The tech industry and Brexit

The debate on whether Britain should leave the EU has largely ignored a factor of huge importance to the tech industry – network effects.

So I’ve written an article on what Brexit means for the tech industry from the viewpoint of information economics.

Network effects mean that the value of a transaction often depends on how many other people make similar transactions. They make our industry prone to monopolies. They ensure that the UK, with 1% of world population and 3% of GDP, has little influence on tech markets, which are mostly global. But the EU has real clout; Silicon Valley sees it as the world privacy regulator, as Washington doesn’t care and no-one else is big enough to matter. And most of the other regulations that IT people find annoying, from IP laws to export controls, are also embedded in international treaties. We can’t just tear up the annoying “red tape”, as the Brexit crowd suggest.

Brexit would not only diminish our influence on the laws that affect tech – many of which reflect negative network effects. It would make startups more expensive, so UK firms would have a harder time exploiting the positive network effects that are often the key to success. And it would damage the successful tech clusters we do have in Cambridge and in London.

Tech clusters need a number of things to thrive; and it’s not just technical network effects that matter, but labour-market network effects too. And there’s quite a lot of research on that. As good engineers can earn good money and live wherever we want, we congregate in places that are good places to live. They are always open and liberal places, where it’s fine to be from an ethnic minority, or an immigrant, or gay. What would the world’s best and brightest engineers think about moving to Britain if we vote for xenophobia on Thursday?

The article is in Computer Weekly, and there’s also a pdf here.

13 thoughts on “The tech industry and Brexit

  1. Brilliant, good balanced read and quite reserved actually. I think Ross could have spelled out the impact on the wider issues to the less well educated or informed and how exiting the Euro zone will hurt the pockets of the common man. However it made extremely clear arguments to stay in the Euro Zone and the effect it would have on both Cambridge and the Uni.

  2. The focus by the Leave campaign on the loss of British sovereignty in belonging to the EU ignores the many international bodies to which the country belongs and thereby cedes some power to act unilaterally. To take just one example: we could in theory have our own mobile telecommunications standards (Japan has one, and the Scandinavian countries used to have one). But that means roaming by mobile users from Britain to other countries may be difficult. At the least, a unique British mobile standard would mean separate technical agreements between mobile operators in Britain and those of other countries. At present, mobile operators just to need to sign commercial agreements because the technical aspects of roaming and interconnection are covered by the international standards. GSM was designed – by a European committee of operators, no less — specifically to allow for ease of roaming.

    Belonging to ETSI or the ITU means Britain cedes some sovereignty in exchange for much greater ease of roaming and interconnection.

    1. Other international bodies are not the same as the EU in this regard. The EU can make any volume of law it likes against the wishes of the UK, and the UK has to abide by it. However, the UK would always be free (should it choose) to have its own mobile phone standard. There may be reasons not to do that, but it’s our decision to weigh up the pros and cons. That is not so for EU legislation.

  3. I disagree that a vote for Brexit is a vote for xenophobia. Is Switzerland xenophobic for not wanting to join the EU? Or Norway, or Iceland, or Guernsey? Independence is the natural state of affairs for 160 or so of the 200 countries in the world. Why is choosing the same path as all of them necessarily xenophobic?

    1. I also don’t equate a leave vote with a xenophobic vote.
      It is perhaps unfortunate that it’s ended up being seen that way, but I think I’ll be voting to leave because I think it’s going to be slightly (and only very slightly) less painful than staying on-board as the EU and the Euro steam full ahead into that big looming iceberg.
      I am firmly of the opinion that the Euro (which for many Europhiles is central to the EU) can only work with near total integration – ie a United States of Europe with centralised everything (particularly fiscal policy). Things will either go that way, in which case I don’t want to be in the EU, or it’ll sink like the Titanic and countries will go back to having their own currencies again – in which case I could see another referendum on staying in the “new Common Market”.
      The UK leaving could well be the catalyst for others taking a good look and deciding the same thing – the Euro isn’t working, and can’t work, and the sooner it’s killed off the better we’ll all be !

    2. Speaking from the point of view of a foreigner I don’t see a Brexit vote as xenophobic. Yes, some people voting that way will be xenophobes, but that doesn’t mean the position itself is xenophobic. I see it more as a way for the British to take responsibility for their own laws and their own actions. In this sense it is a positive thing and I don’t see it damaging Britain’s reputation.

      Also I am not convinced by the arguments that it will badly affect technology. If Britain has good technologists and technological opportunities then overseas researchers and businesses will continue to deal with British organisations. It might even be that well thought out laws and regulations would be even more attractive to those overseas.

      1. Unfortunately The UK government does not have a good track record in well thought out laws and regulations particularly in the technical arena.

  4. Gervase, I accept that some people who will vote for Brexit are not xenophobes. However, Brexit pulled ahead in the polls once it started banging on about immigration, in terms that spilled over into racism. The world saw that, and was appalled. If Brexit wins then Britain’s reputation will be gravely damaged. Foreign students will be less likely to want to come here, and the same goes for foreign technical staff. There may be serious harm to social cohesion as well. How do you think people will feel who are foreign, or who are married to foreigners? It is utterly irresponsible for the Brexit campaign to have opened this Pandora’s box.

  5. First, let me be quite clear: I am in full support of a free market and free movement of labour. Nonetheless I’m a confirmed Brexiteer and the only reason I’m not voting is that I’m in another EU country right now and my postal vote didn’t arrive before I left.

    My view supports that espoused above: very few monetary unions have been successful without fiscal union and, TBH, the Euro has already lasted longer than I predicted 18 years ago. The PIGS situation has already demonstrated the problems and, despite claims to the contrary in certain parts, the Greek bankruptcy has only been swept under the carpet, not solved. Not unless the rich economically efficient north is willing to bankroll the inefficient south will the strain be relieved.

    The phrase “ever closer union” fills me with despair; that’s why I’m a Brexit supporter, despite having voted to remain in the European Common Market. I voted for a free market, not a European superstate and now consider myself a victim of policy mis-selling by the Heath government. I was young and naive then.

  6. I could argue that the EU authorities also control immigration and are, therefore, by the arguments given above, xenophobic.

    The EU allows free migration between EU countries and a few other European countries. It does not explicitly allow free migration from, say, Turkey or Syria. Individual countries are permitted to allow migration on their own terms from such countries, as can be seen from the substantial Turkish population in Germany but in general “xenophobic” European countries require Turks to obtain a visa for travel to and residence in those states.

    The irony of recent proposals to allow Turks to travel freely in Schengenland should be apparent.

  7. Has being outside the EU adversely affected science in Switzerland? (CERN is in Geneva, Switzerland). I think not.

    Cell phone standards? There are lots of standards through the technology industry. These do not need to be mandated by governments. The networking effect ensures companies which embrace standards are those that survive.

    I do understand why many scientists will feel nervous about a Brexit since much of the tax payer’s money going into science is funneled through the EU. This isn’t an argument against Brexit since in many ways bureaucrats and state sponsored scientists compete for surplus wealth of a civilization. They both think they do good (although I have a bias towards science). I think it would be good if a bigger slice of that surplus value goes to science.

    If more bureaucrats, more bureaucracy and more government is the route to wealth, then EU countries should be the quickest growing, and the richest in the world.
    They aren’t.
    The original EU countries have slashed their proportion of world GDP. The experiment has shown a negative result. Time to move on. The better we do economically, the more science we can have. I think Brexit will be good for science in the long term.

  8. Switzerland participates in a number of joint scientific ventures by paying its share of the costs. However from next April its participation will be seriously damaged because of a populist vote to restrict the free movement of labour. Listen to our Vice-Chancellor speaking on this (at 2 hours 49 minutes). If Boris wins and makes good on his anti-immigrant rhetoric, UK science will be hit at least as bad.

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