Government policies are attempting to increase investment and innovation within the technology sector. While on work experience Ava Gaule (Yr12 student) from Aylesbury High School explored what policies the UK, China and USA have implemented to drive innovation.
Innovation is a critical part of the advancement of technology, and it also drives advances in other industries such as renewable energy and artificial intelligence. The long term benefits seen from the development of technology can not be overstated, the main advantage being an increase in productivity, but external benefits to the environment through more sustainable production are also significant, e.g: the development of solar panels, mobile phones, and the internet. In order to fund this innovation, investments must be made either from the government, or from private companies; government policies can be used to encourage this investment. Governments can subsidise industries or can implement tax relief within sectors to encourage investment.
March 2023, the Chancellor of the Exchequer in the UK announced a £3.5 billion funding plan, in hopes that it will boost the UK within the science and technology industry. This statement was complemented by £370 million in both funding and projects. These initiatives not only aim to finance startups within the science and technology industry while encouraging investment in research and development (R&D), but it should also secure the UK’s position as a growing economy through providing high skilled job opportunities, and by presenting the UK as a strong competitor in the global tech sector. There has also been a £100 million investment plan into 26 R&D projects in Glasgow, Greater Manchester and West Midlands, supporting major cities to compete in research and innovation worldwide. R&D tax relief is one policy the UK is using to encourage investments, corporation tax relief is given for those working on innovation within science and technology and allows lower cost of production leading to greater reinvestment within businesses, driving innovation and making the UK technology industry internationally competitive. By supporting start up companies, which would normally have limited funds and resources, there are greater incentives to enter the market while allowing pre-existing small and middle enterprise (SMEs) to compete with larger companies in the industry; the greater number of businesses within a market, allows a greater flow of ideas and innovation, it can also prompt innovation by having high competition, as businesses attempt to differentiate themselves from competitors.
The Inflation Reduction Act, which became active in January 2023, includes a number of policies. It provides incentives to reduce renewable energy cost and is encouraging foreign businesses, within the green energy sector, to shift investment and manufacturing to the USA.
- There are plans to supply $369 billion in both subsidies and tax credits in the next decade. Subsidies, such as the one currently on nuclear power plants, should increase the life spans of pre-existing plants, while also encouraging other energy companies to switch either investment or manufacturing to the USA.
- One of the policies include a minimum 15% tax on corporations with profits over $1 billion, which could damage the economy and the technology industry. Higher corporation tax means an increased cost of production, leading to lower innovation, however it should cut the federal budget deficit by $300 billion.
- Another policy is the methane tax, this tax is charged per tonne of methane that businesses produce, exceeding the threshold of 25,000 metric tons of carbon dioxide equivalent per year. For the year 2024, the charge will be $900/tonne and will increase for later years. This should incentivise businesses to switch to greener energy sources to avoid the tax and decrease their cost of production, a higher demand for this sustainable energy from larger businesses should help promote investment into greener technologies.
- With a large sum of the total spending going towards tax credits on renewable energy, consumers are better incentivised to purchase sustainable appliances and businesses are encouraged to invest in clean energy during manufacturing.
This comprehensive approach will force other regions of the world, such as Europe, to respond to the package of policies encouraging tech and investment.
Compared to the other two mature economies, China is a newly emerging economy (NEE) which for many years has published and guided its policies with five year plans which drive the economy and technology; currently China is in its 14th five year plan, which started in 2021 and will end 2025. The 13th five year plan focused on moving away from heavy industry, and developing more modern technology, however, China’s current aims are in more complex technology, including artificial intelligence. R&D spending will increase by 7% during the current five year plan, this should encourage a greater number of businesses into the technology market. With rising technology firms, like Alibaba and Tencent, China must attempt to regulate the market to prevent larger monopolies and allow for start ups to enter. China has an anti-monopoly law, which attempts to restrict market dominance and restrictive agreements, controls mergers and acquisitions that could restrict competition, and prohibits powers that could also restrict competition; from December 2020 to April 2021, over a dozen technology companies were fined, including both Alibaba and Tencent. Competitive markets drive innovation, as businesses attempt to keep costs down. Development within production to increase productivity is needed in competitive markets; in monopoly markets, businesses face no competition and therefore have no incentive to innovate and develop, leading to stagnant growth in industries, especially the technology sector.
Good government policies drive innovation
Each government policy will impact how investment and innovation changes the technology industry differently, with each country approaching the problem differently and with varying levels of effectiveness. But the majority of policies aim to lower cost of production, either through subsidies or tax relief to allow more reinvestment into businesses, or to encourage competition, through supporting startups or reducing monopoly power which increases innovation and means more higher skilled workers with innovative ideas can enter the market. With major economies, such as the USA, implementing these policies, there is no doubt the rest of the world will follow suit; this could result in other countries introducing more policies to drive innovation, ultimately benefiting the technology sector.
Year 12 Student
Aylesbury High School
6 July 2023