Innovation drives productivity

National Endowment for Science Technology and the Arts’ (NESTA’s) Innovation Index shows that two thirds of private-sector productivity growth between 2000 and 2007 was driven by innovation.

The index, published on 26 November, reveals a direct link between the amount of innovation that companies invested and productivity output.

UK businesses invested £133bn in innovation in 2007 (the most recent year covered by the index), representing 14 per cent of private-sector output.

Consequently, two thirds of UK private-sector productivity – 1.8 percentage points of productivity growth per year – between 2000 and 2007 was a result of innovation.

According to NESTA, this compares favourably with the best data available for countries including France and Germany and similar to US levels. It may account for the UK’s higher productivity growth in recent years compared to France or Germany: 2.0 per cent against 1.3 per cent and 1.1 per cent respectively.

Jonathan Kestenbaum, chief executive of NESTA, said: ‘For people who care about the prospects for our economy, this index will be as important as the Consumer Price Index. The Innovation Index measures arguably the most important driver of growth.’

The Innovation Index, chaired by Lord David Currie, has been designed with innovation experts, practitioners, policymakers and economists. It includes factors such as product design, training in new skills, organisational innovation, developing new customer offerings and brands.

Lord Currie said: ‘This report measures the direct contribution of innovation to productivity and economic growth, through a much wider set of channels than hitherto captured. This is critical in refocusing innovation policy on what really matters for enhancing the UK’s prosperity.’

Further details about the Innovation Index can be found here: