The knowledge economy
Britain has a proud history as a great trading nation. We were the first industrial power - the workshop of the world. Great inventions have ‘made in Britain’ stamped all over them. We are a creative, innovative, adventurous people.
Today we need that spirit of adventure more than ever. We need to face up to a new challenge – the challenge of new information technologies.
To succeed we have to be quick on our feet. We have to embrace the Internet now - not in a few years time. Most of all, if we are to succeed, knowledge and how we use it need to be at the heart of all that we do.
So, to individuals I say get skilled: your future depends on it.
To British business; a blunt message: if you don’t see the Internet as an opportunity, it will be a threat. In two years time the Internet could be as commonplace in the office as the telephone. If you’re not exploiting the opportunities of e-commerce, you could go bankrupt.
To budding entrepreneurs in Britain and abroad I say: this is the place to make your money. Help make Britain a rival to anywhere in the world. Come and make Silicon Fen truly a rival to Silicon Valley.
The new role for government
I know that for many people, this is a frightening vision. They feel left out by new technology, threatened by a younger generation who have grown up on-line. I understand those fears. But we can’t turn our backs on change. If we do, the world will not wait for us, it will overtake us.
Of course one response would be to let people fend for themselves. We cannot let that happen. We cannot tolerate the creation of an information underclass. It would be both unfair and inefficient.
So there is a clear role for public policy. Not the old role of state subsidy, intervention or planning. But a new role: promoting competition, minimising regulation and equipping people with the skills they need. A policy that believes fairness and prosperity go together. That helps everyone to make the most of change. That is what I want to talk to you about today.
Already, 13m people have access to the Internet in Britain – higher than any other major European economy. E-commerce revenues in this country are expected to reach £10bn next year – up threefold on last year. You can buy flights, books, check into a hotel, trade cars and plan your wedding on the Internet. And all of these services are available in the UK thanks to Internet entrepreneurs who have created companies in the last few years.
I met two of them this morning. Their stories say more than any statistics about how fast the pace of change is.
Take Zeus. 4 years ago, the founders, Adam Twiss and Damien Reeves, were students here. They decided to set up a company to provide software for webservers. Zeus has been profitable since it was founded and sales are currently growing at 75% per quarter. Only Netscape and Microsoft are bigger in their market. And they told me this morning that following their new alliance with Hewlett Packard, they’ve every intention of becoming the market leader!
Or Cambridge Advanced Electronics. Two years ago, they were a conventional company. Now they don’t have any premises or full-time employees. But they have generated $2 million extra business. How? They became a virtual company – thanks to investment in a network that lets employees work from home. There is the same pay rate for all workers. They bid over the Internet to do each piece of work that comes up. And salaries are up between a third and a half.
The challenge of e-commerce
These companies are just two examples of the economic opportunity of e-commerce. That’s why the government attaches so much importance to getting its policy on e-commerce right. And it’s why, last Autumn, we set the target that Britain should be the best place in the world to trade electronically by 2002.
Since then, the Performance and Innovation Unit – led brilliantly by Jim Norton - has been working on a strategy to meet that target. The PIU is a new think tank at the heart of Whitehall, reporting to me on important long term issues. It’s a mark of the importance of e-commerce that it was one of the PIU’s first ever projects.
I’m delighted to be launching their report today. I recommend you read it – it’s the sort of serious analysis that governments have too seldom done in the past. It doesn’t attempt to be a grand plan, nor an interventionist strategy. Any such plan would be out of date before it was off the printer. Instead, the report is a sober assessment of where we are and what we should do to meet our targets.
The good news is that we’ve started well. More companies have websites and a higher proportion of sales are made on-line in Britain than in any other major European country. Our large companies are more than holding their own in the global market that is the Internet.
And we start with many advantages. English, the common language of the Internet. A developing venture capital industry. And some of the best universities in the world.
But the PIU also found worrying signs of conservatism – for example, the fact that less than 4% of British companies thought that the Internet could cut business costs, compared to 15% in the US and 30% in Finland. Or the industry representative who thought the government’s response to Internet bookshops should be to ban them.
Overall, the PIU found that Britain was lagging behind America, Canada and Scandinavia, and that Germany and France are making a real push to catch up.
So we need to act now. Too often Britain has made a good start, only to see others exploit the full benefits of new technology.
That challenge falls first to British business and the British people. Only you can lead this revolution.
But the challenge is also for government. The PIU’s report contains 60 detailed recommendations – the kind of changes that won’t get headlines, but will make a real difference to the way you do business. I can announce today that the government has accepted them all.
Let me summarise them under seven headings – seven ground rules for governments in the knowledge economy.
First, use self-regulation. A Bill takes at least a year to get through Parliament. Given the pace of the Internet, it’s likely to be out of date even before it comes into effect. That’s why we announced in July that we would implement most of the Electronic Communications Bill through self-regulation – the ball is now in the industry’s court to come up with a credible scheme.
The same is true of key escrow. Many of you will be aware of the issue of mandatory key escrow - the previous cross-party policy to coerce people to give the password to their Internet mail to a third party. Well, one of the PIU’s main conclusions is that those plans were not going to work. So let me say clearly today – no company or individual will be forced, directly or indirectly, to escrow keys.
Second, act faster and co-ordinate better. We’ve been too slow here – as have most governments around the world. So, we’ve re-organised the way we work – with a single lead Minister and a single lead official. Patricia Hewitt is now the E-Minister with overall responsibility for e-commerce. And we are announcing today Alex Allan’s appointment as e-envoy.
Let me tell you, there is no one in Britain who could do that job better. Having run Number 10 as its senior civil servant, he knows how government works. Not only is he a brilliant civil servant, but he must be one of the few senior civil servants with his own website – and certainly the only one whose website includes a comprehensive guide to the lyrics of the Grateful Dead!
Patricia and Alex will report to me on progress every quarter and I’m convinced we will now make policy better and faster.
Third, get trained. That starts in schools – I’m very proud of what we’re doing here. When we came to power, barely one in ten schools was connected to the Internet. Now, two thirds are – the most of any G7 country. The number of primaries connected has gone up four times in the last year alone.
But that’s not enough - I have pledged that by 2002, all schools will be connected. And what’s more, we will subsidise over 100,000 of our poorest families to get computers, so they can access the Internet at home too. Let’s be clear - this is a massive step change, which will mean all our children will have access to the Internet. Not just those with rich or enthusiastic parents, but all our kids.
But adults also need training. That’s why we announced a £450m computer skills strategy in the Budget. Through Individual Learning Accounts, we will provide 80% discounts, available to everyone, for basic computer training.
We are setting up 800 IT learning centres to give access to IT to those who would otherwise be excluded.
And where companies provide computers to their employees, we will now give a tax break to the employee. So neither the employer nor the employee pays tax.
This package of measures means that everyone will be able to learn to use the Internet, rich or poor, young or old.
In many ways, I am the last person to be making this call to action.
To say the least, I am no expert. I watch my children and indeed Cherie surfing the net and feel a mild, sometimes not so mild, sense of humiliation.
Like many people of my generation in positions of leadership, I rarely use a computer and when I do, I usually need help.
But I know it’s not good enough and if I recommend lifelong learning to others, then I know I should go back to school myself. I started over the summer, taking my first lesson with Cherie. But I intend to go one step further, and do a course. And I would encourage others of my generation to do the same – both because there’s no shame in admitting the need to retrain, and because my children assure me that it is not that difficult!
Fourth, get the infrastructure right. Britain is already one of the most competitive markets in telecoms in the world. On some measures, the cost of using the Internet is lower here than anywhere else – 1p a minute in the evenings and at weekends.
But we need to go further to stay ahead. We’ve recently announced some far reaching moves here – a fifth mobile phone licensee, competition in BT’s local networks.
And having opened up these markets, we need to make sure they stay open. That’s why the PIU recommends that OFTEL and the OFT work together to review all possible barriers to competition by March next year.
Fifth, build trust. The PIU found that the biggest barrier to the spread of e-commerce is cultural. Companies are worried they won’t get paid. Consumers are concerned that their personal details will be mis-used. Copyright holders fear piracy. The PIU report goes a long way to addressing many of these concerns. We need to implement their findings, and then communicate that Britain is a safe place to trade electronically, as safe as any in the world.
Sixth, lead by example. If people are buying plane tickets on-line, they will expect to get their driving licences or find job vacancies there too. So that’s what we’ll do. I have already set as a goal that all government dealings that can be should be deliverable electronically by 2008. We’re making real progress towards that target – for example, I can announce today that from next year, you will be able to submit tax self assessment forms on-line.
Seven, think European. E-commerce abolishes frontiers even for the smallest firms, bringing the 380m people in the single market within reach. So companies need to think European, because the single market is their home market. And governments need to think European – to turn Europe into the world’s most vibrant virtual market. I know Romano Prodi agrees with me about the importance of this challenge – Europe’s goal must be not following but setting trends in electronic business over the next five years.
Because there’s no reason Europe can’t rival America, no reason why Silicon Fen can’t beat Silicon Valley.
I’m delighted to be in Cambridge today. Your research rivals that of Berkeley and Stanford. You invented the first computer, the first digital communications and the basic control chip which is in 90% of mobile phones. No other place has generated so many breakthroughs in such a short space of time.
Now you’re matching Silicon Valley’s business practices too. Matching academic innovation to entrepreneurial skills. And you’re winning industry’s backing. Microsoft have chosen Cambridge for their first and so far only research centre outside the US. BT announced today that you will be one of the first areas to be connected to their new high speed networks.
And Government is doing its bit. The East of England Development Agency are developing initiatives to promote technology clusters, working with the Judge Institute to identify the capacity of firms to innovate, and promoting technology transfer. We are committed to the development of the Cambridge phenomenon which will rival Silicon Valley.
Thank you again for having me here today. We’ve made a good start in e-commerce. Now we must transform it into a permanent industrial success. We cannot afford the conservatism that appears to be left over in some parts of British industry.
That’s my message today. Silicon Fen can rival Silicon Valley. British entrepreneurs can lead the world in exploiting e-commerce. Britain can have more homes connected to the Internet than any other country.
But to achieve that goal, we need to work together. British industry needs to be ambitious in responding to the challenge of e-commerce. British government needs to put in place the right framework and lead by example. And the British people need to have the confidence and skills to exploit these opportunities.
If we do this, together, we can truly make Britain the best place for e-commerce anywhere in the world.