The ability of an economy to generate new ideas is difficult to measure. Increasingly, the import of modern technology from abroad is a factor driving productivity growth. Skills acquired after school are also important. Skill differences between UK and German manufacturing are an important factor in explaining Britain's manufacturing productivity gap with Germany. It is important to create the right environment for innovation and the exploitation of new ideas, with a supportive institutional and cultural framework.
Macroeconomic stability is crucial.
Property rights must be established and enforced, the banking and financial system should be capable of bearing risk and society should respect, foster and encourage enterprise. The capacity for growth is reduced in societies that are unwilling or unable to innovate and change. Precise measurement of the knowledge component of output is difficult. As one indicator, albeit imperfect, the OECD defines a group of high-tech manufacturing and services which have a high knowledge component. The value added generated by knowledge-based industries in the OECD increased at an annual average rate of 7 per cent between 1985 and 1994.