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‘Failure of British manufacturing industry to remain competitive has
had serious consequences. Our manufacturing base has declined. Our home
market is increasingly penetrated by imports. Our share of world markets
in manufacturing goods is too small. The implications for our future prosperity
are grave.’ These are the words of the House of Lords Select Committee on
Science and Technology in its report entitled Innovation in Manufacturing
Industry.

In the early years of Thatcherism, high interest rates coupled with
constraints on public spending devastated manufacturing industry. In 1979,
trade in manufactured goods earned Britain a surplus of £4 billion;
in 1989 the trade balance was £15 billion in the red. And the present
recession hit many companies before they had recovered.

Whichever party wins next year’s election will face the mammoth task
of breathing new life into the manufacturing sector. But this is not a simple
case of lowering interest rates – although that would undoubtedly help.
The Lords’ report focuses on a deeper malaise. With a few exceptions such
as the pharmaceuticals and chemicals industries, British manufacturing companies
fail to upgrade their products and processes with the same vigour and foresight
as their rivals in countries such as Germany and Japan.

The great strength of these countries, and Britain’s great weakness,
is their ability to innovate – to apply new ideas. This ability stems from
well-tried systems for transferring technology from academic institutions
to industry and from one company to another.

The Lords select committee concluded in its report: ‘The only hope for
recovering our position is more innovative manufacturing . . . Only a substantial
increase in output can correct the huge deficit on our balance of trade
without a decline in the quality of life in the UK.’

A number of recent studies has reached similar conclusions. And finally
the message appears to have reached the Department of Trade and Industry.
Earlier this month, industry minister Peter Lilley proclaimed: ‘In May this
year, I identified the poor status of innovation within British industry
as a major obstacle to industrial success.’ He went on to call for ‘a cultural
revolution in attitudes to innovation’.

Lilley was speaking at the launch of an Innovation Unit at the DTI to
improve technology transfer. Its purpose is to improve the way science is
exploited, how innovation is managed, and the way companies, investors and
banks communicate with one another. Lilley also announced the creation of
a Technology Audit Scheme to help universities and polytechnics to identify
which of their technological and scientific resources might be of interest
to industry. But many industrialists, politicians and academics see this
as too little too late. They argue that the Conservative government has
done little to encourage the growth of manufacturing. The Lords committee
documents how the DTI’s support for industrial innovation over the past
decade peaked in 1985/6 at £283 million. Since then, it has fallen
sharply and will next year amount to £100 million, rising to £120
million in 1994/5.

For 1992/3, the Treasury has allocated the DTI £330 million for
science and technology. Much of this will pay for a scheme called Link,
which was launched in 1986 to promote collaboration between academic institutions
and industry. Link has met with mixed success. Companies have been slow
to come forward, rules of entry to the scheme are cumbersome and applications
are pro-cessed slowly. The DTI says that, at most, only £30 million
of the £210 million originally allocated to Link has been spent.

That manufacturing industry is vital to the health of the country is
stressed by Bob Whelan, chief executive of the Centre for Exploitation of
Science and Technology (CEST), a think-tank sponsored by industry and the
government. ‘If you want a good health service, a sound defence and good
social service, it’s the industrial base that pays for it and adds value,’
he says. So why has Britain neglected manufacturing and failed to capitalise
on the discoveries of its scientists?

The Lords select committee says that part of the problem lies in an
antipathy to manufacturing industry that runs deep in our society. This
stems from an ingrained belief that making things is a ‘second-class occupation’,
it says. ‘Our competitors in Germany, Japan and elsewhere rightly regard
manufacturing industry as a prestigious and worthwhile occupation.’

William Walker of the Science Policy Research Unit at the University
of Sussex agrees that social conditioning is a factor. He also argues that
management structures in British companies hold them back. ‘The trend in
recent years has been to try to move back towards the authoritarian relationships
of the earlier (Dickensian) period.’

‘Companies should develop an innovation mentality – one of continuous
improvement for which all employees share responsibility’, says a CEST report,
Attitudes to Innovation in Germany and Britain. ‘This means a philosophy
of joint problem solving, training, increased participation for the workforce
in consultation and decision making and flatter hierarchies,’ it continues.

Germany and Japan have created infrastructures in which innovation can
flourish. Britain has a long way to go before it can emulate their success.
On education, for example, the CEST notes that German employers are forced
by law to release employees under 18 for at least one day a week for vocational
training. This has produced a skilled workforce, able to adapt to innovative
practices and new skills.

The CEST says that Britain should introduce similar legislation because
at present, companies avoid training young recruits for fear that they will
be poached by rivals who do not train their employees.

Germany and Japan also have formidable networks of organisations which
act as intermediaries between academia and industry. These act as foci for
forming consortia which can undertake joint, ‘precompetitive research’ .

In Germany, the foremost of these institutions are the 35, applied research,
Fraunhofer institutes, the 60 Max Planck institutes, which focus on basic
research, and more than 100 institutes supported by the Federation of Industrial
Research Organisations.

What these institutes have in common is a rapid turnover of temporary
staff on secondments and sabbaticals from industry, academia, finance and
commerce. Academics and industrialists come to understand one another and
change roles easily, says Whelan. This contact builds up mutual trust. Close
contact between suppliers and customers also lessens the risks that come
with innovation; suppliers have assured markets and customers a steady supply.

The nearest thing to the academic-industrial intermediaries in Britain
are companies represented by the Association of Independent Research and
Technology Organisations (AIRTO). Its membership includes about 60 contract
research organisations (CROs), each one tied to a particular sector of industry.
The CEST judged AIRTO and its members to be the most obvious focus for technology
transfer, serving particularly the small and medium-sized companies which
it gauges as the biggest losers under the present system.

But CROs could not fill the role which, for instance, the Fraunhofer
institutes play in Germany, says John Bennett, secretary of the AIRTO. The
Fraunhofer Society, which runs the institutes, receives a large proportion
of its money from Bonn, but is free to decide how to spend it. But in Britain,
the DTI awards grants for individual projects. Bennett believes the AIRTO,
in conjunction with its members and industrial customers could identify
much more readily than the DTI, those areas where pre-competitive research
would bear commercial fruit.

Bennett also criticises the government policy of withdrawing funding
for what it defines as ‘near-market’ research. He says this decision has
left an innovation gap. ‘If it’s too ‘near-market’, government won’t touch
it; if it’s too far (from commercialisation) industry won’t fund it,’ he
says.

Even if the correct educational and structural frameworks are in place
to promote innovation, people still need the money to fund it. The Confederation
of British Industry says, for example, that high interest rates are discouraging
firms from borrowing to finance R&D.

But, in a recent report, Competing with the world’s best, the CBI also
lambasted the financial establishment – particularly the Treasury and the
Bank of England – for being out of touch. ‘Officials appear handicapped
by a combination of poor information, lack of first-hand understanding of
the realities of manufacturing and an apparent mistrust of outsiders,’ it
said.

There are, however, signs that the City is changing, but slowly. The
National Westminster Bank, for example, claims to be the only bank with
a dedicated technology unit, set up in 1989. It has technology consultants
throughout Britain who recommend referees who are well placed to judge the
viability of technology-based projects.

The inadequacies of the present system for transferring technology,
including the conversion of military technology for civil use, are now taxing
the main political parties. They have all pencilled in manufacturing high
on their election manifestoes. The CBI recently compared the policies of
all three and found itself least closely aligned with the proposals of the
Conservative Party, traditionally its ally.

This point was echoed by Peter Morgan, director-general of the Institute
of Directors, another champion of Conservative ideals. In a speech last
month he said: ‘Free market forces are not by themselves a sufficient spur
to innovation. The central public policy issue is to have a national R&D
strategy which will serve the needs of British industry.’

Both the Labour Party and the Liberal Democrats have wide-ranging and
ambitious plans to rejuvenate industry through innovation. The Labour Party,
for instance, backs tax relief on R&D, and both opposition parties back
regional technology transfer centres. The Liberal Democrats also favour
using the AIRTO and its members as intermediaries for technology transfer.
The Labour Party, after consulting the AIRTO, is still thinking about it.

The CBI has just begun a review of its policy on innovation and technology
transfer. Fiona Steele, head of the CBI’s Technology Unit, says the review
will form a central plank of the confederation’s policy and will be launched
next February. This, she said, is ‘to make sure that manufacturing industry
does not slip off the election agenda’.

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JAPAN’S BIG LEAGUE COMPETITION

Competing against Japan in high-temperature superconductivity research
is ‘like playing football when the Japanese have eleven players and Britain
has two,’ says Neil Alford of ICI. Alan Hooper of AEA Industrial Technology
thinks Britain’s handicap is even greater: ‘The Japanese eleven aren’t asked
to manage the team too.’

Alford and Hooper visited Japan in a team of experts on superconductors
sponsored by the Department of Trade and Industry. They found that Japan’s
spending on superconductivity research has rocketed, partly because the
country has small energy resources and superconductivity holds the promise
of large energy savings. This year it will spend 17 065 million yen ( £76
million), four times more than in 1987. In addition, ‘four-fifths of R&D
in Japan is private-sector funded’, says Gordon Donaldson of the University
of Strathclyde who led the British team.

By contrast, the DTI and industry spend £16 million a year and
the Science and Engineering Research Council £2 million a year on
superconductivity research. India spends about the same as Britain.

Despite intense competition in development and marketing, Japanese companies
see cooperation as essential at the research stage. When companies want
to exploit a new technology, they get together to form an association which
carries out ‘precompetitive research’, says Donaldson.

He cites the Research and Development Association for Future Electron
Devices, set up by 15 companies. As well as a journal for refereed papers,
the association has a programme of research on bioelectronic devices that
will run until 1996, and another on high-temperature superconductors running
until 1997.

Once an association has been set up, its staff prepare a brief on the
work it might do. The members prepare estimates of how much profit they
could make from the projects, and the association proceeds with the most
lucrative.

High-temperature superconductivity’s association is the International
Superconductivity Technology Centre. The 112 ordinary members have to pay
£10 000 to join and £10 000 annually. Nearly 50 special members
pay about £500 000 to join and £60 000 annually – for which
they can send a researcher to work at the centre for two years. Donaldson
says the companies seem to benefit more from making contacts with each other
than from the research itself.

Alford says the hierarchical culture is still very strong in Japan.
The rule that one must always defer to senior staff discourages lateral
thinking. Some Japanese companies even send researchers to Europe to learn
how to talk back to managers.

Elisabeth Geake