Competing in the Global Economy – The Innovation Challenge

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What can government do to improve innovation performance? • Government influences innovation through policies which shape innovation systems (e.g. regulation, competition policy, education) or via the provision of subsidies to encourage innovation or knowledge transfer. • The strength of the economic rationale determines the effectiveness of Government subsidies for innovation. This will vary on a case by case, project by project, basis and requires independent and informed expertise, based on learning from previous interventions, to ensure that resources are well targeted. Changes to the delivery of DTI business support should increase the impact, and clarity, of DTI interventions aimed at increasing innovation. • But DTI programme spend is not sufficient by itself to address weaknesses in the UK’s innovation performance. It is likely that a mix of policies is required to address these, reflecting the wide influence Government has over innovation systems. Many policies will rest outside DTI’s responsibilities. Other parts of Government can therefore help address some of the weaknesses. • Based on the analysis carried out for the review, the main priorities for cross Government action to achieve a sustainable increase in innovation performance are: • Improve the supply of, and demand for, skills; • More outcome based regulations, which encourage innovative compliance; • Consolidate improvements in the areas of competition policy, macro-economic stability and employment relations; • Improving policy co-ordination between different levels of Government (national, regional and EU); • Better public sector procurement. viii
Contents Introduction................................................................................................................1 Part I ................................................................................................................................2 Innovation and productivity growth Part II...............................................................................................................................9 UK innovation performance Part III ...........................................................................................................................19 Key factors determining UK innovation performance Innovation systems.....................................................................................................19 Assessment of UK innovation system ......................................................................23 Part IV...........................................................................................................................52 Challenges facing the UK Part V ............................................................................................................................63 What can Government do to improve innovation performance? Annex A ......................................................................................................................67 Academic panel membership Annex B ......................................................................................................................68 Private and social returns to R&D Annex C ......................................................................................................................69 Impact of innovation on productivity: measurement issues Annex D......................................................................................................................71 Innovation performance by region Annex E.......................................................................................................................77 Clusters Annex F.......................................................................................................................79 Design of cost-effective policies: lessons learnt References ...............................................................................................................84 ix
Page 1 and 2: DTI ECONOMICS PAPER NO. 7 Competing
Page 3 and 4: Foreword The recent DTI strategy sh
Page 5 and 6: Key factors determining UK innovati
Page 7: Challenges facing the UK • The op
Page 11 and 12: Part I: Innovation and productivity
Page 13 and 14: Relatively weaker performance has l
Page 15 and 16: UK owned establishments. And simila
Page 17 and 18: Growth accounting studies 8 have be
Page 19 and 20: Community Innovation Survey The Com
Page 21 and 22: Fig 13. Output measures of UK innov
Page 23 and 24: Fig 16. Share of foreign affiliates
Page 25 and 26: Analysis 25 of patents and other IP
Page 27 and 28: Fig 22. The barriers to lean manufa
Page 29 and 30: • Institutional economics which s
Page 31 and 32: The mapping of the ‘national inno
Page 33 and 34: The UK has for a number of years la
Page 35 and 36: Fig 25. Share of total S & T gradua
Page 37 and 38: • Furthermore, employees77 feel t
Page 39 and 40: Fig 28. Summary indicators of the s
Page 41 and 42: Fig 30. Proportion of enterprises t
Page 43 and 44: But firms appear to base their deci
Page 45 and 46: There is usually no simple way of d
Page 47 and 48: However if the economic models that
Page 49 and 50: Turning to the demand for finance,
Page 51 and 52: Despite lower levels of funding com
Page 53 and 54: Investments in design can help busi
Page 55 and 56: Sources of information for innovati
Page 57 and 58: Fig 42. Services value added as % o
Page 59 and 60:
Fig 45. Imports of goods in high-te
Page 61 and 62:
Fig 47. Share of labour force who h
Page 63 and 64:
Increasing internationalisation Inn
Page 65 and 66:
As a result of lock in, and the fac
Page 67 and 68:
Illustrative classification of serv
Page 69 and 70:
Company Manufactured Service Final
Page 71 and 72:
Industry benefits from access to th
Page 73 and 74:
technologies developed in new appli
Page 75 and 76:
• Procures goods and services wor
Page 77 and 78:
Annex B: Private and Social returns
Page 79 and 80:
On balance it is likely that nation
Page 81 and 82:
Fig 53. Business R&D spend per head
Page 83 and 84:
Fig 56. Novel process innovation by
Page 85 and 86:
Fig 59. Region of enterprises findi
Page 87 and 88:
Some authors have lamented the rela
Page 89 and 90:
A number of schemes, in particular
Page 91 and 92:
• Faraday partnerships aim to add
Page 93 and 94:
References Aghion, P. and Howitt, P
Page 95 and 96:
Council for Excellence in Managemen
Page 97 and 98:
HM Treasury, Small Business Service
Page 99 and 100:
OECD, Technology, Productivity and
Page 101:
Tamkin, P., Hillage, J. and Williso
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Competing in the Global Economy – The Innovation Challenge

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