Memorandum from the Centre for Knowledge,
Innovation, Technology and Enterprise (KITE), Newcastle University
(NE 05)
INTRODUCTION AND
SUMMARY
1. The Regional Select Committee for the
North East of England have recently announced an Inquiry into
"Industry and Innovation in the North East of England".
KITE welcome this Inquiry as a chance for Parliament to make a
collective statement about the future direction of travel for
innovation in the North East, and affirm the importance of innovation
in the North East to the economic fate of the nation. In this
memorandum, we argue that innovation policy has on the one hand
funded some interesting experiments, but on the other hand, abandoned
those experiments, and the experimenters, too soon for sensible
lessons to be learned. We argue that this is a particularly perilous
trend in light of the new economic environment.
2. Our argument is developed in four steps:
— Firstly, we note an increasing recognition
globally of the fact that innovation takes places within regional
innovation systems (paragraphs 4-8).
— Secondly, we argue that the North East
regional innovation system, once historically strong, currently
has a number of significant weaknesses although there are some
very successful innovation activities (paragraphs 9-12).
— Thirdly, there has undoubtedly been pressure
on regional decision-makers to create a regional innovation policy
(paragraphs 13-15).
— Fourthly, we argue that their approach
has favoured developing novel strategies over encouraging the
existing innovation leaders who currently deliver regional (paragraphs
16-22).
— Finally we draw the Inquiry's attention
to the risk that the regional response to these new conditions
may well be to develop another strategy rather than to try and
extend current good practices (paragraphs 23-25).
3. This memorandum has been prepared by
staff from KITE, part of the Business School at Newcastle University.
KITE is a university research centre, comprising around 25 academic
and research staff, and is strongly committed to knowledge exchange
with policy-makers and practitioners. KITE's research is funded
by a range of national and international agencies, including the
UK Research Councils, the OECD, the National Endowment for Science,
Technology and the Arts, HEFCE, and the European Framework Programme.[4]
THE INCREASING
IMPORTANCE OF
REGIONAL INNOVATION
SYSTEMS
4. The importance of innovation to economic
well-being and quality of life is now beyond dispute, and economies'
potential to prosper is dependent on their capacity to innovate.
Innovation is the combination of resources (money, ideas, raw
materials) in new ways to create new products, processes or techniques
more efficiently than has been done previously. In the last 50
years, the human dimension of innovation has become important
as technological (knowledge) inputs to innovation have increased.
Unlike traditional innovation resources (land, labour or machinery)
knowledge is embodied in people and transmitted through their
interactions and relationships. Tacit forms of knowledge, "know-how"
and "know who" are at least as important as codified
knowledge, "know what" and "know why", and
almost impossible to routinely transfer without interpersonal
contact. This is reflected in a shift to more interactive and
engaged R&D, where scientists work with external organisations
across disciplinary boundaries with a greater focus on the potential
applications of new knowledge.
5. From the 1980s, the Danish scientist
Bengt-Åge Lundvall noted that policy-makers had long responded
to effective industry-science collaborations, with their industrial
and science policies reflected "what worked" in those
countries. Policies reinforced existing collaborations, made them
seem as if they emerged naturally, and created new institutions
(public bodies and ways of working) that reflected—and extended—those
strengths. Lundvall coined the term "national innovation
system" (NIS) (1988) to describe this phenomenon, and the
concept became, and remains, influential in the Organisation for
Economic Co-operation and Development.[5]
6. Since the early 1990s, there has been
increasing academic and policy-maker interest in the regional
scale of innovation. The inter-personal nature of knowledge exchange
means that knowledge is easily exchanged at the local scale, and
so people exchanging knowledge can facilitate this by "clustering"
in certain locations. Cooke et al (1998)[6]
applied Lundvall's NIS thinking to the regional scale and developed
the notion of the regional innovation system. This concept makes
two main points:
— Regional innovation systems (RISs) evolve
based on regular knowledge exchanges between knowledge-producers
and knowledge exploiters.
— Secondly, these RISs develop supporting
institutions—agencies and ways of working—that support
those regional knowledge exchanges.
7. The RIS concept is now well-developed
and an accepted way of understanding the uneven geography of the
knowledge economy.[7]
The concept is explicit that both knowledge producers and exploiters
are active in their own global networks, but competitive advantage
is produced regionally through interactions which create supporting
institutions. The role for regional innovation policy is to support
exchange between those actors and create new pathways for exchange—new
innovation instruments such as innovation vouchers, industry fellowships,
or industrial chairs. This RIS approach is highly influential
in European innovation policy, now the centre-piece of European
structural policy.[8]
A stylised model of an "ideal type" regional innovation
system is given in the figure below.
Figure 1
AN IDEAL-TYPE REGIONAL INNOVATION SYSTEM
Source: in OECD (2008) after Cooke & Piccaluga,
2004[9]
8. More recently, emphasis has shifted to
look beyond ideal-type RISs in places like Cambridge or Sophia-Antipolis,
to "problem RISs" missing some RIS elements. Todtling
& Trippl highlight three main classes of problem region, fragmented
metropolitan city-regions, isolated peripheral economies and old
industrial regions locked into outdated approaches.[10]
In such cases, policy must take account of the need to encourage
new activities that build on existing strengths to transform their
innovation systems, on the one hand not merely repeating past
mistakes but on the other hand not creating "cathedrals in
the desert", activities which are superficially attractive
but with no regional impacts.
THE NORTH
EAST REGIONAL
INNOVATION SYSTEM
9. The central innovation problem for the
North East of England is that innovative activities have steadily
been leaving the region and have proven difficult to replace,
although there is still a functioning RIS. There may be little
expenditure in government research laboratories regionally (the
lowest proportion nationally), and business R&D expenditure
is well below the national average. However, the situation is
more nuanced than the RIS being a mess: firms, universities and
intermediaries are working together well on the slow business
of building up high-growth technology businesses. But in parallel
with that, the regional policy culture has remained attuned to
the era of mass industrial employment, and appears to have absorbed
an overly-simplistic narrative that the region is incapable of
saving itself, and needs a large-scale external solution.[11]
10. The North East has a long tradition
of industrial innovation. In the era of publicly-owned utilities
(1940s-1980s), the region was home to research stations in the
gas and electricity sectors, as well as a Public Sector Research
Establishment for the shipbuilding industry (BMT) closely linked
to the nationalised British Shipbuilding. In the private sector,
a huge chemicals R&D centre emerged around the ICI Teesside
complex, and a engineering conglomerate (Northern Engineering
Industries) incorporated the British Short Circuit Testing Station
along with its "International Research and Development"
(IRD) business. In the 1980s, increased shareholder power alongside
privatisation placed all these activities under extreme pressure
to deliver short-term profits, with many activities being closed
or divested from their parents.
11. In the mid 1990s, there was great concern
over a series of announced closures of research centres, including
that of BMT, the British Gas Engineering Research Station (ERS),
NEI IRD and the ICI research centre. There was some continuity
from these activities into new businesses. The ICI research centre
evolved into the Wilton Centre, a landlord for the R&D activities
of a number of chemicals companies emerging from the break-up
of ICI, alongside a separate consultancy business closely linked
to Teesside University, the European Process Industry Competitiveness
Centre (EPICC). A number of small businesses also formed directly
from BMT and ERS, with pipeline companies from ERS subsequently
developed close research and advanced training links to the marine
engineering department at Newcastle University.
12. Around this time, there was support
for a range of regional innovation support activities that were
reasonably successful. The "Three Rivers" strategy supported
technology centres on Tyneside, Wearside and Teesside which provided
both business and technology advice to local companies, one of
which was the EPICC centre (cited in the preceding para).[12]
The five regional universities created Knowledge House as a single
point of access to innovation knowledge for regional SMEs that
has delivered 1,800 innovation projects with a total real value
of £23.7 million.[13]
The North East performed relatively well in terms of participation
in the DTI's SMART award schemes (helped by a quota arrangement)
and a group of serial innovators (who had accessed a number of
SMART awards) emerged. ONE created Northstar, the regional venture
capital fund, which does very well in supporting high-technology
start-ups in quite a harsh regional environment for creation new
technology businesses.
PROBLEMS IN
DEVELOPING SENSIBLE
INNOVATION POLICY
FOR THE
NORTH EAST
13. Our contention is the policy problem
stems from the region's past commitment to the attraction of inward
investment, and the belief that it brought in "big"
solutions to regional problems. The regional response from the
1980s recession had been more focused attempts to attract more
inward investment, and in particular large projects. The attraction
of a new Nissan factory in 1982, which opened in 1987, signalled
that inward investors could potentially revitalise the region's
industrial base. This perception was further reinforced by the
attraction of Samsung with the promise of a high-technology development
facility in 1987 along with a Fujitsu microchip factory, then
in 1995 this approach reached its zenith with the announcement
of a state-of-the-art microchip factory to be built by Siemens.
Until three of these facilities closed in the late 1990s, policy-makers
believed that these investors would be key to building a knowledge-intensive
regional economy.
14. Regional innovation policy "crept
up" on regional partners in the 1990s, pre-occupied with
attracting manufacturing inward investment. The real stimulus
came with the 1995 reforms to the European Structural Funds, which
made significant sums of money available for regional innovation
activities. However, to this day, there has been a severe failure
to guide public policy investments through a rational assessment
of the needs of the RIS. The European Commission funded a Regional
Innovation and Technology Transfer Strategy (RITTS) project to
develop such a framework, but the strategy was inadequately developed
and never fully implemented. Our criticism is that there has been
a disconnect between the strategies which have emerged (see below)
and the very real regional strengths in innovation and support
for innovation sketched out in paragraph 13.
15. Since 1999, there have been four big
high-profile "ideas" for innovation developed in the
North East, launched with much fanfare through glossy strategy
documents, and then implemented extremely tepidly. Our diagnosis
of the regional problem is that the size of the problems in the
innovation system has led policy-makers to seek big ticket eye-catching
projects. In doing so, they have overlooked existing regional
strengths (such as those in paragraph 12), which are often small-scale
and modest, and not considered how those activities could be increased
through judicious public intervention. On four occasions, including
the RITTS, strategies have been developed, published, and then
abandoned. To illustrate this, we present four diagrams that emerged
in the region—purporting to represent regional innovation
strategy—in the North East in the last decade.
The "Triangle": the Competitiveness
Project model, c 1998
16. In 1997, the Northern Development Company,
the regional development organisation, overseeing the EU-funded
"Competitiveness Project", published their analysis
of the region's economy, setting out what they saw as the "12
drivers of regional competitiveness". This diagram was adopted
by the regional development agency in the 1999 Regional Economic
Strategy. The idea was that support for innovative businesses
needed to be targeted through supporting the conditions for those
clusters to succeed (ie those 12 drivers). The "Triangle"
was used in a number of documents, including their 2000 clusters
strategy (from which this diagram is reproduced).
The "pipeline": Strategy for Success
concept 1, c 2002
17. Not long after the "Triangle"
model was published in the clusters pamphlet, the RDA launched
an entirely novel concept, the "pipeline" model in the
regional science strategy, "Strategy for Success".[14]
This strategy was drawn up by external consultants, Arthur D Little,
and showed how the business clusters linked with the regional
science base, and noted the apparent gap hindering commercialisation
between the universities and businesses. This led to the proposal
to create "centres of excellence" which would help to
interface between the universities and the business clusters.
Five such centres were created—three from existing innovation
support activities (EPICC, Euroseas, Biosci North) and two entirely
novel centres (in digital media and nanotechnology)—along
with a venture capital fund (NorthSTAR) and a regional science
and industry council.
The pillars: Strategy for Success after first
"review"
18. A key issue for the centres of excellence
was that they attempted to make the jump immediately from small
innovation support activities to regional strategic activities.
This led perhaps unreasonable expectations about what they could
achieve, and their failure to immediately develop eye-catching
regionallevel transformations stimulated a review of the
whole strategy in 2004. The pillars diagram started to appear
towards the end of that review in Autumn 2004. All this diagram
does is map the regional science activities. Whilst the triangle
and the pipeline models each had implicit processes (driving business
growth by supporting growth factors on the one hand and pushing
science into businesses on the other), there is no such underlying
process visible in this model.
The "cheesecake": spatialising "Strategy
for Success"
19. The underlying problem with the "pillars"
concept was its abstract nature and its detachment from regional
activities. This gave the perception that science was taking place
detached from the other activities promoted by ONE, which were
concerned with physical regeneration and redevelopment. In the
final iteration of the strategy (first observed in 2007), some
thought was given to how the pillars and the activities supported
in the science strategy corresponded to the particular physical
development projects.
20. In this diagram, it is possible to begin
to see a connection between particular parts of the diagram and
existing innovation support activities, such as CPI. CPI is a
tiny part of the "cheesecake" model, but it is worth
remembering the huge amount of effort over a ten-year period that
it took for CPI to operate successfully. Firstly, the local authority
had to invest in the Wilton R&D Centre when ICI announced
its closure, Teesside University had to invest in it as part of
making it a regional technology centre (along with CAMM and EDC),
then ONE had to agree that it would be a centre of excellence.
Therein lies the difficulty of developing a nuanced innovation
strategy, because it relies on appreciating and building on others'
previous efforts.
21. Our argument is simple—policy-makers
in the North East have been so focused on finding a large, regional-level
solution to the region's problems that they have largely neglected
past successful projects from which an effective solution could
be constructed. Current academic thinking stresses that building
innovation systems is a process of encouraging regional innovation
leaders to work together to increase the scale and scope of their
innovation activities, in a manner akin to that of a journey.
22. There has been one regional innovation
strategy in the region, in 2001, that began to take this approach,
and it too was undermined by the premature launch of "Strategy
for Success" before it could be implemented.[15]
Any sense of a shared destination or common identity amongst regional
innovation leaders in the North East has clearly been undermined
by the very rapid change between strategies, and the highly politicised
environment within which some approaches are favoured over others.
More stability in the policy environment is required to allow
the North East's innovation leaders build up a regional innovation
system that ultimately contributes to raising the competitiveness
of UK plc.
IMPLICATIONS AND
RECOMMENDATIONS
23. Given this long history of dramatic
and disruptive changes and directions, we are somewhat concerned
that the response to "the current economic climate"
referred to in this Inquiry will be to abandon current activities
and funding approaches and start developing a new strategy. We
know of many innovation leaders in the North East that are very
good at interacting locally to improve innovation performance.
The key issue is that their "style" of innovation, their
practices and ways of working are not being supported by regional
innovation strategies in the North East of England.
24. We do not want to criticise the activities
which have been funded to date by the RDA, some cited in paras
13 and 17. We are sure that you will receive submissions from
(for example) the regional renewable energy sector praising NaREC,
the region's New and Renewable Energy Centre, for its entirely
reasonable approach to encouraging the sector in the face of national
discouragement. We concur with such an analysis: NaREC helped
retain the British Short Circuit Testing station in Hebburn and
brought a novel PV research centre to Blyth. But we also argue
that throughout the last decade, institutions have been created
which have produced results, and which have been disbanded without
regard for what they have achieved, or the people that have led
to those achievements.
25. There are certainly significant, urgent
challenges for these new economic times. Effective action must
build on existing regional strengths, the region's innovation
leaders in firms, universities and intermediary organisations,
who know what can be achieved. Finding out what such a diverse
group know is very difficult, and it is even harder to base strategy
on such knowledge. Nevertheless, we are concerned that relatively
little serious effort is being taken to ask these people what
their needs are from innovation policy in the current climate.
We urge your Inquiry to encourage ONE to make a serious effort
to listen to the region's real innovation leaders, learn the lessons
of the past and best exploit their past successful investments
to build a better-functioning regional innovation system.
4 Evidence was prepared by Dr Paul Benneworth, drawing
on research undertaken and published within the NESTA-funded project
Leading Innovation; Paul is an RCUK Fellow who prepared
evidence as part of RCUK's commitment to fellows' outreach work. Back
5
Lundvall, B A (1988) "Innovation as an interactive process:
from user-producer interaction to the national system of innovation",
in G Dosi (ed), Technical Change and Economic Theory, London:
Pinter. OECD (1997) National innovation systems, Paris:
OECD. Back
6
Cooke, P, Heidenreich, M & Bracyck, H J (1998) Regional
innovation systems: the role of governance in a globalised world.
London: Routledge. Back
7
Asheim, B and Gertler, M (2004): The Geography of Innovation:
Regional Innovation Systems. In: Fagerberg, J, D Mowery, and R
Nelson (eds). The Oxford Handbook of Innovation. Oxford:
Oxford University Press, 291-317. Back
8
Benneworth, P, Charles, D R, Hodgson, C & Humphrey, L (2007)
"The role of leadership in promoting regional innovation
policies in `ordinary regions': a review of the literature"
A report prepared for NESTA Places & Innovation Research
programme, London: National Endowment for Science, Technology
& the Art. Back
9
Cooke, P and A Piccaluga (eds) (2004), Regional Economies as Knowledge
Laboratories, Edward Elgar, Cheltenham. Benneworth, P, Davies,
A, & Scandura, A (2008) "OECD Reviews of Regional Innovation:
Piedmont (Italy), GOV/TDPC (2008) 14 presented to the 20th Session
of the Territorial Development Policy Committee, 3-4 December
2008, Paris. (Available on OECD OLIS). Back
10
Todtling, F & Trippl, M (2005) "One-size-fits-all?
Towards a differentiated regional policy approach" Research
Policy 34 (8) pp 1203-1219. Back
11
This analysis draws very heavily on the paper Benneworth, P (2007)
"The regional innovation journey in the North East of England:
A series of diagrams in search of a policy?" paper presented
to NESTA Regional Innovation Journey symposium, 4 July 2007,
McClintock Suite, International Centre for Life, Newcastle,
part of the project finally reported as Benneworth, P (2007) Leading
Innovation: Building effective regional coalitions for innovation,
London: National Endowment for Science, Technology and the Arts. Back
12
Benneworth, P (2002) "Innovation and economic development
in an old industrial region: the case of the North East of England"
Unpublished PhD thesis, Newcastle upon Tyne, Newcastle
University. Back
13
Benneworth, P & Sanderson, A (2009) "Building institutional
capacity for HEI regional engagement in a sparse innovation environment:
a case study of Knowledge House" Higher Education Management
and Policy, March 2009. Back
14
This diagram is notable (from our perspective) for the inclusion
of the "Northern Business School" idea, which argued
that in the absence of a world-class business school, the five
regional universities should merge their business schools to create
critical mass. That experience encapsulates the problem with ONE's
strategic approach-it emerged without consultation, the five regional
universities worked together to propose a solution, then by the
time that proposal emerged, the strategy had been abandoned. Back
15
http://www.onenortheast.co.uk/lib/liReport/819/Innovation.pdf Back
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