faults, got the importance of innovation, and so did Tony Blair, whereas Ed Miliband’s silence on science, technology and innovation is striking. Why is he not saying: vote for me and I will forge a white-hot technological revolution that will bring down energy prices far more effectively than any price regulation?

For that matter, why is David Cameron not promising to make Britain the envy of the world in new technology to transform the NHS — and dismantle the barriers to entry that keeps banking unreformed? What do Nicola, Nick, Nigel, Natalie and Leanne think about innovation? Apart from the fact that three of them hate fracking, I haven’t the foggiest. Most mentions of innovation in the mainstream debate so far have been negative.

For those on the right, innovation holds by far the best chance to keep pushing down the cost and pushing up the quality of public services, so lifting the burden of taxes and liberating people from dependence on government. Imagine if bureaucrats could be replaced by robots that worked 24 hours a day, did not need pensions and did not vote Labour. . .

Such a public-sector automation and productivity revolution might seem to be a pipe-dream, but it is beginning to happen already in the government’s digital initiatives, still in their early stages. One of the most startling discoveries of the past five years is that you can reduce the head-count in local government, or the central administration of education and social security, and see the quality of service, and public satisfaction, go up, not down. That’s because of technology.

For those on the left, innovation is a great demolisher of inequality. A century ago, you had to be very rich to own a car or your own home, to have more than three pairs of shoes, to have a spare bedroom, to buy on credit, to have indoor plumbing, to eat chicken regularly, to have a library of books, to be able to watch great acting or great music regularly, to travel abroad. Today all those things are routine for people on modest incomes thanks to the invention of container shipping, fertiliser, better financial services, cheap materials, machine tools, automation, the internet, television, budget airlines and so on.

It’s true that the very rich can now afford a few more things that are beyond the reach of those on modest incomes, but they are mostly luxuries: private planes, grouse moors, tables in the very best restaurants. We would like those on low incomes to have access to better medicines, better schooling, cheaper homes and lower energy bills, and in each case the technology exists to provide these: it’s mainly government policies that get in the way.

Technology is the great equaliser: today some of the poorest African peasants have mobile phones that work as well as Warren Buffett’s — at least for voice calls. In the 1940s, Joseph Schumpeter said that the point of commerce consists “not in providing more silk stocking for queens, but in bringing them within reach of factory girls”.

It was not planning, trade unions, public spending, welfare or tax that made the poor much richer. It was innovation.

In fact, here is a Tory way to talk about inequality — to promise that politicians will work to unleash the power of innovation to bring living standards up for the poor more than for the rich.

But can politicians do anything about innovation? Not directly. It happens to its own inexorable rhythm, unpredictably. Trying to pick winners usually results in picking losers. There was no policy to encourage search engines and social media, but they happened anyway. What’s much more predictable is where they happened: Silicon Valley has had just the right mixture of freedom, skills, permissive law, critical mass of talent and capital to make innovation thrive.

Here in Britain we have frustratingly never managed to grow our own Googles. We still benefit even if innovation happens elsewhere, but hosting it too could transform our public finances. Why not say so on the stump?

By Matt Ridley | Tagged:  rational-optimist  the-times