Funding research into innovation

WESTERN economies are changing. Manufacturing jobs are moving east where the labour is cheaper. There is little that can be done about this. First world countries cannot compete with third world countries on costs. So we focus on knowledge-based areas such as technology.

Ultimately, this is a losing game; our competitors are bigger and hungrier. Countries such as India and China are also developing in this field, and can undercut the West. In the end, either everywhere must level up to decent wages and benefits, or we will all level down and become third world countries.

Meanwhile, in the absence of global solutions, the Scottish Executive is doing its best to promote local innovation. Scotland has a fine tradition of invention, but has been less successful at the commercial development of technology. This is not surprising with R&D budgets well below the national average, which is in turn below the United States and European standard.

To help remedy this, there is a plethora of government support for people starting new companies, ranging from free advice to 100,000. One example is the EPIS incubator scheme, run by Edinburgh University, Scottish Enterprise and the EU regional development fund. This gives would-be technology entrepreneurs access to business mentoring, expert advice from academics, a support network, and some seed money.

I recently attended EPIS's first birthday celebrations, which showcased a diverse handful of fledgling firms. The EPIS entrepreneurs range in age from 24 to 55, and come from across the whole of Scotland. The technologies vary from a gruesome system for converting abattoir blood into fertiliser (developed by Russian immigrant Dr Yuriy Zadyraka), to pastel mood lighting (made by Mimetic, proprietor Richard Brown).

There was an eye-catching display from Pufferfish, a company which produces portable spherical projection units (ie giant TV balls). Inside the ball, a computer feeds video streams into a set of data projectors. The result is an unusual talking piece - ideal for advertising displays. This is a sideline to fund the firm's more ambitious project.

Pufferfish co-founder Will Cavendish told me about his plans to develop projection techniques for immersive environments - a visual equivalent of surround-sound. The system will use data projectors fitted with fish-eye lenses. The trick will be to adjust the projection calculations to fit different rooms. If it works, the result will be a projector that can turn any room into something like an IMAX cinema. At 24, Will is the youngest person in the scheme.

Another IT start-up is Blootag, headed by affable computer scientist Joe Halliwell, which is developing a hi-tech introduction service. Blootag will turn your mobile phone into a radar for finding like-minded people. Walk into a bar or onto a bus, and the system will put you together with any fellow model train enthusiasts, cricket fans, or whatever strange perversions you are into. Although the company is at pains to point out the more boring applications, the obvious use is for dating.

At the industrial end of the spectrum, there were two sound wave technologies. The Ultraject company use ultrasound waves to create smoother liquid sprays - and hence more efficient car engines. A separate project by Edinburgh academic Dr Cosgrove aims to use a "mesh" of sound waves to give a filter that never clogs.

A couple of companies look set to do very well riding the waves of new EU environmental legislation. Dr Zadyraka's blood fertiliser provides a safe way of recycling a tricky waste. Iain Robinson heads up a water treatment company with a new product that is currently in trials with West Lothian council. Both men have unique systems that dovetail nicely with tougher new regulations.

As an observer, I found the showcase a bit disappointing. There was a distinct lack of lasers, giant androids and good quality alcohol. But the event was not aimed at me. Like the EPIS scheme itself, the point was to introduce businessmen to technologists - in the hope that they will make beautiful money together.

Whether such schemes can really provide a new economic engine for Scotland is unclear. Science businesses are never going to employ as many people as ship-building.

However, change is not a choice but a fact. For better or worse, the country needs more small, flexible companies if it is to compete in the fast-moving modern world.