Podium: The new conservative enemy

Peter Mandelson From a speech by the former Trade and Industry Secretary to a conference at the Commonwealth Institute in London

KNOWLEDGE IS at the heart of human invention and defines developments in every field - the arts, business, science and medicine. The ability to understand and create is a uniquely human capability.

Where scientific knowledge is welded to the process of production, it stimulates changes that are qualitatively different from any others this century. In consumer markets there is a ceaseless stream of new products and services - 90 per cent of products are overtaken within two years of launch.

Today, the knowledge-driven economy is spreading throughout the world, but Britain's position is unclear; will we be a part of it, in the lead, or forever trying to catch up? In the last two years Britain has managed to avoid recession, while keeping inflation under control.

However, while Gordon Brown can boast a formidable record of success, with action to remove key structural weaknesses in the economy, the UK's productivity rate remains poor in comparison to continental Europe and the US. Britain cannot allow its economic performance in this century to be repeated in the next.

In the knowledge-driven economy Britain requires a modern partnership between government and business. An innovative economy must be socially inclusive to realise its full potential. If we write off 30 per cent of the population, we are writing off a lot of knowledge, intelligence and creativity. We cannot tolerate such social failure.

I believe that the knowledge society provides the perfect opportunity to realise the historic aims of centrist and centre-left governments throughout this century - to create a dynamic market economy that has social cohesion, justice and fairness.

But meeting this challenge means creating a vital synergy between business and government. Government must behave like an entrepreneur, be adventurous, take risks, seize opportunities, invest in skills and exploit capabilities.

Many of the problems of the public sector are that it denies itself just those qualities that make private sector businesses dynamic. We need a new mix within the public sector of old values - universal service, fairness, neutrality - combined with innovation, ingenuity and entrepreneurship.

The public sector is often too slow to learn. The public sector is full of people working hard, doing a good job. But often best practice is trapped in local pockets. This needs to change. Knowledge of the best needs to spread to the worst. That is government's role. We have only just begun to think how the Internet and electronic public service will transform the operation of the public sector. How doctors dispense, and patients get access to health advice. How tax forms are processed. How people participate in education and political decision-making.

And, let us be clear, the euro has the potential to provide the best foundations for economic prosperity for a generation. We will join only when the conditions are right, but we must prepare the ground.

In the knowledge-driven economy, no one must be cast aside. Britain's future will be determined by harnessing the talent and potential of everyone. But we must also be serious about welfare dependency; a knowledge society needs active investment in work, not passive investment in failure.

It is time for Britain to be a world leader in educating the under-fives and training the unemployed, a world-beater in caring for the elderly and cutting crime. This is my vision for a modern, vibrant public sector. It means government as regulator, opening markets, rewarding innovation, protecting the consumer and delivering best value.

We need to understand the nature of the "new conservatives" who stand opposed to the challenge posed by the knowledge revolution.

These conservatives exist on both the left and the right: those who call for exit from the European Union. Those private monopolies and vested interests whose natural role is to resist change, whether in business, the trade unions or the public sector.

Those in the educational establishment who oppose the reform of student finance, when reform is the only basis for creating genuine, lifelong learning, ending the narrow class base of Britain's universities, equipping a workforce fit for the knowledge-driven age. Those who believe the role of the welfare state is to invest in idleness rather than stimulating opportunity. Those who make excuses for poor performance in public services.

What's crucial is that the Government does not bow to these forces. It must avoid the temptation of temporary expedients, risking the basic changes that are needed in society.