Fuelling prosperity and growth

Thinking beyond GDP

Ideas, innovation and knowledge are the key drivers of modern economies. Their role, says the OECD ‘as compared with natural resources, physical capital and low skill labour, has taken on greater importance. Although the pace may differ, all OECD economies are moving towards a knowledge-based economy.’

This is echoed in the 2004 Kok Report: ‘The knowledge society is a larger concept than just an increased commitment to Research and Development (R&D). It covers every aspect of the contemporary economy where knowledge is at the heart of value added – from high-tech manufacturing and Information and Communications Technologies (ICTs) through knowledge intensive services to the overtly creative industries such as media and architecture.’ The Work Foundation, reflecting this steady trend, suggests that ‘knowledge workers’ will have grown from 31 per cent of the UK workforce in 1984 to 45 per cent by 2014. Over the same period skilled and semi-skilled jobs will fall from 28 per cent to 18 per cent and unskilled from 16 per cent to 9 per cent.

Knowledge and skills are not only directly productive in making the most of both natural and (particularly) human resources, but are also the drivers of ideas that allow productivity to grow. And in thinking about the meaning of productivity it is crucial to think about much more than GDP. As a recent report from the LSE Growth Commission (drawn up by leading economists and FBAs including Nobel laureate Christopher Pissarides, Tim Besley and Nicholas Stern) made clear, there are serious limitations with conventional measures of prosperity: ‘Changes in GDP are an inadequate measure of human well-being. For example, growth could be generated by damaging the environment with detrimental longer-term consequences. More fundamentally, assessing developments in well-being also requires looking at the distribution of market outcomes and improvements in public services. At present, however, the focus of public attention is almost exclusively on quarterly GDP releases as the barometer of economic progress.’

The Commission also points to the vital role the UK’s world-class higher education system plays in fostering growth: ‘the benefits from maintaining funding for research and an open environment in which universities can compete for the best minds as students and faculty cannot be overestimated. The knowledge and understanding created in universities play a central role in building a flexible and adaptable economy. The higher education sector benefits the UK economy as a source of skills, of innovations that raise productivity – and of valuable export earnings in the form of foreign students who choose to study here (an enormous industry of global growth).’

Many of the students who come to the UK are the leaders and decision-makers of the future. The relationships they make with fellow students and teachers, and the attachments they forge with our economy and culture last for the rest of their lives. They gain, and we gain; the world economy and society and the British economy and society are enhanced – not just for the period they are with us, but far beyond.

In 2009, Russell Group universities alone accounted for an estimated economic output of over £22bn per annum. Russell Group, Staying on Top: The Challenge of Sustaining World-Class Higher Education in the UK, 2010 It may be hard to quantify precisely how the strengths of UK research and scholarship relate to increments in output or jobs, but the evidence is all around us. Better economic and organisational understanding adds to the cognitive capacity of corporate boards and the sustainability of their management strategies. Engineers collaborate with sociologists and clinicians to improve the quality of life of older people, helping identify new products that can help them and provide new business opportunities for others. More subtly, ethical protocols drawn up by philosophers and theologians define the acceptable boundaries for pioneering areas of research and medical practice. As John Kay says, ‘People who make practical decisions – which can range from the design and technology of an iPod to big policy decisions about how the financial system should be organised – make these decisions in a framework of ideas that is, in the end, framed by a series of academic disciplines.’