Last Sunday, Phillip Inman wrote a piece for The Observer with the headline The hard truth is that Britain’s entrepreneurs simply don’t innovate. While he may not have signed off on the headline, the rest of the article isn’t much better.
I don’t recommend reading it. It throws around lots of half baked ideas in an attempt to make the case against what he calls “the neoliberal narrative that has dominated politics for the past 40 years.” Nevertheless, it is a useful springboard for articulating why he is wrong.
The central claim of Inman’s article is that the academic evidence shows that entrepreneurs aren’t innovative, but big businesses are. This is just plain wrong. Study after academic study shows that larger firms produce fewer inventions per R&D pound spent, and that larger firms introduce fewer and less innovative new products than smaller firms.
And critically, innovation in larger firms is more likely to be incremental, focusing on upgrading existing business processes rather than developing novel products. Both types of innovation are important – but it’s new businesses that are remaking the world.
If you’ve built a company on the idea that people will pop down to their local video store to rent movies, you’re unlikely to think that the future of entertainment is streaming online. And even if you can spot the trend, good luck reorienting your large company towards a new goal. What’s true for innovations in entertainment is just as true for innovations to tackle diseases and combat climate change.
It’s common sense. It’s also academic orthodoxy: The Innovator’s Dilemma.
To steel man his article, Inman is right to call for more robust evidence as to what really works when it comes to tax breaks and other interventions. However, the starting point has to be a much fuller understanding of the academic evidence around entrepreneurship than is presented in this article.
(We’ve been working with others on a letter in response to the Observer article, so keep an eye out for it.)
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