Article - Issue 25, December 2005
SET in the city
Sir Peter Williams CBE FREng FRS
Sir Peter Williams CBE FREng FRS
The 2004 spending review highlighted Gordon Brown’s commitment to science, engineering and technology (SET) in the UK. But, with only forty ‘technology’ businesses currently in the FTSE 350, Sir Peter Williams asks what information encouraged Chancellor Brown to take such a gamble?
“Of what use”, the great German astronomer Johannes Kepler was once asked in the late 1590’s, “is all your astronomy to a hungry belly?” The great man was dismissive of such sentiments, but fast forward to the 21st century and we might ask much the same question again.
Along with virtually everybody else throughout the world of Science, Engineering and Technology (SET) in the UK, I welcomed warmly Gordon Brown’s plans for SET in the 2004 spending review. Increasingly, however, I am conscious of an uncomfortable responsibility we all now share to ensure that this enlightened measure is seen in future years to have delivered value to society.
So what is ‘value to society’? Kepler pointed to cultural benefits. “Men suffer painters because they gratify our eyes, musicians because they charm our ears, yet they serve no other useful purpose.” Hence his perhaps self-serving justification that “likewise,we must not ask why mankind devotes so much effort to penetrating the secrets of the starry skies”.
But the Chancellor of the Exchequer’s commitment to SET is not because he is a philanthropist. He has his eyes on hard figures, not starry skies. A glance at the state of the nation’s finances will reveal that he has precious little wriggle room right now as growth forecasts are cut and high street spending retreats from its summer spree. So the increased expenditure on SET can only be seen in the context of a calculated gamble by Gordon Brown on the nation’s future economic competitiveness and prosperity.
But what evidence is there of any synergy of purpose between SET and business? A timeless piece in the Financial Times ‘Lombard’ column a little over a year ago, entitled ‘Creative Capitalist Destruction in Action’, noted that there were now only four ‘engineers’ in the FTSE 100. A recent ETB study reveals only around forty ‘technology’ businesses throughout the FTSE 350, so where is the wealth from SET being created – if at all?
Adding in biopharmaceuticals and oil, of course, paints an altogether rosier picture though, in contrast, recent rates of return on smaller venture capital investments in technology stocks have been disappointing. Overall, is the City therefore right to be wary of technology?
That they are wary is, I believe, beyond doubt. US pension funds have always invested between five and ten times as much in venture capital as a proportion of total funds compared with their UK counterparts. Here, in the corporate world I inhabit, the talk is not of risk investment for the future, but of International Accounting Standards 19 and FRS17 pension deficits. And yet the City has backed the hedge fund markets with billions in recent years – decisions which may yet return to haunt them. Why offer such a warm embrace for what now seem the riskiest of financial ventures and yet shun the complexities of high technology?
Part of the answer lies, I believe, in the shape of the UK economy – in recent years, the envy of Europe. It is sectors such as support services and finance, however, that are leading – as much as big pharma, aerospace and defence. SET therefore needs to redefine its role in such an economy.
Here I see good news. While there may, arguably, be only four FTSE 100 ‘engineers’, there are over twenty FTSE 100 companies led by an individual with a background in SET, larger than any other single professional group. Physicists, engineers and mathematicians power the back offices of our successful investment banks and insurance companies – in effect, every business today is a technology business.
Yet numbers on our SET degree courses continue to fall, while China graduates over 600,000 scientists and engineers every year! The challenge for SET is therefore a dual one of fuelling all sectors of the economy with skilled people and at the same time persuading the capital markets that sustainable wealth can be created in technology businesses.
The threat, I believe, is that if we do not compete in both, the emerging economies in Asia will not be content in years to come to cede today’s disproportionate share of high-value services to the City of London.
So, a SET based, diverse economy built on defensible intellectual leadership, or an increasingly frantic, derivative-driven attempt to continue to make something out of nothing? I believe we have no choice but to pursue a future with science and engineering as the cornerstone – if we still aspire, that is, to the civilised enjoyment of music, paintings, and the contemplation of the starry skies.
BIOGRAPHY – Sir Peter Williams CBE FREng FRS
Sir Peter Williams became Chief Executive of Oxford Instruments in 1985, Chairman in 1991 and retired in 1999. He is Chairman of the UK’s Engineering and Technology Board, and of the National Physical Laboratory. In addition, he is a non-executive director of GKN plc and of WS Atkins plc.