The UK can only achieve healthy economic growth and job creation by boosting its high tech capabilities and innovation across the economy, according to a new report published today by NESTA, the National Endowment for Science, Technology and the Arts.
'Rebalancing Act' provides new analysis on how to rebalance the economy. It shows that a full-blooded revival of the wider manufacturing sector is wishful thinking and would require growth rates not seen since the Second World War.
NESTA worked with Oxford Economics to develop four scenarios for the future balance of the economy, and applied them to an economic forecast model showing how each will affect economic growth, regional performance and employment in the UK. The four scenarios (detailed at the bottom of the release) are:
Jonathan Kestenbaum, NESTA's Chief Executive says: 'Our analysis puts paid to the notion that a broad-based manufacturing renaissance will drive recovery. Instead, it shows that a recovery based on high technology and innovation offers the best prospect for growth.'
The report acknowledges that this won't be easy to accomplish. But it also makes clear that if we don't rebalance the economy, the UK's employment rate will stagnate in the first half of the decade. Regions like Wales and the North East will particularly suffer from poor growth.
In practice, this means that the government should pay special attention to the small minority of high growth businesses that generate the bulk of job creation and which have shown to be disproportionately innovative.
The report suggests focusing support for these businesses by using small-scale, often private-sector programmes that encourage high-growth, innovative businesses such as Seedcamp and the British Library IP Centre. At a time of budget constraints, this is more effective than costly government programmes such as Business Links which offer general business support but lack a clear focus on high growth businesses.
NESTA also argues that existing government spending - such as public procurement and further and higher education spending - should take account of the potential of the UK's high-tech sectors, and highlights this as a priority area for future policy work.
Jonathan Kestenbaum continued, 'At a time when the UK needs to look for new sources of growth, providing the right conditions for high-tech companies should be a priority. We only need look at successful clusters across the UK such as the life sciences and video games cluster in Dundee to see what can be accomplished when policy works in the interest of enterprise and innovation'.
NESTA is an independent body with a mission to make the UK more innovative to drive economic recovery and solve some of the UK's major social challenges. Our endowment status means we operate at no cost to the UK taxpayer.
NESTA is a world leader in its field and is in a unique position to support innovation through a blend of practical programmes, policy and research and investment in early-stage companies. www.nesta.org.uk
The four rebalancing scenarios:
Business as Usual
The report highlights concerns with the base case of a continued reliance on financial and business services, even assuming healthy levels of national economic growth. Employment growth does not begin until 2013 (compared to other scenarios, where it grows from 2011). Without a shift in policy, the situation in some regions looks particularly unpromising. For example, Wales has projected annual job growth of just 0.1%/pa over the next decade, the North East just 0.2%/pa.
For the UK's manufacturing sector to close half the gap with the manufacturing sectors of EU leaders, such as Germany or Finland (increasing its contribution to the economy to 15%/pa, up 3 percentage points from 2008), it would need to grow at an extraordinary average rate of 6.2%/pa. This translates into 400,000 new companies by 2020 and an increase in the UK's workforce by 4.1million - which would be extremely difficult to achieve in the context of the UK's skills base. This would amount to a major turnaround in the sector's fortunes, something not seen in recent times.
High Tech Base
Overall average growth generated from a burgeoning high tech base would approach 3.0%/pa, with high tech manufacturing alone growing strongly. This would create 2.4 million additional jobs, contributing 3.4% of total UK GVA by 2020, up from 2.5% in 2000. While this is still a small part of the economy, other sectors such as business services and construction also benefit from growth in high tech businesses.
Innovation Across the Economy
This scenario would generate growth rates of 3.2%/pa and an additional 2.7 million jobs by 2020. All of the UK's sectors would benefit : for example, high tech manufacturing and business services would enjoy growth rates of 4.4%/pa and 6.7%/pa respectively.