Can knowledge exchange fix a broken economy?

There’s always a challenge in trying to describe knowledge exchange, how it’s funded, why it’s worth worrying about, and what it actually does to the economy.

Mechanisms

The default is to talk about its underpinning mechanisms. The way that money goes to universities, their partners and then circulates into the real economy, and then hopefully something good happens. The problem with this approach is that outside of experts and hardy enthusiasts like me this approach is, well, rather dull.

And knowledge exchange is a less than glamorous name for some of the most important work universities do. ESRC, one of UKRI’s funding councils, has a rather elegant way of describing it:

The Economic and Social Research Council (ESRC) is committed to encouraging collaboration between researchers and businesses, policymakers, the public and third sector organisations (for example charities and voluntary groups). This can create mutual benefits and contribute to positive economic and social impacts outside academia, for example through changes to policy and practice or new products and services created by commercialising research. Two-way interactions of this type are often collectively referred to as knowledge exchange. This is an umbrella term that covers a wide range of activities researchers might engage in, including policy engagement, public engagement, commercialisation and business engagement.

A less elegant way is to say that universities working together with other organisations can make the economy and society stronger. It is not a dry technocratic thing but the very way in which the wonderful things that are produced in universities become useful. Great ideas without an audience are interesting but fruitless. An expectant audience with no great ideas are bound for disappointment.

This means that there must be both the conditions for useful ideas to be produced and the conditions for organisations to make use of them. Research England, another funding body of UKRI, funds knowledge exchange through the Higher Education Innovation Fund (HEIF) and the Connecting Capability Fund (CCF). While HEIF is a more general knowledge exchange fund the CCF is focussed on the commercialisation of research with business. These funds are small compared to the overall research funding pots. HEIF is a formula based fund of £260m compared to an overall UKRI budget of over £8bn.

The key question isn’t whether knowledge exchange is a good thing. It self evidently is. But whether the intervention by funders is producing bigger impacts than would naturally happen through universities working with businesses, policy makers, and other groups. After all, universities would still benefit from equity in spin-outs and bask in the warm glow of civic participation even if they weren’t supported to do so.

Reports

UKRI has brought out three new reports that look at knowledge exchange funding.

The first report is an evaluation of HEIF carried out by Tomas Coates Ulrichsen. The part which UKRI will be most proud of, and should definitely cause them to consider whether their funding is enough, is that every £1 invested in HEIF produces £14.8 return on investment if you crowd in actual and estimated external impacts. Perhaps even more impressively the report also suggests that “38% of knowledge exchange outputs and incomes would not have happened in the absence of HEIF.” This isn’t activity that is being paid for twice but activity that is actually being created.

However, while this makes the case persuasively for the value of HEIF it’s the summary which gives us a bigger clue into what is going on in the economy. The report notes

The past two decades has seen KE income secured by English HEPs grow significantly in real terms, with KE income 81% higher in 2022/23 than in 2003/04 for HEPs in receipt of HEIF during the period 2017/18 – 2022/23 (the vast majority of HEPs in England). However, what is clear is that this twenty-year period is characterised by two very different decades. While KE income grew strongly – and faster than the economy as a whole – during the first decade, the past ten years has seen this growth largely stagnate. The limited growth in KE income may well reflect the multiple crises and shocks the UK has faced since then, not least with the Covid-19 pandemic, cost of living crisis, and departure from the European Union and the effects of this on R&D with research grants and contracts income to HEPs from European sources declining almost 30% in real terms since the EU referendum in 2016. KE income now appears to track trends in the economy more widely (as measured by the UK’s GDP).

To read the inverse of this is that the wider economy is a constraining factor on the ability of universities to deploy their research for social and economic benefit.

There is perhaps a tacit assumption that if universities produce great and useful research it will lead to great and useful things in the economy and society. This is only true as long as the economy has the absorptive capacity to keep the cycle of knowledge exchange investment which leads to knowledge exchange outputs which supports knowledge exchange income churning.

Help/HEIF

The evaluation of HEIF carried out by PA Consulting is particularly illuminating within this frame. The key findings are that in a changing policy environment HEIF has anchored the sector to make some significant social and economic impacts. It is the flexibility of the fund which has allowed specialisms to develop, the autonomy of the fund has found favourability in the sector, its stability has allowed for long-term partnerships, and a more permissive approach to accountability has allowed providers to demonstrate their value without drowning under administration.

The report is full of examples of how HEIF funding has catalysed wider social and economic activity but the examples have two things in common. The first is that allowing flexibility in the fund means it can be deployed in multiple partners in multiple ways. This means that even where there are wider economic challenges the funding can be tailored to suit the challenges of local economies. The second is that the long-term nature of the fund allows for greater stability within partnerships to withstand adverse economic headwinds.

Together, the two reports point toward HEIF as being successful as it demonstrably supports economic growth but does so through flexibility and provider autonomy linked, to a lesser or greater extent, to national priorities. It’s only a small fund but it is impactful.

Same old SMEs

The final report on CCF by Wellspring again demonstrates a positive return on investment. The programme has led to 200 new spin-outs and supported over 1,500 SMEs. The programme has led to the launch of at least 338 products and services and it is expected more will be launched over time, particularly in high-tech spin-outs.

The obvious albeit incorrect conclusion to draw would be that if each of these interventions induce such strong economic benefits then making the intervention larger would make the economy stronger. In fact, if the economic returns are so strong then the projects could presumably be 10, 100, or 1,000 times bigger, and continue to provide economic return.

Instead, what these reports highlight is that knowledge exchange funding is a product of the wider economy. There is a natural limit to how much activity can take place as there comes a point where the economy is not large enough or dynamic enough to absorb the benefits of universities’ work. In fact, these reports indirectly demonstrate how economies get stuck into a death spiral. Productivity stalls which prevents the absorption of innovative products and services. Without innovative products and services the economy cannot become more productive. And so on.

The benefits these schemes are realising would suggest they are not close to meeting the capacity of the economy and could therefore be much larger. It is also a matter of purpose. The funds are designed on a premise that there is capacity to make use of university work. It is a much harder question to imagine how funding should be designed where it is necessary to restart a broken economy.

The impact of these funds is striking, the reports written about them are convincing, however they open a door to a wider question of whether knowledge exchange funding is big enough, well directed enough, or tooled properly, to fix the UK’s entrenched economic issues including its collapsed productivity.