It may seem surreal that one of the organisations charged with building policies for a much-expected Labour government is pushing the British racing car industry as a model for our technological future.

But according to the Institute for Public Policy Research, more than 600 firms across southern England show what a significant part of British industry could look like. Profitable, technologically advanced, innovative and entrepreneurial, and perhaps best of all, successful without recourse to state funding.

The tale the IPPR tells is of small firms, often started by a single talented engineer, operating in an industry where quality, performance and delivery are everything and price is rarely the determining factor in winning the business. The skilled people who work in the industry are as genuinely creative as musicians or novelists, and like them are in a glamour industry in which people work for pleasure as well as money.

The interesting question is how to replicate the success of these firms - which turn over almost Pounds 2 billion, export 44 per cent of their output and employ almost 50,000 people - in other industries. Nobody planned their success, or designed science parks, tax concessions or industrial synergies to make it happen. Instead, British motor racing resembles the City of London, where history and geography have combined to produce a dense web of skills.

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There are other British successes of which a similar story could be written - music production, animation or the manufacture of cookery equipment. These businesses all run on enthusiasm and skill, multiplied by high technology, and they depend upon a strong university system to feed them with imaginative graduates and feed their innovation effort.

Higher education can help. Institutions need to be responsive to student demand - and not too anxious over new subjects such as media studies (page 8). The enthusiasms of students and potential students make a good starting point, for it is the next generations of graduates who will build the growing industries. And it is these new industries, born out of new technologies, which will provide satisfying graduate jobs in future. Providing students with a good education, which gives them the courage and confidence to experiment and the skill to do it with, is the start.

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Second, higher education can and increasingly is getting involved in supporting new companies. The University of California at San Diego show what can be done (page 12). Most universities already have a science park to help new firms get going, but perhaps a conscious policy of developing industry clusters in particular ones might pay dividends. So will support for new companies through joint ventures, taking share options and providing part-time appointments for people making the transition.

Beyond that it is a matter of making and keeping contact so that new high-tech companies can get help as they build up. The process of growing companies, for example, needs support or too many will fail or see their ideas taken up and exploited, as so often in the past, by larger overseas rivals. Despite the claims of its supporters, world-class racing car technology does not necessarily feed into world-class production car manufacturing.

If we do not find a way to help them develop their businesses beyond the craft scale, they may profit individually, carrying their portable abilities to wherever in the world they are appreciated, but they will not make the country as rich as they might.