14. Recognition of the importance of innovation to industrial competitiveness has become widespread. The last Science and Technology Committee noted in 1994 that "there is an increasing recognition of the importance of innovation and technology in international competitiveness".[34] Academic study and industrial experience both support the case that innovation can have a fundamental impact on competitiveness. A 1998 study of 15 OECD countries found that "the main factors influencing international competitiveness and growth across countries are technological competitiveness and the ability to compete on delivery".[35] Similarly a separate study found that "Countries which have a large number of industries by international standards in which they have a high rate of innovation tend to experience a systematic appreciation of their currencies over long periods, while less innovative countries witness persistent trade deficits and long-term currency depreciation".[36] As Richard Freeman, Corporate Chief Economist at ICI, has noted, there is now a general consensus that technological change is important for a country's long-term growth.[37] Company chief executive officers serving on the US Council for Competitiveness have identified "gains in product, process and management innovation as the key driving forces" behind the upsurge in US competitiveness since the late 1980s.[38] A survey of UK businesses found that 74% of companies regarded innovation as very important with the remaining 26% regarding it as quite important.[39]

15. Industry has always innovated to succeed: to stay one step ahead of the competition by creating new markets, by anticipating customer needs and by offering new or better products and services. The 16th century scientist and philosopher Sir Francis Bacon, in his essay Of Innovations, pointed out that "He that will not apply New Remedies, must expect New Evils: for Time is the greatest Innovator". In the modern economy, however, innovation has become essential not only for commercial success but also for commercial survival. Globalization and the reduction of trade barriers have diluted the concept of a home market and forced major companies, and increasingly small and medium-sized enterprises as well, to compete on an international stage. Falling birth rates and an ageing population mean that economic and tax burdens must be borne by an ever-decreasing proportion of the population. This puts greater pressure on the private sector to increase productivity and on the Government to increase efficiency. More significantly, huge advances in communications and information technologies have accelerated the pace of change. These factors result in an intensifying cycle of competition with profound implications for economic performance and thus for employment and quality of life. Many of our witnesses agreed. Professor Hutchinson of Cranfield University, for instance, told us that, more than ever, industrial growth is dependent on technological change, and IBM, among others, argued that "technology and product innovation are essential to business growth and performance".[40] The Government, too, has repeatedly stated its belief that "innovation is vital to business and wider economic growth".[41] In Our Competitive Future, the Government stressed that, in a global economy, where capital is mobile, new technologies spread rapidly and goods can be mass-produced in low cost economies and shipped to developed markets, "our success depends on how well we exploit our most valuable assets: our knowledge, skills and creativity".[42]

35  J Fagerburg, International Competitiveness, Economic Journal, Vol 98, No. 391. Back

36  J Cantwell, Technological Innovation and Multinational Corporations, 1989. Back

37  R Freeman, Innovation and Foresight, Office of Science and Technology, 1994, p. 4. Back

38  Charles F Larson (Executive Director, US Industrial Research Institute, Inc), Technological Innovation and Global Competitiveness in the United States, 1997. Back

39  Innovation Advisory Board, Getting the Message Across: Improving Communication on Innovation between Companies and Investors, 1993, p. 4 (from a survey conducted by Bain & Co.). Back

40  Ev. p. 289. Back

41  HM Treasury and Department for Trade and Industry, Innovating for the Future: Investing in R&D: A Consultation Document, 1998, para 1.08. Back

42  Our Competitive Future, p. 5. Back