It also leads naturally to a discussion of why those gaps have emerged between the best and the rest of UK companies and what might be done to close them. Can ways be found to accelerate the rate of technological diffusion to the long tail? I will argue an improved diffusion infrastructure, using as a base existing institutions and the UK’s innovation strengths, could help to close those productivity gaps. The “Hub-No-Spokes” Model My diagnosis of the UK’s productivity problem starts with three simple stylised facts about productivity gaps. The first two gaps are well-known, the third much less so. Fact one is that UK productivity has flat-lined for a decade. This means UK productivity is running almost 20% below its level had it continued along its precrisis trend (Chart 3). This is a big productivity gap, even if you believed the pre-crisis productivity trend may 6  have been somewhat over-inflated. It is a gap it is unclear will ever be closed. Fact two is that there is a second gap – perhaps as much as a third – between levels of productivity in the UK and in our main competitors, the US, Germany and France (Chart 4). This is an even-larger gap, even if you believed productivity was differently (mis-)measured across countries. It is the source of the oft-quoted quip that the average French worker achieves by Thursday lunchtime what the average British worker achieves only by close of business on a Friday.
20  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  openness is that it can serve as a vehicle for the transmission and diffusion of new technologies across borders. 26  Globalisation would tend to accelerate catch-up between countries operating at the technological  frontier and those operating inside. 27  The evidence appears to support the first leg of this hypothesis: increased openness, across its various dimensions, does appear to be associated with higher levels of productivity as innovation diffuses. To illustrate, Charts 8-11 show some indices of external openness (for goods and services, capital, people and a summary of all three) plotted against levels of productivity in a selection of 32 countries. 28  The relationship between them is positively sloped and statistically significant: countries with greater external openness - whether trade, capital or people – tend to have higher levels of productivity. It would be brave to claim causality. But it is consistent with openness of factor flows being an important cross-border conduit for ideas and innovation, as indeed other studies have found. 29  Adding weight to that, what is true across countries appears also to be true within countries. Charts 12 and 13 plot the productivity distribution of UK companies sliced in two different ways. Chart 12 distinguishes companies according to whether or not they export. Exported-oriented companies have average levels of productivity one-third higher than their non-exporting counterparts. Chart 13 looks at a different dimension of external openness, namely whether a company is foreign-owned.