Transcript
7/31/2019 UK Competitiveness Tcm8-13559
1/73
-----------------------Page1-----------------------
DTIECONOMICSPAPERNO.3
UKCompetitiveness:movingtothenextstage
BYPROFESSORMICHAELEPORTERANDCHRISTIANHMKETELS
INSTITUTEOFSTRATEGYANDCOMPETITIVENESS,HARVARDBUSINESSSCHOOL
MAY2003
-----------------------Page2-----------------------
ECONOMIC&SOCIALRESEARCHCOUNCIL
TheDTIdrivesourambitionofTheESRCistheUKslargestfundingprosperityforallbyworkingtocreateagencyforresearchandpostgraduate
thebestenvironmentforbusinesstrainingrelatingtosocialandeconomicsuccessintheUK.Wehelppeopleissues.Itprovidesindependent,high-andcompaniesbecomemorequality,relevantresearchtobusiness,productivebypromotingenterprise,thepublicsectorandGovernment.innovationandcreativity.TheESRCinvestsmorethan76millioneveryyearinsocialscienceWechampionUKbusinessathomeandatanytimeissupportingsom
eandabroad.Weinvestheavilyin2,000researchersinacademicworld-classscienceandtechnology.institutionsandresearchpolicyWeprotecttherightsofworkinginstitutes.Italsofundspostgraduatepeopleandconsumers.Andwetrainingwithinthesocialsciencestostandupforfairandopenmarketsnurturetheresearchersoftomorrow.
intheUK,Europeandtheworld.Moreathttp://www.esrc.ac.uk
-----------------------Page3-----------------------
DTIECONOMICSPAPERNO.3
UKCompetitiveness:movingtothenextstage
7/31/2019 UK Competitiveness Tcm8-13559
2/73
BYPROFESSORMICHAELEPORTERANDCHRISTIANHMKETELS
INSTITUTEOFSTRATEGYANDCOMPETITIVENESS,HARVARDBUSINESSSCHOOL
MAY2003
-----------------------Page4-----------------------
-----------------------Page5-----------------------
Foreword
ThepersistenceoftheproductivitygapwithourmaincompetitorsisakeyissueinUKeconomicpolicy-making.Inordertounderstandthisproblembetter,theDTIandtheESRCaskedProfessorMichaelPorter,oftheInstituteofStrategyandCompetitivenessatHarvardBusinessSchool,toinvestigatethecurrentstateofUKcompetitiveness.
ProfessorPorterpointstotheUKsrecentsuccessinraisingprosperity.HedemonstratestheUKsstrengthsintermsofscienceandengineering,itssupportivemarketframework,anditsimprovedmacroeconomicenvironment.However,hehighlightscontinuedweaknessesintermsofskills,clustersofinterconnectedcompaniesandinnovation.
ThemostvaluablemessageisthattheUKneedsanewconceptionofcompetitiveness.Inthepast,theUKhasbeenverysuccessfulinimplementingkeymarket-basedre
forms:deregulation,privatisationandcompetition.Buttheseaspectsofindustrialpolicyarenowrunningintodiminishingreturns.
ProfessorPorterarguesthattheUKnowneedsanapproachfocussedonimprovingskills,stimulatinginnovationandfosteringenterprise.Itisonlybybuildingsuchcapacity,thatwewillbeabletomovetothenextstageofimprovingcompetitivenessandachievesustainedhigherlevelsofprosperity.
Inadditiontohispolicyrecommendations,ProfessorPorterhassetoutanambitiousresearchagendafortheUK.BoththeDTIandESRCarecommittedtoimprovingthestateofknowledgeabouttheUKeconomyinordertoprovidearobustevidencebaseforfuturepolicydevelopment.MuchofthisworkwillbecarriedoutthroughAIM,themanagementresearchinitiativesupportedbytheESRCandledbyProfessorAnneHuff.
7/31/2019 UK Competitiveness Tcm8-13559
3/73
OtherinvestmentsbytheESRCwillalsomakeasignificantcontribution.
WehopeProfessorPorter sanalysiswillstimulatedebateandformpartofawiderdialogueinvolvingtheDTI,ESRCandallwithaninterestintheeconomicperformanceoftheUK.
VickyPryceFrancesCairncrossChiefEconomistandChair,EconomicandDirector-GeneralEconomics,SocialResearchCouncilDTI
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE1
-----------------------Page6-----------------------
DTIEconomicsPapers
ThereviewsoftheDTIinAutumn2001placedanalysisattheheartofpolicy-mak
ing.AspartofthisprocesstheDepartmenthasdecidedtomakeitsanalysisandevidencebasemorepubliclyavailablethroughthepublicationofaseriesofDTIEconomicsPapersthatwillsetoutthethinkingunderpinningpolicydevelopment.Previoustitlesinclude:
Bundling,TyingandPortfolioEffects,ProfessorBarryNalebuff(YaleUniversity),February2003
AComparativeStudyoftheBritishandItalianClothingandTextileIndustries,
NicholasOwen(DTI),AlanCanonJones(LondonCollegeofFashion),April2003
TheviewsexpressedwithinDTIEconomicsPapersarethoseoftheauthorsandshouldnotbetreatedasGovernmentpolicy.WewelcomefeedbackontheissuesraisedbytheDTIEconomicsPapers,andcommentsshouldbesenttodti.economics@dti.gsi.gov.uk
2UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page7-----------------------
Contents
1Introduction4
a)ProjectBackground4b)KeyFindings5
7/31/2019 UK Competitiveness Tcm8-13559
4/73
2OverallPerformanceoftheUKEconomy7
a)Prosperity7b)Productivity9c)Internationalisation,InnovationandProductivityGrowth13
3CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence18
a)Macroeconomic,Political,Social,andLegalContext18b)MicroeconomicBusinessEnvironment19c)Clusters27d)Roles,Institutions,andProcesses30e)InfluencesofDifferentGeographicalLevels32
4CompetitivenessandUKCompanyBehaviour:TheRoleofManagement34
a)UKCompanyPerformance34b)UKCompanyOperationsandStrategy:CompetitiveAssessment35c)UnderstandingUKCompanyBehaviour38
5ImplicationsforPolicyandFutureResearch
42
a)UKCompetitivenessattheTransitiontoaNewStage43b)TheUKCompetitivenessAgenda200345c)ImplicationsforUKCompetitivenessResearch47
ReferencesandDataSources49
AppendixA:UKSubclusterExportsbyValue,2000
54
AppendixB:ConvergenceorDivergenceAmongRegions-SelectedCountries55
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE3
-----------------------Page8-----------------------
7/31/2019 UK Competitiveness Tcm8-13559
5/73
1Introduction
a)ProjectBackground
InOctober2002,theEconomicandSocialResearchCouncil(ESRC)appointedProfessorMichaelPorterandhisteamtoconductabrief,three-monthreviewoftheexistingevidenceonUKcompetitiveness.TheeffortwasfundedjointlybytheESRCandtheDepartmentofTradeandIndustry(DTI).TheLondonSchoolofEconomicsandPoliticalScience(LSE)graciouslyservedastheUK-basedacademicsponsoroftheproject.
Theobjectiveofthisreviewistosynthesise,interpret,anddrawimplicationsfromtheavailableevidenceonthecompetitivenessoftheUnitedKingdom,applyingthePortercompetitivenessframeworkanddrawingonthelearningfromdozensofnationalcompetitivenessprojectsoverthelastdecade.TheESRCaskedthatspecialattentionbepaidtotheroleofmanagementinUKcompetitiveness.
Thereviewisbasedprimarilyonexisting,andsometimesconflicting,researchbyothers.WehavealsoanalysedexistingdetaileddatafromtheGlobalCompetitivenessReport(GCR)thathasnotbeenpreviouslypublished,butwehavenotcreatedanynewprimarydata.OurfindingsbuildontheexistingresearchonUKcompetitivenessandconfirmmanyofitsfindings.Weaimtoprovideanintegrativeframeworkthatcanaidscholarsanddecisionmakersinthepublicandprivatesectorstosetprioritiesandidentify
missingpiecesintheUKcompetitivenessagenda.
TheintegrativeframeworkprovidedbythePortermicroeconomicapproachtocompetitivenessgoesbeyondagrowthaccountingdecompositionofeconomicperformancetoidentifytheprobablecausesunderlyingUKeconomicperformance.ItalsooffersaholisticwayofassessingtheirinterrelationshipsandthechangingconstraintsonUKproductivityandprosperitygrowthovertime.WehopethatthisframeworkwillenableamoreinformedpolicydebateintheUKonhowtomanagethetransitiontothenextstageofcompetitiveness.
ThisreviewisdecidedlynotacomprehensivestudyofUKcompetitivenessbutisintendedtoprovidehigh-levelguidancetopolicymakersonbroadpriorities,andtoassistindefiningapriorityresearchagendafortheESRC.Inparticular,thisreviewwillbemadeavailabletotheESRCinitiativeonmanagementheadedbyProfessorAnneHuff.
ApreliminaryversionofthisreportwasdeliveredbyProfessorMichaelE.Porte
7/31/2019 UK Competitiveness Tcm8-13559
6/73
rinapubliclectureattheLSEonJanuary22nd2003.Thisreportalsodrawsupondiscussions
4UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page9-----------------------
Intoduction
duringandafterthelectureandthecommentsmadeinaclosedpolicyworkshopwithparticipantsinvitedbyDTI.
b)KeyFindings
PessimismandthelackofanoverallstrategicperspectivecharacterisemuchofthecurrentpublicdiscussionaboutUKcompetitiveness.AttentionisfocusedontheprosperityandproductivitygapthatremainswiththeUnitedStatesandprimaryEuropeanrivalsGermanyandFrance.ThisperformancegappersistsdespitetheUKsfarreachingeconomicpolicyreformsofthelasttwodecades.Asearchforexplanati
onshassofarnotreachedaclearconsensus.
LookingattheUKsfuturecompetitiveness,concernsdominateaswell.ArecentsurveyofUKbusinessleadersreportedasignificantlymorenegativeviewonthefutureversuscurrentUKcompetitiveness.1ChangingprioritiesinUKeconomicpolicyareperceivedto
threatentheachievementsofthepasttwodecades,e.g.lowlevelsofregulationandtaxation.Also,othercountriesareseenashavingmatchedmanyofthereformst
hatgavetheUKacompetitiveedgeinthepast.
Ourfindingsagreeonmanyofthespecifics,butaredifferentinoveralltone.TheUKhasinfactachievedaremarkablesuccessinhaltingtheeconomysprotracteddownwardeconomictrajectoryofthepre-1980period.Onmanyindicatorsofeconomicperformance,theUKhaskeptpacewith,ifnotoutpaced,competinglocations,especiallyinEurope.2Thissuccessintermsofeconomicperformanceisdirectlylinkedtothefar-
reachingeconomicpolicyreformsbysuccessiveUKgovernmentsthathavefundamentallychangedthemacroeconomicand,moreimportantly,themicroeconomiccontextforcompetition.
However,theUKcurrentlyfacesatransitiontoanewphaseofeconomicdevelopment.Theoldapproachtoeconomicdevelopmentisreachingthelimitsofitseffectiveness,andgovernment,companies,andotherinstitutionsneedtorethinktheirpolicyp
7/31/2019 UK Competitiveness Tcm8-13559
7/73
riorities.Thisrethinkingisnotasignofthepaststrategysfailure;itisanecessarypartofgraduatingtothenewstage.Apublicconsensusonthedirectionofthetransitionandonthenextstageofthecountryscompetitivenesswouldhelptomanagetheuncertaintiesofthisprocess.TheabsenceofsuchaconsensusatatimewhentheoldpolicyapproachisrunningitscourseexplainsmuchofthepuzzlementandevenpessimisminthecurrentUKdebate.
WefindthatthecompetitivenessagendafacingUKleadersingovernmentandbusinessreflectsthechallengesofmovingfromalocationcompetingonrelativelylowcostsofdoingbusinesstoalocationcompetingonuniquevalueandinnovation.Thistransitionrequiresinvestmentsindifferentelementsofthebusinessenvironment,upgradingofcompanystrategies,andthecreationorstrengtheningofnewtypesofinstitutions.
Astomanagement,wefindthattheroleofmanagementcannotbeseparatedfromt
heUKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE5
-----------------------Page10-----------------------
Introduction
overallcompetitivenessissuesfacingthecountry.Managementanditsdecisionsarebothaninputandaresultofthebusinessenvironment.ThusUKmanagementperformanceinmanywayseitherreflectsweaknessesinthebusinessenvironment
orinvolvesdecisionsthatareconsistentwiththecurrentbusinessenvironmenteventhoughtheydonotimprovecompetitiveness.Managementpractices,then,arenotatthecoreoftheUKcompetitivenesschallenge;however,thereisalwaysroomforimprovement.AspartoftheoverallefforttoupgradeUKcompetitivenessthereisaclearroleformanagement.EffortstoupgrademanagementwillnothoweverbesufficienttoachieveasustainedimprovementinUKcompetitiveness.
References
1CBI(2002)
2EuropeanCommission(2002)
6UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page11-----------------------
2
7/31/2019 UK Competitiveness Tcm8-13559
8/73
OverallPerformanceoftheUKEconomy
Competitivenessremainsaconceptthatisnotwellunderstood,despitewidespreadacceptanceofitsimportance.3Tounderstandcompetitiveness,thestartingpointmust
bethesourcesofanationsprosperity.Anationsstandardoflivingisdeterminedbytheproductivityofitseconomy,whichismeasuredbythevalueofgoodsandservicesproducedperunitofthenationshuman,capitalandnaturalresources.Productivitydependsbothonthevalueofanationsproductsandservices,measuredbythepricestheycancommandinopenmarkets,andtheefficiencywithwhichtheycanbeproduced.Truecompetitivenessthen,ismeasuredbyproductivity.Productivityallowsanationtosupporthighwages,astrongcurrencyandattractivereturnstocapital,andwiththemahighstandardofliving.
TheUKeconomyhasperformedwellonthemostimportanteconomicmetricsinthe
lasttwodecades,andtheawarenessofcompetitivenessissueshasincreasedmarkedly.Prosperityhasimprovedinabsolutetermsandhasalsoincreasedrelativetomanyotheradvancedeconomies.Prosperitygainsrelativetootherlocationsbenefitedfromasignificantincreaseintheleveloflabourforceutilisationintheeconomy(hoursworkedperemployee,employmentrate,andlabourforceparticipationrate).Labourproductivitygrowthhasbeengood,butnotsignificantlyabovethelevelinothereconomies.Otherintermediatemeasuresofcompetitiveness,suchastheUKsworldexportmarketsha
reandFDIattraction,havebeenstable.
Despitetheseimprovements,thelevelsofproductivityandprosperityintheUKstilllagmanyotheradvancedeconomies.Withlabourforceutilisationalreadyatahighlevel,onlyfurthercatch-upinlabourproductivitywillbeabletoreducethegap.Labourproductivitycanincreasethroughhigherskilllabourinputs,highercapitalintensity,andhighertotalfactorproductivity(technology).InallthreeareastheUKcurrentlylags
behindimportantcompetitorssuchastheUnitedStates,FranceandGermany.Itwillneedtoclosethesegapstofinallyachieveprosperitycatch-up.Thiswillrequiresustainedimprovementsinthemicroeconomicbusinessenvironment.
a)Prosperity
Inthelastfiveyears,theUKwasoneofthefewadvancedeconomiesthatcameclose
7/31/2019 UK Competitiveness Tcm8-13559
9/73
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE7
-----------------------Page12-----------------------
OverallPerformanceoftheUKEconomy
tomatchingtheeconomicperformanceachievedbytheUnitedStates.TheUKsgrowthrateofGDPpercapitaoutpacedotherEuropeancountrieslikeGermany,France,Italy,andSweden,andlaggedonlysomewhatbehindAustralia,theUnitedStates,andtheNetherlands.OnlyIreland,Finland,andanumberofEuropeanandAsianmiddle-incomecountriesoutpaceditsignificantly(Figure1).
Figure1:ComparativeEconomicPerformance-SelectedAdvancedEconomies
100UnitedStates
0
01Ireland=S(92%,+6.6%)USwitzerlandCanada,100JapanAustralia2
,75GermanyFranceNetherlandsaSwedentHongKongFinlandipaCItalyUKrTaiwaneSingaporepP
DNewZealandSpainG
KoreaSlovenia50-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%
CAGRofGDPperCapitaRelativetothe
7/31/2019 UK Competitiveness Tcm8-13559
10/73
US,1995-2001
Source:WorldDevelopmentIndicators2002
TheUKscurrenteconomicperformancepresentsasignificantchangefromthepre-1980period.4Inthedecadesbefore1980,theUKlostgroundagainstallmajorcompeting
economies.From1961to1970theannualgrowthrateofGDPperworking-agepersonfortheUKregisteredat2.6%,significantlybelowmostotheradvancedeconomiesincludingGermany(4.2%),France(4.4%),Italy(5.2%),Spain(6.6%),andJapan(8.2%).5
Inthe1970s,growthratesdroppedgloballyduetooilpriceshocks.TheUKsannualgrowthrate,thenat1.6%,remainedbehindmostothereconomies.The1980sbroughtfirststabilisationandlateranincreaseofprosperitygrowthratesasthefirstwaveofmarketopeningreformssetin.Amacroeconomiccrisisintheearly1990sbroughtprosperitygrowthtoahalt.Macroeconomicstabilisationandfurthermicro-econo
micreformsledtoareboundofprosperitygrowthinthesecondhalfofthe1990s.
Despiteitscomparativelyhighgrowthrateinthelastfiveyears,thelevelofGDPpercapitaintheUKstillfallsbehindmostotheradvancedeconomies.InpurchasingpowertermsthegaptotheUnitedStatesiscloseto40%,Switzerland20%,Japan11%,Germany6%,andFranceandSweden3%.TheUKprosperitylevelisonparwithItaly,andoutpacescountrieslikeSingapore,NewZealand,andSpain.
8UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page13-----------------------
OverallPerformanceoftheUKEconomy
TheUKhas,accordingto1996data,ahighlevelofpovertyrelativetootherEuropeancountriesatsimilarlevelsofprosperity.6Theexistenceofsuchpocketsofpoverty
indicatesanuntappedpotentialforproductivitygrowthaswellasasocialchallenge.Itis
alsoasignalforremainingweaknessesinthebusinessenvironment,suchaslackoftraining,discrimination,alowleveloflocalgovernmentresponsibility,andtheseparationofsocialandeconomicpolicies.Theeffortsofthelastfewyearstoaddressthisproblemmayhavealreadyledtoanimprovementinthesituation,butnoconsistentdataonthisiscurrentlyavailable.
7/31/2019 UK Competitiveness Tcm8-13559
11/73
b)Productivity
TheUKsGDPperheadcanbedecomposedintotwofactors:itsleveloflabourforceutilisation(hoursworkedperemployee,employmentrate,andlabourforceparticipationrate)anditslabourproductivity.
TheUKcurrentlyhasoneofthehighestlevelsoflabourforceutilisationintheOECDbehindonlyJapanandtheUnitedStatesbutaheadoftheContinentalEuropeancountries(Figure2).TheUKhasalowerunemploymentratethanmanypeercountries,andworkinghoursperemployeeintheUKagainfallbetweenUSandContinentalEuropeanlevels.Whiletheliterature7tendstoviewlabourproductivityasthesole
measureofeconomicperformance,integratingalargershareofthepotentialworkforceintheeconomyisanimportanteconomicandsocialachievement,andtheUKdeservescreditforitssuccessinthisarea.
Figure2:LabourForceUtilisationandProductivity
001120=KU,110Japan00GreeceUnitedStates
02-AustraliaUK610099Canada1,n90SwedenoDenmarki
taFinlandsIrelandNorwayilit80GermanyUeSpain
7/31/2019 UK Competitiveness Tcm8-13559
12/73
NetherlandscrFranceo70ItalyFrBelgiumuob60aL60708090100110120130
LabourProductivity,1999,UK=100
Note:LabourForceUtilisationmeasuredashoursworkedperworkingagepopulation;LabourProductivitymeasuredasoutputperhourworked.Source:OECD(2001),IMF(2003)
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE9
-----------------------Page14-----------------------
OverallPerformanceoftheUKEconomy
ThegrowthinlabourforceutilisationintheUKhasbeenstrongerthaninContinentalEurope,andisthedecisivefactorthatallowedtheUKtocatchupintermsofprosperity.8
Itisalwayspossibletoraiselabourproductivitybysheddingemployment,butt
hisneitherincreasestrueprosperitynoralocationscompetitiveness.9ManyContinental
Europeancountrieshavegonedowntheroadofmakinglowerproductivityemploymentunattractiveandhavesufferedhighunemployment;theUKhasinsteadincreasedincentivesforwork.TheUKdidsignificantlyreduceunemployment,anddidnotresorttocuttingtheaverageemployeesworkingweek.
UKlabourproductivitygrowthhasbeencomparabletootheradvancedeconomies-a
markedimprovementtothepre-1980swhereUKproductivitygrowthpersistentlylaggedcountrieslikeFranceandGermany.UKlabourproductivitygrowthinthelastthreedecadeshasfluctuatedbutaveragesaround2%annually(Figure3).10Intheearly1980s,
theinitialwaveofreformsledtofastproductivitygrowthbutalsoledtoariseinunemployment.Withtheeconomypickinguplaterinthedecade,labourforceutil
7/31/2019 UK Competitiveness Tcm8-13559
13/73
isationsoaredwhilelabourproductivitygrowthmoderated.Themacroeconomiccrisisintheearly1990scostmanyjobs,butlabourproductivitygrowthremainedstable.Recently,bothlabourproductivitygrowthandlabourforceutilisationhavecontributedtostrongprosperitygrowth,butlabourproductivityisbecomingthedominantfactor.
Figure3:DecompositionofUKProsperityGrowthoverTime
4%LabourProductivityGrowthLabourForceUtilisationGrowthGDPpercapita
seta3%Rhtwo
rG2%egarev1%Adn
uopm0%oC
-1%70-8080-8585-9090-9595-9898-01
Source:USBureauofLabourStatistics(2002),authorscalculations
WhilefasterUKlabourproductivitygrowthrateshavehaltedtheerosionofrelativeproductivity,theyhavenotledtoasubstantialconvergence.AccordingtotheOECD,theUKlabourproductivitygapversustheNetherlandsperhourworkedisat25%,versustheUnitedStatesat15%,versusFranceat11%,andGermanyat8%.Thisdatareferstoalleconomicactivity;OMahony/deBoer(2002)reportevenhighergapsforthemarket
7/31/2019 UK Competitiveness Tcm8-13559
14/73
sectorexcludinggovernmentandnon-governmentalservices.
10UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page15-----------------------
OverallPerformanceoftheUKEconomy
Thisproductivitygapcannotbeexplainedbydifferencesinthecompositionoftheeconomies(Figure4).Theoverallgapisdrivenbyproductivitygapsacrossallindustries.11WithUKlabourforceutilisationalreadyhigherthaninmanycompeting
countriesexcepttheUS,furtherimprovementsinUKprosperitywillhavetocomefromreducingthislabourproductivitygap.
Figure4:RelativeOutputperHourWorkedbySector,1999(UK=100)
UKAheadUKLevelUKBehind
Financial&BusinessServicesUS
ManufacturingFrance
Non-MarketServicesGermany
Distribution
Transport&Communication
PersonalServices
Construction
Utilities
Mining
Agriculture
050100150200
Note:SortedbyshareinUKoutput.Source:OMahony/deBoer(2002)
DecomposingUKProductivityApplyingthetechniquesofgrowthaccounting,theUKlabourproductivitygapversusotheradvancedeconomiescanbefurtherdecomposedintotheeffectsofthreecomponents:capitalintensity,labourforceskills,andtotalfactorproductivity(orthecomponentofproductivitythatcannotbeexplainedbythequalityorquantityof
7/31/2019 UK Competitiveness Tcm8-13559
15/73
factorinputs).Eachofthesecomponentsisnotcausalperse,butcanbeseenasanintermediateindicatorofmanyothermicroeconomicattributesofaneconomy.Nevertheless,theexerciseofdecomposingprovideshelpfulcluesaboutwheretolookforthesourcesofcompetitivenessdifferences.
OMahony/deBoer(2002)providesadetailedanalysisoftheUKversustheUnitedStates,Germany,andFranceonthesemeasures.TheyfindthattheUKlagsGermanyandFrancemainlyoncapitalintensityandtoalesserdegreeonlabourforceskills(Figure5).TheUKlagstheUSmainlyontotalfactorproductivityand,toalesserdegree,oncapitalintensity.TheIMF(2003)presentsaslightlydifferentview,findingthattotalfactorproductivitydifferencesarethemaindriveroftheUKproductivitygapversusallpeercountries.However,theauthorsalsoacknowledgethattotalfactorproductivityisoftenconnectedtocapitalinvestment.
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE11
-----------------------Page16-----------------------
OverallPerformanceoftheUKEconomy
Figure5:DecomposingtheUKLabourProductivityGap
150TotalFactorProductivityLabourForceSkillsCapitalIntensityUKLevel
140
130
leve120lKUf110o%
100
90
80
UKGermanyFranceU.S.
Note:Thedataappliestothemarketsector(excludingthepublicsector)in199
7/31/2019 UK Competitiveness Tcm8-13559
16/73
9Source:OMahony/deBoer(2002)
TheUKhasalowercapitalstockperworkerandperhourworkedthantheotherthreecountries,laggingFranceby60%,Germanyby32%,andtheUnitedStatesby25%intermsofcapitalstockperhourworked.12Figuresonthecapital/outputratioaremorefavourableandputtheUnitedKingdominthemiddleoftheOECDcountries,13but
normalisingbyoutputfavoursrelativelylessproductivecountriesliketheUK,yieldingapotentiallybiasedindicationofcapitalintensity.14TheUKsrateofcapitalinvestmentin
thelastdecadehasincreasedstrongly,anditscapitalstockgrowthratesareonparwithFrancebutlagGermanyandtheUnitedStates.However,capitalinvestmentratesarenothighenoughtoclosethecapitalintensitygap.
LowercapitalintensityintheUKhasbeenraisedrepeatedlyasasourceofits
labourproductivitygap.Thegrowthaccountinganalysissupportsthisview,butimportantquestionsremain:Whatspecifictypesofcapitalinvestmentarelaggingrelativetootherlocations,andwhyareUKcompaniesmakingthedecisiontooperatewithlowercapitalstocks?Ouranalysisbelowwillexaminetheavailableevidenceonthesequestions.
Onskills,theUKlagstheUSintheshareofhighskillemployeesinthelabourforceandalsohasaslightlyhighershareoflowskillemployees.TheUKhasasignifican
tlylowershareofintermediateskillemployeesthanGermanyandFrance,whiletheshareofhighskillemployeesisroughlyequal.TheUKslabourforceskillproblemappearstobemainlyaproblemofthecurrentstockofemployees;intermsofinflowsfromrecentgraduatestheUKdoesnotlagitsEuropeancompetitorsortheUnitedStates.
LowerlevelsofskillsintheUKlabourforcehavealsobeenraisedintheliteratureforsometimeasasourceoftheUKproductivitygap.Onceagain,thegrowthaccounting
analysissupportsthisview.Butitalsohighlightsthepatternofskilldistributionacrosscountries.WewilldiscusstheimplicationsoftheUKskillmixinourfurtheranalysis.
12UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page17-----------------------
OverallPerformance
7/31/2019 UK Competitiveness Tcm8-13559
17/73
oftheUKEconomy
Intotalfactorproductivity(TFP),thepartoflabourproductivitythatcannotbedirectlyattributedtofactorinputs,theUKfallsinthelowermiddlegroupofadvancedeconomies.TheUKlagstheUS,thegloballeader,byroughly50%,Franceby10%,andiscomparabletoGermany;basedonOECDdataforthe1995-1998period.15Thedataonthegrowthof
TFPissomewhatconflicting:theUSBureauofLabourStatisticsreportsUKTFPgrowthtobehighintheearlyphaseofmicroeconomicreformsinthe1980s,butfallingbacktoalevelsimilartootheradvancedeconomiesmorerecently.16TheIMFinsteadreportsUK
TFPtobelowerthaninpeercountriesexcepttheUnitedStatesnotonlythroughoutthe1970sbutalsothe1980s,andincreasinginthefirsthalfofthe1990s.Asdoothersources,theIMFreportsfallingUKTFPgrowthtowardstheendofthe1990s.17
LowerlevelsofTFPindicateinefficienciesunrelatedtothelevelandqualityoffactorinputsandreflectlowlevelsofinnovation,broadlydefined,andlesseffectiveuseoftechnology.DeficitsinTFPareespeciallyproblematicforanadvancedeconomyliketheUK,becauseTFPbecomesincreasinglyimportantforlabourproductivityasaneconomyseekshigherlevelsofprosperity.WewillexaminevariousmeasuresofinnovationandprobableexplanationsforUKinnovationperformanceinourfurtheranalysis.
c)Internationalisation,InnovationandProductivityGrowth
Productivitygrowthisunderpinnedbytrade,foreigninvestment,andinnovativeactivity.HereweexaminethesethreeareasasadditionalindicationsofthetrajectoryoftheUKeconomy.Ingeneral,wefindthattheUKsexportpositionisstable;thatitsattractivenessforforeigndirectinvestmentishighbutdecreasing;andthatitsinnovationperformanceisweak.
ExportsInternationaltradeisadirectwaytoratchetuptheproductivityofthedomesticeconomy
byconcentratingonthoseactivitiesinwhichthecountryhasarelativeproductivityadvantage.Theabilitytotradedomesticforforeigngoodsandservicesisequivalenttohavingaccesstoamoreefficienttechnology.Internationalexportsarealsoaneffectivemeasureofcompaniesabilitytocompetesuccessfullyonworldmarkets.Stableandgrowingexportsharesthatarenotengineeredthroughdevaluationsfosterrising
7/31/2019 UK Competitiveness Tcm8-13559
18/73
productivity.
TheUKsshareofexportsandimportsinGDPindicatessignificantopennesstointernationaltradeandisinlinewiththesizeofitseconomy.18TheUKsexport
performancehasbeenstrongoverthelastdecade(Figure6).Itsshareofworldexportsinbothgoodsandserviceshasstayedrelativelystableatabout5.2%19.TheUKowesits
stableperformancemainlytoitsincreasingstrengthsinserviceexports,whichhaveoffsettheslowlydecliningpositioningoodsexports.ExportsremainedstrongastheUKsrealexchangerateappreciatedsignificantlyaftermid-1996.20Onlyafewother
advancedeconomiessuchasCanadaandtheNetherlandshavemaintainedtheirworldexportshares,whilemanyothersincludingtheUnitedStates,Japan,Germany,France,andItalyhaveexperiencedslowerexportgrowththancountriessuchasChinaandKorea.
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE13
-----------------------Page18-----------------------
OverallPerformanceoftheUKEconomy
Figure6:UKWorldExportMarketSharesoverTime
9UKGoodsUKServicesUKTotal
8
%7nie6rahs5tr
op4xedlr3oW
7/31/2019 UK Competitiveness Tcm8-13559
19/73
2
1
019911992199319941995199619971998199920012002
Source:WTO(2002),authorscalculations
ForeignDirectInvestment(FDI)Inwardforeigninvestmentimprovesthebusinessenvironmentbyelevatingthelevelofdomesticcompetition,andraisingthelevelofbuyersophisticationthroughtheprocurementstandardsandchoicesofforeignmultinationals.Anditalsoprovidesaneconomywithaninflowofnewtechnologies,operationalpractices,andotherknowledgedevelopedelsewhere.Foreigninvestorshavecapabilitiesotherwisenotavailableinthedomesticeconomy;thatisthereasontheycancompeteinalocationtheyotherwiseknowlesswell.21Thesesuperiorcapabilitiesarereflectedinthehigherproductivityof
foreign-ownedcompaniesrelativetotheaveragedomesticcompany,typicalinallleadingeconomies.22
Outwardforeigninvestmentenablesaneconomytogrowareasoftheeconomywithhighrelativeproductivity,henceraisingproductivitygrowth.OutwardFDIalsoamplifiesthecompetitivepositionofUK-basedfirmsallowingthemtotapintolowcostresourcesforactivitiesnotrequiringUK-levelskills.Also,outwardforeigninvestmentsallowcompaniestodeepentheirpositionsinforeignmarketsthroughprovidinglocals
erviceandproductcustomisation.Highervalueactivitiesstillremaininthehomecountry,andexperiencesuggeststhattheimprovementsincompetitivepositionabroadcanactuallyexpandhomecountryjobsatthesametimeassomeactivitiesaremovedabroad.Finally,outwardFDImaysometimesbeanecessitytopreservetheveryvitalityofthehomecountryorganisation.
TheUKisaneconomywithstronginwardandoutwardinvestmentflows,withnetoutwardFDIbalances.Theroleofforeign-ownedcompaniesinUKmanufacturingis
comparabletoFranceandsignificantlyhigherthaninGermanyortheUnitedStates.23
14UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page19-----------------------
OverallPerformanceoftheUKEconomy
7/31/2019 UK Competitiveness Tcm8-13559
20/73
WithafewexceptionstheUKoutperformsotheradvancedandemergingeconomiesintermsofFDIinflowsaswellasinstocksofFDIrelativetoGDP(Figure7).24Intheyears
1998-2000theUKsshareofworldinwardFDIstoodat7.8%,exceedingitsshareofworldGDPby80%,downfromanevenlargermargin.
Figure7:ComparativeInwardForeignDirectInvestment
004502-840Netherlands99NewZealand135egBrazil
ar30evAustraliaAP,25UKDG20fChinaSwedenoSpain(18%,89%)
%15sFranceGermanyas10FinlandkUnitedStatescItalyo5tSIJapanD0F
0102030405060
FDIInflowsas%ofGrossFixedCapitalFormation,Average1998-2000
Note:GermaninflowsinthisperiodarebiasedupwardbytheacquisitionofMannesmanin2000Source:WorldInvestmentReport(2002)
7/31/2019 UK Competitiveness Tcm8-13559
21/73
TheUKalsooutperformsmostcountriesintermsofoutwardFDI.UKcompanieshaveasignificantinvestmentstockabroad;thevalueoftheirforeigninvestmentsstoodat$942bnin2001,about14%ofallcountriesforeigninvestmentcombined.25Theyalso
continuetoinvestheavilyoutsidetheUK:in2000,UKcompanyinvestmentsoutsidetheUKexceededtheirinvestmentsintheUKforthefirsttime.
InnovationThecreationandcommercialisationofnewknowledgeisafinal,andcrucialsourceofdynamicimprovementsinproductivity.Foradvancedeconomies,innovationisamatterofpushingtheworldfrontierofknowledge.Fordevelopingcountriestechnologyassimilationisthecentralchallenge.
WhiletheUKhasdonewellintradeandFDI,itsinnovationperformanceintherecentpasthasbeendisappointing.Whileothers,notablytheNordiccountries,Singapore,SouthKorea,Taiwan,andIsrael,significantlyincreasedinnovationasmeasured
byU.S.patenting,theUKhasgrowninnovationoutputonlyslowlyfromarelativelylowbase(Figure8).ThedataonUSpatenting-chosenasagoodindicatorbecausemosteconomicallyimportantinnovationsarelikelytobepatentedintheworldslargestmarket-isconfirmedbydataonEuropeanpatenting.26
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE15
-----------------------Page20-----------------------
OverallPerformanceoftheUKEconomy
Figure8:InternationalPatentingOutput
1040002,no350UnitedStatesi
talup300opno
7/31/2019 UK Competitiveness Tcm8-13559
22/73
i250lJapanlTaiwanimSwitzerland1r200Swedene=10,000pGermanypatentssFinlandt150Israelngrantedinet2001aCanadap.100NLDenmarkSU.UKSouthKoreaSingapore
l50FranceNorwayauAustraliaNewZealandnItalynA0
0%10%20%30%40%
CompoundannualgrowthrateofUS-registeredpatents,1990-2001
Source:USPatentandTrademarkOffice(2002),authorsanalysis
ThequalityofUKpatentsmeasuredbycitationscompareswellwithotherEuropeancountries,butisstillonlyaverageinaglobalperspective.27Othersourcesoncompanyinnovationoftenuselessrobustdata,28buttendtoputtheUKneartheaverageofthe
advancedeconomies.UKmanufacturingcompaniesarereportedtospendlessoftheirturnoveroninnovationthantheirEuropeanpeers,whiletheoppositeistrueforUK
servicecompanies.
Overall,theUKhasastrongsciencebase,butlagsinpatentingandcommercialisation.29
Also,theUKsstrengthinthelifesciencesmaskslowerperformanceinotherareasofscienceandtechnology.CurrentlevelsofUKinnovationareinsufficienttodriveUKproductivitygrowthandclosetheUKproductivitygapversuskeycompetitors.
7/31/2019 UK Competitiveness Tcm8-13559
23/73
16UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page21-----------------------
OverallPerformanceoftheUKEconomy
References11OMahoney/deBoer(2002)20IMF(2002)
3Porter(2002a)12RecentworkbytheIMF(2003)21Giventhislogic,itshouldbenorelatesthisgapinoverallcapitalsurprisethatmultinational4ForotherdiscussionsofrecentintensitytolowerinvestmentscompaniesareeverywhereUKeconomicperformanceseeinnon-residentialconstruction.moreproductivethantheirlocalNickell(2002),Nickell/VanUKinvestmentsinmachinery,competitiors.See,forexample,
Reenen(2002),andhowever,arecomparabletoAshworth(2001),Card/Freeman(2002).ForaotherOECDcountries.Griffith/Simpson(2000).morelong-termperspectiveseeMaddison(2001).13IMF(2003)22Pain(2000)
5IMF(2003)14Oughton(1997)23OECD(2001)
6OECD(2002),Nickell(2002a)15TheIMF(2003)reports24UNCTAD(2002)somewhatdifferentgapsforthe7ForexampleIMF(2003)and25UNCTAD(2002)averageofthe1996-2000EuropeanCommission(2002).periodwiththeUKlaggingthe26EuropeanCommission(2001)8Card/Freeman(2002),OECDUnitedStatesby33%,France27NationalScienceFoundation(2002a),IMF(2003)by25%,andGermanyby12%.
(2000)citedinPorter/VanOpstel9Thesameistrueforreducing16USBureauofLabourStatistics(2001)workingtimeandthus(2002)28Nickell/VanReenen(2002)increasingtheintensityofwork17IMF(2003)discussthequalityofthe
7/31/2019 UK Competitiveness Tcm8-13559
24/73
intheremaininghours.EuropeanInnovationSurvey18DTI(2002)10BureauofLabourStatistics29Nickell/VanReenen(2002)(2002),IMF(2003)19WTO(2002)
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE17
-----------------------Page22-----------------------
3CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
Highandincreasinglevelsofproductivityandinnovationaremanifestationsofcompetitiveness.Theircausesareembeddedinthecontextprovidedbyanationorregionforcompetition.Contextcanbedividedintotwoareas:(1)themacroeconomic,
political,legal,andsocialcontext,and(2)themicroeconomicfoundationsofcompetition.Thesetwobroadareasaredifferent,butmutuallyreinforcing.
a)Macroeconomic,Political,Social,andLegalContext
Soundmacroeconomicpoliciesandstablepolitical,legal,andsocialinstitutionscreatethepotentialforimprovingnationalprosperity(Figure9).Appropriatepoliciesintheseareasareincreasinglywellunderstood,andbeingpursuedinanincreasingnumberofcountries.
Figure9:DeterminantsofProductivityandProductivityGrowth
Macroeconomic,Political,Legal,andSocialContextforDevelopment
MicroeconomicFoundationsofDevelopment
SophisticationofCompanyQualityoftheMicroeconomicOperationsandStrategyBusinessEnvironment
18UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page23-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
However,competitivenessultimatelydependsonfirmsandthewaytheycompete.Hence,asoundmacroeconomic,political,legal,andsocialcontextisnecessaryforachievingcompetitiveness,butnotsufficient.30
7/31/2019 UK Competitiveness Tcm8-13559
25/73
TheUKspoliticalandlegalsystemisstableandnotabarriertoeconomicdevelopment.TheUKhasinrecentyearsachievedahigherlevelofmacroeconomicstabilitythaninanyotherperiodafter1945.Before1980,deterioratingpublicfinances,ahighlevelofinflation,andanerosionofthevalueofthepoundhamperedtheeconomy.Intheearlyphaseofthepost-1980reformsthefocuswasonreducingthesizeofgovernmentandstabilisingpublicfinances.Monetarypolicy,however,remainedvolatileandgrowtherratic.Inthelastdecade,however,fiscalandmonetarypolicyhavebecomemuchmorestable,especiallyaftertheindependenceoftheBankofEngland.ThereremainsuncertaintyaboutEconomicMonetaryUnion(EMU)membership,butthisuncertaintyisinitselfunlikelytobeanimportantfactoraffectingtheUKscompetitiveness.
Progressonsocialissueshasbeenmoremixed,andtheUKstillfacessignificanteconomicdisparitiesacrossregionsandpopulationgroups.Sofar,povertyhasbeenseenasmoreasocialthananeconomicproblem,butthedemographicshiftcould
inthefutureincreasetheeconomiccostsofthesesocialproblems.
b)MicroeconomicBusinessEnvironment
Wealthisactuallycreatedatthemicroeconomiclevelintheabilityoffirmstocreatevaluablegoodsandservicesusingefficientmethods.Onlyinthiswaycananationsupporthighwagesandtheattractivereturnstocapitalnecessarytosupportsustainedinvestment.Themicroeconomicfoundationsofproductivityrestontwointerrelated
areas:thesophisticationwithwhichdomesticcompaniesorforeignsubsidiariesoperatinginthecountrycompete,andthequalityofthemicroeconomicbusinessenvironment.
Increasingproductivitythroughmoresophisticatedwaysofcompetingdependsonparallelchangesinthemicroeconomicbusinessenvironment.Thebusinessenvironmentcanbeunderstoodintermsoffourinterrelatedareas:thequalityoffactor(input)conditions,thecontextforfirmstrategyandrivalry,thequalityoflocaldemandconditions,andthepresenceofrelatedandsupportingindustries.Becauseoftheir
graphicalrepresentationthefourareashavecollectivelybeenreferredtoasthediamond(Figure10).31
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE19
-----------------------Page24-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
7/31/2019 UK Competitiveness Tcm8-13559
26/73
Figure10:ProductivityandtheBusinessEnvironment
ContextforFirmStrategyandRivalry
Thecontextshapingtheextentofcorporateinvestment,thetypesofstrategiesemployed,andtheintensityoflocalrivalry
Factor(Input)Conditions
Theefficiency,quality,andDemandspecialisationofunderlyinginputsthatfirmsdrawininConditionscompetinghumanresourcesThesophisticationofhomecapitalresources
demandandthepressurephysicalinfrastructurefromlocalbuyerstoupgradeadministrativeinfrastructureproductsandservicesscientificandtechnologicalinfrastructurenaturalresources
RelatedandSupportingIndustries
Theavailabilityandqualityof
localsuppliersandrelatedindustries,andthestateofdevelopmentofclusters
TheUKbusinessenvironmenthasbeenfundamentallyupgradedinthelasttwodecades.32Thishasbeentheresultofsignificantchangesinpolicystartinginthelate1970s,33whichhavemadetheUKamuchmoreattractiveplacetodobusinessandhave
enabledcompanieslocatedtheretoachievemuchhigherlevelsofproductivity.
Overall,theUKhasbeensuccessfulinreducingunproductiverolesanddistortio
nsofgovernmentinthecompetitiveprocess(Figure11).IntheGlobalCompetitivenessReport(GCR),34theUKperformsespeciallywellinmeasuresofcompetitivevitalityandmarket
incentives;italsoperformswellondemandconditionsandcapitalmarkets.
20UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
7/31/2019 UK Competitiveness Tcm8-13559
27/73
-----------------------Page25-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
TheUKhasbeenlesssuccessfulinareasthatrequirelong-terminvestmentsinassetsorinstitutionsbythepublicorprivatesector.35Itsmostsignificantweaknessesaccordingto
theGCRareinphysicalinfrastructureandhumanresources.
Figure11:TheUKBusinessEnvironment-Overview
CompetitiveAdvantagesCompetitiveDisadvantages
HighlyopentointernationaltradeWeakanddeterioratingphysicalandinvestmentinfrastructure
VerylowregulatorybarrierstoSkilldeficitsinthelabourforcecompetitionatthenationalleveldespitefavourabl
einternationalSophisticatedcapitalmarkets,rankingsoneducationalespeciallyequitymarketsachievement
Constrainedaccesstodebtcapital
LowlevelsofR&Dinvestmentandcommercialisationinfrastructuredespitestrongsc
iencebase
Largeregionaldifferencesinthequalityofthebusinessenvironment
Limitedpresence/effectivenessofInstitutionsForCollaboration
i)Factor(Input)Conditions
InfrastructurePhysicalinfrastructureemerges,accordingto2002GlobalCompetitivenessReport(GCR)Surveydata,astheUKsmostimportantweakness.Thequalityofrailwaysranksparticularlylow,buttheportinfrastructureandeventhetelecommunicationinfrastructureregisterasrelativedisadvantages.InallthreeareastheUKsrankinghasdroppedby5or
7/31/2019 UK Competitiveness Tcm8-13559
28/73
moreplacesrelativetoothercountriesthroughoutthelastfiveyears.36These
weaknessesreflectthelowerrateofpublicinvestmentintheUKcomparedtootheradvancedeconomiesoverthelasttwodecades.Theymayalsobeaffectedbythepost-privatisationregulatoryframeworkinwhich,forexample,railroadcompanieshaveoperated.UKpublicinvestmentrelativetoGDPhasbeenroughly50%belowtheUnitedStates,France,andGermany,althoughthegapwithGermanyhasdecreasedinthelastdecade.37
SkillsLabourforceskillscontinuetobeanareaofcompetitivedisadvantagefortheUK,althoughthepictureismixed.Intermsofeducation,intheGCRtheUKreceiveslowmarksonthequalityofitsschoolsandspecificallyonthequalityofitsmathsand
UKCOMPETITIVENESS:MOVINGTOTH
ENEXTSTAGE21-----------------------Page26-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
scienceeducation.ThisisconsistentwiththecomparativelylowspendingoneducationintheUK;onaperstudentbasistheUKranks15thamongallOECDcountriesonthismeasure.However,UKstudentshaveperformedwellintherecentPISAstudyoneducationalperformanceacrosscountrieswheretheUKranksbetween4and6ondifferenteducationalareas.38
Intermsofgenerallabourforceskills,theUKstillfallsbehindcompetingeconomies,especiallybecauseofahighshareofthepopulationwithlowlevelsofeducationalattainment.39UKcompaniesreportsignificantskillshortagesthatareconsistentwiththesedeficits.40
Intermsofadvancedskills,theUKrankswellintheGCRonmanagementeducation,anareainwhichthecountryattractsmanyforeignstudents.TheUKreceiveslowGCR
marksontheavailabilityofscientistsandengineers.TheUKhas,however,registeredahigherincreaseinthenumberofresearchersperemployeesintheworkforcethanmostotheradvancedeconomies,althoughitstillisatalowlevel.41
FinancialmarketsTheCityofLondonisoneofthemostcompetitivefinancialservicesclustersintheworld.TheUKranks1intheGCRonthesophisticationofitsfinancialmarkets.
7/31/2019 UK Competitiveness Tcm8-13559
29/73
Itsequitymarketsinparticularareratedhighly,althoughthereisanecdotalevidenceofcompaniesgoingprivatetoavoidthemarketsshort-termscrutiny.42VenturecapitalavailabilityisthehighestinEuropebehindtheNetherlands,43althoughsomeobserversareconcerned
abouttherelativelygreaterfocusonlaterstageinvestments.Whileequityfinancingiscompetitive,ittendstobemoreexpensivethandebtfinancing.Therearesignsthattheenvironmentfordebtfinancingisnotascompetitive:InvestmentsofUKcompaniesreactmorestronglytocash-flowchanges,indicatingconstrainedaccesstoexternalfinancing.44Thiswouldbeparticularlyharmfultothegrowthprospectsofsmalland
mediumsizedcompanies.
Science&TechnologyTheUKhasintherecentpastinvestedlesspublicsectormoneyintoR&Dthanmost
otheradvancedeconomies.Andoverthelastdecade,theUKspositiononpublicR&DspendingrelativetoGDPhasworsened(Figure12).45Recentpolicychangeshavestarted
toaddressthis,andthegovernmentbudgetsforthenextfewyearsregisterasignificantrampingupofpublicsectorR&Dspending.Itwilltakeawhile,however,untiltheaccumulatedeffectofyearsofunderinvestmentin,forexample,theuniversityinfrastructure,willhavebeenovercome.46
22UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page27-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
Figure12:PublicSectorSpendingonR&D
1.2%P,DG
f1.0%oSwedenFinlandeeNetherlandsrlabhalSi0.8%FranceAustraliaa
7/31/2019 UK Competitiveness Tcm8-13559
30/73
svNorwayaagtGermanyJapannsUKCanadaie0.6%dtanlerUSItalypoS90.4%SpainD9&91Rc0.2%ilbuP0%-0.3%-0.2%-0.1%0%0.1%0.2%0.3%0.4%
0.5%0.6%ChangeinPublicSectorR&DSpendingasShareofGDP,1989-1999orlatestavailable
Note:Includesspendingbygovernmentandinstitutionsofhighereducation.Source:OECD(2002)
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE23
-----------------------Page28-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
U.S.patentingbyUK-basedentities,areliableindicatorofworld-classinnovationoutput,ischaracterisedbyastrongrepresentationofinternationalcompanies(Figure13).ThisfindingisconsistentwiththeviewthattheUKisarelativelycostefficientlocationforforeigncompaniestoconductresearch.
Figure13:Top25UKpatentinginstitutionsintheUS
OrganisationU.S.PatentsIssuedfrom1997to20011ASTRAZENECALIMITED(PREVIOUSLYZENECA)3982BRITISHTELECOMMUNICATION,PLC335
7/31/2019 UK Competitiveness Tcm8-13559
31/73
3IBMCORP.2804U.S.PHILIPSCORPORATION2575SMITHKLINEBEECHAMPLC2446EASTMANKODAKCOMPANY2067LUCASINDUSTRIESPUBLICLTD.COMPANY2048MINISTRYOFDEFENCE1839ROLLS-ROYCEPLC17410MERCKSHARP&DOHMELIMITED16711IMPERIALCHEMICALINDUSTRIESPLC16012NORTHERNTELECOMLIMITED15413PROCTER+GAMBLECOMPANY15414NORTELNETWORKSCORPORATION135
15THEBOCGROUPPLC13116SHARPKABUSHIKIKAISHA(SHARPCORPORATION)11717PFIZERINC.11518BRITISHTECHNOLOGYGROUPLIMITED10919BPCHEMICALSLIMITED10320HEWLETT-PACKARDCOMPANY10321NOKIAMOBILEPHONESLTD.
9222SONYCORPORATION9123NCRCORPORATION8924BRITISHNUCLEARFUELSPLC8825GLAXOGROUPLIMITED83
Note:Shadingindicatesgovernmentagencies,universities,andresearchinstitutionsSource:USPatentandTrademarkOffice(2002),authorsanalysis
UKpatentingintheU.S.isalsocharacterisedbyalowrepresentationofuniversitiesandotherpublicinstitutions;adangersigninmoderntechnologydevelopmentandcommercialisationprocesses.Incomparison,France,acountrywitharoughlyequallevelofoverallU.S.patenting,registersasignificantlylargerroleforuniversitiesandresearchinstitutionsinpatenting.ThisisconsistentwithUKuniversitiesbeinglessactivein
7/31/2019 UK Competitiveness Tcm8-13559
32/73
commercialisationeffortsthantheirpeersinotheradvancedeconomies.
24UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page29-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
ii)ContextforFirmStrategyandRivalry47
MarketopennessTheUKtraditionallyisanopeneconomywithlowbarrierstoforeigntradeandinvestment,especiallytowardsneighbouringEuropeancountries.AsamemberoftheEuropeanUnion,itfallsunderthegeneralrulesofthecommonmarketandthecommontradepolicy.48AccordingtotheGCR,theUKhasanoveralllowleveloftariffsbutsome
remainingnon-tariffbarrierstotrade.
Domestically,thereformsofthelasttwodecadeshavelefttheUKwithverylow
administrativecostsfornewbusinessformationrelativetoothercountries.However,whiletherateofnewbusinessformationishigh,UKstart-upshaveasignificantlylowerlikelihoodtosurvivetheinitialyearsthantheirpeersinotherEuropeancountriesandthe
49UnitedStates.
GovernmentregulationsTheUKhasthelowestlevelofproductandlabourmarketregulationsintheOECD.The
levelofdistortivegovernmentsubsidiesintheUKislow,andthesubsidiespaidtendtobehorizontalratherthanindustryspecific.50WhiletheUKoutperformsmanyother
Europeancountriesonthelevelofdistortivegovernmentsubsidies,itranksonly12intheglobalcomparisonoftheGCR.Specificlocalregulations,suchaszoninglaws,arealsomentionedasbarrierstomoreinvestmentandproductivity.51Thereisalsosome
concerninthebusinesscommunityaboutanincreasinglevelofEuropeanUnion-dr
ivenregulationthattheUKwillbesubjectto.
IncentivesTheUKhasagenerallycompetitivesystemofbusinesstaxationwithincentivesforR&Dinvestmentsandinvestmentsineconomicallydistressedareas.Theoverallleveloftaxationisslightlylowerthaninmanyotheradvancedeconomies;thisrelativeadvantage
7/31/2019 UK Competitiveness Tcm8-13559
33/73
oftheUKhas,however,decreasedinrecentyears.52AccordingtotheGCRsurveydata,
theUKhasverystrongintellectualpropertyrightsprotection,providingagoodenvironmentforinnovationandtechnologytransfer.
CompetitionRelativelylowlevelsofcompetitiveintensityinsomepartsoftheUKeconomyarerepeatedlymentionedintheliterature.Theexamplesoftentendtobeinthenon-tradedsectoroftheeconomy.Reasonsmentionedincludetheeffectsofpastprivatisationthatarearguedtohavebeendriventooheavilybyfiscalconsiderations.ThecompetitionpolicyintheUKwashistoricallyperceivedtobemorelenientthaninotherOECDcountries.53Recentpolicychangeshavemarkedlyimprovedthepolicycontextbutwilltakeconsiderabletimetobefullyreflectedincompaniescompetitivebehaviour.54
UKCOMPETITIVENESS:MOVINGTOTHEN
EXTSTAGE25-----------------------Page30-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
Whilethereisnoconclusivedata,thereisevidencethatUKpricelevelsinmanysectorsarehigherthaninotherEuropeancountriesand,insomesectors,aboveUSlevelsaswell.55ThelowerUKrankingonGDPpercapitameasuredbypurchasingpowerparity
versusbycurrentexchangerateisconsistentwiththisview(Figure14).However,thedataisnotconclusive:thedivergencebetweenpurchasingpowerparityandexchangeratecouldbeexplainedbyotherfactorsunrelatedtothelevelofcompetitionintheUK.
Figure14:TheEffectofPurchasingPoweronNationalProsperity
RankCountryby2001Countryby2001GDPperCapitaGDPperCapita
(FX)(PPP)1USUS2NorwayIreland3SwitzerlandNorway4JapanSwitzerland5DenmarkIceland6IcelandDenmark7IrelandCanada8NetherlandsNetherlands9UKAustria
7/31/2019 UK Competitiveness Tcm8-13559
34/73
10SwedenBelgium11FinlandAustralia12AustriaJapan13GermanyGermany14BelgiumItaly15CanadaFinland16FranceSweden17ItalyUK18AustraliaFrance19SpainSpain20NewZealandNewZealand
Source:OECD(2002)
iii)DemandConditions
Theimportanceofadvancedandsophisticateddomesticdemandgrowsasadvancedeconomiesprogress.Sophisticatedlocalcustomerseducatelocalcompaniesaboutfutureneedsandpressurethemtoproducesuperiorgoodsandservices.Homedemandisinfluencednotonlybyconsumersandcorporatecustomersbutalsobythestringencyoflocalregulatorystandardsinareassuchasenergy,safety,andenvironmentalimpacts.
GiventhepriorityfortheUKtoovercomecurrentweaknessesininnovation,demandconditionsareanincreasinglyimportantinfluenceonthecountryscompetitiveness.
DemandsophisticationTheUKrankshighonoverallbuyersophisticationintheGCR.Specificexamplesare
26UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page31-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
relatedtoindividualclusterssuchasoil&gas,financialservices,media,andothers,butthereislittleharddataavailable.
StandardsandregulationsTheregulatorycontextintheUKprovidesaverageincentivesforcompaniestoaddresssophisticatedconsumerneeds.Onenvironmentalregulations,forexample,theUKperformslesswellthanScandinavia,Germany,orFrance,butstilloutperformsthe
averageoftheadvancedeconomies.56
GovernmentprocurementTheUKrankslowonthesophisticationofgovernmentprocurementintheGCR.Thereislittleotherharddataavailableonthissubject.
c)Clusters
Clustersconstituteonefacetofthediamond,buttheyarebestseenasamanife
7/31/2019 UK Competitiveness Tcm8-13559
35/73
stationoftheinteractionofallthediamondselements.57Clustersaregeographicallyproximate
groupsofinterconnectedcompanies,suppliers,serviceproviders,andassociatedinstitutionsinaparticularfield,linkedbycommonalitiesandcomplementarities.ClusterssuchasITinSiliconValleyorhighperformancecarsinSouthernGermanycanbeconcentratedinaparticularregionwithinalargernation,andsometimesinasingletown.Otherclustersarenationalandsometimesstretchacrossbordersintoadjacentcountries,suchasSouthernGermanyandGerman-speakingSwitzerland.Proximitymustbesufficienttoallowefficientinteractionandflowofgoods,services,ideas,andskillsacrossthecluster.
Clustersaffectcompetitivenessinthreebroadways:First,clustersincreasethelevelofproductivityatwhichconstituentfirmscanoperate.Firmscan,forexample,operatewith
lowerlevelsofstockduetothelocalpresenceofsuppliers.Andtheycanreducedowntimeincasesoftechnicalfailuresintheproductionprocessduetothequickaccesstolocalserviceprovidersthatcansolvesuchproblemsquickly.Second,clustersincreasethecapacityforinnovationandproductivitygrowth.IntheBostonLifeSciencesCluster(Figure15),forexample,thepresenceofworld-classresearchuniversities,teachinghospitals,competingbiotechcompanies,andclusterinstitutionsthatfacilitateinteractionamongallthesefosterthedisseminationofknowledgeandprovidea
fertilegroundfornewideas:Bostonhasbetween1996and2000generatedthehighestnumberoflifesciencepatentsofalleconomicareasintheUnitedStates.Third,clustersstimulateandenablenewbusinessformationthatfurthersupportsinnovationandexpandsthecluster.InBoston,theavailabilityofhighlyexperiencedresearchersandlaboratorytechnicians,theaccesstospecializedVentureCapitalprovidersandlawyers,andthemanyoptionsforemploymentinotherclustercompaniesincaseoffailureallreducethecostsandrisksofstartinganewlifesciencescompany.
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE27
-----------------------Page32-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
Figure15:TheBostonLifeScienceCluster
7/31/2019 UK Competitiveness Tcm8-13559
36/73
SurgicalInstrumentsHealthandHealthcareandSuppliesBeautyProductsProviders11,409847145,587
MedicalEquipment6,506SpecialisedServicesDentalInstrumentsBanking,Accounting,LegalandSupplies180BiologicalPharmaceuticalProductsProductsDiagnostic1,0725,249Specialised
Substances
RiskCapital1,885VCFirms,AngelNetworks
OpthalmicGoods2,390ResearchPatentOwnersOrganisationsandLessorsContainers21,8811,046
1,430
AmongtheNationalEducationalLeaders(1-5)ClusterInstitutionsInstitutionsforCollaborationCompetitive(6-20)HarvardUniversity,
MassMedic,MIT,TuftsUniversity,PositionEstablished(21-40)MassBioBostonUniversityLessDeveloped(41+)
Note:Employmentnumbersfor2000giveninsideboxeswhenavailable
7/31/2019 UK Competitiveness Tcm8-13559
37/73
Source:ClusterMappingProject,InstituteforStrategyandCompetitiveness,HavardBusinessSchool
Itisrarethatthereisonlyasingleclusterintheworldinagivenfield.Inmostcasesthereareseveralclustersindifferentlocationswithdifferentlevelsofsophisticationandspecialisation.Clustersinonelocationofteninvolveforeigndirectinvestmentbyfirmsbasedinotherclusters.
Onlyasmallnumberofclusterstendtobetrueinnovationcenters.Othersmaytendtospecialiseinproducingproductsaimedatparticularmarketsegments,orbemanufacturingcenters.Stillotherclusterscanberegionalassemblyandservicecenters.Firmsbasedinthemostadvancedclustersoftenseedorenhanceclustersinotherlocationsastheydispersesomeactivitiestoreducerisk,accesscheaperinputs,orseektobetterserveparticularregionalmarkets.Thechallengeforaneconomyistomovefirstfromisolatedfirmstoanarrayofclusters,andthentoupgradethesophisticationof
clusterstomoreadvancedactivities.Nationaleconomiestendtospecialiseinparticularclusters,whichaccountforadisproportionateshareoftheiroutputandexports.Exportdataisaparticularusefulwaytoidentifybroadclustersacrossawidesetofcountries,becausestrongexportpositions
28UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page33-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
inspecificclustersindicateabaseofinternationallycompetitivecompaniesorsubsidiariesintheseareas.
Overall,theUKdoesnotrankhighonmeasuresofclusterdevelopment.Ithasstrongpositionsinservices,forexamplefinancialservicesandmedia,butthereislittlesystematicdataontheseclustersavailable.Outsideofservices,theUKhasclusterswith
strongexportpositionsindefence,productsforpersonaluse,healthcare,andtelecommunications(Figure16).Otherclusterswithsignificantpresenceincludeentertainment,semiconductorsandcomputers,transportation,andofficeproducts.58Onamoregranularlevel,theUKhasclusterswithsignificantpotentialinbiotechnology59andmotorsports,forexample.60
Figure16:UKsExportPerformancebyBroadSector
7/31/2019 UK Competitiveness Tcm8-13559
38/73
UK saveragechangeinworldaveragegoodsexportshare:-0.5%12%
Defense(10.9%,-4.4%)10%PersonalServicesHealthCareTelecommunications00028%,eraEntertainmenthSemiconductors/St6%ComputersOffice
rTransportationoUK saveragepxgoodsexportEHouseholddshare:4.88%l4%PowerrPetroleum/
oWChemicalsMultipleBusinessMaterials/MetalsFood/Beverages
2%Textiles/Apparel=$15billionForestProductsexportvolumein20000%
-3%-2%-1%0%+1%+2%
ChangeinUK sWorldExportShare,1995-2000
Source:UNCTAD,WTO,authorsanalysis
TheUKgovernmenthasundertakenanefforttomaptheregionalstructureofclusters
7/31/2019 UK Competitiveness Tcm8-13559
39/73
withinthecountry.61Thiseffortanalyseddetaileddataonthelocationofeconomic
activityacrosstheUK,butsufferedfromad-hocclusterdefinitions.Theanalysisfailedtomakethecrucialdistinctionbetweenlocalandtradedindustries.AccordingtoU.S.data,localindustriesdistributedequallyacrossgeographiesaccountforabouttwothirdsofemployment,buthavelowerproductivityandlowerratesofinnovation.Tradedindustriesarefarmoreconcentratedgeographicallyandservemarketsoutsidetheirlocation.Theyaccountforonlyonethirdofemploymentbuthavemuchhigherproductivity,innovation,andwages.62Whilethereareanumberofinitiativesforcluster
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE29
-----------------------Page34-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
activationthroughouttheUK,ofteninitiatedbytheRegionalDevelopmentAgencies(RDAs),thedataprovidedbytheexistingclustermappingeffortseemstohavehadonlylimitedpracticalvalue.
d)Roles,Institutions,andProcesses
Competitivenessincreasinglyreliesonacountrysappropriatestructureofroles,institutionsandprocessestoenable,organise,anddriveeffortstoimprovebusinessenvironmentsandclusters.Inthepast,government,oftenatthenationallevel,
wasinchargeofimprovingcompetitivenessthroughpolicydecisionsandincentives.Firmscompetedinthemarketplaceandtooktheirenvironmentasgiven.Inmoderncompetition,however,improvingcompetitivenessbecomesacollaborativeprocessinvolvingmultiplelevelsofgovernment,companies,educationalinstitutions,andinstitutionsforcollaboration(IFC).Atthemicroeconomiclevelalargenumberoffactorsimpactoncompetitivenessandhenceonlyabroadcoalitioncanhopetoimproveanationsfoundationsofcompetitiveness.
Governmentcontinuestoplayanimportantrolebecauseitaffectsmanyaspectsofthebusinessenvironment.Governmentshapesfactorconditions,forexample,throughitstrainingandinfrastructurepoliciesandsimilarpolicyinfluencesarepresentinallelementsofthediamond.Therearedistinctrolesforgovernmentinimprovingthebusinessenvironmentatthenational,state,andlocallevelaswellasamongneighbouringcountries.Governmentatalllevelsalsohasacentralroleinconv
7/31/2019 UK Competitiveness Tcm8-13559
40/73
eningandsupportingcompetitivenessefforts,eventhoughtheseeffortswilltendtobeledbytheprivatesectororotherinstitutions.Withoutgovernmentinvolvement,initiativeslacklegitimacyandtheyfailtoaddressthosecompetitivenessissuesgovernmentpolicycandirectlyaffect.
Companiesplayanincreasinglyimportantroleforthecompetitivenessoftheirlocations.Competitiveadvantageresidesnotonlywithinthefirm,butisalsoshapedbytheexternalcontextfirmsoperatein.Individualcompaniescanimprovetheirexternalcontextbyindividualactionssuchasestablishingschools,attractingsuppliers,ordefiningstandardsthatnotonlybenefitthemselvesbutalsoimprovetheoverallenvironmentforcompetition.Companiescanalsotakecollectivestepstoenhancetheabilityofindividualcompaniestoimproveoperatingpracticesandstrategies,suchasqualitycertificationprogramsandmanufacturingassistancecenters.
Universitiesandothereducationalandresearchinstitutionshavealsobecomeincreasinglyimportantfactorsfornationalandregionalcompetitiveness.Traditionally,theyhavebeenimportantinimprovingtheskillbaseoftheeconomy.Butashiftinthewayresearchanddevelopment(R&D)isorganisedisnowalsostrengtheningtheirroleincommercialR&D.Inthepast,universitiesdidbasicscience,whilecompaniesworkedseparatelyonapplicationsforcommercialuse.Today,theseboundarieshaveblurred,andsuccessfulR&Dofteninvolvescooperationthroughouttheinnovationprocess.
30UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page35-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
Awidevarietyofotherorganisationsalsohaveasignificanteffectoncompetitiveness.Theseentities,whichwerefertoasinstitutionsforcollaboration(IFCs)63,areneither
firms,governmententities,noruniversities.Theyinclude,forexample,chambersofcommerce,industryassociations,professionalassociations,tradeunions,technologytransferorganisations,qualitycenters,thinktanks,universityalumniassociations,andothers.IFCsperformimportantrolesasintermediariesthatorganiseandperformcollectiveactionandenablemoreeffectivecollaborationbetweenpartsofacluster.
7/31/2019 UK Competitiveness Tcm8-13559
41/73
TheAustralianWinecluster,asuccessstorywithaworldexportmarketsharemorethandoublingwithinthelastfiveyears,64providesavividexampleofthekeyrolesuch
institutionscanplayinimprovingcompetitiveness(Figure17).
Figure17:InstitutionsforCollaborationintheAustralianWineCluster
WinemakersFederationCooperativeCentreofAustraliaforViticulture
Establishedin1990Establishedin1991
Focus:PublicpolicyrepresentationFocus:Coordinationofresearchofcompaniesinthewineclusterandeducationpolicyinviticulture
Funding:MembercompaniesFunding:otherclusterorganisations
AustralianWineGrapeandWineExportCouncilR&DCorporation
Establishedin1992Establishedin1991asstatutoryFocus:Wineexportpromotionbody
throughinternationalofficesinFocus:FundingofresearchandLondonandSanFranciscodevelopmentactivi
ties
Funding:Government;clusterFunding:Government;statutoryorganisationslevy
WineIndustryWineIndustryNationalInformationServiceEducationandTrainingCouncil
Establishedin1998Establishedin1995
Focus:Informationcollection,Focus:Coordination,integration,organisation,anddisseminationandstandardmaintenanceforFunding:Clusterorganisationsvocationaltrainingandeducation
Funding:Government;otherclusterorganisati
7/31/2019 UK Competitiveness Tcm8-13559
42/73
ons
Source:UNCTAD,WTO,authorsanalysis
IntheUK,thereisanecdotalevidencethatthesecriticalinstitutionsarelessnumerousandlesseffectivethanincompetinglocations.65Thegovernmentefforttocreatea
networkofindustryforums,forexample,isbelievedtohavehadsomesuccessinthe
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE31
-----------------------Page36-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
automotivecluster,butlittleimpactelsewhere.However,thereisnosystematicevidenceontheseefforts.
e)InfluencesofDifferentGeographicalLevels
Inthepast,analysisofcompetitivenesshasfocusedonthenationandnational-levelpolicies.Increasinglyitisbecomingclearthatthisperspectiveistoolimited:competitivenessisaffectedbyassetsandpoliciesatmanydifferentgeographiclevels.Theserangefromcross-national,e.g.theBalticRimortheEuropeanUnion,tonational,toregional,tolocal.Indeed,themostsignificantspilloversandinteractionstakeplaceattheregionalandlocallevel.Aclearindicationoftheimportanceofregionalbusiness
environmentsisthesharpperformancedifferenceacrossregionswithingivencountries,eventhoughtheyareallexposedtothesamenationallevelpolicies.
AcrossUKregions,asinmanyothercountries,therearestrongdifferencesinregionaleconomicprosperitythatareconsistentwithdifferencesinthequalityofregionalbusinessenvironments.66IncountriessuchastheUnitedStatesthereisconvergenceofprosperityacrossregions.IntheUK,thereisdivergenceofregionalprosperity.67Therich
aregettingricherandthepooraregettingpoorer.InFranceandGermanythereisnosignificantrelationshipbetweenregionalprosperityandprosperitygrowth,ornochangeindispersionofperformance.WhileGDPpercapitadifferencesinUKregionsappeartobemorepersistentthaninotherEuropeancountries,unemploymentratesintheUKaremoresimilaracrossregions.68ThisisconsistentwithflexiblelabourmarketsintheUK.
7/31/2019 UK Competitiveness Tcm8-13559
43/73
Labourmobilityandwageflexibilityareeffective,andregionaldifferencesinincomereflectthequalityoftheregionalbusinessenvironments.
Strongregionsandregionalinstitutions-frommayorstoelectedregionalandstateleveladministrationswithsignificantdecisionrights-haveproventobeanincreasinglyimportantfactorforcompetitivenessinmanyothercountries.Theirimportancehasgoneup,becausetherehasbeenconvergenceonthepoliciescontrolledatthenationallevel,suchasmacroeconomicpolicy,taxation,andoverallgovernmentregulation.Theremainingdifferencesinregionalbusinessenvironmentsaffectedbythedecisionsofregionalinstitutionshavebecomemoreimportant.IntheUnitedStates,forexample,thereisclearevidencethatmuchoftherelevantprogressinimprovingthemicroeconomicfoundationsofcompetitivenessoccursontheregionallevel.69
IntheUKonlyabout25%ofpublicsectorexpenditureiscontrolledbyregionalandlocalgovernments,belowmostotherOECDcountriesincludingGermany(35%)andthe
UnitedStates(42%),butaboveFrance(18%).70TheUKscentralisedorganisational
structureforgovernmenthasrepercussionsforcompetitiveness:Publicspendingisinevitablylesswelladaptedtoregionalandlocalopportunitiesandneeds.Andprivatesectorleadersarelesswillingtoengageinlocalandregionalefforts,ifimportantdecisionsaffectingthequalityoftheirbusinessenvironmentaremadeinthecapital.
TheRegionalDevelopmentAgencies(RDAs),71establishedbyorderoftheRegional
DevelopmentAgenciesActof1998,hascreatednewinstitutionstoaddressregional
32UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page37-----------------------
CompetitivenessandtheUKBusinessEnvironment:SummaryoftheEvidence
competitivenessintheUK.TheRDAsareaninnovativeapproachtostrengthenregi
onalpolicyintheUK,butitwilltakemoretimetoevaluateiftheycanovercometheinherentchallengestheyfaceinthegivenstructureofUKgovernment.72
References46JMConsulting(2001)hometomorethan70030Porter(2002)47Forgeneralinformationonmotorsport-relatedcompanies.
7/31/2019 UK Competitiveness Tcm8-13559
44/73
31Porter(1998)recentpolicychangesseeHM61DTI(2001)32ForagoodoverviewonpolicyTreasury(2001a)62Porter(2003),Porter/Councilon
initiativesandoutcomesseeDTI48TheresearchrevieweddidnotCompetitiveness/MonitorGroup(2002)andOECD(2002)distinguishmorebetween(2001).33Beath(2002)arguesinsteadthatopennesstoEUmembersinthe63Porter/Emmons(2003)commonmarketandopennesstherehasbeenremarkable64Porter/Slvell(2003)tocountriesoutsidetheEU.consistencyinmuchofthe65See,forexample,thediscussionmicroeconomicpolicies.49Bartelsmannetal.(2003)oftheBusinessLink-schemein
34Porter(2002a)50EuropeanCommission(2001)Oughton(1997)
35Thepharmaceuticalsectorand51McKinsey(1998)
66HMTreasury(2001b)itsabilitytodrawontheUK52Bond/Chennells(2000)67Seetheresultsofastatisticalsciencebaseisanotable53Nickell(2002)analysisinappendixBexamples.54OECD(2002a)68Soltwedel(1999)quotedinIMF36GlobalCompetitivenessReport55EuropeanCommission(2001)(2000).(2002),unpublisheddata.56Porter/Esty(2001)
69Porter/Councilon37OECD(2002a),IMF(2003).ItisCompetitiveness/MonitorGroupunclearifthehigherlevelof57Porter(1998),Porter(2000)(2001),Porter(2001d)privatizationintheUKis58InappendixAwehaveincluded70OECD(2002a)importantinexplainingthisamoredetailedrankingofdifference.subclustersbyexport71Formoreinformationonthe38OECD(2000)performance.RDAsseewww.dti.gov.uk/rda.
Otherregionaleffortshavebeen39OECD(2002a)59ThereisasignificantliteratureonundertakenwithEUsupportintheUKbiotechnologycluster.40Hogarth/Wilson(2001)theInnovatingRegionsinEuropeSeeDTI(1999)forthe41OECD(2001)governmentperspective.See(IRE)network.Thiseffortis
7/31/2019 UK Competitiveness Tcm8-13559
45/73
promising,butlacksaconsistent42Nickell/VanReenen(2002)alsoEuropeanCommissionintellectualframework.43EuropeanCommission(2002)(2001)andOECD(2002b)72Cockerill(2002)44Ashworthetal.(2001)60MotorsportValleyinOxfordshireisclaimedtobe45OECD(2001)
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE33
-----------------------Page38-----------------------
4CompetitivenessandUKCompanyBehaviour:TheRoleofManagement
Theproductivityofacountryisultimatelysetbytheproductivityofitscompanies,both
domesticfirmsandthesubsidiariesofforeigncompaniesoperatingthere.However,thesophisticationofcompaniesisinextricablyintertwinedwiththequalityofthenationalbusinessenvironment.Moresophisticatedcompanystrategiesrequiremorehighlyskilledpeople,betterinformation,improvedinfrastructure,morecapablesuppliers,moreadvancedresearchinstitutions,andstrongercompetitivepressure,amongotherthings.
Companiesinanationmustupgradetheiroperatingpracticesandstrategiesifsuccessful
economicdevelopmentistooccur.Thecompetitiveadvantagesofanationscompaniesmustshiftfromcomparativeadvantages(low-costlabourornaturalresources)tocompetitiveadvantagesarisingfromuniqueproductsandprocesses.Companiesmustmovefromtappingforeigndistributionchannelstobuildingtheirownchannels.
a)UKCompanyPerformance
TheUKishometoasignificantnumberoflarge,internationallysuccessfulcompanies.WithinEurope,theUKhasanequalorhighernumberofcompaniesintheFortune
100relativetoGDPthandoGermanyorFrance.Amongmultinationalcompanies(MNCs)withthelargestforeignassets(classifiedastransnationalcompaniesbyUNCTAD)theUKishometo14companies,behindonlytheUnitedStatesandJapanandaheadofGermany,France,Italy,andtheNetherlands.73Inadatasetof10,000largecompanies
fromCanada,Germany,Japan,theUnitedStates,andtheUnitedKingdom,UK
7/31/2019 UK Competitiveness Tcm8-13559
46/73
companiesreportedthehighestreturnonequityinthe1997-2001period.74
ProductivitylevelsofUKmultinationalsareroughlyinlinewithGermanandFrenchmultinationals,butlagUSmultinationals.75ProductivityofdomesticUKcompaniesis
lowerthanthatoftheMNCsoperatinginthatcountry,asinothercountries.ThedifferenceinrelativeUKproductivityacrossindustriesisconsistentwiththeircompetitivenessasrevealedintheirexportpositions:strengthsinservices(retail,banking)andselectedmanufacturing(oil&gas,pharmaceuticals,foodprocessing)and
34UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page39-----------------------
CompetitivenessandUKBusinessCompanyBehaviour:TheRoleofManagement
weaknessesinmanyothermanufacturingindustries.76Thehypothesisofalongta
ilofunderperformingfirms,i.e.thepresenceofahighershareofcompanieswithverylowperformanceintheUKrelativetoothercountries,findsnosupportincurrentresearch.77
b)UKCompanyOperationsandStrategy:CompetitiveAssessment
UKcompaniesexcelingeneratinghighreturnsfromexistingassetsthroughefficient,wellestablishedbusinessprocesses,especiallyincustomerrelationshipandsupply
chainmanagement(Figure18).Theyarelesswellpositionedtoinnovate,createnewassets,andcompeteonuniquemarketpositions.
Figure18:UKCompanyOperationsandStrategy-Overview
CompetitiveAdvantagesCompetitiveDisadvantages
SophisticatedmarketingandLowcapitalstockbrandingLowinvestmentsininnovation
StrengthsinsupplychainCompetelessonuniquevaluemanagement,distribution,and(versuscost)thanadvancednationretailingpeers
HighlevelofprofessionalversusSomeindicationsoflowuptakeoffamilymanagementanduseofmodernmanagementtechniques
7/31/2019 UK Competitiveness Tcm8-13559
47/73
incentivecompensationSomeindicationsthatHighlevelofinternationalisationmanufacturingislaggingthe
overalleconomy
Source:GlobalCompetitivenessReport(2002),McKinsey(2002),EEF(2002),COI(2000),WIR(2002)
CapitalStockUKcompaniesareoperatingwithlowerlevelsofcapitalintensitythantheircompetitiorsinEuropeandtheUnitedStates(Figure19).Businessinvestmenthasincreasedtothelevelofotheradvancedeconomiesoverthepastdecade,butthathasnotbeenenoughtoclosethegapintermsofcapitalintensity.78RecentanalysisbytheOECDsuggests
thatthelowerinvestmentintheUKoverthelastdecadehasbeenmainlyrelatedtoinvestmentsinbuildingsandstructures.Thereisnolagininvestmentsinmachi
nery79.TheOECDreportspeculatesthatthisresultsisduetoalargerexistingbuildingstockintheUKrelativetoothercountries,buttheevidenceonlowercapitalinvestmentbyUKmultinationalsindependentoflocationcastsdoubtonthishypothesis.
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE35
-----------------------Page40-----------------------
CompetitivenessandUKBusinessCompanyBehaviour:TheRoleofManagement
Figure19:LevelandChangeofCapitalStock,SelectedCountries
180%
Germany,deItalyk160%rNetherlands
o%FranceBelgiumw0Norway0r1uo=140%hKDenmarkrUe
7/31/2019 UK Competitiveness Tcm8-13559
48/73
p,Japan0FinlandIrelandk0UnitedStatesc0120%o2-IcelandtSwedenS69l9Spainat1CanadaUKip100%aAustraliaCNewZealand80%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%GrowthRateofCapitalStockperhourworked,1996-2000
Source:IMF(2003)InnovationUKcompaniesinvestsignificantlylessinR&Dthantheircompetitors(Figure20).80For
mostsectorsintheUKthisgapisunderstatedduetothestrongpositionoftheR&Dintensivepharmaceuticalsector.IntheUKthissectoraloneaccountsfor23%ofallmanufacturingR&Dbycompanies,aheadofallotherOECDcountriesincludingFrance(9%),theUnitedStates(7%),andGermany(5%).81TheR&Dgapisincreasing;th
eUK
wasoneofthefewadvancedeconomiesinwhichbusinessspendingonR&DhasfallenrelativetoGDPinthe1990s.Interestingly,theshareofforeign-ownedcompaniesresearchintotalprivatesectorR&Dexpenditureshasincreasedfrom16.4%in1989to31.2%in1999.Atthesametime,thereareindicationsthatUKcompanieshaveperformedanincreasingamountoftheirR&Dabroad.82
CompanypositioningThereissomeevidencethatUKcompaniesarecompetinglessonuniquevaluethan
theiradvancedeconomypeers.TheUKhas,forexample,alowerexportshareinindustriesthatarehighlyquality-sensitive;italsohasbeenincreasingitsexportshareinsuchindustrieslessthanmanyotherEuropeancountries.83
However,thisevidenceisnotveryconclusive,anddifferencesacrossindustriesarelikelytobesignificant.OneofthepossibleexplanationsfortherecentappreciationoftheUK
7/31/2019 UK Competitiveness Tcm8-13559
49/73
realexchangerate,forexample,istheimprovementintheunitvalueofUKexportsrelativetoothercountries.84Thiswouldindicatethat,atleastforthecompaniesthatare
successfulinexporting,competingonvalueisincreasinglybecomingthenorm.
36UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page41-----------------------
CompetitivenessandUKBusinessCompanyBehaviour:TheRoleofManagement
ManagementUKcompaniesrelyonprofessionalmanagersversusmanagementbyfamilymembersofcompanyowners.ModerncompensationtechniquessuchasincentivecompensationforcompanyexecutivesareusedmorewidelythaninmostothercountrieswiththeexceptionoftheUnitedStates.However,thereissomeevidence,especiallyfromthemanufacturingsector,thatUKcompaniesadoptmodernmanagementtechniquessuchastotalqualitymanagement(TQM)laterandlessoftenthantheircompetitors.85
Theyalsoseemtoachievelowerreturnsfromimplementingthem.However,thereisconflictingevidencefromotherstudiesthatfindUKcompaniestobeaverageintheuseofmanagementtechniques.86
TheUKhasalowershareofmanagerswithadvancedformaleducationversuspeercountries.However,thiscouldbeastatisticalartefactduetotheveryhighnumberofemployeesclassifiedasmanagersintheUK.ThesupplyofthemostskilledmanagersintheUKislikelytobecompetitive.UKmanagementschoolsgethighratingsanda
ttractmanystrongforeignstudents.TheUKalsoisatleastasattractivealocationforexpatriatemanagersasanyotherEuropeancountry.ProblemswithmanagerialskillsintheUKseemlikelytobeconcentratedatthelowerandmiddlemanagementlevel,reflectingtheoverallskilldeficitintheUKlabourforce.87However,thereisnoconclusivecomparativedataavailabletomeasuresuchdifferences.88
ManufacturingTherearesomeindicationsthattheUKmanufacturingsectorisperformingbelowthe
restoftheeconomy.89LabourproductivityinUKmanufacturingrelativetotheUnited
Figure20:CompanySpendingonR&D
P,3DGf
7/31/2019 UK Competitiveness Tcm8-13559
50/73
oSwedene2.5raelhbJapanFinlandSalsi2aavgaUnitedStatesntisGermanyde1.5ntealpSrNetherlandsFranceoD91UK&9R9Canada
y1NorwayAustralian0.5ItalyaSpainpNewZealandmoC0-4%-2%0%2%4%6%8%10%12%14%AnnualGrowthinCompanyR&DSpendingasShareofGDP,
1989-1999orlatestavailable
Source:OECD(2002)
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE37
-----------------------Page42-----------------------
CompetitivenessandUKBusinessCompanyBehaviour:TheRoleofManagement
Statesunderperformstheoveralleconomy.90However,thesameistrueforFranceand,
tosomeextent,forGermany.91LabourproductivitygrowthinUKmanufacturingwas
lowerthanintheoveralleconomyandbelowmanufacturinglabourproductivitygrowthintheUnitedStates,France,andGermanyafter1995.ThiswasincontrasttotheprioryearswhenUKmanufacturinggrowthwassignificantlystrongerthaninpeercountries.92
7/31/2019 UK Competitiveness Tcm8-13559
51/73
Intotalfactorproductivity,theUKmanufacturingsectorlagsothercountriesandalsotheUKeconomyaverageproductivityinlevelandrecentgrowthrate.93
ThelowerUKproductivityinmanufacturingrelativetotheUnitedStatesis,accordingtosomeobservers,relatedtothepresenceofeconomiesofscaleandsmallerhomemarketsize.94Dataontheaveragesizeofmanufacturingcompaniesdoesindicatethat
UKcompaniesindeedaresmallerthantheirUSpeers.However,thedataalsoshowsthatUKcompaniesarelargerthancompaniesfromotherEuropeancountriesthatstillachievehighermanufacturingproductivity.95ThelowproductivityperformanceofUK
manufacturinginrecentyearsisconsistentwithlowerspendingoncapitalinvestmentandR&Drelativetocompetitorsfromotherlocations.96
c)UnderstandingUKCompanyBehaviour
Managementchoicesareafunctionofthefollowingmainfactors:management
capabilities,companycapabilities,andthecompanysbusinessenvironment.Thesefactorsinturnaremutuallydependentovertime.Thereisnosimplerelationshipbetweenanyonefactorandmanagementchoicestodrivecompanycompetitivenessandultimatelycountryperformance.
FortheUK,therearethreeareasthatareperceivedtoresultincompetitivedisadvantagesforUKcompanies:insufficientinvestmentincapitalassetsandinnovation,positioningonlowinputcostratherthanhighvalue,andlaggingadoptionofmodernmanagementtechniques(Figure21).Together,theseareascouldexplainthepersistent
productivitygapandthelowlevelofinnovationoftheUKeconomyrelativetotheUnitedStatesandtheleadingContinentalEuropeaneconomies.
38UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page43-----------------------
CompetitivenessandUKBusinessCompanyBehaviour:TheRoleofManagement
Figure21:CompetitiveCompanyWeaknessesintheUK-PotentialExplanations
CompetitiveDisadvantagesPossibleDrivers
LowrateofinvestmentincapitalManagementweaknessassetsandinnovationHistoryofmacroeconomicandpolicyvolatilityFinancialmarket
7/31/2019 UK Competitiveness Tcm8-13559
52/73
failureLowpublicinvestmentLimitedlinkagesbetweenprivateandpublicresearch
CompetinglessonuniquevalueManagementweaknessthanadvancedpeersNationalcompetitivenessbasedonrelativelylowcostsandaccesstoEuropeanmarketLowpublicinvestment
IndicationsofloweruseofmodernManagementweaknessmanagementtechniquesLowlevelofcompanyinvestmentsincomplementar
yassetsandtechnologyFeweffectiveinstitutionstodisseminatepracticalknowledge
ExplanationsforlowinvestmentsincapitalandinnovationThereisclearevidencethatUKcompaniesonaverageoperatewithasmallercapitalstockandinvestlessinR&DthantheirpeersinEuropeandtheUnitedStates.Theliteratureproposesanumberofpossibleexplanations.Thefirstpossibleexplan
ationismanagementfailuretoreacttoeconomicopportunities.However,intermsofcapitalassetsthelowerinvestmentrateintheUKisconsistentwiththeUKslowcapitalproductivity(therealanomalyisFrancewhichhasahighcapitalstockdespitethesamecapitalproductivityastheUK).97TherearealsoindicationsthatUKcompaniesearnedalowerreturnfrominvestmentsininformationtechnologythantheirUSpeers.98What
explainsthelowercapitalproductivitydespitethelowcapitalstockintheUK
isnotaddressedintheliterature.Managementfailureisagainapossibleexplanation,butitisfarfrombeingtheonlyone.
ThesecondpossibleexplanationistheUKshistoryofrelativelyhighmacroeconomicvolatility.99Thereisclearevidenceshowingthathighermacroeconomicvolatility
7/31/2019 UK Competitiveness Tcm8-13559
53/73
depressesinvestmentrates.However,pastmacroeconomicvolatilityintheUKwashigherthaninContinentalEurope,butlowerthanintheUnitedStates.Moreimportantly,theUKhasenjoyedanumberofyearsofincreasedstability,andithasputinstitutionalstructuresinplace,suchastheindependenceoftheBankofEngland,thatcreatemorestablemacroeconomicexpectations.Ifmacroeconomicvolatilityisindeedthedriveroflowerinvestmentrates,thiswouldindicateasignificanttimelaginmanagementadjustingtothenewcontextintheUKeconomy.
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE39
-----------------------Page44-----------------------
CompetitivenessandUKBusinessCompanyBehaviour:TheRoleofManagement
ThethirdpossibleexplanationistheUKsequitybasedfinancialmarketstructurethat,itisargued,favoursshort-termmanagementoutlook.100Thereisclearevidencetha
tthevalueoffinancialassetscanbemis-pricedforextendedperiodsoftime.101Thereis,
however,nosystematicevidencethattiesthistomanagementbehaviour.Theanecdotalevidenceonfirmsgoingprivatetoenablemorelong-termstrategiesindicatesthatthismightbethecase,butitalsoindicatesthatcompanieshaveachoiceandthatthereisnodeterminism.Theevidencefrommoregeneralstudiesontherelationshipbetweenfinancialsystemsandeconomicperformanceindicatesamorecomplexrelationshipwith
relativeadvantagesanddisadvantagesfortheAnglo-SaxonversusContinentalEuropeansystembutnoobvioussuperiorityofanyonemodel.
ThefourthpossibleexplanationforthelowlevelofinvestmentincapitalstockandinnovationistheUKslowlevelofcomplementarypubliccapitalassetsandlabourforceskills.102ThereisclearevidencethattheUKhasweaknessesinthegeneral
infrastructure,suchasthetransportationnetworks,inpublicsectorR&Dspending,andintheoverallskillbaseofitslabourforce.Generaleconomicresearchindicat
esthatthesefactorswilldrivedowntheprofitabilityofinvestmentsincapitalassetsandR&D.ThereisnospecificdataonthequantitativeeffectofthesefactorsintheUK.103
Thefifthexplanation,relatedtothelowerlevelofR&Dinvestments,istheinstitutionalstructureandlaggingfinancingoftheuniversityandpublicresearchsector.Privatesector
7/31/2019 UK Competitiveness Tcm8-13559
54/73
researchisincreasinglyrelatedtopublicsectorresearch.104LowuniversityR&Dspending
andlowlevelsofuniversityinteractionswithcompaniesarefactorsthatdirectlyeffectcompaniesincentivestoinvestinR&D.TherelativelylowleveloffinancingforUKuniversitiesaswellasuniversitieslowlevelsofpatentingareindicationsthatsuchdeficitsexists,atleastoutsideofthelifesciences.105
ExplanationsforcompanypositioningonefficiencyandlowcostsThereissomeevidencethat,onaverage,UKcompaniescompetelessonuniquevalueandinnovationthantheirpeersfromotheradvancedcountries.106However,current
researchprovidesnosystematicexplanationofwhythatmightbethecase.Onecandidateismanagementfailure,especiallyintheareaofstrategyandinnovation.107UK
managersmighteitherfailtounderstandtheopportunitiesofcompetinginpremiumsegments,ormightindeedbebetteratlowcostprocesses,products,andservice
s.ThealternativecandidatetoexplainUKcompanypositioning,however,isagainthebusinessenvironment.Theweaknessesintheinfrastructure,scienceandtechnologysystem,andlabourforceskillsmakeitharderforcompaniestocompeteoninnovationanduniquevalue.Incontrast,historicallytherelativelylowcostsoflabourandothercostsofdoingbusinesscomparedtopeercountriesmadeitattractivetocompeteonefficiencyandlowercost.
ExplanationsforslowadoptionofmodernmanagementpracticesThereisevidencefromthemanufacturingsectorthatUKcompaniesarelessactiveinadoptingmodernmanagementpractices.GiventhesuccessofUKretailersattributedtoleadingsupply-chainmanagementsystems,itisunclearastohowbroadlythis
40UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE
-----------------------Page45-----------------------
CompetitivenessandUKBusinessCompanyBehaviour:
TheRoleofManagement
observationholds.AcceptingthenotionthatUKcompaniesfallbehindtheirpeersinmodernmanagementpractices,managementfailureinthesenseofresistancetochangeorinadequatetraininginsuchpracticesarepossiblecandidatesforexplanation.
However,anothercandidatetoexplainloweradoptionofmodernmanagementtechniquesisthelowerlevelofprivateandpublicinvestmentincapitalassets
7/31/2019 UK Competitiveness Tcm8-13559
55/73
andR&D.Manyofthenewtechniquesneed,itisargued,modernmachineryandskilledemployeestoreachtheirfullpotential.Ifthosearemissing,itmightexplainwhymanagersdecidenottomigratetothesenewtechniques.Theultimatecause,then,wouldbethefactorsthatdrivelowinvestment.Tacklingthoseproblemswouldthenleadmanagerstoadoptthenewmanagementtechniques.
ThethirdcandidatefortheslowadoptionofmodernmanagementpracticesistheinsufficientpresenceofinstitutionsforcollaborationintheUKeconomy.Theseinstitutions,suchasclusterorganisationoruniversity-linkednetworkinginstitutions,oftenplayaparticularlyimportantroleinthediffusionofnewmanagementbestpractice.Someofthesetechniquesarehardtocommunicateinanabstractform,andarebestlearnedindirectinteractionwithotherprofessionalsinthesameclusterorindustry.
Whilealloftheseindividualexplanationshavesomecredibility,thereisnosystematic
evidenceevaluatingtheirrelativeimportanceinexplainingthefacetsofcompanybehaviourthatunderlietheUKproductivityandinnovationgaprelativetoitspeers.
Referencesimpressions,becausethestrong(2001),OMahoney/deBoer73UNCTAD(2002).UKcompaniesspendingonthelifesciences(2002)comeprimarilyfromtheoil&masksdeficitsinotherareas.93OMahoney/deBoer(2002)
gasandthefood&beverages81PICTF(2001)
94EEF(2001)sector,whileforexample82Pain(2000)95Bartelsmannetat.(2003)Germancompaniestendtobefrommanufacturingsectors.83Aiginger(2001)96DTI(2001c)
74Conversely,Oughton(1997)84IMF(2003)97McKinsey(1998)
notesthathistoricallythe85EEF(2001),McKinsey(2002)98Nickell(2002a)profitabilityofUKcompanies86Nickell/VanReenen(2002),
99Ashworthetal.(2001),OughtonwaslowerthanbycompaniesinOECD(1999)(1997)otheradvancedeconomies.Itis87SeealsoDepartmentfor100Nickell/VanReenen(2002),unclearifthisdataisconflictingEducationandSkills(2001)Oughton(1997)withtheevidencementionedinthemaintext,orifachangein88TheCouncilforExcellencein101Myners-Report(2001)
7/31/2019 UK Competitiveness Tcm8-13559
56/73
LeadershipandManagementtheprofitabilitypatternshas102Nickell(2002)occurred.(2002)providesinterestingdataontheUKsituation.103SeeFord/Poret(1991)forsome75Griffith/Simpson(2000)andComparativedataonotherearlierempiricalworkonthisongoingresearchworkatcountries,however,isgeneralissue.CERIBA(CenterforResearchunfortunatelynotavailable.104OECD(2002b)intoBusinessActivity)89McKinsey(2002),EEF(2001)105Inthelifesciences,theUKhas76DTI(2002)90Pilat(1996),OMahoney/Deasignificantposition,andinthe77Haskel(2002),unpublishedBoer(2002)university-basedclustersaround78Ashworthetal.(2001)OxfordandCambridge91Germanyhashigherlabour79OECD(2003)productivityifmeasuredbyGDP
significantuniversity-companyinteractiondoestakeplace.80Oughton(1997)arguesthatperhourworked.106Aiginger(2000)eventheseaggregatenumbers92BureauofLabourStatisticscreateatoopositive(2002),EuropeanCommission107TUC(2002)
UKCOMPETITIVENESS:MOVINGTOTHENEXTSTAGE41
-----------------------Page46-----------------------
5ImplicationsforPolicyandFutureResearch
Thesefindings,takentogether,allowustoseetheoverallcompetitivenessoftheUKanditsstageofeconomicdevelopment.Successfuleconomicdevelopmentisaprocessofsuccessiveupgrading,inwhichanationsbusinessenvironmentevolvestosupportandencourageincreasinglysophisticatedandproductivewaysofcompetingbyfir
msbasedthere.Thisprocesstakesalongtime,stretchingfarbeyondtheadministrationofanyindividualgo
top related