Also, figure 97.13 indicates that the UK’s overseas earnings from royalties and licence fees were quite low. From 1993 to 1996 the UK’s royalties increased by 52%, from $4 billion to $6 billion. Although the earnings were higher than that of France and Germany, the royalties did not increase as much as that of Japan and the US. In 1993 Japan had the same number of royalties as the UK but by 1996 Japan’s royalties had increased by 73%, which was 21% more than the UK. The US’ royalties only increased by 48% but in 1993 their earnings were already high at $20 billion. In 1996 their royalties had increased to $29 billion, which is almost 5 times the UK’s earnings.
2.) Analyse the contribution that knowledge based industries could play in restoring UK international competitiveness (20 marks)
Knowledge is becoming increasingly important as a factor in economic growth because of four equally reinforcing developments:
- Rapid developments in information and communications technology
- Increased speed of scientific and technological advances
- Greater global competition
- More sophisticated demand patterns caused by growing prosperity
As figure 97.13 shows, the knowledge based industries’ share of UK output increased from 17% in 1980 to 23% in 1996. Also, the UK’s knowledge based share of service exports is over 50%, suggesting that a knowledge-based industry is very important to the UK. During 1985-1993, employment in knowledge based industries increased substantially more than employment in other industries. With the index being 100 in 1985, employment in knowledge-based industries rose to a peak of 129 in 1990 and then fell to 124 by 1993. Overall, employment in these industries had increased by 24. Employment in other industries rose to a peak of only 108 in 1990 but then was back down to 100 by 1993, which is same as what it was in 1985.
As well as increasing the importance of innovation, increasing the returns to products with a large knowledge component is the way businesses are competing. These developments lead to a crucial role for entrepreneurs in identifying and exploiting the economic opportunities presented by rapid change. Also for investors, who may find companies’ wealth-creating potential increasingly tied up in intangible assets such as the knowledge of the workforce.
The White Paper, released by the Department of Trade and Industry suggests that in order to achieve economic prosperity in the future, we require:
- the capacity to exploit science and technology
- enterprise and innovation
- people and skills
- collaboration between companies operating in networks and clusters
- greater competition to increase innovation and consumer choice
Due to the strength of the media, entertainment and financial services, the paper says the UK is in a strong position in many areas of the knowledge economy. Also, if the government wants to promote economic growth and stability they need to be aware of the need to develop - the skills of the science-based industries, technology, innovation and effective capital markets are all required. As mentioned before, the increase in knowledge-based employment and exports, expresses the importance of knowledge to the UK. For this reason, the composition of UK output is already changing to reflect this and it could help restore the UK’s international competitiveness.
3.) Assess whether the most important policy response of government to the lack of competitiveness should be to promote entrepreneurship (20 marks)
Entrepreneurs are individuals who organise production by organising land, labour and capital in the production of goods and services. They also take risks with their own money and the financial capital of others. Entrepreneurs buy factors of production to produce goods and services in the hope that they will be able to make a profit but in the knowledge that they could lose all their money and go bankrupt. In other words, it is this element of risk that distinguishes entrepreneurs from ordinary workers.
There are both advantages and disadvantages in promoting entrepreneurship when responding to the problem of lack of competitiveness. For example, one advantage is that entrepreneurs enhance the flexibility and adaptability of economies because individuals move faster than bureaucratic large corporations. They speed up the commercialisation process by being able to turn new ideas into new products. Entrepreneurship can therefore help determine the rate at which new ideas are turned into new useable products and services. Another advantage is that it is undoubtedly much easier to become an entrepreneur these days. Capital is not such a scarce resource as it has been and new technologies like the internet have removed barriers to entry.
In a new report, 'Surfing the Long Wave: Knowledge entrepreneurship in Britain', published in July, the knowledge entrepreneur is analysed. The report presents the conclusion of years of work spent shadowing knowledge entrepreneurs in industries like biotechnology, computer games and animation, in clusters such as Cambridge, the Hoxton new media triangle and Soho. It puts the economic case for entrepreneurship, challenges conventional stereotypes about entrepreneurs, and offers a range of policy suggestions for New Labour to foster entrepreneurship - for example, reform of the Department of Trade and Industry (DTI) to focus on entrepreneurship, and the education of schoolchildren to become more entrepreneurial. So in other words the knowledge entrepreneur has been a favourite for the Liberal Democrats.
One disadvantage is that by promoting entrepreneurship, the government invests a great deal of hope in individual entrepreneurs. This could be seen as an expression of the government's unwillingness to think big. Bereft of any big ideas about the economy, the baton is being handed to individuals, who, on the whole, have the least power in the economy.
Another problem is that the promotion of entrepreneurship goes beyond its very narrow economic focus. It is quickly becoming a new form of social engineering. For example, the Democrats’ idea that 'schools should be encouraged to experiment with different approaches to blur the lines between formal education, work experience and entrepreneurship'. It could be argued that children should be left alone to study Maths and English and to let them enter work when they are adults.
People used to be worried about small businesses surviving but now there are about 23 million out there. Since our economy is rapidly changing it creates new opportunities for small business owners everyday. New technology has opened thousands of new opportunities and especially with the internet making a small business available to thousands of people around the world.
The impact of Entrepreneurial companies has been beneficial as about 600,000 new companies are incorporated every year. Small businesses employ more than 50% of the workforce and generate more than half of GDP. Nowadays, entrepreneurs are presented as the most creative, innovative and dynamic section of society, and increasingly courted by the Labour government. If UK chancellor Gordon Brown gets his way, entrepreneurship - the fostering of entrepreneurial activity - will become central to economic policy in the coming years.
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