Following the recent launch of 'City Deals' by the Deputy Prime Minister, Nick Clegg, an initiative which will see a dramatic shift of power from whitehall to cities across the country in the form of new powers and £100 m capital investment pot, Web Editor, Scott Buckler, sat down with Robert Crawford of Nesta to discuss the role innovation can play in driving the economies of the North
SB: What role can Innovation play in driving growth within the UK?
RC: Innovation is very broad; it includes research and development, marketing, skills development, training, management and distribution. Innovation was responsible for two thirds of the UK’s productivity growth between 2000-07. The majority of this productivity growth was not R&D but other forms of tangible investment. Innovative firms grow twice as fast as non-innovative firms and they typically see their turnover double compared to non-innovative firms. 63% of all the annual labour growth since 2000 has been through innovation so there is no doubt it plays a key role within this country.
SB: How important are the innovation hubs?
RC: Potentially so but it’s all down to delivery but there is no doubting the importance of what they are trying to achieve: innovation is at the heart of productivity growth and employment growth. Innovative firms typically internationalise faster than non-innovative companies. The great surge of employment growth in development countries has been down to innovation, so there is scope for hubs to deliver success.
SB: Can innovation help get people back to work?
RC: A complex question, if firms innovate then their productivity will be boosted where as non-innovative firms will struggle. Many non-innovative companies can and do survive but it gets harder and harder because of the growth in internationalisation; competition is increasingly fierce, again this is not simply R&D it is much broader- such as how good is your marketing, distribution? And management skills? We must remember firms do not set out with a main goal to create employment that’s a by product of their desire to make profits. But unless we have more innovative firms we will not tackle the long-term threat of unemployment and, in order to do this firms must first be making profits and these come from being innovative.
SB: Is there still a north-south divide in terms of investment into innovation?
RC: Fast growing firms are distributed well across the UK, but a recent Sunday Times fast growing business report showed that within the top 100 there was an enormous number, well over 50%, of firms based in the South-East and London. The government says it is committed to re-balancing the economy in terms of moving away from financial services to manufacturing; however there are two issues with this re-balancing. Firstly, financial services are disproportionately located in the South-East and secondly the bulk of manufacturing output in the UK also comes from the South-East. Worryingly Regional divide is not narrowing, The abolition of the RDA’s, may worsen this situation because they were an important source of investment capital the moment , looking at the data, you cannot see this divide closing and it will probably get worse and the re-balancing however well intended will not make much of a difference.
SB: What are the reasons for this shift in manufacturing from north to south?
RC: The North clearly has strong pockets of innovation innovation at its heart .For example, Nissan in the North East The North-West also has many good innovative firms but there are still some areas which are struggling to create fast growing innovative firms II worry that Liverpool is still struggling despite the revitalisation of the city centre which has been terrific. The big challenge is how to get higher value manufacturing and innovation into the north. The south is still dominating in terms of driving growth, for instance; the South-East- Cambridge with life science, London with its financial services and creative industries. There are undoubtedly strong innovation areas in the north, however the capital is still disproportionately flowing into London and the South East and talent tends to follow this flow. There is a worry that the abolition of influential RDA’s may exacerbate this situation. The RDA’s were incredibly effective in pursuing inward investment and their loss raises the spectre of a serious disruption to this important flow. Also, remember that inward investors tend to have higher productivity and be more innovative.
SB: What are NESTA currently doing in terms of innovation development in the north?
RC: Our Chief Executive is determined to do more; however, we have already seen our investment arm take positions in companies as Plasma Clean, based in Stockport .growth. We have worked with local authorities such as Rossendale, Wigan, York and Stoke and Trent through our “Make it Local” campaign which brings local authorities together with digital agencies to unleash public data that authorities currently own for use as commercial purposes or web-based services for citizens. There is opportunity to do more in the north and take forward the message that innovation is at the heart of competiveness. The loss of RDA’s will leave a vacuum for a while, so we must make sure that the Local Enterprise Partnerships continue the RDA’s work and deliver progress to the north.