1 Introduction
General Background
1. Knowledge, in the form of technological progress,
has been increasingly viewed as a key determinant of economic
growth and therefore national prosperity. Traditionally, it was
believed that countries which gained a lead in technological progress
would be caught up and overtaken automatically by countries with
less developed technology through these countries copying best
practice from the leader. However, evidence has suggested that
this convergence does not happen automatically, even amongst developed
economies. In practice, countries which are on low productivity,
low growth paths will remain there indefinitely without the intervention
of policy-makers. For countries to be successful, investment in
knowledge generation, workforce education and training, the capacity
of the economy for innovation and the take-up of new ideas are
now all seen as crucial requirements for a modern economy to prosper.[1]
2. The 1998 Competitiveness White Paper; Our Competitive
Future: Building the Knowledge Driven Economy proposed
a ten year programme of support from Government to enable the
UK to close the performance gap with its main competitors by exploiting
the potential benefits of a modern knowledge driven economy.[2]
3. In a knowledge driven economy businesses have
to compete globally by exploiting those advantages which competitors
find it difficult to copy. This is no longer raw materials, land
or cheap labour as it was in the past; but knowledge, skills and
creativity, which are considered the key to designing high-value
goods and services and advanced business practices. However, a
knowledge driven economy encompasses not only the exploitation
and use of knowledge in activities classified as high-tech or
knowledge-intensive but also its ability to diffuse this knowledge
throughout all economic activity.
4. The Competitiveness White Paper highlighted four
mutually reinforcing processes which the Government believed increased
the importance of knowledge for prosperity:
— Advances through basic scientific
research and business enterprise research and development (R&D):
These have led to accelerated growth in the stock of scientific
and technological knowledge. With improved equipment and better
communication technology assisting the wider diffusion of research
findings, the potential scope and productivity of R&D also
increases;
— Information and Communications Technology
(ICT): Information can
be created and dispersed in greater quantities at a faster and
cheaper rate than ever before. New products and services have
been created and more sophisticated production processes developed.
For example, global positioning satellites, laptop computers and
the programmes running them;
— Greater global competition: This
has been enabled by reduced communication and transport costs
opening up new markets to consumers, while some businesses can
now deliver their products down a telephone line. The increased
ease with which information can be transferred means products
and processes can be quickly imitated by competitors. To compete
successfully, UK businesses now need to innovate more quickly;
and
— Rising incomes, and changing tastes
and attitudes to leisure: Increasingly
sophisticated and demanding consumers drive changes in traditional
corporate values and behaviour, particularly in relation to environmental
and social performance.
5. The White Paper also highlighted three forces
which the Government believed drove increased productivity, growth
and innovation within a knowledge driven economy: collaboration;
workforce skills and capabilities; and competition. It was within
these areas that the Government at the time believed the UK needed
to improve to become more competitive and close the performance
gap on its main competitors.
Our inquiry
6. Five years on from the publication of the 1998
Competitiveness White Paper, we decided to review progress towards
the Government's objectives and the UK's responses to the main
challenges identified at the time, namely the development of new
products, processes and services; the development of science and
knowledge bases to underpin the new technologies available to
industry; the impact of information and communication technology
(ICT); and increased competition from low-cost economies.
7. During the course of our inquiry, we took formal
evidence from: the Institute of Physics (IOP), the Royal Academy
of Engineering (RAE), the Engineering and Physical Sciences Research
Council (EPSRC), the Institute for the Management of Information
Systems (IMIS), the Information Technology Telecommunications
& Electronics Association (Intellect), the Institute of Directors
(IoD), the Work Foundation, QinetiQ (the technology-based solutions
provider), Cable & Wireless, UNIFI, the Communication Workers
Union (CWU), Amicus, the National Outsourcing Association (NOA),
the Call Centre Association (CCA) and the National Association
of Software and Service Companies (NASSCOM) the trade association
of the Indian ICT industry.
8. We also undertook a visit to the United States
to inform our inquiry and to gain an appreciation of the competitive
environment in which US businesses operate from the perspective
of the businesses themselves and from that of government organisations.
During the course of our visit we had meetings with US officials,
academics and businesspeople to assess the support given to UK
based firms by US-based UK Government representatives (UK Trade
& Investment); to discuss developments in the ICT field, including
e-government and how these developments are being adopted and
integrated into business systems and practices in the US (City
of Chicago, Cisco Systems and BT Exact); to assess the implications
of ICT developments on business in the UK, including the implications
for the future skills needs for UK businesses (eBay, the Public
Policy Institute of California and the Center for Continuing Study
of the Californian Economy); and to get an overview of public
and private sector support for R&D and the development of
small and medium sized enterprises in the US (Motorola, Northwestern
University, Bay Bio and MedOptix). Following our visit we also
took formal oral evidence from Cisco Systems.
We received 18 written memoranda from other businesses,
trade associations and individuals, which are listed on page 61,
and the Department of Trade and Industry. We express our gratitude
to all those who contributed to this inquiry.
1 DTI, Our Competitive Future: Building the
Knowledge Driven Economy: Analysis and Background, Cm 4176,
December 1998 Back
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