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Home Opinion Do we need a British DARPA?
Industry policy • Competitiveness • Innovation

Do we need a British DARPA?

David Connell - 03 September 2013

The UK economy's future competitiveness depends on the active support for innovation based growth sectors

When policy makers and industrialists gather to discuss how to build a more innovative British economy it is usually not long before the word, or more strictly acronym, DARPA is mentioned. Most have only a vague idea of what the US Defense Advanced Research Projects Agency does or how it operates, but the mystique that surrounds its involvement in technology developments previously seen only in Star Trek movies make it an object of awe and jealousy.

Established in 1958 in response to Soviet Russia’s launch of Sputnik 1, DARPA is best known for its role in the development of the internet, GPS and stealth aircraft. Its mission today is “to prevent strategic surprise from negatively impacting US national security and create strategic surprise for US adversaries by maintaining the technological superiority of the US military”. However, this mission is interpreted very widely and its programmes range from space technology to battlefield medicine. And the technically demanding, and very high value, defence applications it helps develop often pave the way for civilian applications. Intuitive Surgical, the world’s leading robotic surgery company, SIRI, the iPhone’s voice recognition based “personal assistant”, and Roomba, iRobot’s floor cleaning robot, are just three examples of technologies whose origins lie in DARPA funding. This is why DARPA is sometimes compared with the UK Technology Strategy Board (TSB), the Department of Business Innovation and Skills executive agency for innovation.

However, DARPA is just part of the US picture. The whole philosophy of US innovation policy is very different to the UK:

First of all, like the majority of our competitors, the US Government spends a very much higher proportion of GDP on R&D than the UK. UK government R&D spending would need to increase by about £4.5 billion a year to match it. This is about fifteen times the TSB’s annual budget. And it is in just the kind of mission driven developments that the TSB funds, rather than academic research, that the gap lies. The result is that around 14% of US industry’s R&D is directly financed by government, compared with around 8% in the UK. Individual projects often receive an order of magnitude more than their UK equivalents.

About two thirds of US Federal R&D funding is channeled through the agencies that want to use the resulting technology, like the Department of Defense, NASA and the Department of Energy and this automatically imposes a customer perspective on what is funded. This is particularly valuable because carrying out paid development contracts for other organisations is often a key step in the growth of new technology companies. Microsoft, Intel and Cambridge Antibody Technology, the UK’s most successful biotech company, are a few examples.

At around $3 billion a year, DARPA’s annual budget represents only around 3% of total R&D spending by the Department of Defence, but there are two things that make it rather special.

First the people that design and run its programmes are experts in their field, drawn from industry or academia and given a three-year hunting licence to design programmes and find the best teams to execute them. Most then return to civilian life, so the organisation is continuously refreshed with new talent and ideas.

Second, DARPA’s funding model takes the form of 100% funded contracts, not part-funded grants as in the UK. Contracts are usually awarded in phases linked to real, demanding deliverables, not progress reports. Typically two teams may be given $2m each for Phase 1 with one selected for a $10-20m Phase 2. DARPA project managers often review progress with lead contractors on a fortnightly basis and can stop projects at any time. This is very different to the collaborative multi-partner projects traditionally funded by the TSB. As a Director of one UK SME that had participated in both puts it “Unlike TSB, DARPA is a customer; they want the output”.

DARPA prides itself on its small headcount – just 120 directors and programme managers – and on its entrepreneurial style of management. But it is only able to operate in the way it does by leveraging off the rest of the Department of Defense’s R&D resources. Replicating this overall commitment to defence R&D in the UK is neither feasible nor desirable.

Nevertheless, we can learn many lessons from its approach. Indeed this is beginning to happen. The UK Small Business Research Initiative (SBRI) is based on another highly successful US programme. Rather like DARPA it works by funding small companies to develop technologies that government needs to improve effectiveness, or meet policy objectives. Set up by Labour in 2009, the Coalition has recently announced a significant increase in SBRI funding.

Like DARPA projects, SBRI contracts are 100% funded and phased, with Phase 1 worth £50-100k and around half of Phase 1 winners going on to receive Phase 2 contracts worth £250k to £1m. This helps to focus funding on the most promising projects.

SBRI is funded and managed by Departments and coordinated by the TSB. The best SBRI programmes, such as that developed by the NHS adopt a quasi-venture capital approach to management, monitoring projects closely and helping where possible to make them successful. The endorsement provided by a lead customer helps firms sell to other organisations, raise finance and recruit employees. And SBRI provides sufficient funding to make a difference, something woefully absent from traditional UK innovation policies. Firms love it. So too do those involved in funding it; NHS SBRI projects range from a novel treatment for age related sight loss to wound care.

For too long UK innovation policy has been based on the misguided assumption that excellent academic research and venture capital are all that is needed. Start-ups and small companies have a vital role to play in driving innovation and rebalancing the economy. But policies dictated by free–market economic theoreticians in the Treasury have resulted in government support being largely restricted to part-funded grants and R&D tax credits. That the world’s leading free market economy does things differently has been largely ignored.

What we need to do now is to steadily increase the level of government funding for technology development in companies, drawing on these US models to ensure it is delivered in a way which makes a real difference and focuses funding progressively on the best projects. Alongside an expanded SBRI we need a new TSB programme for larger projects, using the DARPA contract model rather than the traditional collaborative grants mechanism.

Some might say that this would just repeat the failure of past attempts to “back winners”. The reality, of course, is that governments can no more pick the successful companies and technologies of the future than they can Olympic Gold Medal winners. What government can do, though, is to ensure that a sufficient number of promising candidates get the help they need at the start of their journeys to ensure that some winners emerge through the normal competitive processes. It is an approach that works.

David Connell is senior research fellow at the UK Innovation Research Centre at the University of Cambridge and was a member of the UK Labour Party’s Small Business Task Force.

This is a contribution to Policy Network's work on Progressive Capitalism.

Tags: David Connell , Opinion , Innovation , Innovation Economics , Growth , US , United States , Free Market , Liberalism , Laissez Faire , Productivity , Production , United Kingdom , UK , Competitiveness ,

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The Policy Network Observatory promotes critical debate and reflection on progressive politics. It is centre-left orientated but determinedly challenges social democracy. It is pro-European but restlessly questions EU institutions and practices.

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