I have another article up in the FT.  You surely subscribe? You should.  Here it is.

I could add many thoughts to this piece.  Even with the help of great sub editors it is difficult to capture every nuance. (None of what follows is in the FT piece.  Please subscribe and click …)

Essentially, the article brushes against the big issue of competitive versus Schumpeterian growth.


What I mean is that: on the one hand you need strong competitive forces to drive growth, to keep the pressure on all the players in the capitalist economy.  These count against the accumulation of massive fortunes. If you heard that your nearby cornershop owner was absolutely minting it you would a) realise someone was paying for those supernormal profits and b) expect some competition to come in pretty quickly.  If not, you would c) wonder what on earth is going wrong; perhaps the State is maintaining him in a monopoly position.  And that obviously happens: in badly run economies, de facto monopolies can be maintained in all sorts of ways.  The state grants concessions, keeps unnecessary regulatory barriers around certain industries, helps to bully away the competitors.

On the other hand, and less acknowledged in my piece, you can need the prospect of monopoly returns to encourage innovation.  The efforts of innovation are only worthwhile if they produce some sort of return, and that return takes the form of the innovator gaining some market power, some ability to charge a price well above the marginal cost. That could mean: a strong brand, a better manufacturing technique, a sales channel that can’t be assaulted.  This is the Schumpeter position: as this paper says:

only companies that have market power, at the best the monopolist, can support the costs related to innovation, indeed, is the innovation itself determines that a monopoly position, the defense of which  brings further innovation a virtuous circle.

My FT piece is written against an extreme naive view: that Britain’s failure to create tech billionaires indicates some fundamental failing in our economic model.  In my view, this is garbage.  You can imagine a brilliantly functioning economy that nevertheless kept eroding such fortunes.  And you can imagine another that keeps generating billionaires – even “tech” billionaires – that nevertheless was both unjust, and inefficient.

My biggest concern is that so star-struck are some of the politicians by the tech-types they meet that they skew their economic policies towards the wrong target.  “Pleasing the man in the meeting” is a tempting strategy when he is a wealthy winner. How this might happen is up to the imagination of the reader.  But that is why I end the article as I do.  How is that?  Well, read the piece I say (some walls should be protected)


3 thoughts on “New article up on the FT: don’t mourn our missing tech billionaires

  1. I agree to an extent but the “next Facebook” thing might be a bit of a red herring. Silicon Valley investment houses might like “tech” (i.e. online media) businesses because the start-up costs are relatively low compared to the potential gains and speed of growth, but they also take huge bets on much more capital intensive businesses which require a lot more patience to make money from. For example, Silicon Valley is choc full of biotech, pharma and medical technology companies, both start ups and well established.

    Although I can only offer anecdotal evidence (I am a patent attorney serving early stage clients in Silicon Valley and the UK, though none in “tech”), the budgets of Silicon Valley companies that don’t yet have a product on the market dwarf those of their counterparts in the UK. I am sure that it is possible to argue that investment houses in California have access to larger funds and are happier to take risks because their source of those funds and first market is a large, single language single market. Perhaps, though, there are some structural or regulatory reasons why investors in the UK are less willing than their Californian counterparts to invest in capital intensive businesses. Given the success of the City of London, it is unlikely to be shortage of cash. Isn’t this something that we should be happy for our government to consider?

    Perhaps I give politicians too much credit, but I think that banging on about “tech” could just be politics. People recognise the brands, know that the companies have grown quickly, see a little glamour and (might) think that the policy sounds a good one. If whatever comes out of it works, all well and good. If the minister were to say he wanted the next Gilead Sciences in the UK, there would be blank looks all round.

    1. I think you have hit on the nub of the matter. The block, if there is one, occurs later in the cycle – it isn’t because Brits don’t start up businesses. It is something that happens at the “Gazelle” stage. You imply that one of the key missing factors is big, patient capital; however, what I don’t get is why this capital is so patient, given how terrible are the returns of VC for so long. Why are the US firms willing to take such bets?

      The government in the UK as a result is a huge player in VC, recognising a market failure of sorts here; but this doesn’t feel healthy.

      Your last paragraph is probably correct. I over-interpret what is probably just politicians demanding a cheer line and recognisable brand. However, at the adviser level, of semi-serious attempts to make “creating our own champion” a key marker for some industrial strategies. That could have ended badly.

      thanks for commenting

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