What crises teach us about innovation

During the second world war, the US and the UK had no qualms about overriding normal competition principles. Desperate to improve their air defences, the UK compelled jet pioneer Frank Whittle to work with Rover and Rolls-Royce and then handed their engine designs on to the Americans for production in large volumes. After all, the world’s future was at stake.

That example is well worth considering today, as authorities embark on a much heralded crackdown on anti-competitive behaviour by Big Tech and other huge companies. Those problems need addressing, as the EU did recently with a groundbreaking €875m case against German carmakers for colluding to delay the deployment of clean emissions technology.

But authorities also need to make sure that their efforts do not deter much needed collaboration to solve the pressing problems of climate change and global health. Individual companies are critical to producing groundbreaking solutions — witness the advances in cancer treatments and Tesla stealing a march on electric cars.

Some problems are too pressing to wait for the inevitable trial-and-error process. Covid-19 has forced some governments to rethink their approach to competition and industrial policy.

During the first UK lockdown last year, the UK dairy industry found itself in crisis because it usually has three separate supply chains that do not communicate. Farms that usually supply the shuttered hospitality sector saw demand plummet, while supermarkets and milk processors couldn’t get their hands on enough. But they were terrified of working together to solve the problem because eight companies had previously been fined £50m for price fixing. The problem was eventually solved when the UK government gave industry members special permission to survey producers and share the results until supply and demand balanced out.

The US meanwhile has invoked the 1950 Defense Production Act to speed up vaccine production. It controversially prevented export of key supplies, told manufacturers to delay other products and even handed control of a supplier’s factory over to Johnson & Johnson after mistakes ruined millions of doses.

These lessons should be applied more broadly. There are several ways to do this. Governments could identify specific technology areas, say carbon capture, electric batteries, or cancer vaccines, and invite companies to apply to collaborate on specific projects. The permissions should be time-limited but renewable, and authorities should demand input into licensing and pricing decisions.

Another option would be to set up a pre-clearance process that would allow companies that want to collaborate to notify their governments and receive guidance on whether governments would object to their plans.

The EU has a tested model for this. Under a 1962 regulation, companies were able to ask the European Commission for “comfort letters” stating that it had been notified of a collaboration agreement and did not object to it. That process was scrapped in 2003 in favour of forcing companies to decide for themselves, but in April of last year, the commission revived it as part of its response to the Covid-19 pandemic.

Margrethe Vestager, the competition commissioner, has suggested the commission is open to using the process in the green energy context as well, which is all to the good. This summer’s extreme weather reminds us that we are running out of time on the global temperature rise. The stakes are too high to be purist.