Transcript Will Hutton

The Knowledge Economy and Convention Centres
Presentation to International Association of Congress Centres
Will Hutton July 6th 2010
The astonishing growth of finance – the UK example
UK banking sector assets
Banking sector assets (per cent of GDP)
600
500
400
300
200
100
0
1880
1904
1928
1952
1976
Source: Sheppard, D. K. (1971) and Bank of England.
2000
Long-run equity capital ratios
Per cent
30
United States
25
20
15
10
United Kingdom
5
0
1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Source: US – Berger, A., Herring, R. and Szegö, G. (1995). UK – Sheppard,
D.K. (1971), British Bankers’ Association, published accounts and Bank
calculations.
And financial salaries boom…
Private debt overhang overshadows recovery
British Prospects for the 2010s ?
• Credit crunches are bad news. On average unemployment rises 7 per
cent, GDP declines by 7-9 per cent, public debt rises by 86 per cent
• “Deep and lasting impact on asset prices, output and employment”
• However government reaction in 2008/9 remarkable – some recovery
inevitable
• Stock market jump biggest 9 month rise since 1693 – now correction
and consolidation
• Proposed near elimination of structural deficit over five years big risk
• Superimposed on huge deleveraging in prospect from indebted
households, commercial property and private equity.
• OBR thinks trend growth is 2.35 per cent. My view is growth unlikely to
exceed 2 per cent over decade and could be lower.
Five G20 Challenges
• Rebalancing the economy – from unproductive to “productive
entrepreneurship”. The need for innovation and investment. The return of
business purpose. Shareholder value maximisation “ stupid “ – Jack Welch
• Rebalancing public finances. Sequencing and timing crucial. Beware
Japan’s example. German policy in eurozone very dangerous.
• Rebalancing society – mitigating social polarisation. Need to mobilise the
majority for an effective knowledge economy
• Rebalancing politics – effective central strategy, local ownership and
proper deliberation to produce good law and regulation
• Rebalancing the international economy. A solution for a ) the imbalances
b ) the unbounded nature of modern finance c) China
Defining the Knowledge Economy
“ Economic success is increasingly based on the effective
utilisation of intangible assets such as knowledge, skills,
and innovative potential as the key resource of competitive
advantage. The term knowledge economy is used to
describe this economic structure”
Source: UK Economic and Social Research Council 2005
Knowledge based industries defined by the OECD
Note: manufacturing classified by R&D intensity; services classified by ICT use and employment of graduates. Recreational and cultural industries recognised as knowledge based by
EU but not OECD, and includes libraries and museums.
Market based Knowledge
industries
Public based knowledge
industries
Other market based
industries
Other public based
industries
• High to medium high
tech based
manufacturing
• Education
• Low to medium low
tech based
manufacturing
• Public administration
• High tech services
(telecommunications,
computer services,
R&D services)
• Health and social work
• Distribution, hospitality
• Transport
• Financial services
• Other services (drycleaning, hairdressing,
refuse collection
• Business services (real
estate, advertising,
accountancy, legal,
technical, consultancy)
• Recreational and
cultural services*
• Cultural and creative
industries
Key drivers of the knowledge economy
Growing as proportion of GDP in all western & advanced Asian economies
Driver One
New technologies, especially General
Purpose Technologies ( GPTs), create
new goods, services,
processes
and business models with multiple
spill-overs.
Driver Two
Shift in demand towards higher
value added,
experiential services and tech
based goods as consumers have
become more sophisticated and
diversified.
Knowledge economy and the 1980s recession and recovery
total em ploym ent, EU KLEMS database defintion 1980=100. KE m arket based is telecom s, high tech, business, financial, and
cultural services; KE public based is education and healthcare.
1.6
1.4
1.2
index 1980 =100
1
0.8
0.6
0.4
KE market based
KE public based
Manufacturing
Other Services
0.2
0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
Knowledge economy and 1990s recession and recovery
total em ploym ent, EU KLEMs database 1990=100. KE m arket based is telecom s, high tech, business, financial, and cultural
services; KE public based is education and healthcare.
1.4
1.2
index 1990=100
1
0.8
0.6
0.4
KE market based
KE public based
Manufacturing
Other Services
0.2
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
A short history of general purpose technologies (GPTs)…
• 9000 BC – 1400AD
Seven GPTs
domestication of animals & plants; wheel;
smelting of ore; writing; use of bronze;
iron & steel; creation of water wheel
• 1400 – 1750
Two GPTs
three masted sailing ship and printing
• 1750 - 1900
Five GPTs
steam engine; factory system; railway; iron
steamship; communications
• 1900– 2000
Nine GPTs
internal combustion engine; electricity;
motor vehicle; airplane; mass production;
computer; lean production; internet;
biotechnology
Twenty-first century prospects ?
Grand Challenges
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The mobile phone
Nanotechnologies
Energy from fusion
Advanced materials
Carbon sequestration
Space
Manage the nitrogen cycle
Water
Health informatics
Durable customised infrastructure
Customised medicine
The brain
Cyberspace security
Enhance virtual reality
Personalised learning
The rise of the experiential – authors of our own lives
• Air travel
• Customised cars – Formula One
forerunner for all of us
• The adventure holiday
• The shopping mall
• The live gig
• Virtual reality
• The SIPP
• The Sarkozy Index
• etc etc
Intangibles compared across the OECD
Source: OECD (2008) Intellectual Assets and Value Creation
Ratio intangibles to tangibles
Intangibles as % of GDP
14%
140%
130%
12%
120%
11.7%
120%
120%
10.1%
100%
10%
100%
9.1%
8.3%
8%
7.5%
6%
80%
60%
4%
40%
30%
2%
20%
0%
US
UK
Finland
Japan
Netherlands
0%
UK
US
Finland
Netherlands
Japan
Investment in some knowledge assets (R&D, higher education, software) in
2003-2004
OECD composite indicator, share of GDP: EU13 excludes Greece. US, Japan, Germany are 2004, rest are 2003. OECD STI Scoreboard 2007.
7%
6.6%
6.4%
Higher investment group
5.9%
6%
Middle investment group
Lower investment group
5.3%
5.1%
5%
4.3%
3.9%
4%
3.8%
3.5%
3.6%
3.4%
3.4%
3%
2.7%
2.4%
2.3%
1.9%
2%
1.7%
1%
0%
EU
13
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Growth of knowledge based work 1984-2004
knowledge workers defined as managers, professionals and associate professionals; other white collar is personal services, sales and admin and
clerical. Source; Working Futures SSDA.
45%
41%
40%
1984
2004
35%
31%
30%
28%
28%
25%
25%
19%
20%
16%
15%
11%
10%
5%
0%
Know ledge w orkers
Other w hite collar
Skilled and sem i-skilled m anual
Unskilled
Knowledge workers across the European Union in 2006
share of knowledge workers defined by occupation (managers, professionals, associate professionals) in total employment; NMS= New Member States
Eurostat, European Labour Force Survey
50%
47%
44%
45%
44%
44%
44%
42%
42%
40%
40%
39%
40%
38%
38%
35%
35%
33%
31%
30%
25%
25%
20%
15%
10%
5%
0%
Net
Bel
Den
Sw
Fin
ede
l an
giu
he r
ma
d
m
lan
n
rk
ds
UK
Ge
Ital
rma
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Fra
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Irel
and
Au
str i
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G re
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Spa
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Por
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uga
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EU
15
NM
S
The Innovation Ecosystem
Openness
Access to
finance
Skills
Competition
Public research
Demand
Source: NESTA
Convention Centres as building blocks of Innovation ecosystems
• Convention centres generally regarded as loss-leading means of urban
regeneration and a means to boost tourism
• Some truth in this – but why rising demand?
• Urban regeneration and tourism generally second tier or bottom of first
tier priorities for public expenditure
• Much better to position the convention centre as an indispensable
component of city, regional and national innovation ecosystem
• Vital for networks, knowledge sharing and horizon scanning
• Form strategic alliances with knowledge businesses and sectors?
Science parks? Knowledge based industry associations?
The World to 2030
• If you believe that GPTs and Innovation must drive growth in next two
decades, beware simple narrative that the future is Asia.
• Eg.. The Chinese economic model is looking increasingly problematic
as China approaches technological frontier, savings are squandered
and US/European capacity to absorb Chinese exports reaches limits
• Political upheaval in China almost certain in 2010s
• Equally Russia uniquely dependent upon oil and gas – very weak
innovation and investment ecosystem
• India and Brazil much better positioned – but beware India’s caste
system and poor infrastructure and Brazil’s population growth
• My hunch – the US will still be dominant if not hegemonic power in 2030
The paradox of capitalism – fairness is vital to
organisational health
• Productive entrepreneurship and innovation vital to organisational and
economic health
• Unfairness has viral affect on organisation
• De-legitimises leadership because decisions are seen as instrumental
to enhance personal wealth
• Organisations are teams
• Knowledge workers in particular expect parity of sacrifice and reward
• No trust without fairness
Where do we go from here?
• The need to construct an innovative capitalism less reliant on finance
• The return and importance of business purpose
• Every organisation must have an understood innovation system
• Proportional desert for genuine effort
• Beware signals on pay – annual bonuses problematic, LTIPs much
better way of organising remuneration, include staff with share
ownership schemes
Conclusion
• There will be no return to business as usual (2002 -7)
• The banking system is very fragile, needs ongoing state support and
permanent lost output in OECD considerable.
• The aftermaths of credit crunches are difficult – even for single countries
• The next five years will be very fraught. Low growth, potential for
inflation and geo political risks very high ( China, oil price, eurozone
collapse, collapse of economic consensus, beggar my neighbour
economic policies)
• Good news is acceleration of scientific and technological innovation
• Successful knowledge companies will stress business purpose,
innovation and organise themselves fairly
• Conference centres and the conference business is firmly part of this
story