Did Boris Johnson and Dominic Cummings, before they reportedly embraced the idea that the UK must be free to throw oodles of state cash at technology companies to create home-grown global champions, ask tech specialists what they thought of this grand vision?
If they did, the reply may have been: not much. That, at least, is the rough view of James Anderson of Edinburgh-based Baillie Gifford, probably this country’s most celebrated tech investor.
Anderson, as co-manager of FTSE 100 investment trust Scottish Mortgage, backed Amazon as long ago as 2004. The £14bn fund’s portfolio is also stuffed with stakes in companies that Johnson and Cummings would presumably look upon with envy and admiration: Alibaba, Ant Financial, Netflix, Spotify, Tencent and Tesla.
Frustratingly, Downing Street’s state-aid ambition has not been described openly. Rather, it has emerged as a possible reason for jeopardising a free-trade deal with the EU. ITV’s Robert Peston this week described “the Cummings/Vote Leave fundamental article of faith” like this: “Countries that were late to industrialisation were owned/coerced by those early [to it]. The same will happen to countries without trillion-dollar tech companies over the next 20 years”.
That prediction is bold, but the pressing question is this: does the best route to reversing the UK’s miserable record in creating 21st-century tech companies really lie in letting rip with state aid via the apparent Johnson/Cummings design?
“Do I have the sense that they are just playing at this? Yes, I do,” says Anderson. “You have to understand the need for great scale in this area. And you have to do it with far greater investigation into where the problems really are.”
Anderson cites the formula for tech success offered by Robin Li, billionaire founder of the Chinese search engine Baidu: geeks, venture capitalists and markets of scale. The UK has the first in its universities, possibly has enough of the second, but clearly does not have captive markets of the size of the US and China, where it is far easier to scale up a promising business model rapidly. Ambition is important, but cold commercial realities also matter.
Nor is it obvious why freedom from EU state-aid rules would help. The EU’s record of creating tech giants is also unimpressive, but is probably better than the UK’s, where the leading lights might be ARM (sold to SoftBank of Japan) and Ocado, which is large at a valuation of £18bn but not dazzlingly so.
Spotify, worth $46bn (£35bn), is Swedish. So is Northvolt, widely seen as the big prospect in battery storage. ASML, which Anderson regards as “the most important company in the world today”, is a Dutch maker of machines central to the progress of the semiconductor industry. It is worth $130bn and, note, was refused state support by the Dutch government in its early years.
What are the problems holding back the UK in tech? Anderson has often railed against a “short-term greedy, long-term stupid” mentality that infects boardrooms and the City – “a societal love of the safe return over the spectacular possibilities” that results in promising businesses being sold too soon. He’s talking about the gap between funding for good start-ups and the permanent capital required to withstand upsets on the way to a global stage.
A Johnson/Cummings advocate might say the state can fill the vacuum by taking long-term investment risks that plodding investment houses won’t. If you accept that thesis, though, you must also hope that the government can get ahead of a competitive global market and stay there. That’s a big hope.
For Anderson’s money, the next leg of the tech revolution will be led by energy, mobility and automation. He may be right or wrong, but what’s the Johnson/Cummings analysis? We don’t know, which is the deep irritation with this possibly enormous turn in UK industrial policy. The problem is not the principle of state aid – one can think of many cases of legitimate interventions elsewhere. Instead, it’s the lack of any sense of priorities in a complex and fast-moving tech field.
As it happens, we may have seen already the first fruit of the new approach – the government’s $500m investment in June in a bankrupt broadband satellite operator called OneWeb. Cummings, it was reported, pushed for the deal in a move that baffled many experts. “The technology seems second rate,” is Anderson’s pithy judgment.
Maybe there is more to Downing Street’s tech vision than we’re being told. But, since it is now apparently central to trade talks with the EU, it would be a comfort to hear something resembling a strategy backed by expertise. “Playing at it” seems a fair verdict.
