WHERE ARE THE BIG GORILLAS?
HIGH TECHNOLOGY ENTREPRENEURSHIP IN THE UK
AND THE ROLE OF PUBLIC POLICY
1 INTRODUCTION
Throughout the post-war period successive British governments, like their counterparts in other European countries, have been concerned about the ability of their national firms to compete profitably in world markets, and thus to contribute to the growth of exports and employment. In the 1960s and 1970s a favoured instrument of policy in the UK was the promotion of mergers. This was based on the view that, in industries where economies of scale were important, existing British firms were too small to hold their own against American and Japanese rivals; automobiles and computers were two sectors which were reorganised at government behest into larger groups. During the 1970s, and more decisively in the 1980s, policy shifted from a preoccupation with size to a greater emphasis on small and medium-sized firms.
Part of the reason for the change of direction was the failure of the earlier policy; several of the big groups that had been created through state-sponsored mergers had performed poorly. Another factor, especially in the first half of the 1980s when unemployment was running at an exceptionally high level, was the belief that small firms would be the principal source of new jobs, offsetting the contraction that was taking place in the country’s larger industrial enterprises [1]. Support for small firms, and encouragement for individuals to start their own businesses, fitted the free-market ideology of the Conservative government that took office in 1979 with Margaret Thatcher as Prime Minister.
There were other forces at work during this period, affecting not just the UK but all the advanced industrial countries. First, many of the big companies which had dominated their markets in the early post-war decades, such as General Motors in the US or Imperial Chemical Industries in the UK, were facing difficult times, arising partly from sluggish growth in demand, partly from increasing international competition. One response was to hive off unwanted businesses, sometimes through management buy-outs; the large, vertically integrated corporation seemed out of tune with the new economic realities [2].
Second, radical changes in technology, especially in computers and microelectronics, and later in biotechnology, were creating market opportunities which were more effectively exploited by new firms than by established companies. Some commentators described what was happening as a shift from the era of Fordist mass production to an ‘information economy’ in which the accumulation and exploitation of knowledge was more important than investment in physical assets [3]. Others proclaimed a transition from a ‘managed’ to an ‘entrepreneurial’ form of capitalism, characterised by turbulence, uncertainty and a larger role for small firms [4].
Among the industrial countries it was the US which set the pace in these developments. Older American companies were restructured earlier than their European counterparts, and there was a continuing flow of new entrants in knowledge-based industries. The speed with which resources were moved from declining to growing sectors, and the role played by new firms in this process, was widely seen as an important contributor to the acceleration in US productivity growth that began in the mid-1990s.
The success of the US during this period influenced the thinking of Britain’s ‘New Labour’ government which entered office, under Tony Blair, in 1997. Gordon Brown, Labour’s Chancellor of the Exchequer, was an enthusiastic admirer of the American system. While his first task was to establish a reputation for sound macro-economic management (hence the decision to delegate responsibility for monetary policy to the Bank of England), he attached almost equal importance to improving the supply side of the economy. His aim was to raise UK productivity closer to American levels, and to do so, in part, by stimulating entrepreneurial activity. Whereas the preceding Conservative governments had been mainly concerned with support for small business in general, Labour’s focus was on measures aimed at boosting the number and size of new ventures which would be capable of rapid growth, especially in high technology – entrepreneurship policy rather than small business policy [5].
How much have these measures achieved? This paper looks first at the US, discussing the sources of American entrepreneurial success in high-technology industries and the contribution made by government. The next section describes the evolution of policy in the UK, before and after the Thatcher reforms of the 1980s. Sections 4 and 5 review the performance of British start-up firms in the two industries where the gap between the US and the UK has been widest: electronics and biotechnology. These sections highlight the scarcity in the UK of US-style ‘big gorillas’ – new firms which grow very rapidly to become large, international enterprises – and consider the reasons for this gap. The concluding section assesses how far the UK has caught up with the US in entrepreneurship policy.
NOTES
[1] David L.Birch Job creation in America: how our smallest companies put the most people to work The Free Press, 1987. For a contrary view, see Steven J. Davis, John Haltiwanger and Scott Schuh Small business and job creation: dissecting the myths and reassessing the facts National Bureau of Economic Research, Working Paper No 4492, October 1993
[2] R.N.Langlois The vanishing hand: the changing dynamics of industrial capitalism Industrial and Corporate Change Vol 12 No 2, April 2003.
[3] Zoltan J. Acs The value of entrepreneurial start-ups to an economy Diebold Institute Entrepreneurship and Public Policy Project, Working Paper No 5 www.dieboldinstitute.org/papers.htm.
[4] D.B.Audretsch and A.R.Thurik What’s new about the new economy? Sources of growth in the managed and entrepreneurial economies Industrial and Corporate Change, Vol 10 No 1, March 2001.
[5] David M.Hart Entrepreneurship policy: what it is and where it came from in David M. Hart (ed) The emergence of entrepreneurship policy, Cambridge 2003. On the distinction between small business policy and entrepreneurship policy, see David Audretsch Sustaining innovation and growth: public support for entrepreneurship in Industry and Innovation, Vol 11 No 3, September 2004.
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