• Dr Nasira Bradley, Adam Smith Business School, University of Glasgow, and founder of Innovation and Growth Think Tank
• Ray Perman, journalist and author, Fellow of the Royal Society of Edinburgh

The Scottish Technology Ecosystem Review published by the Scottish Government last week is a laudable step in the right direction. An independent review by an industry leader, Mark Logan, ex-chief operating officer of Skyscanner, it gives a much-needed voice of industry, too often absent in shaping policy thinking.

It identifies changes needed to increase number of start-ups, and the eventual yield of unicorns – companies which quickly reach $1 billion valuations. It is also commendable for addressing the fundamental shortcomings in education for computer science, as well as provision of grants, improvement of educational aspects and infrastructure of incubators, accelerators and start-up hubs, need for mentors and increasing finance to early stage funding. All important and valid points.

But the review falls short in understanding the total ecosystem, missing vital drivers that ensure scaleup in the US – the benchmark country for the review. More worryingly, it only targets firms to reach unicorn status – it does not go beyond that to ensure we create firms that reach world-scale like Google or ARM – the only UK firm to have reached top 40 globally valued firms in last 30 years.

Becoming a unicorn did not enable Skyscanner to continue as an independent firm and even ARM is now in danger of truly getting lost to UK with its potential sale to Nividia (paywall).

While unicorns are important, to have a real impact on productivity – the spill over of best practices, the ability to address levelling of regions and inequality and importantly to be amongst the global leaders in the AI and Green race – requires an economy to grow some of its vital innovative firms to become frontier global giants.

To illustrate: Google employs 100K plus employees in the US (7K in the UK). Skyscanner, valuable unicorn as it was, employed 1.5K people before the pandemic.

The biggest driver this tech review misses in the US innovation eco-system, is the role of the Department of Defence, both through its procurement contracts (Buigues and Sekkat, 2009) and very deep research and development (R&D) pockets, importantly giving time to prove and scaleup new disruptive technologies. This enables start-ups to build cash flow and credibility before they have to compete in markets – a point recently emphasized by Eric Schmidt, ex-Google chief executive officer, now chair of the US Defense Innovation Board.

There are other worrying lapses – it fails to understand the reasons for the failure of the 1980s Scottish growth policy and writes off the process when indeed similar initiatives with key differences, were used successfully by newly emerging economies like Taiwan and Korea to help scale up their firms. The difference was in how the policy was shaped to ensure technology transfer. Highly respected development economist Alice Amsden terms this knowledge assets upscaling (Amsden, 2001).

Indeed, the return of the Irish diaspora, praised by the review, was not a cause, but a consequence of the attraction of large multinational firms to Ireland during its Celtic Tiger era (PDF). This does not detract from the value of the Irish diaspora programme, which made it effective, however, it signifies that proposals to attract skilled labour, be it diaspora or foreign, have to be formed by policies that address the innovation eco-system as a whole.

This disparate approach is also apparent in the review’s suggestion to replicate and expand CodeClan, rather than promoting a holistic approach in which CodeClan served as an example of alignment of training of skillsets to needs of industry and served as a role model for reshaping educational institutes and moving them closer to industry. This has been promoted for decades in US and other European economies (Nelson, 2009).

A lack of international perspective is also apparent in the solutions proposed for easing the constraints to access to finance. The UK has roughly one fifth as much venture capital as share of GDP (PDF) as the US, but Scotland has only a third this level – one-fifteenth of the US. Just increasing venture capital provision to US levels is unrealistic in the short term without the demand surety supplied by US procurement policies.

Other tools should also be considered. The German state bank Kredietanstalt fur Wiederafbouw offers loans varying between 7-20 years at favourable fixed interest rates, which give firms an alternative route to ensure they can grow and demonstrate their viability, especially in disruptive technologies. This again underscores the need for Scotland’s’ newly formed Scottish National Investment Bank to develop a wide understanding of the finance needed by firms – debt and equity – to help them scaleup and deliver the growth for Scottish economy.

Despite these criticisms, Mark Logan and the Scottish Government, which commissioned the report, should be much applauded. We need more industry heads to engage with policymakers and together shape the innovation ecosystem we need to deliver growth and address inequality as we move further into the artificial intelligence era, in a sustainable green way.

Additional sources

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• Buigues, P., Sekkat, K., ‘Industrial Policy in Europe, Japan and the USA. Amounts, Mechanisms and Effectiveness’, (2009), Palgrave MacMillan
• Amsden, Alice, ‘The Rise of “The Rest”: Challenges to the West From Late-Industrializing Economies’ (2001) Oxford Scholarship Online
• Nelson, Richard R., ‘National Innovation Systems: A Comparative Analysis’ (1993). Social Science Research Network (SSRN)

About the authors

• Dr Nasira Bradley is founder of Innovation and Growth Think Tank, her research has focussed on Innovation, productivity and growth systems, with prior experience in R&D in High Tech innovation industry.
• Ray Perman is an entrepreneur and investor in small business.

Image credit: anyaberkut | iStockphoto