Memorandum submitted by the Commission
for Rural Communities (CRC)
RURAL ECONOMIES
AND THE
POTENTIAL FOR
CREATING A
HIGHER VALUE-ADDED
ECONOMY IN
RURAL AREAS
1. "In the context of globalisation,
innovation is a must for all regions, whether rural or not. The
capacity of regions to support learning and innovation processes
is a key source of competitive advantage, a multiplier of economic
activity, employment and development. This is particularly relevant
for rural areas." Angel Gurria, OECD Secretary General, 2007.
2. The economies of our rural areas are substantial
and diverse. They host around a million businesses of which at
least 476,000 in 2006 were registered for VAT/PAYE, with a turnover
in 2005 of £304 billion. Rural areas hosted 5.5 million jobs
of which around 4 million are in rural workplaces, covering every
imaginable occupation and industrial activity. In 2005 the GVA
of England's most rural districts, by the government's classification
those that host at least 50% of their population in settlements
below 10,000, had a GVA of £178 billion—this was a
similar figure to the GVA from all English cities and large urban
areas outside of London. These rural areas and major cities/urban
areas also had similar productivity indices. Many rural and urban
areas thus share many characteristics of economic profiles and
make a similar contribution to national prosperity and productivity.
At the same time rural England has a greater dependency on land
and the natural environment than underpins urban economies. In
the past this has been seen by too many decision makers to define
or delimit the rural economy—today there is widespread agreement
that this perspective is erroneous and historical.
3. High value/high knowledge dependent businesses
and employment can be found across rural England. Amongst those
that we are familiar with are firms and networks/clusters with
a focus on high performance automotive engineering in Northamptonshire
and Oxfordshire, precision instruments in Gloucestershire, industrial
lens and mirrors in Northumberland, IT dependent home businesses
in Devon and Cornwall, aeronautical engineering from Lancashire
to Dorset, security equipment in East Yorkshire, financial services
from Lincolnshire to North Yorkshire, Bio- and Electro-chemical
sensors in Derbyshire, Food technology in Warwickshire and Worcestershire.
Rural areas also host many fine examples of high value retailing,
craft and creative industries, environmental technologies, leisure
activities and facilities, natural resource activities etc. Overall
in the period 1998-2006 the numbers of firms in Knowledge Intensive
Business Services—a regular indicator of innovation in the
national economy—in the most rural districts of England
has increased by around 45% compared with a growth of around 15%
in our major cities.
4. On the other hand, rural England displays
many indicators of poor choice and low wage employment, challenges
of recruitment, weak business performance including failure to
realise their aspiration to grow. This is particularly true for
sparse and peripheral rural districts. More rural areas, firms
and would-be employees need to have access to the drivers and
support for high value economies—ideas, support, markets
and infrastructure. We reviewed and reported evidence of some
of these challenges and opportunities in the Rural Advocate's
report to the Prime Minister, England's rural areas: steps to
release their economic potential. The report was submitted in
June and responded to a request from the Prime Minister after
last year's floods and foot and mouth disease.
5. Weaknesses in rural economies include:
(a) Highest proportion of employees on low wages,
with almost 28% of the 1.85 million jobs in Rural 80 local authorities
on less that 60% of the median weekly wage in 2006. The sectors
with highest risk of low pay and high levels of household poverty
are hotels and catering, retail and healthcare—all of which
are large employing sectors in rural England. (ippr 2008. Working
out of Poverty.)
(b) Lowest levels of graduate recruitment, with
greatest disparity in rates of graduate recruitment across the
rural:urban continuum being found amongst medium sized employers
and public sector employers (CRC 2006. Skills Development and
deficiencies in rural England. Report to CRC by IFF Research.)
(c) Low aspirations and lack of choice amongst
young people in these sparse and peripheral rural areas, such
that comprehensive studies of young people's aspirations and actions
in the rural West Midlands and in northern England showed that
many were downgrading their educational and job actions to take
on lower paid/lower skilled jobs that exist in the rural communities
with which they were familiar.
(d) High levels of economic inactivity—frequently
not translated into high levels of unemployment—because
of poor choice of jobs; and at least one-third of a million rural
households in which no adult is in work, and 300,000 people out
of work but wanting a job.
(e) Lower levels of collaboration between businesses
and universities for Research and Development and joint product
development. Some of this has been formally reported by the RDAs
as part of their reporting of Performance Outputs, whilst other
regions Government Offices and RDAs have captured these rural:
urban differences in their Rural Evidence reports.
6. Overall these weaknesses limit the choice
and reward from employment, reduce the performance of many enterprises
in rural areas, and are limiting the release of the potential
of rural economies to contribute more to national and regional
economies. In the Rural Advocate's report to the Prime Minister,
we calculated that this unfulfilled potential could amount to
be between £236 and £347 Billion extra turnover. We
reported that the evidence, combined with the views of employees,
businesses, communities, agencies and representatives, leads to
the conclusion that the four key drivers to unlock this potential
are Investment; Innovation; Inspiration and leadership; and Empowerment.
Although they are linked we have here primarily draw attention
to the Innovation proposals in the Rural Advocate's report to
the Prime Minister- and would ask Committee members to keep in
mind that this was substantially written in advance of the publication
of the Innovation White Paper.
INNOVATION
7. We support the Government's thrust to
enhance innovation in the UK, as set out in the recent Innovation
White Paper: Innovation Nation. It echoes a change of focus
in rural policy advocated last year by the OECD, from sectors
to places. People relate to rural places—as visitors, residents
and business owners. Rural places sometimes attract new people,
new thinking and new economic activity. Innovation should build
on the distinctiveness of rural places. It is doubly important
therefore that government's policies, programmes and activities
to strengthen investment, to improve physical and knowledge connections,
especially broadband and knowledge transfer partnerships, are
developed and seen to apply to and benefit rural as well as urban
economies.
RECOMMENDATION
The Department of Innovation, University
and Skills should ensure that the direction and measures set out
in its new Innovation White Paper; Innovation Nation has clearly
identifiable relevance to rural economies and communities. This
applies equally to regional and sectoral strategies and measures.
8. We asked that the White Paper should open
the door for central government and RDAs to encourage innovative
thinking and solutions to boost economic growth in rural businesses
and economic wellbeing of rural communities.
9. Many programmes to support innovation
are designed and operated in ways that expect proximity or link
to universities, science parks or science cities. Others presume
that businesses in priority sectors are mainly located in city
and urban centres and operate in clusters. Innovation should be
promoted in all industries and places. Rural areas have successful
firms in priority sectors such as healthcare and medical devices,
high value manufacturing, micro-electronics, information technology,
and environmental and energy technologies as well as innovative
companies in traditional rural sectors.
10. However, many rural districts have weak
capacity in Universities with strong research performance, especially
in sparse or peripheral rural areas most in need of boosts in
higher value business and economic activity. Recent years have
seen a growth in the range of universities located in or serving
rural areas, for example in Cornwall, Cumbria, Lincolnshire and
Worcestershire. Their teaching capacities may be respected, few
of these have strong pedigree in or high marks for their research
performance. Their roles in developing spin out companies, offering
incubation facilities, undertaking collaborative ventures for
new products and processes with local companies, and providing
research focus for local firms, still need to be developed.
11. In contrast several rural areas host
established and well respected research facilities, for example
in defence, food, public service and environmental activities—in
private companies as well as public sector organisations. These
include QinetiQ near Malvern, Defence Science and Technology Laboratory
at Porton Down near Salisbury, HSE near Buxton in the Peak District,
PERA at Melton Mowbray, Campden and Chorleywood Food Research
Association near Chipping Camden. We believe that there are also
a host of single firm research laboratories.
12. We want to encourage the Technology
Strategy Board, DIUS and the Higher Education funding establishment
to seek new ways to network such research and development capacities
and infrastructure and to encourage stronger links with local
businesses to complement the respected links they often have with
larger and more distant companies.
RECOMMENDATION
We have proposed an examination initiated
jointly by a Technology Strategy Board/CRC-led group of rural
and innovation representatives of how national Knowledge Transfer
Networks and regionally-funded networks could engage more effectively
and fully in rural areas.
13. Some rural areas have a paucity in other
key drivers and infrastructure that support higher value, knowledge-dependent
economic activity and innovation. This includes for example, challenges
in IT and communication technology especially more consistent
broadband connections and higher broadband speeds, specialist
advisers such as patent agents, employment and contract lawyers,
incubators and innovation centres, for example. Releasing unfulfilled
potential in rural firms and employees may depend on creating
new ways to access research, skills, advisory opportunities and
outputs.
For many businesses and communities, contacts
with research establishments, specialist advisors and centres
will remain intermittent. In contrast, `inter-firm alliances',
recruitment of skilled employees and training offer constant and
endorsed routes to boosting innovation and through it of enhancing
economic growth. Analysis of the National Employer Skills Survey
to disaggregate rural and urban, and to provide sector specific
evidence for Sector Skills Councils, shows that most rural firms
have difficulties than their urban counterparts in recruiting
skilled managers and professionals. More rural firms need to be
inspired and resourced to undertake research, and to recruit and
retain higher skilled workforce, particularly new graduates.
RECOMMENDATION
We believe that rural areas need support
to pioneer forms of brokerage and create virtual clusters or networks
to access such services and share good practice. This may also
be helped if LSC and DIUS were to establish rural pathfinders
under the Further Education Special Innovation Fund, as proposed
in Innovation Nation.
14. Many rural communities lie within the influence
or hinterlands of England's cities and may benefit from the new
focus on City Regions. Others are detached from such regions.
Firms in sparse rural districts service local and distant markets,
but most feel the effects of distance, sparsity and small scale
settlements. Some rural economies in remote or peripheral areas
exhibit higher dependencies on declining or low waged industries
such as farming, fishing and tourism. They contain some of England's
highest quality and most protected environments, and whilst these
offer some unique economic opportunities, they encourage some
to limit developments whether for housing, business growth, inward
investment or service provision.
15. Sparse or remote rural communities share
profiles of ageing populations, in which in-migration of older
residents may be outweighed by flight of young people. Remote
areas are frequently affected by environmental and environmentally-induced
shocks, causing disruptions to utilities, services and activity
that businesses and residents in much of England rarely face.
They are resilient and enterprising. They offer opportunities
for some and challenges for many. If wider society is to seek
additional and ongoing benefits from these remote communities,
we need to examine ways in which Innovation can enhance their
economic performance and wellbeing for all. A new Rural Innovation
Initiative or partnership for sparse or detached rural areas is
needed.
16. Policy makers, researchers, technologists,
firms and communities should jointly explore opportunities for
new technology, processes and ideas to enhance economic opportunities
in these areas. We need to find modern and appropriate responses
to disadvantages of distance, weaknesses in service provision,
ageing populations and environmental shocks. Such an initiative
might form one of the new Partnerships for Innovation proposed
in the Innovation White Paper.
RECOMMENDATION
We have proposed in the report to the Prime
Minister that CRC, BERR, DIUS the Technology Strategy Board, NESTA
and OECD, we to explore a Rural Innovation Initiative to tackle
technology and policy challenges of peripheral/sparse areas.
CONCLUSION
17. The economies of rural England, are
diverse in character and the nature and strength of their contributions
to wider regional, national and international economies. Many
rural areas contain examples of businesses and communities that
are well embedded in the high value/high skills knowledge economy.
Several other rural areas, especially in our peripheral and sparse
rural areas, display challenges of low pay, limited choice of
jobs and low aspirations that limit the health and sustainability
of their economies and the contributions they make to the wider
economy. Building high value economies in these areas is essential.
18. However, extending the high value economy
across all rural districts and communities, is held back by a
thinness in the drivers and infrastructure of innovation—access
to appropriate and sustained communication technology, specialist
premises, advice and training, dispersed and low capacity in research
and higher education institutions. Authorities, representative
organisations, employers and communities frequently recognise
the value of high value economic activity and seek to build it.
They are hampered by lower resources and weaker capacities, lower
public and private investment, and adequate recognition by higher
tier economic agencies and programmes of their needs and potential.
19. Central departments and their agencies
need to ensure that policies, programmes and delivery mechanisms
that aim to improve economic development, and enhance innovation,
investment, skills and training, are established and rolled out
with a real and current understanding of rural economies. We need
commitment to supporting the creation of high value economies
in rural as in urban areas. Rural firms, employees and households
should be able to recognise this commitment and access mechanisms
and resources to build on their enterprising and innovative aspirations.
17 November 2008
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