History teaches us that entrepreneurial capitalism will help us make the most of Brexit

“They are cursuses of the ancient Britons, long before the Romans came hither. I mean the first aborigines Brittons in heroic ages, when the Druids first began; before the Gaulish nations came over, somewhat above Csesar’s time; those Brittons that made the mighty works of Abury, Stonehenge, &c.” – W Stuckley, 1 September 1736 If Brexit […]

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“They are cursuses of the ancient Britons, long before the Romans came hither. I mean the first aborigines Brittons in heroic ages, when the Druids first began; before the Gaulish nations came over, somewhat above Csesar’s time; those Brittons that made the mighty works of Abury, Stonehenge, &c.” – W Stuckley, 1 September 1736

If Brexit is about anything, it is about a desire to rediscover the “Great” in Great Britain. If national unity is about anything, it is about rediscovering the “Great” in a Britain that feels it has been watered down by political correctness, multi-culturalism and post-2008 economic challenges. Wanting to be “Great” unifies many (but not necessarily all) Leavers and Remainers.

Is it unimaginable that less than 70+% of the population of our islands want us to be “Great” again? Rebuilding the “Great” in “Great Britain” can therefore become a “unifying glue” to help repair the fissure Brexit Britain is facing.

The need to heal divides is not unique to our age. On acceding to the throne in 1558, Elizabeth I faced an England riven by the divisions brought about by the Henrician Reformation of the 1530’s. Yet by the time of her death in 1603, “Good Queene Bess” or “Gloriana” (as she was sometimes known) had unified her country into a common direction and so allowed England to avoid the bitter and destructive religious conflicts raging elsewhere in Europe.

Elizabeth, the pragmatist, worked in partnership with others from all walks of life to achieve this success. For example, she made common cause with the English adventurers who wanted their nation to be “Great”. In one notable case, adventurer Anthony Jenkinson opened trade to both Iran and the Ottoman Empire for private gain whilst acting as the Queen’s diplomatic representative to build cordial state-to-state relations. In another, the Queen’s Privateers both provided a private extension to England’s navy (so supporting English foreign policy) and operated for private and investor profit. Elizabeth herself acted as an investor in some privateers. The rewards were so great that one voyage earned enough to pay off England’s entire national debt! Success was driven by a combination of Elizabeth’s pragmatism and her willingness to engage with and nurture “entrepreneurial flair”.

Could there perhaps be some lessons from Elizabeth for today? Whilst some see the Brexit “win” as being “free trade deals” and build their case on Ricardian “Competitive Advantage” and the impact of the removal of the Corn Laws in the 1840s, true economic progress comes from nurturing innovation and entrepreneurship. We could liken trade deals to shuffling the deckchairs on the promenade to create the best view, whilst innovation and entrepreneurship seek to build a new platform that offers and altogether enhanced panorama for the deckchairs on it.

There are some who argue that for innovation and entrepreneurship to flourish, personal tax rates must be cut, regulations must be pared away and the state reduced to a minimalist function. For example, the US-based Cato Institute, along with the UK based Initiative for Free Trade, have suggested a true and real free trade based upon the absolute removal of all tariffs and non-tariff boundaries. Others point to the Laffer Curve to explain why personal taxes must be cut, notwithstanding statistical evidence that such measures have has limited effectiveness when tax rates are already internationally competitive.

The consumer benefits of slashing tariffs are according to Professor Patrick Minford and his colleagues clear; indeed, provided certain strict assumptions hold these benefits are indisputable. These include (i) changes in trade patterns do not lead to a material depreciation in sterling (falls in sterling internal UK prices for foreign goods), (ii) that distributors and middlemen do not pocket the benefits by leaving prices unchanged as prices are reduced and (iii) that overseas producers do not raise their prices to improve their margins as they see tariffs fall away. The juxtaposition of the last point is the 25% price cut that Tesla has implemented in China in the face of the latest tariffs on US automobiles. We do have to ask ourselves how realistic these assumptions are.

Whilst unfettered free trade is undoubtedly a spur to economic growth, we live in a world where all trade is to some extent restricted by countries or regulatory blocks. There have been many post-1945 examples of non-tariff barriers being used to grow and protect specific industries. To name two such examples, agriculture has been much protected by food standards legislation in both Europe and the USA; and pharmaceuticals and medical devices are equally protected via differing regulatory and approval regimes in different geographies. Indeed, we can see how competitive advantage has shifted from place to place in response to both entrepreneurial flair (as in Silicon Valley) or state policies as in South Korea or Japan.

None of this should be of any surprise, the ability for competitive advantage to shift was identified by Scottish philosopher economist David Hume in 1742 in the following still prescient words:

“There seems to be a happy concurrence of causes in human affairs, which checks the growth of trade and riches, and hinders them from being confined entirely to one people… Where one nation has gotten the start of another in trade, it is very difficult for the latter to regain the ground it has lost; but these advantages are compensated, in some measure, by the low price of labour… Manufactures, therefore gradually shift their places.”

What then is the economic engine that shifts this “competitive advantage” around?

Some argue that it should be state-driven. However, we have seen from the experiences of the now defunct USSR, the state is not necessarily going to be good at picking winners. A more powerful and potent force is required.

That force is “entrepreneurial capitalism”. This was the force at work in the Elizabethan Age, it was the force at work in Roman Britain and it was the force at work in the Industrial Revolution. Each context is different, but in all there was a fusion between the adventuring and innovating entrepreneur, capital and the state. The same nexus can be seen in the historic Silicon Valley growth model. The thing that changes over time is the risk balance between the actors.

Which brings us back to Brexit.

It is obvious when one visits a seaside town such as Great Yarmouth in Norfolk, a small community such as Grimethorpe in Yorkshire or Stoke-on-Trent in Staffordshire that these are places that have been left behind as their foundation industries have declined and new high value adding businesses have passed them by.

A “Great British Brexit” needs to enable renewal, a renewal that generates quality well paid jobs for all. We need to be the leaders, not the followers, thereby requiring a crop of innovating local entrepreneurs who have the ambition, skills and access to the financial resources to succeed.

Here are three key ingredients for the mix:

  • Identifying missing entrepreneurial skills that can be plugged by drawing upon specific educational resources.
  • Driving and nurturing the ambition and confidence to “Take Back Control”.
  • Ensuring that capital flows to our innovating entrepreneurs. Raising seed and early stage capital can be very challenging. By definition innovation are entrepreneurship are risky, yet financial markets are regulated to minimise risk and protect the saver from loss. In consequence, financial resources are primarily focused into existing assets, cashflows and secured lending rather than supporting potential future stars.

In an entrepreneurial capitalist society these lending flows need to go to the entrepreneurs who are innovating new products and new ways of doing things. One practical step could be to embolden the role and resources of the British Business Bank to both replace current European Investment Bank funding for Venture Capital firms and to act as the future funnel to ensure monetary stimulus is fed to the wealth creating sectors of the economy and does not just inflate the value of existing assets.

Inevitably some of these entrepreneurs will fail, but some will succeed and some will surpass all expectations. It is time to rediscover our exceptional entrepreneurs.

Tales of Brexits Past and Present: Understanding the Choices, Threats and Opportunities in our Separation from the EU by Nigel Culkin and Richard Simmons is published by Emerald Publishing and retails at £12.99

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