The Way Out for Scotland: A Strategic Response to the Coming Depression
By Michael Clouser, Ph.D. Candidate, Entrepreneurship and Innovation Policy, School of Business at the University of Edinburgh, Scotland
07 July 2009
Edinburgh, Scotland 06 July 2009: In response to this weeks article in Scotland on Sunday “100,000 jobs to go accross Scotland in downturn” I would like to first alert the readers of my blog and the public at-large, to the notion that the downturn may turn out to be more than just a recession that lasts for a short time. The so-called experts who predicted it would be ending about now are now telling us next year this time; and others, who aren’t heard, are prediciting much worse. Who knows? But we should prepare for the worse and act as if it is. The danger in not taking this looming depression into account is that government response and intervention may be minimal and uncreative. In addition, while the voices in the articles I have read about this report of Scottish Enterprise seem to be focused on the manufacturing sector, we should look to another area where Scotland has stronger comparative advantage internationally — and that is to the science and technology base. In order to gain stratgic advantage on the world front, the Scottish Government should sieze this opportunity and make sizable investments — I am talking HUGE — in research and development, into education, especially higher education, innovation programmes, and leverage the entrepreneurship development programmes that already have momentum here in this Country of 5 million and 13 world-class universities.
Instead, a huge bet on the knowledge economy would be better than helping a company here, and a company there. In fact, the Scottish Government should even go into debt, challenging Westminister on this constraint (and winning of course), and issue public bonds that will be purchased by the people of Scotland, the UK and Europe and maybe even other international friends such as the United States and Europe. Much can be learned from the recent sale of public bonds in the State of California under Proposition 71, which funded State-wide investment in stem cell research and related development. Scotland should look at what California did in this regard. I propose that the bonds that are sold to citizens of Scotland be tax-free, so that the interest they earn is not subject to any taxes whatsoever, making them more attractive. In the industrial economy, governments financed roads and bridges, the infrastructure, with such bond issues; in the knowledge economy, the infrastructure is R & D, thus justifying such an issue.
The proceeds from these bond sales will fund a great amount of research and development, as well as “entrepreneurial infrastructure” and be paid back from the fruits of the commercialisation and new venture creation. Furthermore, . At least 100,000 jobs could be created through the catalyzation of new science and technology-based firms in this Country, and the growth of existing companies, in the next 9 years alone. Maybe even more. And the sale of public bonds to the people of Scotland will bind the community together, and mobilise it on developing great new technologies and companies that will become world-leading, global companies. Furthermore, Scots abroad can invest in Scotland and share in its wealth creation in the new economy.
The esteemed Professor Henry Etkowitz http://www.triple-helix-7.org/keynote-speakers.htm delivered a talk just last month in Glasgow at the Triple Helix VII Conference, calling for a a powerful government response to the “Coming Depression” by investing in R & D, and mobilising industry, government and higher education. Why wait for the next World War to take us out of depression? It was just this, mobilisation and investment in R & D, that brought the US out of the depression of the 1930’s.
What the Country of Scotland needs now is to invest in and leverage its strengths in the creation of knowledge through research, and the exploitation of this knowledge, on a per capita basis that far exceeds the strongest of competitors including Sweden and Finland. We don’t need to subsidize failing industries, or to bail out inefficient financial institutions, including big banks that don’t help the entrepreneurial companies in this Country anyway, and have little care about the knowledge being created in our universities. Let them fail, and instead bet big on science — research, development, commercialisation and especially the creation of new firms and the growth of existing technology businesses. And do this in new, creative ways to lead the world to prove again Scottish inventiveness.
For instance, as part of the investment into “entrepreneurial infrastructure”, I would propose a large amount of funding be restricted to secondary investments in new venture capital funds that are focused soley on Scottish technology companies, both new and existing. If the bond issue was £3 billion, then about £1 billion of that should be invested in venture capital funds, including those that are started here by Silicon Valley veterns. There is a shortage, and has been a shortage, of risk finance in this Country for years, as well as capable and experienced venture capitalists. While some of the small fixes, such as the Scottish Co-Investment Fund, have helped, there are still plenty of companies that can not access the large amounts of capital that are needed to grow global companies. In order to create and build new companies from the research base, GOOD venture capital is needed, and in order to grow the good technolog companies that do exist here, venture capital is needed. What is crucial for change is a large step change in the availability of and attitude towards risk capital, large amounts of it, to create global companies. We need to see later stage deals receiving rounds in the £20 to £40 million range in order to compete on a global scale.
Investment in R & D and “entrepreneurial infrastructure” — making a big bet. This is the way out for Scotland. Although contrarian, it is time to go into debt again. The Darien Fiasco was 302 years ago, and this was the last time that Scotland was in debt. But this time the “investors might” be largely outwith Scotland.
Michael Clouser is a PhD Candidate at the University of Edinburgh http://edinburgh.academia.edu/MichaelClouser, and is a member of the Centre for Entrepreneurship Research http://www.business-school.ed.ac.uk/research/centres/entrepreneurship-research as well as the Institute for the Study of Science, Technology and Innovation http://www.issti.ed.ac.uk/. Michael was with the Edinburgh-Stanford Link until its recent wind-down, and currently works in the School of Informatics teaching entrepreneurship to computer scientists. His blog on Acadmic Entrpereneurship https://academicentrepreneur.wordpress.com/ discusses the issue in further detail. Before relocating to Scotland Michael was a venture capitalist at Dot Edu Ventures in Palo Alto, California, and worked with the late Dr. Rajeev Motwani, the “Super Uber Connector” of Silicon Valley.