Science: an engine of innovation
Science is about the discovery of new knowledge, and frequently leads to insights that form the basis of breakthrough new products and processes. Currently, the UK is improving in three important areas, but not fast enough. Expenditure on R&D lags behind international competitors, STEM graduates are increasing but demand is likely to outstrip supply, and links between businesses and universities are still challenged by university funding streams and cultural differences. In a world where the UK is competing not only with the United States and Europe but with emerging science powerhouses like China and India, science policy needs to become more prominent, but more importantly it needs to become more sophisticated.
Science generates new knowledge
Basic scientific research lays the groundwork for many innovations. It is conducted in the pursuit of knowledge, normally without a final application in mind. For example, it wasn't until many decades after the pioneering work of Faraday, Kirchhoff, Boltzmann and Planck on quantum mechanics that a range of applications such as transistors and lasers were developed. As such, basic scientific research has many of the characteristics of a public good: it yields benefits that are general rather than specific to individual products, and generates economic returns which cannot be captured by any single business or entrepreneur.
Applied science is also the pursuit of knowledge, but undertaken to solve a practical problem - for example, research carried out for the purpose of developing drugs to cure specific diseases. The process is initiated either through 'science-push,' where new discoveries are commercialised through licences or spin-out companies, or through 'demand-pull' where businesses approach the science base to develop new products.
Over the past 60 years, science policy has become an important part of economic policy
Traditional science policy is rooted in a 'linear model' of scientific discovery and commercialisation
During the 1940s and 1950s, military concerns prompted governments to undertake large-scale, resource intensive, 'big science' projects, characterised by enormous budgets, large numbers of staff and investment in hi-tech machinery. Perhaps the largest and most famous of all was the Manhattan Project. Begun in 1939 and employing 130,000 people from the US, UK and Canada, the result was the world's first nuclear weapon.
In 1944, US President Roosevelt asked Vannevar Bush how wartime science and research efforts could be applied in peacetime. His landmark report, 'Science: The Endless Frontier,' essentially created the area of science policy. It focused heavily on a 'linear model' characterised by heavy investment in the process of discovery and invention followed by commercialisation in the form of new processes and products.
Science has become analogous to R&D
Over time, previously distinct definitions became conflated; in particular, 'science' became analogous to 'R&D'. This has been formalised by the codification of the OECD's definition of R&D in the Frascati manual: any project to resolve 'scientific or technological uncertainty'.
As science policy gained in political and economic importance, a standard toolkit of policies emerged. These included incentives to boost levels of R&D spending, increasing the number of people skilled in science, technology, engineering or maths (STEM), and mechanisms to improve knowledge transfer from universities to business.
UK science policy structures now encompass innovation policy
In 1992, the Office of Science and Technology (OST) was established in the Cabinet Office to oversee the activities of the UK's science base. In 1995, it became part of the Department of Trade and Industry (DTI). In 2006, the DTI Innovation Group was incorporated into the OST to become the Office of Science and Innovation (OSI). The OSI is now responsible for UK science policy and for funding basic research allocated via the Research Councils.
The UK Government has targeted an increase in R&D expenditure to 2.5 per cent of GDP
In 2004, the UK Government set out a vision to 'make Britain one of the best places in the world for science, research and innovation,' principally by boosting R&D investment from 1.73 per cent of GDP to 2.5 per cent by 2014. This is in addition to the target set in 2002 as part of the Lisbon Agenda to boost R&D to 3 per cent.
Devolved administrations and RDAs are developing science policies
The Science Strategy for Scotland set out initiatives to promote Scotland as a 'science nation', and in 2006 the Scottish Executive consulted on a new Science and Innovation Strategy. In Northern Ireland, Think, Create, Innovate was followed by the more recent Action Plan detailing six areas for action, including resourcing R&D and supporting knowledge transfer. The Welsh Assembly Government published a Science Policy for Wales focusing on the commercialisation of science and science education.
The economic strategies of all of the English Regional Development Agencies (RDAs) include policies to boost science production. They have also established Science and Industry Councils designed to bring together leaders of research communities in the public and private sectors with the wider business community.
Science ≠ innovation
Science is an important driver of innovation, but science does not equal innovation, particularly given the straitjacket of international definitions. For instance, these definitions explicitly exclude technological investments undertaken for the purposes of oil exploration and have no place for innovation that is not based on 'new-to-the-world' scientific invention – for instance, that represented by the iPod or that which takes place in financial services or in the development of low cost airlines.
This is particularly important in the UK where only 2.5 per cent of the economy is concerned with hi-tech manufacturing, and where around 80 per cent is made up of businesses in the service sector. This conflation of definitions and confusion of science policy with wider innovation policy runs the distinct danger of ignoring the types of innovation that will be most important to the UK in the coming century.
Improving knowledge production
The UK Government has increased expenditure on science
Over the last ten years the science budget has doubled to £3.4bn, and it is expected to continue increasing over the next few years. In 2007-08, the Research Councils will invest around £2.8bn in research across all academic disciplines. This is in addition to the work carried out by the Public Sector Research Establishments that spend £1.9bn on R&D.
Low investment but relatively high scientific productivity
Despite increases in funding, public sector R&D expenditure still remains comparatively low. R&D performed by the government and universities in 2004 was 0.6 per cent of GDP (down from 0.68 in 1994) compared to 0.69 per cent in the US, 0.75 per cent in Germany and 0.78 per cent in France.
However, the UK appears to be efficient at converting this relatively 'low' spend into traditional measures of academic outputs. At 11.9 per cent, the UK's share of world academic citations is second only to the US.
UK business R&D expenditure lags behind competitors
Over the last five years, UK business R&D expenditure has increased by 2 per cent to £13.4bn, either through in-house operations or extramural activity. Forty per cent of this spend takes place in the pharmaceuticals and aerospace sectors, and is dominated by six large companies. However, UK businesses still spend less on R&D than many of their international competitors. Given this, it is not surprising that the UK lags behind in patenting activity.
To help boost business R&D expenditure, the UK Government introduced the R&D Tax Credit in 2000. By 2006, 22,000 claims had been made, amounting to £1.8bn of support.
Increasing the supply of STEM skilled people
The UK faces a deficit of STEM skilled people
People with science, technology, engineering and maths (STEM) skills are necessary to generate new knowledge and to identify, adapt and use knowledge that is generated elsewhere and apply it for the benefit of UK business – something that will become increasingly important with the rise of new science-production centres like China and India.
Numbers of STEM graduates have increased but distribution is uneven
Since 1995, the total number of STEM graduates has increased by 10 per cent. However, this overall rise disguises important underlying trends – numbers of graduates in biological science, computer science and mathematical science have increased considerably, while those in engineering & technology and physical science have fallen.
Most STEM graduates don't go into STEM careers
STEM graduates possess skills that are sought in many sectors of the UK economy. In fact, only 46 per cent of STEM graduates are employed in STEM occupations, with considerable variation across subject areas: 92 per cent of medicine graduates are employed in STEM occupations compared to 31 per cent of physical/environmental sciences graduates. The lack of STEM graduates going into science careers is partly explained by potential earnings: qualified science and engineering graduates working in STEM careers earn around 10 per cent less than their counterparts working in other areas.
Potential mismatch between demand and supply
It is estimated that by 2014, the demand for science and technology professionals will increase by one fifth, compared to an increase for all other occupations of 4 per cent. Since the existence of a deep and skilled labour pool is a significant factor in multinational organisations deciding where to locate their high-value R&D, lack of STEM graduates could have significant knock-on effects for the UK's long-term economic performance.
Translating knowledge into economic success
Universities have mixed results in turning research into outputs
While university licensing activity has increased over recent years and is now worth around £40m per year, the total number of university spin-out companies has fallen with only 133 companies created in 2003/04. The performance of universities is varied with some 'not engaged in the commercialisation of IP in any substantial way', while others 'are international benchmarks of excellence'.
In recognition of this and the fact that few UK firms collaborate with universities, the UK Government set up the Lambert Review. It made a number of recommendations, including the development of model collaborative research agreements for voluntary use by industry and universities.
HEIF and TTOs are targeted on increasing knowledge transfer
The Higher Education Innovation Fund (HEIF) supports commercially-relevant research and knowledge transfer from universities to business and the public sector and has led to the creation of 22 centres for knowledge exchange. However, HEIF (at £238m) remains dwarfed by funding streams governed by the Research Assessment Exercise which therefore dominate university investment decisions.
While there are now 126 Technology Transfer Offices (TTOs) in the UK, the Lambert Review described them as being of 'variable quality', citing particular problems with their expertise in intellectual property – a vital area for commercialisation.
Other knowledge transfer initiatives have been introduced
So far, the Technology Strategy Board (TSB) has funded over 600 collaborative R&D projects between business and research communities; established 22 Knowledge Transfer Networks to transfer knowledge into businesses; and is setting up a number of Innovation Platforms in areas such as Intelligent Transport Systems and Network Security to build cross-sector interdisciplinary groups. In Scotland, the SCORE and SEEKIT initiatives have also been developed to boost interaction between industry and the science base. Foresight Northern Ireland has been established to encourage collaboration between academia and industry.
Human mobility drives knowledge flow
Undergraduates undertaking placements and graduates entering the labour market take important scientific knowledge with them to their new workplace. The UK Government funds Knowledge Transfer Partnerships (KTP), whereby businesses identify a specific problem core to their strategic development and partner with a university to recruit a KTP Associate to work on it. Equally important is the movement of people from industry into university. This has, for example, been recognised by the Royal Academy of Engineering, which sponsors universities to appoint senior industrialists as Visiting Professors.
Knowledge exchange, not knowledge transfer
R&D intensive firms in the UK typically generate as much scientific output as a medium sized university. Moreover, recent studies have demonstrated that the 'linear model' of idea production in a university and commercialisation by industry is relevant in only a very small number of cases: the reality is more about multiple exchanges of knowledge over an extended period of time. Frequently, a university is not involved at all. Recognition of this more complex non-linear process is implicitly recognised by general policies, but the linear model still tends to dominate the wider policy debate.
Ensuring that UK science policy meets 21st century challenges
Ensuring that STEM supply meets demand
Efforts to boost the knowledge base in the UK will be undermined if there is an under-supply of STEM skilled people. More students need to be inspired to study these subjects, and STEM careers must present an attractive alternative to employment elsewhere. This means employing teachers who can teach creatively, making the curriculum more relevant to students, and increasing the proportion of education that is based on the exciting process of discovery through experimentation.
More must be done to improve the communication of the value of STEM careers to students, such as providing more advice on STEM careers or building on existing initiatives such as SETNET to bring inspiring STEM role models into schools and universities.
Forge stronger links between industry and academia
Efforts to boost business demand for university R&D should be stepped up. One approach that merits attention is the Innovation Voucher scheme currently being piloted by Aston University. Based on a Dutch model, this has provided 80 high-growth SMEs with vouchers to the value of £3,000 which they are able to use to purchase academic support to improve their innovation capability.
Increasing R&D expenditure is necessary but not sufficient
Meeting the 2.5 per cent target for expenditure on R&D is theoretically achievable by increasing public and business expenditure. However, this represents only an increased input into knowledge production (albeit an important one) and carries with it no guarantee of improved quality of output. As such, the target represents a necessary but not sufficient condition for improving the UK's scientific performance. Other efforts that consider quality of research and its relevance to the UK's future competitive advantage should be given equal weight in the formation of policy.
Recognising wider innovation
Science policy is critical to the UK's future economic success but should be recognised as only one part of a full innovation policy. This wider policy would recognise the different role played by science and technology in non-science-based sectors and particularly the importance of diffusing existing technologies rather than inventing new ones. Through extending existing knowledge exchange activities, it would seek to link demand in these sectors to the productive capacity of the knowledge base. Finally, it would recognise non-science-based forms of innovation such as business processes (like mass production) or social innovation (like NHS Direct).
