Transforming North Staffordshire Evidence Paper A: The Changing Economy

Transforming North Staffordshire
Evidence Paper A: The Changing
Economy
Prepared for the North Staffordshire Regeneration
Partnership
March 2008

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What is the knowledge economy
The expansion of the knowledge economy has been one of the most striking
features of economic change in developed countries over the last thirty years.
Since the 1970s, the ability to use, share and analyse knowledge has become a
key driver of economic growth and wealth creation. More sectors and more firms
rely primarily on the use and application of knowledge and technology. Indeed
The Work Foundation’s Knowledge Economy programme shows that we are fast
approaching the point where more than half of economic activity and employment
in many advanced economies will be generated within knowledge based
industries1, as Figure 1.1 illustrates below:
Figure 1.1 Share of total employment in knowledge based industries, 2005
60%
54%
50%
50%
49%
48%
46%
45%
45%
43%
41%
42%
40%
38%
37%
32%
30%
27%
26%
20%
10%
0%
Italy
EU15
Sweden
France
Ireland
Austria
Spain
Denmark
Finland
Belgium Germany
Greece Portugal
Netherlands
United Kingdom
(Share of total employment using Eurostat definitions [high to medium tech manufacturing, finance,
business services, communications, health, education, cultural services, air and sea travel].)
1 Brinkley, I. (2006) Defining the Knowledge Economy: The Work Foundation
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What is the knowledge economy
And, whilst not everyone working in a ‘knowledge based industry’ is a
‘knowledge intensive worker’ – for example, universities rely heavily on their
cleaners, caterers and administrative staff, all of whom are skilled workers but
would not be classified as ‘knowledge intensive workers’ – there has also been
rapid growth in ‘knowledge jobs’ in all sectors in the UK. This takes the shape
of demand for high level IT skills in retail and for scientists and engineers in
manufacturing. It also creates demand for buying in knowledge based services
(such as management consultancy or accountancy) within non-knowledge
sectors. Both trends create increased demand for people to fill these ‘knowledge
jobs’.
But why is this ‘knowledge economy’ so different from the way that knowledge
has always been used to create products and services?
There are three main reasons identified by The Work Foundation.2 First,
information and communication technology (ICT) now allows knowledge to
be processed, analysed, shared and used at an unprecedented scale and speed:
a scale and speed which are increasing all the time. This ICT can be used by
organisations to draw on global networks of scientific, technical and creative
knowledge, enabling the creation of new and innovative products, processes and
services that respond to consumer demand.
Second, the opening up of higher education has been critical. Without an
increased number of knowledge workers who have the tools to develop expertise,
apply knowledge and communicate with one another about complex ideas, the
technological advances could not have been exploited.
And third, the economic growth associated with the use and application of
knowledge would not have happened without strong and growing demand from
industry and from increasingly affluent consumers for the innovative, tailor-
made products and services associated with the knowledge economy.
These three factors have combined to create the growth of the 21st century
knowledge economy, which can be characterised as ‘what you get when you
bring together powerful computers and well-educated minds to meet an
2 Brinkley, I. (2006) Defining the Knowledge Economy: The Work Foundation
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What is the knowledge economy
expanding demand for knowledge based goods and services’. Or, more formally:
‘The share of national income and employment produced by innovating
organisations combining ICT and highly skilled labour to exploit global
scientific, technological, and creative knowledge networks.’ (Brinkley, 2006)3
The impact that these changes have had upon the whole UK economy is often
under-estimated. There are three main dimensions to this story. First and
most strikingly, there has been considerable growth in ‘knowledge based
industries’, industries that rely upon the use and application of knowledge as
their main source of income. Although there is not one agreed definition of these
industries, there is some consensus that knowledge based industries include
high-tech and professional services. The Work Foundation regards the best
available definition as Eurostat, which includes the following industries:
Figure 1.2 Eurostat definition of knowledge industries
Definition
Industries included
High Technology
Manufacture of:
Manufacturing
• pharmaceuticals, medicinal chemicals and botanical products;
• office machinery and computers;
• radio, television and communication equipment and apparatus;
• medical, precision and optical instruments, watches and clocks;
• aircraft and spacecraft.
Medium Technology
Manufacture of:
Manufacturing
• chemicals and chemical product (excluding pharmaceuticals,
medicinal chemicals and botanical products);
• machinery and equipment;
• electrical machinery and apparatus;
• motor vehicles, trailers and semi trailers;
• other transport equipment (excluding building and repairing of
ships and boats and manufacture of aircraft and spacecraft).
Knowledge intensive
• Financial intermediation;
services
• Real estate, renting and business activities;
• Education;
• Health and social work;
• Recreational, cultural and sporting activities;
• Water transport;
• Air transport;
• Post and telecommunications.
3 Brinkley, I. (2006) Defining the Knowledge Economy: The Work Foundation
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What is the knowledge economy
Definition
Industries included
High technology
• Computer and related activities;
knowledge intensive
• Research and development;
services
• Post and telecommunications.
Market services
• Real estate activities;
(excluding finance and
• Renting of machinery and equipment without operator and of
high tech services)
personal and household;
• Water transport;
• Air transport;
• Other business activities.
Financial knowledge
• Financial intermediation.
intensive services
Over the past ten years employment in these Eurostat defined ‘knowledge
intensive industries’ grew by 24 per cent in the UK, whilst exports of knowledge
intensive services have trebled from being worth £27bn in 1995 to being
worth £75bn in 2007. We are fast approaching the point where nearly half of
our national income, half of our employment, and a quarter of our exports are
generated by knowledge based services4.
Importantly, these knowledge based industries include manufacturing, as
the distinction between manufacturing and services is blurring in the
knowledge economy. Although employment in manufacturing has fallen in the
UK, productivity in the sector has increased as more manufacturing companies,
such as Rolls Royce, are benefiting from highly skilled workers developing
innovative products as well as providing knowledge based services associated
with these products. Two-thirds of knowledge service exports come from non-
financial sectors, with manufacturing generating significant knowledge service
exports such as business services, royalties and licence fees and technical
and trade related services5. This is likely to create ongoing opportunities to
develop the ‘high value’ aspects of these industries and to grow the numbers of
‘knowledge jobs’6.
What is happening in manufacturing highlights that it is not just industries that the
knowledge economy has affected, but also jobs. Across all industries there
4 Brinkley, I. Trading in Ideas and Knowledge, The Work Foundation
5 Brinkley, I. Trading in Ideas and Knowledge, The Work Foundation
6 Brinkley, I. (2007)Trading in Ideas and Knowledge: The Work Foundation
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What is the knowledge economy
has been greater demand for ‘knowledge workers’ who can use, analyse
and share knowledge in a way that improves the products and services of an
organisation.
Like the definition of ‘knowledge industries’, capturing who ‘knowledge workers’
are is not easy given the constraints of official data classifications. The Work
Foundation has identified three possible ways of capturing who knowledge
workers are7 – all of them with their own difficulties:
1. All those who work in the top three standard occupational
classifications – managers, professionals, associate professionals
– this definition focuses on job roles, which is useful as it focuses on
what people do but does not necessarily distinguish between ‘knowledge
intensive’ tasks and less knowledge based tasks. The ‘managers’
category is particularly problematic here as it includes a wide range of
people across all industries: both the CEO of a large multinational and
the manager of a local petrol station. Whilst all jobs use ‘knowledge’,
we would imagine that it is the CEO of a large MNC who would make
considerable use of knowledge to innovate in their job. Using this
definition, around 40 per cent of the UK workforce would be considered
‘knowledge workers’.
2. All those with high levels skills, indicated by degree or equivalent
qualifications (NVQ level 4) – this indicates that the individual
possesses a qualification and therefore may be more likely to be
employed in ‘knowledge work’ – but some people are under-employed,
and it ignores those who do not have formal qualifications but still use
knowledge considerably in their work. Using this definition, around 20 per
cent of the UK workforce would be considered ‘knowledge workers’.
3. All those who perform tasks that require expert thinking and
complex communication skills with the assistance of computers
– this is a very useful way of thinking about knowledge workers, and
distinguishes between those who ‘manage information’ and those who
actively use knowledge to do their job. It is not, however, easily captured
in existing datasets.
7 This is discussed in detail in Brinkley, I. (2006) Defining the Knowledge Economy: The Work Foundation
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What is the knowledge economy
Some combination of these definitions is likely to be most useful as a way of
assessing how many knowledge workers there are, for example graduates
working in the top three occupational classifications.
Whichever definition of knowledge worker is used, however, the argument that
there is increased demand for these types of worker in the UK stands. For
example, the proportion of managers, professionals and associate professionals
in the economy has increased, and the Sector Skills Development Agency
(SSDA) predict that by 2014 more than 45 per cent of all employees will be in
these three occupational groups8. Skills measured by qualifications have also
increased: the number of people with degrees has quadrupled since 1974, with
the Leitch review finding that 34 per cent of men and 38 per cent of women now
have a level 4 qualification by the age of 259. The number of people with no
qualifications has also decreased, from more than half of men and two thirds of
women in 1974 down to 13 per cent of men and 15 per cent of women in 200110.
And early indications from The Work Foundation’s ‘knowledge worker’ survey
pilot are that the use of knowledge as a significant part of a job is not confined to
those with degrees or within the top three standard occupational classifications.
As mentioned earlier in this section, it is important to maintain a distinction
between knowledge based industries and knowledge jobs. All industries
are becoming more dependent on ‘knowledge jobs’: for example, 16 per cent
of productivity growth in the US in the late 1990s is attributed to ‘ongoing
managerial innovation’ by knowledge workers in the retail sector11. This means
that you can be a knowledge worker even if you are not working in a ‘knowledge
based industry’. Conversely, working in a knowledge based industry does
not necessarily mean you are a knowledge worker. Whilst knowledge based
industries rely primarily on exploiting ideas and technology, and so have higher
numbers of knowledge jobs than other sectors, not all of the jobs are ‘knowledge
jobs’. These knowledge based industries could not prosper without a mix of skills:
financial services needs call centre workers and expert economists; hospitals rely
on cleaners and healthcare assistants as well as nurses and doctors. In other
words, having high levels of employment in knowledge based industries does not
mean that all the employment is itself high level knowledge work.
8 Working Futures 2004 – 2014, published by the SSDA 2006
9 HM Treasury Leitch Review of Skills, 2006
10 Hutton, W. – presentation to HM Treasury November 2006
11 McKinsey Global Institute, US Productivity Growth 1995 – 2000, October 2001
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What is the knowledge economy
The final effect of the growth in the knowledge economy important to note
is the growth in services and in the ‘experience economy’, defined as the
sectors in the economy providing experiences – leisure, retail, tourism etc –
tailored to the desires of the affluent consumer12. Demand from consumers and
from industry for knowledge based services has contributed to the growth in
these sectors, with spending on services, rather than physical goods, doubling
between 1970 and 2005, from 27 per cent of household income to 54 per cent.
Whilst many of these services may have been shaped by ‘knowledge workers’
at some point, often these services are delivered by people working in service
occupations. For example, designer clothes may be created by a designer, but
they still have to be made, transported and sold and this creates demand for
service jobs as well. Demand for customised services, cappuccinos, clothes,
cleaners and childcare, as well as various other leisure pursuits, is likely to
continue to generate a need for lower and intermediate skill occupations, as well
as knowledge jobs.
8
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12 SSDA Working Futures 2004 - 2014

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First published: March 2008
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