Introduction  (Page 9/20)

Innovation: an effective innovation system

Regional innovation systems have been shown to be the motors of the Knowledge Economy (UNIEDO 2003). A region’s ability to develop new products and services and improve upon the manner it produces existing ones is key in determining its economic fortune. Along with companies these systems include interrelated actors including universities, research centres, knowledge services etc.

Infrastructure: a modern and adequate information infrastructure

To facilitate innovation and create clusters of growing knowledge-based businesses an infrastructure is required for its support. Infrastructure not only encompasses physical entities such as development facilities, offices and ICT systems. ‘Soft’ infrastructure is equally critical. Important examples include not only enterprise and specialist support such as legal services but also knowledge networks of individuals and organisations that disseminate and exploit knowledge and opportunities.

Economic and institutional regime

The economic environment of a nation or region plays an important part in the growth of the Knowledge Economy. Factors such as taxation, strength of Intellectual Property Rights, export controls/tariffs etc. are examples of this economic and institutional regime. Many of these aspects of the Knowledge Economy are managed at the UK or EU level. They therefore fall outside the devolved powers of the National Assembly for Wales and regional actors. It is however, important to understand how they affect the regional Knowledge Economy in order to maximise potential growth and opportunities.

Using these pillars the KAM system tracks variety of including: literacy of population; availability of ICT; levels of entrepreneurship and innovation; proportion of population with higher-level skills etc. As these indices are easily collated and comparable between nations it makes benchmarking straightforward. However, as the methodology was developed to assist developing countries, many of the indices used are less relevant to developed nations.

Threshold of a knowledge economy

While the concept of the Knowledge Economy is clear, the challenge remains in determining the extent to which an economy is knowledge intensive (Shapira et al., 2005). A practical approach toward defining whether an economy is ‘knowledge-based’ is to determine whether it exceeds a threshold of knowledge intensiveness. Using their sectoral definition of the Knowledge Economy the OECD (OECD 1996) provides such an approach, defining a knowledge-based economy as being:

“ ..an economy in which more than 40% of employees are employed in high technology manufacturing and knowledge-intensive industries ”

Cooke and De Laurentis (2003) have used this approach to study the role of the Knowledge Economy in various European regions demonstrating significantly varying knowledge intensiveness across the EU.

This approach of tracking knowledge intensive sectors provides a useful metric in that it makes use of official statistics that are consistent across national and regional boundaries. However, a sectoral approach is limiting in that the Knowledge Economy is relevant to all industries, not only those included in the definitions provided by EUROSTAT and the OECD (1996). This applies in particular to those sectors not related to science, engineering and technology (SET).