The national economic context: NESTA, 2006: The UK ‘Innovation Gap’

1. Service competitiveness and urban innovation policies in the UK: The implications of the ‘London Paradox’ Peter Wood University College London (Forthcoming in Regional Studies) p.wood@geog.ucl.ac.uk

2. The policy models employed to promote economic innovativeness and competitiveness in British cities echo national policies by being science, technology, and largely manufacturing-based. • Yet the most powerful driver of regional and urban inequality in the UK is the international economic success of London. • London’s innovativeness does not arise from technological initiatives, but from the labour intensive, knowledge-based processes of its national and global corporate, financial and business services. • Urban innovation policies should focus on the competitive innovativeness of tradable service functions, rather than high tech industries or university spin-outs.

3. The national economic context: • NESTA, 2006: The UK ‘Innovation Gap’ • Paradox of recent UK national economic performance: - Successful in 1990s, despite low measured business R&D spending and patent acquisition. • NESTA report: based on‘hidden innovation’? • Specific technical and institutional reasons: • Petroleum exploration and pharmaceuticals. Biomedical innovation: • But more generally: • UK economic growth driven by ‘intangible’ tradable services: Major basis of the ‘Innovation Gap’.

4. The UK Innovation Gap is a largely urban-regional phenomenon: • London ranks in the top 3 on a range of indices of competitiveness and economic performance compared with other English cities. • But only 30th in the proportion of firms introducing new, improved or novel products between 1998-2000; Even lower for the introduction of new or improved processes. • This ‘London paradox’ explained by the predominantly service-basis of the city’s competitive innovativeness. • Urban and regional processes, focused in London, are heavily implicated in the national ‘innovation gap’.

5. Meanwhile: • UK urban innovation policies continue to focus on technology as the prime basis for economic revival. • Treasury paper 2006: Science and Innovation Framework 2004-2014(2004) , and the ‘Science Cities’ project. • Even in London, ‘London Innovation Strategy and Action Plan’ (LDA, 2003), aimed to create “a culture of innovation in all London’s organizations”. (But photographic imagery exclusively of laboratories and men (sic) in white coats!) • Included and extended “Science & Knowledge Policy” addendum to satisfy the central government requirement for regionally focused science policies.

6. London is certainly a major centre of scientific research, so that such policies may be needed to serve national needs. • But the city’s own economy depends on service-led innovation. • In other UK cities,the preoccupation of urban innovation policies with high technology industries and university spinouts is likely to be more damaging to their prospects… • If it neglects the significance of London’s experience of service-led innovation • … and fails to address the primarily service basis both of the global status of cities and growing inequality in the UK urban system.

7. What is service innovation? Knowledge intensive service innovation depends on creation of ‘new possibilities of additionalvalue’ in client markets.. Emerges from networks of financial and business expertise exchange in close ‘co-production’ with clients. Support continuous, incremental, non-technological as well as technological adaptability to shifting national and international market demands; Supported by an appropriately regulatedbusiness environment.

8. Urban service innovation is: • Demandled. • Based on qualityof expertise, according to national and international standards. • Reflects niche specialisations, growing out of regional manufacturing and service demand. • Arises from regional and external networks of complementary and collaborative relations with clients and other service companies. • Often involves supplier spin-out from large firms. • e.g: Financial services? • Professional services? • Management/marketing services? • Technical services? • Creative services?

9. Policies need Information: • Most innovation monitoring examines input behaviour of firms as a means of determining their innovativeness: • This is of limited value where innovation depends on demand driven,networked, knowledge-based, intangible market-relations. • Need information at urban-regional scale on: • Majorregional service and manufacturing clients’ inputs of corporate and external expertise. • Expertise requirements and sources of successful regional medium-small businesses. • Expertise requirements of public sector agencies, not least to achieve critical thresholds of demand. • Markets, networks, expertise and qualities of current regional KIBS.

10. Conclusions: • Key policy problem: How to address continuing dominance of London in many of these innovative tradable service activities? • Such services respond to international commercial and regulatory change by offering specialist expertise and institutional flexibility, within an open regulatory context. • Sources of financial and business innovation come from interactions with clients, in context of need to influence their markets. • These processes are favoured by urban agglomerations with access to national and international demand • . Urban innovation policies need to encourage them by promoting enterprise in selected cross-sectoral resources of expertise. • Technology-oriented policies have little relevance to London’s innovativeness, or consequent patterns of urban-regional inequality, and thusdo not serve the primary economic development needs of the UK urban system.