No physics plc, we're British

April 28, 2000

The UK has an impressive track record in bioscience, but fails in industries such as electronics. Nigel Beard asks why.

Why are UK companies with a physics or engineering base so bad at innovation when those in bioscience are so good? That is the question the House of Commons select committee on science and technology has been looking into for more than a year. Eminent witnesses drawn from universities and science-based companies have agreed with the observation. When the record of British pharmaceuticals companies is contrasted with the record of the motor car, machine tools, electronics and other engineering industries, the accuracy of the question is indisputable.

Frequently, when such questions are asked, the debate focuses on universities and becomes bogged down in matters of funding, the research assessment exercise, university management of patent rights, academic salaries and conditions, liaison between universities and industry - all overlaid with the usual rivalries.

The final bland conclusion is how essential it is for the UK to generate new ideas, put more money into research and ensure that industry and academics get on with each other.

Government policy on innovation has focused on the generation of new ideas. It has been directed at securing a healthy science, engineering and technology base on which industrial development can build and one that provides trained and experienced scientists and technologists who can transfer their skills to industry. Creating fertile soil for innovation is the proper priority for government. But that is not where the problem lies. The select committee's conclusion is: "There is no evidence of any shortage of ideas and knowledge emerging from engineering and physical science research in universities or industry. The quality of the British science base is good."

Innovation, however, goes beyond the generation of new ideas. Research and development and invention are vital ingredients, but innovation involves the successful presentation and introduction of a new product to a market or of a new process to commercial production. Science-based innovation combines R&D, design, market investigation, manufacturing process development and commercially launching a product.

The pharmaceuticals industry relies heavily on research. When a pharmaceutical is discovered and proved to be safe and effective in treatment, most of the risk-taking is over. In contrast, a major difficulty of innovation in engineering and physical science-based industry lies in arriving at a clear understanding of what is wanted by the market and in combining various technologies to achieve that. In other words, innovation in engineering and physical science-based industry depends on the pull of the market and therefore on market understanding, development and manufacturing processes.

The conjunction of technologies to satisfy a market assessment, which is the process of development, is far more expensive and at least as risky as research.

It should end with a demonstration or prototype to ensure the harmonious working of various technologies. Design may then be modified in line with the markets' reaction. That process of development, which is almost exclusively the job of industry, is where the weakness in engineering and physicalscience-based innovation lies. All indications from the evidence available to the select committee are that it is under-funded and inadequate.

That position is worsening. In 1970, UK business enterprise R&D, which is largely development, was substantially higher than in any other country except the US. Today, the UK ranks fifth among the Group of Seven nations in business R&D as a percentage of gross domestic product. The picture is not the same for all sectors of the economy. Taken as a proportion of company turnover, spending on R&D by UK pharmaceuticals companies is slightly higher than the international average of 13 per cent. However, for engineering and machinery, electronic and electrical, software and IT sectors of industry, the proportion of turnover spent on R&D is between a quarter and a half of that spent by international competitors.

The government policy of directing resources to secure the science base from which industry can draw ideas and to aid the transfer of science and technology from academic research to industry is well targeted. However, neither of these aspects of policy will improve innovation if industrial development is not there to pick up the ideas. The queue of ideas originating in the UK but waiting to be commercialised elsewhere will increase.

Government tax credits for R&D in small and medium-sized companies will potentially contribute to a solution, but large companies have a major role to play. There the willingness of chief executives and boards of directors to take the risk of investing in development is the issue.

Certainly, a more stable and predictable economic climate will reduce some of the risks, but perhaps a change from a deal-making culture to one of self-regeneration is also needed. Survival by acquisition, merger and takeover can work only if someone somewhere is developing new products and processes.

Nigel Beard is member of parliament for Bexleyheath and Crayford and a member of the House of Commons Treasury select committee and formerly of the science and technology select committee.

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