"The global recession has served as a harsh but necessary reminder about the importance of innovation in driving economic growth. In that context, the next stage should be for us to consider how international collaboration in this area can serve our national interests"
Scientific-Economic Research Union conference, Berlin
06 May 2009
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Good morning.
I want to talk today about the importance of innovation in driving the UK and the rest of Europe out of recession – about how innovation is essential as we prepare for the recovery of global markets and then strive for sustainable growth.
But first, I want to say something about the dual perspective I bring to this challenge. I speak, of course, as the UK minister with responsibility for science and innovation – but also as a former biotech entrepreneur and now as the owner of a motor racing team preparing for next month's 24-hour race at Le Mans, where I'll be driving an Aston Martin that runs on bio-ethanol fuel.
I should add that, over the years, I've encountered outstanding German engineering and manufacturing on many occasions – starting when I was an undergraduate student seconded to a Daimler Benz factory in Saudi Arabia. Besides being taught how to drive a truck in the desert outside Jeddah, I spent a rewarding summer learning the key principles of quality control.
More recently, I've met with the head of Audi's motor sport team, last year's winners of Le Mans, and was deeply impressed by the thoroughness of their preparations as well as the design of the car.
My point here is that – notwithstanding the intense global competition that will accompany the emergence of the inevitable economic upswing – researchers, businesses and governments have much to learn from their international counterparts about boosting their capacity to innovate. There are compelling reasons for us to collaborate across Europe.
So let me offer a brief summary of the direction in which British innovation policy is currently heading before saying more about the rationale for constructive partnerships.
UK strategy shifted significantly in the summer of 2007 when Gordon Brown created a new government department combining responsibility for science and innovation with further and higher education. By re-aligning the work of government in this way, our objective was clear – and it preceded both the credit crunch and the subsequent recession.
The purpose of the Department for Innovation, Universities and Skills – DIUS for short – is to unite three strands of activity which are crucial to Britain's economic success.
We've got to develop the skills of British people, by which I mean everything from basic literacy to particle physics. We must build on a decade's worth of record investment in our research base. And we need to make sure that, with those skills and that research as the foundations, we create the conditions whereby the UK becomes the location of choice to run an innovative business.
There's a further dimension here, because innovation in science and technology is equally important in finding solutions to those challenges which are common to us all – developing viable clean energy sources, tackling the problem of climate change, addressing our ageing populations and pre-empting new threats to international security.
Our ambition can be summarised in the desire to make Britain an "innovation nation".
And I think it's fair to say that we're not striving to achieve that ambition from scratch. Our science is the most productive and efficient in the G8 – and the budget for science is protected despite the fiscal pressures that every country is facing. The quality and number of science innovations from our universities have never been higher, and the investment opportunities for spinouts never better. We're seeing more young people studying maths, engineering and the pure sciences at undergraduate level – and, importantly, British consumers are enthusiastic about using innovative products and services.
Through the creation of DIUS, we now have a more concerted approach to supporting both supply-side and demand-side innovation: helping companies to access the research base through a new voucher system, on the one hand; making it easier for small, dynamic firms to bid for and win Government contracts, on the other.
But, like every country, this recession has accentuated weaknesses in terms of the way we support innovation. We already knew, for example, that we needed more talent and investment going into high-tech manufacturing. Now, a lack of capital and credit is threatening growth in that sector.
At the same time, the downturn has thrown up some entirely new challenges – like compensating for the declining demand for financial services by actively rebalancing the economy in favour of other industries.
We're urgently addressing that first problem of investment. In the latest Budget, presented a couple of weeks ago, the UK Government created a £750m Strategic Investment Fund to support projects that can generate jobs and improve national competitiveness in next-generation industries. In particular, a full third of the Fund has been earmarked for low-carbon technologies.
This money represents one aspect of a broader mission to promote a new industrial activism. Indeed, over recent months, I have spearheaded a debate that has its corollary in a number of other countries. These countries – Germany among them – are all contemplating tough choices about which sectors to focus on in order to maximise the chances for long-term growth. In these difficult circumstances, Britain too must play to its strengths.
Ministers are currently taking a back seat in this debate, because it is for the academic and business communities to agree together those sectors which have the greatest potential. My input has been limited to requesting that they consider:
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where Britain has a clear competitive advantage;
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where the growth opportunities over the next 20 years are significant;
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and where Britain has a realistic prospect of being number one or number two in the world.
In one area, we are already forging ahead. By creating a new Office for Life Sciences, we are seeking to quickly improve the operating environment for international companies in this field, so the UK remains an attractive location for R&D and manufacturing facilities.
We are examining how best to use Government levers like taxation, market regulation and public procurement – in addition to the extra funding I mentioned earlier.
The Budget, for example, contained a commitment to review the balance of taxation on innovative activity, including patents and other intellectual property. The Office for Life Sciences is working with industry representatives and the Treasury to assess the impact and implications of potential changes.
But, as the title of my speech suggests, the innovation agenda can't just be for the short-term. And in life sciences, Britain has – thanks to our National Health Service – a unique resource.
Its well-documented databases going back to 1948 will be extremely useful for researchers investigating the genetic basis for disease. With all patients in the country registered with the NHS, there is enormous potential to organise large-scale and stratified clinical trials. With a mature legislative framework for stem cell research, we stand at the forefront of a burgeoning field which could eventually transform medicine.
Later this year, we will publish a broader strategy for the life sciences, covering incentives to support greater participation in clinical research, steps to promote innovation in the NHS, and action to tackle skills gaps.
I could identify UK strengths in a range of sectors – in plastic electronics, computer games, satellites, photovoltaics. Our Technology Strategy Board – whose job is to stimulate innovation and accelerate its commercialisation – is funding collaborative ventures involving business and the research base in developing electric and hybrid vehicles, environmentally sustainable buildings and solutions to digital network security.
But let me return to the issue of collaboration – with particular reference to innovation. Academics and businesses from Germany and the UK already work together closely. Indeed, in European Frameworks 5, 6 and 7, Germany has been the UK's leading partner. In FP7 alone, we're involved in almost 850 joint projects – especially in the areas of health and information technologies.
And yet I think there are opportunities for us to help each other in further ways. For while there are similarities between us – such as high state investment in research, and support for a tax and regulatory environment that is conducive to new business – there are also differences, some of which I've gathered from conversations with Professor Meyer-Krahmer.
As I've said, Germany is a leading manufacturer with longstanding strength in engineering. But, as I understand it, German patents are disproportionately high in sectors characterised by incremental innovation. At the same time, your greatest success comes through commercialising value-intensive technologies.
The UK, by contrast, is more adept at innovation which might be described as "disruptive" or "breakthrough".
This is a necessarily simplistic analysis, but I do think it provides the basis for beginning to address respective areas for improvement – not so much in terms of further research cooperation, but at government level. We should have detailed discussions about our relative strengths and weaknesses to see where strategic fits might arise.
For example, I'm a long admirer of the Fraunhofer Society – of its excellent track record in facilitating applied research and promoting its successful commercialisation. I believe the UK could learn much from German expertise and I am keen to start talking about the potential for collaboration on this front.
In return, I believe we could offer useful support in developing German capacity in disruptive technologies and processes – in building, say, a more favourable funding climate oriented around charities and business angels or introducing a system of research and development tax credits.
To conclude, the global recession has served as a harsh but necessary reminder about the importance of innovation in driving economic growth. In that context, the next stage should be for us to consider how international collaboration in this area can serve our national interests.
British invention and German application sounds to me like a formidable combination. We should certainly explore how it can be achieved.
I want to thank you for listening, and would welcome any questions or comments that you might have.
