Knowledge economy

The Knowledge Economy in Cornwall and the Isles of Scilly LEADING THE DEVELOPMENT AND DELIVERY OF KNOWLEDGE AND ENTERPRISE SERVICES Research conducted by The Work Foundation, April 2011 Impact Knowledge Innovation Efficiency Insight Expertise

Contents The Changing Economy Understanding the Knowledge Economy in Cornwall and the Isles of Scilly Opportunities for Cornwall and the Isles of Scilly Implications for Cornwall and the Isles of Scilly

What is the Knowledge Economy? Over last 40 years the UK economy has undergone an important shift We have moved away from an economy dominated by basic manufacturing and reliant on physical capital and low cost labour for competitive advantage Towards what is often called a ‘knowledge economy’ in which the ability to produce, use, share and analyse knowledge is increasingly important as a source of economic growth and wealth creation This shift towards a more service-based, knowledge-intensive and skills-hungry economy has affected all sectors, all sizes of firm and both the public and the private sectors in every part of the UK

Drivers of the Knowledge Economy Driven by 3 forces: Market demand from consumers, business and government shifting towards higher value added goods and services New ‘ general purpose ’ technologies such as the ICT technologies introduced in the early 1980s Globalisation acting as an accelerator Characterised by 3 major shifts: Growth of knowledge based services which have become major generators of value added, exports, and new jobs A shift in business investment priorities towards knowledge based intangible assets An increasingly well-educated and qualified workforce

Shift in business investment priorities Investments made by business in ‘intangibles’ increasingly important, such as: Innovative inputs (R&D Computerised information (software) Firm competencies (training) Organisational structure (management) 0 0.2 0.4 0.6 0.8 1.0 1.4 1970 1975 1980 1985 1990 1995 2000 ratio (tangibles = 1.0) Business investment in ‘intangibles’ Source: HM Treasury

Knowledge intensive services Knowledge intensive services include communications, financial services, business services, education and health – as major drivers of growth Source: TWF estimates from ONS statistics 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 KE services All other services Manufacturing

Growth of an educated workforce Source: EU KLEMS database

Major challenges over the next decade 1. Adapting to the long term shift to a more knowledge intensive economy 2. Addressing low skill levels and high unemployment 3. Creating a low carbon society 4. Driving efficiency and managing public expenditure constraints

High level skills Fewer have degrees relative to GB, and unevenly distributed 32.9 34.8 18.9 24.9 26.6 17.0

Low skills Similar to GB average 14.3 22.2 29.3 27.9 25.7 36.2

2. Understanding the Knowledge Economy in Cornwall and the Isles of Scilly

Measuring the Knowledge Economy Measuring the Knowledge Economy remains challenging, but there are three definitions that make it easier to measure something: Knowledge industries: high tech manufacturing, water & air transport, post & telecommunications, financial & business services; education; health; leisure services Knowledge jobs or occupations: professionals, associate professionals and senior managers Knowledge workers: residents with NVQ level 4 (degree level) qualifications or above None of these measures fully capture the knowledge economy (IT workers work in retail; cleaners in universities), but together the measures give a picture of demand for knowledge and supply of knowledge. Knowledge industries (as defined by Eurostat) are: high tech manufacturing; mid-high tech manufacturing; water transport; air transport; post & telecommunications; financial intermediation; insurance & pension funding; auxiliary financial intermediation; real estate activities; renting of machinery; computer & related activities; research & development; other business services, education; health; recreation, culture & sport activities.

Geography is highly important Knowledge intensive industries are highly (but not increasingly) geographically concentrated Benefit from force of ‘ agglomeration ’ – proximity to other economic mass In the UK, this often means proximity to London But possible to overcome – some remote places have strong knowledge economies, such as Carrick © The Work Foundation % of employment in Knowledge Intensive Services, 2005 50.43 to 84.61 46.37 to 50.43 43.45 to 46.37 40.87 to 43.45 38.36 to 40.87 36.43 to 38.36 34.11 to 36.43 22.57 to 34.11

Employment in knowledge industries 43.7 50.1 47.9 37.6 39.4 36.9 24.4

Employment in high skill occupations 39.0 49.1 47.6 35.7 31.5 34.1

Private sector Knowledge Economy lags Employment in public sector knowledge industries similar to GB average However, private sector knowledge industries lag behind Source: BRES, 2009 - may differ from earlier ABI results. Definitions as before.

But diverse within region Much of area dependent on public sector knowledge economy Public sector reliance challenging because of reductions in public spending Private sector knowledge economy strongest in Carrick and Penwith Source: BRES, 2009 – may differ from earlier ABI results. Public sector KI = Public administration and defence (SIC 84), Education (85), Human health activities (86), Residential care (87) and Social work without accommodation (88)

Knowledge Industries Knowledge intensity is below average and the majority of knowledge intensive industries are underrepresented in Cornwall & Isles of Scilly There are some exceptions: Cornwall: real estate, education, health & social work and recreation, culture & leisure Isles of Scilly: water transport, post & telecommunications, real estate Cornwall and the Isles of Scilly are much more dependent on the public sector for jobs in knowledge intensive industries Yet a relatively high proportion of the Cornish workforce is employed in high skill occupations The challenge over the next decade will be to capitalise on this to increase employment in private sector knowledge industries

3. Opportunities for Cornwall and the Isles of Scilly

Opportunities The next ‘austerity’ decade will be challenging for Cornwall and the Isles of Scilly and all parts of the United Kingdom It will be the expansion of knowledge intensive services that drives economic recovery over the next decade Growth of knowledge intensive industries, businesses and occupations is therefore essential for the future prosperity and success of Cornwall and the Isles of Scilly Four major opportunities: Low carbon goods and services The creative industries Moving other sectors and businesses up the value chain Capitalising on anchor institutions

The low carbon economy Low carbon goods and services include activities: Focused directly on reducing the use of fossil fuels and increasing the use of ‘clean’ forms of energy generation That reduce of emissions or remove CO 2 from the environment That support the transition to less carbon intensive operations Low carbon is a crowded arena but Cornwall has a strong base Particularly in clean energy generation - although this is unlikely to sustain large numbers of skilled new jobs in the long term There are opportunities to capitalise on the success of the Eden Project to foster the growth of: low carbon product design and architectural services software and computer services provision of services that support behavioural change Potential benefits of ‘low-carbon’ tourism

The creative industries The creative industries are industries based on ‘individual creativity, skill and talent’ that have the potential ‘to create wealth and jobs through developing intellectual property’ Recognised as mainstay of the tourist economy and local exports and as a key source of highly skilled jobs and productivity at present and as central to building a new knowledge economy Yet despite a strong reputation for creativity, the creative industries are currently underrepresented in the economy of Cornwall & Isles of Scilly – 1.3% of employment in 2008 compared to 3.5% in Great Britain Priorities: Increasing provision and take-up of high speed broadband Increasing the number of creative arts graduates in creative industry and traditional businesses

Moving sectors/businesses up the value chain The Work Foundation forecasts that the national economy will see a rising share of employment in four sectors: Low carbon goods and services: building on consumer demand and regulatory change Creative industries: developing the UK ’s reputation in this area and due to increasingly affluent global consumers High tech services: particularly those focusing on linking businesses and exchanging knowledge Advanced manufacturing: where technologically advanced manufacturing links with high value services Important to build on success: where specialist clusters of employment and expertise exist, efforts should be made to build on this success and support business and employment growth However, Cornwall & the Isles of Scilly should also focus on increasing value added, productivity and employment in non-knowledge industries in which there are clusters of expertise and employment e.g. food manufacturing

Capitalising on anchor institutions Anchor institutions are the ‘civic, cultural and intellectual institutions which contribute to the cultural, social and economic vitality of places’ Include universities, FE colleges, hospitals, museums, libraries, theatres, galleries, sports teams and large private sector businesses Locally rooted institutions are key actors in economic, social and cultural life in Cornwall and the Isles of Scilly They represent ‘sticky capital’ as they are tied to a place by their histories, missions, physical assets and local relationships At a time of public sector retrenchment and low private sector confidence, anchor institutions should think strategically about whether they could do more to support entrepreneurialism and the growth of high value businesses and employment, e.g. Truro college works with local employers to tailor courses to local need Individual and/or collective action

Anchor institutions framework Source: The Work Foundation, adapted from Örjan Sölvell (2008) Cultural Capital Financial Capital Social Capital Physical Capital Human Capital Impacts of Anchor Institutions: Benefits & Challenges Intellectual Capital Market Capital

4. Implications for Cornwall and the Isles of Scilly

Implications Future prosperity and economic growth will rely in part on the growth of more knowledge intensive businesses and forms of employment This is challenging because economic activity and knowledge intensive economic activity in particular tend to be urban phenomena The predominantly rural and peripheral nature of Cornwall and the Isles of Scilly means they cannot offer the same competitive KE advantages as large cities Nonetheless they are distinctive places with unique histories, landscapes and quality of life offerings that greatly appeal to many highly skilled workers and entrepreneurs There is a need for strategic action to: Capitalise on the opportunities and advantages that do exist Eliminate or reduce challenges that limit the potential for KE growth, such as the distance of parts of the area from large cities

Implications Numerous KE projects and initiatives have taken place, are underway or are planned (e.g. those by Combined Universities in Cornwall) The focus on developing human capital, supporting business networks and university-business linkages and fostering innovation and enterprise as well as investing in ‘hard’ infrastructure in the form of new facilities and broadband connectivity should be welcomed More attention should be paid to building on existing strengths and moving firms and sectors up the value chain Convergence funding will enable Cornwall and the Isles of Scilly to fund investments in physical and human capital over the next 3 years not available to other places However there is a need for careful ‘succession planning’ for the period beyond 2013 to ensure that the momentum continues

Knowledge economy

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