LONDON—All over Europe, politicians and planners are wondering if small, science-based companies can regenerate fading economies hit by the decline in such traditional industries as shipbuilding and steelmaking.

In their search for answers, Cambridge, England, has emerged as a living laboratory to test the economic value of such businesses and the process through which academic innovations are transferred to industry.

Cambridge, which as little as 10 years ago was known primarily for its centuries-old university, today enjoys the biggest concentration of small, technology-based businesses in Europe. The area is often compared to the assortment of high-tech industries in California's Silicon Valley and the Route 128 corridor around Boston.

The city and its environs boast more than 400 such concerns, with from 30 to 50 new firms appearing every year. Many of the businesses, which employ about 12 percent of the local work force, have strong links with the technical departments...

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