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Lord Bhattacharyya: My Lords, like everyone, I warmly welcome the Government's commitment to,

How has this growth and prosperity come about? The OECD annual survey was a glowing report on our economy. It stated that,

had produced this wonderful performance. Credit goes to the Treasury for the macroeconomic policy but, in pursuing the "structural reforms", credit must also go to the Department of Trade and Industry.

As the first professor of manufacturing and director of the Warwick Manufacturing Group, I have more than 30 years experience of working with the DTI. At first, my work with many of Britain's largest engineering businesses meant that I had to talk to their owners; over time that evolved into wider advice. So during that period I had the pleasure of working with most of the Secretaries of State in the department.

The DTI's role has changed enormously. When I first started I thought that Whitehall owned half of Great Britain. No longer trying to sustain failing businesses, the DTI's role now is maintaining markets and promoting technological innovation—key ingredients for success. Our prosperity has to be underpinned by trade and industry together.
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Globalisation is not new to Britain. For hundreds of years trade has been central to our economic performance. The Privy Council set up the Board of Trade in 1621, making it an old institution even by the standards of this House. I have never understood the reluctance of the British to admit to "being in trade". After all, it is something at which the British are remarkably good.

Having joined many trade missions to far away countries, I do not recognise the tabloid image of the political junket. All Ministers of all parties and many members of the Royal Household work hard to make the case for doing business with Britain. However, there is one place in which it is essential that the voice of trade and industry is heard loud and clear—and that is inside the Cabinet.

Today's trade is governed by a set of rules that has opened up markets like never before. We have trade regulated by the WTO and the European Union. Regulation, unfortunately, brings bureaucracy. The price of free trade—like that of freedom itself—is eternal vigilance. Political expediency can drive even our closest allies into protectionism. We can all remember the French and British beef and the United States closing its door to steel. It is no longer the role of the gunboat to re-open these markets but that of the bureaucrat. This is one area where the pen is indeed mightier than the sword.

For the UK, agile, flexible businesses backed up by a dynamic science base quick to exploit technological opportunities is the only way to stay ahead. The case was well made in the DTI's Innovation Report. As knowledge becomes more portable, our national economic performance will be determined by our ability to absorb and speedily exploit that knowledge. Hence the importance of the skill base, an area which we have neglected for four decades and about which the Government are trying to do something.

It is at this point that the two halves of the DTI come together. Open markets bring the kind of globalisation that encourages technology and development; trade links and good quality foreign direct investment bring access to markets and technology. The fact is that globalisation has given hundreds of millions of people standards of living higher than most economists thought possible.

A major role for the DTI is to strengthen our system of innovation. Effective innovation policies need a better understanding of business. For this, the DTI must acquire the necessary experience, skills and attitudes. Some restructuring of the department will be needed, but not the wholesale dismemberment that some suggest. Under the leadership of the Secretary of State, Patricia Hewitt, the DTI is evolving into the kind of department we need to satisfy these ambitions. The five-year plan for the DTI, Creating Wealth from Knowledge, shows that there is more to come, including—which is most important to me—the fact that it is to be retitled as the Department for Technology and Innovation.
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Getting closer to business will require greater regional devolution of DTI activities. I served on the board of the West Midlands Regional Development Authority for four years and saw what devolution can do. Local intelligence and rapid response can only be achieved at a local level, and that is what devolution is bringing. Devolving Business Links and the Manufacturing Advisory Service not being run from Whitehall but from the regions has had a remarkable effect in a very short space of time. The closer one can get to firms the better.

I have also been working to establish the West Midlands Regional Innovation and Technology Council, which will complement the National Technology Strategy Board—the centre and the regions working together. Good science needs a critical mass for success, but we also need to engage with a large number of firms if we are to enhance our national competitiveness in technology transfer alone.

We need a more strategic business-orientated approach to innovation and technology, engaging with a wide range of companies and working more closely with research councils; championing more and larger-scale collaborative programmes; sharing insights into technology and business market trends, as the Engineering and Physical Sciences Research Council is already doing.

The DTI will have to be able to influence the regulators to ensure that they enable, rather than inhibit, business innovation. Public procurement practices must also encourage innovation. This is a significant programme of work by anybody's standards. While it is not the highest, investment in British science is hugely efficient. We have, per pound spent, the largest number, as a proportion, of papers published and patents. It is essential, and it remains essential for our future economic success.

In the decade from 1997 to 2007, the UK science budget will have doubled. While not a scientist himself, my noble friend Lord Sainsbury has been a great champion of British science. We have some of the best universities in the country including my own, Warwick. Extra spending in science innovation and the top-up fees will ensure sustainability in a global world.

A commitment to science, however, should not mean a rerun of the 1960s "white heat of technology" that could easily lead to a set of white elephant projects. There is a popular misconception that new technology and science equals new companies. But many of our most everyday products, such as cars and washing machines, are packed full of new technology.

I spent a lot of time in Japan when I was young. I was impressed with the way its Ministry of International Trade and Industry—MITI—worked with firms such as Honda. The way in which the Department of Trade and Industry is evolving will be very similar in the future to MITI. In a very short time, it will be able to catalyse technology, not just fund it.

Honda has, within a period of 10 years, become the largest engine manufacturer in the world. It was obvious when it began working with the Rover Group
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which firm had the technology. I used to visit Japan quite often, and MITI's key role was the way it identified and disseminated technology.

Many British visitors took away superficial lessons from Japan. I am with John Humphrys on this. They latched on to what has sadly become the meaningless mumbo jumbo of MBA speak—taking the Japanese language of lean, just in time and can/ban, and raising these concepts from common sense into a new scientific language. That has been the problem in all our White Papers until this one. I remember the chairman of Sony telling me, "You are making science out of common sense".

We have been stealing Japan's clothes but not taking the technological peg on which they hung. Your Lordships should not get me wrong—I like nice clothes as much as the next man but it is important to have a well nourished body beneath them. Here again, I commend what the DTI is doing with technology.

All of today's successful businesses have to harness technology. There is no substitute for sustained technological leadership. Let us compare the contrasting fortunes of two parts of the old British Leyland. Until about five years ago, BMW in Oxford was destined for an asset regeneration site; it now produces a technology-driven, high-value product, the leader in its class, and is a great exporter. However, MG Rover at Longbridge struggles to sell technologically redundant products.

The difference in performance is not a function of investment in plant or workers, which are pretty much the same. The difference is the ability of managers to absorb the latest technology and develop exciting new products.

During most months, I travel to India or China. Recently, I opened a new centre in Suzhou, which is near Shanghai. I think we must face the fact that we will never have the vast number of scientists that China or India are able to produce. Commentators speak of high labour content work migrating to China and India, but because technology is portable, a lot of their development is at a higher level of technology than even we have.

Meanwhile, all western nations are struggling to get the type of people they need into postgraduate work in science and engineering. This is a challenge for the UK's higher education sector. In the USA, up to 40 per cent of PhD students are from overseas. We will have to be as open as they are if we are to compete. This also means supporting and expanding programmes which get more science and engineering graduates into small and medium-sized firms.

These days we hear a lot about red tape, yet it proves very difficult to remove any particular regulation. Regulation is often driven by our greater knowledge. Examples include the health impact of asbestos or the carcinogenic agents in certain petrochemicals. Today we are grappling with the mounting knowledge of the impact of global warming.

Sadly, in the times in which we live, security for both our citizens and our businesses has become a major issue. I hope that the Government will do all they can to ensure public safety without putting undue burdens
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on business. It is ironic that huge amounts of regulation are often needed for deregulation. The opening up of the telecommunications market is a case in point. All businesses should welcome the new approach to regulation that is contained in the DTI's five-year programme.

Many of the rules that make the world a good place to do business stem from British attitudes and practices. I do not wish to begin a debate about the pros and cons of the British Empire. Its sins are well documented but its achievements are often taken for granted. Would modern-day globalisation be the same without the internationalisation of the English language, the spread of English common law, English forms of land tenure or Scottish and English banking practices?

This process has been called Anglobalisation. Encouraging free trade was not simply a process driven by economic determinism. For free trade to be successful, it needed a framework for it to work. This is Britain's unique gift to the world. Having effectively created the modern world, Britain has to have more confidence in its ability to do business with it. Hence, it is bizarre that anyone can talk about getting rid of the DTI.

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