THE GLOBAL INNOVATION INDEX AND THE UK ECONOMY

Politicians and policy makers are always wary of league tables produced by independent organisations or academic bodies as they can have a major effect on the way that governments, and their policies, are perceived by the outside world.

For example, PISA - the Programme for International Student Assessment - has become the leading international benchmark for educational achievements.

As a result, education ministers await the results of these tests, which are carried out every three years, with all the nervous trepidation of an A-level student picking up their marks from school in August.

Given this, it is surprising that UK Ministers were not jumping up and down in joy at the latest results from the 2012 Global Innovation Index. Produced by INSEAD, one of the World’s top business schools, and the World Intellectual Property Organization (WIPO), the report ranks 141 economies on the basis of their innovation capabilities and results.

Whilst smaller countries such as Switzerland, Sweden, Singapore and Sweden led the world in overall innovation performance, the UK managed fifth place, ahead of other major economies such as the United States, Germany and Canada. Below is a comparison of the UK's performance on nine key indicators with Sweden and Singapore.

According to the index, the UK is No 1 in indicators such as the cost of redundancy dismissal, ease of getting credit and areas of online creativity. And at a time when our financial institutions are facing considerable difficulties due to issues such as the Libor scandal, it must be noted that they are vital to developing a strong innovative economy – the UK is ranked first on credit and third on investment with regard to financial markets.

There is also evidence that the commercialisation of knowledge is working well with high rankings for not only the creation of knowledge through patenting and scientific research, but also for the economic impact of these activities in the economy.

However, policymakers concerned with the internationalisation of British goods and services will be worried by the 57th global ranking in trade and competition. Certainly, there are lessons to be learnt from countries such as Singapore – ranked first in the World under this measure - that have always prioritised the exports of goods and services as a critical part of their economic and innovation policy.

In a wider context, the report shows worrying trends for the development of the World economy. For example, whilst it is generally accepted that investing in innovation during recessions is essential for enabling quick recovery, research and development expenditures in most leading nations has fallen by an average of 1.6 per cent since 2009. But whilst governments have continued to support investment in higher education research as part of their recovery strategies, the business community has cut back its expenditure in R and D by almost five per cent over the same period.

Going forward, the concern for policymakers is that unless there are changes to political imperatives, the public sector will no longer be able to keep up the same level of research funding to universities, especially if austerity measures continue to bite. As a result, it is critical that the private sector is supported in funding new technologies, products and services over the next few years to make up for any potential shortfall.

The issue of a two track Europe, which has attracted considerable commentary over the last year, also seems to apply in terms of innovation. Indeed, the  study suggests the emergence of a group of innovation leaders in Northern Europe (Sweden, Finland, the United Kingdom, the Netherlands, Denmark) as well as a second group of innovation laggards in southern Europe, including Spain (29th), Portugal (35th), Italy (36th) and Greece (66th).

The question for policymakers in Brussels is whether these four nations, given the state of their public finances, will ever be in a position again to develop their innovation potential and, more importantly, whether the European Commission should continue to spend large amounts of its vast R and D budget on these economies rather than on those economies, such as Finland and the UK, which can achieve far more in terms of their innovation potential.

But it is not only the poorer parts of Europe that are facing issues with innovation.

As economists continue to write volumes on the market potential of the so-called BRIC economies, the report suggests that a lack of investment in innovation could lead to a slowdown in their growth over time. For example, whilst China’s performance in terms of knowledge and technology is amongst the best in the World, there remain considerable weaknesses in the development of a strong innovation infrastructure, an issue that is also prevalent in India, Russia and Brazil.

Therefore, one can conclude that the Global Innovation Index is good news for the UK economy.
It shows that we are doing well on a number of indicators whilst demonstrating that there is a need to do far better in terms of export-related activities. It also suggests the UK has the potential to be a major player in terms of driving forward European innovation policy and, more crucially, remains ahead of the game when it comes to competing with BRIC nations.

However, it also demonstrates, unequivocally that politicians and policymakers should not rest on their laurels. Certainly, any hard earned gains made in innovation in the UK during the last few years can be easily lost if government, because of fiscal pressures, fails to incentivise business to invest in R and D or cuts its own budget to support innovation in the economy.

WORKING TOGETHER FOR THE BENEFIT OF WALES

When the great American politician Benjamin Franklin famously said that “We must, indeed, all hang together, or assuredly we shall all hang separately”, I am sure that the future of small businesses never even entered his mind.

Yet, in an economic future where savings and efficiencies seem to be driving the strategies of many firms, it would seem that one option that should be seriously considered by smaller businesses is to work together to create new opportunities and bring down costs.

One way of doing this, as highlighted this week by the Wales Co-operative Centre, is through the establishment of a co-operative consortium. This is a co-operative that is owned and controlled by a group of people or organisations that then enables those involved to come together to share costs, services or a common facility to help members improve their business performance. As a result, businesses can share experiences and risk, increase buying power, share the costs of ‘backroom’ services such as bookkeeping, work together on joint marketing campaigns, and ultimately reduce costs.

Within Wales, most of the focus on co-operative consortia has focused on specific business sectors and this has enabled business working in the same industry to work together to achieve objectives that cannot be achieved by working in isolation. One sector that has been at the forefront of such consortia for decades is the food and drink sector, especially through agriculturally based co-operatives that have brought farm producers together, especially in industries such as dairy and meat. However, the Welsh Co-operative Centre has helped companies in smaller niche areas to come together for mutual benefit.

For example, the Welsh Perry and Cider Society is a consortium of businesses that have come together to promote the manufacture and consumption of one the fastest growing drinks segments in the UK. With over thirty cider producers in Wales, the consortia has employed a development officer to provide technical support on the management of orchards and harvesting, quality control, encouraging collaborative and co-operative working practices. She is also adding value to the orchard owners and growers through marketing and branding initiatives that benefit all the members. Tourism is also a sector where groups such as hoteliers’ associations have long been in existence within traditional holiday areas throughout Wales. But with the move towards more specialised tourism offerings with consumers demanding something different, a co-operative set up in mid-Wales has shown how a small town can put itself on the world map by getting the community to work together.

In the small town of Llanwrtyd Wells, a group of businesses calling themselves Green Events have developed a new approach to tourism with the aim of differentiate the area from other destinations. This has been largely achieved by creating a number of distinct events that have put the town on the map, including the world famous Man vs Horse Marathon and the World Bog Snorkelling Championships, as well as stone skimming championships and mountain biking competitions. As a result, the consortium, has succeeded in creating a strong global brand for this small spa town and local businesses and volunteers who are part of the group now run all the events. Certainly it is a model that many other towns in Wales should consider replicating to boost their own local economies. However, it is not only traditional sectors that are benefiting from this business model.

In the creative industries sector, one of the best examples of this is Craft in the Bay, established by the Makers Guild in Wales. This is a highly successful retail gallery situated in Cardiff Bay that has been running as a co-operative venture since 1997. It brings together seventy members, many individual craftspeople, who get the opportunity to display their work within the gallery. They also spend an agreed number of hours working there each year to reduce running costs and so benefiting all those within the consortium. Therefore, there are plenty of opportunities for many small businesses and the self-employed to come together to benefit from working together. 

For example, recruitment agencies that specialise in certain sectors or occupations could co-operate in providing workers for larger firms with differing needs. Or a consortia of electricians and plumbers could work together to provide a one-stop shop approach to services to the home or for other businesses.

Certainly, the possibilities for getting businesses to work in Wales are endless if only entrepreneurs would stop looking as every other business in their sector as a competitor but as a potential partner in a consortium where the sum of the parts is potentially greater than the whole.