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Forget manufacturing, says NESTA’s Kestenbaum

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A new report by the National Endowment for Science, Technology and the Arts (NESTA) shows how the UK needs to boost its high tech capabilities and innovation if it wants to achieve healthy economic growth and job creation.

The report, “Rebalancing Act” (which you can download in full below), provides an analysis of what is needed to rebalance the economy. It shows that a full-blooded revival of the wider manufacturing sector is “wishful thinking”, and would require near-impossible growth rates (the likes of which haven’t been seen since WWII).

Entrepreneurs, however, will have a huge role to play in Britain’s growth: NESTA research shows how it’s a small minority of high-growth businesses that generate the bulk of jobs. Just six per cent of companies were responsible for more than half of new jobs created by businesses between 2002 and 2008.

“At a time when the UK needs to look for new sources of growth, providing the right conditions for high-tech companies should be a priority,” says Jonathan Kestenbaum, NESTA’s chief executive.

He adds that we only need to look at successful clusters across the UK – such as the life sciences and video games cluster in Dundee – to see what can be accomplished “when policy works in the interest of enterprise and innovation”. 

NESTA worked with Oxford Economics to develop four scenarios for the future balance of the UK economy, applying them to an economic forecast model showing how each will affect economic growth, regional performance and employment:

  • ‘Business as usual’, in which the UK continues to rely on financial and business services with no significant rebalancing;
  • A full-blooded manufacturing renaissance, where we close half the gap between the UK and leading EU manufacturing nations;
  • A high-tech growth scenario, where recovery is driven by growth in high-tech sectors;
  • An innovation scenario, where investment in innovation across the economy increases productivity.

“Our analysis puts paid to the notion that a broad-based manufacturing renaissance will drive recovery. Instead, it shows that a recovery based on high technology and innovation offers the best prospect for growth,” adds Kestenbaum. 

The report suggests focusing support for these businesses by using small-scale, often private-sector programmes that encourage high-growth, innovative businesses such as Seedcamp and the British Library IP Centre. “At a time of budget constraints, this is more effective than costly government programmes such as Business Link, which offers general business support but lacks a clear focus on high growth businesses,” the report says.

Entrepreneurs have reacted positively to the report. Jos White, co-founder of Notion Capital, calls the research “pretty much spot on”.

“Innovation in the UK is an area which isn’t impacted by emerging markets in the same way our manufacturing and more manual sectors are, where cheaper labour and costs put them at a disadvantage. The most difficult thing with innovation and entrepreneurialism is having the creative thinking and being able to question the status quo – which the UK has in abundance.

“But while we do have this creativity, we don’t necessarily have the right ecosystem to support these entrepreneurs. The UK needs a fertile environment to support fast-growing high-tech companies and this requires change in how the UK traditionally approaches investment.”

You can download the full NESTA report below:

NESTA: Rebalancing Act

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