How technology can bridge the UK’s productivity gap

This piece was originally published in The Daily Telegraph on the 13th of November 2018 in print and online under the title “Foster our tech start-ups and watch productivity grow”.

It is no surprise that productivity is high on the national agenda: the UK has long lagged its peers. The rest of the G7 outperforms the UK by nearly 20pc in GDP per hour worked.

The remedy, we are told, is top down. It is government-driven, the product of an industrial strategy and of multi-year investment plans. This is, of course, if we are to believe Theresa May and Bank of England officials. But is there another way? Rather than top down, what about bottom up?

The UK is fostering a dynamic start-up technology industry. These cutting-edge technologies, and the people who bring them to market, may have a greater and more immediate impact on economic performance than macro policy.

But what is “productivity” anyway? It is the effectiveness of an effort, measured in terms of the rate of output, per unit of input. The “input” is the materials and working hours required to produce a product or service. The “output” is less easy to measure. To be measured, something must be valued; and to be valued, it must be priced. But what if the output is being priced by an industry with the ability to name their figure? Take financial services at its pre-crisis peak. The sector was the country’s most productive: a relatively small number of workers producing outsized output, not just because of intense working hours, but also due to the industry’s immense “pricing power”. Lack of competition and weak regulatory oversight led to a seemingly unstoppable economic behemoth — we all know how that ended. Price does not always equal value.

Why does it matter? If we want the economy and society to be better off, it means more work, or more efficient work. The latter being the more attractive option, for obvious reasons.

Often, highly productive sectors will have a combination of two things: efficient production and market pricing power. Efficient production will manifest itself with scalable, capital-efficient and knowledge-intensive business models. While market pricing power comes with product differentiation, being first to market, or cornering the market.

I am a venture capitalist by trade, and believe in the power of small teams who, with the right backing, can upend industries, and change the way we produce, serve and consume. I look to invest in companies that can fundamentally alter the productivity of entire verticals, and are uniquely placed to create and return value.

I regularly meet young UK companies that could have a huge impact on productivity. Some will do so by taking market share from inefficient incumbents, but most will be the enablers of industry-wide tech adoption — bringing new tools, skills and forms of support to bear.

Companies are building new “tools” that automate, digitise and streamline existing processes. This need not be the robot revolution; these tools can be as invisible as automated claims management software in insurance, or automated code review and testing for software developers. The mantra to follow here is “automating work, not workers”. Two home-grown examples are UltraSoC, which drastically reduces the time and money required to develop and build new high-end chip systems; and Tractable, which automates insurance damage assessments using computer vision.

It seems obvious, but appropriately “skilled” workers create more value. England has one of the largest proportions of low-skilled young workers among advanced economies, according to the OECD.

Companies are taking on the challenge of training and retaining the best staff by creating automated job-matching platforms, enabling flexible working, providing continuous learning solutions and ensuring workers are paid fairly. For example, Juggle Jobs is creating tools to place and retain high-skilled workers in flexible roles, empowering working parents while increasing the pool of talent. Gapsquare analyses reams of payroll data to close pay gaps within companies. Learnerbly is a continuous learning platform making it easy for employees to stay current with their skills.

“Support” covers the solutions that companies use to plan investment and business expansion. The right capital structure for a business can mean the difference between hyper growth and death. This means finding the right investors, and ensuring a business has access to the right capital at a competitive price. Companies such as Capitalise and Swoop enable SMEs better access to financing options, and Prowler.io is using probabilistic modelling to drive better management decisions.

Early-stage start-ups are uniquely placed to drive adoption and investment, as their very survival depends on rapid growth and customer acquisition. These companies, and the technologies they create, have the potential to increase productivity across the spectrum: from FTSE 100 behemoths to sole traders, from factory automation to financial services. The onus is on these new entrants to demonstrate return on investment to their clients, but the choice facing incumbents is clear: commit to long-term investment in technology, or risk being left behind.

The much-needed revolution in Britain’s productivity is likely to come from these technologies and the founders creating them, rather than policymaking in Westminster back rooms. As policymakers sketch our country’s industrial strategy, they would do well to keep the technology sector in mind.