Innovation is the lifeblood of business. The UK has a long history of world-leading and world-changing innovation. From the Industrial Revolution onwards, British innovators have driven forward the engine of global progress.

Some believe the global economy today resembles that of the late 1950s. It begs the question then: how did the economy recover after World War II, when Britain’s debt was more than 200% of GDP; more than twice what it is today?

The answer? Innovate, innovate and innovate. Major potential for innovation arises during a recession. They offer a perfect time to launch game-changing products, offer straightforward, cost-effective fixes or make audacious, strategic decisions.

When resources are few, innovators are forced to take actions they should have already taken: prune carefully, re-imagine to reduce costs, undertake clever, strategic trials and share the risks of innovation with others.

Is it really the 1950s all over again?

Faced with the possibility of a recession the introduction of innovations is essential. Does an economic downturn coincide with an innovation upturn?

University of Salford Business School’s Dr Mohammad Rahman, a Lecturer in Economics, reflects that a 40-year record high inflation rate has driven real household disposable income (RHDI) to the lowest point in history. According to the Office for National Statistics, RHDI per person fell by 4.3% in 2022-23.

“If we take into account the last two fiscal years, the consecutive fall is 7.1%. This occurred despite positive growth in nominal wage and net benefits (e.g., income support). This is the scenario, as the negative effect of high inflation outweighed these positive effects.

“Although high-interest rates increased deposit income, they became balanced with debt payments (e.g., mortgage payments), making their impact on RHDI almost zero,” he says.

The reconstruction of a new global economy began in the 1950s and beyond. The average real GDP growth rate for developed market economies between 1950 and 1973 was roughly 5%. Is it time to rebuild again?

Inflation woes

Martin Spiller, senior lecturer in Entrepreneurship at Cranfield School of Management, thinks that continuing high inflation is certainly worrying, coming as it has on the back of the banking crisis, Brexit and Covid-19, creating an almost perfect storm for consumers and businesses.

“In many ways, it was to be expected given the vast amounts of quantitative easing that Governments in general, and the UK Government in particular, have been using to stem the various ills over the last decade or more, but when inflation appears to be endemic and the key stakeholders appear unable to control it, then it certainly becomes ever more concerning,” he says.

Spiller isn’t convinced that we can learn lessons from the past to move forward, noting the many differences.

“Comparisons with the 1950s are certainly possible, but I am not sure how helpful they are to provide an answer for our current predicament. The 1950s saw a period of significant technological advancements and economic growth, the post-World War II era witnessed the rise of new industries, such as electronics, aviation, and telecommunications.

“This period also saw the emergence of new consumer products and improved living standards, but the starting point was very different from what we face now. In general, historical lessons can provide guidance but do not predict the future, particularly when the detail is very different to the headlines,” he says.

A bygone era

The 1950s saw the dawn of the TV age. The UK mourned a King and welcomed a new Elizabethan age with the Coronation of Queen Elizabeth II. The end of World War II didn’t offer many positives to most countries.

Real living standards improved by 4.5 times since 1950, which is evident from the far wider selection of consumer products we have access to today. Between 1950 and 1965, real incomes increased by 40%. In 1952, consumer goods like TVs were uncommon, and many other products like computers and mobile phones were still decades away from being created. Only 1% of people in 1950 owned televisions; by 1965, that number had increased to 25%.

Innovations were ripe in the ’50s though. These included credit cards, video recorders, the oral contraceptive pill, microchips, wireless TV remotes and the polio vaccine, to name but a few. Fast forward to now, and one of the Prime Minister’s priority sectors for economic growth, the creative industries, are a global British success story, growing at more than 1.5 times the rate of the wider economy over the past decade and contributing £108bn in Gross Value Added (GVA) annually.

Employment in these industries has grown at five times the rate of the rest of the economy since 2011. Speaking recently at London Tech Week, Prime Minister Rishi Sunak said that Britain’s creative industries were “going like gangbusters” and represented a “unique strength” for the country.

Innovate to grow

Maybe then, even though it’s almost 8 decades on, we can still learn from the 1950s.

The UK Innovation Strategy sets out the Government’s vision to make the UK a global hub for innovation by 2035. There are many strategies in place to promote this including increasing annual public investment in R&D to a record £22bn, introducing new High Potential Individual and Scale-up visa routes and allocating £127m through the Strength in Places Fund to develop R&D capacity and support local growth across the UK, amongst others.

The only way to cut a serious deficit is through economic growth. That’s how America did it in the 1990s, it is how the Scandinavian countries dug themselves out of a banking crisis and it’s how the UK must do it today.

Data from the ONS shows a 25% increase since 2012 in businesses with high growth potential and the ambition to innovate. This includes companies that grow either employment or turnover by 20% a year over 3 years ONS (2020) ‘High Growth by District and Industry’.

Founder and philanthropist, Harriet Green OBE, is excited about the next few years.

“I believe it was electrification that drove innovation in the ’50s plus new category killers like mobile entertainment via the transistor radio from Sony was transformative for growth,” she says.

Going forward

There is no exact formula for a recession. If we are in a recession or enter one soon, it may be unlike any economic downturns we’ve faced. Though private sector R&D and innovation are paramount if we are to compete with international competitors and accelerate growth.

According to Rahman, the reductions in RHDI, a measure of household well-being or living standard, have undoubtedly worsened conditions for households, especially in the middle or low-income group. As their expenditures on food and energy have significantly increased, their actual/real consumption has fallen drastically.

“Some households have had to deplete their savings to tackle this high inflation; thereby, the savings ratio has significantly fallen. Thus, reductions in aggregate demand (which means overall actual consumption) have slowed down economic growth,” he adds.

Spiller thinks that in the next few years, the trajectory of economic growth and innovation will depend on various factors, including Government policies, global economic conditions, technological advancements and the ability of businesses to adapt and respond to challenges.

“Key to preventing further financial hardship for many millions of households, particularly those at the lower end of the income scale, will be to ensure that businesses continue to invest in new ideas, business models and technological advancements to drive growth,” he says.

Rahman indicates that the current inflation is mostly from cost-push factors, such as supply shortages resulting from Brexit and the war in Ukraine.

“In this scenario, reducing aggregate demand by increasing interest rates will neither mitigate the inflation rate nor boost RHDI. If the supply of outputs and inputs can be gradually increased through new markets/sources, the current situation will mitigate with a gradual increase in economic growth,” he says.

A valuable lesson

Spiller points out that, in the past, UK businesses in particular have had a tendency to overreact and reduce investment during times of uncertainty.

“So if we can take any lesson from the 1950s, perhaps it is that we need to keep businesses, of all types, sizes and sectors focussed on investing in the future if we do not want economic difficulties to last for longer than they perhaps should,” Spiller advises.

In order to recognise and take advantage of these new business opportunities, innovation and agility are key.

“We have this opportunity now to power up with whole sectors and roles benefiting from AI, as we accelerate our thinking and channel our creative energies in the real leadership problems of the day (no planet B, Inclusion, Accessibility, Engagement), not mundane repetitive tasks,” says Green.

With the huge energy bailout and the cost-of-living crisis, UK debt is forecast to soar. This time, however, we may not be able to rely on the same level of economic growth as in previous decades. Business leaders must work to foster an environment that values innovation, risk-taking and creativity. Encourage staff to use their imaginations, to find untapped potential and upend established markets.

Maybe the old saying, ‘necessity is the mother of invention’ needs a makeover. Today, ‘recession is the mother of invention’ rings truer.