This month saw the death of Professor George Gray. Whilst by no means a household name, Professor Gray invented the technology that allowed the development of liquid crystal displays (LCD’s), which have revolutionised those other inventions of Britons: computers, TV’s and ‘phones.
Still on the theme of IT, it would remiss of an article written in Manchester to not mention ‘Baby’, the world’s first computer developed during and shortly after the second world war. On ‘Baby’ all subsequent computers have been based. Similarly much of the ground-breaking work in getting computers to talk to each other was done by Donald Davies at the National Physical Laboratory in Bushey in the 1960’s. The subsequent ‘packet’ technology laid the ground work for Sir Tim Berners-Lee to develop the World Wide Web. A more recent example of British technological invention is evident in the shape of Sir Jony Ive. Chingford born and educated at the then Newcastle Polytechnic, Jony Ive is Senior Vice President of industrial design at Apple and is the principal designer of the iBook, iMac, iPod &c.
So whilst, Britain or the British have been instrumental in inventing key modern technologies, it has not been British industry, in the main, that has taken these ideas forward. The many years of toil by James Dyson to gain investment capital for his ground-breaking vacuum cleaner technology is just one example of a disconnection between the long term investment capital needs of British industry and a banking and financial system seemingly unwilling to invest in this way.
This phenomenon is by no means new; the Macmillan Committee of the 1930’s recognised what became known as the ‘Macmillan Gap’. In other words, there were effective relationships between a country’s financial and industrial sectors evident in Germany and the USA but these were lacking in the UK. The work of the committee eventually led to the post-war establishment of corporations formed by the major clearing banks and the Bank of England to provide long term investment capital to small and medium sized enterprises. The corporations eventually became 3i (Investors in industry). Although successful at first, 3i was privatised in the 1990’s and, according to some, lost sight of its original purpose.
The late 90’s and 00’s saw various venture capital initiatives by the Government in the form of regional development funds, local enterprise partnerships &c. offering investment capital to small and medium sized enterprises, SME’s. However, as any venture capitalist will tell you however, ‘lemons ripen faster than plums’1 p.416 and so inevitable early investment failures drew criticism which might have discouraged such policy. In entrepreneurial activities, this is the nature of the game: eleven investments may see ten failures but perhaps one eventual success, which will more than compensate for any lost investment capital. The government is big enough, and certainly better placed than the private sector (being able to borrow more cheaply and independent of short-term share fluctuations) to play the long-game.
Even when smaller scale ‘seed’ investments were available, Britain lacked a capital injection system for larger scale investments, something which the USA does much better than its European counterparts. Companies such as Autonomy, a massive UK venture capital success story in terms of getting the fledging Cambridge based software company off the ground, reach a certain size then get snapped up by multinationals; Hewlett Packard in this case. It has to be said, however, that it is by no means clear the deal was a good one for Hewlett Packard.
A key issue currently is obviously getting banks to lend money full stop. Latest economic figures point to a large retrenchment in business investment, with inherent implications for productivity and international competitiveness. It’s not just a case of struggling companies needing a shot in the arm however; Britain needs a coherent long-term capital investment system for both fledging companies and medium size enterprises needing to kick on to the next level.
What form such investment vehicles would take is open to debate, although it is clear that state involvement will be required; perhaps along the lines of the original 3i model to ensure capital is going to SME’s and beyond, rather than just repairing bank’s balance sheets.
In summary a rebalancing of the economy and replication of Germany’s famed Mittelstand in the UK – let alone the creation of a home-grown Microsoft, Apple or Google – will not occur until British inventiveness is coupled with adequate long-term capital provision.
1 Cumming, D. (ed.) (2012) The Oxford Handbook of Entrepreneurial Finance, Oxford University Press USA.