Nesta’s Christopher Haley welcomes the government’s plans to boost Britain’s digital economy but says more needs to be done to help startups scale
A decade on from the global financial crisis, some economic anxieties have faded but other uncertainties have emerged. We have the consequences of Brexit, a possible second Scottish referendum, a European Union under obvious strain and, perhaps most significantly, a growing sense that globalisation has not delivered on its promises for everyone. Against this backdrop, there’s the question of how best to support Britain’s tech sector and help it navigate some potentially choppy waters ahead.
Expectations were therefore high when the UK government announced its new industrial strategy consultation in January. This was followed in March by the long-awaited digital strategy. This was a substantial rewrite of what was required following the Brexit vote, given that earlier versions revolved around the Digital Single Market – the EU’s plan to create a harmonised regime for digital goods and services. And despite the many failures of inefficient industrial policies in the 1960s and 1970s, there seems to be an acceptance that state intervention when it comes to Britain’s tech future is desirable. There are definitely some things that the government has got right but also aspects that should be done differently.
First, let’s look at the positive. One of the leading messages is that the industrial strategy should be explicitly innovation-driven. This is a good starting point, since on a macro level we know that innovation is clearly one of the key drivers of economic growth. There was also recognition that the UK’s poor productivity levels can’t be tackled without addressing the “long tails of underperformance”. This means closing the gap between our leading firms, many of which are exemplary, and the under-performers: businesses that are typically unwilling or unable to retrain, retool or invest in innovation.
However, that’s easier said than done. While research shows that innovative firms grow twice as fast and companies that regularly make data-driven decisions are over 10% more productive, senior managers have to be persuaded to invest in innovation. This may involve adopting a more long-term view and taking a risk with a new system or product, which can take some adjusting to.
Nevertheless, encouraging these firms to innovate can help solve a wider social issue: inequality. As the government notes, regional disparities in wealth distribution are now wider in the UK than in many other western European nations. The difference in business productivity is one of the causes, with most of the productivity gains in recent years being made in London. Improving business productivity throughout the country may well help reduce regional inequality, so it’s nice to see some joined-up thinking.
Another welcome strand of the strategy is a commitment that insurgents will be promoted. This matters because one of the broad lessons of innovation studies is that good ideas can come from unexpected sources. Being biased towards the usual suspects tends to produce more incremental, market-sustaining changes rather than disruptive, market-creating ones. The innovation system as a whole needs to make room for such outsiders and newcomers. And of course one way to do this is by encouraging startups. They’re often the ones that bring new ideas to market and exert competitive pressure on existing firms, which helps productivity indirectly by stimulating competition.
But while the UK – and London in particular – is already a pretty startup friendly place, more needs to be done to help firms to scale. It’s in this area that attention is needed and we should be experimenting more actively with things like smarter procurement, management training and corporate-startup collaboration. Some of the measures proposed in the strategy, such as promoting model business agreements to support collaboration, seem sensible. But other aspects, such as the unsexy-but-important issues surrounding public procurement, look as if they need some more thought.
As it happens, the government does appear to be listening: the tone of this strategy is much more consultative than it has been for years, with businesses being actively encouraged to open up about what they want to see. Periods of uncertainty and transition can lead to great innovation and now’s the time for both incumbents and startups to play an active part in shaping the future of industry.