A Reform Strategy for the UK

In this chapter we outline a reform strategy to promote an entrepreneurial 1 society in the UK. To put it in the words of the Varieties of Capitalism framework, 2 the UK today represents a distinct liberal market economy with a deregulated envi3 ronment, flexible labor markets, well-funded elite universities, and strong protection 4 of intellectual property rights. Overall, the entrepreneurial ecosystem is supportive, 5 but bottlenecks remain regarding radical innovation, export orientation, and informal 6 investment. To address these shortcomings, the UK should aim at strengthening the 7 All authors acknowledge financial support from the European Union’s Horizon 2020 research and innovation program under grant agreement No 649378. László Szerb and Balázs Páger also acknowledge support from the National Scientific Research Fund of Hungary (OTKA/NKFI grant no. 120289, titled as Entrepreneurship and Competitiveness investigations in Hungary based on the Global Entrepreneurship Monitor surveys 2017–2019). Mikael Stenkula also gratefully acknowledges financial support from Jan Wallanders och Tom Hedelius stiftelse and from the Marianne and Marcus Wallenberg Foundation. M. Sanders (B) · J. Dunstan · E. Terragno Bogliaccini Utrecht School of Economics, Utrecht University, Utrecht, The Netherlands e-mail: m.w.j.l.sanders@uu.nl E. Terragno Bogliaccini e-mail: e.m.terragnobogliaccini@uu.nl M. Stenkula Research Institute of Industrial Economics, Stockholm, Sweden e-mail: mikael.stenkula@ifn.se S. Estrin Department of Management, London School of Economics, London, England, UK e-mail: s.estrin@lse.ac.uk A. M. Herrmann Copernicus Institute of Sustainable Development, Utrecht University, Utrecht, The Netherlands e-mail: A.M.Herrmann@uu.nl B. Páger · L. Szerb Department of Management Science, University of Pécs, Pécs, Hungary e-mail: pagerb@rkk.hu L. Szerb e-mail: szerb.laszlo@ktk.pte.hu © The Author(s) 2020 M. Sanders et al. (eds.), The Entrepreneurial Society, International Studies in Entrepreneurship 44, https://doi.org/10.1007/978-3-662-61007-7_8 205 469272_1_En_8_Chapter TYPESET DISK LE CP Disp.:27/2/2020 Pages: 249 Layout: T1-Standard U N C O R R E C T E D P R O O F 206 M. Sanders et al. workforce’s knowledge base and talent pool as well as the capital base from which 8 UK entrepreneurs can draw. It furthermore is advisable to open opportunities for not 9 only starting but also growing innovative firms in all regions in the UK. 10

In conclusion, British universities and higher education deliver high-quality 150 research and degrees and compete for the best and brightest at the global level. 151 Relatively high tuition fees notwithstanding, UK universities attract students, PhDs, 152 and staff from around the world, and these contribute to an excellent and world-class   269 The labor force in the UK is typically not very loyal to the employer because that 270 loyalty is often not reciprocated (Herrmann 2020). At the lower end of the spectrum, 271 wages are low and jobs are insecure, making investment in firm-specific human 272 capital a risky strategy for UK workers (OECD 2019). This implies it is easy to 273 start a venture, but much harder to grow one into a global competitor as the latter 274 implies accumulating also tacit and firm-specific knowledge on product, market, and 275 process (e.g., Thirkell and Dau 1998). As in other countries, the existing equilibrium 276 in labor relations in the UK has deep historical roots that can be traced in the history 277 of employment protection, wage bargaining, and social security.  labor market implies it is easy to hire employees, but the lack of investment in firm-299 specific human capital and employability makes it hard to accumulate firm-specific 300 knowledge and retain brains. For this reason, it is easy to start a venture in the UK, 301 but very hard to grow that venture into a globally competitive firm of significant size.  on new regulation for start-ups and companies with fewer than 10 employees. It then 389 applied a "one-in, one-out" rule for UK business regulation in 2012, and following a 390 political logic, the rule was changed into "one-in, two-out" in 2013 and "one-in, three-

477
In short, the British government over the past decades has implemented many 478 initiatives to try and strengthen the collaboration between its world-class scientific 479 institutions and its business sector, but with mixed success. These programs have 480 been evaluated elsewhere, but it is difficult to ascertain their impact. It would take 481 us beyond the scope of this chapter to attempt an assessment here.   516 In discussing the current situation in the UK, it would be incomplete not to discuss the  infrastructure bank, and to fill the funding gaps the private market will not fill.   is that a lot of things will change, and the country must brace for a major shock. 601 We would therefore argue that diversification and flexibility are the best defense and 602 propose that a more vibrant, agile, and flexible entrepreneurial society will be able 603 to cope with such uncertainty and change. The UK's entrepreneurial ecosystem, though performing well in international 605 comparison, also has its bottlenecks. The UK is known to suffer from the so-called 606 European paradox (EC 1995). That is, on innovation scoreboards, the UK consis-607 tently ranks high (Schwanen and Wyonch 2018), but it seems the UK has problems 608 commercializing that knowledge and bringing new technology to global markets.

609
As the latter is the role that Schumpeter (1911) and, more recently, the knowledge

641
A national-level analysis may well hide a lot of regional heterogeneity. Bottlenecks in 642 London may well prove to be very different from the bottlenecks in the West Midlands 643 and Northern Ireland. Moreover, even the regional level hides relevant heterogeneity, 644 as for example well-performing Cambridge lies in a much weaker East of England.

645
With that caveat in mind and before we draw too strong a conclusion on how to 646 improve the UK entrepreneurial ecosystem, let us therefore zoom in at the regional 647 level.

648
The regional scores in the UK in Fig. 8 bit of the regional heterogeneity.

655
A more regional-level analysis also seems appropriate as sociopolitical ramifica-     We believe the UK is doing well in developing crowdfunding as a channel to com-701 plement formal financial markets. From Table 8.2, we may conclude that most UK 702 regions would benefit from reforms and interventions that increase the technologi-703 cal sophistication and innovativeness of production and increase the flow of funds 704 to perhaps dull, but essential small industrial firms that turn new knowledge into 705 business. In manufacturing, this can give a boost to export performance and global 706 competitiveness, whereas in services this will stimulate the regional and national 707 economy. 708 We agree with the LSE Growth Commission (2017) that policies to level the 709 playing field between self-employed and employees and to increase incentives for on

715
Our reading of the data above reveals that in all UK regions and in the country as

765
To examine regulatory barriers to entrepreneurship, we conducted interviews with 766 158 founders in the UK between 2016 and 2018. Table 8.3 provides an overview of 767 the answers given to the question: "Which regulatory requirements did you perceive 768 as major obstacles during venture creation?" that were coded to compare the answers 769 also across countries.

770
The first remarkable result of Table 8.3 is that about every second founder said 771 that they did not experience any regulatory obstacles. This lends support to our 772 aforementioned result that it is overall rather easy to start a business in the UK. It

796
In the same survey, founders were also asked: "What can policy makers do to facilitate 797 venture creation?" The answers to this question are listed in  While founders also asked for lower tax rates for small businesses (in almost 6.5%  The UK is therefore well advised to improve its entrepreneurial ecosystem in order 875 to face that competition.

876
Since the Thatcher years in the 1980s, the UK has relied on the private sector and 877 market competition to assert its competitive position in the world, with mixed success. and minimal social protection also imply high risks of failure, low investment in 887 human capital, and eroding public infrastructures. 888 We argue below that the UK needs to start paying more attention to the public 889 and collective infrastructures that the individual entrepreneur also needs to succeed.

890
Making the UK entrepreneurial ecosystem more inclusive-regionally as well as 891 across income groups and wealth classes-may well turn out to be vital to the long-

917
As the UK is to leave the European Union, it may be required to diversify its 918 economy and regain its position in global markets also as a high-tech industrial 919 exporter. This will require a well-trained labor force which is also available to nascent 920 ventures that aim to grow into globally competitive firms. A healthy entrepreneurial 921 ecosystem will be an asset and interventions to strengthen technology absorption and 922 informal finance for more mundane and slow-growing industrial SMEs and start-ups 923 will be beneficial.

924
Taking these prescriptions to our menu of policy interventions and reform pro-925 posals in Part I of this report, we can select the fifteen most suitable interventions.

926
They are listed in Table 8.5. In Column 1, we find the number under which they are  The LSE Growth Commission (2017) argued for a more level playing field between employees and self-employed on the premise that self-employed is currently favored in the UK labor market. We believe that in addition, both employees and self-employed face risks they cannot self-insure and that should not be a basis for competition. to create the powerful incentives to invest in on the job training that exist in CMEs, 991 but at least these proposals take us in the right direction and are consistent with the 992 historically evolved institutional framework of the UK. Reforms in education aim 993 to make workers more entrepreneurial while increasing their skills and flexibility, 994 whereas reforms in the financial system and tax code aim to allow for more private 995 wealth to accumulate and flow to the SMEs and start-ups that VC and angel investors 996 have shunned. The interventions proposed do not limit the mobility of resources 997 in the UK but will help to strengthen regional entrepreneurial ecosystems. Private 998 wealth and informal investment, as well as training on the job in small-and medium-999 sized manufacturing firms, tend to strengthen local and regional ecosystems, without

1016
Of course, these proposals will need a much more detailed discussion and form the 1017 starting point, not the final word on the policy debate. In this, we join the debate the 1018 LSE Growth Committee's 2017 report has sparked in UK policy circles. By focusing 1019 on strengthening economic resilience, we believe our interventions' success depends 1020 a lot less on uncertain political and technological processes the UK cannot hope to 1021 control. Based on our analysis of the situation, we propose the UK considers this set 1022 of interventions to improve and maintain the health of its entrepreneurial ecosystem.

1023
That will be a key asset for the UK, whatever the circumstances. Open Access This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made. The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.