4 An enterprise culture
58. The difficulty in measuring the real level
of innovation in the economy is undesirable in itself, but it
also contributes to the wider problem that there is little public
understanding about the structure and the true state of the United
Kingdom economy. This in turn contributes to a culture which does
not appreciate the extent to which a higher value-added economy
is already in existence, or the opportunities it offers. It also
contributes to a mis-perception of risk. Taken together, these
could have a serious impact on the future success of the economy.
Education and skills
59. Sir John Rose stressed the importance of
the "visibility of rewarding careers".[55]
The first problem with a misperception of the true state of the
economy is that people may make choices about skills and careers
which are not the best for themselves or indeed for the wider
economy. Throughout the inquiry, witnesses raised the importance
of skills to the HVA economy. NESTA put it succinctly: "Clearly
skill levels are very important to innovation."[56]
The globalised economy now means that companies can choose where
to locate their facilities and the level of the skills in the
workforce is one of the factors which influences their choice
of location. Will Hutton told us that "When you talk to the
high-tech companies in particular, one of the biggest considerations
on their minds is whether they can get access to high quality
human capital."[57]
60. We recognise the importance of skills to
the higher value-added economy. However, there has been a great
deal of work on skills by this Committee and others, including:
the Leitch Review of Skills (2006);[58]
The Lambert Review of Business-University Collaboration (2003);[59]
Trade and Industry Committee Report, Better skills for manufacturing;[60]
Innovation, Universities, Science and Skills Committee Report,
Re-skilling for recovery: After Leitch, implementing skills
and training policies.[61]
Rather than replicate this work here, we limit ourselves to a
few key points.
DEMAND-LED TRAINING
61. Evidence throughout the inquiry highlighted
the importance of demand-led training. Sir John Rose explained
to us that "If you are a young person, you are going to respond
to the signals that you get from industry and from government
about where the opportunities are likely to lie. This is not just
a supply issue; this is a demand issue".[62]
The CBI argued that training and education programmes should be
designed to meet demand from both students (be they at school
or in the workplace) and business. The Leitch Review recommended
that the UK skills system be demand-led with qualifications that
deliver the skills that employers and individuals need. Ford Motor
Company told us it welcomed this but also recognised "that
the implementation of this recommendation poses significant challenges
but call upon all stakeholders to redouble their efforts in this
area."[63]
62. Linked to this, there is a need to cultivate
demand by promoting a range of skills leading to worthwhile careers.[64]
Sir John Rose told us that apprenticeships were a good example
of demand-led training but he highlighted the need for schemes
to feed into growth industries.[65]
63. As in previous inquiries, manufacturers and
the business community expressed concerns about the number of
graduates in science, technology, engineering and mathematics
(STEM) subjects.[66]
The CBI told the Committee that "STEM subjects are absolutely
vital to the high value-added economy. It has been going wrong
for 20 years".[67]
Professor Marshall of Coventry University, told us that the United
Kingdom's situation with the number of STEM graduates was "really
at a tipping point. Unless we can get the numbers up, the research
base in this country will be staffed entirely by overseas researchers.
In the short term there is only one thing you can do which is
to pay them all a realistic bursary",[68]
a suggestion that the CBI also made.[69]
Dr James Wilkie of Birmingham University highlighted "the
issue in terms of the perception and the communication of STEM
subjects".[70] He
noted the perception that STEM graduates do not get well paid
"but in reality they get quite well paid in comparison with
other graduates."[71]
On the other hand, Will Hutton drew attention to the number of
STEM graduates who moved into the city rather than into industry.[72]
64. It is vitally important
that British education and training is as good as it can be, and
we welcome the growing public debate about the necessary steps
to improve it. We are particularly concerned about the continuing
complexity of the skills system and the impact this has on the
smaller companies who wish to engage with it. But ultimately,
the skills available to the United Kingdom depend on the individual
choices made by individual students and workers. They will create
the demand for the training which will sustain the higher value-added
economy. They will only do so if they have a realistic understanding
of the opportunities available to those with particular skills.
They will also need to know that employers reward the skills they
say they need.
Risk taking and entrepreneurialism
65. The Enterprise White Paper states that enterprise
"as one of the five drivers of productivity, has contributed
to the United Kingdom's increased rate of productivity growth
and a narrowing gap with comparator countries" and says that
the Government wants to see more enterprise and "more people
with the ambition to start, grow and innovate within business".[73]
This will not happen if people do not take risks.
66. At the individual level, the United Kingdom's
culture discourages risk-taking. Arguably, this is the cumulative
effect of encouraging people into areas where the United Kingdom's
economy is undoubtedly strong, such as services, and reducing
entrepreneurs' appetite for innovative approaches. Unwillingness
to accept risks can reduce long term effectiveness - as NESTA
said, risk is not an inherently bad thing but is something that
needs to be managed or properly balanced, even if it cannot be
overcome.[74]
67. One thread from our evidence was the extent
to which entrepreneurial skills could be taught. The Government
has stated that it wishes to develop entrepreneurial education
for children from primary through to higher and further education,[75]
and our witnesses also highlighted the importance of educating
young people and fostering business and entrepreneurial skills
from an early age.[76]
68. Whether or not entrepreneurial skills can
be actively taught to young people, schools should not discourage
their pupils from considering a career in business. We were disappointed
to hear from the CBI that "we have fundamental problems with
careers advice and guidance" for careers relating to business
and the higher value-added economy.[77]
Similarly, we heard from the Dragon's Den panellists that that
schools were not encouraging (or were even actively discouraging)
young people to investigate careers in business and entrepreneurship.[78]
The problem appears to be a desire to avoid risk as much as possible,
rather than to balance risk and reward appropriately.
69. The Committee recognises
that a successful higher value-added economy is influenced by
factors stretching across many government departments. The role
of education in giving young people the confidence, ambition and
skills to be creative and entrepreneurial is vital. The Committee
welcomes the Government's proposals to extend and develop entrepreneurial
training. The Committee also believes that it is important to
teach children from a young age to take appropriate risks and
not to fear failure. We recommend that the Government incorporates
this into education on entrepreneurship.
70. We also stress the importance
of well-informed, up-to-date careers advice in schools to encourage
children to consider careers in businessespecially in engineeringand
in entrepreneurship, alongside balanced advice about other careers.
Careers advice in most schools appears not to be of the standard
required to enable young people to make properly informed choices
and we urge the Government to consider how this serious shortcoming
can be addressed. If our economy is to continue adding value and
competing successfully internationally, it is essential that young
people understand the true range of opportunities open to them.
Risk aversion
71. While some of the reluctance to promote industry
and entrepreneurship as possible careers rests on misperception,
Mr Doug Richard told us that many of those who feared risk were
justified:
The fact of the matter is fear of failure in the
UK is not some abstract culture, as Roger said, some woolly thing.
I believe it is grounded in very specific conditions where the
risk of failure is greater. It is as simple as that. Part of it
is a cultural condition. It is quite shocking, when you move from
the US to the UK, to see exactly what happens when you reach public
status in this country. You get skinned alive. It is a harsher
public environment, and there is nothing you can do about it,
it is what it is, but the fact of the matter is you stick your
head above the parapet and all of a sudden everybody takes a shot
at you.[79]
He suggested to the Committee that the scale of risk
associated with failure in the United Kingdom should be changed
to motivate more people to take the step into entrepreneurialism
or to innovate.[80]
72. Doug Richard and Rachel Elnaugh set out a
range of difficulties facing business angels[81],
ranging from flaws in the Enterprise Investment Scheme to the
eagerness of the Government to conduct investigations when a company
closes down.[82] There
is clearly a difficult balance to be struck between promoting
a culture in which investors are encouraged to back new businesses,
and know they can close businesses that fail, and protecting the
legitimate interests of taxpayers, creditors and employees. In
our work on the Insolvency Service[83],
we drew attention to the fact that the targets for enforcement
had not been raised, even though the recession meant that there
were likely to be more cases of wrong-doing. In its response,
the Government explained it considered that a simple numerical
target would give the Service a perverse incentive to look at
simple cases, and neglect more serious and complex ones. We were
told that "the Insolvency Service and the department are
working to move towards a profiling and reporting system based
on outcomes alongside outputs for enforcement which more closely
relate inputs to the desired policy objectives."[84]
One of those policy objectives should be to detect and deter wrong-doing;
another should be to ensure the regime does not inadvertently
deter honest entrepreneurs.
73. Two other key risks identified by Mr Richards
were the way in which the insolvency regime in the United Kingdom
provided insufficient breathing space for entrepreneurs, and the
frequent requirement for entrepreneurs to provide their homes
as security for start-up capital. There are gradual moves to reduce
these risks, which we welcome. We note that the Insolvency Service
is currently consulting on a new regime for company voluntary
arrangements. Similarly, the Government has said that the family
home cannot be used as security for loans backed by the Enterprise
Finance Guarantee Scheme. Shifting
the United Kingdom's culture to one which accepts that making
progress may require taking risks, and that success is not always
guaranteed, will take time, but will be vital to the future success
of our economy. It will depend in large part on a more balanced
approach from politicians and the mediatwo groups that
too often seem to celebrate failure with more enthusiasm than
success.
THE PUBLIC SECTOR
74. The public sector is, if anything, subject
to more pressure to avoid risk than the private. As Will Hutton
told us:
Where the public sector is weak is in coming up with
the new thing. It does that because of
profound risk aversion
and very heavy costs for getting something wrong with the new
thing, where you get kicked and the present accountability in
the way that the media operates.[85]
There has to be a balance here: no one wants tax
payers' money to be wasted. However, there would be clear economic
benefits if the Government could use its purchasing power not
just to buy goods or services but also to promote innovation and
higher added value. Learning from the example of such organisations
as DARPA in the USA, we examine ways in which this could be done
in more detail later in this Report. In
Innovation Nation, the Government announced that
the National Audit Office will be conducting a study into the
role of risk in public sector innovation.[86]
We welcome this development. We have no desire to waste money,
but progress requires risk-taking. Some of those risks will lead
to a project's failure, in whole or in part. We believe that the
United Kingdom's culture is too risk averse. This needs to change
in the public as well as the private sector.
55 Why Manufacturing Matters Back
56
Ev 222 [NESTA] Back
57
Q 202 Back
58
Leitch Review of Skills, Prosperity for all in the Global Economy-
World Class Skills Back
59
HM Treasury (2003), Lambert Review of Business-University Collaboration:
final report Back
60
Fifth Report of Session 2006-07, HC 493. Back
61
First Report of Session 2008-09, HC 48 Back
62
Q 109 Back
63
Ev 191 [Ford Motor Company] Back
64
Qq 255, 256 Back
65
Q 110 Back
66
HC 493 (2006-07), paragraph 83. Back
67
Q 449 Back
68
Q 257 Back
69
Q 449 Back
70
Q 253 Back
71
Q 254 Back
72
Q 209 Back
73
HM Treasury and BERR (March 2008), Enterprise: unlocking the
UK's talent Back
74
Q166 Back
75
Innovation Nation states that the Government will "drive
the implementation of the Leitch review of skills" (p10)
and Enterprise: unlocking the UK's talent (p33) Back
76
Q 318 Back
77
Qq 318, 448 Back
78
Q 318 Back
80 79 Q 319 Back
Back
81
A business angel is a high net worth individual who invest, on
their own, or as part of a syndicate, in high growth businesses Back
82
Qq 327, 329, 323-3 Back
83
Business and Enterprise Committee, Sixth Report of Session 2008-09,
The Insolvency Service, HC 198 Back
84
Business and Enterprise Committee, Fourth Special Report of Session
2008-09, The Insolvency Service: Government response to the
Committee's Sixth Report of Session 2008-09, HC 919 Back
85
Q 205 Back
86
Innovation Nation. P. 8. Back
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