If it weren’t for meddling, shortsighted regulators preventing innovation in fields such as aviation, energy and nanotechnology, we would by now all have a flying car sitting on our drives – and a household income more than three times what it is to boot. That is the essential argument of J Storrs Hall, in his 2021 book Where’s My Flying Car? Is he right? wonder Ryan Murphy and Colin O’Reilly.
The claim, if true, would “blow most practical concerns out of the water”. Defenders of regulation argue that it serves legitimate and important social purposes. But the most important issue of the day, and the one deemed to make the case most strongly for the need for tough regulation, climate change, would “simply not exist” if Storrs Hall is correct. (He argues that innovation in alternative energy technologies would long ago have replaced fossil fuels if they had not been held back by excessive concerns over safety.) And even if the absence of the regulatory state caused unforeseen problems, an income three times higher for the median household “can paper over an awful lot”.
Reaching Storrs Hall’s conclusion from the evidence in the academic literature on regulation and growth does rather demand that we ignore those studies’ limitations and make some heroic assumptions. Still, even if Storrs Hall overstates his case, there remains a strong one that a culture of “anti-growth safetyism” – not simply rules that restrain capitalism for political reasons or that impose compliance regulations on firms – really is holding us back.
The most relevant paper is from 2013 in the Review of Economics and Statistics by Renard Bourlès et al. It focuses on industries in 15 countries in the OECD, and finds that product-market regulation is indeed “preventing true innovation on the frontiers of economic growth” – that is, not just holding poorer countries back, but genuinely slowing down the rate at which we discover things like cutting-edge battery technologies. The paper estimates that regulation as a whole is cutting US GDP growth by one percentage point per year. If growth had been one percentage point higher since the late 1940s, median US household income would be about $117,000 today, compared with its actual level of about $70,000. That’s a remarkable result and suggests that “big, bold policy reforms” have the potential to “put an end to economic malaise and stagnation”.
100m highly polluting cars could appear on Europe’s roads after EU move
Exclusive: Efficiency recommendations of experts rejected in European Commission ‘Euro 7’ proposals
The Transport & Environment campaign group said the European Commission had reached its ‘very own Dieselgate moment’. Photograph: Michael Sohn/AP
Almost 100m highly polluting cars could appear on Europe’s roads over the next decade after the European Commission moved to disown its own experts efficiency recommendations in a leaked proposal seen by the Guardian.
About 70,000 premature deaths in 2018 were caused by road transport emissions, mostly nitrogen oxides (NOx) and particulate matter (PM), and the commission had been expected to tighten pollution limits in the next“Euro 7” regulation, which takes effect in 2025.
A “medium ambition” option which would save €136bn (£119bn) in net health and environmental costs was touted, based on recommendations by an EU consortium of experts called Clove.
However, the draft Euro 7 regulation only proposes bringing diesel emissions into line with those for petrol cars in the existing Euro 6 law, while petrol standards would remain unchanged.
Anna Krajinska, the vehicle emissions and air quality manager for the Transport & Environment (T&E) campaign group said that the commission had reached its “very own Dieselgate moment”.
“The tearing up of its own expert group advice is a scandal and completely undermines the tightening of pollution standards for cars and vans,” she said. “The auto industry lobby has fiercely opposed Euro 7, using a variety of dirty tricks to influence decision-makers. Now the commission has caved into their demands. Carmakers’ profits are being prioritised over the health of millions of Europeans.”
The auto industry lobbied the commission intensely in the run up to the draft regulation, with one Volkswagen official last year painting “a picture of horror” to EU officials of the effect that tough standards could have, according to Der Spiegel.
“Women would have to be afraid [when] in dark garages in the future; accident victims would have to wait, trembling, for the ambulance; police officers might arrive too late at the scene of the crime. And all this, because cars would have to warm up their exhaust gas purification systems before they could be allowed to start … ” the German newspaper reported.
A spokesperson for the European Automobile Manufacturers’ Association said: “The industry is calling for an approach that is not only effective in terms of results, but that is cost-beneficial, while also addressing the huge challenges of meeting future CO2 targets. Vehicle manufacturers are going full-course ahead with the goal of carbon neutrality – it would be counter-productive to take away investments from this.”
The Euro 7 emissions standard, due to be published on 9 November, had been planned for four years as a replacement to the Euro 6, which was set in 2014, before the Dieselgate scandal.
Under the anticipated medium ambition option, NOx emission limits would have been cut from 60 to 30mg a km, with particulate matter limits falling from 4.5 to 2mg/km, based on new emissions technologies.
The draft regulation, which is being considered by commissioners and could change, says that this option was proportionate, cost-efficient and “the most effective” for cutting air pollution.
But it would also have raised petrol vehicle prices by 0.8% and diesel vehicle prices by 2.2% and “in light of current geopolitical and economic circumstances” the commission has “readjusted” it to put less “pressure on the automotive supply chain”.
Consequently, T&E estimates that up to 100m vehicles manufactured to Euro 6 standards for petrol cars could still be on Europe’s roads in the 2040s, potentially with access to low-emissions zones.
“If they won’t improve the shockingly weak proposal for cars and vans, it should be scrapped entirely,” Krajinska said.
Since the Euro 6 was applied in 2013, NOx road emissions have fallen by 22% for cars and 36% for lorries and buses, the draft regulation says. Particulate matter emissions have also fallen by 28% for cars and vans, and 14% for lorries and buses.
Really good read - gives some solid points on what could go wrong, great for essays/evaluation. Some of the links are really interesting too (I have put a link in the photo to take you to the source, CapX; grow your knowledge by exploring their work):
(NOTE - I have linked the photo to CapX - 29 September 2022
The Prime Minister can't even bring herself to say the name of her predecessor's strategy
It's not clear that a market-led approach to regional inequality is politically possible
One of the best things for the Red Wall, counter-intuitively, would be to take the shackles off the south
Before I left these shores for two happy weeks of leave, I asked CapX readers whether or not Liz Truss would be able to hold together the winning coalition that Boris Johnson minted at the 2019 general election.
Whilst the extent to which the Red Wall was won by tacking left can be over-stated, there is no getting away from the fact that he did offer – or at least, gave every impression of offering – a sort of Toryism with a greater focus on the north and that was more comfortable with public spending.
If Truss can’t steady the ship, there is a real danger of the ‘fiscal event’ entering popular memory as the political version of that Simpsons clip where the Soviet Union comes back.
Key to selling the change of course to those areas which backed the Conservatives for the first time will be whether or not the new Government can deliver on ‘levelling up’. This is unfortunate, because not only can the Prime Minister not seem to bring herself to even say the words, it isn’t obvious that a genuinely market-led strategy is politically possible – or that even if it were, it could possibly pay dividends in time for an election in 2024.
The fate of the Investment Zones (IZs) proposed by Kwasi Kwarteng in the Growth Plan is a case in point. The strongest case for such a scheme – outlined previously on this site by Sam Ashworth-Hayes – hinges on planning reform. Yet already such elements are being watered down or stripped from the proposals altogether, in order to avoid spooking Conservative MPs.
Worse, Truss’s insistence on local buy-in (to avoid charges of ‘Stalinism’, no doubt) means that, at least so far, prosperous areas in the south are showing scant interest in becoming IZs. Yet it is precisely those areas, especially sites such as the Ox-Cam Arc, where the dividends of slashing structural barriers to growth would be highest and most swiftly delivered.
Then there’s the bigger question, which Johnson never really answered, about what levelling up actually is.
To the extent that he put any meat on the bones of it, it was a gesture in the direction of more investment (or at least, more spending) in left-behind areas. That is, whatever his protestations to the contrary, nothing that previous governments haven’t been trying for decades.
Perhaps setting up a freeport archipelago of IZs across the Red Wall will be part of the answer. But a long-term solution, counter-intuitively, almost certainly involves taking the shackles off the south.
Even if you don’t go the full Tim Leunig (who infamously argued that northern cities should be allowed to depopulate to a level better suited to their economies), Ant Breach of the Centre for Cities has made a persuasive case that one of the best things government could do for northern businesses would be helping potential customers in the south keep more of their money for discretionary spending.
But Truss can’t do this. Conservative MPs simply don’t want it to happen. Some of those tasked with making the case for the Government’s supply-side plan are active opponents of any move to increase supply on housing or infrastructure.
This country is choosing to make itself poor because the status quo suits a powerful section of the population who profit enormously from it, whilst being insulated from most of the downsides. Boris Johnson, with all his skills as a communicator and his own mandate, couldn’t pass planning reform. How could his successor possibly do it?
Yet without that, Truss’s odds of delivering strong and sustained growth are slim. Not even the fervent desire of her MPs to find any excuse to build houses somewhere else can just summon a strong northern economy into being ex nihilo.
In the absence of growth, the bridge to those voters who backed the Tories expecting them to pay more attention to left-behind areas would be spending and a lot of rhetorical love.
Yet whilst there have been a few welcome commitments, such as Northern Powerhouse Rail, one doesn’t get the impression ministers are about to unveil a concerted spending programme – not least because the Chancellor is widely expected to deliver public spending cuts soon. And as mentioned above, when the Prime Minister seems either unwilling or unable to even say the words ‘levelling up’ it will be hard to persuade voters she cares much for it.
The best bets in Britain’s thriving technology sector
BRITISH UNIVERSITIES, INCLUDING CAMBRIDGE, ARE DRIVING THE SECTOR FORWARD
Move over, Silicon Valley. Over the past two decades the UK has become one of the main global hubs for tech start-ups. Matthew Partridge explains why, and highlights the most promising investments
At the turn of the century, the UK technology sector was seen as a relative backwater, especially compared with the major tech centres in the United States. However, over the past two decades there have been “significant changes on both the development side and [to the] start-up landscape”, says Jeremy Leonard, co-founder and CEO of digital consultancy LEAD.
Thanks to some prominent success stories, one of the best university systems in the world and various tax breaks, there has never been a better time to set up a technology company in Britain.
What’s more, the recent fall in valuations maymake technology stocks seem a risky proposition, but they still offer long-term value, while lower share prices and a weaker pound have also made many companies an attractive target for private-equity firms and large competitors.
REACHING THE TIPPING POINT
Taavet Hinrikus, co-founder of Wise (previously known as TransferWise), has seen first-hand how the UK technology sector has boomed over the past 20 years. When he first moved to London in 2004 as Skype’s director of strategy to set up its office in Soho, “we were one of a handful of technology companies in the capital”.
But within less than a decade a cluster of technology companies started to emerge in the area. Many of these would later go on to be successful, either floating or being bought out for large sums of money, helping the sector reach a “tipping point”.
These early successes have had two main effects. Firstly, they proved to a younger generation of entrepreneurs that it was indeed possible to make a lot of money by starting your own firm rather than taking the safer option of working for an established one.
“TECH FIRMS CLUSTER IN EDINBURGH, OXFORD AND BELFAST, AS WELL AS IN LONDON”
Secondly, many of the founders and senior staff who got rich from the buyouts and initial public offerings have set up new companies or become prominent tech investors. Hinrikus thinks that as a result, the UK sector has gone “from having the seeds of a tech ecosystem to being one of the biggest hubs in the world”.
Julian Rowe, a general partner at venture-capital firm Latitude, agrees. He thinks that while London hasn’t quite reached the point “where you have tech entrepreneurs investing in their fourth or fifth firms”, it is now common “to see people in the UK who are starting their second or third companies”.
This has also given people the confidence “not to sell their firm immediately after they get their first offer for $100m”. Instead, they are increasingly deciding to keep growing the company until it becomes a “unicorn” (a private company valued at $1bn or more).
THE BEST AND THE BRIGHTEST
The UK tech sector has also benefited from being able to “attract a lot of talent from abroad”, says Gary Dushnitsky, associate professor of strategy and entrepreneurship at London Business School. He thinks that immigration of skilled workers to the UK is particularly important for tech.
It has improved the calibre of programmers and software engineers and boosted the quality of tech firms’ management. Both factors are key building blocks of a sustainable technology sector.
Britain’s ability to attract the “best and the brightest” is such that London isn’t the only UK destination for tech workers and entrepreneurs anymore, notes Gerard Grech of Tech Nation, a national network for tech entrepreneurs in Britain.
While most European countries “have just one area where all their tech firms cluster, with even France limited to two”, there are as many as 20 mini-clusters in the UK. They include “Edinburgh, Manchester, Oxford and even Belfast”.
Grech is bullish about Britain’s ability to attract people with the appropriate levels of skills in future. He says the changes to Britain’s immigration policy post-Brexit are a net positive for the tech sector as they have led to “more visa routes for entrepreneurs and people with digital skills from outside the European Union”.
MONEY IS FLOWING IN
In addition to people and managers with ideas, tech firms also need large amounts of money. The good news is that investors have responded well to the various tax incentives and schemes that have been set up to encourage investment from individuals and venture-capital firms.
The three main schemes are the Seed Enterprise Investment Scheme, the Enterprise Investment Scheme and venture capital trusts. Grech also notes that a review of the rules governing listings should eventually make it much easier for entrepreneurs to float their firms on the London Stock Exchange.
Britain is in fact becoming such an attractive destination for venture capital that “whereas British tech entrepreneurs usually had to make a pilgrimage to Silicon Valley if they wanted to raise money”, the venture capitalists “are now having to come to them, because there are so many opportunities here”, says Latitude’s Rowe.
Several large venture-capital firms have recently opened up London offices. What’s more, while investment in tech by UK pension funds has been “criminally low”, even that “is starting to change”.The overall effect of this “huge push” to make it more attractive to invest in start-ups has led to several“record-breaking” years for tech investment, notes Lucy Coutts, investment director at JM Finn & Co.
This reached a peak last year, when £29.4bnwas invested in UK start-ups, more than twice the total seen in 2020, and nearly 20 times 2013’s £1.5bn. Looking beyond start-ups, the government is aiming to persuade the private sector to double its spendingon research and development (R&D) within thenext few years.
UNIVERSITIES ARE RISING TO THE CHALLENGE
Britain’s universities are also helping to drive UK tech forward. Our universities are punching above their weight. Indeed, according to the Times Higher Education World Rankings, four British institutions – Oxford (in top spot), Cambridge, Imperial College and UCL – are in the global top 20, with a further seven (LSE, King’s College London, Manchester, Edinburgh, Glasgow and Warwick) in the top 100.
However, despite universities’ reputation for producing world-class research, the tech sector has traditionally been regarded as “quite weak at making the transition from laboratory to market”, says Coutts.
But in recent years there has been an effort to change this, with the Higher Education Innovation Fund sponsoring more collaboration and sharing of knowledge between universities and firms.
As a result, universities are starting to commercialise more research. While much of this still comes from Oxford, Cambridge, Imperial College and UCL, which account for 40% of university-related ventures, “other institutions, such as Birmingham, are also starting to produce their own”, she adds.
Barriers remain. One of these is that universities are too “transactional” – they still seem a lot more interested in “maximising the slice of the pie” they secure from their intellectual property (IP) rather than growing the IP, says Rowe.
Rowe thinks that universities need to make it more attractive for staff to commercialise their research by reducing the percentage of any firms that universities take. Otherwise staff will not devote much effort to starting new companies, or they will move to countries that offer a better deal.
Nonetheless, while UK institutions “need to develop better processes and structures to translate ideas into companies”, Britain still “has the elements to make this area a huge success”, says Louis Coke, senior investment manager at Charles Stanley. These include “great academic facilities, talented students from the UK and overseas”, as well as the “capital markets and the investor base” to ensure they stay in the country. He notes that between 1998 and 2018, almost 1,000 companies (across all sectors) were created from university research.
A RESILIENT INDUSTRY
The British technology sector is also resilient enough to shake off the recent bursting of the tech-share bubble, says Malcolm Ferguson, partner at Octopus Ventures. While the dramatic share-price falls may now “make it a bit harder for firms to raise capital”, such downturns “are a normal part of the cycle”.
He notes that many of the most well-known tech companies began during some of the worst downturns, “with PayPal and LinkedIn being formed from the wreckage of the dotcom bust, while Uber started during the global financial crisis”.
“SOME OF THE BEST-KNOWN TECH NAMES WERE FOUNDED IN MAJOR MARKET DOWNTURNS”
In any case, with people “still looking for growth”, really good technology companies remain highly valued, says Brendan Gulston, co-manager of the Gresham House UK Multi Cap Income Fund. There is also a “strong appetite for takeovers” in the industry, especially since recent falls mean that the UK stockmarket “is now relatively cheap”. With the largest tech companies now starting to accumulate cash and private-equity firms presiding over plenty of capital to deploy, there have been several prominent acquisitions over the past year.
Gulston experienced this directly in May 2022 when HG Capital bought Ideagen, a software company that Gulston’s fund had invested in at an early stage, for more than £1bn. It paid a high multiple of 34 times earnings before interest, tax, depreciation and amortisation (Ebitda).
Gulston also notes that US private-equity group GTCR is considering a bid for digital-identity specialist GB Group, while other funds are reported to be mulling over their own offers. Demand for UK tech firms hasn’t diminished.
RICH PICKINGS FOR INVESTORS
Of course, takeovers from bigger companies can be a double-edged sword for shareholders, as they “mean that companies end up being acquired before they reach their potential”, say Victoria Stevens and Alex Wedgeof Liontrust.
This in turn means that it may take some time before the “dearth” of large-cap UK tech shares is rectified. Still, takeovers can allow investors to turn a quick profit. More broadly, the fall in prices means that there are now “plenty of rich pickings” for ordinary investors. They have a wide range of cheap UK tech shares to choose from in the “vibrant small-cap sector”.
Stevens and Wedge also believe technology companies will benefit from the fact that the acceleration to digitisation that occurred during the pandemic will endure.
In certain sectors, many companies “experienced five years of changes in five months” as firms who “had previously been trying to get customers to pay attention to them were suddenly inundated with demand fortheir products”.
“THE UK IS ESPECIALLY STRONG IN FINANCIAL AND ENGINEERING TECHNOLOGIES”
The fact that the UK tech sector “is much stronger in producing world-beating software than it is in producing hardware” should mean that it continues to do particularly well. Octopus’s Ferguson thinks that at present the UK is particularly strong in five main areas: financial technology (fintech), deeptech (engineering technology), health-related technology, consumer technology and business-to-business software.
In particular, investors should keep an eye out for technologies that will reduce the huge pressures on the NHS, especially addressing the shortage of health practitioners. He is particularly interested in digital therapeutics, the use of software in treatments and the application of artificial intelligence to diagnoses.
Charles Stanley’s Coke thinks the fact that the UK has a “large and well-established financial services industry”, which is struggling to make its services affordable for the average consumer, will ensure that demand for fintech remains high.
While technology firms around the world are trying to provide products, UK firms “tend to understand our regulatory system better than overseas firms”. The added bonus of developing fintech products is that good products “generate reliable cash flows from what may well end up being quite a ‘sticky’ client base of financial services businesses and end users”.
