The Digital Economy and the Thames Gateway

Will Hutton

January 24th 2011

The tough 2010s

• Minimum 5 per cent of GDP lost for ever. Loss could be as high as 10 per cent.

• Trend growth rate 1991 to 2009 ( trough to trough) was 2.0 per cent but contained bubble effects. Note between 1997 and 2007 half GDP growth financial services, property and construction.

• There will be deleveraging and build up of saving

• Yet 3 million economically inactive, 2.8 million involuntarily idle and 2.5 million unemployed.

• Public sector has generated half jobs growth since 1997. Cannot be repeated 2010-20.

…….Where are growth and jobs to come from in the 2010s?

Challenge 2: Low skills and high unemploymentThe recession has been very severe; it is likely to take at least 3-4 years for economic output to recover to 2008 levels…

A recession of the North, Midlands and Wales – and areas such as the Thames Gateway

Places affected the most are those with:

• Lowest levels of skills

• Highest levels of employment in manufacturing

Mainly the North, Midlands and Wales, but also areas in the Thames Gateway

% Net public sector jobs 1998-2008

Net Public Sector Job Creation 1998 - 2008

Source: TWF & Annual Business Inquiry – Workplace Analysis

Knowledge economy and the 1980s recession and recovery

Total employment, EU KLEMS database definition 1980=100. KE market based is telecoms, high tech, business, financial, and cultural services; KE public based is education and healthcare

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

ind

ex 1

980

=10

0

KE market based KE public based Manufacturing Other Services

Knowledge economy and the 1990s recession and recovery

Total employment, EU KLEMS database definition 1980=100. KE market based is telecoms, high tech, business, financial, and cultural services; KE public based is education and healthcare

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

ind

ex 1

990=

100

KE market based KE public based Manufacturing Other Services

Knowledge based industries defined by the OECDNote: manufacturing classified by R&D intensity; services classified by ICT use and employment of graduates. Recreational and cultural industries recognised as knowledge based by EU but not OECD, and includes libraries and museums.

Market based Knowledge industries

Public based knowledge industries

Other market based industries

Other public based industries

• High to medium high tech based manufacturing

• High tech services (telecommunications, computer services, R&D services)

• Financial services

• Business services (real estate, advertising, accountancy, legal, technical, consultancy)

• Cultural and creative industries

• Education

• Health and social work

• Low to medium low tech based manufacturing

• Distribution, hospitality

• Transport

• Other services (dry-cleaning, hairdressing, refuse collection

• Recreational and cultural services*

• Public administration

Key drivers of the knowledge economyGrowing as proportion of GDP in all western & advanced Asian economies

Driver Two Shift in demand towards higher

value added, experiential services and tech

based goods as consumers have become more sophisticated and

diversified.

Driver One New technologies, especially General Purpose Technologies ( GPTs), create

new goods, services, processes

and business models with multiple spill-overs.

The rise and rise of “intangibles” – proof positive of the emergent Knowledge EconomyIntangibles investment share 1970-2004

Business investment in intangibles as a share of market sector value added adjusted to take account of intangibles. HMT October 2007.

0%

2%

4%

6%

8%

10%

12%

14%

16%

70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 20 21 22 23 24

sh

are

of

ma

rke

t g

ros

s v

alu

e a

dd

ed

Recovery from the 2008/09 recession in the UK and US

Enterprise Cities – or growing divides?

Aldershot

Barnsley

Birkenhead

Birmingham

Blackburn

71

9

Bradford

Brighton

Bristol

Burnley

Cambridge

5

Coventry

Crawley

Derby

Doncaster

Gloucester

4

Hastings2

Hull

Ipswich

LeedsLeicester

6

London

LutonManchester

Mansfield3

Milton Keynes

Newcastle

Northampton

Norwich

Nottingham

Oxford

Peterborough

Plymouth

8Preston

Reading

Rochdale

Sheffield

Southampton

Southend

Stoke

Sunderland

Swindon

TelfordWakefield

Warrington

Wigan

Worthing

York

8000

13000

18000

23000

28000

33000

38000

43000

48000

14 18 22 26 30 34 38% of private sector KE employment, 2008

GVA

per

hea

d, 2

007

(wei

ghte

d by

wor

kpla

ce e

arni

ngs)

GVA National average(£20,458)

1 - Bolton2 - Huddersfield3 - Middlesbrough4 - Grimsby5 - Chatham

6 - Liverpool7 - Blackpool8 - Portsmouth9 - Bournemouth

PKE National average (25.4%)

The knowledge economy in the Thames Gateway

Source: Annual Business Inquiry – Workplace Analysis (2008)

% Workforce employed in knowledge industries (2008)

A short history of general purpose technologies (GPTs)…

• 9000 BC – 1400AD Seven GPTs domestication of animals & plants;

wheel; smelting of ore; writing; use of bronze; iron & steel; creation of water wheel

• 1400 – 1750 Two GPTs three masted sailing ship and printing

• 1750 - 1900 Five GPTs steam engine; factory system;

railway; ironsteamship; communications

• 1900– 2000 Nine GPTs internal combustion engine; electricity; motor vehicle; airplane; mass production; computer; lean production; internet; biotechnology

Twenty-first century prospects ? Grand Challenges for Engineering

• Nanotechnologies• Energy from fusion• Advanced materials• Carbon sequestration• Manage the nitrogen cycle• Water• Health informatics • Durable customised infrastructure• Customised medicine• The brain• Cyberspace security• Enhance virtual reality• Personalised learning

Some 21st century jobs – UK Dept of Business

• Body parts manufacturing and storing• Pharming – cultivation of genetically modified crops• High rise farming – cultivation in skyscrapers• Personal brand consultants for social networking• Customised avatars as teaching aids• Space guides• Miniaturisation doctors • Old age well being advisers• Care assistants

Rebalancing the economy

Drivers of growth and jobs over past decade no longer available…• financial services• property boom• consumer debt• public sector

Must be replaced by big growth areas the UK has some advantage in…• manu-services (integration of high value services with manufacturing)• low carbon economy• creative and cultural industries• high tech and intermediary services

The highly skilled are clustering in highly skilled cities

The Innovation Ecosystem

Public research

OpennessAccess to

finance

Skills

Competition

Demand

Source: NESTA

A new architecture of “ intermediate institutions”

• Research Universities

• Technology Transfer Institutes

• Creative hubs

• Network of intermediate financial institutions – Green Bank, Infrastructure Bank

• Long term ownership, anchor companies

• Comprehensive lifelong learning

• Intermediate employment insurance mutuals, residential FE colleges, vocational academies to support flexi-security

• Cities with innovation “anchor” institutions

Net Private Sector Job Creation 1998 - 2008

Source: TWF & Annual Business Inquiry – Workplace Analysis

Skills have been key drivers of success

Source: Annual Population Survey (2008)

Residents with graduate level qualifications (2008)

Creative industries are a strength for the Thames Gateway – digital is part of this

Cultural and creative assets in the Thames Gateway

Canterbury Christ Church

University

Universities and the Creative Industries in the

Thames Gateway

Music3* plus – 30% (7.4

FTE)

University of Essex

History of Art, Architecture and

Design3* plus – 75% (7.4

FTE)

University of Kent

Drama, Dance and Performing Arts3* plus – 70% (24.9

FTE)

University for the Creative

Arts

Art and Design3* plus – 30% (43

FTE)

Queen Mary, University of

London(Mile End campus,

Tower Hamlets)

Drama, Dance and Performing Arts3* plus – 90% (12

FTE)

Anglia Ruskin University

Art and Design3* plus – 30% (10.5

FTE)

Music3* plus – 15% (6.5

FTE)

University of East London

Art and Design3* plus – 40% (9.9

FTE)

Drama, Dance and Performing Arts3* plus – 35% (5.2

FTE)

Communication, Cultural and Media

Studies3* plus – 80% (14.9

FTE)

University of Greenwich

Communication, Cultural and Media

Studies3* plus – 10% (7 FTE)

Goldsmiths College,

University of London

Art and Design3* plus – 55% (41.2

FTE)

History of Art, Architecture and

Design3* plus – 50% (11.5

FTE)

Drama, Dance and Performing Arts3* plus – 65% (12.5

FTE)

Communication, Cultural and Media

Studies3* plus – 80% (21.7

FTE)

Music3* plus – 70% (17.2

FTE)

London Metropolitan

University

Architecture and the Built

Environment3* plus – 40% (15.5

FTE)

Art and Design3* plus – 10% (36.6

FTE)

Drama, Dance and Performing Arts3* plus – 25% (6.5

FTE)

Communication, Cultural and Media

Studies3* plus – 40% (12.5

FTE)

Architecture and the Built

Environment3* plus – 40% (10

FTE)

Key challenge - fewer opportunities for the unskilled

Source: Annual Population Survey (2008)

Residents with no qualifications (2008)

The Thames Gateway

• Think innovation and investment ecosystem

• Pivotal role of universities as nodes• Innovative science parks • Digital sector / wider creative industries

linkages• “Five minds of the future” curricula for

Universities and colleges• How to get spill-overs?• Key challenge: Sharing the benefits of

potential growth with existing, often low skilled residents

• Transport ?• East London or Thames Gateway?