DCLG

1. DCLG/DTI/HMT REGIONAL ECONOMIC PERFORMANCE TEAM Paul Steeples, DTI 11 July 2006

2. GVA per Capita

3. GVA Level Trends Current pattern of gap in GVA per capita levels between regions has lasted for over 80 years and is still widening

4. Sub-regional GVA trends More recent trends at the sub-regional level show output growth concentrated in parts of the country

5. Economic Drivers Five Drivers of Productivity: Competition Enterprise Innovation Investment Skills Plus Employment Output derived on a labour productivity basis Framework for analysis, not an orthodoxy Source: HMT/DTI Productivity in the UK 3: The Regional Dimension Other Factors and Drivers Area-specific factors Quality of place Social Housing Equity Issues Economies of Scale Governance Externalities Distance and Space Networks

6. Innovation: Stylised Regional Facts R&D expenditure and patents concentrated in South East Population with degrees and number of patents produced strongly linked in cities Sectoral composition effects noticeable Survey results do not differ significantly for new products and processes across regions However, large productivity differences both between and within sectors across regions Is innovation simply about the big money & big science, or are we not asking the right questions?

7. “Innovation”: What Do We Mean By It? Innovation: the process of making changes to something established by introducing something new; may refer to both radical or incremental changes to products, processes or services (Wikipedia) Definition often varies in usage between different organisations and spatial levels Innovation is not the same as invention “‘Innovation’ isn't what innovators do....it's what customers and clients adopt.” (Schrage - MIT) Invention (discovery of new ideas) followed by innovation (implementation of new techniques) drives economic growth (Mokyl)

8. Innovation: Why is it important? “Knowledge has been at the heart of economic growth and the gradual rise in levels of social well-being since time immemorial” (David and Forey 2003) “Understanding the interplay between innovation, technology and productivity growth is the foundation for projecting the future economic growth rate of a country” (Gordon 2004)

9. Innovation: What to do with it? Innovation needs to be created, consolidated and disseminated to be fully applied Innovation also depends on complementary investments in human and technological capital to enable innovations to absorbed and applied (like cars need roads!) Different aspects may play out at different levels National and international to create National to consolidate and codify Sub-national to disseminate and absorb

10. Innovation: What are the market failures? Different market failures at different levels Productivity: agglomeration (what levels), specialisation v urbanisation In creation: market failures regarding public goods, risk, free-riding, capital market imperfections, government incentives In consolidation: need for standard format In dissemination: asymmetric access, rights protection, knowledge externalities In absorption: skills provision issues Public sector needs to control market failures but also to ensure that activities do not simply displace private sector activity that would otherwise occur

11. Innovation: Policy Issues Is our knowledge base slanted towards certain areas? Possibly because we can count R&D and patents? Efficiency/equity in basic research? How significant are economic development spillover? Are they sufficient to offset losses in scientific effectiveness? Focus too heavily on the high-level and not applied and disseminated innovation? Because it has the big bang? Is this because the focus needs to change for different spatial levels? How do the skills and enterprise agenda interact with the innovation agenda, and how should they? What is the role of complementary and supporting investments and programmes?