Select Committee on Science and Technology Fifth Report


CHAPTER 2: Setting the Scene

Introduction

2.1  Our Inquiry has been into the ways that English Regional Development Agencies interact with the SET base. This Chapter sets the scene for the remainder of the Report by:

2.2  Subsequent Chapters explore the challenges in more detail.

  • Chapter 3 discusses the particular challenges for RDAs with their remit to develop their regions' economies.
  • Chapter 4 considers the exploitation of SET from the business or "demand" perspective.
  • Chapter 5 looks at the same questions from the complementary SET base "supply" perspective.
  • Finally, Chapter 6 takes account of these different perspectives and examines the new dynamics between national and regional approaches to the application and exploitation of the SET base.

2.3  Underpinning all this is the certainty that, in a modern economy, turning SET discovery and invention into marketable products and services is vital for international competitiveness and thus wealth creation and economic growth.

The RDAS

2.4  England has nine Development Agencies, one for each of the areas adopted for other regional purposes, as listed in Box 1.

2.5  Strictly speaking, only the eight bodies established under the Regional Development Agencies Act 1998 are "Regional Development Agencies". The ninth, the London Development Agency (LDA), was established separately, under the Greater London Authority Act 1999. For most purposes, however, the RDAs and the LDA can be treated as similar bodies. For simplicity, we have used "RDAs" throughout this Report to include the LDA unless specifically mentioned otherwise.

2.6  These public sector bodies[12] were set up to develop and pursue Regional Economic Strategies in conjunction with their regional partners. The overall aims are to increase regional Gross Domestic Product (GDP) and reduce regional disparities.

Science and the Economy

2.7  A key component of RDAs' Regional Economic Strategies is technological innovation — that is, the application and exploitation of the SET base. SET's economic impact comes from the translation of scientific discovery into commercial products and services. The products are various and have different contributions to make, both direct and indirect, to regional economies. These range from the competitiveness of an individual company to the incorporation of new technologies into a region's infrastructure, thus improving the environment for doing business. Another important aspect of SET's impact comes from the development of people who are SET literate, with an understanding and knowledge of science matters.


2.8  SET advances create a dynamism in the economy, delivering new technologies and approaches that impact on almost every aspect of our lives. Those advances generate an increasing technological sophistication in existing products and services, and thus play an important part in maintaining present economic activity. They can also lead to new kinds of products. Indeed, completely new industries grow out of the SET base, such as biotechnology and optoelectronics. This is "technology push", supplied by aptly named "knowledge industries" in the consequent "knowledge economy".

2.9  At the same time, there is also a "pull" or demand for SET-based advances. For example, the increasing attention to environmental issues and health and safety requires technological innovations in both products and the way they are produced — which, in turn, call for new products. Equally, there is increasing consumer demand for high-tech products that improve the quality of life, in many areas ranging from health to leisure and entertainment. Finally, as the internet bears witness, the very environment in which business is conducted is now highly dependent on technology and that, in turn, generates demand for new products and services.

2.10  A modern and prosperous economy thus depends crucially on the ability to harness scientific discovery and invention, turning that SET base into commercial products and services that are competitive in the global market place. While the case for the commercial exploitation of SET is well established, a new feature is the rapidity with which technology advances. The constant change means that not even the strongest industry can rest on its laurels.

The Common Challenge

2.11  Against that background, the common challenge — for the Government and the public sector; for business; and for the RDAs at the regional interface — is to ensure that scientific discovery and invention translates into activity that raises economic performance. This is SET exploitation.

2.12  We have discerned three different aspects to this common challenge. The first two relate to the demand side, namely:

(a)  technological innovation in existing companies, focused on optimising the value of SET — in the products and services themselves, in the production processes, and in the systems that are employed to run the business; and

(b)  the growth of new knowledge industries, as described in paragraph 2.8.

These demand-side perspectives are discussed principally in Chapter 4.

2.13  The third aspect of the common challenge concerns the supply side. It covers the continuous supply of ideas, knowledge and expertise. This is achieved through a high quality SET research base combined with the education and development of people with SET skills. Supply-side issues are covered in Chapter 5.

Policy approaches

2.14  These three aspects of the common challenge are addressed through regional, national and European policies and initiatives. Collectively, these aim to increase the rate, range, and impact of SET exploitation for economic gain. The principal objectives of such policies and initiatives are:

(a)  increasing the awareness of the value of SET in all its forms (and, thus, demand for it) by existing businesses, driven by national and international competitiveness factors;

(b)  maintaining and extending the national SET base through the supply of experts and SET-literate people, and a SET research base;

(c)  ensuring effective interactions at the interface between SET demand and supply; and

(d)  developing business enterprise through the provision of facilities and support for business spin-out and start-up from SET discovery.

2.15  The pursuit of objectives in each of these primary areas has, over a number of years, led to a wide range of initiatives, programmes and schemes. Demand-side issues are addressed primarily by DTI, while supply-side issues are handled mainly by the Department for Education and Skills (DfES) and the Office of Science and Technology (OST). Common to each is the issue of SET exploitation. In addition, the commercial exploitation of public sector SET assets — or "intellectual property" (IP) — has been addressed by the National Health Service (NHS), the Ministry of Defence (MoD) and the Department for Environment, Food and Rural Affairs (DEFRA).

2.16  With HM Treasury oversight of the funding arrangements, several Whitehall Departments provide policy input to the RDAs — principally DTI, ODPM, DfES, DEFRA and the Department of Culture, Media and Sport (DCMS). Government Offices in the Regions oversee Regional European programmes, whereas management of other SET-related European programmes is located in DTI.

SET demand and supply

2.17  In turning SET into commercial products and services, the interface between supply and demand is crucial. However, the demand, the supply and the nature of the interface between them is complex. Interventions must accommodate that complexity.

Complexity in demand and supply

Demand

2.18  The value of SET and the type of SET that is important to companies depends on a range of factors such as: the nature of their business and their products' dependence on SET; the size and maturity of the company; the competition; the speed of change of SET in relation to the type of company; and the life cycle of the products. We also take the point made by Mr Norman Price of AWM that companies' involvement in SET and SET exploitation depends on awareness, ambition, ability, and affordability (Q 76 and p 65) — all of which can vary widely case by case, resulting in many permutations.

Supply

2.19  The supply side is also complex. There are different providers of education and training delivered in different learning modes for different levels of qualifications. University departments have different research interests and emphases — from pure, through basic and strategic to applied research — and are, consequently, organised in a variety of ways. The SET base is not limited to the universities. Large elements are elsewhere in the public sector — for example, in the NHS, MoD and the various Public Sector Research Establishments.

2.20  The private sector also has a substantial stake in the SET base. Indeed, spending on research and development (R&D) by the private sector significantly exceeds public sector R&D spend: in addition to contracting with universities, many businesses have either in-house activity or access to specialist sector-specific research organisations. There is also substantial R&D spend by medical and other charities.

2.21  Nor is the SET base constrained nationally. It is an international resource, fuelled by the rapid dissemination of SET discovery through publications and scientific networks — although less so in the case of commercially sensitive discoveries.

Interconnecting supply and demand

2.22  Public policies on interventions to stimulate connections between the supply and demand of SET need to be informed by an understanding of their complexity. Paradoxically, the result needs to be as simple, straightforward and effective as possible bearing in mind that no one size fits all.

Complexity in exploitation

2.23  There are parallel complexities in the exploitation process. Policy interventions have generally been informed by a simple linear model of exploitation — in which ideas are generated, tested, identified as having commercial potential and then exploited. However, this does not match reality. As Professor Barrett of the University of Salford helpfully noted (p 244), it is more about evolutionary cycles, incremental improvements in processes and capabilities, chance events, relationships and tacit knowledge. Connectivity is complex and yields different types and levels of effectiveness.

2.24  It is therefore important that networks of formal and informal communication create the conditions for both continuous interchange and the building of relationships. The University of Salford's Centre for Sustainable Regional Futures (SURF) similarly observed that current theories of innovation reject a linear firm-based approach. They noted that the relationship between firms, universities and their wider environments was crucial in leading to improved economic performance (p 270).

Addressing the complexity in public policy

2.25  The complexity of supply, demand and matching it through exploitation is made even more complex by the dynamics of the market place. SET and business are continuously evolving, and policy and practices must adapt accordingly.

2.26  Making better connections between SET supply and demand has been a policy imperative for many years. A continuing Government aim has been to address the concern that the UK is excellent at invention but poor at turning that invention into commercial products. Many schemes and initiatives aiming to change stakeholders' behaviour in these matters have emerged from different Whitehall departments and the European Commission over the years, regional aspects of which are now often operated through RDAs.

2.27  The experience of all these interventions has led to an extensive knowledge base at the operational level of what works and how it works. However, we are not satisfied that such experience had been drawn on to ensure that many of the policies and initiatives about which we heard during our Inquiry were based on a sophisticated understanding of the demand-supply interaction.

2.28  Accordingly, we recommend that, better to inform future policies on SET exploitation, DTI should work with business, universities and RDAs to carry out an analysis of the complex issues in the demand for and supply of SET. That analysis should address the demand- and supply-side complexities discussed in this Chapter as well as the multi-faceted impact of previous policy interventions. Furthermore, they should be linked with the development of more adequate performance measures for RDAs on SET exploitation recommended in paragraph 3.28 as well as the new arrangements for overseeing SET exploitation recommended in paragraph 6.38.


12   RDAs are not, however, typical public sector bodies. As discussed in paragraph 3.38, they are governed by business-led boards. Their staff are not civil servants, but employed on essentially private sector terms (QQ 130-131). Back


 
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