Ever since the industrial revolution, science has driven the global economy. As a scientific nation, the UK is, by most indicators, second only to the US. But this is not fully reflected in our economic strength, so where have we gone wrong?

In these tough times, we are refocusing on how best to harness this strength to our national advantage. Political responsibility for nurturing our academic talent and for unlocking its economic benefit now rests with a single “super-ministry”: the Department for Business, Innovation and Skills, and particularly in the hands of Lords Mandelson and Drayson.

It seems clear in retrospect that this country was precariously overdependent on its financial sector; so the new ministry's aim should be to ensure that our science and engineering strength enables us to emerge from the downturn with a more diversified economy. There should plainly be special boosts for sectors ripe for exploitation - via, for instance, the Technology Strategy Board. But is important that long-term prospects - and the strength and breadth of the UK's academic base - should not be jeopardised.

There have been concerns about this balance, especially from the universities - after all, “business” comes first in the new department's name; neither science nor universities is mentioned.

If civil servants were to analyse the UK's “assets” that are most relevant to the recovery, what would they find? High among them would be our universities. We are the only country outside the US with several universities in the top international league, and excellent research is spread throughout Britain's higher education.

The most readily measurable economic benefit of academic research is the transfer of knowledge from university labs to industry. But that is only a small part of the total. Research universities fulfil other key roles that are harder to quantify. They are “networked” into research across the globe. Their graduates spread expertise throughout the private and public sectors. The worry must be that if we do not continue to invest in our graduates they will be tempted to the US or countries such as China where opportunities are increasingly available.

Our leading universities - like Harvard, Stanford and MIT in the US - are not primarily places for “applied” research. But within them discoveries emerge, unpredictably and unplanned, that have the potential to transform lives. None of those who worked on the magnetic properties of atomic nuclei had any thought that their work would one day (through the Nobel prize-winning work of Peter Mansfield at Nottingham) have medical applications via the MRI scanners we find in every hospital. Similarly, the pioneers of lasers had no idea that they would be used in eye surgery or in DVDs. One of my predecessors as president of the Royal Society, George Porter, averred that there are two kinds of science: applied and not yet applied.

There is also a strong correlation between the research quality of a university and the strength of the commercial cluster that is attracted around it. Talent attracts talent, and big companies, too. In these high-tech communities, success breeds success and - just as important - failure is accepted as a step towards later success. Around Cambridge alone there are more than 1,000 start-up companies, a number of which have become multibillion-pound international enterprises.

I am fortunate to know many of the leading UK scientists - those who have won Nobel prizes or the equivalent. They are all individualists, but on one thing they would all agree: they would highlight the long-term nature of their work, the unpredictability of its outcome and the need for a supportive environment. To ensure that our universities stay competitive - and retain top talent despite the blandishments of top research centres in the US and the Far East - it is crucial that they continue to offer this environment.

Lord Mandelson recently offered reassurance that the science budget channelled through the Research Councils is “safe” and “ring-fenced”. He recognised that fundamental science is essential to maintain our ability to produce pioneering research that will support our future prosperity. He has also lauded our universities and their contribution to the economy. This is all excellent news.

It is in our interests to support excellence right across the board - and indeed it's affordable even in these straitened times. The Royal Society has convened a group with wideranging expertise (it contains two former science ministers, two Nobel prizewinners, and others with commercial experience) to study the long-term value of science to the economy. Its report will be entitled The Fruits of Curiosity - a phrase that captures the value of science. Most great breakthroughs start with the curiosity of the scientist, but in science, engineering and medicine the payoff for research and development can take decades to appear rather than years.

It clearly makes sense also to look at where we have been successful and where we might do better. The pharmaceutical industry has flourished in no small part because of the strength of the UK's research base in biomedical science. And that base is strong because public support for biomedical sciences has been massively supplemented by charities, and by the industry itself. There are many examples of financial success in the medical sector - the winner of this year's Royal Society Mullard Award, Shankar Balasubramanian, received a £200,000 Research Council grant in the 1990s to study rapid DNA sequencing, and within a decade this led to a business worth about $2 billion.

But what about other sectors? The earlier ministerial stint of Lord Drayson, at the Ministry of Defence, where he oversaw procurement of high-tech equipment will have convinced him that our manufacturing sector in physics-based industry is patchy. There is a paucity of leading high-tech manufacturing companies in the UK. Indeed, the weakness of our electronics industry stems from short-sighted policies and lost opportunities in the 1970s and 1980s, from which lessons can surely be learnt. We had the science but we failed to capitalise on it.

At a time when we need to rebalance our economy towards high-tech manufacturing and services, we should build on the momentum developed during the past 12 years of sustained government support and invest in recovering our strength in the industries based on the physical sciences.

Lord Mandelson has asked that the Government be judged on its policies. That is fair. But the policies must not only be judged against previous measures but also in the light of the efforts in other countries. To retain our international competitiveness, we must raise our game. The Obama Administration has given America's scientific community a massive boost - in morale and in substance - promising to move science to the heart of government and the economy. Our success in attracting and retaining footloose talent will be at risk unless we respond - and unless we can deploy our limited resources even more effectively than the US does.

Lord Rees of Ludlow is president of the Royal Society

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