Competing in the Global Economy ?The Innovation Challenge The DTI drives our ambition of rosperity for all?by working to create the best environment for business success in the UK. We help people and companies become more productive by promoting enterprise, innovation and creativity. We champion UK business thesis at home and abroad. We invest heavily in world-class science and technology. We protect the rights of working people and consumers. And we stand up for fair and open markets in the UK, Europe and the world. iii Foreword The recent DTI strategy showed that to be truly effective, policy must be based on a rigorous analysis of all the available evidence. At the start of the Innovation Review, economists and statisticians in DTI抯 Innovation Group came together to review the available evidence on the UK抯 innovation performance and the factors that help explain it. This paper sets out the findings of their assessment, and provides the evidence base and analytical framework for the overall Review. This paper is being published, as part of a general publication of the DTI evidence base, in advance of the full Innovation Review and the Lambert Review of Business-University Collaboration. Many issues, such as innovation, cross the boundaries between different Departments? areas of policy responsibility. To ensure that this Review took into account the whole picture, officials from DTI, HM Treasury and other Government Departments worked together with research bodies ?such as the Advanced Institute of Management (AIM). A distinguished panel of academic experts was also established to guide, and comment on the work as it progressed. The paper identifies key UK strengths such as the strong Science, Engineering and Technology (SET) base. However, the main message is that UK innovation performance is, at best, average compared to its peers. It is likely that UK firms are unable to make best use of the advantages presented by the strong SET base because of low levels of innovation spend. Historic weaknesses in sk