A Brexit Beneficiary: UK’s Tech Industry

In his book Guns, Germs, and Steel, author Jared Diamond argues that the reason Europeans colonized South America and Africa, and not the other way around, can be traced to built-in environmental benefits that helped expedite the transformation from nomadic to agrarian societies. Social groups that happened to live near places where grains naturally occurred were more likely to be able to concentrate the production of food, thereby freeing up resources to innovate in medicine and science.

Were he a technology journalist, Diamond might have asked a different question about the origin of hegemony: why is it that the United States, and Silicon Valley in particular, so dominate the global technology industry? In addition, why is the number of European technology giants so low?

Fostering a climate that fosters technology innovation today requires four things: a respect for property rights (including intellectual property), a world-class education system, a societal and governmental premium on the value of work, and a light regulatory touch. The U.S. offers all four, and, most importantly has done so since the dawn of the transistor in 1948.

By comparison, Europe’s public institutions, as a whole, possess just two of these four qualities. Since the end of World War II, the Continent has increasingly valued labor security over output (e.g. the nationalization of healthcare, the 35 hour work week in France) and a heavier regulatory burden that seems especially intent on targeting U.S. technology titans, e.g. Microsoft and Google.

The result: Europe has become a comparatively arid region for tech.

With its “Brexit” of the European Union, the United Kingdom has the opportunity to pursue a new direction: embracing all four inputs and putting itself in a position to grow a more meaningful, more globally-relevant, home-grown technology industry that the EU has deprived itself for decades.

The UK already possesses four of the top 20 best computer science programs in the world, and eight of the top 20 in Europe. Magna Carta helped cement property rights in the rule of law. Leading up to the Brexit vote, some foreign tech companies had hoped for a Remain outcome in part because they saw the UK’s preference for a lighter regulatory regime as a healthy counter-balance to Brussels. In other words, all four ingredients for success are there.

If the United Kingdom can offset what is likely to be an increase in regulatory overhead due simply to its becoming a new trading partner with a more business-friendly climate, it could set off a virtuous cycle: more investment, more research and development, more jobs for its students, and more growth.

To be sure, the American model comes with trade-offs. Many Europeans I’ve met are startled when they first learn how easy it is to fire employees here. The ease with which companies can wield creative destruction in the absence of a generous social safety net can be scary. You don’t need to be European to feel bewildered by the fact that most Americans have far fewer vacation days than our European counterparts, to say nothing of our tendency not to use them all.

On the whole, though, and admitting my provincial bias, the benefits of the American model outweigh its costs. The technology created here has not only generated enormous wealth. Apple, Microsoft, Google, Facebook and Amazon all have value as cultural exports in the way that movies, books and music do. I do not think that America’s lead is permanent or insurmountable, though. Within a generation, the UK could give rise to a tech industry every bit as vibrant and powerful as Silicon Valley.

To my British friends: I mention this with the hopes of offering a salve to those of you who feel wounded by the vote. I do believe that much good can (and will) arise. Yours is a great nation. With nearly 1,000 years of sovereign power, you have not forgotten how to be great and independent in just the last few decades of EU membership.

P.S. Since publishing this story, I’ve read opinions predicting that Brexit will be a setback for the UK tech industry. What I’m not getting, though, is much analysis: why does leaving make things worse for the Brits? Here’s an example of just such an article. I’m a big admirer of the source, but there just isn’t much in the way of rationale here. If you disagree with my claim, please let me know why in the Comments section.