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Science and Technology

My Lords, I am indebted to the noble Lord, Lord Bhattacharyya, for this debate. I particularly welcome this opportunity, harking back to my time as Chief Scientific Adviser to the Government, to say what a pleasure and a privilege it was to work with the noble Lord, Lord Sainsbury, our truly excellent Minister for Science and Innovation. Looking beyond our shores, I begin by quoting from the introduction to a report to President Clinton in 1995 from his Council of Economic Advisers chaired by Joe Stiglitz, who at that time happened to be my neighbour in Princeton and was later a Nobel laureate. It said:"““Increasing the productivity of the American workforce is the key to higher living standards and stronger economic growth in the future. Evidence indicates that investments in research and development (R&D) have large payoffs in terms of growth. R&D yields new products, improving the quality of life, and new processes, enabling American firms to reduce cost of production and become more competitive. Indeed, investments in R&D are estimated to account for half or more the increase in output per person””." That statement has been elaborated on in many other economic studies in recent years, which show that it is impossible to account for the international patterns—the differences among countries in productivity growth—in terms of older ideas of their being driven simply by labour and capital. Rather you have to put in the third ingredient—new knowledge—which, as the Stiglitz report remarked, in some cases accounts for as much as half of productivity growth. More generally, there are studies that indicate that the return from R&D is a mixture of a private return to the investors and an even larger and higher return to society. Necessarily roughly, the general sort of answer you get—whether from the study commissioned a few years ago by the Treasury and the Office of Science and Technology from the Science and Technology Policy Research Unit at Sussex University or from others—is that the private rates of return on investment in R&D are in the range of 20 to 30 per cent, and that the social returns as a public good are in excess of 50 per cent. The reason for the disparity between the private and the public return is simply that investing in the creation of new knowledge and cashing in, in terms of new and marketable products, is a complicated and non-linear process. We rarely reflect that the microphones that enable us to be heard in this Chamber, or the television screens that enable us to follow what is going on while we are dining or working in the Library, are directly connected, albeit by a tortuous chain, to the almost ethereal abstraction of Maxwell’s equations well over a century ago—from which he never made a penny. The spillovers from basic research are usually unforeseeable and often inherently unownable. That means that funding for the science base necessarily, and in essentially all countries, must come from public money. It is a classic public good. On a more chauvinistic note, it is interesting to look at the UK’s performance, in both basic research and its translation into innovative products, in comparison with other countries. Such international comparisons are misleading if you look at them in absolute terms, because doing so confuses the size of a country with the quality of the performance. I shall give an example. The United States usually tops the Olympic medal tables. If you count medals per capita or in relation to GDP, the United States does not even make the top 20, and the UK beat it in the most recent games. I have to add, on a truly chauvinistic note, that you can all guess who comes first in that table. For density of excellence in the creation of new knowledge measured, for example, as highly cited papers in relation to population or GDP, the top performer consistently is Switzerland. It is followed mainly by Scandinavian countries, but with the US and the UK showing strongly. On that scale, the UK is slightly ahead of the US. Some major countries in science do not show so well once you look at the return, in terms of papers or citations, in relation to what they spend. That is a figure of merit in which the UK is the world No.1. It is helped by the excellence of our output and, until we began to do something about it recently, under-investment in the input. Incidentally, I should add that Scotland would be the No.3 performer in output per capita if it were not dragged back by being brigaded with England—my middle name is McCredie. To get closer to direct relevance to the UK economy, we could look at patent ownership. If you examine first the papers cited as the inspiration for patents, they come mainly from publicly-funded research. More than three-quarters come from university research and the science base. If you move on to look at patent ownership, you must distinguish between US or European patents. It is illuminating to re-scale them by dividing by GDP. When you do that, we do not do too badly. Within the European comparison, we are ahead of countries like France, Italy and many others, but behind Switzerland, Germany and many of the smaller Scandinavian countries. As earlier speakers have said, however, when you look at the last stage in the process, private spending—the spending by business and industry on R&D—the comparison is unfavourable. That is why we spend only 1.8 per cent of GDP on research and development, compared to our unrealistic aspiration in the recently announced 10-year government plan that by 2015 we would be spending 2.5 per cent. That deficit is as a result of a shortfall in private spending; very little of the deficit relates to public spending. In summary, I have no doubt that the public goods that flow from the strong UK science base do much more than their share of helping to create wealth and better quality of life around the world. But it is also a national strength that we are increasingly exploiting—for example, patent ownership by UK universities has doubled in the past 10 years. We still need more adventurous expenditure, expressed as more private R&D investment, if we are fully to benefit from the exceptional strengths of our science base.