ESPRIT: ECC Report

HL Deb 25 November 1985 vol 468 cc735-77

3.6 p.m.

Lord Kings Norton rose to move, That this House takes note of the Report of the European Communities Committee on the European Strategic Programme for Research and Development in Information Technology (ESPRIT) (8th Report, 1984–85. H.L. 143).

The noble Lord said: My Lords, this programme is known by its acronym, ESPRIT. Information technology itself comprehends not only the advance technology associated with the storage, transmission and processing of information by electronic means but also the programs, routines and special services—the so-called software—needed for instructing the physical apparatus or hardware in the performance of its purposes.

Although today information technology comprehends telecommunication, both audio and visual, its central and vital instrument is the computer. In the early history of the computer, the United Kingdom played a leading part. It was in the 1820s that the Englishman Charles Babbage, assisted by Lord Byron's daughter, the Countess of Lovelace, conceived, designed, developed and built his first computer. He was, like so many innovators, before his time, but he undoubtedly started what has become a history of revolutionary innovation, studded with the names of great men, such as the logician Boole, the mathematicians Whitehead and Russell, and inventors such as Hollerith, Burroughs, Bush and Zuse.

Telecommunications had for long its independent history, with Graham Bell inventing the telephone, Marconi inventing wireless telegraphy, and Baird inventing television. On the computer front, one of the most significant steps forward in this century was the creation of the British Colossus, the first digital computer, which at Bletchley Park, was used in the war to crack the secret German Enigma code. That achievement meant that at the end of the war the United Kingdom was in the lead in computer technology. But we have let that lead slip away and today, in the area of computer hardware, the United Kingdom and, indeed, Europe cannot for a long time, if ever, become competitive with the United States and Japan.

The early computers for industry were large pieces of apparatus, incorporating thousands of thermionic valves. Then the valves were replaced by transistors; and then came integrated circuits in which the essential connections and switches were printed on flat plates. The silicon chip followed: the magic microprocessor of thumbnail size, carrying circuits of incredible fineness, permitting the production of computers of amazing performance and compactness.

The speed at which these machines work is staggering. The information which they can store is stupendous. Their ability to direct and control robots is fantastic. Indeed, development is so fast that new apparatus becomes obsolete in a year or two. We are indeed in the early phases of a revolution which, in its effect on the pattern of our lives, is likely to be as dramatic as the industrial revolution or the aeronautical revolution—a revolution which will change our educational methods and our ways of working and which increasingly, and perhaps disturbingly, will replace people by machines.

It is essential for the United Kingdom and for Europe to compete with the leaders—not only for our material comfort, health and prosperity but because the leaders in this new and rapidly advancing technology will have enormous influence. Undoubtedly in the the hardware field we in the United Kingdom have allowed ourselves to slip far behind, but in the software area the situation is more satisfactory. We are indeed very good in what is called (in my view, misleadingly) software engineering; but unless we develop a more competitive position in hardware engineering our industry will be disadvantageously out of balance.

This situation is repeated in Europe. As stated in paragraph 15 of the report which I am introducing to your Lordships, despite good performance in software the European industry has been falling behind its main competitors. The market for large industrial computers is dominated by the United States of America, with Japan catching up. Eight out of 10 personal computers sold in Europe are made in the United States. Nine out of 10 video recorders sold here are made in Japan. European manufacturers of integrated circuits control only 30 per cent. of the Community market and 13 per cent. of world sales. In the industry as a whole, the European Community supplies only 10 per cent. of world sales and 40 per cent. of its own market. This is a situation in an absolutely vital industrial growth area which Europe must clearly seek to change.

The United States and Japan have long had national and private venture collaborative programmes of research and development. Their success is only too evident. More recently France, Germany and the United Kingdom have initiated national programmes. The United Kingdom effort derives from the setting up in March 1982, by the Minister for Information Technology, of a committee, chaired by Mr. Alvey of British Telecom, to advise on the scope of a United Kingdom collaborative research programme. The latest Japanese programme had been announced and this, and the likely United States reaction to it, were seen as the major threats to our computer industry.

The Alvey Committee concluded that collaborative research between industry, universities and other research institutions was essential for harnessing technical strength to industrial objectives, and a detailed five-year programme was started. The cost was put at £350 million, of which £200 million was to be contributed by the United Kingdom Government and the rest by industry. The work of the industrial-cum-academic teams is overseen by a small directorate within the Department of Trade and Industry. But before we had awakened here to the need for a collaborative effort in basic information technology research, a corresponding effort was developing in the European Commission. In 1980 the eminent Belgian, Viscount Davignon, then commissioner responsible for industry, brought together representatives of 12 leading European manufacturers in the field of information technology: three from the United Kingdom, three from Germany, three from France, two from Italy and and one from Holland. He summoned them to a round table conference. The round table set up a steering committee, which in turn established technical panels, as a result of which a programme was drawn up for co-operation in areas where progress was considered essential.

In May 1982, the Commission sent to the Council a paper entitled, Towards a European Programme for Research and Development in Information Technology, explaining the need for a rapid increase in European industrial collaboration to combat American and Japanese competition. The Commission proposed bringing together, in a number of teams, European companies, large and small, universities, research institutes and laboratories. The projects in the programme were all described as pre-competitive—that is to say, they were sufficiently basic for the collaboration between the members of a team pursuing a project not to be strained by commercial competition. That was the beginning of ESPRIT.

The Commission document was favourably received by the Council, with the result that detailed proposals were put forward in August 1982 for pilot schemes to help to define the programme and to define the co-operation and management arrangements. Under this pilot programme 38 projects were launched. By May 1983 enough had been learnt from the organising of the pilot phase for the Commission to propose to the Council a 10-year ESPRIT programme. The outcome was its approval in February 1984 for an initial five years.

The programme aims to set up cross-frontier collaboration in research and development, to provide the technology base to enable Europe to compete in the next 10 years, to promote and establish common European standards and to encourage co-operation internationally between companies and more academic types of organisation.

The first call for proposals to fulfil the programme was made in March 1984. Four hundred and forty-one were received and evaluated and 106 were selected. It was on 28th June 1984 that Sub-Committee F of your Lordships' European Communities Committee began its inquiry into ESPRIT. The sub-committee received written and oral evidence from a number of organisations and individuals, concluding with evidence from Viscount Davignon himself. The committee reported in April of this year.

The committee's opinion of ESPRIT is summarised in the 14 conclusions of Part 5 of its report. One of these is critical of the central administration of ESPRIT in that the committee believes that present monitoring procedures are inadequate. In fairness, it must be said that a review submitted to the Commission as recently as 15th October by a high level independent review board, while making recommendations for some modifications to the programme and its administration, did not criticise the monitoring process and was well satisfied with progress. It remarked that in 1985, following the second annual call, 389 proposals were received and 95 were chosen; so that today 201 projects have been selected and 173 have been launched. These involve 263 industrial companies, 104 universities and 81 research institutes.

Despite this undoubted progress, the scale and influence of ESPRIT must not be overestimated The 750 million European currency units allotted by the Commission over five years, when compared with the research funding in the United States of America and Japan, and in the great companies of Europe, is a very small contribution.

However, in what your committee calls the vital growth area of information technology—one in which Europe must be heavily involved—ESPRIT is seen as a valuable initiative deserving of support. It is a beginning, and it has already succeeded in bringing into existence important groupings which it is hoped will survive beyond the pre-competitive stage. Paragraph 66 of the report states: To be successful, pre-competitive collaboration should lead eventually to collaboration on product development and manufacture. ESPRIT has already led to potentially important work on open system interconnection standards. It has also triggered a tripartite agreement between ICL, Siemens and Bull. There are other encouraging signs in this direction. But the Committee are convinced that these can only succeed if there are parallel moves to create a true common market. The present uncommon market puts burdens on European firms which their American and Japanese competitors do not face—differing standards, border delays, restraints on trade in services, fragmented markets. In the opinion of the Committee, improving the internal market is essential if ESPRIT is to achieve its full potential. This calls not for a technological solution but for an exercise of political will by member states. There has been no evidence of such political will in the past decade.

I hope that the Minister will comment on that paragraph and will tell us whether the Government, and in particular the Minister of State for Industry and Information Technology, are making any progress in changing the present unsatisfactory situation.

Your Lordships' committee believes that greater efforts must be made to achieve effective co-ordination between ESPRIT and the corresponding national programmes. The recent review committee, to which I have already referred, is more satisfied, however, and, interestingly, makes complimentary comment on the Alvey programme, which in comparison with ESPRIT it finds has greater flexibility and better communications between participants, and includes demonstration projects. It believes that ESPRIT should emulate these Alvey features and that ESPRIT should copy the United Kingdom in another way—by instituting annual ESPRIT awards like the Queen's Award for innovation in industry.

In other respects the review committee supports the views of your Select Committee, notably in that small firms deserve more support in carrying out the programme, in that the programme should put more emphasis on software, and, most important of all, in that Europe must develop a vastly greater workforce. Your committee was interested to learn from its inquiry that this workforce can employ not only scientists, technologists, mathematicians and logicians, but also graduates in any discipline who are capable of logical thought, which helpfully enlarges the field for recruitment.

We know the Butcher Committee, which was appointed early last year, had as its chief remit the objective of remedying the shortage of people with information technology skills. Last July it published its third and final report, which like its predecessors makes a number of recommendations, all of which are useful. It lists the large number of relevant IT courses in universities and polytechnics, and records the formation of a permanent agency to oversee and encourage the development of IT education. In addition, against a background of inadequate financial support the higher education establishments are seeking to develop their IT facilities.

For example, in the university of which I have the honour to be chancellor, which is the Cranfield Institute of Technology, we are creating a new IT centre, bringing together and enlarging the IT activities existing at Cranfield and at Shrivenham. Furthermore, a score of industrial companies are, in partnership with Cranfield, setting up a new IT institute to develop advanced teaching and research. In a further Cranfield partnership with industry another institute, this time for computer integrated manufacturing, which has a strong postgraduate base, is being established.

But are we doing enough? Is Europe doing enough? A few days ago I was talking to Sir Henry Chilver, the vice-chancellor of Cranfield, who has recently seen something of the Japanese scene. He was greatly impressed by the effort which the Japanese electronic and IT industries are putting into research and development, not only in capital resources but in human resources—an effort which he believes must be of an order of magnitude greater than ours.

Can we compete on this scale? I think that Europe can, given the political will. But this means that the Community must take as its most urgent and most immediate tasks the co-ordination, the support and the development of all the national efforts to create the workforce, to achieve uniformity in standards and to get rid of all the barriers which today stand in the way of collaboration. My Lords, I beg to move my Motion.

Moved, That this House takes note of the Report of the European Communities Committee on the European Strategic Programme for Research and Development in Information Technology (ESPRIT) (8th Report, 1984–85, H.L. 143).—(Lord Kings Norton.)

3.26 p.m.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord for having presented us with the conclusions of the Select Committee, which has gone into this matter in some detail. It is perhaps a little unfortunate that the debate takes place rather a long time after the publication of the report itself, which was over six months ago. However, I believe that members of your Lordships' committee—I am reluctant to think that I am unique in this respect—have been furnished with a copy of the midterm review of ESPRIT submitted to the Commission of the European Communities by the ESPRIT review board. I shall be making some reference to that report in the remarks that I shall venture to address to your Lordships.

ESPRIT itself implies a certain amount of spirit or a certain amount of vivaciousness, and is normally equated with it. It is perhaps an unfortunate abbreviation to adopt for this report on the European Strategic Programme for Research and Development in Information Technology. Perhaps I ought to say ab initio that the report submitted by the review board to the EEC Commission is far from sprightly. In fact, I may have occasion to refer to it in more uncomplimentary terms as I proceed.

As regards the funding of this scheme for what is termed pre-competitive co-operation in research and development, if the Financial Times report of the 18th November is anything to go by, some £499 million has already been earmarked for it and a further £449 million is being sought by the Commission. I am bound to inform your Lordships—since, of course, the British contribution represents taxpayers' money—that this amounts so far to a sum of between £100 million and £ 120 million of British taxpayers' money for the project, and between £98 million and £108 million extra if the further programme is approved.

At Question Time noble Lords may have heard the noble Lord, Lord Glenarthur, say how futile it was to throw money at projects, and that that was not the way to tackle them. Later in my remarks I shall be suggesting that that may have little force in the situation that we are considering.

The EC countries—and, of course, they do not comprise the whole of Europe, whatever its members may say—have about 10 per cent. of the world market in information technology and 40 per cent. of the European market. It is clear, therefore, that this is a matter of some concern to the Commission.

What do we mean by pre-competitive R & D? I always thought that competition was supposed to be the lifeblood of the economy and that market forces were the most reliable way to ensure that the benefit of people's intelligence and productivity was made available to mankind generally. It appears that there is some abrogation of that principle. In information technology, and I suspect in other fields, too, there is pre-competitive co-operation (I almost hesitate to mention the word) and then suddenly the flag drops or the starter's pistol goes off and we are in a completely different, competitive world. Surely the very admission of that fact leads one to suppose that co-operation has a role to play; and I wait for that ultimately to be expressed by the party opposite.

The noble Lord, Lord Kings Norton, mentioned the objectives of the ESPRIT programme, the European Commission programme. In that it covers the whole of Europe, surely it is largely the same as the Alvey proposals introduced in your Lordships' House on 28th April 1983. At the risk of wearying your Lordships, let me quote the way in which the Government looked at the whole question of informa tion technology then. At col. 1063 Lord Trefgarne said: The Alvey Committee was set up last year at the request of the IT industry to investigate the scope for a collaborative research programme in advanced information technology in the light of mounting concern in the industry at the increasing threat of overseas competition."— Tut, tut! He continued: The future competitiveness of our IT industry is a subject to which we attach the utmost importance. The report outlines the key areas of technology in which the IT industry must maintain and strengthen its competitive position in world markets. Its theme is the need for collaboration between industry, academic institutions and other research organisations in order fully to mobilise our potential in advanced information technology. The task is beyond the resources of any single enterprise. The central purpose is to pave the way for IT products, IT processes and IT services which can be sold in the market in competition with the rest of the world". Those are almost precisely the objectives of the ESPRIT programme, the European Commission programme, There is clearly a degree of overlapping—indeed, almost of duplication.

Why, therefore, does the EC suddenly come up with the proposal? The reasons are easy to find in the evidence brought before the Select Committee. Your Lordships will find that on page 2 of the report Mr. Oakley, head of the Alvey programme in this country, reveals that three principal companies in the United Kingdom—that is to say, GEC, Plessey and ICL—let alone the smaller ones, already have over 70 per cent. of the European market. On 27th June he said: In every one of the major projects there is a prime contractor and in the pilots the United Kingdom has come out easily top of the league table on those". What are we faced with? We are faced with the fact that when it comes to competition—which is supposed to be the prime objective of the European Community—British firms, on the basis of their own initiative and their own technology and that of the academics and universities that help to sustain them, have gained over 70 per cent. of the European market, whereas the rest of the firms——

Lord Kings Norton

My Lords, may I interrupt the noble Lord? It is the 12 firms that have the 70 per cent., and not the three British ones.

Lord Bruce of Donington

My Lords, I can only refer the noble Lord to page 2 of the report, where Mr. Oakley says: What we know as the twelve of Europe, the twelve large firms, the United Kingdom being represented in that through GEC, Plessey and ICL: they have in fact, been a moving force behind it and still continue in that role. That does not mean that they dominate the decision-making but they represent a very large share of the IT manufacturing industry of Europe, probably over 70 per cent.".

Lord Kings Norton

That means the 12, my Lords.

Lord Bruce of Donington

Yes, my Lords, and the quotation that I read out following that said that the English firms were in the lead every time.

It is therefore easy to see that the European Commission has every wish to bring the firms in Europe up to the standard of the British firms. That is what it means by what it has said. What we have to decide is whether there is a duplication of effort, and we also have to consider the extra expenditure. It will be recalled that the Government, while being agreeable to contribute £120 million to ESPRIT. and probably another £108 million, were nevertheless content to cut the allocation to the Alvey project by some £34 million. That does not seem very sensible.

Technical co-operation is almost inevitable—and therein lies the validity of the pre-competition period in R & D. For example, in Japan there is a free interchange of technical personnel among firms. A similar position obtains in the United States. It is almost impossible to preserve competitive secrecy in research in the United States because of the constant movement of chief technical executives between different firms. Exactly the same considerations apply here. It would be very dfficult to maintain research secrecy when English employees at a high level—technicians and scientists—are free to move around in their own country. There has always been an exchange of academic views at university level at various international conferences and the like. It is much more difficult in Europe, partly for reasons of geography but also by reason of language. It is much easier to obtain a co-operative endeavour within your own country speaking a common language, as applies in the United Kingdom, in Japan and in America, than it is over, shall we say, six, seven, or now ten, countries of Europe, speaking different languages and geographically, very frequently, not so easy to get at.

The idea is to bring the remainder of the EC up to British standards. It is a matter for consideration whether it would be better expenditure of public money to give far more to Alvey for assistance within the United Kingdom where it is already well established than to give it to ESPRIT. On the basis of what we have done as a nation in trying to promote our own technical co-operation, this should be quite easily capable of being undertaken in the other individual member states of the EC. That is not to exclude meetings from time to time in the same way that meetings already take place, as I have said, between academics, universities, and so on, and even at a higher scale, rather than embarking on this very complicated way of dealing with the question.

Those of your Lordships who have had the pleasure of reading the evidence annexed to the report will have seen the observations made by the noble Earl, Lord Halsbury, who said: I find the difficulty is in assessing what is going on"—

Lord Lloyd of Kilgerran

My Lords, I am so sorry to interrupt. Will the noble Lord be good enough to tell me the page and column number? I am very anxious to see that he gets his quotations right this time.

Lord Bruce of Donington

My Lords, page 3. The noble Lord said: I find the difficulty is in assessing what is going on in the extreme abstraction with which all these schemes are ascribed. There is an enormous administrative superstructure, starting with the European Economic Community and lots of lovely money, and then there are going to be committees, and this and that, and thousands of people working. What are they going to be working on and who is going to tell them what to do?". One has only to look at the organisational chart. set out, if the noble Lord, Lord Lloyd of Kilgerran, wishes to be assisted in the matter, before page 1 of the evidence. Here, we have the ESPRIT committee responsible sideways to the Council of Ministers, to COREPER, the committee of permanent representatives, the Research IT Group; and further responsible, again laterally, through to their national governments, the national authorities and the national programmes; with, again, further information going to and fro between both the Council and the Committee to the European Parliament, and to the European Social Committee; and then, at the bottom, its operative force being the ITT task force which, again, is responsible to various other bodies and has contacts through to industry, to universities and the like.

Lord Lloyd of Kilgerran

My Lords, I am sorry to interrupt the noble Lord again. He was kind enough to say that I was trying to follow him. What he has said so far is quite incoherent in relation to the page to which he directed me. That is perhaps entirely my mistake. I have got it wrong in listening to him.

Lord Bruce of Donington

My Lords, I would like to refer the noble Lord to the report. If he turns to page xxxviii of the report, he will find the chart set out. There can be little disagreement with the fact that the organisation is very complicated. It is also very costly. The review document issued to the Commission by the ESPRIT Review Board, which by the way is dominated, in the main, by countries in Europe other than our own, gives on page 3 the various fields that will be covered. I would ask your Lordships to bear with me while I set out ESPRIT's own objectives. They include, within advanced microelectronics, the basic technology for the design, manufacturing and testing of VLSIs and high-speed circuits. There is software technology—the theories, methods and tools necessary to put software on a sound engineering basis. There is also advanced information processing— advanced computer architectures including design, storage, peripherals, signal processing and knowledge engineering. Other areas are office systems including computer and communication systems for application in office environments and computer integrated manufacturing which includes the application of integrated information processing and communication in manufacturing environments. Those are the objectives set out by ESPRIT.

If one turns to the remarks made by the noble Earl, Lord Bessborough, in the course of his persistent questioning of witnesses in the inquiry made by the Select Committee sub-committee, it will be found, as the noble Earl himself pinpointed, that those correspond almost exactly with the objectives of the Alvey Committee itself.

The Earl of Bessborough

My Lords, I did not say that. I do not want to pursue this matter for too long. I know that the noble Lord likes to make a substantive speech at reasonable length. If he will point out where I have said that the Alvey projects are similar to ESPRIT, I shall be grateful. I have mentioned Alvey projects on various occasions during our numerous meetings. But they are, in my view, different.

Lord Bruce of Donington,

My Lords, if the noble Earl refers to page 5 of the evidence, it will be seen that he said on 28th June: In the short debate which I initiated at the beginning of the year, I went through the six Alvey projects; one on the complexities of legislation, by ICL; the GEC design to product project, Racal on mobile information terminals, the replacement of man under water by Marconi and others, then Scicon and BP on the alarm systems, and finally the Plessey project designed to develop word processors driven entirely by the human voice". In essence, those are covered in the six proposals, in the six fields of activity, which are outlined in the ESPRIT review report. Indeed, the Committee itself came to the conclusion that there was a very substantial overlap. I would not wish to commit the noble Earl any further than the words I have quoted. If any words of mine imply that he has gone beyond what he has now said, I willingly concede the point. But I gathered from the whole tenor of the noble Lord's interrogation that he was firmly of that view. If I am wrong I stand corrected, but I maintain that view.

There are several ways of approaching this. I am convinced that the only way to go about this development of information technology—and particularly in the realm of research and development in its pre-competitive stage—is for the role of nation states to continue within their states to develop with whatever governmental aid and assistance they need, preferably in the same way as Japan supports its own information technology experiments and research and, indeed, the industry itself. I remain to be convinced that it is necessary to superimpose on top of Alvey another colossal administrative organisation in Brussels with terrific expenditure on air fares—to which they refer in their review report—while nevertheless maintaining a constructive and friendly attitude and co-operation at the highest possible level where this is necessary.

I think that when we are sitting in the British Parliament, of which your Lordships' House is one component, we are entitled to look at the British aspect. We are not a European Parliament. It does not necessarily mean that everything that is put forward by the European Commission should receive the automatic accolade of the British Parliament purely on the basis of proving what good Europeans we are. We have to judge the effects and conduct our own affairs in our own country. Looking at it from the British point of view, which I am entitled to do, then I am bound to say that I cannot see any case for participation (other than informal participation, with which I entirely agree) in ESPRIT.

It seems to me that in fields where Britain's technologies are quite predominant—and they would be even more predominant if the then Secretary of State, Sir Keith Joseph, had not dithered for a year and a half before deciding whether or not to support INMOS—we should be entitled to the competitive advantage that the knowledge and experience gives us. There is a disposition within some countries of Europe to think that in fields where Britain is predominant the other firms in those countries which are not quite as good ought to be brought up to meet British standards as a matter of justice. Indeed, as the noble Lord knows perfectly well, in fields in which we are predominant organised efforts have been made to keep us out of Europe. I speak notably of the fields of insurance, other than life assurance, to which I have referred on many occasions past and in which there has been a quite deliberate effort by Germany and France to keep those skilled people in this country who are capable of organising this kind of insurance market out of Europe.

Occasionally it is necessary for us to think in terms of British interest. There is nothing ignoble about that. It may be that on occasion we should "go it alone", albeit in friendship, albeit with the utmost informal co-operation that we need. But in view of the expense involved I cannot see that there is any justification for supporting this scheme.

3.55 p.m.

Lord Lloyd of Kilgerran

My Lords, like the noble Lord, Lord Bruce of Donington, I did not have the privilege of being a member of this technical committee, EC Sub-Committee F, but, also like the noble Lord, Lord Bruce of Donington, I should like to congratulate the noble Lord, Lord Kings Norton, on the vast amount of work he has done in this very interesting area of international information technology development.

I offer that congratulation perhaps in a spirit of nostalgia, because, unlike the noble Lord, Lord Bruce of Donington, years ago as a junior scientist I happened to be a member of the directorate of which the noble Lord, Lord Kings Norton, was a director, which was entitled New Projects. All of us in this House know the great contribution that the noble Lord, Lord Kings Norton, has made to technological and scientific advance.

I am also perhaps tempted—and I will always fall to temptation—as a founder member of the Parliamentary Information Technology Committee of the Palace of Westminister (a flourishing and exciting organisation of which I still happen to be the honorary secretary) to extend an invitation, if it is not presumptuous to do so, to the noble Lord, Lord Bruce of Donington, to attend a few of its meetings, a few of its presentations, because I feel that his contribution later on to anything like ESPRIT or even EUREKA or RACE might be a little more informed technically than perhaps it is now. I am so glad to see the noble Lord, Lord Kearton, nodding his head in agreement with those extravagant remarks that I have just made.

I am very surprised that the Front Bench of the Labour Party should overlook the fact that there is a unanimous agreement among participants in all member states that the ESPRIT programme has been highly successful in promoting trans-European co-operation between large and some small organisations in the EC and among industry, academics and research institutions. We on these Benches, of course, always warmly welcome such international co-operation and harmonisation in the context of the EC. I have often expressed the hope that more and wider co-operation and harmonisation should take place in the context of the EC for the benefit of European industry as a whole.

I have been supplied with a document known as the mid-term report by ESPRIT by the secretary of this committee, Mr. Keith, who has done great work by way of procedural matters for this committee. It is stated that international co-operation has been more successful than originally envisaged. This co-operation is occurring at all levels; namely, board, management and research worker. There are clear signs that the co-operation is also extending beyond ESPRIT with the formation of international partners in joint ventures. As a result, many European Information Technology companies are assisting each other when serious problems arise in this industry.

It is also significant—and this is a matter which was wholly overlooked by the noble Lord, Lord Bruce of Donington—that the ESPRIT planned programme was formed by industrial firms and not by what he referred to as the bureaucrats in the EC. I should therefore like to congratulate, if I may, the director general of the ESPRIT Task Force for all the arrangements which have brought such unification and co-operation between participants of all kinds from various countries of the EC in conformity with the basic theme of international co-operation envisaged in the Rome Treaty setting up the EC.

On these Benches we support ESPRIT and hope that there will be sufficient political goodwill, as the noble Lord, Lord Kings Norton, mentioned, to further its progress in the interests of European industry. In my view it is early to criticise ESPRIT. The concept of a European transnational collaborative programme for research and development in information technology was largely due to that famous Belgian, Viscount Davignon, when he was the EC Commissioner for Industry.

One criticism which has been levelled against ESPRIT—and it was mentioned by the noble Lord, Lord Bruce of Donington—is that the results of the ESPRIT collaboration are not immediately applicable directly in the market place. The director of the ESPRIT programme in his evidence to the committee and in his reply to Question No. 551—which was asked by the noble Viscount, Lord Torrington. and which appears on page 145 of the Minutes of Evidence—dealt with that problem which faced ESPRIT.

With your Lordships' leave, I propose to quote from page 145 of the main report, which deals with what the director himself said. He said: As far as the speed of transfer between the idea and the market place, which is needed, this [is] one of the weak points in Europe not just in the United Kingdom but in Europe as a whole. I think what we have tried to do is one step in the right direction by making sure that the research actually happens in the company as opposed to a lot of the previous attempts where research was carried out within academic or research institute environments where the NIH syndrome prevented the results of research from being transferred into industry". I pause there because the NIH syndrome is the "not invented here" syndrome. One of the curses of endeavouring to carry out developments in United Kingdom industry is that many firms in this country, when they receive ideas from outside their organisation, reply politely but firmly. They do not say that, "It was not invented here"; but as it was not invented in their organisation little interest is given to the idea.

I spent some of my time assisting the British Technology Group in exploiting the inventions of independent inventors. There is great trouble. New ideas are propagated to firms, but without a certain amount of organisation by outsiders like myself many of those ideas are never considered carefully. The director of the ESPRIT Task Force went on to say that, as half the cost of the ESPRIT programme comes from industrial firms, surely that ought to be a good incentive, when selecting projects, to select projects with quick exploitation and a potential. Therefore, these are very early days in very difficult and novel research areas.

In view of my professional activities in the field of intellectual property, I was particularly interested in the statement on page 37 of the mid-term report to the effect that, while the whole question of intellectual property rights—that is, rights in patents and the transfer of technology—overshadowed the potential exploitation of ESPRIT technology in the market place, many companies throughout the EC felt that it was more important to proceed with the development of technology rather than to delay matters for legal reasons arising from patent or knowhow problems. It is indeed very encouraging that great companies with very expensive research and development activities can co-operate in this way. In my view, it is a very important step towards international jurisprudence where the lawyers cannot be accused of interfering so much.

I wonder whether, either this afternoon or later, the noble Lord the Minister will be able to help me about one particular matter. I was interested in the statements made by the representatives of the IBM company about what they referred to as "open patent licensing schemes" relating to technology transfer and that the Commission is attempting to protect rights for European interests in innovations arising in the ESPRIT programme—and this is the significant passage—so as to avoid them going freely to the United States and the Far East markets as a result of leakage of technology during the course of ESPRIT collaborative projects. I was not quite sure how all this was happening because, as we all know, so many good ideas have been voiced in British industry and indeed European industry, but they have then been exploited more successfully in foreign countries.

I shall briefly revert to the committee's views as regards small firms. Those views are expressed in paragraph 87 of Lord Kings Norton's report. It says: Esprit is basically well-intentioned towards small firms … its procedures may result in a bias against them. A greater effort should therefore be made to involve small firms more fully and more directly". Evidence was given to the Committee that it is the small firms in the United States which have been most innovative and productive in new ideas in IT. We on these Benches endeavour wherever possible to support the interests of small firms. It would appear prima facie that the ESPRIT programme is not supporting the small firms in the way that it should support them.

However, in my view Viscount Davignon dealt interestingly with the problems of bringing small firms in Europe into the compass of ESPRIT. I presume to quote from his evidence at the bottom of the left-hand column on page 174. He says:

It is obvious that in the United States the creativity, the success and the jobs have come from the smaller firms and from their successes. How could we"— that is, ESPRIT— take that into account? We have a business environment which is much less favourable, in Europe and in all our countries, to smaller firms, than it is in the United States. It is a fact. I think it has two reasons. One is that they are a homogenous society. The second is that risk-taking in the United States, from a subjective point of view, is something which is genuinely considered as a plus. In our countries (and that is why I mentioned in my opening remarks …) you must be a plucky person to go out and take a risk, because the risk of failing in these areas is considerable; seven out of 10 will not really develop, some of them will be bought by somebody else to avoid bankruptcy, and some will disappear. In our type of society the fellow who has made an attempt and who has failed is pointed out; he is not going to find a banker, [the banker] is going to look at his record. In the United States it is different. So it is much more difficult to deal with this in Europe than it is in the United States". He then goes on to say that in the United States it has also been found that the larger companies often subcontract out a great deal of their work and therefore by that process encourage small firms. He therefore said that the reason why ESPRIT has paid more attention to the larger firms is that he hopes that in that way the larger firms will then encourage the smaller firms to come along with them. That view is also supported by a letter from the director general of the ESPRIT Task Force at page 219 of the report.

I agree that the position relating to small firms may seem somewhat confused at present. I agree, as stated in the committee's recommendation (f), that arrangements should be made by the EC for risk or venture capital to be available for innovative small firms in the ESPRIT programme. For years I have endeavoured to encourage risk capital for independent inventors. It is difficult to get hold of it. Inventors have had to mortgage their houses. Risk venture capital is, unhappily, not as available in this country as it should be.

I should like now to turn briefly to a modification of the ESPRIT work plan relating to office systems as disclosed in the mid-term review of October 1985. When the ESPRIT programme was set up one of the research and development activities included office filing systems and human factors associated with them. I can find very little about office practice systems—certainly not office filing systems, which are so important to industry—and also the human factors arising from the use of computer and similar machines.

However, it has been recommended at the bottom of page 50 of the mid-term review report that the area of research in office systems and computer integrated manufacture should be merged. Mr. Fairclough, of IBM, in answer to the chairman, at question 505, on page 158, stated that computer integrated manufacture in the context of ESPRIT—and I apologise for being so technical, but this is a highly technical field—included computer aided design, robots, and automated warehouses, and said that its scope is to search for the integration of what he referred to as,

all of those rather disparate activities into a total system". As I said, there is little in the committee's evidence dealing with research relating to filing systems and human factors, and it has to my knowledge been observed by industry that serious problems have arisen, particularly with the smaller medium firms and the small firms which have tried to replace their manual filing systems in offices with electronic and computer systems. Filing systems are fundamental to the operation of any office system in industry and research institutions. To some extent, therefore, I agree with the criticisms of the noble Lord, Lord Bruce of Donington, that perhaps with their programme they initially went too far.

Last month I was a guest of the Management System Council, and last week I was at the annual conference of the shipping and port operations specialist group of the Institute of Management Services. At both these conferences I heard of the serious problems firms were having by giving up manual filing systems and finding that the electronic micro-filming and computer systems, with which they had been replaced as media for filing records, were not cost-effective, were not easy to use, and above all, provided a poor working environment for staff, with consequent staff dissatisfaction, resulting in serious disruption of business.

That is evidence from a number of firms which have tried to go too fast in their computerisation in this matter. Human factors are often forgotten in this ultra-modern desire for getting rid of manual filing systems, for example, and it would appear that the ESPRIT work plan now recognises this significant factor in the limited area of office systems by merging the research in the way to which I have referred.

At both conferences to which I have referred I was told of a new manual filing system now being widely used in the United States of America and Canada, called Datafile. It has recently been introduced into this country and has been chosen in preference to some electronic or microfilm filing operations as being more cost-effective and efficient. I hesitate to say that many firms are inclined to adopt these mechanical computerisation systems on the principle of keeping up with the Joneses. To some extent I do not like that expression; nevertheless a number of firms have found themselves in difficulties by adopting electronic equipment when manual work would be so much better.

Perhaps I may therefore conclude by using a quotation from page 188 of the supplementary memorandum put in by the Department of Trade and Industry in this red book because it summarises, in my view, the present position so well: The industrial involvement in planning and managing ESPRIT will help ensure that the programme remains relevant to what the Community needs to remain competitive in information technology. While it is too early to form any definitive conclusions on the technical results, the encouragement to European Community organisations to co-operate with each other has already brought the industry closer together. The fact that so many United Kingdom organisations have decided to participate in the 1984 round and have wished to continue their involvement in the pilot projects is encouraging". I conclude by once again congratulating the noble Lord on the way he chaired this committee.

4.15 p.m.

Lord Butterworth

My Lords, I ask your Lordships' indulgence for a maiden speech in which I should first like to thank all those who, since my introduction to the House, have been so helpful and welcoming to a novice. My reason for contributing to this debate is that for more than 20 years I have been the vice-chancellor of the University of Warwick, a new university with experience of technology transfer especially, but not exclusively, in the manufacturing industry which lies in a belt from Telford through the West Midlands to Rugby. Universities and higher education have a special contribution to make in this field, first of course in research, and secondly in training. First, research. Information technology depends upon the research input and especially upon a close relationship between the researchers and industry not only at the pre-competitive stage, but later to enable ideas to be translated into marketable products. This collaboration between research and industry is fundamental. It is not a luxury, it is for us vital; vital to the United Kingdom's gross national product.

New technology is a high-risk business. Many projects fail; success is hard to achieve. The rapid increases in the rate of technical change mean that countries are going to polarise. A few will be successful, will make a profit, and will be able to invest in the next generation of technology; and a generation missed in technology is a total loss of capability

We must therefore first identify the areas of our greatest potential strength and then set about developing them. Therefore it may be, my Lords, that the chip may, in the end, largely have to be left to others. Hardware is becoming less profitable and is likely to be captured by a few major concerns, whereas software, in which we already have a high reputation, is growing like Topsy, and may therefore provide likely markets for us. In the United States software is increasing at the rate of 25 per cent. per annum, hardware at the rate of 18 per cent. per annum and the gross national product at about 4 per cent.

The most important single lesson of the new technology is that success depends upon coming first: for the runner-up the profits are poor. The rewards go to the winner, as the recent bid for the American Army communications system has demonstrated. Competition in this world is ruthless, and success lies where researchers and industry can collaborate closely together where they know each other's problems It is a world where conditions are changing rapidly. It is a world where information is becoming part of its capital, replacing, to some extent, land and machinery, where access to the information base will be the key to prosperity.

In the West Midlands, one can foresee a car industry in which it will be no longer necessary to tie up large amounts of capital in stocks of cars for sale. Each car will be individually ordered and manufactured by a flexible manufacturing system. Incidentally, on sale the funds will be electronically and instantly transferred. In this kind of world the importance will not lie with office systems, because it will be a paperless society. In this kind of world the contribution of the universities and polytechnics could be enormous. Short-term considerations must not persuade us to a rundown of universities and polytechnics so severe that their ability to collaborate will be impaired.

I next turn to the field of training, about which the Select Committee had so much to say. In paragraph 98, the report says: a major challenge facing Europe is to provide enough people properly qualified and trained to exploit the new technologies as they emerge". A little later on I quote paragraph 113: Unless more is done to solve the skilled manpower problem, Esprit's achievements will prove to be limited". The training of the workforce to man the new technologies is not always recognised as the major problem that is has become. Impatience has often been expressed in this House and elsewhere at the slowness of our recovery, after so much overmanning in industry has been so painfully shed. But overmanning is only one of our problems. Another problem which has been referred to here is that of wage settlements. But a further problem to which I should like to draw attention might perhaps be called the remanning of industry; that is to say, the retraining of the workforce required to man the new technologies. Of the two problems, overmanning and remanning, it may yet prove to be that remanning is the more difficult and will take a longer time to solve.

New technologies have produced new conditions which will require changes: changes in knowledge, changes in attitude, changes all the way from the boardroom to the shop floor. That training for change will require the closest collaboration between higher education and industry. The Government have already recognised the problem by making available an additional £43 million over the next three years to provide 5,000 additional places in engineering and technological subjects.

Perhaps I may take a moment to tell your Lordships about a new course at Warwick, because it helps to illustrate some of these problems. It is a course introduced with the help of the Science and Engineering Research Council, with the close collaboration of major industries: Lucas, Rolls-Royce, British Leyland, Guest, Keen and Nettlefold, Short Brothers, British Aerospace and a number of others. Young graduate engineers, during their first two years of training in industry, come to the university for a series of modules, each module only one week in length. Developments in industry such as CAD/CAM, robotics and the like have meant that new advanced manufacturing systems have been introduced. They have required that the narrow functionalised engineer should be replaced by a more generalised engineer whose training cuts across the disciplines. So these modules introduce the young engineer to a whole series of disciplines which will complement the engineering in his first degree. He is introduced to applications of the computer, to electronics, to facets of management including especially finance and risk analysis.

This is the kind of training which is needed for the new technocrat who will take the decisions in industry in the future—the decisions in advanced manufacturing systems where design and production have been melded together in one process and where many management decisions can now only be spelt out in engineering terms. This will mean many changes in higher education. I should be the last to underestimate those difficulties. I remember the president of Queen's University in Kingston, Ontario, saying that in his opinion it was harder to change a syllabus than to obtain planning permission to remove interred bodies from a graveyard.

The training of these new engineers will take time. We have an existing workforce in need of being kept up to date and brought up to date by continuing education. Unfortunately the accepted view of continuing education at present is that while some pump-priming grants may be available, continuing education ought principally to be the financial responsibility of the employer and the employee.

Many courses can be so financed, but the retraining of the existing workforce is now so important that the effectiveness of continuing education must become a national responsibility. Indeed, the future of continuing education is not a problem confined to engineering or industry; it is a problem fundamental to the whole of our economic and social wellbeing.

I should like very briefly to say something about the relationship of ESPRIT and Alvey. There is, in the view of the academic community, room for both programmes. There is room for a community programme and for national programmes, with their different but complementary roles. Where they overlap the applicants themselves often sort out the problems applying to ESPRIT where collaboration with European companies is important and maybe applying to Alvey where the projects are more research oriented.

Finally, I think one should welcome the announcement which was made last Monday of the success of ESPRIT and the wish of the officials of the European Commission to bring forward the programme by two years, which will require a further £449 million over five years. On the assumption that our share of this is in the order of 23 per cent., one is inclined to reflect on how this additional cash will be funded—not, one trusts, by reducing the recurrent grant of universities or out of moneys already allocated for our national research.

I should wish to plead this afternoon for an expansion of our national programme. Our special problem in the United Kingdom is the production of a skilled workforce and our first priority should be an elite, highly trained set of superstars who will supply the innovation and change and therefore provide work for thousands of others. What we need is a national programme of research and training on a massive scale. Alvey is fine but it is not enough.

Our situation is critical. We do not attract enough able people into engineering, and many who are successful emigrate. We must prevent a technology haemorrhage of our first-class talent. We need a national effort like France, which is wholly nationalistic in research and development and, as a result, is well ahead, whether it be in aircraft, computers, space rocketry or other fields. I see our salvation through a massive programme of research and training, involving the closest collaboration between the universites and industry.

I have one final suggestion to make. Could this programme of research and training be launched by an imaginative act which could, at the same time, stimulate in industry a demand for technology? Let the Government announce that by some date in the 1990s one of our major Government departments, say the Department of Health and Social Security, will become a completely paperless department—it will be a department in which paper will be wholly abolished, as General Motors have done with their Saturn project in the States—and, at the same time, industry could be asked to bid to bring about this metamorphosis.

4.33 p.m.

Lord Kearton

My Lords, it is my good fortune to be the first Member of your Lordships' House to congratulate the noble Lord, Lord Butterworth, on a remarkable and noteworthy maiden speech. The noble Lord, Lord Butterworth, speaks from great experience and with great insight and great wisdom. I was particularly struck by his references to the new courses started at Warwick to bring engineering design up to the best computational standards. It is a programme of which I have some knowledge, and in it Warwick University, under the noble Lord, Lord Butterworth, broke new ground—new ground of a kind which is most important to the future well being of this country.

I should also like to congratulate the noble Lord, Lord Butterworth, on the clarity of his presentation. He spoke very clearly, so that even those of us whose hearing is not what it was could take every word and benefit from it. I hope we shall hear the noble Lord, Lord Butterworth, frequently on subjects dear to his heart, and that will add to the wisdom and decision-making of your Lordships' House.

I think I am the first to speak, since my noble friend Lord Kings Norton, who was a member of the ESPRIT sub-committee. It was a privilege to serve under the skilful chairmanship of my noble friend Lord Kings Norton. As the noble Lord, Lord Lloyd, has mentioned, we were dealing with a very complex subject. We had some very eminent witnesses who were great experts in their fields, and my noble friend Lord Kings Norton guided the discussions and brought the inquiry to a successful conclusion with the completion of what I think is a remarkably lucid report. I was somewhat puzzled that the noble Lord, Lord Bruce of Donington, found some difficulty in following parts of it. At least, his understanding of some of the paragraphs differed from my own, However, I dare say that my noble friend Lord Kings Norton will deal with some of these points in his own summing up.

In my own remarks I am bound to cover a little of the same ground as that which my noble friend Lord Kings Norton covered, but I hope that I shall do so with sufficient differences of emphasis so as to make it a useful contribution. The rapid development of computers, microcircuitry and information technology in the last 20 years has been largely American based. However, Japan has also made great strides and is now dominant in many branches of consumer electronics. The aim of Japan, as exemplified by the work on the fifth generation computer, is to overtake the United States at the frontiers of advanced information technology and to become the world leader.

Europe has fallen behind—not so much in the use of information technology as in its capacity to innovate and manufacture. It has become dependent on imports of key components for its own information technology industry and dependent on imports of complete systems for the more complex applications.

It is not that the nations of Europe were unaware of what was happening. Efforts to maintain a position in innovation and in manufacturing capabilities were Government preoccupations 20 years ago. In the United Kingdom the formation of our own ICL was largely due to Whitehall prodding; and preferential purchasing for Government requirements goes back at least as long. It is salutary to recall that the actual users of British made equipment felt, for a long time, that they were having to make do with second best—a situation which fortunately no longer obtains.

European dependence in computers and information technology on America has been softened to some extent by the major United States companies developing subsidiaries on the Continent. For instance, IBM has grown spectacularly post war. It now has 105,000 employees in Europe, of whom some 17,000 are in the United Kingdom. Incidentally, there are 30,000 in Germany and over 20,000 in France. Yet IBM (UK) contributes only about 5 per cent. of IBM's worldwide turnover.

Other well-known American names are in the United Kingdom: Hewlett Packard, Texas Instruments, and Sperry. Like IBM, they import their key high technology components. Their United Kingdom operations are not self-sufficient.

Besides the strategic dependence of Europe on overseas sources, there is an increasingly adverse balance of payments. To another committee of your Lordships' House the figure was mentioned as being £2½ billion at the present time and it was forecast that the present adverse balance would double in the next few years to a figure of £5 billion or more.

The 'eighties have seen a flurry of remedial action by European Governments. In the United Kingdom the Ministry of Information Technology was set up and it gave considerable encouragement to industry to adopt innovative procedures and to make use of the new opportunities. There has been a Government programme to establish computer awareness and computer use in schools and in the higher education system. There has been action by Government to increase both availability of training and quality of training for the manpower needs of the information technology revolution. The Government have established the Alvey programme to increase and focus research efforts on computer technology fundamentals and to mount demonstration projects. As has been said, teams from industry, universities and research institutions have been formed. The United Kingdom Government have indeed seen the challenge and have reacted to it, as have the states of the European Community who have parallel national efforts. The question is: will these efforts be enough?

Turning to ESPRIT, this is a Community effort in much the same field as Alvey. There is some overlapping, but most of the ESPRIT programme is complementary to national programmes. ESPRIT was launched through the vision and drive of the Belgian who was the Commissioner for Industry for eight years, the Viscount Davignon. Not only had he vision and drive, but desperation, too. He was convinced, rightly, that a major reason why Europe had fallen behind the United States and Japan was the fragmented nature of the European market, the lack of common standards and the undue nationalisation of both research and manufacture. Total European spending on research and development in the field was in fact not so very different from that of the United States and Japan, but it was self-evidently less effective with a great deal of duplication. To get a European collaboration started, ESPRIT concentrates on pre-competitive, fundamental research. It is a feat to have got the programme agreed and in being. The contacts between the indigenous European firms have been increased. There is greater mutual understanding. The sub-committee was impressed by the quality of the Commission's directorate, by the grasp of strategic objectives and by the tactical expertise in choosing the ESPRIT programme.

The Viscount's aim was that through ESPRIT the technical effort of Europe in information technology should converge and concentrate in order to establish a leadership position in the developments of the 'nineties. He wanted Europe to leapfrog existing international achievements, though building on them. He was confident that the ability existed in Europe to do that, and he knew that success in what would be the most momentous developments of the so-called third industrial revolution would give a great boost to European self-confidence and to technical morale. At the very least, Davignon thought it absolutely essential that Europe should be alongside the present leaders, the United States and Japan. To achieve his aims is a huge task. Can it be done? I am with him in agreeing that the ability and the brainpower is there, but can the states of Europe ensure that the ability is organised, enthused, led and financed—financed as to research and to establish commercial production?

Let us take stock. In the United Kingdom the Alvey programme is well-run and is achieving its objectives of establishing targets and collaborative working. The ESPRIT programme has made a good start and is also well-run. Experience has indicated, as one would expect, that improvements can be made in planning, in monitoring and in the tapping of all the available talent. Our committee report makes a number of suggestions in these regards, but the committee were satisfied that the ESPRIT and Alvey programmes were well correlated. But make no mistake: both programmes, estimable as they are, are but beginnings. We are paddling in the shallows to reach the development boat, and that boat has yet to be pushed out. The ESPRIT review body has reported that for the large organisations involved ESPRIT accounted for less than 10 per cent. of their advanced research, and that this advanced research was itself only 10 per cent. of their total research—a great deal of their existing research being a catching-up with the United States and Japan.

While ESPRIT was beginning to play a role in rethinking the European strategies and there was some movement in European collaboration on development projects, there had been no Pauline conversions. The huge handicap of Europe's uncommon market persists. There have been no reasearch breakthroughs as yet in either Alvey or ESPRIT. The most useful first developments are towards open system interconnection and towards the use of common standards. There is a greater appreciation of possibilities and a greater awareness of the problems to be overcome in making realities out of concepts. The jump to fifth-generation techniques is far more than a steady, though dynamic, evolution which has resulted in the achievements of today. If ESPRIT, Alvey and the rest do establish breakthroughs to the higher ground, the pull-through to the market place will be expensive. Product development is always more costly than research. The question of financing commercial development has not so far been given even preliminary examination. In the race for the future—for that is what it is—America and Japan have considerable advantages. Both have large and homogenous markets.

In America, defence and space driven research, still growing, has a considerable fallout in providing component techniques for the commercial market. Giant firms such as IBM, with vast resources, have only a limited direct involvement in the defence field. We were told it was about 3 per cent. of their United States turnover. IBM is market orientated and concentrates on this market. A number of other firms, large by European standards, also operate in the commercial market. Intel, for example, has spent 100 million dollars in developing the production of one component involving a new 32-bit micro-processor. Also available are very considerable amounts of venture capital seeking new ideas and products in which to invest. In the computer field, young entrepeneurs with new ideas are able to keep the giant corporations on their toes.

Japan has a national policy of becoming preeminent in market-oriented information technology. There is government stimulation and encouragement and a national coherent strategy. In research there is co-operation, collaboration and competition. In the market place there is also competition, with each competitor having adequate funds for any developments. Financially, firms in Japan are able to take a long view. There is a highly skilled and highly motivated workforce and a plentiful supply of engineers.

In the United Kingdom a lot of the available talent works on defence-driven projects. There has been little spin-off from those projects into the market place: the channels are not there. In the commercial field there is a shortage of research staff and development engineers. There is a shortage of research staff and teaching staff at the universities and polytechnics; and in considering indigenous effort it is worth noting that some of our best people work for the United Kingdom subsidiaries of United States companies, right up to the most senior levels. Some of our scientists, eminent at the frontiers of expert knowledge-based systems, are now working overseas, responding to financial and career opportunities. Our limited pool of scientists and engineers in the field is thus depleted.

There are those who think that so long as we have access to the best that other countries can produce there is no particular cause for worry. Information technology, while a big and growing industry in its own right, is also very much an enabling technology. The most lively and up-to-date United Kingdom enterprises do indeed buy in the best operating systems, whatever the source, and improve their own operations. This is true of financial, commercial, banking, travel, and retailing operations just as much as of manufacturing. For the latter it is argued that we can have the best computer-aided design, computer-aided manufacturing and computer-integrated manufacturing by buying in, and that in due time we could also buy in the developments in fifth-generation information technology. An essential requirement, of course, even if we bought in, would be that we had sufficient technical competence to use and apply imaginatively the devices and equipment so acquired, which itself would require a considerable resource of high-level scientists and engineers expert in information technology.

The case for the buying-in approach rests on two vital assumptions: first, that without restraint we could always have access to the best of what others develop and produce; and, secondly, that we would always have the means to pay. Moreover, we would be contracting out of what, with telecommunications, will be the fastest growing area of industry for years and years ahead. Our balance of payments would suffer dramatically and we would put all the rest of our industrial and commercial operations at strategic risk.

I have no hesitation in commending instead to your Lordships the conclusions of your committee. Information technology is a vital growth area and one in which Europe must be involved and must be successful. Your Lordships' committee recognises that ESPRIT is but a beginning. It needs to be expanded, encouraged and developed, along with Alvey. And it will depend still for ultimate success on the existence of a fully effective Common Market, a Common Market which should include telecommunications, so inextricably linked with information technology. I expect the Minister to confirm that the Government accept these conclusions. Like the noble Lord, Lord Butterworth, I hope the Government will accept the corollary that this definitely is not the time to be parsimonious with taxpayers' money in support of higher education in science and technology. Like the noble Lord, Lord Butterworth, I urge an increase in allocations. The future depends on sensible and far-seeing actions today.

4.52 p.m.

The Duke of Portland

My Lords, in our report which was laid before your Lordships in April this year, we made a number of criticisms of ESPRIT and suggestions as to how ESPRIT's operations might be improved. Meanwhile, as was mentioned by the noble Lord, Lord Kings Norton, we have just received copies of the biannual report of the ESPRIT Review Board, dated 15th October, which confirms all the views which were expressed in our own report. The ESPRIT method of project assessment must clearly be improved and both the report of the review board and that of our own committee stress the necessity that more attention should be paid to the project's plan of work and communication between partners; also that small firms should receive a greater measure of support from ESPRIT. It is clear from the report of the review board that the management of ESPRIT's projects requires strengthening and that it is necessary to recruit professional managers.

While both our report and that of the review board contain an appreciable number of criticisms, nevertheless it is clear that ESPRIT has been successful in promoting trans-European co-operation between large and small organisations and between industry, academia and research institutions and that co-operation is extending beyond ESPRIT with the formation of multi-partnership joint ventures. In its report, the review board stresses the necessity for ESPRIT to give greater publicity to its activities. Most of the work which is being done by ESPRIT cannot be expected to produce results in a short period For instance, on average 10 years elapse between the discovery of a pharmaceutical product and its marketing; a similar period applies to herbicides or pesticides, and I believe that several years elapse between the first placing of a new aircraft on the drawing board and its entry into service. Nevertheless, the public should be allowed to know the identity of the various projects on which ESPRIT is working.

In the case of Eureka, the Financial Times of 7th November contained a brief description of the 10 principal projects on which Eureka is working, together with the names and/or countries of the participants. I have seen no similar information from ESPRIT. I would submit to your Lordships that given the difficulties inevitably encountered by a new international organisation, ESPRIT has not started off too badly. But there is room for improvement and I would suggest that the European Commission should be urged to press those in charge of ESPRIT to carry out the recommendations of the review board forthwith and in full.

While ESPRIT, Eureka, RACE and BRITE may give a long overdue impulse to European collaboration in the development and manufacture of information technology and other products, Europe will not be able to compete effectively with the United States so long as European firms are burdened with differing standards, border delays, restraints on trade and services, fragmented markets and other hindrances. A stronger political will therefore must be exercised to make the European Common Market a reality instead of a fiction.

4.58 p.m.

Viscount Torrington

My Lords, I should like to join in the remarks by the noble Lord, Lord Kearton, in congratulating the noble Lord, Lord Butterworth. on a truly excellent maiden speech. It served the dual purpose both of edifying the House and of cutting my remarks somewhat shorter since I agreed with a lot of what he said—although I do not know that I agree on quite how quickly the electronic office will be with us. My noble friend Lord Kings Norton has most lucidly and comprehensively described to us this afternoon the background, aims, practice, benefits and shortcomings of the ESPRIT programme. I may say that any shortcomings that were not merely touched on by the noble Lord, Lord Kings Norton, have been pounced on, boots and all, by the noble Lord, Lord Bruce of Donington.

I was glad to see the noble Lord, Lord Lloyd of Kilgerran, somewhat rehabilitating the ESPRIT programme. He touched on one point from the midterm review, which was that companies were keen to develop discoveries that might come out of the ESPRIT programme without worrying too much about the intellectual property rights; that is, about "whose idea it was". I fear that perhaps we live in a litigious world. In the Texas courts, Texaco has just learnt to its cost that deciding whose idea of something is first is really rather important. I understand that it may get that judgment reversed in higher courts.

I would also be fascinated to know more of the early computer history that the noble Lord, Lord Kings Norton, has unearthed. For instance, the computer designed and built by Charles Babbage and the Countess of Lovelace sounds an illuminating avenue for historical research. We are obviously on the verge of having computer history as yet another academic subject. As many of your Lordships will be aware Sub-Committee F, since the conclusion of its ESPRIT inquiry, has been looking into the subject of "Broadcasting without Frontiers". This, on the face of it, is a somewhat different subject from that of ESPRIT, but there is of course a strong interconnection between the two. Broadcasting methods are very much part of information technology and what is making "Broadcasting without Frontiers", with respect to television, possible is the development of communications satellites—large objects which are complex electronic packages hoisted aloft into geostationary orbits by launch vehicles which, in turn, are controlled by sophisticated computer technology.

I was most interested to hear the eminent science fiction writer, Arthur C. Clarke, talking on Radio 4 a few mornings ago. He said that he had foreseen the development of satellite communications before the war, but that he had not foreseen them for the 1960s or 1970s but for the middle of the next century or the century after that. The governing factor, as he conceived it, was man's ability to build large enough launch vehicles to hurl satellites weighing thousands of tonnes into space. Why thousands of tonnes?—simply because the necessary circuitry, based on thermionic valve technology and its attendant power demands, would have required enormous satellites. He simply did not envisage—and probably nor did anybody else—that the invention of the transistor and its sophisticated cousin the integrated circuit were only a few years away.

As a young man of 19, I worked for a short while in the United States for a gentleman called Mr. Gerald Warburg, who was at the time, I think, the first cellist with the New York Philharmonic Orchestra. He had a fascination—I am not a musician so I may get this wrong—for splitting the octave in a different way. He had constructed at enormous cost an instrument the size of three grand pianos, which was in fact one of the world's first electronic organs, again using thermionic valve technology. I do not know what it cost him but I suspect the figure would be truly horrific in today's terms. Today the same instrument, whose measurements are governed solely by the size of the keyboard, and hence by the size of the human hand, can be bought in any good electronics retailer for under £100. The components of such instruments are, I am afraid, not British, European or even usually American but mainly Japanese and Taiwanese.

The pressures for electronics and information technology development in the United States came largely from the demands of military and space procurement, assisted by the needs of what I suppose we have to call the late "Ma Bell". There was sadly little similar pressure in Europe at the time when it was really needed. The British Post Office, as the forerunner of British Telecom, was seen to be apathetically content with Crossbar and Strowger until very recently, and military demands were fragmented in Europe. As my noble friend Lord Kearton said, few benefits seem to have flowed from military research in Europe. Only the French have shown any seriously sustained preoccupation with space.

Witnesses to the ESPRIT inquiry mentioned that firms in the information technology sector are short of qualified people. This has been touched on by the noble Lord, Lord Butterworth. But they need not just electronics graduates but people trained in almost any other discipline, provided they are logical thinkers. Logic is all-important in the software arts. We know that the Japanese fifth generation computer programme has as one of its principal aims the development of artificial intelligence in computers. It often seems to me that in this country we will be able to move ahead only when we have, as a basic tool, a computer which can isolate the true meaning of such language, commonly heard from school leavers, as, "I don't know nothing about no computer programming". The intent of such a statement may be clear to those of us versed in the English vernacular but it is all too symptomatic of sloppy educational standards, and computers confronted with a double or even treble negative tend to take them rather literally, with alarming results. I may have been a disappointment to my own teachers, for I am far from being a logical thinker; but I know they tried. I often wonder if the same can be said today.

I shall not reiterate either the praises or doubts about the adequacy of the ESPRIT initiative expressed in the Select Committee report, with which I am in full agreement. I detect, however, that the "Three Wise Men" conducting the mid-term review of ESPRIT, to which the noble Lord, Lord Kings Norton, and other speakers have referred, undoubtedly had the committee's report to hand when they made their analysis, and the majority of the committee's conclusions are at least addressed. While much play, however, is made of the need for co-operation between various Community and national programmes, only in one area of the review is the pressure on skilled manpower, created and exacerbated by the various programmes, and by their interaction, and indeed by the demands of a growing industry, focussed upon.

Both the noble Lord, Lord Kings Norton, and the noble Lord, Lord Butterworth, have talked about the academic initiatives being made today in the information technology field and about the need for more trained people. I wonder whether the time is not ripe for another national or Community programme to complement both ESPRIT and Alvey. Perhaps this could be called something along the lines of YOPIT—Youth Opportunites in Information Technology. It could channel the undoubted enthusiasm of this country's teenagers for computer games into more active and useful information technology awareness. Coupled to this, may I suggest that the academic syllabus of British schools should once again include pure logic as a subject? Given the lead of the United States and, increasingly, Japan, may I be forgiven, my Lords, for the awful pun in saying that we in Europe must encourage our young people to generate the ESPRIT, to shout Eureka and win the RACE?

5.5 p.m.

The Earl of Bessborough

My Lords, I, too, should like to congratulate the noble Lord, Lord Kings Norton, on his admirable speech introducing this important report. It was a privilege to serve on his sub-committee. His speech was an excellently concise survey of the history of the computer ever since, as my noble friend Lord Torrington, has said, Charles Babbage, assisted by Lord Byron's daughter the Countess of Lovelace, designed and built the first computer in the 1820s. I should like to think—I hope that the noble Lord, Lord Kings Norton, will appreciate this—that my great-great-great-aunt, Lady Caroline Lamb, who had that tempestuous affair with the same noble Lord may also have had some contact with the world of Charles Babbage, even though I think she was probably a better poet than she was a mathematician!

I agree very much with what the noble Lord, Lord Kings Norton, has said, particularly about the United Kingdom having allowed itself to slip far behind in hardware. Hopefully the situation in regard to software may be more satisfactory. But I am not altogether happy here either, and certainly the performance in software in the European Community as a whole has been falling behind its main competitors. It is certainly alarming to note that eight out of 10 personal computers sold in the United Kingdom are made in the United States and nine out of 10 video recorders in Japan.

There is one major comment I should like to make in regard to government policy in the information technology area. We know, as the noble Lord said, that the overall cost of our national IT programme, Alvey, is £350 million, £200 million of which is contributed by government and the rest by industry. In that connection, I was most interested in David Butler's article in The Times of 20th November. I have drawn it to the attention of my noble friend Lord Lucas because I think it is worthy of consideration by the Government. If his suggestion were followed, it would certainly constitute a radical alternative to the present policy, although personally I think his ideas and the Government's present policy might continue in parallel. David Butler proposed that the Government should purchase information technology systems rather than merely subsidise projects on a £1.50 to £2 basis—rather like the industrial research associations about which I reported some years ago. I am not criticising that form of support, which I approve, but I should certainly be interested to hear my noble friend's comments on that article.

The other main question I should like to ask is this: when are we going to see some demonstrations of Alvey and ESPRIT projects? I agree with other noble Lords, especially the noble Lord, Lord Butterworth, in his quite admirable maiden speech, that there is room for both programmes. I should like to take two examples. They happen both to come from Alvey, but I could probably find other examples within the ESPRIT programme. I mention just two because we discussed them in the committee. To take one example, your Lordships will see that in answer to my questions on page 12 to Mr. Brian Oakley, the director of Alvey, who is also very much concerned with ESPRIT, and to Sir Herbert Durkin of Plessey on page 31 of the report, it seems that it is not known, for example, when a prototype of a voice-operated word processor can be demonstrated. I certainly have not seen anything yet but I hope to do so. As I say, I believe that the same applies in respect of several other Alvey and ESPRIT projects.

I will mention one other good example—the ICL Logica DHSS project, which is of great interest to your Lordships because it is designed to provide a better service to help the public understand the complexities of legislation. It would be highly applicable in Europe too. When shall we be shown some tangible results? I know, as my noble friend the Duke of Portland has said, that it takes time. It may take years before a product emerges. Nonetheless, I should like to know whether there are any target dates for demonstrations of prototypes of eventual end products arising from those programmes and their specific projects.

Last Thursday I attended a long meeting with the EC Budget Commissioner, Mr. ' Henning Christopherson—an admirable former Danish Minister of Finance, who is as able a European Commissioner as my noble friend Lord Cockfield, who was also with us last week. I asked the Budget Commissioner whether he was able to monitor expenditure in respect of ESPRIT. He admitted that that was difficult even if, as he thought, ESPRIT is one of the better managed Community programmes. Ten million ecus are being spent on ESPRIT but even here the Commissioner was not altogether happy. If your Lordships listened to the noble Lord, Lord Kings Norton, and will read paragraph 108 on page xxxiv, you will know that your sub-committee were not happy either about monitoring. I hoped that the European Parliament might perhaps be committed into this area of monitoring projects but I was sorry to learn from my friend Mr. Madron Seligman, the MEP most concerned with these matters, that the ESPRIT management committee had not been at all helpful (see page 104, col. 2) about MEPs sitting in on Commission working parties. Someone like Mr. Seligman, who is highly qualified, could play a very important role in this area of monitoring.

Another important point on which I should like to have the Government's views concerns the participation of American-based firms such as IBM and Hewlett-Packard. Again, I received replies on this point from Mr. Brian Oakley, who is also concerned with ESPRIT, and from Sir Herbert Durkin, who said that I had put my ringer on the real question: what is a European firm? In some way IBM can rightly claim to be as European as British, French or German-based firms in this field. It certainly employs a large number of Europeans. The noble Lord, Lord Kearton, mentioned a figure of 105,000 Europeans employed—17,000 of them in this country. Also, IBM appears to manufacture most of its components in Europe. Is not IBM European too? It is perhaps the most highly respected great corporation in this area in the world. I know that IBM is involved in two ESPRIT projects, one with the French and one with the Germans—but I wonder whether it should not be more deeply involved in Alvey and ESPRIT in this country too.

Even if the results of the ESPRIT programme so far are not altogether impressive, I believe, like the noble Lord, Lord Kings Norton, that the programme is worthwhile in bringing together firms and universities which otherwise might not have thought of working in harmony. I know that some firms have said that those arrangements constitute more or less shotgun marriages with universities but I hope my noble friend may agree that sometimes shotgun marriages turn out quite well.

Another point already mentioned by the noble Lord, Lord Kearton concerns standards. My noble friend Lord Lucas will recall the Written Answer he gave me on 19th November regarding Government policy on IT standards. His department identified Open Systems Interconnection (OSI) as a high priority, He said also that the Government are fully supporting the European Community's programme to develop functional standards based on OSI, which were being increasingly specified in public procurement.

I wonder whether my noble friend can add anything regarding IBM's Systems Network Architecture (SNA) and whether he can elaborate a little on Government policy in encouraging the placing of proprietary architectures such as SNA in the public domain and their "migration"—which is the word my noble friend used—towards full conformance with OSI as rapidly as possible? Can my noble friend say how far that migration has gone?

Those are my main points. Otherwise, I go along very much with the recommendations of our committee concerning the need for effective co-ordination between ESPRIT and corresponding national programmes; the need for greater flexibility in ESPRIT, more like Alvey, as well as that for demonstration projects; the need for a vastly greater workforce not only of scientists, technologists and mathematicians but also of graduates in, as my noble friend said, any discipline, who are capable of logical thought; and above all, the need for the political will in Europe to pursue this programme and its specific projects with energy and determination.

I am glad that we are having this debate. I have often been amused, like the noble Lord, Lord Bruce, by the appropriateness of acronyms. That of the North Atlantic Treaty Organisation is NATO, which in Latin means, "I swim". The acronym ESPRIT is the French word for spirit, intelligence and wit. So far, so good. However I note that the letter "D" for development has been omitted. I only hope that that is not a bad omen, for I believe that what we now need most is product development.

Of course I agree with Mr. Dunn of British Aerospace (page 121) that sometimes it may be better to see a demonstration take place rather later because one can lose just as much money by going into the market too early as too late. Nonetheless, I should like to see some demonstrations as soon as possible. I hope very much that Eureka is learning from the ESPRIT experience, as was implied by my noble friend the Duke of Portland.

On the subject of artificial intelligence, I was a little disturbed in discussion with Mr. Hughes, the very able chairman of Logica—a remarkable firm—to have to quote Feisenbaum's book; that we in Britain did not originally take artificial intelligence seriously (see page 133). I only hope that we do so now, and I shall be interested to hear my noble friend's views on that aspect.

Finally, I agree with the last paragraph of the DTI supplementary memorandum on page 188, already quoted by the noble Lord, Lord Lloyd of Kilgerran. In my view, that is a good conclusion, with which I am sure my noble friend will agree.

5.20 p.m.

Viscount Hanworth

My Lords, I shall speak only briefly on this subject, because I have insufficient detailed knowledge to form opinions, except on the wider issues. I think we have now all realised that due to ever-increasing high technology the costs of some projects have soared to a point where no European nation can afford to go it alone.

This problem first became apparent in the aerospace industry; and even for jet engines Rolls-Royce found it difficult to provide the necessary funds for development. The same now applies to research and development in some other fields—or example, energy from nuclear fusion. The cost of moving forward to keep pace, or even to stand still, in the information technology field is enormous and it is for this reason that ESPRIT was formed.

It is hard enough for our own industry-based research organisations to overcome commercial secrecy considerations and control by companies, sometimes in their own self-interest. When research is done on an international basis the problem is compounded by national political interests and the language difficulty. Moreover, international decisions take longer and often end up as unsatisfactory compromises.

I have asked several people to what extent they think efficiency has been reduced in the projects which have been undertaken on a multinational basis.The answer has always been "At least 20 per cent.". One hopes that with experience the efficiency will be improved, but this must depend on developing stronger co-operative ties and putting the success of a project as a first priority. Without doubt very strong autonomous central direction is likely to produce better results than leaving too much to large committees. The saying that a camel is a horse designed by a committee was, and is, a pertinent remark in this respect.

In March 1982 the United Kingdom set up the Alvey programme as our reaction to the Japanese fifth-year generation computer project. It has a five-year programme, as your Lordships have heard, costing £350 million. Inevitably it is not going quite as well as was hoped. There is some overlap with ESPRIT which cannot be entirely eliminated. In spite of the difficulties and likely disappointments I agree with the Select Committee that both Alvey and ESPRIT should be whole-heartedly supported but without, as the committee says, unrealistic expectations of what will be achieved.

Bearing in mind that both projects are breaking a new field in international co-operation we must learn from their experiences, because such co-operative projects will be needed more and more in the future. To my mind the most important recommendation of the Select Committee is that Europe is seriously lagging behind its rivals in producing qualified manpower … for new technologies". We are still not doing enough in this direction. As I said recently in the House, it is engineers and technicians we need much more than pure scientists. It is in the development of a project and not in its invention where we failed in Britain, and have failed for many years past.

We must also think about using our academics to the best possible advantage. Some of them are engaged on pure research and quite unused to helping industry. Science parks ought to help in that direction. But I am reminded of the academic researching into solid state physics who thanked God every day that nothing he was doing could possibly have any commercial relevance. The transistor came out of such research.

5.25 p.m.

Lord Ironside

My Lords, as a member of Sub-Committee F my congratulations go also to the noble Lord, Lord Kings Norton, on the expert way he introduced the debate on the ESPRIT report and the capable way in which he chaired the inquiry on this very critical subject of information technology which now pervades every aspect of our lives. As the noble Earl, Lord Bessborough, said, ESPRIT is a very well chosen word which describes that bodily sense of being part of a venture—in fact, "esprit de corps"—and it is a good way of saying that the European Community is into fifth generation computing.

In naming names, however, as the noble Lord, Lord Kings Norton, did, let me add just one which I think is an example of the relationship that should exist between universities and industry: that is, Hartree. Professor Hartree is, I believe, remembered at Cambridge University for being the pioneer who inspired Lyons to introduce their Leo computer for business management, doing such work as pay-roll, stores, purchases, and so on. This was a big step forward from tabulators and number crunching and it opened up the way to commercial application, which is so very important to us these days. Therefore, I hope that we remember that name, too.

Incidentally, in the Babbage and Lovelace collaboration, of course, Babbage was the technician, but he lacked a business sense, so I understand, and it was Ada Lovelace who was the venture capitalist and knew where to find the money to give him support. In fact, I believe ADA is now a high level language compiler, in the military sense, in the United States.

I am very conscious myself of the importance of information technology and how essential it is to be aware of its power in industry and commerce and in so many human endeavours. Also, information itself is now a commodity, and I think we can be proud of the fact that in this House we have succeeded in bringing our science libraries forward, through the British Library Act, to be one of the arms of the great British Library which is now being constructed along the Euston Road to serve our future needs. The Science Reference Library will, I am told, be ready by 1992, or thereabouts, and that is not a moment before it is needed. Of course, the noble Lord, Lord Butterworth, referred to the capital value we put on information itself and having access to it.

The Department of Trade and Industry information technology awareness programme has been an enormous help in bringing people together from universities and public and private sector organisations to consider ways of getting to grips with information technology. I recently had the honour of being the keynote speaker at one of the DTI's information technology awareness conferences in Newcastle. I was struck particularly by the large attendance and the great interest of delegates in finding out how information technology can be harnessed to some of the more traditional industries of the North-East region. Armstrong, Parsons and Swan exemplify the innovatory strengths of the Newcastle area from the past and there is no reason why we should not see something like the Alvey or "ESPRIT on Tyne" emerging. But I think we do need to see a greater share of ESPRIT contracts going to the North.

I am sorry to see from Annex 2 of the Report that 36 of the 42 participants in ESPRIT apparently all come from the South of England. Perhaps, therefore, the North-East region needs more support from the DTI and the concept of an information park, perhaps centred on the university, would bring the right sort of information technology venture to the area. In fact, one might also consider an IT information park at Warwick University.

We heard evidence on a number of aspects of IT and I think it may be said that ESPRIT is industry driven. The fifth generation ideas are coming from the industrial participants, and I wonder how this rubs off on to the educational community, who have to teach young people the part that computers will play in their professional life and thinking processes and how to use them to the best advantage. As I understand it, the DTI are now giving grant-aided support for graduates at university to spend time in industry to acquaint themselves with the way in which an engineer mobilises IT in his mind and plans and achieves his product objectives. Only in that way can the student really find out what is required by firms who will be recruiting graduate material to join their fifth generation streams. Equally, firms recruiting from secondary schools expect a computer literacy in line with the way in which they apply IT.

We heard in evidence from M. Cadiou, who is the director of the ESPRIT programme, that he recognises the problems but that the Commission feel that solutions lie with national governments to find ways of overcoming them. University staff and assistant masters at secondary schools invariably have no industrial experience, and I think we must find ways of making the computer curriculum in schools and the IT teaching at universities more relevant to the fifth generation needs of industry. There is no need, of course, for me to say that we still have a skill shortage; this had been mentioned by a number of noble Lords who have already spoken.

Most of our evidence was taken a year ago, which is a long time in terms of IT—in fact, I suppose it is light years. But we have that ESPRIT mid-term report as an indicator by which to judge our options. The mid-term report contains routine comments about what I call the customer/contractor relationship between the Commission and firms. Many of the comments are justified and improvements are being made in the negotiating machinery, but I should like to just pick out one or two particular points which I think are critical to the success of ESPRIT.

One of the criticisms of ESPRIT is that it favours the efforts of the large firms and that the small firms are squeezed out. This may be true up to a point, but the nature of the business with the Commission—I know this from personal experience—is that you have to go to them because they will not come to you, or tell you what to propose. You have to put up the ideas and be in on the lower ground floor if you want to get their support. It takes a long time to obtain, and it is very frustrating for small firms who expect negotiations to be short and sharp.

Big firms like GEC and ICL put a lot of effort into sending their staff to Brussels, and it is not unusual to see at least a dozen people from such groups at the teach-ins and industrial briefings and so on; yet you will only see perhaps one person from a university or a research association. Some firms or universities which you would expect to be present are not even represented. I have attended many of these sessions, and this is true.

However, I congratulate the Department of Trade and Industry on trying to inform trade associations, firms and the people of this country about the teach-ins and presentations that are organised on the various Commission programmes. This is very helpful indeed; but I must admit that it comes a little late, because if it is the first time that one has heard of a programme which is taking place in Brussels then it is probably too late to take part. There are also many other important programmes being funded, such as BRITE, RACE and EUREKA, which are all aimed at increasing the competitiveness of European industry. ESPRIT is therefore not the only programme, and potential contractors have to keep their eyes scanning across a very wide horizon in Brussels if they want EEC business. So small firms do have a difficulty.

It has been suggested that there should be a quota system of ESPRIT for small firms, but I do not favour this as it does not necessarily bring forward the best ideas. If any arrangement is acceptable, it is likely to be a sub-contracting arrangement, which I think is less likely to raise objections at the pre-competitive stage. However, small firms may see more sense in electing to go for our national Alvey programme support because the entry stakes are easier and Alvey shows more flexibility towards the proposer rather than to what is proposed, but I do not want to see them barred from ESPRIT in the way that it happens at the moment because of the rather rigid procedures that are adopted.

Strictly speaking, they are not barred, but the essence of ESPRIT is collaboration across frontiers and we must remember that IT is not frontier-bound. The Commission expect 20 per cent. of the 1985 contracts to go to small and medium-sized firms in order to comply with their rule of having 25 per cent. of the packages below 5 million European units of account. They say that the quality of the proposal matters more than the proposer, but in my view this does not really help the small firms and I hope it does not mean that the small firms must be small-minded as well in order to qualify for ESPRIT support. There is an element of rough justice in the Commission's selection process, and small firms do not come out of it well. I think we must remember that they do have a lot to offer in breaking new ground.

Another criticism of ESPRIT is the lack of demonstration projects being built into the programme and the review board, quite rightly I think, have now recommended their inclusion. I think that this is good because the success of new technology depends on pulling developments through to the market on time. If this is not done then the investment will be wasted and a Japanese product will probably appear on the scene. As the noble Lord, Lord Butterworth, says, success means coming first and there is no place for the also-rans.

The review board also recommends that the funding of ESPRIT should be increased and that more attention should be given to commercialisation and the strategy of capturing markets. So far, ESPRIT has created a successful image for itself but it will be difficult to persuade member states that the commitment appropriations for research and investment as a whole should be increased above the 600 million units of account per year at which they stand at the moment. If ESPRIT expenditure is to rise, it looks as if it will have to be at the expense of other important research programmes. Your Lordships' committee is convinced that this is wrong unless it is possible to shift funds from the Common Agricultural Policy sector, where wasteful spending has been incurred. ESPRIT has come a long way but it still has much more ground to cover, and I hope that ways will be found of bringing it to a successful conclusion.

5.39 p.m.

Viscount Hood

My Lords, I should like to add my congratulations to my noble friend Lord Butterworth for his penetrating speech, which I am sure we shall all remember. Perhaps I may also add my thanks to Lord Kings Norton, not only for his speech, which surveyed the whole area of ESPRIT, but for the admirable way in which he chaired the committee on which I had the honour to serve.

I do not think that anybody can doubt the huge scope and the great importance of the development of intelligence technology. If there are doubts, the debate last week led by the noble Earl, Lord Stockton, should have eliminated them. I should like to pick just one sentence from that debate, in the speech of the noble Lord, Lord Zuckerman: We have tried too long to do everything on our own".—[Official Report, 14/11/85; col. 443.] That is surely a jutification for the European effort which is what ESPRIT is.

What is "European"? Viscount Davignon recognised the difficulty, and indeed in his testimony failed to give us a definition. Is it a company registered in the United Kingdom or Europe with the dominating controlling shareholders in Europe also? That is not necessarily a clear definition. After all, ICL is owned by a company which until recently was controlled in the United States and is still 23 per cent. owned there. Perhaps on the other side it is presumptuous and frivolous to say that with the great movement of British investment overseas in the past six years the United Kingdom may be a significant shareholder in IBM.

The importance of multinational companies operating in Europe is tremendous—and I am now following a theme of the noble Earl, Lord Bessborough. They are European in every respect except the ownership abroad. They pay taxes here, are registered here and, perhaps most important of all, employ a very large number of Europeans. I think that the noble Lord, Lord Kearton, mentioned the 90,000 people in the Community, of whom 17,000 are here.

In the testimony to our committee the IBM representative said that he believed that something of the order of 23 per cent. of intelligence technology in the United Kingdom was in the hands of IBM. Surely to ignore IBM is going into a great problem with one hand tied behind our back.

After all, the magnitude of the figures is important. Alvey is £350 million over five years; ESPRIT is 750 million ecu over five years; and IBM expenditure in 1984 alone was 4.3 billion dollars for research, development and engineering. The terminology of the expenditures is not exactly the same, nor are the currencies. But the sheer magnitude indicates the importance of IBM and, indeed, of other multinationals.

The committee took a firm position. It said that the involvement of non-European multinationals in ESPRIT was as much an opportunity as a threat, and added that they could not be ignored. The ESPRIT representative told our committee: ESPRIT can provide a stronger basis for negotiation. I agree with that, but I am concerned to see that only 2 per cent. of ESPRIT is going to multinationals outside Europe. That is a very small percentage. Also in the recent report that has just reached us I can see no reference to any negotiation or consultation with IBM or any other multinational.

I hope therefore that the Government will continue to support Alvey and ESPRIT and to use their influence to achieve within those programmes constructive co-operation with non-European multinationals which, like IBM, have large European establishments.

5.44 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth)

My Lords, I have looked forward for a few days now to listening to the debate. Under the chairmanship of the eminent noble Lord, Lord Kings Norton, one anticipated a report of depth, significance and importance. There is little doubt that your Lordships' House has been well served by him and his committee. It was suggested—I think by the noble Lord, Lord Bruce—that it is a pity that we are debating the report some six months after its publication. I have heard no word of criticism from any other noble Lord. Now that we have the benefit of the mid-term review, published only a few weeks ago, we can look at the report and to an extent the review and balance the various claims. Evaluation of a programme like ESPRIT is important so that we can learn lessons for the future.

Many of the issues which are being raised today were also of concern when the programme was first launched. In a debate on the adoption of the programme the Government made clear their strong commitment to ESPRIT as part of their commitment to the development of European industrial collaboration. The circumstances leading up to the adoption of ESPRIT were difficult: the budgetary talks in the Community over its future funding were still some way from being resolved. Yet the Govenment decided to go ahead and agree to the adoption of the programme in advance of a general settlement of the budget problem.

ESPRIT was, and is, seen by the Government as an exciting initiative and one which will strengthen Europe's IT capability and provide major opportunities for the United Kingdom. The programme offers advantages in sharing costs and spreading risks with European partners. It offers the scope for a major impact on standardisation, and by bringing together the European research effort it also encourages European collaboration in manufacturing and marketing. It should be remembered, too, that ESPRIT was launched as a programme based on what companies themselves wanted for Europe. The success of the pilot phase which preceded the main programme underlined the enthusiasm of United Kingdom and European firms faced with the opportunities offered by ESPRIT and the prospects for European collaboration. Company support continues to be crucial. Companies themselves, not government, have to make the decision whether or not to participate in projects.

Nor have the Government ever denied that ESPRIT has ambitious objectives. The aim of the programme is to lay the groundwork for Europe to compete in advanced information techology with Japan and the United States. It was inaugurated at a time when our major rivals in America and Japan had embarked on substantial programmes to maintain or increase their technological lead. ESPRIT was to act as a catalyst to increased activity in advanced IT co-operation and research. In other words, it was expected to encourage further activity beyond the scope of its own projects. It was certainly not the Government's expectation that ESPRIT would in itself underpin more than a relatively minor part of the effort which the IT community and companies in particular needed to bring to bear on IT research.

That view has not changed. Our objective continues to be to help develop a healthy and internationally competitive IT industry. But there needs to be a clear understanding of the role which Government can play in this. The Government have an undeniable responsibility to create the best possible conditions in which business can create the profits which will help to support R&D and other activities to underpin our competitiveness of the future. In the field of IT research, our responsibility goes rather further and we accept the need for pump-priming. The United Kingdom, and even Europe, stand very small in the international competitiveness league as against the United States and Japan. In an age when the costs of developing new technology and products and launching them on the market are growing rapidly it is impossible to recover these costs from the United Kingdom market alone. We cannot ignore either the massive amounts of funding by governments of other countries into this area. But we cannot substitute for the additional effort which companies must themselves make to secure long-term profitability and competitiveness.

ESPRIT must therefore be measured against the objectives which we had for the programme from the outset. This is not an easy task. A programme of pre-competitive research and development designed to help lay the groundwork for a competitive European position in advanced IT for the 1990s and beyond cannot be assessed, at least technically, after just two years. There are no end products from the research as yet. We can, however, start to make some comments on the effectiveness of the pump-priming. In particular, we can begin to get some measure of the extent to which European IT organisations are collaborating across boundaries as a result of being drawn together through ESPRIT projects. The mid-term review commissioned by the European Commission has some important conclusions to report on this. The report offers very strong evidence, on the basis of detailed discussions with ESPRIT participants, that ESPRIT has been highly successful in stimulating collaboration not just in research but beyond. The report says that the co-operation established within ESPRIT is extending outside and that it has given the European IT industry more confidence.

Let us not mince words. The United Kingdom has done well. Some 50 United Kingdom firms and 35 academic establishments are participating in 210 projects. The United Kingdom has obtained its proportionate share of ESPRIT funds in all the technical areas covered. Given that the Community contribution to the programme as a whole is 750 million ecus, this is likely to represent some 165 million ecus of funds, or roughly £100 million, going to the United Kingdom IT establishment. By any account, this is not an insubstantial sum. The projects also represent a remarkable collaborative effort. ESPRIT projects require industrial participants from at least two member states and there are some 160 separate entries for United Kingdom firms, and 60 for universities.

Two years on, we have made progress in tackling the question of how the research which is being fostered in a programme like ESPRIT can be pulled through to the market. I could not agree more that a unified European internal market is an absolute key to ensuring that the good work carried out in programmes like ESPRIT is not wasted through ineffective exploitation. A number of noble Lords made this point. The prospect of Eureka is doing much to stimulate both governments and industry into what can be done to improve prospects for exploitation and marketing of IT products. Eureka importance lies in the opportunity for the market to dictate the shape of the programme. We have asked industry to come forward with proposals for the sort of projects which will enable European industry to capture a greater share of world markets for high technology products.

It is industrialists who understand markets best and they will play a major role in selecting and implementing these projects. But governments and the Commission also have a vital role to play. They must press forward in removing barriers to a unified European market, both within the Community and outside. It is essential that our manufacturers are given the opportunity to benefit from a large home market if they are to compete in world markets. As my noble friend the Duke of Portland underlined, Eureka will enable industry's concerns and priorities to be reflected in the steps taken to create a truly common market. Among these measures, priority will be given to accelerating work in three areas: the development of European industrial standards; the elimination of technical obstacles to trade; and the opening-up of the systems of public procurement.

The United Kingdom has taken a strong lead in the discussions on Eureka to emphasise that the programme must stand as a symbol of European governments' willingness to make the Common Market a reality. The United Kingdom played a leading role in the discussions at the European Council in June on priority areas for action based on the Commission's White Paper. Governments agreed at the council on a target for unifying the market by 1992. Certainly, the United Kingdom will be using its presidency of the Community in the second part of 1986 to ensure that the actions necessary to meet this target are pushed through urgently. The United Kingdom will also be using its chairmanship of Eureka, which it took over from the Federal Republic of Germany following the Hanover conference, to stimulate a joint discussion by the Commission and member states on these issues.

My noble friend Lord Torrington asked for another programme. I think that what I have said is the answer to my noble friend. I make no apology, my Lords, for having taken some time to develop this Common Market theme. It is, I believe, important for all of us to appreciate exactly where Her Majesty's Government stand. A number of your Lordships have discussed this.

We are also conscious—this was mentioned by the noble Lord, Lord Lloyd of Kilgerran, whose interest in inventors and inventions is well known to all of us—of the issue of small-firm participation in a programme like ESPRIT. To some extent this is the problem of advanced IT research and development projects requiring a substantial research capability which is not often found in smaller firms. The pattern of support is bound to reflect this. Nevertheless I would draw the attention of my noble friend Lord Ironside to this—there are small firms participating in ESPRIT as there are in Alvey. One, Whitechapel Computer Works, is a splendid example of a small high technology firm which has a major involvement in the office systems part of the ESPRIT programme. There, it is leading a project involving Queen Mary College and French, German, Italian and Dutch colleagues, to develop an office systems research workstation for Europe. We are considering ways in which more small firms might be encouraged into such programmes.

But ESPRIT is essentially a programme of support for research, not for product development. I noted with interest what the noble Lord, Lord Lloyd of Kilgerran, had to say about human factors, and perhaps the project will address itself specifically to that aspect. The noble Lord asked why firms sometimes go electronic when manual operations may be more cost-effective. He suggested that going electronic was perhaps something of a vogue in which people got caught up. This is surely a matter for evaluation by a company itself.

The noble Lord also raised, in a roundabout way, as did my noble friend Lord Bessborough, the involvement of multinationals. I felt that my noble friend Lord Hood summed up the case for the multinationals very fairly. I believe that there is no doubt that the involvement of non-EC multinationals in a programme like ESPRIT can be seen as much as an opportunity as a threat. Multinationals with substantial research bases in Europe must have a potentially valuable contribution to make. They must have a good European partner. Most do. And the route to exploitation must be carried out, and is carried out, through the Community.

If the noble Lord, Lord Bruce of Donington, will forgive me—he very often does—I thought that his was a disappointing speech, but I understand why he said what he did say. I cannot agree with his remarks, but of course he has a perfect right to express his point of view. I wish to pick up only one point. I disagreed with nearly everything else that the noble Lord said. I wish to pick up the point concerning the relationship between ESPRIT and the United Kingdom's Alvey programme, particularly the noble Lord's suggestion that we should abandon the contribution to ESPRIT and put the money, being good Britons, into Alvey. There is nothing wrong with that. I agree with him there. But we consider that there is a need for both national and international programmes of a complementary nature. ESPRIT and Alvey are not totally similar; there are differences. Neither programme is capable of meeting all our requirements. ESPRIT projects tend to complement each other and are selected by United Kingdom organisations according to rather different requirements.

Lord Bruce of Donington

My Lords, I am grateful to the noble Lord for permitting me to interrupt him. In the field of fundamental research, which is what both Alvey and ESPRIT are concerned with, could he describe one field that is already dealt with by Alvey which is not also covered by ESPRIT? In other words, what extra project in the field of fundamental research is Alvey short of in comparison with ESPRIT?

Lord Lucas of Chilworth

My Lords, no, I cannot, and I am not going to do so because the noble Lord, Lord Bruce of Donington, knows very well that we are not talking about a project; we are talking about a dimension. ESPRIT is a new dimension. It is but two years old. It is a dimension in which collaboration will enable the United Kingdom, together with European partners, to become a competitive force in world markets without which we shall not survive. The noble Lord, Lord Bruce of Donington, knows—I have said this to him on a number of occasions—that the United Kingdom alone versus world markets equals not a lot. The United Kingdom plus Europe versus world markets will account for a great deal. We need that collaboration; and ESPRIT is the vehicle to introduce ourselves to collaborative developments.

My noble friend Lord Bessborough asked me a number of questions. I wonder whether I could respond very briefly. He asked about David Butler's article in the paper the other day. I do not believe that he has got this quite right, because we must have some supply pump-priming as well as priming on the demand side. Otherwise, there is a danger of supporting only imports and not United Kingdom technology. On industrial standards, I believe that we shall be able to make more effective use of Eureka in this area.

May I turn quickly to the very interesting and admirable maiden speech of my noble friend Lord Butterworth, upon which I congratulate him? A key ingredient of our competitiveness is our resources of human skills. Shortage of skilled manpower is by no means confined to the United Kingdom, although we certainly believe that the major thrust in tackling this problem has to be at national level.

The Government's IT Skills Shortages Committee was set up with this in mind and has now produced three very useful reports. But it is for industry to identify its skill needs. Here, perhaps, I could enjoin the comments of the noble Viscount, Lord Hanworth, because he was talking specifically about this. Might I remind your Lordships that 1986 is Industry Year, and that has been set up by the RSA with Government support to help in the identification between education and industry the importance of each to the other. I believe that industry can provide a good deal of assistance to the education sector, and it has already responded very well to the committee's work by setting up the IT's skills agency.

The noble Lord, Lord Ironside, made a specific point with regard to ESPRIT projects and the North. He knows that this is a research programme and not a regional policy programme. However, Newcastle University and a small firm based in the North, Mari, are prominent in projects. A number of noble Lords have spoken about the ESPRIT's project assessment and monitoring. There are bound to be lessons which we can now learn from the two years of operating the programme, and the mid-term review offers a number of recommendations. We can and will look at the detailed management proposals therein. But through the management committee the United Kingdom will draw attention to this problem. However, we believe overall that the management structure is probably right and under the leadership of the Commission operates reasonably well despite the very considerable pressures that are put upon it.

The noble Lord, Lord Kearton, asked whether ESPRIT is enough. The committee has expressed concern, as he did, that ESPRIT is not enough and that other new technologies—not just IT—deserve support. We should not underestimate ESPRIT's capacity as it stands to stimulate co-operative research. Nor should we forget the priority that industry itself attached to the launch of the programme. Nevertheless, adoption in the last year of BRITE and the definition phase of RACE, and indeed our contribution to Eureka, show that there is room for work in other sectors which the United Kingdom is prepared to support and at the same time continue to keep public expenditure under control.

The noble Lord, Lord Kings Norton, asked one very specific question of me: what is the Minister for technology doing to further ESPRIT? With regard to continuation, we have not yet put forward a formal proposal and it would therefore be a Utile premature for me to comment this afternoon. But certainly on current plans the Alvey programme is increasing efforts to co-ordinate national and international projects to tackle these various problems jointly.

It was the noble Lord, Lord Kearton, who invited me to make one particular comment, which I now make. I think it is fair to say that the Government would endorse much of what the Select Committee had to say about ESPRIT. The committee is right to draw attention to the vital importance of IT and the pioneering nature of ESPRIT as the first large-scale European programme of collaborative research. It is also right to sound the warning that there must not be unrealistic expectations of what ESPRIT alone can achieve. Nor must there be failure to match ESPRIT's efforts with corresponding attention to solving the problems of Europe's internal market.

Of course, more needs to be done. We have started on the process of exploring what strengths Europe can muster if it collaborates in this vital sector. It is urgent work, and we must find the resources with which to tackle it. This will require a combined commitment by Government and industry to develop the collaborative habit, both in terms of attacking the barriers which remain to a single unified market and the technical work which must be jointly carried out. This is not just a question of Government financial resource or even necessarily of continuing a programme like ESPRIT without change. The effort needed is in finding the collective political and commercial will to effect the measures necessary to bring Europe's fragmented industry together.

The question has been asked this afternoon as to whether we are doing enough. I believe that the case for optimism has never been stronger. We are at least beginning to mobilise our resources in Europe. With Eureka there is a strong, collective political will in Governments to do something about the underlying structural problems of the market. There is also the will of industry through which ESPRIT and other programmes are rapidly acquiring the habit of collaboration and are drawing on the strength of European partners to take on the competitors of America and Japan.

At last Europe is getting the message that it has to collaborate to survive. Unless we in the United Kingdom collaborate with Europe, we shall be isolated. The United Kingdom has nothing to be ashamed of, and a great deal to be proud of, in its advanced IT research capabilities and in its manufacturing strengths to pull these through. In software and in advanced information processing we are with the world leaders, and that is reflected in the share of ESPRIT funds which we have received. We—and I mean all of us—must however continue to make efforts to mobilise these capabilities for the market, using the opportunities which are being opened up by programmes such as ESPRIT.

6.10 p.m.

Lord Kings Norton

My Lords, I shall not make another speech this evening. However, first I should like to thank the noble Lord, Lord Lucas, for what he has said. Quite clearly he understands the scene which we have been discussing and he had the right ideas about it. The only matter which causes one disquiet is the possible timescale for improvement. Indeed, that was the anxiety behind paragraph 66 of our report, which we put in black letters and to which I particularly drew the attention of the noble Lord, Lord Lucas. I hope that we shall hear more about that paragraph later and will be told what specific plans there are for changing what we describe as the lack of political will on the European scene.

As regards the question raised by the noble Lord, Lord Bruce of Donington, about the two programmes and whether we need them both, it should be said that the Select Committee felt that the two programmes were complementary. It is not to be denied that there are certain areas of overlap. However, it must also be remembered that the director of the Alvey programme sits on one of the governing committee's of the ESPRIT programme. Therefore, there is every reason to suppose that there is a proper type of co-ordination of the two programmes.

I should like to say how delighted I was that the noble Lord, Lord Butterworth, chose this occasion for his maiden speech. We listened to him with admiration. Clearly his long experience in the academic field and in the field of training is of immense value to us here. We hope that we shall hear from the noble Lord on many occasions in the future. What he had to say today was full of wisdom and I hope it will lead to further action.

I was delighted to learn of the ancestral connection of the noble Earl, Lord Bessborough, with the early days of computers. Also, apparently the noble Lord, Lord Ironside, is well informed as to where risk capital came from. In point of fact, Charles Babbage inherited a large fortune and he spent it all on his two great pieces of apparatus which were, of course, not electronic but purely mechanical.

I do not think there is anything further that I wish to mention this evening except to emphasise that ESPRIT and Alvey, with all their merits, with all the good they can do, are more symbols and signs of goodwill than anything else. The great contributions must come from the great organisations and the great companies. They must be the people who provide the apparatus which we need for the prosperity of the future. However, if they are inspired by Alvey, if they are inspired by ESPRIT—which we hope they will be; and there is some sign that they are being so inspired—then what we have been talking about and what we inquired into in Sub-Committee F will be of great value to industry in the future.

On Question, Motion agreed to.