Where does the North-East economy go from here? Alan Clarke, chief executive of One North-East, looks at thow our knowedge can take us into the digital age of manufacturing.

TO coin a current, well-used phrase, One NorthEast is passionate about progress.

That is why I am extremely proud of the change happening across the region. Our approach is based on businesses and other organisations competing and providing value to customers through particular features of design, quality, function or service - rather than by competing on cost.

This competitiveness is achieved by the application of knowledge.

Knowledge lies at the heart of the objectives to create a competitive and productive economy as the basis of the prosperity of North-East England.

The regional economy must respond to international challenges set by new technologies; environmental sustainability, energy supply and climate change; demographic changes, including an ageing population; and increasingly intense international competition, particularly from the astonishing rise of China and India.

These challenges require us to do things differently, as businesses, as service providers and as government.

From the perspective of regional development, our old tools of attracting inward investment through subsidies, low-cost labour and available sites no longer work. Others can do this better and we cannot continue to compete in this way.

Instead, we must look to the essential building blocks of growth: innovation, skills and the development of enterprise, building upon local, indigenous strengths, complemented by new types of investment into the region.

It is not a case of manufacturing versus services. It is about both. It is also about supporting the development of existing businesses and public organisations, and the development of new areas of the economy.

These key themes of knowledge-led innovation and enterprise, and the establishment of conditions to enable their success, underpin the new Regional Economic Strategy.

It is the economic blueprint for the North-East, and a successful strategy depends on regional support. Each strategy is the product of partnership and co-operation in public and private sectors, at the sub-regional and local levels, as well as at the regional level.

The Regional Economic Strategy is not owned by One NorthEast, but by the region as a whole. It will provide a framework for economic development, skills and regeneration; deliver national and European programmes; provide the setting for the agency's detailed action plan and demonstrate clear analysis of the regional economy and the social and environmental conditions that influence it.

As a region, we welcome change. No longer is the North-East dependent on heavy industry. We are going through a long-term restructuring of our economy, and there are now signs that things are moving in the right direction. Beyond the statistics about unemployment and economic growth used by Alan Milburn in his article, the region is now recognised in Europe as a leader in putting science and technology at the heart of its economic strategy.

Creative industries, which include computer games and video production, are now growing faster in the North-East than in any other region. There are more than 2,800 creative businesses operating here, employing 26,000 people.

Perhaps an indication of our changing fortunes is the increased interest from outside the region. In part, this is the consequence of our new Regional Image Campaign, which has communicated to the world what the new North-East is about.

Universities play a key role in the development of a knowledge-intensive economy, and in the North-East, with its recent history of low levels of research and development expenditure, they are even more important than elsewhere.

One NorthEast developed its Strategy for Success in 2002 to build upon the strengths of our universities.

The agency identified five areas of strength in energy, life sciences, process industries, small-scale technologies, and digital technologies, and established five Centres of Excellence to bring together universities and businesses.

We have gone from the bottom to the top in the UK in the number of new high-technology start-up businesses, and have seen a doubling in business expenditure on research and development.

We have focused investment into our "Three Pillars" of energy, process industries and healthcare. For example, the North-East Process Industry Cluster brings together many of the largest manufacturing companies in the region and represents more than 350 member organisations with a combined economic power of £8bn.

Science City is one of the most exciting projects One NorthEast is involved in. We plan to make Newcastle a world-beating Science City which could create up to 5,000 jobs in five years, and will aid the region's development as a world-class location for knowledge-based business.

This isn't just a Tyne and Wear project. The University of Durham, Netpark, in Sedgefield, The Wilton Centre, in Redcar, DigitalCity, in Middlesbrough, and Blyth's NaREC will be partners.

A key element of the project will be 150,000 sq metres of new buildings with the working title of Science Central, accommodating new world-class scientific research, teaching and business facilities, at the former Scottish and Newcastle Brewery Site.

It is estimated that up to 100 new technology-based companies could be set up or attracted to the region by 2010. Some we hope will go to NetPark where a key investment is a Direct Write Technology Centre, which will develop new generations of electronic technology. We are developing it with the Department of Trade and Industry and a consortium of industrial companies, including Cenamps. We believe it will attract a range of organisations seeking to locate around it.

I have mentioned the challenge of China and India. Not long ago, we saw these economies as being a source of cheap manufacturing. No longer. They are graduating more than 100,000 computer science students a year, compared with the UK's 18,000. We have much to learn. That is why we have established a Memorandum of Understanding to cover technology co-operation with Shanghai.

I am delighted that organisations from China and Japan will be partners in the Direct Write Centre, along with partners from elsewhere in the UK, Europe and North America. It will be a genuine world research centre, in County Durham.

DigitalCity, with its associated regeneration in Middlesbrough, will follow this model. Again, it builds on genuine international strengths in animation and digital design - there are now not many major Hollywood movies which do not contain some animation from Teesside University graduates.

DigitalCity aims to put the Tees Valley and the North-East at the forefront of digital technologies with a world-class reputation for excellence in areas such as computer animation and creating virtual learning environments. It is a bold economic regeneration project developed by a partnership involving One NorthEast, the University of Teesside, Tees Valley Partnership and Middlesbrough Council.

It will create a vibrant and successful concentration of digital enterprises that will play a key role in the overall economic regeneration of the Tees Valley.

A further priority area is design. Some of the world's most successful and important designers were educated in this region - people such as Jonathan Ive, of Apple iPod fame, and Tim Brown, CEO of the world's leading design consultancy, IDEO. Both swapped the North-East for California, but are now helping to develop a framework for design capacity in the region.

We are creating a Design Centre for the North, which will bring together designers with advances in science and technology. Such innovation and creativity in knowledge-intensive activities are vital for the future development of North-East England.

Our experience, and that of elsewhere, has shown such innovation can best be supported by a partnership of business, universities and the public sector - the so-called Triple Helix. This partnership is at the heart of our approach.

We have further distance to travel, and we must continue to learn from best practice elsewhere, creating new international partnerships, and adjusting lessons to our own needs.

North-East England needs to continue to be bold and have confidence. We have major strengths. These can be used as the basis of successful future prosperity in a knowledge-intensive world, that can be shared by all of our region.