The future is science

With the Competitiveness white paper expected this month, Lord Sainsbury says we must exploit our science

The economy of tomorrow will be the knowledge economy - driven by brainpower and creativity. It will demand a new level of innovation, entrepreneurship, and above all scientific excellence. We believe this makes universities and the higher education community essential to our future competitive advantage.

The problem with past industrial policies is that they were based not on picking winners, but perversely on picking losers that we would have liked to be winners. Attempts to revive British Leyland through state intervention turned out to be a sorry failure. But while we should not seek to pick winners, the Department of Trade and Industry should be vitally concerned to back successful British companies and sectors.

This demands devoting the right amount of resources to science. The UK is very good at science, both in absolute terms and in terms of the cost effectiveness of money spent in this area. With 1 per cent of the world's population, we do 6 per cent of the world's science, produce 8 per cent of the world's scientific papers and receive 9 per cent of the world's citations of scientific papers. We need to exploit this excellence to create competitive advantage for our companies.

The comprehensive spending review helped secure our knowledge base by allocating science the largest percentage increase of any area of public finance - a public/private package with the Wellcome Trust of Pounds 1.4 billion over three years. It also reflected the fact that we are on the verge of a new era in the life sciences. We aimed to cement British success in this field with large increases for the Medical Research Council and the Biotechnology and Biological Science Research Council.

The reasons for government backing of pure research have everything to do with hard-headed economics. First, there are many examples of revolutionary applications arising from basic research - lasers, X-rays, and semiconductors are obvious examples. Second, there is plenty of evidence to suggest that basic research generates high returns. The economic benefits of a strong research base are recognised around the world.

In the United States, the Committee for Economic Development has calculated that returns to research and development investments have been 20-30 per cent. Moreover, "social" returns are often particularly high because of the wide dispersion of fundamental knowledge which frequently leads to additional applications in diverse fields.

The US also shows that universities which have been most successful in basic research have also been good at generating spin-off companies. MIT, Stanford, and Berkeley are three obvious examples. MIT has had a major impact on the economy of greater Boston, where numerous knowledge-based companies are located. There are now estimated to be more than 1,000 MIT-related companies located in Massachusetts with world-wide sales of $53 billion. In the UK, the new activities around Cambridge show that we are starting to follow this example.

While we do not need to change the ratio of basic and applied research to improve our competitive performance, we can do more to increase mechanisms of knowledge transfer. A first-class science base is a huge asset for Britain, but we also need world-beating scientific entrepreneurs. In the last budget, the chancellor began to foster that environment by establishing the Pounds 50 million University Challenge scheme to enable universities to set up their own seed funds, in conjunction with venture capitalists and business, to support promising outcomes from research through the early stages of development.

In addition, the Pounds 25 million Science Enterprise Challenge will invite universities to compete for funds to endow up to eight new Institutes for Enterprise. These institutes will bring the teaching of entrepreneurship and business skills into the science curriculum, helping to inspire and equip scientists and engineers to commercialise their knowledge.

It is crucial that the excellence of our science and engineering base be recognised abroad. The extent to which the UK is viewed as a nation still capable of producing top-rank science and technology for today's markets is vital. It influences key decision-makers in procurement and overseas investment and the millions of people overseas who buy our products. For too many people, Britain has a proud science and technology heritage. Our promotional activities tend to cement this view by plumping for the safe option - Stephenson's Rocket rather than the Psion Organiser.

We need instead to build up knowledge among trading partners of contemporary British high tech achievements, to show that Britain is the home of Crick, Hawking, and Dyson, of world beating, high tech companies such as Oxford Instruments, BP, and Glaxo-Wellcome, and of break-out discoveries such as Dolly, monoclonal antibodies, and optical fibres.

Taken together with other "knowledge economy" initiatives, this approach represents a "third way" industrial policy, one in which government assumes an enabling rather than a directive role; a government not blinded by the white heat of technology or interested in picking winners, but determined to use our world-class science and engineering base to create wealth and improve the quality of our lives.

Lord Sainsbury is minister for science.