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January 17, 2012

How to read David Willetts' big speech on growth

I have waited a long time for this speech.

Back in October 2010 I gave David Willetts a bunch of white lilies and roses. That was the day the Coalition announced that science would get a flat cash settlement, with the deep cuts reserved for capital spending.

It was also the day George Osborne started name-checking science in his plans for growth. And the day David Willetts said, "I'm a big fan of the TSB."

DAVID_WILLETTS

Reading the runes I concluded that the Conservatives had turned a corner in their thinking on science and technology in the modern economy. Hence the flowers.

Looking back at what I wrote then, it was disturbingly prescient:

"Underneath the surface something very important has happened.

"Since the election there has been a question mark where the Coalition’s strategy for growth should be. George Osborne managed to get through his emergency budget without explaining where growth would come from. Meanwhile, it was far from clear that the Department for Business Innovation and Skills was in fact the ‘Department for Growth’ that it is now being touted as. Back in the summer, Willetts and Vince Cable could not even bring themselves to utter the sounds “TSB”.

None of that was a surprise. The last time we had a Conservative prime minister, there was no TSB, or anything like it. Growth was supposed to come from a private sector loosened from the ties of red tape and taxes. Public spending on “near market” research was banned. There simply was no role for the state in developing a hi-tech economy.

Even when this approach softened rhetorically and intellectually under Michael Heseltine in the later years, the money was never there to actually make a difference.

In the months after the election, we found ourselves in no man’s land. On the one hand, Osborne resisted the temptation to revert to 1980s-style rhetoric on growth. Even when announcing the cuts in Corporation Tax, the justification was in terms of international tax competition and winning inward investment, not a more general claim that low taxes would lead the private sector to grow more rapidly.

On the other hand, There was no explanation of where growth would come from, nor any explanation of what the state’s role was in trying to stimulate that growth. Pre-election talk of a rebalancing the economy towards hi-tech industrial sectors evaporated.

Well, now we’re past that. As of today, the Coalition does have a view on the place of science and innovation in generating growth. It’s there in Osborne’s speech and the CSR book. The two themes of today were “fairness” and “growth”. And wherever “growth” was, “science” was not far behind. Science has come into the centre of the Coalition’s thinking about growth.

“I’m a great fan of the TSB,” Willetts said today. What a change that is from three months ago.

Near market research? Yes, Conservative ministers will be spending hundreds of millions a year on that.

In my view, this is smart politics for the Coalition. It doesn’t matter that the Coalition’s approach is increasingly similar to Labour’s in this area. Come the election, it will be Labour that has to differentiate itself from the government’s position.

More importantly, the greatest hazard the Coalition faces in getting re-elected is a lack of growth. The country is about to go through a painful time. Bad as it may be, it will edge towards the intolerable if the economy does not pick up. With growth - new jobs, rising wages, a sense that things are getting better. Without growth - intensifying bitterness.

Despite all the promises, the Coalition can have no confidence in achieving the sunny scenario. It depends too much on the global economy and other things out of their control. Geoffrey Howe, who never cut as deep as Osborne, was rescued by a global boom. But no one’s expecting another one of those in the coming years. No wonder Mervyn King is talking about a sobre decade - the governor of the Bank of England thinks we’ve got no choice.

So the Coalition has to plan for the gloomy, no-or-feeble-growth scenario. In that case, a strategy for growth will become not just an economic but also a political necessity. Even if the growth hasn’t arrived yet, voters will need to be convinced that the Coalition is doing the right things to deliver growth eventually.

Now the Coalition is beginning to develop an answer to that challenge - and one that is quite different to Margaret Thatcher’s. Science, technology, innovation - from today on the Coalition will argue that these are an important part of our engine of growth, and areas that the government has to support, and that it is indeed investing in them."

Fifteen months later of course it has become clear that the gloomy economic scenario is the one we face, and the political imperative to be convincing on growth has correspondingly strengthened. New money has been found for graphene and other marvels that tick both the economic and political boxes. But one thing has been missing. The speech to flesh out this new thinking. That delay generates its own questions about the depth of commitment to the new direction. But now Willetts has delivered the speech, a long work that runs to over 20 pages on my printer. Join me to find out how it measures up to the truly huge political and economic responsibilities now resting on it. Is there enough here to believe the Conservatives will be credible on hi-tech - and hence all - growth at the next election?

***

Department for Business, Innovation and Skills   (National)

CHECK AGAINST DELIVERY

In a speech at Policy Exchange, Universities and Science Minister David Willetts argued that our greatest national assets - our universities, our science facilities and researchers - are the best single hope for making our way in the high-tech world of the future, creating jobs and opportunities and boosting high tech economic growth.

This little paragraph of course was not in Willetts' speech. It is a bit of fluff dreamt up after the fact by someone at BIS. How do I know that? Because the speech was made at Policy Exchange and did not appear on the BIS website until after Research Fortnight started asking questions. Why should you care? Because this lends credence to the suggestion that there is a split in BIS on growth between Willetts and his (largely nominal) Lib Dem boss, Vince Cable; Willetts avoided having to negotiate with Cable over the speech by keeping it off the departmental radar until after the fact.

Economic Growth

Growth is the Coalition's highest priority for 2012.

Remember, you read it here first. But it is still a gigantic shift in the political environment, providing an opportunity that scientists and hi-tech firms have yet to wake up to.

It is going to be a year of serious economic challenges. We are better prepared for them than most because we took tough decisions on the deficit early on. We have set out our plans for getting a grip on public spending and we are sticking to them. That will enable us to bring down the enormous deficit we inherited.

It is no surprise that Willetts restates the government's core austerity narrative right at the beginning. The day you start doubting this is the day the next election starts to go down the tubes.

Sorting out the mess in the public finances itself helps get the economy moving as it helps to keep interest rates low. But that is not the whole story. There are a host of ways in which the Government is supporting growth by raising the performance of the economy: cutting red tape, a tax and benefit system that rewards work, high quality education and skills, reforming the planning regime so that our new infrastructure can be built expeditiously. George Osborne and Vince Cable are driving forward such an agenda across Whitehall in the Growth review.

What this list is missing is something like "industrial policy". But exactly what form of words the government is going to use to complete the list is presumably what this speech is all about...

That list of our growth policies applies horizontally across most sectors of the economy. Investing in energy or transport or better schools is a good thing without taking any view about whether the future of our economy is manufacturing or life sciences or financial services. There is widespread wariness of so-called “vertical” policies that focus on particular sectors and technologies and it is very understandable.

...and here we go.

The more specific the return, the greater the chance that it can be financed privately. Moreover, we fear governments do not have the knowledge to back particular technologies and have made a mess of such policies in the past. Governments picking winners can easily become losers picking Government programmes.

The rational bit of the Thatcher approach, stripped of the ideological conclusion that the government should therefore abandon this area of spending.

Recent British Governments have therefore preferred generic growth policies rather than vertical ones which focus on particular sectors or technologies.

True. Labour also did not do industrial policy.

These are essential foundations but it only takes you so far and today I want to show how much further the Coalition is going and why. Soon you find that you are having to take some kind of view about specific sectors and technologies too. Which source of energy do you encourage? When it comes to transport which places do you link up and why? The Jubilee line extension has been great for London but I well remember how its original impetus in the 1980s came from the need to provide access to Canary Wharf: if it had been a link to a manufacturing centre not office blocks for financial services it might have been seen as a much more controversial example of industrial policy. We have achieved an extraordinary surge in apprenticeships but I am struck by how many commentators believe they should be in particular sectors such as engineering or life sciences: indeed part of the appeal of apprenticeships is their historic association with such sectors.

Governments find themselves making decisions about allocation of resources and we should not pretend we do not. The Coalition’s pledge to rebalance the economy depends on taking such a view. Indeed when money is tight these type of decisions are even more acute. And in the rest of this speech I want to set out how we do this in our strategy for the UK’s science and research base and how it can help generate high tech growth.

Now I'm excited. This is on the money.

People do of course ask: "So where is the growth going to come from?" Nobody can know for certain. But that does not mean that we do not have the faintest idea. A lot of it will come from our established, high performing sectors which continue to innovate and improve productivity. We can discern already some of the scientific discoveries and technologies that will shape our future. Today I want to set out what we are doing to secure this future for us and I am grateful to Policy Exchange and the Campaign for Science and Engineering (CaSE) for the opportunity to do so.

So here we have the limit of Willetts' ambition. In contrast to the preceding passage that was about growth generally, we are now narrowing down our focus to consider the role of science in that. From an economic point of view, that is problematic because science-push is not generally the kind of approach we want to industrial policy; market pull is better. But the role of science is nonetheless a topic that needs to be addressed.

This tackles that deep-seated anxiety about the prospects for the younger generation in the global economy of the future. When you ask people what worries them most it is that their children will not have the same kind of opportunities in life as we have had. I understand that fear - indeed I wrote a book about it.

I suspect he could have added, "We see this fear in our polling at Central Office."

But our great national assets - our universities, our science facilities and researchers, our extraordinary accomplishments in the arts and humanities - are the best single hope for making our way in the high-tech world of the future. They might not solve all our economic problems next year, though they can help even with this. But if properly nurtured they can ensure that Britain will be up there as a leading location for research in the physical and life sciences and beyond.

Again, science-push-ey.

Britain can be the preferred location for companies’ R&D.

Possibly from a research base point of view. But that is only one factor among many for global corporations. And at the moment the case for expanding R&D in the emerging market nations revolves around quite different factors such as market access, cultural understanding, political acceptability. Even if our research base is great, global firms are still going to spend the coming decade diversifying their R&D portfolio - to the detriment of the UK. Just being better at science will not stop more Pfizers, more Shells.

We can have world-class industries using cutting edge technologies. We can have a prosperous future with a role in the world.

Our research base

Our research community is the most productive in the world. In the words of the recent Elsevier report, “The UK is the clear leader among all eight comparator countries (Canada, China, France, Germany, Italy, Japan, UK, US) on citations per unit spend on Gross Expenditure on Research & Development.” With 3% of the world’s researchers, we generate 6% of the world’s academic articles, 11% of citations, and 14% of the most cited papers, second only to the US. Quite simply we have more articles per researcher, more citations per researcher and more usage per article than researchers in US, China, Japan and Germany. We can be proud of this achievement.

Yes but. The point is we're spending a lot less of our money on industrial R&D than the competition, and a lot more on academic research. We want to reverse that trend. But the worse we do on the industrial front, the better we'll look on this comparison.

It is very broadly based too. The Elsevier report states: “ Relative to the world average, the UK has generally a well rounded portfolio, with a strong and increasing emphasis in clinical sciences, health & medical sciences, social sciences, business and humanities.” They identify no fewer than 400 research areas where we have a distinctive research strength, and many of them are world-class. It is quite extraordinary for an economy of our size to have strength in so many different areas. No other country of our size has achieved this. It is particularly important as so much research is increasingly interdisciplinary.

This, by contrast, is important.

Our goal is nothing less than to ensure we have a continuing presence in the key areas of scientific research. We should not have the illusion that we can lead in all the scientific and technical advances of the future. But such chauvinism is unnecessary. What we can aim to have is the absorptive capacity to understand and draw on scientific and technological advances across disciplines and across the world.

I think this is a slightly odd use of "absorptive capacity". It's an economic term, referring to the capacity of the economy to absorb new advances. But can he really mean that here? Our commercial base is so narrow now that there are huge industries that we don't play in at all, and hence there will be many advances we can't effectively exploit. So I think what Willetts here means is a kind of absorptive capacity in academia, so that we're intellectually abreast of key advances, even if our industrial weaknesses mean we remain incapable of acting on much of that knowledge.

Having said all that, this seems a reasonable task for the research base.

This broad research base emphatically includes the arts, humanities and social sciences. They are all part of the science and research ring fence. Increasingly for example research in the physical sciences is linked to human behaviour – not just designing a low carbon vehicle but understanding what makes people choose to drive it – or not. In allocating research funding I have therefore followed the advice of the learned societies and others that we should not shift the balance of funding between the main disciplines. Eric Schmidt of Google caught the mood in his MacTaggart lecture when he said that this arts v sciences debate really ought to be dead and buried and instead we should recognise how complementary they are. I like the idea that instead of just thinking about STEM, Science, Technology, Engineering, and Maths, we should add the Arts so it becomes STEAM.

But do we have a shortage of Arts teachers? Or of people suitably qualified to write TV scripts? Even if both the arts and sciences are now merely handmaidens to Google's insatiable quest for power, the distinct problems that prompted us to talk about STEM seem to remain.

One reason our research is so good is that ministers have so little scope to interfere. Our science and research programme budget of £4.6 billion is not just protected in cash terms, it is also protected by the Haldane principle that Ministers do not decide on funding for particular research projects or particular university departments. It also rests on the gold standard of peer review. We are talking here about free enquiry where you are judged by your peers not by the minister for science nor the government as a whole nor by academic patronage. This last protection is underestimated. We do not have a baronial system in which ageing professors dispense posts and patronage and younger academics have to defer to them for decades as they patiently wait their turn.

Or rather, we don't have it as badly as they do on the continent. Patronage is real in the UK.

One reason why so many young researchers from across Europe choose to work in the UK is that opportunities for them are much greater here. We will continue to support and monitor the compact on conditions for young researchers, especially women for whom the requirement to be mobile around the country with little allowance for family responsibilities can be particularly onerous. I welcome the latest initiative by HEFCE to make better allowance for maternity leave in assessing researchers’ output for the Research Excellence Framework.

We must continue to sustain our research base in tough times. If you look at the decisions the Coalition has already made you can see how committed we are to science and research. In fact I can confirm the Government’s aim is quite simple if very ambitious: it is that we should be the best place in the world to do science. This ambition is about more than money. It is about respect and celebration of the spirit of scientific enquiry with everything from world-leading science journals and lively science writing to world class museums and events. It is something Government has to practise too with science advisers in every department, the Foresight horizon-scanning enquiries of the Government Office for Science and evidence-based policy drawing on latest advances in science such as behavioural economics. It also means:

  • Tackling the pernicious effects on scientific enquiry of the current law on libel.
  • Continuing to keep our country open to leading scientists who wish to work here and making a big contribution to global science projects such as managing the Square Kilometer Array and the key role of our scientists in CERN and in the JET and ITER projects for nuclear fusion.
  • An ever wider interest in science with growing attendance at our burgeoning science festivals and Fairs, extensive coverage of science on the BBC and the media more widely.
  • More students doing science at school, college and university, with new science departments opening as Lancaster University are doing in Chemistry.
  • Imaginative exercises in citizen’s science such as Galaxy Zoo which started in Oxford with volunteers classifying new galaxies.
  • World-leading Learned Societies such as the Royal Society, which has just celebrated its 350th anniversary and a network of leading charities such as the Wellcome Trust and Cancer Research UK backing scientific research and enquiry.

I quite like this objective of making the UK the best place to do science. And even as I'm trying to say "But yes it is about money too" I'm also agreeing that it's not just about money. But let's not kid ourselves. We have some pretty deeply ingrained anti-science and technophobic strands in our culture, ranging from many greens to everyone who cops out by saying they are just hopeless at maths. 

It does of course also mean proper funding for science and research. I realise that there are always pressures for more and we cannot afford to do everything we would like to do. Nevertheless, as countries around the world face budget pressures, our ring- fenced cash-protected science and research funding budget is a good settlement in tough times.

My conviction that this was a decent settlement for science has ebbed in the past 15 months. Most obviously, inflation has been allowed to get out of control, making the flat cash bit much worse than was promised. But there are another set of distinctly Willetts-ian, intergenerational reasons. Economists at the OECD and elsewhere have emphasised that even while countries like the UK cut public spending overall they need to invest more in the knowledge economy. And the bits of public spending that are being protected - the NHS, overseas aid, defence - are all forms of consumption that are regrettably tainted with party political advantage for the Conservatives. So I think we should be doing more now to give the next generation a decent life, rather than loading them with extra burdens (eg via the tuition fee reforms).

The breakdown of current spending is between four main areas roughly as follows. £1.6 billion goes direct to universities in recognition of research excellence. £150 million goes through Higher Education Innovation Funding to reward universities that have knowledge exchange with the wider world, especially contributing to economic growth. £100 million goes direct to the Learned Societies (the Royal Society, the Royal Academy of Engineering and the British Academy) to fund leading researchers and also make small grants for particularly worthwhile research projects.

The Research Councils and the UK Space Agency between them spend the remaining £2.75 billion. The Research Councils divide this into two main categories - responsive funding and directed funding competitions. They estimate that about two thirds of their funding is in responsive mode and a third in directed mode. The directed mode focuses on the grand challenges such as energy, living with environmental change, our ageing population and lifelong health and well-being. Blue skies research can however be covered by both categories - our contribution to CERN is directed to a very specific project but is also pretty fundamental. And Research Councils do respond to bids for funding for some quite applied research.

Research Councils devote a lot of time and effort to identifying significant ground-breaking areas of research that they should support. They scan the horizon to try to ensure we have a coherent and broad research base in this country. They work with business and Government to identify these priorities. But there comes a point when the Research Councils have to think about impact and priorities. I know this is controversial – and I do receive mass letters from aggrieved sections of academia who fear the Research Councils have failed to recognise their special significance. But it has to be done and the Councils try to do it in an open way that commands the consent of the research community they serve. We must never end up in the position where an individual researcher with a novel idea judged to be of real academic merit is excluded from funding just because it does not fit some preordained plan.

I agree with this para, however contradictory it may be.

Today I am releasing reports on the impact of this Research Council funding. We are familiar with how American research funding helped with the creation of great American businesses like Google. But we have similar examples here. The UK’s largest software company, Autonomy, was started by Dr Mike Lynch at Cambridge University in 1996 based on work conducted during his PhD supported by the Engineering and Physical Sciences Research Council in the UK. Autonomy was sold to Hewlett Packard in August 2011 for over £7 billion. The EPSRC have just been recognised by Proctor & Gamble for their globally best in class support to P&G by a government body. Innovations in solar energy panels and offshore renewable energy are being supported with substantial research funding.

• Impact doesn’t just mean commerce. Professor Theo Farrell, an ESRC/AHRC Fellow undertook an assessment of the British Army’s performance in Operation Moshtarak, a 2010 offensive to clear the Taliban from central Helmand Province in southern Afghanistan. The resulting classified report was briefed to Army chiefs, and has informed doctrine development and pre-deployment training.

Our ring-fence protects research activity. When money is tight we had to give current spending on activity high priority. That is one reason why for the first time the ring fence includes the main forms of current spending on science and research. But the ring fence excludes capital as there is some discretion in the timing of major capital projects. The Government does however understand the importance of investing in science capital as is shown by George Osborne’s excellent decisions over the past year to invest a further £470 million in science capital in top of our original plans. That will go on new facilities, the e-infrastructure needed for world class science, and the further development of our National Campuses at Harwell, Daresbury, Norwich and Babraham. This will bring together world class facilities and researchers and the companies that can benefit from them - contributing further to our high value added growth agenda.

Yes, the door is certainly open for eye-catching new projects.

Much of the money from the Research Councils as well as from other sources flows to our universities. In some countries like Germany research tends to happen outside universities - in their Max Planck institutes for example. We have our own outstanding independent research institutes as well, from the Institute for Fiscal Studies to the Institute for Animal Health. The new Crick Institute will be a world leading centre for life sciences. But by and large publicly funded research in Britain is likely to be conducted in our universities. That in turn puts them at the heart of our high tech agenda. Only the other day Professor Eric Thomas, the President of UUK, perhaps influenced by too many Dickensian Christmas cards, told me that if the British economy has been a stagecoach stuck in the mud then our universities are one of the horses that can pull it out. He is absolutely right.

Important, and often overlooked.

We currently have 12 universities in the top 100 and 32 in the top 200 according to the Times Higher Education rankings. It is 19 in the top 100 and 30 in the top 200 according to QS.

Oops. We have now segued seamlessly away from the role of unis in generating growth across the entire economy to a into a separate topic, higher education as an industry in its own right. Again, it's all important, but off the main argument.

And in the Shanghai rankings it is 10 and 19. The exact numbers and individual universities vary according to the different weighting in the different schemes. But all the university rating agencies agree that only the US does better than we do. Today I set our ambition of aiming for the number of our universities in the top 100 to grow. When you look at our relative weaknesses in these league tables it tends to be teaching and external income.

?! Weeeeeelllll OK. This gives the unis ranked, say, 20-30 in the UK something to aim at, which is not bad in itself. But what about the other 80 or so unis, or even more importantly the entire system we have of higher education? The danger with something like this is that it becomes a basis for assessing the success or failure of the current wave of reforms, and for that it's entirely unsuitable. Nonetheless, if the AAB+ thinking is pursued then Willetts will be shifting more money to the kind of unis that could mean the "target" (no date) is achieved.  

These are the areas where we need to raise our game even more. We are not managing decline we are investing in success. A crucial reason for our controversial changes to the funding of teaching in universities is to ensure they remain well funded even when money is tough. There is no more fair and progressive way of financing university teaching than to expect graduates earning over £21,000 to pay back for it.

We are fortunate in having one of the strongest networks of universities in the world. Part of its dynamism has been the ceaseless process of creating new institutions as well as the capacity of existing institutions to grow and develop. University College London was created as a secular alternative to the Oxbridge duopoly. Then we had the great civic universities, the Colleges of Advanced Technology, the plate glass universities and the polytechnics. We have also had new research institutes, campuses, and science parks. That process of creating new institutions should not stop even when times are tough and there is no spare public money. We have to bridge the gap between limited public funding and continuing strong demand for higher education and research.

Globalisation is still at its early stages when it comes to Higher Education. The next round of new institutions may well link existing British universities with international partners. The surge in international investment in science and technology would make this a key part of the mission of a new foundation. It might be that today’s institutions propose a new campus or a new international partnership. Or it might be new providers wanting to enter with different models. Today I can announce therefore that the Coalition is inviting proposals for a new type of university with a focus on science and technology and on postgraduates. Local economic partnerships, universities, businesses and international partners can come together to put forward proposals for new institutions.

?! It is good to see the minister recognising the global opportunities in front of the UK in HE. But how does that lead on to a new science postgrad uni here? Anyway, there seems a lot unsaid here. Who are all these people who want such a uni?

There will be no additional Government funding. This time we will be looking to private finance and perhaps sponsorship from some of the businesses that are keen to recruit more British graduates. For example, we will not be diverting funding from support for undergraduate students. It is an opportunity to seize the new freedoms which we proposed in our White Paper last year. We already have a lot of interest and we want to move this to the next level. As proposals are developed we will be able to identify any specific obstacles that need to be removed including by legislation where necessary. A major city might wish to offer a site as Mayor Bloomberg has just done so successfully with his competition for a new graduate school in New York. We will be discussing with the interested organisations how best to carry this initiative forward. I am confident that with ingenuity we can grow our research base and our universities even when times are tough.

On the question of public funds, this is all murky and contradictary. Despite the protestations, it seems to me that via LEPs, land grants, research council funding etc there could potentially be quite a lot of public cash on offer.

Linking the research base and the wider economy

Now we're back on the main track.

There is enormous scope for universities to go further and build even stronger links with the wider economy. They are after all at the heart of the innovation clusters which will drive our economy in the future. Their external income has increased to £3 billion. But there is more we can do.

We have our own challenges. We have relatively low rates of paper co-authorship between industry and academia. We generate just 2.2% of global patents. Business spend on R&D, at £16 billion, is low as a percentage of GDP. This problem has been debated for a long time. The great economist Alfred Marshall wrote in 1919:

the small band of British scientific men have made revolutionary discoveries in science; but yet the chief fruits of their work have been reaped by businesses in Germany and other countries where industry and science have been in close touch with one another.” (Alfred Marshall, Industry and Trade).

We are tackling this age-old problem that we are good at generating great ideas in our universities but less good at turning them into the products and businesses of the future. And we can point to successes such as ARM, Autonomy, Rolls Royce, GSK Jaguar Land Rover and many other companies which have exceptional links to our universities. But we need more of them. We are reforming IP and backing open innovation in our universities. We are liberating them from the idea that the only measure of their contribution to the wider economy is setting up a tech transfer office and then counting patents. We are extending Innovation vouchers to encourage more small businesses to draw on the resource available in our universities. There is still untapped potential in universities that can be drawn out by organisations like Imperial Innovations or Isis Innovation. I can announce today that our ambition is for university knowledge exchange income from external sources to grow by 10% over the next three years.

Despite the impression from the Marshall quote of having taken in all the economic thinking on the subject in the past 100 years, this is terribly thin. Yes, Britain has a longstanding problem exploiting its discoveries. But why? Go back another half century before Marshall and it was already evident that, compared to France and Germany, we were putting more of our capital into stocks and shares and less into productive industry and agriculture. We have systematically been investing our capital in the wrong things, and in a system called capitalism that exacts a heavy price. In this context, setting a target for university knowledge exchange income is like picking a grain of sand from a desert of failure. The desert is still there.

The classic model expects venture capitalists to be following what is happening in universities and to invest in the IP after the university has spun out a company. This is the conventional sausage machine and it can work on some occasions but it is not widespread or straightforward. We have expected venture capital firms to finance early stage start-ups much further upstream than is realistic. Then we beat up on ourselves that our venture capitalists do not take risks they do in the US when even there the model is rather different.

In the US Federal funding comes from a wide range of agencies - the National Institute for Health, the National Science Foundation and of course DARPA, the Defense Advanced Research Projects Agency. They can support research closer to market than Research Councils do. What Americans mean by defence is whatever is necessary for national greatness including ensuring a capacity in any blue skies technology. And then the SBIR the Small Business Innovation Research programme means American start-ups have a chance of getting Federal contracts for their innovative products even as they are still developing them. All this means that you can get federal funding to see you through from idea to product. This eases the pressures on venture capitalists. America does have a much bigger venture capital sector and it is a great advantage to them. But we should look behind the rhetoric at what has been called America’s “ hidden developmental state” explained here by Professor Mazzucato. The land of free enterprise has an innovation and research system which depends on federal and state government just like everywhere else in the Western world.

Er, everywhere else except the UK from Thatcher until the TSB.

The Technology Strategy Board bridges this gap between the Research Councils’ funding for activities in universities and fully commercial development by business. They are working with Research Councils and aligning their funding where that is possible. A crucial weapon in their armoury will be Smart Awards which provide proof of concept and proof of market funding for businesses, then support for the further development of prototype products. Often SMEs are caught in a Catch 22 dilemma where they cannot leverage investment until they have this proof but they haven’t got the relatively small sums you need to pay to get the proof. It was David Young who first introduced Smart Awards in the late eighties to bridge this gap. They were very successful. The very achievement of getting a Smart Award was a signal to perhaps an angel investor that this was a project worth investing in. Under the last Government they were dissipated amongst different RDAs and lost their brand name. Now we are bringing them back as a nationwide scheme run by the TSB.

Sensible.

These Smart awards span all sectors. But as well as these broadly based schemes we also have to spot specific areas of scientific and technological advance. Nobody can know for sure what are going to be the big technologies of the future but that is not a reason for inaction. Let me now explain the three stages of our high tech policy as we look out for the future prospects.

Identifying key areas of scientific and technological advance

This is starting to sound very like a science-push approach, not to individual products but to the question of where to allocate public funds and put all the non-financial oomph government has.

There is a big difference between business sectors and technologies. They overlap but are not the same. We have some crucial business sectors that are seen as high tech – such as aerospace or space. We also have perhaps less glamorous business sectors where innovation is increasingly important – delivering social care, agriculture, utilities, transport and distribution. Part of Britain’s weak productivity performance has been low levels of investment and innovation in some of these sectors. But they can be transformed by absorbing new technologies – the warehousing and distribution of goods around the UK has been transformed over the past twenty years by new IT systems. Increasingly satellites and space-based systems will transform the accuracy of the spreading of fertiliser and patterns of planting in agriculture. These changes will happen not as the result of technologies developed specifically for say the agricultural sector but as a result of the application of technologies developed elsewhere. They may well be general purpose technologies that spread widely across the economy as electricity or satellites or the internet have done. We need to judge the technologies that will matter in the future. We may not get it right - we won’t always - but we have to try. We are not picking individual business sectors but Government is backing the development of specific key technologies.

OK. So now he's said it: "We are not picking individual business sectors but Government is backing the development of specific key technologies." What he hasn't done is to provide any kind of rationale for that stance. If the ultimate aim is to support economic growth, and choices have to be made, why wouldn't a government take a view on business sectors?

In the US they developed a neat way of summarising the big technological advances – the National Science Foundation called them Bio, Nano, Info, and Cogno or BNIC for short. We have heard about the BRICs, the countries where the future growth will come from: the BNICs are the technologies it could well be coming from. This has been a theme of American science policy for over a decade now and it has generated some rather overheated debate about the possible convergence of these technologies. There may be something in this. We can see for example the “wet” biological sciences linking ever more closely with the data processing capacities of “dry” IT as a “ new biology” emerges. Other countries have conducted similar exercises. The High Tech Strategy for Germany lists the following cross–cutting technologies: nanotechnologies, biotechnology, microsystems technology, optical technologies, materials technologies and production technologies.

We did our own exercise and published the results last year in a report, “Technology and Innovation Futures: UK Growth Opportunities for the 2020s”. It was very British, inductive not deductive, listing the main areas of technological and scientific research over the next decade, drawing on consultations with the academic community. Our experts in the Government Office for Science identified 53 specific future technologies and innovations. They then put them in the following broad categories:

Biotechnology and Pharmaceuticals;

Materials and Nanotechnology;

Digital and Networks;

Energy and low carbon technologies.

Overall our horizon scanning broadly matches that of the world’s biggest scientific power. America’s Cogno and Info very roughly come together as our Digital and Networks. Unlike the US we identify a distinctive low carbon technology area so the C in BNIC could stand for Carbo instead.

(Oh come on. Surely the acronym is BINCo!)

These lists are inevitably imperfect. They change. But they are important. They act as a check on eccentric or lop-sided decisions by making sure we have a clear overview of the main areas we need to invest in. If we are to live up to our ambitions we need coherent programmes for investing in these broad areas of research. That is what we are doing.

Judging whether to back specific technologies as they get closer to market

Then as you get closer to market you try to back in particular the technologies which have the greatest potential. This is where the TSB has to exercise a professional judgement on what to support. The TSB’s job is to help “turn today’s emerging technologies into tomorrow’s industries.”

Oh, now I get it. The TSB is the one that has to decide which business sectors to back. This means: a) Coalition ministers are safe from right-wing attacks on an "industrial policy" that "picks winners"; b) we throw away all the non-financial weapons in the state's armoury.

Rigorous scrutiny of the cost-effectiveness of investment is necessary. The TSB and BIS apply some crucial tests. The key criteria for backing a technology are that we must have an academic and research presence; the business capability to develop products and services based on the technology; and a good chance of a sizeable global market.

On that basis the TSB identifies technologies where they see particular potential for the UK. Their most recent assessment suggests for example particularly promising technologies for us are synthetic biology, energy efficient computing and energy harvesting.

The TSB is also setting up a network of elite technology innovation centres, now called Catapult Centres. We have already created three, and I can announce today that the fourth will be in the area of satellite applications. This will provide business with access to in-orbit test facilities to develop and demonstrate new satellite technologies. It will also provide access to advanced systems for data capture and analysis, supporting the development of new services delivered by satellites. These could be in a wide range of areas such as distance learning and telemedicine, urban planning, precision agriculture, traffic management and meteorology.

Practical leadership from Government

Then Government can help drive forward the development and application of key technologies. I tend to follow quite a standard model for doing this because it seems to work. I first discovered it in the space sector, where a Space Leadership Council was formed in March 2010. It had been set up by Paul Drayson when he was science minister in the last Government. It has been the basis for a template used more widely in BIS – not just by me but by Vince Cable and Mark Prisk as well.

You start by convening a group which has to include leading academic researchers, Research Councils, agencies sponsoring commercialisation like the TSB and of course businesses themselves. They discuss what is happening so everyone can understand the links between the research agenda and commercial opportunities. You ask if they would like to meet again and they normally do. Then you set it up a bit more formally as a leadership council usually co-chaired by a BIS minister and someone from industry. The Council then commissions a technology road map. It is usually written by an expert advised by a group and gives a rough idea of the technological changes that the industry and researchers are expecting over the next five to ten years. So for example Professor Sir Keith O’Nions, Rector of Imperial College kindly prepared a space technology road map last year. That is a basis for everyone to take decisions on where to invest. Some of this may fall to government but business has to make a matching investment in return. That it rests on an agreed plan makes that easier.

This kind of model is being applied right across BIS. As well as in the space sector this sort of activity is also being led in for example the automotive, aerospace, and life sciences sectors. I can announce today that I am setting up further such leadership councils in e-Infrastructure and in synthetic biology. These are not instruments for ministers to impose their will on reluctant sectors. Nor are they devices to increase public spending. We act as conveners bringing together the key players and driving forward investment and innovation. Sometimes the simple fact that such a group exists increases the confidence of a key new sector.

Hmm. So actually the government is opening the door to using its non-financial weaponry in selected business sectors. So in what way is this not an industrial policy, albeit a puny one that dare not call itself by that name?

A check list for our high tech strategy.

Now let’s finally just review how we are doing in living up to the challenge of these important high tech sectors. We can work through the BNIC [BINCo!] list.

Bio is covered by the life sciences strategy which the Prime Minister launched a month ago. It is an ambitious agenda for keeping and strengthening our position in this crucial sector. Our progress is going to be reviewed by two formidable outside experts – Professor Sir John Bell and Chris Brinsmead. But it isn’t the final word. I will continue to work with Andrew Lansley and the Treasury on new ideas for the future. So for example we announced a Bio-medical Catalyst Fund with the Medical Research Council and the TSB backing ideas as they traverse the so-called “valley of death” from research lab to commercialisation. There is £180 million of public money in this fund but it could be even bigger if we could entice some corporate venture funds in as well. That is something I want to see.

It makes sense to siphon off NHS cash, as the spending there is protected.

Bio is not just human health. We have great strengths in biological sciences more widely. After the elimination of Smallpox thirty years ago the UN celebrated the global elimination of a second virus last year. It was rinderpest which affects cattle and other ungulates and blighted agriculture in Africa and elsewhere. British scientists based at the Institute of Animal Health played a key role in this. We have great achievements in crop science too. At the moment we get on average about 9 tonnes of wheat per hectare. The target set by the BBSRC is to get to 20 tonnes per hectare within 20 years. That would be nothing less than a second agricultural revolution and it is essential to feeding the world as wheat provides a fifth of the calories consumed by mankind.

Synthetic biology has been driven by developments in next generation sequencing, DNA synthesis, and systems engineering. It is a potential platform technology with possible applications including bio-energy, industrial biotechnology and chemicals. I have asked leading researchers and business experts in a group chaired by Dr Lionel Clarke of Shell to produce a synthetic biology roadmap to set out the timeframe and actions to establish a world leading synthetic biology industry in the UK. They should report in the Spring after which we intend to convene a new Synthetic Biology Leadership Council to look at how we can deliver that road map.

The very term nano-technology was popularised by Federal agencies in the US. It covers a range of technologies across a range of markets. I have convened the key players to sketch out its future relevance to the UK. It is clear graphene is one very significant example of nano-technology. We are committed to establishing a Graphene Global Research and Technology Hub which will provide access to specialist facilities and expertise. TSB and EPSRC have been working together on this.

Info and cogno cover many things. The rapid growth of Tech City is a classic example of what can be achieved by sustained attention from the very top of Government.

Er, I'm not sure how much the government can be said to have actually achieved in Shoreditch yet. But it's certainly a classic case of how Number 10 likes to wrap itself in the shiny new.

Behind it lies our national capacity in high performance computing. We were in danger of losing our position with very few of the world’s most powerful 500 computers. Increasingly research today involves handling large data sets – be it from CERN, meteorological data, the Hubble telescope, the sequencing of individual genomes, or indeed just keeping up with the academic literature itself with more than a million academic papers in the life sciences published every year. There is more to computing capacity than raw power: software matters too. So we have invested an extra £165 million to ensure our researchers have access to powerful computers and the software to harness them. We also commissioned Dominic Tildesley of Unilever to report on the significance of e-infrastructure for business. I am releasing his report today. It sets out very clearly practical examples of how business can use high powered computing. Companies like Jaguar Land Rover or Rolls Royce need to be able to model completely the functioning of a motor car or a turbine. The more you can do virtually the more rapidly you can test and introduce new products. That is why they say that to out-compete you must out-compute. We will act on his recommendation of an e-Infrastructure Leadership Council to ensure there are strong links between academic research programmes and business applications.

Then Carbo is low carbon energy. We already have sponsored research on low carbon cars. The TSB’s investment in low carbon vehicles in partnership with the EPSRC played a significant role in Nissan’s decision to base the production of the entirely electric LEAF model and its advanced batteries in Sunderland. High on our agenda now is nuclear fission and fusion after a challenging report from the Science and Technology Committee of the House of Lords. We will be considering it carefully to ensure we get most advantage from our historic strengths in these sectors.

This is a very quick review but it is clear that the Coalition is committed to a high tech future for our country and is doing everything possible to secure this future source of growth.

Conclusion

Today I have set out 8 steps to high-tech growth:

1. set the Government’s goal that we should be the best place in the world to do science;

Good

2. released a series of reports showing what the research sponsored by the Research Councils is achieving;

Meh

3. set out our ambition to have more universities in the world’s top 100;

Dubious

4. announced that we have invited proposals for new types of university with a focus on science and technology and on postgraduates;

Mysterious

5. announced our ambition for universities’ knowledge exchange funding from external sources to grow by 10% over the next three years;

Useful

6. announced that the next Catapult Centre will be in the application of satellite technology;

Useful

7. announced that I am setting up leadership councils in e-Infrastructure and in synthetic biology;

Useful

8. and released a new report on e-infrastructure strategy.

Should go somewhere useful.

The critics of our economic policies focus on arguments about a short-term stimulus but what really matters is long term growth. That is what our high tech enterprise strategy is all about.

Not with 8 key points like that it isn't. We started with "Growth is the Coalition's highest priority for 2012" and ended up with this list of tippytoes? Fortunately, this is actually a very bad summary of the speech, which had a lot more substance than these 8 points suggest.

Times like this have persuaded many of us that it is necessary to back the technologies of the future so that we can rebalance our economy. Every Government tries to do it. The only question is whether you recognise it and do it properly or whether you just let it happen as the aggregate of the host of decisions you have to take anyway.

These three sentences read like a defence against the Conservative Right. First, there is no alternative (er, check with Maggie on that one). Second, it's nothing new (it is). Third, it's just a question of management (ie not ideology). It's telling that this is the key argument he feels the need to restate at the end.

This Coalition, faced with the crucial challenge of sustaining growth after the deepest recession since the War, has a strategy for high tech enterprise. We can be proud of it because it is coherent, serious and rests on a commitment to the future of our country and its economic base.

Rt Hon David Willetts MP
4 January 2012

***

Conclusion

David Willetts is the minister for universities and science, and this is a speech about universities and science. From that point of view, there is little to criticise it for. The problem for the government is that having some sensible policies for academia does not equate to having credible policies for hi-tech growth. That is a much bigger objective, requiring broader arguments and bigger moves. We didn't get any of that in this speech, and that is why the important claims in the final paragraph that I would very much like to be true are not justified.

Some 15 months on from the crunch spending decisions, a lot still seems unresolved. This is a speech that Cable does not seem to have signed up to. Cameron's interest is all spin. Osborne is ideologically gnomic. Clegg has never shown any interest. And the shadow of Thatcher seems still to hang over this speech, darkening passages here and there and leaving the core argument confused and unfulfilling. Clearly Willetts has no intention of using words like "industrial policy", but with the moves he has made he has already rejected the standard arguments against industrial policy. One danger from this intellectual drift is that if the economy buckles further we will end up with policies aimed at bailing out struggling sectors rather than building new ones.

Yet this does mark yet another step away by the Conservatives from the Thatcher position and towards sanity. It doesn't live up to the claims it makes at the end, but it does take us closer to them. For that reason, it should be welcomed.

So where are we? In austerity, the Conservatives have an essentially negative core narrative. They seek to take the edge off that with a positive narrative of growth, to the extent that Willetts tells us this is now the "highest priority for 2012". Within the growth narrative, the party has recognised the political importance of hi-tech. Cameron is dabbling with Shoreditch and Osborne is starting to chuck some money science. This speech is an attempt to establish credibility at the policy level.

It falls short both as an intellectual exercise and in demonstrating political commitment. On the intellectual front, there is almost no attempt to explain why the approach laid is appropriate to the task. Rather, what we are offered is a series of steps forward from where we were a year ago. These are welcome in themselves but fall a long way short of coherent commitment to hi-tech growth. (By contrast, check out the Aho Report produced for the EU by the former Finnish prime minister as far back as 2006, which also eschews picking winners but manages to be comprehensive and committed.)

And then there's the lack of commitment. There have been big cuts in funding, nor just in academia but also in the TSB's dancing partner for much of its hi-tech investment under Labour, the Regional Development Agencies. The bits and bobs dribbling out of Osborne's speeches don't nearly make up for these big hits. It cannot be said too often that our best scientists are currently planning for cuts, not expansion. Money aside, government has many levers it can pull and the sectoral committees Willetts is setting up are mere talking shops.

The task for scientists and hi-tech firms now is to steer, with a careful combination of carrot and stick, a government that is both interested and vulnerable into a policy that is genuinely coherent and committed. Find some more graphenes for ministers to fund, but remember that this is only tactics. We still need to force through a shift in Conservative economic strategy - and will never get a better opportunity.

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Comments

On the button and insightful as ever William. But don't you think that one of the interesting aspects is the lack of a cogent response to the speech from the science community/scientists other than a muted 'could do better?' I tried to articulate this last night on my blog. (Were we both burning the midnight oil?).

Perhaps not that well I admit, and I am sure there all sorts of things happening behind the scenes. But it doesn't feel as though we are in a fit state as a lobby at the moment to make the most of the opportunity you point out.

A very thought provoking article you have.It is very long and takes a lot of time to read.But all makes sense in the academic field of science and politics.

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