High-technology entrepreneurial activity in Britain

From the end of the second world war to the 1970s the economic and political climate in Britain was not conducive to entrepreneurial activity. Macro-economic conditions were unstable, and the high level of personal taxation, both on income and on capital gains, discouraged investment in high-risk, high-return ventures. A few financial institutions specialised in supporting technology-based firms. For example, Technical Development Capital was set up for this purpose in 1962; it was later acquired by Investors in Industry, the small-business financing organisation which had been established by the clearing banks and the Bank of England after the war.v But the venture capital industry was undeveloped compared to that of the US.
Some high-technology businesses were started during this period, and a few of them did well. A study of new technology-based firms (NBTFs) carried out in the mid-1970s by Arthur D. Little, the management consultants, identified about 200 such firms which had been created since 1950 and were still in existence at the time of the study.vi The largest of them was Racal, a specialist in wireless communications equipment; in terms of annual sales, Racal and three other relatively large firms (Staflex, Solartron and Unitech) accounted for roughly half the total. The record in Germany was not much better, despite the superior performance of the German economy. The study identified less than NTBFs in Germany; Nixdorf, the computer manufacturer, was by far the largest, accounting for 65 per cent of total sales.
Overall, the study concluded that the number and performance of new technology-based firms in the UK and Germany had been unimpressive, especially in comparison with the US. “With a few honourable exceptions, such as Racal and Nixdorf, NTBFs in the two countries have demonstrated no particular success whether measured in terms of numbers, size, growth or contribution to GNP or employment”. Whereas the total sales of NTBFs in each country amounted to not much more than £200m in 1975, “there are several thousand NTBFs in the US and their sales run into billions of dollars”.
In seeking to explain why the American record was so much better than that of Germany or the UK, the study noted a number of favourable factors in the US:
- a very large domestic market conducive to rapid growth and development
- the availability of private wealth as a source of seed capital for the start-up of new ventures
- a fiscal framework which encourages the flow of risk capital into new ventures
- the existence of an active market for the trading of shares in new ventures, ie the over-the-counter (OTC) market
- a prevailing attitude in society at large which encourages entrepreneurship
- greater mobility of individuals between academic institutions and private industry
- the behavioural and attitudinal character of American scientists, many of whom are willing to set up their own businesses in order to exploit their technical knowledge
- a large and active government expenditure programme in high technology areas which provides significant opportunities for NTBF endeavour, particularly through government procurement programmes.