The size and structure of British technology activities: What we do and do not know

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  • Seientometrics, Vol. 14, Nos 3-4 (1988) 329-346

    THE SIZE AND STRUCTURE OF BRITISH TECHNOLOGY ACTIVITIES:

    WHAT WE DO AND DO NOT KNOW

    K. PAVITT

    Science Policy Research Unit, University of Sussexj Mantell Building, Falmer, Brighton, East Sussex, BN1 9RF (UK)

    (Received January 21, 1988)

    As a result of official, private and university initiatives, indicators of British technological activity have improved considerably over the past 30 yeats. They reveat strong similarities to other Western, industriahsed countries in the type of activity performed, in its relative concentration within business f'maas, and in its distribution amongst sectors and firms of different sizes. They also reveal a relatively low level and rate of growth of technological activities, with relative strength in aerospace and chemicals, and decline and weakness in electronics. These patterns result in large part from decisions about technology strategy taken by not much more than a handful of large fh'ms.

    Purpose and structure

    In this paper, a variety of indicators are used to describe and compare the volume

    and structure of, and trends in, technological activities in the UK. After a brief review

    in section 2 of the development of technology indicators in the UK, section 3 looks

    at the broad characteristics of technological activities that are similar to those in other

    OECD countries. Section 4 then discusses those aspects that are different, and the

    effects they might have had on Britain's economic performance. Section 5 briefly

    identifies subjects where better statistics on technology would help advance policy

    and underlying theory.

    There will be no separate section discussin.g the strengths and weaknesses of the various measures of technological activity; these will instead be taken up when they

    are relevant to particular points of interpretation (for a fuller discussion, see Bosworth; s OECD; 36 Soete and Wyatt; 58 Patel and Pavitt; 4~ Pavitt4a ). Perhaps more importantly,

    1 shall not explore in detail the very important contribution of data collection, not to the verification of existing theories, but to the emergence of puzzles, the explana-

    Scientometrics 14 (1988) Elsevier, A msterdam-Oxford-New York A kaddmiai Kiad6, Budapest

  • K. PAVITT: BRITISH TECHNOLOGY ACTIVITIES

    t.ion of which has led to significant modifications to (often implicit) theories about the nature and sources of technology. Suffice here to mention briefly two examples.

    I. The sectoral distribution of patenting in the UK - and in other countries - shows a much higher share of technological activity i n machinery and instrumenta- tion than the sectoral distribution of R&D activities. The reason appears to be that R&D statistics capture only imperfectly two important sources of technology for pro- duction - the production engineering departments of large firms using capital goods, and the design offices of small firms supplying them. ~ 1 ,s 0

    2. Expenditure on the purchase of foreign technology in the form of patent and know-how licences represents - in the UK and other OECD countries - only a frac- tion of indigenous R&D expenditures; and the proportion of significant innovations explicfly identified as of foreign origin is small compared to apparently indigenous innovations. This is because a high proportion of international technology transfer involves no formal transaction between buyer and seller, but takes place through "reverse engineering", where foreign product innovations are stripped down, analysed, modified and reproduced on the basis of indigenous R&D facilities. 31,46,29 Amongst other things, this means that it is mistaken to take expenditure on the international purchase of licences as a comprehensive indicator of technology imports, and domestic R&D as an indicator simply of the development of original, indigenous innovations.

    Historical development of technology indicators

    The last thirty years have seen considerable imProvements in the quality and quantity of statistics on British technological activities. This has reflected the increas- ing proportion of national resources spent both on training scientistsand engineers, and on the activities-that occupy them. - in particular, on research and development (R&D) activities. It has also reflected the growing recognition of the importance of technology as a source of increased productivity and competitiveness. ~ ~,s 6,49.,1 s As a consequence, UK government statisticians regularly publish the results of surveys of R&D aeUvities inBritish fLrms,, and of Britain's international receipts and payments for technology in the form of patent and know-how licences. (For thorough descrip- tions of UK statistical sources on technological activites.68, 8 For more recent sources, see the Appendices in Patel and Pavitt4~ 41).

    However, British governmental agencies can hardly be described as having pioneered the development and use of R&D and other technology- related statistics. The main impetus came from the USA, where in 1953 the National Science Foundation (NSF) began to undertake surveys of government and business expenditures on R&D acti- vities. The first official UK survey of business R&D was undertaken by the Depart-

    330 Seientometrics 14 (1988)

  • K. PAVITT: BRITISH TECHNOLOGY ACTIVITIES

    merit of Scientific and Industrial Research (DSIR) in 1955, followed by another in 1958.1 a,14 In the early 1960s, the UK responded to a US initiative at the OECD (Organisation for Economic Cooperation and Development)to establish a common standard for the measurement of R&D activities (the so-called "Frascati Manual"), and agreed to work towards regular surveys on this basis. With the establishment of the Ministry of Technology by the Wilson Government, the late 1960s saw a consider- able improvement in the regularity and detail of official statistics on technology-related activities.~ a - 6 s

    However, interest in such statistics - and the resources available for their collec- t ion - started to wane in the early 1970s, so that their quality and timeliness, began to deteriorate so much compared to OECD best practice that, by the early 1980s, the House of Lords Select Committee 26 complained strongly about the infrequency of statistics on R&D in British firms. Since then, there have been welcome signs of improvement, Surveys of R&D activities in British firms are being undertaken more frequently; and the Government has started to publish annual and more detailed ana- lysis of the R&D activities that they finance themselves, and to respond to the mount- ing pressure to make the disclosure of R&D expenditures mandatory for publicly quoted companies (UK Government White Paper, 1987).

    At the same time, private institutions and British scholars have made significant con- tributions to the development of British statistics on science and technology, as part of their broader interest in science and technology policies. In particular, the Federa- tion of British Industries (FBI) carried out in 1935 the first survey of British industry's expenditures on research. Thereafter in 1939, J. D. Berrud was able to make the first estimate of Britain's total expenditures on scientific and technological activities. Freeman 19 has recently underlined the importance of Bernal's and Julian Huxley's contribution 'to better understanding and measurement of the British system of sci- ence and technology. At the same time, he points to the underestimation - common in that period - of development in contrast to research expenditures in the produc- tion of technology. As a consequence, he concludes that: "a closer approximation to the .'true' comparable figures of R&D as a fraction of national income woald probably be 0.3 to 0.4 percent in 1934 in the UK, 0.6 to 0.7 per cent in the USA in the same year, 0.2 to 0.3 percent in the early 1930s in the USSR rising to 0.4 to 0.5 percent by the late 1930s. ''I 9 Today the equivalent figures are greater than 2.0 percent.

    After World War Two, Carter and Williams undertook pioneering surveys of technicalchange in British industry. 9-11 And in the early 1960s, Freeman 2~ ran the second independant survey of British industry's R&D on the behalf of the FBI, made some of the first international comparisons of R&D activities, 16,21 and wrote the Frascati Manual for the OECD. 17 He also became the first Director of the Science Policy Research Unit (SPRU), where he gave high priority to the collection and ana-

    Scientometrics 14 {1988J 331

  • K. PAVITT: BRITISH TECHNOLOGY ACTIVITIES

    lysis of science and technology statistics, In particular, with Townsend he started to collect systematic data on the characteristics of significant innovations commercialised in the UK after 1945; by 1985, this SPRU Innovation Survey contained information on more than 4000 innovations commercialised up to 1983.1 s ,61 ,s 3 He also encouraged his colleagues to develop and use other data sets, including those supplied by the US Patent Office on patents granted in the USA, broken down by country of origin. This same source has recently been used by Narin and Olivastro 3 s in a study sponsored by the I)epartrn#nt of Trade and Industry, to identify sectors of British technological strength.

    Main characteristics of British technological activities

    R&D statistics and other proxy measures show that Britain's technological activi- ties are similar to those of most other OECD countries in the following characteristics: locus and type of technological activity; and distribution amongst sectors, and amongst firms in different size categories.

    Locus

    As in all advanced Western industrialised countries, British technological activities are located mainly in business firms (61% of the totat in 1983), with supporting activities in higher education (14%) and government laboratories (22%). 3s Notwithstanding the predictions and prescriptions of two Nobel Prize-winning economists (Stigler, 6~ Arrow2)and the practice of centrally planned countries in Eastern Europe, inde- pendent contract and cooperative laboratories still account for a very small propor- tion of total business R&D expenditure in the UK and elsewhere in the OECD. Mower), 32 explains this in terms of the specific and often tacit properties of techno- logical knowledge, and the uncertainty associated with its development. As a consequ- ence, contracts between independent agents are difficult to define and enforce, so that hierarchies are superior arrangements to markets.

    Nature of technological activities

    These properties of course reflect the nature of the activities that produce them. In Britain and other OECD countries, well over half the 'R&D' activities performed in business are in fact "D" - undertaken with the purpose of designing, building and testing specific prototypes (for products) or pilot plants (for processes). In the chemical and electrical/electronic industries, the proportion of expenditure on "R" is higher, not unsurprisingly given their stronger science base. However, even here scientific theory in not sufficiently well developed in its understanding and powers of predic-

    332 Scientometrics 14 (1988,1

  • K. PAVITT: BRITISH TECHNOLOGY ACTIVITIES

    tion to replace costly development expenditures undertaken to define and test full. scale technological prototypes. 47

    No systematic information is available on the links between basic science and industrial application in Britain, although the techniques and data bases developed by Narin and his colleagues for identifying citations in US patents to published journals seem to offer the most promising eventual source of such information)4 His recent report with Olivastro a 5 suggests that British public sector research has been more relevant to application than the conventional wisdom would have trs believe: in particular, the two most widely cited US patents of UK origin since the late 1970s, resulted from government funded R&D in public laboratories (see Pavitt, 47 for further discussion).

    Studies in Canada, Israel and the USA have shown that R&D expenditure statistics cover only part of the total costs of an innovation.S 9,30, 27 In particular, they do not measure production engineering (PE) activities for the design of manufacturing systems, or marketing for the launching of product innovations, According to these studies, the breakdown of these expenditures averages out as follow.~:

    Research 19-20% Development 30--40% Production Engineering (excluding normal investment) 30-40% Marketing 10-20%

    No similar studies have been undertaken in the UK although, as mentioned earlier, production engineering activities are an important source of tefhnical change in up- stream capital goods. Both practitioners and historical scholars ~3 argue that British business has traditionally been weak in such production-related technologies. Recent analysis of British-based patenting in the USA suggests that such weaknesses still exist, since it shows that automobile firms in the UK - unlike those in Germany, Italy and Japan - make no measurable technological contribution to their underly- ing production technologies. 41

    The sectoral d&tribution of technological activity

    As in other OECD countries, UK business enterprise R&D is heavily concentrated in manufacturing, with just five sectors (chemicals, mechanical engineering, electrical and electronics including instrumentation, automobiles and aerospace) accounting for 80% or more of total expenditure. Broadly similar sectoral patterns emerge from the distribution of patenting, 61 and of significant innovations, s 3 Other industries benefit from the impact of the technological advances in these active industries through a dense network of inter-industry purchases and sales of equipment, materials and components. As Table 1 shows, there are similar intersectoral patterns in the USA,

    Scientometrics 14 (1988) 333

    11

  • K. PAVITT: BRITISH TECHNOLOGY ACTIVITIES

    Table 1 Comperison of sectoral patterns of technology production

    and use in the UK (1070-79) and the USA (1974)

    % of all technology produced % of all technology used

    UK US UK US

    Core sectors 68.3 62.8 18.3 18.8 Secondary sectors 20.6 23; 9 16.4 12.7 Other manufacturing 8.3 12.0 26.0 11.4 Non-manufacturing 2.9 1.3 39.4 57.1

    All groups 100.0 100.0 100.0 100.0

    Sectoral groups: Core sectors include chemicals, machinery, mechanical engineering, instru- ments and electronics.

    Secondary sectors include metals, electrical engineering, shipbuilding/offshore engineering, vehicles, building materials, rubber and plastic goods.

    Other manufacturing includes food, aerospace, textiles, paper, printing. Non-manufacturing includes agriculture, mining, construction, utilities, transport, business,

    R&D, other services, health care, defence, other government services, final consumers. Source: Robson et al. (1988).

    with non-manufacturing benefitting considerably from embodied technology purchased

    from elsewhere. In the UK, the p...