Monday morning briefings from Ian Stewart are often enlightening and seldom does he not give us some hope for the future. In today’s (Mon 24 Sept) article he supports what we have been thinking and proposing at RWR for some time and is at the root of how many companies in Europe can launch their companies into the next phase post-crisis. He explains how real practical application of innovation & technology in the factories and workplaces is where we are going to see growth boosted in the future. In this article he talks from a UK perspective but this can easily be applied to any other country in Europe like Spain. Let’s stop talking about it and get on with it…
Source: Deloitte Monday Briefings by Ian Stewart, Chief Economist in the UK
The causes of the UK’s current productivity puzzle remain obscure. But what history does show is that in the long term technology and innovation are two of the main drivers of productivity.
To understand what can make the UK economy grow in the future it is useful to see what has worked in the past. Here are five themes which emerged from a lunch we had last week with the economic historian, Professor Nick Crafts of Warwick University, one of the leading authorities on innovation and economic activity.
- First, the application of new technology in an economy is at least as important as innovation. It is not necessarily ground-breaking innovations that matter to an economy as much as the ability to realise the potential of new ideas wherever they come from. Harnessing technology effectively needs a skilled workforce and managers and systems which facilitates the diffusion of new techniques. Within Europe countries vary in their capacity to exploit new technologies. The World Economic Forum ranks Ireland first out of 144 countries on its ability to absorb new technologies through foreign direct investment. By contrast Italy is ranked 122nd.
- Second, historically the lag between invention and application has been long. So, for instance, the big impact of electricity on American productivity was in the 1920s, when US factories became organised around electrical power, a full 40 years after the pioneering experiments of Thomas Edison.
- Third, the good news is that the lag between invention and exploitation is shortening. It took 150 years for the full effect of steam power to be felt on UK productivity. Professor Crafts believes similar economic effects have been felt in the US from the information, communication and technology revolution in less than four decades. The implication is that today’s innovations are being exploited more quickly, changing patterns of activity and raising growth at a faster pace.
- Fourth, markets often find new and unforeseen uses for technologies, creating more pervasive economic effects than were envisaged by their inventors. The original application for radio, one of the transformational technologies of the twentieth century, was for ship to shore communication. Global Positional System (GPS) technology was created for military use but has become a ubiquitous and productivity enhancing civil technology.
- Fifth, consumers, rather the inventors or companies, tend to be the principle beneficiaries of innovation. Professor Crafts estimates that only around 2% of the total social gain from the technological process accrue to the innovators. Railways were a revolutionised travel in the nineteenth century but proved a poor investment. Mass air travel has changed the world in the last 40 years but for much of this time the airline sector has faced poor profitability.
Innovation is vital, yet history shows that it is the application of new products and processes in the workplace that boosts growth. Getting inventions to work often requires changes to organisations and working practices. Economies and companies which have this flexibility have an advantage. We should not underestimate the value of being able to put other peoples’ ideas to work.