Knowledge Diffusion, Innovation and Productivity – Changing the Game in Wales

The current Brexit debate is important and the structure of the UK’s trading and migration arrangements with our international neighbours will influence our future prosperity. However, other more fundamental long term issues remain important for the UK around productivity. UK productivity lags significantly behind that of our main international competitors and Wales is at the bottom of the UK regional productivity league table, firmly in the relegation zone.

So what can we do to change this picture? Well, to continue the football analogy – and my apologies to those not addicted to the ‘beautiful game’ – we can try changing the manager, we can bring in some new higher quality players or we can try and improve the skills of our existing squad. As the recent Euros suggested, Wales can be pretty good at making these types of changes.

So how can we shift policy to boost productivity in Wales? Let’s start with leadership. At a recent seminar in Cardiff one of the delegates reported that there are 44 publicly supported business development organisations in Wales. Does this need to change to provide more impactful and co-ordinated policy leadership?

Attracting new players to Wales through inward investment has worked well in the past. Attracting new inward investment is likely to be more difficult to achieve given the uncertainties pre-Brexit. Growing our own, through support for high-growth entrepreneurship has a strong tradition in Wales, although as in the rest of the UK, helping businesses to scale remains a challenge.

Knowledge sharing

This leaves the challenge of upgrading the productivity of existing firms. Some firms in Wales, so-called ‘frontier firms’, already have levels of productivity which match international best standards. These firms – perhaps 10-15 per cent of all firms – are typically larger, trading internationally and highly innovative. The other 85-90 per cent of firms – many of which will be smaller and focussed on UK rather than international markets – have lower levels of productivity and innovation. The productivity challenge comes down to how we help this latter group of firms become more efficient. This requires these firms to change or innovate by adopting new technology, introducing new business models or acquiring new skills.

So what can we do to drive change in these firms? Essentially this comes down to promoting knowledge diffusion and enabling the adoption of new innovations. In part this is about partnerships between firms and other organisations, and public organisations can play a crucial brokering role here. The developing Cardiff University Innovation Centre is a great initiative of this type, building links between the university and local firms. Schemes like Innovation Vouchers can also play a useful role here encouraging firms to seek out and embrace new technologies. Other countries, like Wales, have also experimented with technology brokers, networking and cluster type initiatives.

All these policies are potentially useful. But to work they need firms which want to innovate and upgrade. In part, this is a question of aspiration and ambition and there is a crucial advocacy role to be done here promoting innovation for a better Wales.


 

About the author: Stephen Roper is Professor of Enterprise at Warwick Business School and Director of the Enterprise Research Centre, which conducts policy relevant research on SME growth and development. Stephen’s main research interests are in innovation, enterprise growth and development, regional development, and industrial policy evaluation.

 

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