The Knowledge Driven Economy: Indicators for Northern Ireland

NORTHERN IRELAND ECONOMIC COUNCIL

Report 136: April 2001

The Northern Ireland Economic Council (NIEC) is an independent advisory body. It was set up by the Secretary of State for Northern Ireland in 1977, but following devolution in 1999 it reports to the First and Deputy First Minister. The Council has a wide remit to provide independent advice on the development of economic policy for Northern Ireland. It carries out this role through four series of publications. Reports generally make specific policy recommendations endorsed by the Council. Occasional papers are intended to promote discussion on topical issues while commissioned research monographs are published under the author's name. Finally, Council responses to consultation documents are included in an advice and comment series. The Council also publishes an Annual Report and the text of the annual Sir Charles Carter Lecture which the Council sponsors in honour of its first chairman. It also holds seminars and conferences designed to promote debate, and their proceedings may from time to time be published. A list of the more recent publications is presented at the end of this volume.

The Council is composed of 15 members, all of whom are appointed by the First and Deputy First Minister. There are five independent members, one of whom is the Chairman. Five members represent trade union interests and are nominated by the Northern Ireland Committee of the Irish Congress of Trade Unions. Five members represent industrial and commercial interests and are nominated jointly by the Confederation of British Industry for Northern Ireland and the Northern Ireland Chamber of Commerce and Industry. Members serve four year terms, which may be renewed. A list of Members is included in this report.

The Council has a small staff, including the Director, economists and administrative support staff. Council publications are normally prepared by the economists but outside consultants are also engaged for particular projects. All publications go before the Council for comment prior to publication. It is the Council which bears

final responsibility for their publication but not necessarily for the content or recommendations of commissioned research monographs.

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The Knowledge Driven Economy: Indicators for Northern Ireland

ISBN: 1 897614 61 6

© Northern Ireland Economic Development Office Pearl Assurance House 1-3 Donegall Square East BELFAST BT1 5HB

Tel (028) 90232125 Fax (028) 90331250 e-mail: [email protected] Website: www.niec.org.uk

2

NORTHERN IRELAND ECONOMIC COUNCIL MEMBERS

Chairman:

Janet Trewsdale OBE

Members:

Independents Professor B Ashcroft P D Montgomery MA

Nominated by the Northern Ireland Committee of the Irish Congress of Trade Unions John Corey T Gillen P Holloway M Morrissey M O’Reilly

Nominated by the Confederation of British Industry for Northern Ireland and the Northern Ireland Chamber of Commerce and Industry A Jackson FCA R Johnston BA MBA G P McGrath N P E Smyth MSc C Eng MIMM Bill Tosh

Director: (Acting)

A Gough

CONTENTS

FOREWORD

1

INTRODUCTION

2

BENCHMARKING THE KNOWLEDGE DRIVEN COMPETITIVENESS OF REGIONAL AND NATIONAL ECONOMIES Introduction Focus on the Knowledge Driven Economy Focus on the Innovation Process or System The Innovation Process in the Knowledge Driven Economy Structure of the Indicators DTI OECD Huggins Porter and Stern Findings of the Indicators Conclusion

2 2 2 3 4 5 6 6 7 8 10 15

BENCHMARKING NORTHERN IRELAND AS A KNOWLEDGE DRIVEN ECONOMY Introduction Specific Indicators Weighting the Indicators Background Factors Inputs-Resources-Capacities Innovation System-Capabilities Outputs-Results Weighted Average of the Indicators

16 16 16 19 19 19 20 20 20

CONCLUSIONS AND IMPLICATIONS FOR POLICY Introduction Competitiveness Indices Knowledge Driven Economy Indicators Background Conditions Inputs-Resources-Capacities Innovation System-Capabilities Outputs-Results Implications for Policy

23 23 23 23 23 23 24 25 26

3

4

1

Contents

REFERENCES

30

LIST OF TABLES, FIGURES AND BOXES

Table

2.1

Page

Variables Used in the Porter and Stern Innovation Index, and their Relative Weights

9

2.2

Index of Regional Competitiveness in the UK (UK=100)

12

2.3

Index of Regional Competitiveness of Northern Ireland in a Global Context (UK=100)

13

VAT Registered Businesses in UK and Northern Ireland, 1998, per 1,000 of Population

14

An Index of Innovative Capacity in Northern Ireland Relative to the UK, Based on the Porter and Stern Index

15

3.1

Weighted Average of the Indicators

21

4.1

Percentage of Manufacturing Plants Receiving Government Assistance, 1996-1999

27

2.4

2.5

Figure

2A

Structure of Knowledge Driven Economy Indicators

6

2B

Dynamics of the Knowledge Driven Economy

7

2C

Robert Huggins’ Model for Measuring Local and Regional Competitiveness

8

2D

Porter and Stern Model of National Competitiveness

9

Box

3.1

Innovation and Competitiveness Indicators for Northern Ireland

17-18

List of Tables, Figures and Boxes

ABBREVIATIONS USED

DED

Department of Economic Development

DETI

Department of Enterprise, Trade and Investment

DTI

Department of Trade and Industry

EC

European Commission

EDSRSG

Economic Development Strategy Review Steering Group

EU

European Union

GDP

Gross Domestic Product

IAI

Information Age Initiative

ICT

Information and Communication Technology

IIMD

International Institute for Management Development

ILO

International Labour Office

MTC

Massachusetts Technology Collaborative

NCC

National Competitiveness Council

NIEC

Northern Ireland Economic Council

NIERC

Northern Ireland Economic Research Centre

NVQ

National Vocational Qualification

OECD

Organisation for Economic Co-operation and Development

ONS

Office for National Statistics

PC

Personal Computer

R&D

Research and Development

RoI

Republic of Ireland

UK

United Kingdom

US

United States

Abbreviations Used

VAT

Value Added Tax

FOREWORD

For Northern Ireland to take the appropriate steps towards becoming a knowledge driven economy, there must be some understanding of where the economy currently resides in relation to competitiveness and innovation. In this report the Council provides a quantitative assessment of where Northern Ireland presently stands as a knowledge driven economy by creating a Competitiveness and Innovation Index for the region. This report builds upon a recent Council study of publicly funded research and development (R&D) (NIEC, 1999b) and should be read in light of the recently published study for the Council by Professor Michael Best (Best, 2000) on the industrial competitiveness of Northern Ireland. The ability to generate, distribute and exploit knowledge is increasingly becoming the fundamental determinant of competitive advantage for individuals, firms, regions and nations. Therefore, capitalising on the opportunities offered by the knowledge driven economy is of vital importance to Northern Ireland, as is a thorough understanding of what the knowledge driven economy is, and its implications for this region. The principal purpose of this report is to benchmark Northern Ireland using methodologies and indicators recently employed by leading experts in the knowledge economy field. Furthermore, it aims to explore in detail the innovation process that determines success or failure in the knowledge driven economy. From our analysis, we conclude that the background conditions for Northern Ireland to compete as a knowledge driven economy are favourable. Output, employment and export growth are strong and the labour market is robust and flexible. However, prominent weaknesses are evident in: investments in training; Information and Communication Technology (ICT); R&D and innovation; international patents per capita; university research funded by business; new firm creation and growth, and the use of venture capital. Shortfalls in the knowledge intensity of manufacturing, exports and overall Gross Domestic Product (GDP) in Northern Ireland, relative to the United Kingdom (UK) averages, appear to explain much of the income per capita differential between Northern Ireland and the UK average. This report highlights the need to diversify the industrial structure in Northern Ireland from non-knowledge intensive to knowledge intensive manufacturing, and from public to private services in order to fully prosper in the new knowledge driven economy. It reinforces recommendations put forward by Best (Best, 2000) which advocate that regional industrial policy must increasingly focus on innovation policy. In addition, the report highlights the fact that economic development strategy must be innovation-led, and the innovation process must be improved by encouraging knowledge production and its commercialisation through business innovation. Moreover, this report supports recommendations made in the Council’s review of Northern Ireland’s economic development strategy during the 1990s (NIEC, 1999c). The latter research points out that government assistance should be targeted at R&D and product and process development, rather than at investment in plant and machinery. The Council is currently carrying out further work in order to fully understand the regional innovation system that operates in Northern Ireland. That forthcoming publication will explore how co-ordinated and systematic interaction in innovation policy can be fostered, perhaps through a coherent regional innovation strategy.

Foreword

The Council hopes that this work, which builds upon past reports such as our report on R&D (NIEC, 1999b) and the work commissioned from Professor Michael Best (Best, 2000), will provide policy-makers with the necessary understanding of where the economy is at present and the principal reasons behind its current position. Furthermore, this report provides policy-makers with a benchmark against which to monitor progress towards a knowledge driven economy. It would be the Council’s intention to regularly update the Northern Ireland Competitiveness and Innovation Index.

Janet M Trewsdale OBE Chairman

1

INTRODUCTION

1.1 The ability to generate, distribute and exploit knowledge is increasingly becoming the fundamental determinant of the competitive advantage of individuals, firms, regions and nations. As Harvard economist Jeffrey Sachs (1999) has recently argued, "… knowledge is becoming the undisputed centrepiece of global prosperity …". Capitalising on the opportunities offered by the knowledge driven economy is, therefore, of vital importance if Northern Ireland is to close the gap in GDP per capita between it and the UK. While the phrase ‘knowledge driven economy’ trips nicely off the tongue, there is a lack of understanding as to what the knowledge driven economy is and what its implications are for a region such as Northern Ireland. Indeed, all regions and nations are finding that more needs to be known about the process of knowledge creation, dissemination and application within their economies. Northern Ireland is no exception in this regard. 1.2 The purpose of this report is to benchmark Northern Ireland as a knowledge driven economy using methodologies and indicators recently employed by: the Department of Trade and Industry (DTI) in the UK (DTI, 1999); the Organisation for Economic Co-operation and Development (OECD) (OECD, 1999); Michael Porter and Scott Stern for the United States (US) Council on Competitiveness (Porter and Stern, 1999); the Massachusetts Technology Collaborative (MTC) (MTC, 1999), and Robert Huggins formerly of Cardiff University (Huggins, 2000). These methodologies and indicators could be used to create an index of knowledge driven economy competitiveness for Northern Ireland with which to guide regional economic policy-making. Thus, the report provides a quantitative assessment of where Northern Ireland stands as a knowledge driven economy. It builds on the Council’s study of publicly funded R&D (NIEC, 1999b) and the report should be read in light of the recent study for the Council by Professor Michael Best on the industrial competitiveness of Northern Ireland (Best, 2000). The report also utilises recent results from the research programme in innovation and industrial change carried out by the Northern Ireland Economic Research Centre (NIERC). 1.3 Section 2 discusses the various methodologies and indicators in the above cited work and suggests where Northern Ireland ranks, or might rank, in this context. Section 3 then establishes a framework of indicators with which to evaluate Northern Ireland as a knowledge driven economy, using the above work as a guide, and evaluates Northern Ireland within this framework, relative to the UK, using available indicators to create an Innovation Index. Attention is also given to benchmarking Northern Ireland and the UK with other countries, in particular the Republic of Ireland (RoI). Section 4 concludes with implications for economic development policy in Northern Ireland and suggestions for further work. The Council is aware that some of the statistics used in the Index are, by now, somewhat dated given the research and publication lags involved in producing this report. However, the purpose of the report is to establish a reasonably reliable benchmark against which indicators can be updated, perhaps on a yearly basis, in order to form an annual scorecard on Northern Ireland’s progress as a knowledge driven economy.

1

2

BENCHMARKING THE KNOWLEDGE DRIVEN COMPETITIVENESS OF REGIONAL AND NATIONAL ECONOMIES

Introduction 2.1 There have been many recent attempts to evaluate national and regional competitiveness through statistical indicators. This section describes the recent work in this regard of the MTC (1999), the DTI (1999), the OECD (1999), Porter and Stern (1999) and Huggins (2000) and, based on this work, establishes where Northern Ireland might benchmark in innovation competitiveness and knowledge driven economy performance. As the Northern Ireland Information Age Initiative (IAI) recently stated: Benchmarking is a key issue … We need to be able to assess our competitiveness as a knowledge economy in a number of areas so that we can identify unique advantages for selling Northern Ireland as an investment location as well as recognising those areas where we need to improve … Realistic measures are also necessary to indicate progress towards our stated objectives and our performance against these targets and against our competitors should be assessed. Based on the careful selection of such measurements, we will need to assess and continually develop strategies to achieve the best results for Northern Ireland (IAI, 2000, p.34). This report represents an attempt to discover some of the measures that will be needed for policy development in these areas. 2.2 All of the works cited above have similar purposes. For example, “The UK Competitiveness Indicators are designed to track the UK's competitive position as a knowledge driven economy and to monitor progress in closing the gap in productivity and living standards with our main competitors” (DTI, 1999, p.4) and to "help in designing policies" (DTI, 1999, p.3) to do the same. The DTI further argues that, “Improving current and potential performance against these indicators is the key to higher incomes and an improved quality of life” (DTI, 1999, p.51). The OECD Scoreboard involves "international comparisons ('benchmarking') of the major factors affecting business performance" (OECD, 1999, Foreword). The OECD states, “The Scoreboard may serve as a starting point for competitiveness and benchmarking studies at the national level. It may usefully be complemented by more focused benchmarking studies to identify best policy practices in different areas” (OECD, 1999, p.8). The purpose of these analyses, then, is to benchmark as a guide to policy formation. This report has a similar purpose with respect to Northern Ireland. Huggins (2000) provides quantitative indices of the competitiveness of the UK regions as knowledge driven or innovation economies, and Porter and Stern (1999) provide the same for leading nations, including the UK, relative to the US. Northern Ireland’s possible ranking in these indices is also discussed in this section. Focus on the Knowledge Driven Economy 2.3 All of these analyses put strong focus on the knowledge driven or knowledge-based economy. The DTI argues that, “Securing productivity improvements by the more effective use of knowledge is the way to improve living standards, spreading strong performance in

2

Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

some key knowledge intensive sectors throughout the economy” (DTI, 1999, p.51). Likewise, the OECD states, “The ability to create, distribute and exploit knowledge and information ... is often regarded as the single most important factor underlying economic growth and improvements in the quality of life” (OECD, 1999, p.7). These publications confirm the view that the creation and utilisation of knowledge is increasingly becoming the key to regional economic success. Focus on the Innovation Process or System 2.4 It is of further significance that this work also puts a strong focus on the innovation system or process as the key to progress in the knowledge driven economy. As argued by the DTI, "The interlinkages and mechanisms whereby the resources available to the knowledge economy are transformed into results in the form of higher productivity and higher prosperity are extremely complex" (DTI, 1999, p.38) and involve the workings of the innovation system or process. The OECD argues that, "Both governments and business enterprises play an important role in science and technology" and that, "Innovation no longer depends solely on how firms, universities and research institutes perform independently, but, increasingly, on how they co-operate" (OECD, 1999, p.10). The OECD adds, "As differences in national performance show, the output of science and technology activities depends not only on the amount of input [e.g. R&D], but also on the efficiency of the entire innovation system, which in turn depends on framework conditions and on government policies" (OECD, 1999, p.12). In other words, "Many variables are interrelated and have to be seen in a larger context, e.g. the national innovation system … Only a look “inside the black box” and causal analysis could permit an identification of the reasons why some countries obtain better results than others" (OECD, 1999, p.8). 2.5 Michael Porter and Scott Stern, in their work for the US Council on Competitiveness, present a methodology for the calculation of nations’ relative competitiveness as innovationled economies, and advocate that the methodology is also “appropriate to investigate” at the regional level (Porter and Stern, 1999, p.19). They argue that the key determinants of longterm competitiveness are the innovation infrastructures of the public and private sectors – both resource and policy commitments in these areas matter. They state that: By themselves the common innovation infrastructure [public] and cluster specific conditions [private] are powerful determinants of a country’s capacity to innovate at the international frontier. However, the strength of the interaction between the two also matters. Are there effective institutions in place to migrate basic science into established or nascent clusters? Do the strongest clusters provide sustained support back to common institutions? While evaluating the strength of these interactions is difficult, it represents a key element of a successful national [regional] innovation strategy (Porter and Stern, 1999, p. 21). 2.6 The Index of the Massachusetts Innovation Economy (published by the MTC) on which the DTI indicators are based, ascribes a primary role to the ‘black box’ of the innovation system or process in determining economic competitiveness. Its indicators trace

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Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

progress in leveraging resources, through innovation, to create higher levels of economic performance. This makes it "possible to identify early warning signs of weaknesses in the innovation process and in the resources that this process translates into high-performance results" (MTC, 1999, p.4). This focus on the innovation system is consistent with Professor Michael Best's recent research monograph for the Council (Best, 2000). Innovation is indisputably one of the most critical factors in economic development, competitiveness, employment and prosperity. As noted by the European Commission (EC), “Innovation is said to account for 80% of productivity growth in advanced countries, and productivity growth accounts for some 80% of GDP growth overall” (EC, 1998, p.1). Innovation is viewed by some commentators to be responsible for up to two-thirds of improvements in average living standards over the long run. However, as distinct from innovation itself, analytical and policy work is increasingly arguing that regional interaction in innovation is also critical for regional competitiveness. Both the public and the private sectors have important roles to play in embedding innovation in the economy, and systemic interaction in innovation at the regional level through linkages and networking is one of the necessary keys for regional success. Regional firms’ interactions in the regional innovation milieu (interactions in innovation with other firms) and in the regional innovation system (interactions in innovation with other regional institutions) are important for their competitive performance and that of the overall regional economy (De Propris, 1999). Moreover, as Guinet and Pilat state: “Governments have a new and responsible role, which is to build the coherent policies needed for innovation to flourish and the knowledge-based economy to grow and prosper” (Guinet and Pilat, 1999, p.65). Best (2000) argues that industrial policy in Northern Ireland must increasingly focus around a regional networking model of innovation rather than on the subsidisation of capital investment. 2.7 The regional innovation system can be defined as a rich and rapid flow of information and knowledge in the region leading to innovation (Lundvall, 1992) and animated by the agglomeration of specialised skills, knowledge, public and private institutions and resources that make up the region (Feldman, 1994, Audretsch and Feldman, 1996). Regional economic performance can be related to the nature of the regional innovation system – the nature of regional interactions and policy in innovation matter. In much of the literature cited above concerning benchmarking regional competitiveness, the nature of the regional innovation system provides the model for the conceptualisation of the knowledge driven economy. Indeed, Best (2000) argues that the fundamental goal of regional industrial strategy in Northern Ireland must be to build on and develop firms’ innovation capabilities. The Council, in initiating this report on looking ‘inside the black box’ of the innovation system in Northern Ireland, recognises the critical role that innovation will play in the knowledge driven economy of the future. The implicit economic model being proposed here is that, for Northern Ireland, the key to success in high productivity as a knowledge driven economy lies in increasing capabilities and innovation, within a well-functioning regional innovation system that improves long-term regional business success. The Innovation Process in the Knowledge Driven Economy 2.8 In order to provide a context for the indicators discussed in this section, and developed in the next section for Northern Ireland, it is useful to consider how the innovation process

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Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

actually works in different sectors of the new knowledge driven economy. This also helps us to come to a view as to the relative importance of different indicators. 2.9 In what Brian Arthur (2000) has called the ‘new casinos of technology’, the knowledge driven, high technology economy is characterised by start-up firms, spinning out from a creative or technologically innovative base, of both privately and publicly funded research scientists and their institutions (which include entrepreneurial firms, universities and hospitals). The locational form and character of the knowledge driven economy is that of clusters: firms co-locating for reasons of mutual support, know-how trading and trustful exchange. For example, clusters might form near knowledge centres like universities, which act as magnets, with firms in these clusters requiring large corporations and the public sector as clients and project funders. Entrepreneurial firms, universities, hospitals and other public and private institutions act as anchors for commercialisation. Supporting the fledgling knowledge driven, high technology economy requires concerted efforts by a range of private and public actors working together to produce valuable infrastructure and human capital support. Intellectual, financial, technological and social ‘spillovers’ will result from such network interactions. What matters is getting new innovations to market as quickly as possible, with strategic and temporary alliances of knowledge and skills brought together in a ‘plug and play’ economy. 2.10 With the ethos and culture of the high technology, knowledge driven economy being the ‘Next Big Thing’, disruptive, radical and recombination innovation is the fundamental source of value; seeking it out is the investment imperative; and systematic search and selection by venture capitalists is the main means of exploiting gains from public and private investment in R&D. The aggressive investment strategies of private investors and innovators, revealed most clearly in biotechnology and ICT, define the innovation process. The power of venture capital can sustain and enhance leading edge innovation. Any risk-averse institutional culture must be left behind. The collaborative atmosphere makes competition through new business formation common, either through start-ups or spin-offs, as new business opportunities and market niches are spotted and as infrastructures for enterprise support become available and understood. In the final analysis, the latter are necessary, but not sufficient, to sustain business success. The increasingly global marketplace dictates survival or failure. 2.11 Michael Best (2000) has also described the innovation process in the knowledge economy. Open-systems and inter-firm networking in product-led, disruptive innovation must be supported by venture capital and a market for initial public offerings in virtual, collective, experimental laboratories within successful regions. New firms must spin off from existing entrepreneurial firms and regions must develop governance capabilities to support such innovation (Best, 2000). 2.12 Of course, innovation must also occur outside of the high technology economy - all sectors of the economy must be knowledge driven. As Porter and Stern state, “There are no “low tech” industries - only low technology companies that fail to incorporate new ideas and methods into their products and processes” (Porter and Stern, 1999, p.12). Brian Arthur (2000) also highlights the need for continuous innovation in the older ‘halls of production’

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Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

economy where innovation is not so much disruptive as continuous and incremental. Nevertheless, it is just as necessary and fundamental to regional economic success since production must run smoothly, with continually reduced costs and improved quality. Incremental innovation also involves co-operation between workers, firms, universities, research institutes and government agencies within the regional innovation system. 2.13 Furthermore, Michael Best (2000) stresses the imperative for continuous improvement and incremental innovation in these sectors of the economy. Continuous innovation involves the integration of design and manufacturing to shorten the product development cycle; the use of high performance work systems and team work; product-led quality improvement teams, and group incentive pay schemes – as, for example, in the Japanese kaisen (continuous improvement) system. In such systems, technology management involves drawing upon the expanded industrial region, including universities and colleges, to carry out innovation and partnering with knowledge enterprises located in other regions, with knowledge pools available for regional firms to dip down into as the need arises. Again, industry-education system partnering in open-systems networking is necessary to sustain continuous upgrading, innovation and learning. 2.14 With these characterisations of the innovation process in the knowledge driven economy in mind, we can go on to consider the methodologies and indicators proposed in recent literature for measuring the success of regional and national economies in knowledge or innovation driven competitiveness and performance, and the findings of those various works. Structure of the Indicators 2.15

The structure of the indicators used differs somewhat between the studies.

DTI 2.16 As already noted, the structure of the DTI indicators is based on the Index of the Massachusetts Innovation Economy (MTC, 1999) and draws on the analysis underlying the UK White Paper on Competitiveness (DTI, 1998) and the views of the recently established Competitiveness Council. Thirty-nine indicators are grouped into four categories: •

Business Environment - 9 indicators;

•

Resources - 13 indicators;

•

Innovation Process - 12 indicators; and

•

Results - 5 indicators.

There is no overall composite indicator but the analysis of the 39 "helps identify the factors contributing to economic prosperity" (DTI, 1999, p.51). The first category of indicators is essentially background factors; the second, inputs or capacities; the third, how the economic

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Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

system processes these inputs in the innovation system, or capabilities; and the fourth, outputs, or results. Figures 2A and 2B provide pictorial representations of the structures of the DTI and MTC indicators.

FIGURE 2A Structure of Knowledge Driven Economy Indicators

INPUTS Capacities

INNOVATION PROCESS

OUTPUTS

Capabilities

Results

BACKGROUND FACTORS

Source: DTI (1999)

OECD 2.17 The OECD Scoreboard (1999) involves indicators listed under 44 headings, grouped into three categories: •

Towards Knowledge-based Economies - 20 headings;

•

The Globalisation Challenge - 13 headings; and,

•

Economic Performance and Competitiveness - 11 headings. FIGURE 2B Dynamics of the Knowledge Driven Economy

7

Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

Source: MTC (1999) Front Cover

The OECD states, "Some indicators play a more important role than others, but it is difficult to establish a hierarchy due to a lack of clear criteria" (OECD, 1999, p.8). The first two groups are a mixture of inputs and innovation process factors, and the third group is outputs. Huggins 2.18 Huggins (2000) provides indices of the knowledge-based competitiveness of the UK regions, including Northern Ireland. He argues that, “Area competitiveness cannot be measured by ranking any one variable in isolation, since it is the result of a complex interaction between input, output, and outcome factors” (Huggins, 2000, pp.2-3). In order, however, to get some quantitative grasp of the issue, he uses a composite measure - a weighted average of six indicators - to rank the UK regions. He classifies three indicators as inputs: business density (firms per capita); knowledge-based business (knowledge-based firms as a proportion of all businesses), and overall economic participation (economic activity rates). One indicator represents output: GDP per capita. The two remaining indicators are classified as outcomes: average full-time earnings, and the unemployment rate. In the absence of any better, justifiable methodology, the three categories of inputs, outputs and outcomes are given equal one-third weights in an overall index. Thus, since there is only one output measure (GDP per capita), this has a one-third weight; the two outcome measures have one-sixth weight each (for a total one-third); and the three input measures are given a oneninth weight each (for a total one-third). However, for Northern Ireland, data on knowledgebased businesses per capita were not available. Therefore, in the proposed index for Northern Ireland, the two remaining input measures (firms per capita and the economic activity rate) are given one-sixth weights each. A pictorial representation of the Huggins model for measuring competitiveness is given in Figure 2C.

FIGURE 2C Robert Huggins’ Model for Measuring Local and Regional Competitiveness

INPUTS Measure 1

OUTPUT OUTCOMES Measure 2 Measure 3

Business Density

Knowledge-Based Business

Economic Participation

(Firms/Capita)

(% of all businesses) 8

(Activity Rates)

Earnings (Full-Time Wages)

Productivity (GDP/Capita)

Unemployment (ILO Rates)

Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

Source: Huggins (2000, p.5)

Porter and Stern 2.19 The Porter and Stern (1999) model of long-term competitiveness is regional and geographic and is depicted in Figure 2D. The common innovation infrastructure lies largely, but not solely, within the domain of the public sector and includes: investment in basic research; education; ICT; tax policies; policies on risk capital, science, technology and industry; and economic openness. Cluster specific conditions are the Porter ‘diamonds’ operating in competitive industrial clusters. The quality of linkages between these two primary determinants is a critical third factor. Porter and Stern (1999) define innovation as the transformation of knowledge into new wealth-creating products, processes and services and ask what factors influence a nation’s firms’ ability “to identify economically valuable new products, services and processes, and develop them commercially” (Porter and Stern, 1999, p.16). They go on to create an ‘Innovation Index’ for nations, based on this model, operationalised by data on eight variables, with the weight given to each variable derived from regression analysis on the impact of these variables, across countries and through time, on international patents granted to these countries1. 2.20 The variables used, their relationship to the model of Figure 2D, and their weight in the Index (derived from the regression analysis) are shown in Table 2.1. The quality of the common innovation infrastructure (especially aggregate employment in and expenditure on R&D and GDP per capita) dominates in the empirical implementation of the Porter and Stern model. Cluster specific conditions and the quality of linkages are represented by only one FIGURE 2D Porter and Stern Model of National Competitiveness

Common Innovation Infrastructure

1

Cluster Specific Conditions

An international patent is defined as one that is filed both in the home country and the US Patent Office.

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Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

Quality of Linkages

Source: Porter and Stern (1999, p.17)

TABLE 2.1 Variables Used in the Porter and Stern Innovation Index, and their Relative Weights

VARIABLE

WEIGHT

Quality Of The Common Innovation Infrastructure Aggregate Personnel Employed in R&D

0.87

Aggregate Expenditures on R&D

0.29

Openness to International Trade and Investment

0.06

Strength of Protection for Intellectual Property

0.22

Share of GDP Spent on Secondary and Tertiary Education

0.15

GDP Per Capita

0.78

Cluster Specific Innovation Environment Percentage of R&D Funded by Private Industry

0.02

Quality Of Linkages Percentages of R&D Performed by Universities

0.01

Source: Porter and Stern (1999, Table A-4, p.81)

variable each (the percentage of R&D funded by private industry and the percentage of R&D 10

Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

performed by universities respectively) and, due to the results of the regression analysis that isolates their relative importance for international patenting activity, these variables are attached quite small weights in the overall index. Findings of the Indicators 2.21 The DTI (1999) states that its set of indicators demonstrates major weaknesses in the UK in all four of the areas studied - in background factors (lack of economic stability); in inputs such as management, education and training (lack of business skills); in the innovation process (lack of commitment, leadership, and networking in clusters and in enterprise and consumer culture); and in outputs (low growth and productivity). The DTI argues that recommended policies should be informed, and priorities set, within this assessment and within the framework of the White Paper, Our Competitive Future: Building the Knowledge Driven Economy (DTI, 1998). 2.22 Lessons from the Index of the Massachusetts Innovation Economy (MTC, 1999) include the observations that while the Massachusetts economy of the sixties, the seventies and the eighties rose and fell on the success of a few key products and companies, today's Innovation Economy is more diverse, more dependent on continuous formation of new enterprises, and in greater demand of higher skills from a broader segment of the state's population (MTC, 1999, p.6). Implications for action include growing and retraining a skilled workforce; growing companies; growing the R&D base through university-corporate partnerships, and using venture capital to turn R&D into commercial products, processes and services. 2.23 The MTC indicators demonstrate the need in economic development for "strengthening the links in the innovation process through the facilitation of innovation networks in which collaboration between and among businesses, universities and other research institutions can occur" (MTC, 1999, p.46). As stated by Joseph D. Alviani, President, MTC, Sustained or increased federal R&D funding, better efforts at moving inventions into the marketplace, improved technology transfer at our universities and teaching hospitals, and stronger linkages between these institutions, entrepreneurs and venture capitalists – these are the requisites that make the difference for an economy based not on cost-competition, but on brain power (www.mtpc.org/research/99index pr.htm). The systemic or non-linear nature of these relationships is emphasised, with important roles played by both the public and private sectors. This is consistent with Best’s recent work for the Council (Best, 2000).

11

Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

2.24 The OECD Scoreboard (OECD, 1999) shows that countries "differ substantially in their march towards a knowledge-based economy" (p.7). For example, "[The Republic of] Ireland is a prominent example of a country that has benefited from globalization in science and technology; its very high growth rate relies to some degree on imports of technology and capital" (p.7) and "output per person employed was around 65 per cent of the labour productivity in the United States in 1985 but 90 per cent in 1997" (p.12). The OECD (1999) finds that how countries adopt and master ICTs is "… key to their future economic performance" (p.9). High and medium-high technology exports have grown fastest since 1990 in the RoI and Mexico underlining "the role of foreign affiliation and intentional sourcing" (p.13). Overall, "concerning the ability to create, distribute and exploit knowledge and information, some countries – especially certain English speaking and Nordic countries – seem to enjoy at present a better standing in this respect" (p.7). 2.25 Northern Ireland’s ranking in Huggins’ (2000) work, relative to other UK regions and the UK average, is shown in Table 2.2. Northern Ireland ranks at 93.7 per cent of the UK average, above the rankings for Yorkshire and the Humber, Wales, and the North East. Huggins also provides rankings for the local competitiveness of the 149 sub-regions of the UK (see Table 2.2 for Northern Ireland localities). The East of Northern Ireland ranks 66th of 149, at 96.3, similar to the ranking for the East Midlands. The North of Northern Ireland ranks 109th of 149, at 88.9, similar to that for the North East of England. The South and West of Northern Ireland both rank in the bottom 20 sub-regions, at 132nd and 138th out of 149 respectively, with indices of 85.2 and 84.0 per cent of the UK average. 2.26 Huggins (2000) also puts these rankings in an international context by using the UK’s 15th place ranking of 47 industrial nations in the World Competitive Year Book (International Institute for Management Development (IIMD), 1999) as a benchmark on which to place the UK regional ratings relative to the UK, and from that to the other 46 nations. Using this method, Table 2.3 places Northern Ireland and the sub-regions of Northern Ireland in this global perspective. Northern Ireland, at 93.7 per cent of the UK average, ranks well below the RoI (102.9 per cent). The North of Northern Ireland (88.9 per cent) ranks below Chile (90.1 per cent); the South of Northern Ireland (85.2 per cent) below Hungary (85.5 per cent), and the West of Northern Ireland (84.0 per cent) below Malaysia (84.3 per cent). 2.27

In interpreting these results, Huggins states, At the lower end of the table it is interesting to note that the regions of Scotland and Northern Ireland, which are usually viewed as ‘peripheral’, are actually significantly more competitive than either Wales or the North East. This suggests the possibility that the grant-aid in these regions has been applied more effectively and has had a higher impact in some peripheral regions than others. Also, it should be noted that in recent years Scotland and Northern Ireland have been the recipients of some of the highest levels of UK and EU funding assistance. This suggests that grant-aid can to some extent positively assist firms raising both their own competitiveness, through improving their capacity to innovate, and therefore the regions within which they are situated (Huggins, 2000, p.8).

12

Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

This conclusion is, however, a great deal contrary to the conclusions of other recent work (eg Harris (2001) and is, in the Council’s view, problematic. Northern Ireland’s ranking, relative to the UK average and other regions, reflects the following factors (with weights): GDP per capita (0.333); business density (0.166); economic activity (0.166); average full-time earnings (0.166), and the unemployment rate (0.166). Northern Ireland ranks well below the UK average on indices of GDP per capita, economic activity and unemployment, which perhaps reliably represent Northern Ireland’s relative position (see Section 3). However, using aggregate data on business density and average full-time earnings to reflect Northern Ireland’s relative competitiveness is, perhaps, less reliable. 2.28 Table 2.4 shows that the stock of Value Added Tax (VAT) registered businesses in 1998 per capita was higher in Northern Ireland than for the UK as a whole, at 30.8 relative TABLE 2.2 Index of Regional Competitiveness in the UK (UK=100)

REGION

INDEX

London

115.5

South East

105.6

South West

100.8

East

100.8

East Midlands

96.1

West Midlands

95.5

Scotland

95.1

North West

94.5

Northern Ireland

93.7

Yorkshire and the Humber

93.4

13

Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

Wales

90.7

North East

88.8

East of Northern Ireland

96.3

North of Northern Ireland

88.9

South of Northern Ireland

85.2

West of Northern Ireland

84.0

Source: Huggins (2000, Table 1, p.9 and Appendix 1, p.21)

TABLE 2.3 Index of Regional Competitiveness of Northern Ireland in a Global Context (UK=100) REGION

INDEX

United States

134.8

Finland

111.8

Denmark

104.5

RoI

102.9

UK

100.0

East of Northern Ireland

96.3

Northern Ireland

93.7

Spain

93.5

Chile

90.1

North of Northern Ireland

88.9

Hungary

85.5

South of Northern Ireland

85.2

Malaysia

84.3

West of Northern Ireland

84.0

14

Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

Portugal

83.9

China

82.2

Italy

80.8 Source: Huggins (2000, Table 1, p.9, Table 3, p.12 and Appendix 1, p.21)

to 27.6. This boosts Northern Ireland’s competitiveness ranking in the Huggins model. However, the high firm density in Northern Ireland is due to the large number of farms. The number of non-agricultural VAT registered businesses per capita in Northern Ireland is lower than the UK average, at 20.3 relative to 24.1, closer to the 80 per cent of the UK average that other indices show. Moreover, Northern Ireland shows much lower rates, at about 80 per cent of the UK average per capita, of new firm creation and closure (see Section 3), and Northern Ireland’s firms are, on average, much smaller than their UK counterparts (Table 2.4). 2.29 Furthermore, aggregate full-time earnings data for Northern Ireland relative to the UK are not entirely reliable as indicators of Northern Ireland’s relative competitiveness. Average public sector earnings per employee are approximately equal in Northern Ireland to the UK average, but average private sector earnings are only approximately 78 per cent of the average in the UK. Private sector earnings are, perhaps, a better indicator of overall economic competitiveness than the overall public and private sector average, especially in Northern

TABLE 2.4 VAT Registered Businesses in UK and Northern Ireland, 1998, per 1,000 of Population

UK

Northern Ireland

With Turnover Less than £50,000

6.5

10.6

With Turnover Less than £100,000

13.2

17.2

With Turnover Greater than £100,000

13.5

13.6

Non-Agricultural

24.1

20.3

2.6

10.5

27.6

30.8

Agricultural Total

Source: Department of Economic Development (DED) (1999, pp.8, 25)

15

Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

Ireland where public sector employment is such a large percentage of total employment (about 32 per cent). Due largely to the two reasons above, it is likely that Northern Ireland’s relative competitiveness position is not as favourable as the Huggins results indicate. Further research into these issues is necessary but there is reason to be somewhat sceptical of Northern Ireland’s rankings in Huggins’ work. 2.30 In summing up the results of calculating their Innovation Index for the UK, 19731995, Porter and Stern conclude: “… Some middle tier countries, such as Denmark and Finland, have made major gains in innovative capacity … the United Kingdom has seen an alarming fall off in its innovative capacity. Compared to other economies that have been able to achieve relatively strong improvement … [the UK] have eroded their relative innovative capacity over the past quarter century by neglecting investments in common innovation infrastructure and in supportive cluster innovation environments … A number of historically less advanced countries are developing innovative capacities that have or will soon approach the levels of at least the middle tier of the OECD countries. Over the last decade, Taiwan, Singapore, and South Korea have each made substantial investments to upgrade innovative capacity. Beyond the Pacific Rim, both Israel and to a lesser extent Ireland seem to have established the underlying infrastructure together with several clusters consistent with strong national innovative capacity. Indeed, given the poor performance of the United Kingdom, the analysis suggests that Ireland and the United Kingdom may develop similar levels of innovative capacity over the next several years (Porter and Stern, 1999, pp.33-37). 2.31 An interesting question is where Northern Ireland might rank, relative to the UK, in Porter and Stern’s methodology and Innovation Index. There are only six of the eight variables in the Porter and Stern model that would vary across regions of a national economy. Openness to international trade and investment, and the strength of protection for intellectual property would, presumably, not vary. Table 2.5 compares Northern Ireland and UK data on these other six variables and provides a weighted average using the weightings in the Porter and Stern Index. Based on this analysis, an index of innovative capacity (Innovation Index) for Northern Ireland, relative to the UK average, is 72 per cent. Good performances by Northern Ireland on: public expenditure on education as a percentage of GDP, and the percentage of R&D performed by universities are more than outweighed by relative shortfalls in: employment and overall expenditure in R&D; GDP per capita; and the percentage of R&D performed by business. However, the Porter and Stern methodology can perhaps be criticised as being inordinately R&D dependent - an indicator on which Northern Ireland performs particularly poorly in regional and national comparisons.

16

Benchmarking the Knowledge Driven Competitiveness of Regional and National Economies

TABLE 2.5 An Index of Innovative Capacity in Northern Ireland Relative to the UK, Based on the Porter and Stern Index

VARIABLES

NI

UK

NI/UK

WEIGHT

Employment in R&D as a percentage of regional labour force

0.38

0.73

0.52

0.41

Expenditure on R&D as a percentage of GDP

1.11

2.05

0.54

0.14

Public Expenditure on Education as a percentage of GDP

8.5

5.1

1.67

0.07

GDP per capita

80.4

100

0.80

0.36

Percentage of R&D performed by business

55.0

65.4

0.84

0.01

Percentage of R&D performed by universities

32.4

19.0

1.70

0.01

-

-

0.72

1.00

WEIGHTED AVERAGE

Sources: See Section 3

Conclusion 2.32 The Porter and Stern method leads to an index of innovation for Northern Ireland of 72 per cent of the UK average. The Huggins method produces an index of competitiveness for Northern Ireland of almost 94 per cent of the UK average. Results using the Porter and Stern methodology are heavily influenced by Northern Ireland’s poor performance on R&D. Relatively more favourable results are given using the Huggins method by including firm density and earnings statistics for Northern Ireland, the former heavily influenced by the high count of farms in Northern Ireland, and the latter by Northern Ireland’s dependence on public sector earnings. Given the conflicting results, the next section of this report goes on to construct a more comprehensive, and perhaps more accurate, accounting of Northern Ireland’s standing as a knowledge driven economy, relative to the UK average and, in consequence, relative to the UK’s main economic competitors.

17

3

BENCHMARKING NORTHERN IRELAND AS A KNOWLEDGE DRIVEN ECONOMY

Introduction 3.1 In this section, Northern Ireland is benchmarked across indicators2 beginning with background factors, moving through resource inputs and capacities, the innovation process/system and capabilities, and concluding with outputs and results. Attempts are made to put each indicator for Northern Ireland and the UK in an international context, based on the existing literature. Commentary on each indicator is provided in a Statistical Supplement (which is published separately from this report). In this section, important findings under each heading are discussed. 3.2 The analyses discussed in the previous section suggest a framework for evaluating the competitiveness of Northern Ireland as a knowledge driven economy, as depicted in Figure 2A. The key filter between resource inputs (capacities) and outputs (results) in determining economic competitiveness as a knowledge driven economy is hypothesised to be the innovation process or system (capabilities). The non-linear, or systemic, nature of these relationships is depicted in Figure 2B which is the diagram developed by the MTC (1999) to present these relationships. 3.3

Indicators are grouped under four headings:

•

Background Factors (ie economic stability, openness, and labour market flexibility)

•

Inputs-Resources-Capacities (ie investments in human and physical capital, ICT, and knowledge)

•

Innovation System-Capabilities (ie commercialisation and transfer of knowledge, enterprise and entrepreneurship)

•

Outputs-Results (ie output and productivity, and knowledge intensity of output)

Specific Indicators 3.4 Many statistical sources, such as those in Regional Competitiveness Indicators (DTI/Office for National Statistics (ONS), 2000), can be used to benchmark Northern Ireland by applying indicators similar to those in the existing literature. In order to benchmark 2

These indicators are selected on the basis of the methodologies and indicators developed in the existing literature and discussed above in Section 2.

18

Benchmarking Northern Ireland as a Knowledge Driven Economy

Northern Ireland against the UK, 33 indicators are used. These are listed in Box 3.1. 3.5 The choice of indicators is in large part informed by the DTI (1999) and OECD (1999) work, as well as that of Huggins (2000) and Porter and Stern (1999), in order that Northern Ireland's performance against the UK can be placed within wider international comparisons.

19

Benchmarking Northern Ireland as a Knowledge Driven Economy

BOX 3.1 Innovation and Competitiveness Indicators for Northern Ireland

Background Factors Economic Stability 1 2

Real GDP growth and volatility Employment growth

Openness 3 4

Share of foreign-owned companies in manufacturing Exports and export growth

Labour Market Flexibility 5 6

Unemployment, long-term unemployment and youth unemployment Working days lost

Inputs-Resources-Capacities Human Capital Investment 7 8 9 10 11

Population with no educational qualifications Population with National Vocational Qualification (NVQ) Level 2 or equivalent Population with NVQ Level 3 or equivalent Population with NVQ Level 4 or equivalent and above Organisations designated as Investors in People

Physical Capital Investment 12 13

Capital investment per worker Physical investment as percentage of GDP

ICT Investment 14 15

Household ownership of Personal Computers (PCs) Business usage of ICTs

Knowledge Investment 16 17 18

Investment in knowledge Total, Government and Business R&D R&D in services, high technology, and small and medium sized enterprises

Innovation System-Capabilities Commercialisation of Knowledge 19 20 21

Business spend on innovation Firms that innovate as percentage of all firms Innovating firms' share of sales from new/improved products 20

Benchmarking Northern Ireland as a Knowledge Driven Economy

BOX 3.1 (Continued) Innovation and Competitiveness Indicators for Northern Ireland

Enterprise and Entrepreneurship 26 27

VAT registrations, de-registrations and survival rates Use of venture capital

Outputs-Results Output and Productivity 28 29 30

GDP per capita and real GDP per capita growth GDP per worker and real GDP per worker growth Employment rate

Knowledge Intensity of Output 31

Knowledge intensity of manufacturing

The difficulty of securing regional data for Northern Ireland is a factor in excluding some indicators that are available at the national level in the DTI and OECD work. For example, the OECD provides data on: the tax treatment of R&D; mergers and acquisitions; ownership of patents and innovations; international co-operation in science and technology; scientific publications per capita; the technology balance of payments etc - all of which are difficult to operationalise at the regional level. Likewise, the DTI indicators include: international comparisons of price levels; business perceptions on government policies and regulations; stock market capitalisation; publications and citations of UK research in academic journals; joint publishing by universities and industries; attitudes to entrepreneurship, and trade balances in knowledge-based industries etc – again, data not readily available at the regional level. 3.6 The indicators proposed are, therefore, ones that can flesh out for Northern Ireland the bare bones of the structure proposed by Figure 2A utilising existing data sources. The overall model is informed by the innovation system literature which suggests that innovation and enterprise are keys to economic progress within a coherent and effective regional innovation system. The concluding section of this report addresses the need for further information and data in these areas in order to monitor the progress of the knowledge driven economy in Northern Ireland. As already noted in paragraph 2.1 above, the Strategic Framework and Action Plan of the IAI for Northern Ireland (IAI, 2000) recommends that action be taken by government to measure the knowledge-based international competitiveness of the Northern Ireland economy. This section attempts to do that using a series of available indicators. The methodology offers a possible framework within which Northern Ireland’s performance could be monitored on a regular, perhaps annual, basis. As mentioned above, detailed commentary

21

Benchmarking Northern Ireland as a Knowledge Driven Economy

on each indicator is provided in a Statistical Supplement published separately from this report.

22

Benchmarking Northern Ireland as a Knowledge Driven Economy

Weighting the Indicators 3.7 Consideration of how the innovation process works in the knowledge driven economy provides some context in which to weight the relative importance of the various indicators, with a view to ultimately constructing a single overall index (as done by Porter and Stern (1999) and Huggins (2000) - see Section 2). Background factors should be accorded somewhat lesser weight than the other three spheres in Figure 2A of: inputs (capacity), the innovation process (capabilities) and outputs (results). 3.8 Inputs are obviously important, particularly education, ICT and knowledge investments in R&D. However, what is ultimately more important is new firm formation within the regional innovation process, and its resulting outcomes in structural change and productivity. For example, although the publicly and privately funded basic research system in the US is significantly less effective than the largely public biosciences base in the UK in generating patentable inventions, it is far superior in generating innovation in the form of biotechnology products on the market, and thereby stimulating economic growth. Therefore, when combining the various indicators into a single overall index, relatively more weight should be placed on innovation system factors (such as knowledge commercialisation, technology transfer, and enterprise and entrepreneurship) and on output and productivity factors, than on inputs. Background Factors 3.9 The background conditions of growth and stability are relatively favourable in Northern Ireland within a UK and an international context. GDP and employment growth are both stronger in Northern Ireland than the UK, European Union (EU) and OECD averages but do not match growth rates in the RoI. GDP growth in Northern Ireland has been more stable than in the UK as a whole where lack of stability is a negative factor in economic competitiveness, particularly noted by the DTI in its work (DTI, 1999). Growth conditions, economic openness and labour market flexibility factors all point towards a good potential background for Northern Ireland’s competitiveness as a knowledge driven economy. Inputs-Resources-Capacities 3.10 Human capital indicators are somewhat mixed in comparing Northern Ireland with the UK. School performance is better in Northern Ireland, when measured by 19 year-olds having at least NVQ level 2 (General Certificate of Secondary Education or equivalents), but the overall workforce is marginally less well qualified at NVQ levels 3, 4, and above. The proportion of the overall population with no qualifications is much higher in Northern Ireland, and the proportion of the population with a degree (or equivalent) is significantly lower than the UK average. 3.11 On investment in knowledge creation indicators, Northern Ireland compares favourably with respect to public funding of education, but poorly with respect to R&D. Northern Ireland also lags behind the UK average in investment in ICT, as well as capital investment overall, but compares relatively more favourably on most indicators of investment

23

Benchmarking Northern Ireland as a Knowledge Driven Economy

in human capital. However, on overall inputs, resources or capacities for innovation, Northern Ireland is some distance below the UK average, with public expenditure on education as a percentage of GDP being a notable exception. 3.12 The Council (NIEC, 1999b) identifies a major deficiency in investment in knowledge production as well as relative shortfalls in public and private R&D spending for Northern Ireland. It argues that attention must be given to increasing the public and private funding of R&D if Northern Ireland is to compete as a knowledge driven economy. The report also argues that inadequate policy attention is given to R&D and innovation strategy within overall economic development strategy in Northern Ireland. The views of Porter and Stern (1999), who put strong emphasis on public and private R&D and the quality of linkages between them in explaining competitiveness, serve to underline the need for increased attention to these areas in Northern Ireland’s economic policy for the knowledge driven economy. Innovation System-Capabilities 3.13 Indicators under this heading show that Northern Ireland is a less dynamic and more stable business environment for enterprise and entrepreneurship than the UK as a whole. Business birth and death rates are lower in Northern Ireland than the UK average while business survival is more of the norm in Northern Ireland, although higher survival rates in Northern Ireland are obviously not driven by higher rates of R&D and innovation. The percentage of turnover in new and improved products is similar in Northern Ireland to the UK as a whole, but overall levels of innovation are lower. Venture capital activity is also very underdeveloped in Northern Ireland, even in comparison to the UK average, which is itself low by international standards. Outputs-Results 3.14 Relative economic activity, productivity, and the knowledge intensity of production and exports are all significantly lower in Northern Ireland than in the UK as a whole. The location quotient of knowledge-based sectors in GDP (ie, the share of knowledge-based sectors in GDP in Northern Ireland relative to that share for the UK) is 0.79. This almost precisely matches Northern Ireland GDP per capita expressed as a proportion of the UK average (0.80) suggesting, perhaps, a causal relationship. The location quotient of private knowledge-based sectors is only 0.64, and of private services only 0.73. In other words, dependence on private sector wealth might lead to a Northern Ireland GDP of only 65-70 per cent of the UK level. The effect of the public sector (much of which is, after all, knowledgebased, for example in public services such as education, health, public administration, communications and transport) is to raise GDP per capita by 10 to 15 per cent up to 80 per cent of the UK level. Nonetheless, Northern Ireland has a relatively underdeveloped knowledge-based private sector, eg in finance and business services, retail and distribution, and other services. Weighted Average of the Indicators 3.15

Table 3.1 provides a single overall index of Northern Ireland’s competitiveness as a

24

Benchmarking Northern Ireland as a Knowledge Driven Economy

knowledge driven economy, relative to the UK average, based on a simple weighting of the various indicators. This places relatively more weight on innovation system-capabilities and outputs and productivity than on background factors and inputs. Background factors are given an overall 10 per cent weight in the overall index (or 2 per cent each)3; inputs have an overall 20 per cent weight (or 1.67 per cent each); innovation system-capabilities factors are allocated a 40 per cent weight (or 4.44 per cent each) and outputs-results, such as productivity, are given a 30 per cent weight (or 5 per cent each). 3.16 This weighting results in an overall index for Northern Ireland of 81.7 per cent of the UK average in terms of competitiveness as a knowledge driven economy. Interestingly, this TABLE 3.1 Weighted Average of the Indicators INDICATORS

NI

UK

NI/UK*

WEIGHT

INDEX 1.360

Background Factors 1

GDP Growth

2.8

1.9

…

2

Employment Growth

1.4

0.1

2.10

… 0.020

… 0.042

3

Foreign Ownership

30.5

21.5

1.42

0.020

0.028

4

Exports

21.0

28.7

0.73

0.020

0.015

5

Unemployment

7.3

6.0

0.82

0.020

0.016

6

Labour Relations (Working Days Lost)

2.6

4.6

1.77

0.020

0.035 0.815

Inputs-Resources-Capacities 7

No Education

26.9

18.1

0.67

0.0167

0.011

8

NVQ Level 2

79.0

74.0

1.07

0.0167

0.018

9

NVQ Level 3

47.0

49.0

0.96

0.0167

0.016

10

NVQ Level 4

25.0

26.0

0.96

0.0167

0.016

11

Investors in People

16.0

40.0

0.40

0.0167

0.007

12

Capital per Worker

3.8

4.2

0.90

0.0167

0.015

13

Physical Investment

85.0

101.0

0.84

0.0167

0.014

14

Ownership of PCs

21.0

28.0

0.75

0.0167

0.011

15

Use of ICTs

43.0

63.0

0.68

0.0167

0.011

16

Knowledge

10.5

8.5

1.23

0.0167

0.021

17

R&D Total

1.1

2.0

0.55

0.0167

0.009

18

R&D Shares

76.0

88.9

0.85

0.0167

0.014 0.668

Innovation System-Capabilities 19

Spend on Innovation

2.5

6.8

0.37

0.044

0.016

20

Innovating Firms

57.0

59.0

0.97

0.044

0.043

21

Innovation Sales

26.0

23.0

1.13

0.044

0.050

22

Patents Per Capita

8.0

43.0

0.15

0.044

0.007

3

GDP and employment growth are combined into a single indicator.

25

Benchmarking Northern Ireland as a Knowledge Driven Economy

23

Business R&D Funding

4.0

7.2

0.56

0.044

0.025

24

Co-operative Innovation

22.6

22.0

1.03

0.044

0.045

25

Diversity of Information

20.0

20.0

1.00

0.044

0.044

26

VAT Registrations

6.9

10.6

0.65

0.044

0.029

27

Venture Capital

20.5

104.5

0.19

0.044

0.008 0.837

Outputs-Results 28

GDP per Capita

80.4

100.0

0.80

0.050

0.040

29

GDP per Worker

86.6

100.0

0.86

0.050

0.043

30

Employment Rate

42.0

46.0

0.91

0.050

0.046

31

Knowledge Manufacturing

36.1

42.8

0.84

0.050

0.042

32

Knowledge Exports

54.9

66.7

0.82

0.050

0.041

34

Knowledge GDP

44.2

55.9

0.79

0.050

0.039

Overall Index

0.817 * Or the reciprocal Figures may not sum due to rounding Source: NIEC

lies between the 93.7 per cent of the Huggins (2000) method of calculation and the 72 per cent of the Porter and Stern (1999) method, as already discussed in Section 2. Northern Ireland’s ranking, at 81.7 per cent, is marginally better than its GDP per capita ranking of 80.4 per cent. The methodology used in Table 3.1 provides indicators of what pulls Northern Ireland above this ranking as well as what keeps its ranking well below the UK average. Prominent strengths are found in background factors such as GDP and employment growth; foreign investment, and labour relations (working days lost). In fact, Northern Ireland scores 136 per cent of the UK average on background factors. Prominent weaknesses are in investment in training; ICT; R&D and spending on innovation; international patents per capita; university research funded by business; new firm creation and growth (VAT registrations), and the use of venture capital. The latter factors (reflected in Northern Ireland’s ranking at only 66.8 per cent of the UK average on overall innovation systemcapabilities indicators) drive the result that Northern Ireland lags significantly behind the UK average in productivity and the knowledge-based structure of the economy.

26

4

CONCLUSIONS AND IMPLICATIONS FOR POLICY

Introduction 4.1 This report benchmarks Northern Ireland's competitiveness as a knowledge driven economy using the methodologies and many of the indicators employed in other recent regional, national and international studies. Section 2 considers Northern Ireland’s relative position using alternative indices of competitiveness, such as those recently developed by Porter and Stern (1999) for national economies and by Huggins (2000) for UK regions and localities. Section 2 also discusses other studies of benchmarking knowledge driven economies, such as those of the OECD (1999), DTI (1999), and MTC (1999). Using this body of research work as a guide, Section 3 establishes a framework of indicators with which to evaluate Northern Ireland as a knowledge driven economy, and evaluates Northern Ireland within this framework. This section concludes by summarising the main findings and drawing implications for economic development policy. Competitiveness Indices 4.2 Existing competitiveness and innovation indices give conflicting evidence for Northern Ireland’s competitiveness relative to the UK average. Huggins (2000) ranks Northern Ireland at 93.7 per cent of the UK average using a competitiveness index, but use of the Porter and Stern (1999) Innovation Index methodology results in an index value of only 72 per cent for Northern Ireland. In order to more accurately reflect Northern Ireland’s relative standing, an index is required that is not inordinately dependent on just a few variables such as firm density, average wages, or R&D performance. Background conditions, inputs, capabilities, and outputs in innovation and economic performance must be more comprehensively measured and indexed. Knowledge Driven Economy Indicators Background Conditions 4.3 The background conditions for Northern Ireland to compete as a knowledge driven economy are relatively favourable. Output and employment growth have both been strong over the last decade and are likely to continue to be so. Export growth has also been strong under the impetus of increasing foreign investment and the trends towards globalisation of the world economy. The labour market is generally robust and flexible suggesting an attractive environment for Northern Ireland’s competitiveness as a knowledge driven economy. Inputs-Resources-Capacities 4.4 The inputs of economic resources or capacities into the economic system consist of investment in human, physical, knowledge and finance capital, and ICTs. These inputs are the new ‘raw material’ to be transformed, through the innovation process, into valued outputs of goods and services. The indicators suggest that relative shortfalls in investment in each of these necessary, but admittedly not sufficient, inputs is part of the reason for the standard of living gap between Northern Ireland and the rest of the UK, and indeed competitor economies elsewhere.

27

Conclusions and Implications for Policy

4.5 On balance, Northern Ireland appears to maintain a lower stock of human capital than the UK average. The population of working age with no educational qualifications is higher, and investment in training is lower, in Northern Ireland than the UK average. Although the educational attainment of 21-23 year-olds domiciled in Northern Ireland is higher than the UK average, Northern Ireland suffers a well-documented ‘brain drain’ of this cohort to the rest of the UK and elsewhere, turning a higher than average flow of human capital investment into a lower than average stock available for regional economic development. The high investment in human capital is, however, a relative strength in Northern Ireland that could be harnessed for regional economic development if background conditions remain favourable, particularly if the education sector is attuned to the needs of regional economic development and firm growth. 4.6 Capital expenditure in Northern Ireland is lower per worker and per capita, but higher as a percentage of GDP, than the UK average, the latter being due more to low relative GDP than to high relative investment. Capital investment is an area where the UK lags significantly behind its main competitors, especially Germany and Japan (DTI, 1999), and Northern Ireland appears to lag somewhat behind the UK average in this area. 4.7 Investment in ICT in Northern Ireland is lower than the UK average, but the UK compares relatively favourably with many of its major competitors, especially in Europe and the Far East. However, the speed of change in this area is such that Northern Ireland appears to be only a year or two behind best practice. Of course, such a lag may be the deciding factor between being able to compete or not. However, this appears to be an area that Northern Ireland companies and government, through the IAI, are targeting for rapidly increased investment. Consequently, this is an area that is unlikely to be a major impediment to economic progress in the longer-term, provided background conditions remain favourable and provided firms and policy-makers can positively address the issues identified in this report. 4.8 The major deficiencies in investment in knowledge production in Northern Ireland stem from the relative shortfalls in public and private R&D spending, rather than investment in education4. Much of the low private spending on R&D can be explained on structural grounds, such as relative specialisation in low R&D intensive industries, and relative shortfalls in public funding of R&D, both of which have been explored recently by the Council (NIEC, 1999b). Attention to increasing the public and private funding of R&D must be considered if Northern Ireland is to be able to compete as a knowledge driven economy. Certainly, Porter and Stern (1999) give prominent place to public and private investment in R&D, and to the linkages between them, as key determinants of international competitiveness. Innovation System-Capabilities 4.9 4

It is the innovation system (or process) that translates inputs of knowledge and other However, Northern Ireland’s higher than UK average public spending on education as a percentage of GDP is due more to low relative GDP than high relative education investment. For example, expenditure on higher and further education per capita is no higher in Northern Ireland than the UK average.

28

Conclusions and Implications for Policy

resources, such as human and physical capital and ICT, into valued outputs of goods and services since innovation is the practical application of knowledge to create these goods and services. It is largely what goes on inside the 'black box' of the innovation process that determines success or failure in the knowledge driven economy. However, Northern Ireland compares unfavourably relative to the rest of the UK and elsewhere on the necessary inputs into the innovation process. Northern Ireland also compares unfavourably, relative to the UK average, on indicators of how knowledge becomes practically applied. Fewer firms innovate, spending on innovation is generally less, and the share of sales made from new or improved products in Northern Ireland falls below RoI and EU averages. There is also a lower rate of enterprise and entrepreneurship in Northern Ireland relative to the average for the UK. Birth and death rates of firms are lower and firm survival rates are higher for Northern Ireland than for the rest of the UK. However, these higher survival rates are obviously not driven by longterm competitiveness foundations, such as investment in R&D, training and innovation. It remains for further research to throw light on how many of the differences in the performance of innovation and entrepreneurship can be explained by structural factors, such as the comparatively large public sector, relative to behavioural factors in business enterprise in Northern Ireland. 4.10 A common characterisation of the climate of entrepreneurship and innovation in Northern Ireland is that the disproportionate role of the public sector in the economy works to blunt incentives for enterprise. The government grant process might slow entry and exit by business, increasing survival rates and weakening incentives for innovation. Average earnings in the public sector are well above those in the private sector in Northern Ireland. Furthermore, the economic incentives (in terms of risk and returns) to engagement with the public sector might be such, relative to incentives for engaging in private enterprise, as to weaken the innovation process in Northern Ireland. Certainly this is noted in Strategy 2010 (Economic Development Strategy Review Steering Group (EDSRSG), 1999) which states: "The use of grant rather than equity funding tends to reduce the commercial pressure on firms to innovate and take risks" (p.114). Moreover, Strategy 2010 notes that "a high share of public expenditure in total economic activity … may induce a "dependency culture" among local consumers and firms which may dim incentives to take risks and it may distort local patterns of demand" (p.124). The need to break the public sector and grant dependency culture in Northern Ireland has also been stressed by the Council on many occasions in relation to industrial policy. Outputs-Results 4.11 The overall outcome of the above factors is that levels of economic activity, productivity, and the knowledge intensity of production are all lower in Northern Ireland than the UK average although growth rates in these areas suggest some, but not significant, relative improvement over recent years. A major problem is that the relatively high GDP growth rates of recent years in Northern Ireland have been driven largely by employment rather than by productivity growth, suggesting a natural brake on long-term growth without a step-change in the rate of productivity growth5. Productivity growth itself, however, is held back by the 5

See the Council’s Statement preceding Best (2000).

29

Conclusions and Implications for Policy

structure of the economy which is relatively specialised in less knowledge-intensive industries and services. Although there is more room for increased economic activity within the population of working age in Northern Ireland than there is in the UK as a whole, this does not obviate the necessity to raise the rate of productivity growth through structural change and other means, if the demanding growth target of Strategy 2010 (EDSRSG, 1999) – of closing the per capita income gap between Northern Ireland and the rest of the UK – is to be met6. In its response to Strategy 2010 (NIEC, 1999a), the Council stresses the need for a productivity growth rate target for Northern Ireland as critical for economic development policy. Certainly, the strong productivity growth rates recorded in manufacturing in the most recent data from the Department of Enterprise, Trade and Investment (DETI) are an encouraging sign. 4.12 In sum, therefore, shortfalls in the knowledge intensity of manufacturing, exports and overall GDP in Northern Ireland, relative to the UK average, appear to explain much of the income per capita differential between Northern Ireland and the UK average. There is obviously a need in Northern Ireland to diversify the industrial structure away from nonknowledge intensive towards knowledge intensive manufacturing, and from public towards private services, in order to fully prosper in the new knowledge driven economy. The private knowledge intensive service sector is particularly underdeveloped in Northern Ireland. 4.13 Table 3.1 in Section 3 presents a weighted average of the various indices resulting in an index of Northern Ireland’s competitiveness as a knowledge driven economy, relative to the UK average, of 81.7 per cent. The fact that this is higher than the relative GDP per capita index of 80 per cent is encouraging. It suggests that a shift of economic policy towards more focused support for the knowledge or innovation economy might enable Northern Ireland to reach the demanding target - of 90 per cent of average UK per capita income - set by Strategy 2010 (EDSRSG, 1999). Without such a shift, the target will not be met. Implications for Policy 4.14 Economic policy in Northern Ireland must increasingly focus on the goal of improving the regional economy's ability to create, distribute and exploit knowledge and information to economic advantage. A major point of leverage in attaining this goal would be to improve the system or process of innovation in the economy, as argued by the DTI (1998, 1999), the OECD (1999) and, perhaps most forcefully, by the MTC (1999). Economic development strategy must be innovation-led, and the innovation process must be improved by encouraging knowledge production and its commercialisation through business innovation and entrepreneurship. The Council recognises the critical role that innovation will play in the knowledge driven economy of the future. Thus, it has recently commissioned research, from Professor Philip Cooke of Cardiff University and Dr Stephen Roper of The Queen’s University of Belfast, to look ‘inside the black box’ of the innovation system in Northern Ireland, and make recommendations on the development of a potential innovation strategy.

6

Indeed, the productivity growth imperative has recently been recognised by the RoI, given that opportunities for RoI growth through increasing inputs are closing, and opportunities for growth through raising productivity must increasingly be exploited (Forfás, 2000b).

30

Conclusions and Implications for Policy

4.15 It is important that government economic policies in the areas of education; training; capital infrastructure; ICT, and R&D are increasingly focused on, and subsumed within, the goal of improving the innovation process, and the inputs to it. This would help to shift the Northern Ireland economy out of the low productivity of the old economy, and into the high productivity of the knowledge driven ‘Innovation Economy’. Government actions, such as the IAI which is seeking to embed the role of ICT in the innovation process or system (IAI, 2000), are to be commended. However, much more needs to be done, especially in the areas of R&D, new firm creation, the nature of financial assistance, and venture capital. 4.16 The Innovation Economy must also be supported by the correct environment for enterprise. For example, as noted in the EC’s Innovation and Technology Transfer: The essential elements of the dynamic and self-sustaining innovation which has so spectacularly delivered employment and prosperity in the United States over the past two decades are clear. At the top of the list are access to risk capital, availability of technology and business skills, and a culture of ‘can do’ entrepreneurialism in which failure is seen as a stepping-stone to success (EC, 2000a, p.18). Areas of traditional industrial decline in the UK, such as Northern Ireland, have low rates of business start-ups and entrepreneurship and a lack of business “churn” (Peat, 2000). Strategies designed to increase business birth rates are needed to encourage more entrepreneurs to set up their own businesses. 4.17 Appropriate grant and tax incentives are also required to support the Innovation Economy. With respect to the Northern Ireland manufacturing sector, Harris notes that, Plant turnover needs to increase whereby less efficient plants are replaced by more efficient plants … Industrial policy should not ‘protect’ the weaker sectors of the economy through provision of grants and subsidies that allow weaker plants to survive and/or relatively inefficient plants to open (Harris, 2001, p.25). Roper argues that industrial policy in Northern Ireland appears to be counter strategic: Instead of targeting assistance to speed up the adjustment of the economy towards faster growing sectors, reactive assistance to individual firms might be locking them into their existing sectors, effectively slowing down the adjustment process (Roper, 1998, p.365). 4.18 Roper (1998) also infers that industrial development spending might be better targeted at improving sectoral competitiveness in networks and clusters, rather than at individual firms, in order to develop industrial support mechanisms and encourage structural change. Best (2000) concurs with this view. This would involve the identification of growing sectors, the design of suitable policy instruments, and the withdrawal of support from firms in some declining sectors. Furthermore, the Council argues (NIEC, 1999b) that an appropriate grant

31

Conclusions and Implications for Policy

and subsidy regime for the Innovation Economy would be assistance targeted at R&D and product and process development, rather than at investment in plant and machinery. Taken from work recently published by the NIERC (2000), Table 4.1 below shows that the government assistance to industry regime in Northern Ireland, relative to that of the RoI, remains much more focused on capital support as opposed to R&D and innovation support.

TABLE 4.1 Percentage of Manufacturing Plants Receiving Government Assistance, 1996-1999 ASSISTANCE FOR:

NI

RoI

Product Development

23.8

29.6

Process Development

16.5

17.4

R&D

9.9

12.6

Manufacturing Licensing

1.2

2.6

New Plant or Machinery

36.6

26.5

Exporting

24.4

16.3

8.0

8.1

Best Practice Source: NIERC (2000)

4.19 In addition, there are obvious gaps in the indicators of the knowledge driven economy in Northern Ireland, particularly indicators of innovation and enterprise. These gaps must be filled in order to monitor progress and to support the economic development policy-making process. The collection and analysis of data on innovation and enterprise and the benchmarking of Northern Ireland’s performance must be a high priority. This would give policy-makers and entrepreneurs a firm basis and a clear rationale for the design and implementation of initiatives in areas such as innovation7. In order to monitor Northern Ireland’s progress as a knowledge driven economy, better data are needed on innovation, venture capital and ICT utilisation. More generally, there is a need for increased co-operation and collaboration in the generation, transmission and exploitation of knowledge as well as turning ideas into business. Policies could then be recommended which are informed by that progress, or lack of it, as the case may be. 4.20 7

Two sources that might be used to build on the indicators of the knowledge driven

See EC (2000a) for EU initiatives in this area.

32

Conclusions and Implications for Policy

economy developed in this report are: the work of the National Competitiveness Council (NCC) in the RoI (Forfás, 2000a), and the EC’s European Trend Chart of Innovation (EC, 2000b). The latest Annual Competitiveness Report of the NCC (Forfás 2000a) provides RoI rankings in an international context using 160 different indicators, including what it terms as “33 key” ones (for example, science and engineering degrees awarded as a proportion of total degrees awarded). These indicators are organised into eight categories (social partnership; people; costs; infrastructure; telecommunications and e-business; competition and regulation; science and technology, and the economic environment) with inputs (potential) distinguished from outputs (performance) and with productivity growth (improved outputs from inputs) recognised as the key to competitiveness. The European Trend Chart on Innovation (EC, 2000b) is designed to provide an inventory of the best practices in European innovation policy through an annual Innovation Policy Report, backed up by an annual European Innovation Scoreboard and an Innovation Statistics Yearbook. These will measure innovation performance through a number of core indicators across four areas: knowledge creation (inputs); technology transfer; innovation finance, and innovation outputs. 4.21 There is, thus, unexploited potential for economic policy in Northern Ireland to learn more from best practice in other regions and nations. An outward-looking ethos and one of networking and collaboration go hand-in-hand. The knowledge driven economy must be guided by both public and private sector initiatives - in partnerships and in clusters - between entrepreneurial firms; universities; hospitals; government departments, and other public and private institutions. These are necessary in order to encourage new firm start-ups, spin-offs and the commercialisation of new ideas in the Innovation Economy. Northern Ireland must disengage from a risk-averse and grant-dependent culture and develop an economy with the innovation and enterprise of current best practice models such as those found in, for example, California or Massachusetts. Without this, any potential for catch-up to UK average performance, and beyond, will be lost. 4.22 It is clear that a new approach to industrial policy is necessary if Northern Ireland is to get the step-change in economic performance, in terms of productivity and growth, which is required to close the gap in living standards with the rest of the UK. The two key interrelated themes that emerge from recent studies are innovation and capabilities. Innovation is said to account for 80 per cent of productivity growth (EC, 1998) as stated in paragraph 2.6 above, and the DTI’s view is that, “capabilities [are] the bedrock of our competitiveness” (DTI, 1998, p.6). “The UK’s distinctive capabilities” the DTI states, “are not raw materials, land or cheap labour. They must be our knowledge, skills and creativity” (DTI, 1998, p.6). Best (2000) particularly emphasises these key interrelated variables. 4.23 Recent policy pronouncements from the EC (2000b) and the recommendations for policy in Best (2000) both stress the need for regional industrial policy to focus on innovation policy. The EC highlights innovation policy’s new “horizontal” role of providing the interface between economic, industrial and science policy (EC, 2000b, p.3). Innovation policies must be integrated, complete and ‘systemic’; be cluster and competence networkbased, and stress an entrepreneurial and innovation culture. The goal is socially inclusive: to increase know-how per firm and per person. Best (2000) emphasises a strong role for regional government in Northern Ireland - in partnership with entrepreneurial firms, mission

33

Conclusions and Implications for Policy

driven agencies, and education and training institutions - to create a coherent policy response. Dense networks of collaboration (between business, universities, research institutions and government in social partnership) are necessary. These would enable innovation to flourish, maximise the value of science and technology to the economy, and effectively diffuse skills and capabilities throughout society. Best (2000) stresses the centrality of entrepreneurial firms to the regional innovation system. The Council is currently carrying out further work, to be published later this year, with a view to more fully understanding the regional innovation system that operates in Northern Ireland, and how co-ordinated and systemic interaction in innovation policy can be fostered, perhaps through a coherent regional innovation strategy. 4.24 The policy debate would certainly be advanced by the regular, perhaps annual, monitoring and publication of Northern Ireland’s performance as a knowledge driven economy, both at the regional and sub-regional level. In this report, the Council suggests how this could be facilitated by using methodologies and indicators based on recent work, and by using the latest available data to construct a Competitiveness and Innovation Index.

34

REFERENCES

Arthur, B. (2000) Notes from a lecture series at the National University of Ireland, Galway, on the High Technology Economy. Audretsch, D.B. and Feldman, M. (1996) “R&D Spillovers and the Geography of Innovation and Production”. American Economic Review 86, No 3, pp.630-639. Best, M.H. (2000) The Capabilities and Innovation Perspective: The Way Ahead in Northern Ireland. Research Monograph 8. Belfast: Northern Ireland Economic Council. De Propris, L. (1999) “Innovation and Inter-firm Co-operation: The Case of the West Midlands.” Mimeo. DED (1999) Facts and Figures from the Inter-Departmental Business Register, Edition One May. Belfast: Department of Economic Development Statistics Research Branch. DTI (1998) Our Competitive Future: Building the Knowledge Driven Economy. White Paper and Analytical Report, Cm 4176. London: Department of Trade and Industry. DTI (1999) Our Competitive Future: UK Competitiveness Indicators 1999. London: Department of Trade and Industry. DTI/ONS (2000) Regional Competitiveness Indicators. February. London: Department of Trade and Industry. EC (1998) Regional Innovation Systems: Designing for the Future – REGIS. Final report of the REGIS project, Targeted Socio-Economic Research (TSER) Programme (coordinator: Cooke, P.). European Commission DG XII. EC (2000a) “A New Breed of European Entrepreneur”. Innovation and Technology Transfer. Vol 2/00, March, pp.18-22. Luxembourg: European Commission Enterprise DG. EC (2000b) European Trend Chart on Innovation. Newsletter No 1, May. Innovation/SMEs Programme, Fifth Research Framework Luxembourg: European Commission. EDSRSG (1999) Strategy 2010. Belfast: Department of Economic Development. Feldman, M. (1994) The Geography of Innovation. Dordrecht, The Netherlands: Kluwer Academic Publisher. Forfás (2000a) Annual Competitiveness Report. May. Dublin: National Competitiveness

35

References

Council.

36

References

Forfás (2000b) Enterprise 2010: A New Strategy for the Promotion of Enterprise in Ireland in the 21st Century. Dublin: Forfás. Guinet, J. and Pilat, D. (1999) “Promoting Innovation – Does it Matter?”. OECD Observer, 217/218. Summer, pp.63-65. Harris, R. (2001) “Comparing Regional Technical Efficiency in UK Manufacturing Plants: The Case of Northern Ireland 1974-1995”. Regional Studies [Forthcoming]. Huggins, R. (2000) “An Index of Competitiveness in the UK: Local, Regional and Global Analysis”. April. Cardiff: Centre for Advanced Studies, Cardiff University. IAI (2000) Leapfrog to the Information Age. Information Age Initiative for Northern Ireland. Strategic Framework and Action Plan. Belfast: Information Age Initiative, Department of Enterprise, Trade and Investment. IIMD (1999) World Competitive Year Book. International Institute for Management Development. Lundvall, B-A. (ed) (1992) National System of Innovation: Towards a Theory of Innovation and Interactive Learning. London: Pinter. MTC (1999) Index of the Massachusetts Innovation Economy 1999. Westborough, Mass: Massachusetts Technology Collaborative. NIEC (1999a) A Step-Change in Economic Performance? A Response to Strategy 2010. Occasional Paper 12. Belfast: Northern Ireland Economic Council. NIEC (1999b) Publicly Funded R&D and Economic Development in Northern Ireland. Report 133. Belfast: Northern Ireland Economic Council. NIEC (1999c) The Implementation of Northern Ireland's Economic Development Strategy in the 1990s: Lessons for the Future. Report 131. Belfast: Northern Ireland Economic Council. NIERC (2000) Innovation and E-Commerce: A Cross-Border Comparison of Irish Manufacturing Plants. Research Report 17. Belfast: Northern Ireland Economic Research Centre. OECD (1999) OECD Science, Technology and Industry Scoreboard 1999: Benchmarking Knowledge-based Economies. Paris: Organisation for Economic Co-operation and 37

References

Development. Peat, J. (2000) “Some Reflections on Regional Policy”. CBI Economic Outlook. February, pp.12-18. London: Confederation of British Industry. Porter, M. and Stern, S. (1999) The New Challenge to America’s Prosperity: Findings from the Innovation Index. Washington DC: Council on Competitiveness. Roper, S. (1998) “The Principles of the ‘New Competition’: An Empirical Assessment of Ireland’s Position”. Environment and Planning C: Government and Policy. Vol 16, pp.363-372. Sachs, J. (1999) “Helping the World’s Poorest’’. Economist, 14 August.

38

PROJECT STAFF

Research:

Peter Wylie

Research Assistance:

Aidan Gough Angela McGowan Joanne McCartan

Text Processor and Editor:

Niamh Chambers

Proof Reader:

Lorna Walker

ACKNOWLEDGEMENTS

The Council would like to thank a number of people who assisted in the completion of this report. We are particularly grateful to Dr Robert Huggins who provided the background data to his Competitiveness Index for the UK regions, to officials from the DTI for supplying the background data used in Our Competitive Future: UK Competitiveness Indicators 1999, and to Ms Fiona Hepper of the DETI for providing the background data to the Northern Ireland Census of Production. We would also like to thank Ms Fiona Hepper, Professor Philip Cooke of Cardiff University, and Mr Jim Wolstencroft of the Industrial Research and Technology Unit for their comments on earlier drafts. The views expressed, however, are those of the Council and it bears full responsibility for the analysis and for any errors of fact or interpretation in the report.

40

NIEC PUBLICATIONS IN THE LAST 5 YEARS

Reports 118

The 1995 UK Budget: Background and Implications for Northern Ireland (February 1996)

119

Annual Report 1995-96 (October 1996)

120

Annual Sir Charles Carter Lecture "Reforming Education in the United Kingdom: The Vital Priorities" by Sir Claus Moser KCB CBE FBA, The British Museum Development Trust (January 1997)

121

Rising to the Challenge: The Future of Tourism in Northern Ireland (February 1997)

122

The 1996 UK Budget: Implications for Northern Ireland (March 1997)

123

Industrial Policy Assessment and Performance Measurement - The Case of the IDB (April 1997)

124

Annual Report 1996-97 (October 1997)

125

The 1997 UK Budget: Implications for Northern Ireland (November 1997)

126

Annual Sir Charles Carter Lecture "Setting Priorities for Health Care: Why Government Should Take the Lead" by Chris Ham, Professor of Health Policy and Management and Director, Health Services Management Centre, University of Birmingham (January 1998)

127

A Framework for Economic Development: The Implications for Northern Ireland of the 1998 UK and EU Budgets and the Chancellor's Economic Strategy for Northern Ireland (June 1998)

128

Annual Report 1997-98 (October 1998)

129

Annual Sir Charles Carter Lecture "Social Exclusion, Income Dynamics and Public Policy" by Professor John Hills, Director, Centre for Analysis of Social Exclusion, London School of Economics and Political Science (April 1999)

130

Let's Get Together. Linkages and Inward Investment in Northern Ireland (June 1999)

131

The Implementation of Northern Ireland's Economic Development Strategy in the 1990s: Lessons for the Future (August 1999)

132

Annual Report 1998-99 (October 1999)

133

Publicly Funded R&D and Economic Development in Northern Ireland (December 1999)

134

Tough Choices: Setting Health and Social Care Priorities in Northern Ireland (April 2000)

135

Annual Report 1999-2000 (December 2000)

Occasional Paper Series 6

Building A Better Future: A Response to Building on Success. Proposals for Future Housing Policy (May 1996)

7

"Decentralised Government and Economic Performance in Northern Ireland". Proceedings of the Seminar sponsored by the Northern Ireland Economic Council in association with the University of Ulster on 19 June 1996 at the University of Ulster at Jordanstown (December 1996)

8

Towards Resolving Long-Term Unemployment in Northern Ireland. A Response to the Long-Term Unemployment Consultation Document (June 1997)

NIEC Publications in the Last 5 Years

9

The Impact of a National Minimum Wage on the Northern Ireland Economy. A Response to the Low Pay Commission (February 1998)

NIEC Publications in the Last 5 Years

10

"Hard Choices. Policy Autonomy and Priority-setting in Public Expenditure". Proceedings of the Seminar sponsored by the Northern Ireland Economic Council jointly with Democratic Dialogue and the Eastern Health and Social Services Board on 22 June 1998 at the Eastern Health and Social Services Board (November 1998)

11

Growth with Development. A Response to New TSN (December 1998)

12

A Step-Change in Economic Performance? A Response to Strategy 2010 (September 1999)

13

Local Development: A Turning Point (December 2000)

Research Monograph Series 2

The Arts and the Northern Ireland Economy by John Myerscough with A Statement by the Economic Council (January 1996)

3

Successful European Regions: Northern Ireland Learning From Others by Michael Dunford and Ray Hudson with A Statement by the Economic Council (November 1996)

4

Educational Achievement in Northern Ireland: Patterns and Prospects by Tony Gallagher, Ian Shuttleworth and Colette Gray with a Statement by the Economic Council (December 1997)

5

Competitiveness and Industrial Policy in Northern Ireland by John H Dunning, Edward Bannerman and Sarianna M Lundan with A Statement by the Economic Council (March 1998)

6

Regional Economic and Policy Impacts of EMU: The Case of Northern Ireland, edited by John Bradley with A Statement by the Economic Council (April 1998)

7

Improving Schools in Northern Ireland by Tony Gallagher, Ian Shuttleworth and Colette Gray with A Statement by the Economic Council (August 1998)

8

The Capabilities and Innovation Perspective: The Way Ahead in Northern Ireland by Michael H Best with A Statement by the Economic Council (December 2000)

Advice and Comment Series 98/1

A Response by the Northern Ireland Economic Council to: Northern Ireland Science Park (Department of Economic Development) September 1998 (3 pages)

98/2

A Response by the Northern Ireland Economic Council to: Fit for the Future (Department of Health and Social Services) September 1998 (13 pages)

98/3

A Response by the Northern Ireland Economic Council to: Structural Funds Plan 2000-2006 (Department of Finance and Personnel) October 1998 (2 pages)

98/4

A Response by the Northern Ireland Economic Council to: Housing Selection Scheme Review: Proposals for Consultation (Northern Ireland Housing Executive) October 1998 (12 pages)

99/1

A Response by the Northern Ireland Economic Council to: Water and Sewerage Services in Northern Ireland: A Consultation Paper (Department of the Environment for Northern Ireland) February 1999 (11 pages)

99/2

A Response by the Northern Ireland Economic Council to:

NIEC Publications in the Last 5 Years

Shaping Our Future. Towards a Strategy for the Development of the Region (Department of the Environment for Northern Ireland) April 1999 (16 pages)

99/3

A Response by the Northern Ireland Economic Council to: Vision 2010 - Energy Action Plan (Department of Economic Development) November 1999 (15 pages)

00/1

A Response by the Northern Ireland Economic Council to: A Consultation Paper on Research Funding Allocation Method to be Applied to the Northern Ireland Universities (Northern Ireland Higher Education Council) January 2000 (30 pages)

00/2

A Response by the Northern Ireland Economic Council to: Learning for Tomorrow's World. Towards a New Strategic Plan for Education Services in Northern Ireland 2000-2006 (Department of Education for Northern Ireland) February 2000 (44 pages)

00/3

A Response by the Northern Ireland Economic Council to: The Education and Training for Industry Inquiry (The Northern Ireland Assembly Committee for Higher and Further Education and Employment) November 2000 (14 pages)

00/4

A Response by the Northern Ireland Economic Council to: Restructuring of the Economic Development Agencies (Department of Enterprise, Trade and Investment) November 2000 (10 pages)

01/1

A Response by the Northern Ireland Economic Council to: Developing a Regional Transportation Strategy (Department for Regional Development) March 2001 (16 pages)