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Are AI Clusters a key to overcoming the UK productivity gap?

The UK has a well-documented decades-long 20% labour productivity gap with the US, Germany and France.  With Brexit potentially creating extra challenges in overcoming this competitive disadvantage, the UK could fall even further behind.  But if you are an optimist it could also be a moment for the UK to take a giant leap forward as it has done in the past when confronted with no other choice.

Britain has been very good at doing this recently but it could be even better and Brexit could galvanise a new era of even more productive collaboration between public institutions and private business.   There are many sectors of the UK economy that have bright sparks of world class performance but McKinsey Global Institute Productivity research shows very clearly they are held back by vexing bottlenecks.  We believe this can be overcome. We decided to begin working to advance some already very strong work on creating industry clusters.  We could have chosen any one of many industry sectors to provide a foundation for our thinking but as it happens we already have a cluster of knowledge, connections and momentum in the AI space, we are taking a stab at working on how AI could be a backbone technology to drive more rapid development of many high performing industry clusters in the UK and indeed a high performing cluster of AI suppliers in the UK.

We believe the rise of Artificial Intelligence could be a springboard for rapid productivity growth in two ways:  AI is a functional industry unto itself and AI is also an increasingly fundamental element of any high performing industry from high tech to Entertainment and even Art.   A strong pure AI cluster is already developing in London spurred on by an imperative to develop tools for Fintech, Drug Discovery and many other applications.  The basic functionality of these tools is transferrable to other industries and the reverse is true also: AI applications designed for specific situations can be generalised to provide the backbone for applications in other industry sectors. We think this is a model the UK should support with a big coordinated push from the public and private sectors.

However, it should not be done indiscriminately and it should be done in clusters because spread too thinly the net effect will be minimal and there has to be a well thought through drive to support strong clusters that can raise the game to world class levels and then float all other boats in its wake.  Why else are clusters important?  If you measure the productivity of two businesses running exactly the same processes but one is in close proximity to other related businesses and another is isolated, chances are the first one is going to produce more than the second one and scale up faster.  It is well documented that clusters co-located with leading research universities enable iterative development of ideas and an easy flow of people from academe into local industry. Furthermore, research by Sherry Coutu shows scaled up businesses are much more productive in spawning new startups.  Clusters create powerful virtuous feedback and AI can act as a turbocharger across many sectors.

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