Britons wanting to feel optimistic about their economy should look no further than its booming tech industry. Figures published on Friday confirmed that the sector is powering growth: information technology contributed 0.1 percentage points of the 0.5 per cent growth in the first quarter of the year. In total, tech has grown 17.6 per cent since the EU referendum in 2016, compared with a sluggish 5.5 per cent for the economy as a whole.
The numbers followed announcements earlier in the week that US social media giant Facebook picked London to build its WhatsApp payments business while Chinese conglomerate Tencent partnered with a British medical technology company to trial an artificial intelligence-based diagnostics tool for Parkinson’s disease.
The UK owes this recent success to several factors. Some are familiar: world-class universities, a flexible labour market and deep pools of investor capital. Robert Allen, an economic historian, argues the country’s liberal market economy is better placed to adopt new technologies than it was for the factory-based production during the middle of the 20th century, when it fell behind the rest of Europe.
Other reasons are novel but likewise show the benefits of openness. WhatsApp said the UK’s multicultural workforce will help to produce products aimed at the whole world, particularly India. State support helps too: the National Health Service can grant medical technology companies access to millions of patients while the UK’s national mapping agency will work with Mobileye, an Intel-owned company, on databases for self-driving cars.
Britain’s success has come from combining new technology with existing expertise. London has more financial technology start-ups than San Francisco, according to one measure, while medical technology companies have clustered around Cambridge, a hub for pharmaceutical research. Chip design and artificial intelligence have likewise sprung from the universities. The nation of shopkeepers has embraced ecommerce: roughly a fifth of retail sales are online in the UK compared to a tenth in the US.
This resurgence in IT is good news for Britain’s Achilles heel, productivity. Output per hour in computer programming, a pre-crisis trailblazer, rose by 16 per cent between 2013 and 2018 compared with 4 per cent in the economy as a whole. Productivity growth has similarly accelerated in retail, broadcasting and advertising, suggesting the benefits of new technology are finally starting to spread to other industries.
Policymakers should be wary of repeating past failures. The IT industry is concentrated in the already-rich south of England. As the government tries to increase research and development spending it should not only look at the so-called golden triangle of Oxford, Cambridge and London but also at emerging technology hubs in Manchester, Leeds and Dundee.
Talent is the chief concern for many companies looking at Britain. The UK should relax visa requirements for highly skilled workers and better train its own citizens. A report published last week found a sharp decline in the number of secondary school pupils studying computing. Brexit is another dark cloud and negotiators should aim to keep data flowing friction free.
While London is, for now, the pre-eminent tech hub, Paris and Berlin are nipping at its heels and tech is growing strongly across the whole of the EU. Atomico, a venture capital outfit, estimate the industry is growing five times as fast as the rest of the European economy. Such competition is welcome. Britain should rise to it.
