3.1 We have drawn up a programme for advanced information technology costing some £350m over a five year period. The case for this programme rests upon five main propositions. First, the world IT market is one of major growth. The UK needs to capture the largest possible share of this market, but on current trends our share will decline (See A Strategy for Information Technology: a report to the NEB by PACTEL. 1981). Secondly, a necessary, though not a sufficient, condition for reversing this trend and increasing our world market penetration is that we have competitive levels of achievement in certain fundamental enabling technologies. Thirdly, these enabling technologies, and the infrastructure and systems which connect and exploit them, can be identified now. Fourthly, we require a strong domestic capability in these technologies since we cannot depend upon other countries supplying them. Fifthly, to achieve the capability a national collaborative effort is required. This means Government backing. This Section presents the evidence and arguments for each of these propositions.
3.2 The enormous potential growth of the world IT market is widely recognised. Current growth is of the order of 10 per cent per annum (See Towards a European Strategic Programme for Research and Development in Information Technologies: European Commission, May 1982). Recent forecasts predict on current trends a total world market heading for £150B by 1990. The need for the UK to capture the largest possible share of this market is generally accepted by industry and by Government. There are some 900,000 jobs now in the UK IT industry broadly defined, including some 150,000 in the computer, telecommunications manufacturing and office equipment sectors (DOI response to Chilver Report for the Economic Development Committee for the Electronics Industry. 1981). These and the additional jobs which can be created in the industry are potentially at stake unless there is a substantial improvement in the industry's competitive position. For, on current trends again, it has been calculated that the UK's adverse balance of trade in IT products could reach £1B by 1990. Urgent steps are needed to improve our general competitiveness in IT.
3.3 Our basic economic situation dictates that we must become a net exporter of high technology, high value-added products; IT is the prime example of this. Moreover, unless our IT industry achieves a strong world competitive position, then the efficiency of our other industries in manufacturing and services will suffer. Their capacity to be advanced users of IT has a close synergy with the level of performance of the IT industry itself. It is vital that Government adopts clear national objectives of achieving a positive trade balance in IT by 1990, and at least preserving the current level of employment in the IT industry. Our programme is designed to contribute to these goals.
3.4 Without a world class technology base including advanced design tools our industry will be unable to compete. It is not the sole condition for success; a full understanding of IT user needs and the translation of the technology into competitive products and systems to meet those markets are vital too. But without the technology base none of this can happen. In the IT sector technology is the key to competitiveness. The rate of technological advance is so rapid that it is reckoned that around half the products which are on the market today did not exist three years ago. This rate of change shows no sign of slowing. Indeed in world terms the IT industry is on the edge of breakthroughs on several technological fronts which collectively could transform the foundations of the industry. There has been an enormous reduction in recent years in the cost of storing data digitally, and to a lesser extent of manipulating it. This reduction in cost will continue leading to more and more applications becoming economic.
3.5 The issue before us is stark. We can either seek to be at the leading edge of these technologies; or we can aim to rely upon imported technology; or we opt out of the race. The latter we do not regard as a valid option. Nor is reliance upon imported technology practical as a general strategy, though we cannot be completely self-sufficient either. We consider this below. The only sensible option, in our view, is to share in the future growth and development of the world IT sector, by building up our technological strengths in specific targeted priority areas, which will maximise our prospects of exploiting the opportunities available. Our programme is geared to meet this requirement.
3.6 We see these priority areas as basic enabling technologies. We have had little difficulty in identifying them or the associated infrastructure and systems which link them. In fact there is a general consensus on the areas which need to be covered. Necessary for any electronic based activity is secure access to world class software tools and technology together with the design tools and technology for Very Large Scale Integration (VLSI). Also essential for IT is a leading edge knowledge of handling information - especially what is now developing as Intelligent Knowledge Base Systems (IKBS) - and of the interaction of man with machine (MMI). The reasons for selecting these areas and the programmes to promote them are given in Section 4.
3.7 In each of these enabling technologies we must develop a strong and competitive UK capability. We cannot rely upon overseas technology for several reasons. First, we already have a large investment of manpower and capital in the current generation of these technologies both in industry and in research. For example, the UK computer industry invested 16 per cent of its turnover in R&D in 1978, the most recent year for which figures are available; this compares with 1-2 per cent for manufacturing in general (DOI triennial survey of R&D expenditure, 1979). The technical leadership of our software industry is well known. Encouraged by Government, the UK electronics industry has invested heavily in integrated circuit technology and has several notable current achievements. In the IKBS field the level of activity in the UK is low at present, but we have a number of internationally recognised research schools. We have major technical strengths in IT, though they are not always effectively focused. Relying upon overseas technology would mean abandoning these strengths and seeing them dissipate. We should build on these strengths, not let them wither.
3.8 Secondly, to be effective a policy of absorbing technology generated overseas would itself require maintaining our own capabilities at a relatively high level. The areas of technology with which we are concerned are inherently difficult and complex. As a general rule they cannot be intercepted except through indigenous expertise to track and transfer the technology. In specific areas it is sensible to use overseas technology where it is available; and to collaborate with other countries in the creation of new technology. We do not exclude this. However, this supports, rather than rules out, the need for a domestic capability.
3.9 Thirdly, IT equipment and systems manufacturers in the UK need secure access to the enabling technologies and to advanced design tools and components if they are to compete in world markets. However, the market in many of these technologies, tools and components shows signs of becoming increasingly restricted. If there are not UK sources for these items, the domestic equipment and systems industry will be dependent upon foreign suppliers, many of whom are their direct competitors. In these circumstances they could not be sure of obtaining the up to date technology which they require or at least of obtaining it on the right terms. Relying upon overseas sources could leave us dangerously exposed, and be highly prejudicial to our civil and our defence IT industry.
3.10 The only option is to have a domestic capability in the enabling technologies. To achieve this a coherent programme is necessary. This must be a national effort based upon collaboration. Collaboration is essential for several reasons. First, as stated, the technology is intrinsically difficult and complex. No single organisation has the know-how to make sufficient progress on its own. Secondly, no one organisation has sufficient spare resources either in money or in particular in skilled manpower to tackle independently the high risk and long lead time type of projects which are involved. Thirdly, there are sufficient technical strengths collectively in the UK to pursue these technologies successfully. However, these strengths are widely scattered in industry, the academic sector and research organisations. Compared with our competitors our overall effort is badly fragmented. The interface between industry and the research community is nowhere near as productive as it is in the US, for example. And our industry does not collaborate on basic research to the same extent as in Japan. The technical assets which we possess are not as well mobilised as they need to be if we are to match the competition. A collaborative effort can help achieve this. We have been impressed by the increasing recognition of this in many sections of industry and elsewhere. Also, many of the technical areas concerned need to be tackled simultaneously from more than one angle; the best line of approach will often not be known in advance. This form of co-operative working depends upon the sharing of information and results, and the existence of confidence and trust between the rival teams. This is possible only within a collaborative framework.
3.11 Government support and a high ratio of Government funding are seen as necessary conditions for this collaboration. In spite of the mounting awareness of the need to collaborate there are basic issues of commercial interest, exploitation and industrial property rights which will inhibit firms from freely sharing with their competitors work which they have funded themselves. Launching a collaborative programme will forge new attitudes and relationships which may in due course diminish the support required to achieve collaboration, but in present circumstances a high level of Government support is seen as essential. The overall cost and funding of the programme are examined in more detail in Section 5.
3.12 The programme includes basic research in the enabling technologies, and development of infrastructure, tools and demonstrators to exploit them. These are pre-competitive activities where there is particular scope for collaboration. Collaboration becomes easier the further it is from a product which is to be sold in competitive markets. Collaboration on pre-competitive activities is consistent with a fiercely competitive approach thereafter. This is a striking feature about the Japanese pattern.
3.13 Under our proposals it will be for individual companies to exploit the results of the programme in wholly competitive conditions, applying commercial judgements on market opportunities. This will be strongly encouraged. Also, exploitation will occur at an early stage during the programme and beyond. There is no question of having to wait. Exploitation can be expected early on as a result of individual companies taking the decision to invest in the development of new products embodying the technology emerging from the programme. We have no doubt that this can take place on a significant scale.
3.14 The greater the level of Government support for the programme, the more its results are public property which can be made generally available for exploitation by British industry. This is a major consideration. It is vital that there should be maximum access to the programme and that its results are made as widely available as possible, in order to raise our overall IT capability. If Government does not contribute the lion's share, then companies which have provided funds will understandably insist upon sole rights. A large measure of Government support is an essential feature of the programme. It is the basis for collaboration, and it also provides more opportunity for effective commercial exploitation.
3.15 This is particularly relevant as far as the small business sector is concerned. The potentially stimulating effect of the programme upon such companies is one of its major attractions. We believe that many such companies could benefit enormously from joint research activities with other companies, large and small, and with academic researchers. They currently lack the resources to do adequate research. Even more important could be their role in exploiting the results of the programme.
3.16 To recap, the programme is based on collaboration on precompetitive activities, making maximum use of our technical strength in the UK with the results available to UK industry for commercial exploitation. Industry will benefit through participation in the research and other projects designed to build up the enabling technology and through access to the results of these. There will be benefits to the research community by virtue of the creation of a wide range of worthwhile and challenging research programmes, and by the improved harnessing of their activities to industrial objectives. This will help to halt, and even reverse, the current brain drain of some of the country's best researchers. There will be a cost to Government, but this will not be as great as it might be because of the collaborative nature of the programme. This will eliminate duplication of support and provide a cost effective way of deploying public funds. Supporting organisations on an individual basis ad hoc without any overall programme would be less cost effective. The benefit to Government, and to the community in general, will be a more firmly based and potentially more competitive IT industry.
3.17 The programme which we have drawn up is geared to the UK's needs. We have assessed our own strengths and requirements, and constructed a programme and a method of operation matching them. However, we have taken account of recent developments in Japan, the US and, to an extent, elsewhere in Europe. These pose a serious potential threat to the UK. They also provide a yardstick of the scale and type of effort required. But they do not determine what we should do. It is a trap to assume that we should automatically follow what others are doing. Two points are relevant, however. First our competitors are now investing heavily to strengthen their future IT capabilities through collaborative action. Secondly, the national programmes which they are launching offer only a limited opportunity for profitable UK participation. These two points reinforce the case for our programme.
3.18 Japan's Fifth Generation Programme represents a co-ordinated national effort by the Japanese to achieve a world lead in computer and computer related technology by the end of the decade. We understand that the Japanese Government will be providing 100 per cent funding of basic research and that £24m has already been approved for 1982-84. Government support during 1985-88 as the Programme moves towards the development phase will be 50 per cent, and a Government contribution of between £60m - £100m is expected. The view of many observers is that the Government's expenditure could be far higher than this, but that the actual spend will not be disclosed. The Fifth Generation Programme is the most recent in a series of national IT projects in Japan which have contributed enormously to Japan's rise as a leading world producer. Previous joint Government-industry programmes, some of which are on-going, include VLSI (£77m), Pattern Information Processing Systems (£45m), High Speed Computers (£82m over 7 years), Operating Systems (£82m over 4 years) and Optoelectronics (£45m over 7 years). Last year the Japanese issued a general invitation to other countries, including the UK, to discuss participation in the Fifth Generation Programme. A selective approach, whereby we collaborate with Japan on specific projects may well make sense; this option should be kept open. Our programme would put us in a far stronger position to exercise this option.
3.19 In the US, Federal Government support for IT is currently extremely high. According to studies carried out for the European Commission, R&D expenditure for electronics and related technologies in the US in 1981 reached $1O.8B, of which 49 per cent was provided by Government. Much of industry's R&D is financed by the US defence programme. Two examples of joint US Government-industry programmes are Very High Speed Integrated Circuits (VHSIC), with Government funding of $21Om over 6 years, and Integrated Computer Aided Manufacture with Government contributing $100m over 5 years. In addition to these, several all-industry collaborative ventures have recently emerged reflecting the US industry's concern at the threat from Japan and a growing awareness that to match them technically pre-competitive collaboration is necessary. Many of the US's leading IT companies, including IBM, are involved in these ventures.
3.20 A similar motivation underpins the current ESPRIT proposals from the European Commission. A collaborative UK programme, along the lines which we have proposed, would assist in feeding in the UK input to any EEC programme, not least by widening the range of potential UK participants to include the small and medium sized businesses which would otherwise tend to be excluded. Whatever the potential value of ESPRIT, we are clear that it is not a substitute for a UK programme; rather a UK programme would help us participate more effectively in any European one. This is clearly the view of the French Government, as they have recently embarked upon a major national IT programme, along with their involvement in ESPRIT.
