Innovation stagnant

An interesting article was published on the Independent today regarding the lack of innovation within UK industry, largely as a result of a lack of capital. As one of last week’s posts following the festival of economics reported, only 0.35 % of banks’ overall assets were distributed to “innovative “companies, which is particularly revealing and pertinent to the article.

The basic premise is that innovation is not prospering within the current economy , largely due to a lack of funding from banks. The evidence behind this is strong and decisive:  A Grant Thornton study states that one third of London’s promising technology companies are missing out on growth due to a lack of capital. Despite promising government initiatives such as the SEIS raising £82 million from investors and helping 1100 small businesses , many of which being in the technology sector , the UK is ultimately lacking in the high-risk, high-reward, high-growth Venture Capital sector which helps to drive growth within the US economy, for example.

The reason that banks are hesitant to lend to small, risky companies is because they are just that: risky. As a result, banks are much more happy offering highly-collateralised loans to established companies or mortgages to people whose houses can be repossessed, whereas innovative new companies have value because of the ideas that drive them ; Not the assets which underline them. Of course, ideas are much more prone to failure and value fluctuation than tangible assets.

In my opinion, more government initiatives such as the SEIS should be created in order to help these ailing innovative companies, for, at the present state of bank lending, we will never be able to keep up with the heaps of innovation arising from areas such as America’s “Silicon Valley “.