Below is the text of an essay I wrote for the progress fellowship exploring the idea of a "sovereign innovation fund" as a means to capture and reinvest the value generated from the UK's export of human capital and inventions. I welcome feedback/criticism.
A proposal for a UK 'sovereign innovation fund'
In 2016 — a biochemistry degree and a few sporadic internships behind me — I gave up on my search for a full-time biotech job in the UK. My last interview before I left the country was an onsite with the cancer drug developer Immunocore in a leafy business park outside of Oxford. After Immunocore rejected me, my university careers service suggested I try finance instead; an accountancy training scheme with one of the Big Four, perhaps, like many of my peers. Unwilling to compromise, I left the UK to try my luck in Switzerland.
At face value, my experience seems at odds with the narrative of the UK as a science superpower. The UK excels at producing students, researchers, and research output: UK scientists publish 6% of scientific papers (#3 in the world), its degree programs are first-class, and the UK biobank and NHS supply deep wells of quality biomedical data. The UK leads Europe in both discovering new drugs and founding biotech start-ups (although it lags far behind the US).
At the time, leaving the UK felt like a personal failure. In retrospect, it worked out well; I was more competitive abroad, where the supply of life science graduates is better matched to demand. The UK directly employs only 70,000 people in its pharmaceuticals sector, versus 900,000 in the US. Contrast this number with the 630,000 students of medicine or biological sciences at UK universities. This oversupply suppresses wages and leads to misallocation of talent into sectors that don’t suit their skills or interests: only 16% of UK biological science graduates are employed in “highly skilled” STEM jobs 6 months after graduating.
Reductively, the lack of biotech jobs stems from the lack of big domestic employers. Alongside the legacy pharmaceutical companies AstraZeneca and GSK (est. 1913 and 1873, respectively), I know of only one other independent commercial-stage drug developer headquartered in the UK: Immunocore.
These ‘missing’ employers are ultimately a reflection of the UK’s poor performance when it comes to commercialising its ideas: there’s a “valley of death” between research and commercialisation in the UK that many firms never overcome.
The valley of death is often attributed to a culture of risk-aversion among UK investors, who are unwilling to provide the capital needed to scale up innovative companies. As a result, start-ups stagnate, sell out, or go seek scale-up capital elsewhere, like Immunocore did with its 2021 Nasdaq IPO. As Immunocore’s chairman put it:
“Immunocore is, I fear, a classic example of what the UK has been losing. We have a massive upfront commitment to the sciences in the UK, then all the commercial benefits go to investors elsewhere”
In theory, it doesn’t matter that companies list in the US. Investors, and individuals, in the UK can simply own the US equity. Capital is mobile, after all. However, in practice they don’t: only 10% of UK household wealth is in stocks versus 38% in the US. Hardly anyone in the UK benefits economically from the eventual commercialisation of drugs discovered in the country.
It’s often proposed that the UK should address this issue by incentivising local biotech clusters and domestic IPOs. Yet, at least when it comes to biotech, this effort may be futile.
For one, the US pharmaceutical market dwarfs the UK’s: £521bn in 2022, compared to £27bn. The US effectively subsidises the world’s biopharmaceutical industry, while the UK constrains theirs through price controls. Consequently, the talent pool for drug commercialisation is far deeper in the US than in the UK. The powerful gravitational pull of the US market draws in early-stage companies keen to access its management talent and investor networks.
The value of a biotech company is primarily in its intangible intellectual property, so they are only weakly tied to physical locations. Highly mobile assets, capital, and talent exacerbates these winner-take-all accumulation effects. Even if a biotech is founded in the UK, there’s no need for it to stay and continue to support the local fish and chip shop.
Instead of trying to fight gravity, what if the UK played into its strengths and accepted its role as an exporter of talent and ideas?
This requires a shift to thinking about talent and ideas as a valuable economic product and export in and of themselves. Then, instead of seeing the outward flow of talent and ideas as a strict negative for the economy, the UK could set up a ‘sovereign innovation fund’ intended to capture and reinvest some of that value, comparable to sovereign oil funds in Norway, Saudi Arabia, and Alaska.
In practice, the fund could support intellectual property development by making seed investments in start-ups in strategically important areas, like life sciences or artificial intelligence, in exchange for a small equity share. It might also require UK university tech transfer offices give a portion of their ownership share to the fund, as a form of tax.
For its talent mandate, the fund should subsidise education and training in important sectors — and drive individuals towards economically valuable degrees. Emigration to access higher wages should also be encouraged by the fund, perhaps by offering income share agreements in exchange for relocation assistance. According to payscale, the average annual salary for a UK biomedical sciences PhD is £34k. In the US, the average is £87k — 2.5x higher. A UK life science PhD holder effectively gets a £50k raise to move to the US. Why not capture some of that surplus?
Fund profits would feed back into the domestic economy in the form of investments, subsidies, or even direct payments like the $1,600 average annual payout of the Alaskan oil fund. Appreciation in the value of the fund would finance further talent and idea development, like an economic flywheel.
For this model to work, the UK will need to remain an attractive location for talent to train and be trained. Brexit has impeded talent mobility, no doubt, but it also presents an opportunity to reshape the UK’s immigration strategy. Strong ties will need to be forged and permeable borders maintained with strategic destinations for talent, who should be receptive to importing the UK’s highly-skilled labour in a world with increasing dependency ratios.
Ingenuity and human capital has long been a strength of the UK, but without a change this advantage is at risk. The challenges faced by the UK commercial biotech industry mirror the factors that have led to the UK’s broader economic malaise: chronic underinvestment in business R&D, and poor distribution of capital and the spoils of its inventions and economy. Wages are stagnating, labour productivity growth is weak, and the cost of living is rising. Instead of trying to lock in talent and ideas, the UK may benefit from releasing them and embracing its role as the world's workshop for talent and inventions — with a fair cut of the proceeds.
Personally, leaving the UK was the best decision I’ve made for my career and economic prosperity. I’d like others to have the same opportunity I had; and if the UK gets to benefit, that’d be nice too.