Why ARM made it (and the UK computer industry died)
The digital revolution is largely an American tale. However, once upon a time, the United Kingdom also played a crucial role in the development of the PC industry, with several British firms leading the way in the digital realm. Ferranti introduced one of the first computers, while Sinclair launched the legendary ZX Spectrum. Over time, many of these firms faded into obscurity, causing the industry to wither. Only one company kept the UK tech on the map — ARM.
ARM started as Acorn Computers in 1970s Cambridge, UK. They made the iconic BBC Micro and later developed the groundbreaking Acorn RISC Machine (ARM) processor architecture. The new microprocessors business was spun off in 1990 as a separate company, ARM Holdings, in collaboration with Apple and VLSI Technology. The ARM architecture quickly established itself as a standard for mobile and embedded systems, dominating the smartphone and tablet markets.
Indeed, the emergence of ARM was the result of outstanding entrepreneurship. Yet, it is often overlooked that a precondition for its rise was the synergistic support of the government. Thanks to several policies and initiatives, the government took on a market-shaping role which created fertile ground for the blooming of digital innovation. First of all, Acorn Computers’ rise to fame is intimately tied to the BBC and its Computer Literacy Project, which selected the Acorn Proton, later renamed as BBC Micro, as the official computer for its educational programmes. This policy propelled demand for Acorn Computers as the BBC Micro became the computer of choice for schools and new users. Moreover, it boosted the microcomputer market by educating a burgeoning user base about the importance and utility of digital tools. While at the time the initiative was criticized as a way of “funding industry through the back door” (those were the early years of free market dogmatism), it is difficult to argue that ARM holdings would have come into existence without it.
Secondly, the University of Cambridge guaranteed a supply of competences and expertise, constituting the bedrock of innovation. Hermann Hauser, one of the two founders of Acorn Computers, was a Ph.D. student there at the time. Sophie Wilson and Steve Furber, the key innovators behind both BBC Micro and the ARM 32-bit microprocessor, were also university recruits. Cambridge’s capacity to generate a skilled pool of innovators was the result of deliberate industrial policy aiming at strengthening universities’ innovative potential. In 1964 the Wilson government was elected under the promise of helping the UK harness the “white heat” of technology to spur economic growth and solve societal problems. Cambridge University, responsive to the policy initiative, started the development of a science park on a plot of land owned by Trinity College. A few decades later, the area known as Silicon Fen emerged: one of the most prominent innovation hubs in the world.
While these policy initiatives enabled the emergence of digital innovation, they tended to be piecemeal and short-lived, leading to a lack of a long-term, cohesive innovation strategy. The nascent computer industry, compared to traditional manufacturing, was characterized by more complex production processes, necessitating highly specific interactions between firms. This complex web of inter-firm relationships needed the support of a collaborative infrastructure system. While the US provided such government support under the guise of defence policy, the UK did not offer a systemic approach to innovation. For example, the partnership between the BBC and the computer industry, crucial for Acorn Computers’ initial growth, dissipated in the 1990s. Similarly, the government support for “white heat” innovation, pivotal in fostering early technological development, was withdrawn during the Margaret Thatcher era. As a consequence of these policy rollbacks, combined with the inherent complexities of the nascent computer industry, the 1990s saw the demise of most of the British technology firms. Acorn Computers too, facing supply chain disruptions and a lack of supporting ecosystems, ran into financial difficulties, only to be rescued by a timely acquisition by the Italian manufacturer Olivetti.
ARM Holdings was set up as a joint venture between Acorn and two US partners: computer manufacturer Apple and circuit specialist VLSI Technology. Instead of producing computers, the new entity would specialise in microprocessor design, building upon the discoveries of Acorn Computers’ research division. This arrangement set the stage for ARM’s success. From the onset, ARM was assured a consistent upstream supplier (VLSI) and a downstream customer (Apple), effectively setting it up as a British research lab embedded in the US digital ecosystem. Over the years, this shielded ARM from the ups and downs of the British innovation system, allowing the company to emerge as a dominant industry player and the only such significant name left in the UK.
What lesson can be drawn from the ARM saga? A takeaway is that, while the spark of entrepreneurship is important, it’s the policy environment that fans the flames, guiding the animal spirits of innovation along a path of growth and stability. Any government with the ambition of fostering global industry players must willingly don the hats of both market architect and navigator, with a focus on the entire expanse of the innovation supply chain. Additionally, strategic alliances and inter-firm coordination can be crucial. These partnerships can safeguard firms from the unpredictable storms of economic uncertainties. Both relevant insights in today’s geopolitical landscape.
