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Assimilation Part 1: Boom over Bust

In the previous post, the focus was on education reform to help generate the best outcome from the coming smart-technology revolution.

In this two-part article, the attention shifts towards exploring the challenges of implementing smart-technology into the UK economy – firstly looking at how, on a macro level, the UK can move towards being a producer and innovator of intelligent machines, rather than a passive consumer.

Borg Cube
The Borg assimilating

The second part will take a business-level approach, looking at how firms can integrate smart-technology into the workplace to enhance their workforce, rather than simply replace it. Together the ambition is to describe a recipe for economic integration and assimilation – and boom over bust

Ceteris Paribus

The United Kingdom has a well and long established productivity problem.

Even removing the external impacts of the 2008 Great Recession, the suffocating pyrrhic-isms of Brexit, the crushing fallout from a global pandemic and the existential threat of climate change; the UK would still have bottom of the barrel productivity.

Productivity is generally defined as economic output per hour worked, per worker.

Since the 1960’s, the UK has flagged in this metric markedly behind almost all advanced economies. Even during upsurges in productivity found in the Thatcher years and around the time Britain joined the European Community, the UK has consistently fallen behind.

In 2016, overall levels of productivity were 16% lower than the rest of the G7 – the Financial Times noted “The average French worker produces more by the end of Thursday than their UK counterpart can in a full week”.

Reasons for this malaise include large UK companies losing momentum (and in many cases becoming cumbersome), a low skilled work force (as discussed in the last post), risk-averse investment, as well as the stark regional inequalities across the UK – outside of the South East productivity levels are especially dire, largely as a result of the shift away from manufacturing also covered previously.

While the challenges more broadly with regional disparities require complex, sensitive and multi-faceted solutions, there is an overarching spectre upon the horizon that could provide a kickstart to Britain’s chronic productivity problem.

That spectre, of course, is the increasing use of artificial intelligence and smart technologies.

Crossroads

The boost in productivity provided by machine learning, AI and other smart-tech is one of the key reasons’ businesses choose to adopt it in the first place – speeding up the completion of tasks too demanding, demeaning, repetitive, or tiresome for humans. (something we explore further in the second part of this essay)

Superficially it would seem the UK has its solution – simply wait for, or even encourage, the widespread adoption of smart-technology in the workplace.

However, the reality of integrating this new technology to correct lagging productivity will be far more challenging.

While the UK’s productive capabilities will certainly increase; relative to other nations, and particularly the USA, EU and China, its standing on the hypothetical “productivity league table” could well remain broadly the same, or even slip further behind.

This is because the UK is currently a consumer of smart-technology, rather than a creator, owner and innovator – it pays the rent rather than owns the house.

To fully capitalise, UK industry must shift roles, securing their stake in the future of the workplace, rather than be mere passengers.

Getting a grip

As mentioned above, if the UK is it is to reap the benefits of new technologies, and it is serious about so-called “levelling up”, organisations will need to ensure they have a meaningful stake on the table.

The country, for a few deeply disheartening reasons, is on course to become a consumer of the technology that is increasingly shaping the future.

To negate this, a few key things will need to occur:

    1. Innovation needs to develop closer to home
    2. Innovation needs to be supported by investment
    3. The newly spawned businesses need to be given the space succeed in the UK, and not become the creative conveyor belt for foreign tech giants.

Easy, right?

Youthful Innovation

Highlighted in previous posts, education and, therefore the future of the workforce, will be an essential part of any successful transformation into a machine intelligent economy.

But once we have a more highly trained and effective workforce, where do they go, and how can they integrate and provide impetus into a stagnating economy?

Academic Honey Pots

Radcliffe Camera
The Radcliffe Camera, Oxford University

Another, more organic phenomena that, if fully realised, could not only spark an explosion in successful tech-start-ups domestically, but could also help solve the ongoing debate over tuition fees, is university venture capital.

In practice, this is a way for universities to fund and profit from the best ideas and innovation created on their campuses through investing in their own students.

The potential benefits are wide-ranging, yet this style of investment has been underutilised – a sleeping giant for decades in this country.

In 1992, Chicago University created its own investment fund, Arch-Venture Partners, parting ways with traditional venture capital funds, and has now become one of the largest medical/tech-specific funds in the US. Similarly, the relationship between VCs and Stanford alumni is the heartbeat of Silicon Valley, giving birth to Google, Cisco, LinkedIn, YouTube, Snapchat, Instagram, etc., etc.

Despite the success of these successful and well-known models, very few UK institutions have followed suit.

Frequently, cutting-edge tech is, by definition, ground-breaking and the evidence that success lies ahead is unlikely to be found in the 2-to-5-year window sought by traditional venture capitalists.

Academic institutions, by contrast, can weather much longer timeframes, and have first-hand inside understanding of the innovators while providing them with nurturing ecosystem. A far better environment for long-term, sustainable innovation.

Success from alumni start-ups should allow institutions to extend their activities, even help fund campus facilities – high-flying students can become assets of the university, not just paying customers.

Ultimately this could have far ranging effects, even leading to tuition fee reform. If students are viewed as potential assets that the college can nurture and launch into the world, the need to charge for tuition at the point of learning becomes less – universities will have a greater desire to attract the most able students, from all walks of life, as they seek to support and invest in their future success.

The movement towards university venture capitalism should be encouraged as a method of economic growth – the gains are too good to be passed up.

In the past, countries created sovereign wealth funds sustained by the exploitation of their natural resources. The future’s natural resource is knowledge – universities are the oil rigs of the new economy.

Keeping a grip

So now, through a supportive education system the UK may develop better skilled workforce, but where do they go?

John Chambers
John Chambers at the World Economic Forum, 2007

If they follow their parents into filling positions in large multinational corporations, the UK will remain a consumer. As the ex-CEO of Cisco, John Chambers, has repeatedly said, large corporations can’t innovate fast enough for the modern economy – its start-ups that drive the future.

What needs to occur, therefore, is widespread entrepreneurialism tightly coupled to the training, generating new, innovative businesses which will fully contribute to an economic revolution in the UK.

The UK currently has notoriously cautious investors – for cultural and political reasons – so this trend needs to be countered to make start-ups commonplace.

Supportive Polices could include specialised subsidies aimed at the smart-technology industry, tax credit schemes, specific changes in intellectual property law and, even more ambitiously, creating SEZ style locations specifically for domestic smart-technology start-ups.

But critically, the Government should resist temptations to directly engage. The recent nationalisation of OneWeb, to convert a bankrupt low-earth orbit satellite constellation from serving high-speed data into a geo-location system is a great example of what happens when technology investment decisions are politicised.

Go forth and multiply…

Start-upThe creation of specialised “zones” to incentivise and incubate home-grown smart-tech start-ups have the potential to not only provide economic benefit but social as well.

These “zones” have a huge capacity to regenerate struggling and isolated communities through the creation of a local economic multiplier effect.

There is strong evidence showing the efficacy of the local multiplier – Enrico Moretti – an economist at Berkeley, another progenitor of Silicon Valley – found that, on average, for every skilled job created, 2.5 other jobs were created in local services and non-tradable goods markets. Moreover, the tech-sector has the highest local multiplier – 5 jobs were created for every high-skilled tech job.

While Moretti found that the tech-sector was the hardest industry to relocate for the purposes of a multiplier, he suggests that government subsidisation of relocation costs, plus other incentives, like SEZ’s, should attract relocation.

To optimise the benefit of an artificial intelligence boom, locate these zones in places like Blackpool and Burnley, not just London and the South East – and don’t call them Silicon [Roundabout, Glen, Corridor, …] in a “me too” attempt to recreate Silicon Valley.

New Horizon

These suggestions, even if they’re not fully realised, have the potential to transform the UK socially, economically, and culturally – using the opportunity provided by smart-technology to revitalise and kickstart the country’s stagnant productive capabilities.

From increasing productivity, generating start-ups, boosting innovation, upskilling the workforce, regenerating deprived areas, and reforming university education: the opportunities exist and are within the realms of possibility.

We are at a flashpoint for the global economy – decisions need to be made – it’s boom or bust this time.

About the Author

Theo Wooster

Theo is a student at Birmingham University study Economics & International Relations, as well as working part-time at Xpedium

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