Tony Blair's speech in full... (part one)

I would like to begin by welcoming everybody but particularly the e-envoys from the many different countries who have been kind enough to join us today. You are very welcome to the UK and I hope that you find your trip worthwhile - we are certainly grateful for your contributions to this debate.

I consider the question of how we harness the potential of technological change - alongside the related question of science, to be the fundamental economic and social challenge of our future. Long after the cloud of day to day events has dispersed, what we do with information technology and how we use it, will determine our success industrially and as a society for years to come.

My message is blunt and simple: we are doing well, but not well enough. Over the next few years we will invest, as a Government, £6bn in IT. We will radically alter access to IT facilities. But, we have yet to grasp the full scale of the opportunities that the information revolution presents. Business needs to see its application as a core management challenge. Public services need to see it as crucial to implementing public service reform. Government and people should make it the basis of forming relations between citizen and state. For all of that to happen, access needs to be universal not partial.

In particular, we must recognise that the greater economic stability we have achieved - lower inflation, low interest rates, low unemployment - is only a foundation. It is a necessary but insufficient condition for success. The key is to build on this - an economy based on knowledge, on the alliance between technology and human capital, so that we are continually developing more high value-added goods and services.

I see a very clear link here between British science, the development of British universities and the technological revolution. A couple of weeks ago, I had a presentation at Downing Street from some of our leading scientists. It covered fields such as nano-technology, brain transmitters and the latest in IT. The potential in all cases was immense, for industrial production, medicine and communications. The connection between top quality scientific research and business spin-offs and development was obvious. But I also reflected on how any young person at school receiving such a presentation would have been fascinated by the sheer scale of the possibilities of science and the excitement of it. And in the end, of course, it is business managers or public service reformers that will apply the technology in new ways.

The point I am making is this. Part of winning this IT battle for the future is to create a culture in which the worlds of education, academia, science, technology and business are engaged in a perpetual conversation and exchange of views. A conversation in which we are breaking new ground in scientific and technological advance, in which our schools and universities feel comfortable with its potential in which business and society are naturally looking for ways of applying the advances made.

This is the modern industrial policy for any Government of the developed world. It is miles away from planning and picking winners. It has moved beyond the 1980s notion of "get Government out of it". It is a Government role that is enabling, creating the infrastructure of learning in our schools, universities, and in the wider community helping business access the technology, creating the environment in which new businesses can grow.

So how does this translate to practical policy?

In reaction to an unsustainable boom in stock market valuations, too many people wrote off the potential of new technology in the UK economy. We must take on the techno-sceptics but we must also recognise that technology alone is not the answer. Putting a PC on a desk does not itself boost efficiency. Establishing a broadband connection will not, alone, solve the productivity paradox. As economic research has shown, it is only when investment is combined with the right skills, with imaginative organisational change and rigorous managerial delivery that productivity gains come through.

Despite the dramatic fall in share prices the influence of technology has continued to rise steadily. In society, digital technologies are changing the way we live, from the way we communicate through email and text messaging to how we access information. One million people from all over the world accessed the Government's dossier on Iraq within hours of its release on the No10 website, just one simple example of the democratisation of information that was unimaginable until very recently.

There are now 600 million people online. Worldwide 140,000 more people connect to the net everyday. In the last three decades the price of a transatlantic phone call has fallen to a small fraction of its original level. In the same period, just as Intel's Gordon Moore predicted, computing power has doubled every eighteen months to two years. A 3G handset, soon to be on sale in every high street in the UK, has around 20,000 times more computing power than the Apollo 11 spacecraft.

Recently, we witnessed an incredible moment when scientists at MIT in the US and UCL in London teamed up to pull off the first transatlantic virtual handshake. Using second generation Internet technology, they recreated the sense of touch over a 3000 mile distance - a remarkable development that could have applications for areas as diverse as medicine and design.

Many companies are already taking advantage. One example is sheet metal suppliers Allsops in Huddersfield who invested in technology to enhance their production process and improve customer service. Enquiries from customers can now be instantly answered from any of the company's networked computers. Customers in a hurry for a quotation can send detailed and complex computer aided design drawings by email, enabling Allsops to respond quickly and effectively. It's given them competitive edge - and saved them time and money.

The consequence of all this is enormous. For economies the potential prize is wealth creation. For governments a new relationship between citizen and state. For people, greater prosperity more widely shared.

The fundamental challenge is to create a knowledge-driven economy that serves our long-term goals of first-class public services and economic prosperity for all. To do so we need to innovate. We need to use ideas and intelligence in new ways that create higher value added products and better quality services. The opportunity to develop the knowledge driven economy is vastly increased by the digital age. Our ability to find and use information, to share ideas across geographic boundaries, is enhanced immensely by the revolution in communications and computing.