Economic news Embassy 53
UK corporate structure ‘kills innovation’
The rise of the ‘ownerless’ company in Britain is inimical to innovation, economist and chair of the Big Innovation Centre Will Hutton told a gathering of economic attachés.
Speaking at an AERL meeting hosted by the Hungarian Embassy, Hutton said leaderless British firms were less able to seize the opportunities of the digitalisation age and less able to adapt to its highly disruptive effects.
UK firms owned by “footloose” and “uncommitted” institutional investors encouraged short-termism and left British companies vulnerable to asset stripping, he added.
Hutton gave a searing critique of the “mindless privatisation” of the 1990s which he said had left British taxpayers short-changed.
“The looting of the British railway system was crazy and the Royal Mail will be asset stripped as well,” he warned.
Ownerless companies were “anti-innovation” he said, because they were run by risk-averse chief executives motivated chiefly by remuneration and share-price value.
“British executives are highest paid in the world for doing nothing particularly creative and innovative,” Hutton pointed out.
This contributed to “worrying” levels of inequality and rising disenchantment among the working class in Britain and Europe. This led to anti-immigration rhetoric and the rise of populist parties in the EU such as UKIP.
But Hutton said “times are changing” and welcomed the recent call by Bank of England Governor Mark Carney for a more “inclusive capitalism”to tackle these issues.
This would require a fundamental change to the UK economic system to rewire incentives, including company law reform to encourage “meaningful ownership”. The intellectual property regime should be more open and inclusive to encourage innovation, he added.
Hutton concluded that with changed incentives, the UK had the assets to capitalise on new technologies, including top universities, a science base and a start-up culture. The work of the Big Innovation Centre and ‘catapult centres’ could broker relationships between universities, large firms and start-ups which could help rebalance the economy.