Driving up productivity
Regional productivity remains low after 56 years of policy analysis. Our innovation discussion group called for focused support for innovators, clustering and mentoring to change the trend.
“Productivity isn’t everything but in the long run, it’s almost everything,” says Nobel laureate Paul Krugman. His words are borne out by 15 reviews of the Northern Ireland economy since 1957, which attributed poor progress to low productivity in the region.
Delegates at the innovation workshop affirmed the link between productivity and innovation. However, they also concluded that innovation per se did not increase productivity. Turning innovation into profit requires opportunity and exploitation – through production and selling capacity – which in turn delivers higher productivity.
NESTA research indicates that the revenues of innovative businesses grew 6 per cent faster than ‘non-innovators’ in the five years before the financial crisis (2004-2009). R&D tax credits, reduced corporation tax for innovators, intermediate institutions and cluster-building initiatives all contributed to this trend.
On this basis, the workshop identified four issues which would stimulate innovation and drive up productivity in Northern Ireland:
1. encourage existing innovators to do more and do it better;
2. develop clusters and interventions from academia and the private sector;
3. create SMEs and entrepreneurs who innovate; and
4. follow the money.
To take the first point, only a relatively small number of Invest NI clients are successfully demonstrating the link between innovation and productivity. The pressure to deliver jobs means that Invest NI is focusing on short-term, low-risk wins with short-term returns (within two or three years). This policy approach is easier than incubating less experienced companies where risk is high and the return is long-term.
At present, there is no critical mass for clustering in Northern Ireland. The success of clusters is well-proven in Cambridge (styling itself as ‘Tech City’) and the Republic of Ireland’s pharma and life sciences sector. Universities drive clustering in the USA; the 1980 Bayh-Dole Act allowed SMEs and universities to retain title and exploit inventions from federally-funded research. Delegates felt that the Northern Irish academia was less engaged in partnering innovation and patent registration than their counterparts in the USA and Great Britain.
Too many SMEs are inward-looking and lack experience of export markets, where greater competitive pressures drive innovation. The workshop concluded that SMEs and micro-businesses are almost wholly risk-averse, attaching a stigma to ‘failure’ when it is part of the growth process.
In addition, the education system ‘did nothing’ to encourage business and entrepreneurial aspirations. Successful innovators (especially exporters) could mentor smaller firms.
On the final point, equity (rather than debt) is the appropriate partner for risk but venture capital money for small projects is limited. Delegates welcomed tax incentives that stimulate and reward investment and are fiscally neutral. These encourage investment and profit while mitigating the cost to the taxpayer.
