Opinion In an unprecedented year for the world, it might be easy to forget that, in the midst of the global COVID-19 pandemic, other unprecedented things are still happening. Yes, the UK’s favourite portmanteau, Brexit, is coming back to blight Britain.
News hit the streets this week that the chances of a deal with the EU are beginning to ebb away, with the UK said to be taking a hardline on negotiations.
But why are UK prime minister Boris Johnson and his team risking leaving the world’s largest trading bloc without a deal, asks Robert Peston, and he has an answer. The political editor of British television network ITV News said in his blog that limits to state aid for private companies, an EU condition for a deal, and the dreams of the prime minister’s chief advisor, Dominic Cummings, serve to explain the move.
“Cummings's passionate conviction is that Johnson's government MUST have the discretion to invest without fetter in hi-tech, digital, artificial intelligence and the full gamut of the so-called fourth industrial revolution,” Peston claimed.
Other than being a fundamentally good thing, the need to invest is made ever more pressing because that sack-full of buzz-word bingo is necessary, not just for the UK’s prosperity, but its very standing in the world.
“Cummings - and we have to assume his boss Johnson too - are obsessed about not being bossed around by the TWO superpowers that already have trillion dollar tech companies, namely the US and China,” the post said.
Competitive state aid
Countries without trillion-dollar companies based on the magic combination of hi-tech, digital, and artificial intelligence will be owned or coerced by those that do, as the “fourth industrial revolution” takes hold, or so the thinking goes.
“The view of Cummings and Johnson is that such a reduction in the actual and underlying growth of national income represents an investment in a more prosperous future” dependent on “precious freedom to direct state resources to the sectors and businesses on which our future success will hinge,” the blog claimed.
It leaves us with a lot to unpack, but let’s have a go. Is it true that state aid helps make trillion-dollar tech companies? The only countries able to develop such companies, the US and China, are currently the only economies able to produce such companies, and their policies on state aid could not be more different. America, which is not big on state aid, got there first with Apple.
China, of course, appears to give an affirmative answer to that question, with state oil and gas firm Petrochina beating Apple to hit the golden $1 trillion in 2007 - and Alibaba and Tencent tipped to get there soon. State aid in a tightly controlled authoritarian political system where there is a fusion of party state and market power – and state-engineered market consolidation – is not really something you can replicate when you posit free market economics as being the central institution of society and democracy, as this Conservative government does.
Ignoring the spurious trillion-dollar benchmark, do state aid rules preclude success in tech? Germany has a fair share of success stories: one of the world’s largest software companies in the nearly $200bn SAP, a gaggle of promising big data and AI companies and a buzzing start-up scene in Berlin. And it has EU state aid rules.
Meanwhile, the UK’s biggest global success, chip-designer Arm, which is behind a large chunk of the smartphone processor market, and was sold to Japanese investment firm SoftBank for £23.4bn in 2016, emerged while the UK was operating within EU rules.
And what of the UK government’s ability to pick winners in the quest for tech superiority. Well, when it could pick, the British government bought a 10 per cent stake in the newly formed ICL in 1968 and provided $32.4m for R&D after a series of government-forced mergers. Now, no one is saying ICL didn’t make some successful mainframe computers, but it can hardly be said to have turned the UK into a global hi-tech powerhouse either. It was subsequently sold to Fujitsu.
Fast-forward 52 years and the UK is spending around £400m for a chunk of one-time bankrupt satellite firm OneWeb, intended to provide the missing pieces of the puzzle created by the UK’s departure from the EU's Galileo sat-nav system.
If that’s not inspiring much confidence, let’s remind ourselves what the UK is risking in trade negotiations. In 2019, UK exports to the EU were £300bn, 43 per cent of all UK exports, while UK imports from the EU were £372bn, about half of all imports. It is a big stake to put on the table when you’re betting on a bald man and shaggy haired prime minister with no track record in the tech industry. ®