Contents
• Context• Challenges for smaller countries
and regions• Scotland’s performance
– Innovation
• Responding to the challenges
The growing significance of developing countries(scale and nature)
China’s R&D expenditure now = Japan’s (OECD)
Is continued globalisation inevitable?
•Working assumption that globalisation will continue to develop, but… •…“Further progress in global economic integration should not be taken for granted” Ben Bernanke, August 2006
•Constraints on globalisation: climate change, trade protection, social/political backlash, World Bank Dec. 2006
Climate change and economic development- constraint or stimulus?
An agenda of:•productivity improvement•product and process innovation•employee attraction•customer loyalty•risk management•investor relations
The evolving nature of business
‘Industrial Economy’• Vertical integration• Standardised• Clear value chain• Distinction between
producer and consumer• Specific content producers• Limited channels• Based on physical assets• Decreasing returns
‘Innovation Economy’• Flexible outsourcing• Customised/personalised• Blurred value chain• Consumer contribution to
production• Multiple content producers• Multiple channels• Value of intangibles • Increasing returns
Main findings:• investment double traditional measure• output 13% higher in 2004• ratio of investment to output rising not falling• productivity and capital deepening higher• intangible investment levels similar to US
“Because globalization has increased the returns to innovation…..
it has strengthened the lure that innovation
centers hold for our
planet’s best and
brightest, reinforcing
the spikiness of wealth and
economic production.”
Richard Florida, Atlantic Monthly,
October 2005
Globalisation – Flat or Spiky?
Increasing returns to scaleStrongest in high value/knowledge activities
The explosion of advanced technologies now means
that suddenly knowledge pools and
resources have connected all
over the planet,
levelling the playing field as never before,
so that each of us is
potentially an equal and
competitor of the other.
Thomas Friedman ‘The World is Flat’ 2006
Net graduate gain/loss 2003/04
-6000
-4000
-2000
0
2000
4000
6000
8000
10000
Lond
on
South
Eas
tEas
t
North
ern
Irelan
d
West
Mid
lands
South
Wes
t
Scotla
nd
North
West
North
Eas
t
Wales
Yorks
hire
East M
idlan
ds
GVA per head (£) 1999 & 2004
0
5,000
10,000
15,000
20,000
25,000
Lond
on
South
Eas
t
East o
f Eng
land
Scotla
nd
South
Wes
t
East M
idlan
ds
West
Mid
lands
North
West
Yorks
hire
North
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Irelan
d
North
Eas
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Wales
1999
2004
Productivity drivers - average ranking
0
2
4
6
8
10
12
South East London East ofEngland
SouthWest
Scotland NorthWest
EastMidlands
WestMidlands
N Ireland Yorks-Humber
Wales North East
Private Sector Knowledge Intensity
Scotland’s closest global centre - a virtuous development cycle
Innovation, enterprise, creativity, skills, investment
‘European Pentagon’20% area
40% population50% GDP
European ConcentrationMetropolitan European growth Areas (MEGAs)
• Build as much critical mass as possible – Help develop vibrant innovation systems and globally
significant industries (niches)– Specialism plus diversification
• Better connect to global innovation centres– Markets, Ideas, Expertise, Finance, Talent etc
• Improve carbon efficiency– Greater productivity– Source of innovation
The sustainable development challenge for smaller countries and regions
Measuring Scotland’s economic progress Smart Successful Scotland – 2006 report
NB trend relative to OECD Q1 average
“A significant challenge that remains is to achieve a decisive and sustained
breakthrough in the indicators of the strength
of Scotland’s business base, through building up the stock of businesses,
raising their levels of innovation and productivity and increasing their global
competitiveness.” 2005 Report
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
Sw eden Canada Finland Scotland Japan Germany France UK EU 25 OECD Italy USA Ireland
Higher Education R & D (% of GDP)
1999 2004
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Sw
eden
Fin
land
Japa
n
US
A
Ger
man
y
OE
CD
Fra
nce
EU
25
UK
Can
ada
Irel
and
Sco
tland
Italy
BERD as a % of GDP
1999 2005 (USA, Japan, OECD 2004)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
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ast
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land
s
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th W
est
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land
s
Sco
tland
Wal
es
Nor
ther
n Ir
elan
d
Yor
kshi
re &
the
Hum
ber
Nor
th E
ast
Lond
on
Business R & D (% of GDP)
1999 2005
-
100
200
300
400
500
600
£mn
curr
ent
pric
es
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
BERD in Scotland
-
50 000
100 000
150 000
200 000
250 000
£k c
urre
nt p
rices
Pha
rmac
eutic
als
etc
Che
mic
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Man
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Pro
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Ser
vice
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Ext
ract
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strie
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Con
stru
ctio
n
BERD in Scotland by sector
1996 2005
4th COMMUNITY INNOVATION SURVEY
“worse than the best, but much like the rest”
PROFILING SCOTLAND’S INNOVATION PERFORMANCEDr. Mark Freel, University of Ottawa and Prof. Richard Harrison, Queen’s University Belfast
50
60
70
80
90
% o
f firm
s ac
tive
Small Medium Large
Innovation in production industries
Scotland UK
30
40
50
60
% o
f fi
rms
Scotland UK
Innovation active firms
2001 2005
4th COMMUNITY INNOVATION SURVEY
Four types of hidden innovation:
Type I: science and technology but excluded from traditional indicatorsType II: non-scientific and technological forms such as new forms of organisation and processType III: the novel combination of existing technologies and processesType IV: takes place ‘under the radar’ of many surveys
“We need a broad-based innovation policy that reaches beyond science and technology to embrace the ‘hidden innovation’ that occurs in all sectors of our economy and society.”
RBS R&D investment £1/3bn+
technological advance global markets/partners demanding consumers new business models climate change response pace of change
Opportunities
world class firms high potential industries
existing and emerging research base graduate output international cities + rural
environment internationally recognised
identity, heritage, culture small networks
Strengths productivity business stock
growth/global firms business R &D start ups infrastructure gaps wasted human potential market scale
Weaknesses
more intense competition new competitors population (now more +ve) global uncertainty e.g.
energy fragmentation of effort insufficient urgency
Threats
Strategic issues for Scottish economy(and other smaller countries and regions?)
SchoolsFE/HE
Sector Skills Councils
Private Investment (Individuals, Companies, Industry groups, Trades Unions, voluntary organisations etc)
Skills
Public investment
(Government, Local Government, public agencies, EU Partnerships etc)
International & Infrastructure
BusinessDevelopment
Transport, WaterPlanning
Promotion of Scotland
Responding to challenges requires genuine collaboration and alignment
Development agency - catalyst for more/better/faster investment
Company programmesResearch - K-transfer
Sustainableeconomic
development
Sustainable Development – Equal Opportunities
Two views of collaboration:
“the suppression of mutual loathing in pursuit of government funding”
or
“having people who see the broader picture, who seek to understand your business and have some empathy for you helps make alliances strong.”
•Increasingly recognised elsewhere. •A key feature of Finland’s innovation system and the Irish ‘miracle’. •Often emerges from extreme adversity.
Coherence, scale and collaboration through industry focus...
• Global growth• Significant Scottish
strength and/or potential– corporate/research– other?
• Industry leadership • Innovation system• Greater, more focussed
demand
Cities boost regions by providing:
• Critical mass of knowledge institutions
• A vibrant environment for knowledge transfer
• Strategic services • Highly paid jobs• Culture, leisure and
sport • Transport hubs • International profile
Cities rely on regions for:
• Space for major projects
• A wider skills base• A wider range of
sites and premises• A wider range of
housing options • Distinctive centres -
niche experiences• Opportunities for
countryside leisure
•Economic geography matters more - but boundaries matter less, and will vary
• Need for scale, connectivity (physical and psychological), flexibility, speed + local engagement
“A region will be successful if its cities are successful and cities will flourish if the wider region flourishes.” European Commission (2005)
…and through spatial focus
Concluding thoughts
• Sustainable development not a zero sum game of beggar thy neighbour...
• ...focus on stimulating investment to realise potential and add value
• No ‘silver bullet’ - systemic approach• Be flexible - adapt to change and chance -
‘strategic opportunism’• Keep a broad mind
– sources of innovation– assessing value
• Focus on what unites you