With the June In/Out, or as we are now being psychologically led ‘Remain/Leave,’ UK referendum vote moving closer, I thought it warranted an exploration of the potential impact of the referendum outcome through an innovation lens.
I would like to state that there is no political objective or bias intended with this post. However, it is important to discuss the potential ramifications of our collective decision (and please let that be a decent percentage of the UK population for a change…that is my political moment!) from the angle of innovation.
- Many and more diverse brains are better:
I will start this with an assertion that the Eurozone is not the bastion of innovation. The starting point is not one of great innovative success stories and a great culture of collaboration. There is a lot of room for growth and improvement. The EU has been fairly strong in the area of collaborative research, for which there are a great number of well acronymed initiatives and bodies (e.g. the Innovative Medicines Initiative, the IMI for short(!), which aims to boost pharmaceutical innovation in the EU). The strength and benefits of such research comes in the form of money (over 50% of IMI funding comes from the EU), but also in the ability to bring together companies and researchers from different EU countries to share knowledge and experience. What impact would leaving the EU have on this from a funding perspective and also, probably more importantly, from the context of combined expertise and knowledge sharing?
- Bureaucracy – the innovation killer
It is almost impossible to really know what the true impact of a vote to leave would be. Change is never easy and always comes with deeper uncertainty than the option of no or limited change. Innovation comes with a pre-requisite requirement of change. There is a common misconception that this must, by its very definition, be radical and disruptive change. But change and innovation are bed fellows, that is an incontrovertible fact. Change is difficult in heavily (or overly-) regulated markets and businesses, it is difficult (or impossible) in overly bureaucratic settings, where committees make decisions and they do so at a pace few of us would call fast. The EU is a vast, complex and highly bureaucratic machine. Speed, agility and adaptability are not its strong points. Would a UK that stepped outside of the constraints of Brussels not be more able to focus its innovation legislation, efforts, money, brainpower, resources etc. to deliver the innovative outcomes and approaches the country, the infrastructure, the business world and the people of the UK need the most?
- Single market authorisation
I was having dinner last week with a close friend who is legal counsel for a global FS firm. The conversation steered in this direction for part of the evening, and I was interested to learn, as I hadn’t read this anywhere, that voting to leave the EU would have potentially significant ramifications for the pan-European banking licenses of all banks with their HQ in London. Currently, a bank with its HQ in London can obtain a pan-EU banking license (rather than having to obtain a banking license in every EU country) that allows it to operate across the EU. What would the impact be to this in the event of a vote to leave? It would appear on the surface that those banks with a UK HQ might have to either relocate their HQ to another EU member country to take advantage of this EU license or negotiate a banking license in each country. The simple answer is no one seems to know. Whilst the answer is important and I would like to know, another concern is the impact on other areas, whilst financial services companies scramble to plan for either eventuality, lobbying at UK and EU level, scenario planning, etc. The impact of this will be felt far wider than the teams or the firms themselves as there is a natural ripple effect of uncertainty at this level. A similar single market authorisation also exists in the pharmaceutical sector where the European Medicines Agency (EMA) can grant pharmaceutical companies a single marketing authorisation, providing faster access to the whole of the EU market – half a billion potential patients. There will be great answers to the various outcomes of this conundrum, but the simple fact remains that it is a huge distraction and a natural impediment to innovation both in the short-term and potentially beyond as well.
- Impact on innovation of limiting the free movement of people:
Immigration is hugely advantageous for the domestic population because immigrants’ contribution to the value of production is typically higher than their compensation. For example, a growing and structurally younger population increases the incentives for process and product innovations, and a more diverse workforce can make innovative systems more efficient.
Access to the EU labour market is a particularly important dynamic and one that shouldn’t be too readily overlooked. There are significant skills shortages in many of the highest growth sectors of the UK economy and access to talent through the free movement of people the EU affords is a huge innovation enabler, especially for many smaller UK firms. At Wazoku we have a pretty multicultural team and have a strong EU contingent amongst our talented ranks, we dismiss this benefit at our peril.
So in summary….
There is substantial evidence that openness promotes innovation and the adoption of new technologies through the free movement of capital and labour. It allows firms to specialise in a narrower range of products and to exploit economies of scale, raising efficiency. Increased competition from operating in a larger market reinforces these dynamics. A dynamic economy is also likely to be one where entrepreneurs will innovate and set up new firms and new jobs will be created, enhancing the welfare of its citizens by allowing resources to move flexibly to new productive opportunities.
As I said upfront, this is not an opinion either way. I believe there are strong arguments for these conditions on both sides of the question. What is undeniable is that new innovation and the knowledge sharing for innovation adoption are the ultimate drivers of economic growth. We need an ecosystem to underpin this that supports the creation of new ideas, products and processes, and allows people to make more efficient use of the available inputs.
I depart this soapbox having not once used the term Brexit (until now), and for that I take a bow and welcome your thoughts!