Our economy must get competitive to catch up with rest

Last week, for an audience of more than 200 people at Riddel Hall in Queen's University, the challenge of how to encourage businesses to better appreciate the range of innovation possibilities was enthusiastically demonstrated.

Queen's, along with Inter Trade Ireland, hosted a short visit by Professor Gerry George, Vice-Dean of the Business School at Imperial College who is also its professor of innovation and enterpreneurship, a notable academic and practitioner. However, his ability to communicate and inspire was best appreciated as part of an audience where ideas and questions flowed freely.

Two critical themes emerged. First, there is plenty of scope for people and businesses to improve their performance through an almost infinite range of innovative actions even (or possibly more so) in today's constrained circumstances. Second, across much of the developed world, there is an inability to recognise the potential for the innovative development of products and services.

If in western Europe, the UK and Northern Ireland, the economies are lacking an adequate dynamic, then this is essentially a failure to appreciate opportunities, innovate new products and adapt appropriate production techniques.

The implications of these ideas and principles are formidable and have specific relevance to Northern Ireland. Expressed as an ambitious agenda, Northern Ireland starts from a generally low productivity and low labour cost base. To catch up with the quite modest attainments of the best UK regions, Northern Ireland needs to become more competitive, to deliver better levels of productivity, to develop goods and services which get to market at competitive prices, and to gain market share in its home market place and in selected export markets.

In setting this agenda there is a danger in oversimplifying what is needed. Simply to exhort increased exports without also appreciating the elements that would make increased exports practical and competitive could be unhelpful.

For some months the Economic Advisory Group has been considering an assessment of the main features of Northern Ireland's international competitiveness. They are examining functional and geographic comparators in a now overdue report from Cambridge Econometrics which should make interesting reading.

There is no clear evidence of the relative competitiveness of local business when compared to other regions of countries. Average earnings tend to be lower in Northern Ireland which would help to ensure competitive outcomes. However, the comparison of average earnings and value added per employee is a more complicated indicator. Earnings, averaging 85% of the UK, sit just comfortably with value-added per filled job of 87%. However, labour costs are only part of the complex matrix.

A particular concern is that the official statistics for manufacturing and services output suggests that Northern Ireland has performed in the last decade simply on a par with the UK averages. This does not suggest any strengthening of competitive comparators.

A more competitive Northern Ireland needs to combine a labour force that is up skilling and a business environment where imaginative product development is being added to existing product ranges. Also, other comparative influences include the costs of energy where recent evidence from the Regulator points to a notable regional comparative disadvantage.

One encouraging feature, drawn from the calculations underpinning the performance of the Top 100 businesses (published with today's Belfast Telegraph), is that pre-tax profits (on average and excluding the banks) have improved in Northern Ireland in each of the last two years, particularly in the most recent when an average 18% increase was recorded.

If the Northern Ireland economy is to begin to catch up with other regions, the analysis points to a necessary aspiration to see competitiveness improve steadily. As yet, that evidence is not demonstrable.

To make progress skills, productivity and innovation are essential components within our constrained environment.

To make progress skills, productivity and innovation are essential components within our constrained environment