UK leads world in export of ëideas and knowledgeí

If Germany is good at making cars and Japan at micro electronics, what does Britain excel at economically? The answer is ëknowledge servicesí.

In a new paper published today, The Work Foundation argues that knowledge services ñ in essence selling specialised brainpower - is the one category of economic activity in which the UK appears to be leading the rest of the world.

Analysing official trade figures (from the governmentís ëPink Bookí), the paper finds that in 2005, the UK exported about 75 billion worth of knowledge services ñ up from 28 billion in 1995, a rise of 170 per cent ñ and now worth some 6.3 per cent of GDP.

This represents a quarter of all UK exports ñ significantly more than any other major economy.

Ian Brinkley, director of The Work Foundationís knowledge economy programme, said: ëIt may not be a cause for draping oneself in the flag, but in pubs up and down the land, people ask what Britain does these days to make its money. The answer is increasingly apparent that it sells specialist brainpower to the rest of the world.

ëWe trade on ideas, knowledge and technology-related industries much more than other big economies do. As other developed countries also move in this direction, Britain is in a good place to compete in export markets. Itís a real economic strength: we sell more ëknowledge servicesí as a proportion of overall exports than anyone else, and that includes the US.í

ëKnowledge servicesí spans a wide variety of industries and activities that all rely on ideas, high levels of specialist knowledge, and the exploitation of science and technology. These include:

- research and development

- engineering and technical services

- legal, accountancy, consulting and advertising services

- income from royalties, licence fees and intellectual property

- financial services, such as banking and insurance, partly driven by the City as a global trading centre

- computer, information and communication services, especially electronic publishing, software and gaming

- the creative and cultural industries, such as television and media the audio-visual industry and entertainment.

The UK has developed the sector of knowledge services much faster than any other advanced nation, and relies on it much more heavily in terms of exports.

The rise of knowledge services is not just down to the City of London and the financial services industry, however. Two thirds of knowledge service exports come from non-financial sectors.

The paper notes that the traditional division between manufacturing and services is breaking down. The manufacturing sector itself generates many knowledge service exports ñ in business services, royalties and licence fees, technical and trade related services. Rather than the ëpure productioní work of making things, jobs in manufacturing today involve designing, maintaining, advising and financing activities.

For example, some pharmaceutical companies offer cancer healthcare services as well as cancer drugs.

In 2004, 46 per cent of all manufacturing workers were knowledge and white collar workers; just 11 per cent were unskilled.

In addition, manufacturing itself is changing. High tech manufacturing now provides a bigger share of UK manufacturing exports than Germany, France and Italy and is comparable to the US and Japan. Between 1992 and 2003, the share of manufacturing exports accounted for by high tech industries in the UK increased from 26 per cent to 35 per cent, according to the OECD.

The paper argues: ëThe idea of a manufacturing-knowledge service seesaw, where if one goes up the other must go down is, in our view, wrong and outdated. Our assessment is that the rise in knowledge services has taken place independently of the decline in manufacturing.í

The paper notes that the shift away from trade in manufactured goods and towards exports in knowledge based services represents a fundamental shift. But it warns the growth of knowledge services has slowed in recent years, and that the UKís position as a world leader in knowledge services should not be taken for granted.

It calls for government policy in support of further trade liberalisation, especially in Europe; further investment in human capital, especially higher education; ensuring the attractiveness of the UK as a location for research and development and science; and, where appropriate, specific industry policies, such as in aid of the creative and cultural industries (a green paper is currently forthcoming).