Examination of Witnesses (Questions 172-179)
WORK FOUNDATION
2 APRIL 2008
Q172 Chairman: Gentlemen, thank you for
coming. May I begin by asking you to introduce yourselves and
your roles for us?
Mr Brinkley: My name is Ian Brinkley.
I am Director of the Work Foundation's Knowledge Economy Programme.
We are about two years into a three-year programme.
Mr Hutton: I am Will Hutton, Chief
Executive of the Work Foundation. I was the Rapporteur of the
Kok Group in 2004, which was reviewing the EU's progress towards
achieving the objective of becoming the world's leading knowledge-based
economy in 2010. It was the writing of that report that provoked
me into putting the consortium together that backs this programme
that Ian runs.
Q173 Chairman: I wanted to stand
up and cheer when I read something you wrote about a year ago,
which is very relevant to this Committee's inquiry. You wrote
that sometimes phrases such as the knowledge economy or services
are, you suggest, a contrast with solid, dependable, disappearing
industry and herein lies a misconception. What is that misconception?
What is the knowledge economy really all about?
Mr Hutton: How long have you got?
Obviously, industrialisation, industrial evolution and what has
taken place since the eighteenth century has been driven by science
and technology. In a sense, what is new? I think what is new is
that this has become not just a characteristic of one or two lead
sectors, but it has become much more pervasive and that you have
organisational complexity in the organisation of an oil refinery,
a printing press, a luggage system, to be topical, all of which
have the influence of more knowledge. You also have something
running in parallel with that, and here I think is the heart of
our knowledge economy programme. It is the fact that we think
that the knowledge economy and the knowledge service sector is
the supply response to a big change in demand. All over the West
there has been a tipping point in the number of consumers who
are rich, who are better educated, who are more discerning and
who are not only looking for satisfaction in how they work, which
people have always done, but how they spend—I spend, therefore
I am. They use their spending to answer the question: how do I
live a life well? They are moving up Abraham Maslow's hierarchy
of needs. You can see this subset of the knowledge economy, called
the experiential economy, as trying to capture the way in which
a lot of the service sector is having to step up to the plate
and be much more sophisticated in the services it provides consumers,
which requires much more knowledge in their application. It could
be the way the National Trust has to go about interesting people
and going round our great national institutions; it could be a
lead consultancy firm thinking about how it provides financial
planning so it is experientially good news. It could be what is
happening in the Odeon cinemas or in M&S or in lots of parts
of tourism. It is just a phenomenon that is across the board.
Because we have the technological capacity, largely but not only
through information and communication technology, to organise
more complex and sophisticated supply responses to demand, we
can do it. That is the knowledge economy. It is organisational
complexity and product complexity. It requires much more sophisticated
management, as we have seen, and I say it again, at Terminal 5.
The British are quite good at it, particularly at knowledge services.
Q174 Chairman: I appreciate that
was a very big question with which I started. As background, you
published your Interim Report on the Knowledge Economy Programme
three weeks ago. When are you aiming to produce the final report?
Mr Hutton: The programme ends
in spring to summer of next year. We will aim to have a final
report out by at the latest the end of June/beginning of July
or maybe fractionally earlier.
Q175 Chairman: You have reached some
quite important conclusions already in the interim report. On
a point of detail which interests me, and I have not actually
read the report myself, I am told there is a lot of detail in
it about the weakness of statistics on knowledge, work, investment,
jobs and even productivity, which has been the Holy Grail of political
debate for many years. In view of all that uncertainty, what do
we actually know about innovation and knowledge?
Mr Hutton: We do know one of the
things that Ian has picked up and you might want to discuss it.
An interesting team at Queen Mary's College, University of London,
has been working on the rise of intangibles. We do know that there
is some hard data which it is pretty difficult to challenge. The
first piece of hard data which is very important in this story
is the rise of intangible investment in relation to tangible investment.
The Treasury themselves picked this up in their working paper
in October.
Q176 Chairman: You produced that
graph in your excellent evidence which we thank you for again.
It is a very impressive piece of evidence.
Mr Hutton: It is. I know that
you interviewed John Rose. I am sure you will do this: if you
had said to John Rose, "You are a leading high-tech manufacturer.
Do you spend proportionately more on intangibles than tangible
investment now than you did 20 years ago?" he would have
replied "yes". I have put the question to him myself.
That is organisations having to invest in innovation, in human
capital, brand equity, software and in the complexities of managing
their supply chain. They invest in intangibles. That is already
proof positive of the phenomena I have been describing. Secondly,
we did a report for the DCMS and the DTI as was that was originally
going to be part of a Green Paper on the culture of creative industries.
It is very impressive about Britain's cultural and creative industries,
which are part of the knowledge economy, and that is why we were
invited to do this report. We have a statistical problem because
UNESCO's definition of cultural industries is different again
from the EU's, from the ONS's and from the DCMS's. On the UNESCO
definition of it, Britain has absolutely the highest trade surplus
and the biggest volume of cultural exports in the world, even
greater than the United States. Our knowledge service exports,
of which the cultural and creative industries are a subset, have
grown by 15% per annum for a decade. The surplus in knowledge
services is 3.4% of GDP or thereabouts. These are all indicators
that (a) something is happening and (b) we have comparative advantage
in it.
Q177 Chairman: You are happy that
there is sufficient certainty about some of the important issues
in this debate to set policy confidently?
Mr Hutton: We would love to be
able to say with more confidence than we can. If you look at the
share of GDP by value-added, it gives you one answer. If you look
at the share of GDP by employment, it gives you another answer.
If you look at the share of GDP by people with educational qualifications,
it gives you another answer. If you look at the share of people
who do jobs which demand a degree of intellectual dexterity and
the application of soft skills, it gives you another answer. What
you do know is that all of those have been growing rapidly over
the last 10 or 15 years, but the scale of it is very different.
That is one problem. To try and get some purchase on productivity
and innovation in it is again very hard because in a number of
the sectors there is a long tail of really quite small firms and
so you just do not know very much about it. Ian has been at the
coalface and so I hand over to him now.
Mr Brinkley: The measurement picture
is a very mixed one. There are some things we have very good statistics
for and others for which we simply do not have any or very flaky
ones. The big problem is that we have no figures from the UK national
accounts on the knowledge economy. The figures we do have are
figures that have been derived either from figures around already
or have been based on definitions by the OECD and the EU. The
OECD and the EU produce statistics on employment and output in
the knowledge-based industries. There is no equivalent number
produced by the UK statistical authorities, and so we are having
to rely on other people basically to tell us what we think is
happening in the UK economy. I think that is quite a major deficit
when policy makers are trying to struggle with the implications
of these changes.
Q178 Chairman: I said to our last
witness that our inquiry is into quite a crowded marketplace.
Your inquiry is doing very much the same thing and people are
writing this all the time. I am trying to look for some practical
suggestions we can put to government for improving the framework.
Is this an issue that is of sufficient concern that we should
address it in more detail?
Mr Hutton: Absolutely and it is
clear that out of the Kok Group two things happened. One, I became
very interested in this subject and the other is that I became
interested in China. There is a consensus view that China within
Asia is going to transform the economic balance of power in the
world. That is not a view I share. In fact, the Chinese themselves
do not share it. As they say in China, the issue is that it is
made in China rather than made by the Chinese. They just despair,
and I use "despair" in a public inquiry of this type
as the one to stand by, of their capacity to become part of and
join the Western knowledge economy. In the knowledge industries
they are essentially a subcontractor to the West and 98% of China's
high-tech manufacturing exports are made by foreign companies
in China. The OECD has a measure of knowledge economy vitality
in a thing called triadic patents. Those are patents which are
applicable in the United States, the EU and Japan, hence the triad,
and 34% of those patents originate in the United States; 32% originate
in the EU; 29% in Japan; 0.1% originate in China. There is really
very little prospect of that number increasing significantly for
at least 20 or 30 years. So we in the West have this advantage
of the knowledge economy. It is something which the Indians and
the Chinese would love to have. They want to get there but the
gap between them and us is vast. The way the international division
of labour is settling is that the Chinese will be subcontracted
to the West; they will be an assembly area and do low value-added
manufacturing. They do not do much innovation. We have to understand
in the West the dynamics of our own success, what is driving it,
and be more purposeful, it seems to me, in (a) understanding what
the drivers of this success are and (b) in understanding it be
much more confident about globalisation. I am hugely supportive
of the globalisation process. Trade is the precursor to economic
growth and prosperity and the more globalisation, the better,
but there is a certain amount, particularly in the United States
and to a lesser degree in Europe, of anxiety to retreat from globalisation.
Q179 Chairman: I am being very discourteous
to you. I am going to stop you. This answer is so interesting,
it risks answering all the questions on our list.
Mr Hutton: I have finished. That
is why when you asked the question, I want to say as firmly as
I can that it is really vital that we have good numbers, we understand
the processes and that we map it. That is the precondition to
doing anything.
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