Britain is letting UK innovators down

by Jonathan Kestenbaum

Growing up in Tokyo as a boy, I saw the Japanese economic miracle taking place all around me.

I wondered how this revolution - which catapulted the country from wartime chaos to the world's second largest economy - happened so quickly. Since then I have been fascinated by the process of innovation - especially in the UK.

Britain is noted for being inventive. It is the cradle of ingenious ideas such as the jet engine and the World Wide Web.

But over the next few years the rise of the fast-growing, entrepreneurial and ambitious economies such as China and India may have a devastating impact on the UK economy if we do not strive to increase the level of enterprise and innovation.

Back in the 1970s and 1980s, whole British industries fell victim to the Japanese, such as shipbuilding, motorcycle manufacturing and electrical goods.

Today, the UK has a narrow window in which it must maximise and deepen the culture of enterprise before emerging nations overtake us. There is no doubt that the UK continues to produce dozens of excellent small companies and hundreds of successful entrepreneurs.

In November, the UK was labelled the sixth most competitive economy in a survey by consultants Deloitte. However, the same report criticised us for our low levels of innovation.

The numbers of people involved in true and successful innovation are far below what we need. The UK's entrepreneurship rate is 6.3pc - the United States ' is 11pc.

Where are the British equivalents to Google, Microsoft or Apple?

We need a system of innovation support that is in alignment, from encouraging entrepreneurship - particularly in the young - to providing the right start-up capital, creating networks and inspiring commercialisation and growth.

To begin with, we have to encourage a spirit of entrepreneurship in young people before they enter the workforce.

Surveys show that almost half of 15- to 19-year-olds in the UK would consider setting up a business. This drops to one third after university. The figure while there is even worse, with only 1pc of college or university students engaged in enterprise.

The right sort of business support made available to companies at the right time, especially early on, is essential for innovation to succeed.

The UK has a strong private equity industry - accounting for almost a third of total European equity investment. However, only 2pc of total private equity investment was invested at the start up stage in 2004, and only a further 2pc in early stage investments.

Most important of all, effective national innovation requires strong business networks. Everything we know about innovation is that it is not an isolated experience and partnerships are essential.

Consider the role that clusters have played, such as Silicon Fen in Cambridge. More than 1,000 high-tech and IT companies are based there, most of which have been spun out of Cambridge University, making it one of the main centres of technology innovation in Europe.

Silicon Fen is designed to aid innovation, not least through formal networking groups. The largest is Cambridge Networks, which has more than 1,000 members, and links across the globe.

Good networks like these can help commercialisation and growth. The UK has many of the pieces of this innovation system and is looking to fill in the gaps that exist through initiatives such as Enterprise Week. What we must do now is to put them in alignment.

With this in place, enterprise-hungry entrepreneurs will build a mass of solid, hard-nosed businesses and sell world-class products to truly global markets.

In this way the UK's industries will not suffer the fate of so many in the 1960s, and they will be more than ready to meet the second tide of rising stars in Asia.

But we must start now.

Jonathan Kestenbaum, Chief Executive, NESTA
First appeared Daily Mail, 28 December 2005