Entrepreneurship and technology
Where’s Britain’s Bill Gates?
Britain’s government cannot conjure a technology giant out of thin air. But it can help
Aug 6th 2011 | from the print edition
MEET the British Bill Gates. He studied computer science at Cambridge—dropping out to start his career in nearby “Silicon Fen”. Then he launched his own start-up, based at “Silicon Roundabout”, a new hub of tech firms in east London. Bolstered by finance from the City, he resisted the lure of a foreign takeover, ultimately listing on the London Stock Exchange.
It is a plausible biography—given the necessary addition of animal spirits—but an imaginary one. Britain has no digital equivalent of the 18th-century industrial innovators who turned technology into commercial leadership. Its more recent prowess in pharmaceuticals and biotechnology has not been emulated in the digital sphere. David Cameron’s government should ponder this failure and address the reasons for it. Luck is one of them, but so are national and European regulations and a tepid climate for entrepreneurs.
A nation of digital shopkeepers
Britain has one of the biggest online economies. Its researchers invented both the web and the computer. It has the English language—which helps to link it with California’s Silicon Valley and Indian high-tech—and great universities. There are thriving tech clusters in Bristol, London and elsewhere (see article). More so than other European countries, Britain should be competing with America as a tech leader.
Yet it has nurtured relatively few big tech companies and no huge ones. In particular, Britain has vanishingly few “platform” firms—ie, the sort that, like Microsoft, Google or Facebook, have built and marketed a service or piece of software on which other businesses and applications rely. That is where the real money is: platforms tend to yield lots of jobs in spin-offs and ancillary enterprises. Britain has Autonomy, which makes specialised search software, and ARM, which designs the microchips for Apple’s iPhones. Both are leaders in their fields, but neither is a giant. More damningly, they are the only two innovative tech outfits in the FTSE index of leading shares.
There should surely be more. Individual ideas and people are the key, obviously, but there are three problems with Britain’s tech ecology that its government could ameliorate. One is the absence of a market as big and homogeneous as American tech firms enjoy. Another is a relative shortage of capital for start-ups and growing firms. The third is the lack of entrepreneurs who combine technological expertise, business acumen and the sort of balls that, in 2006, reputedly let Mark Zuckerberg turn down Yahoo!’s offer of $1 billion for Facebook.
Begin with the market. You might think that distance and geography would be marginal considerations for tech firms. You would be wrong. For American firms, a domestic market of 300m interconnected English-speaking consumers is a big advantage. Easy transatlantic communications should help British firms conquer that market; but they also encourage American firms to snap up promising British companies. Europe is fragmented not only by multiple languages but also by the lack of a properly common market in services, including digital ones, so tech firms must still overcome assorted legal and bureaucratic barriers to trade across the EU. Digital firms should be able to benefit from the single market just as mobile-phone companies such as Nokia and Vodafone have. Proper implementation across the union of the directive on liberalising the services market, passed in 2006, would be a start.
When it comes to finance, Britain lags not only Silicon Valley, where many entrepreneurs see investing in the next generation as a sort of moral responsibility. In 2010 high-tech firms in Israel attracted $1.3 billion in venture capital, nearly twice as much as in Britain, whose economy is ten times as big. George Osborne, the chancellor of the exchequer, made some progress in his most recent budget by increasing the tax relief available for investors in start-ups. He should now look at the capital-gains tax regime: investors who make speculative bets and hit the jackpot should be able to keep and reinvest more of their winnings.Designing a system that rewards such risks but does not allow people to shelter their income from tax is tricky, but not impossible. It would help British businesspeople to think bigger, too: the absence of funding for growth is one reason some sell up at a relatively early stage. The 50% top income-tax rate creates further problems, by making it harder for entrepreneurs to recruit and retain the best people.
The gripe about Britain being poor at gestating bold entrepreneurs is an old one: the stereotype is of boffins who are good at generating ideas, but lose out to thrusting Americans when it comes to monetising them. There would be less truth in that caricature if British graduates in disciplines such as science and engineering gained some familiarity with business as part of their studies (it is noteworthy that the best British universities discourage students from earning money while they learn, while at American ones most are obliged to).
How do you know who will be the entrepreneurs?
The government should be more relaxed about bolstering the supply of indigenous entrepreneurs with foreigners, as well as about admitting more workers with technical and commercial skills that are in short supply. Beneath its wrongheaded, headline goal to slash net immigration, the government has sensibly made sure that a route remains open for entrepreneurs. The trouble is, it is not always obvious which would-be newcomer will end up striking gold: when a six-year-old Sergey Brin emigrated from Russia to America with his family, it was not yet clear that he would one day co-found Google. By cutting the numbers of foreign students it allows in, current immigration policy is shrinking the commercial pool as well as the academic one. London is a magnet for creative types everywhere; capitalise on that—and let more of them in.
Mr Cameron is keen on the tech industry, seeing it as a source of growth in lean times, and a way of weaning the economy off its dependence on flighty finance. Should our imaginary tech superstar materialise, it would be a shame if Britain’s Bill Gates were turned away at the border, or left Britain of his own accord for another country where his talents would be more generously nurtured and rewarded.