The City of London: The primary constraint on the UK’s entrepreneurial imagination

Brett Scott

Tuesday, 25 June 2013

The City of London can be fun. But it’s only fun to a point. I worked as a broker for two years, and sure, I learned some cool things and made some great friends. It’s a system rigged to diminishing personal returns though. There might be rising salaries and bonuses, but the longer one spends, the more wearisome it is, and the more your opportunities to branch out close up.

The lure of the City is, I believe, nothing but a giant economic opportunity cost. A generation of graduates who can do discounted cash flow valuations or options-pricing is a far-cry from a resourceful nation of inventors and adventurers. There are far more pressing challenges in this world to solve than whether a market is liquid, or whether a portfolio is balanced, or whether you can execute trades 2 milliseconds faster than the next company.

The UK has the potential for an incredible startup scene, but it is a shadow of what it could be. There is one glaring reason for this. It’s not that the UK doesn’t have a ‘startup mentality’ – sure, British people are more reserved than Americans, but they’ve proved themselves resourceful, cunning and even ingenious throughout history. Why then is the current generation lacking that DIY ethos? It’s because half the bright-young-things have been indoctrinated into believing that working in the financial sector is what you do.

City lobbyists and PR agencies like to talk about the financial sector as a place of opportunity – which to some extent it obviously is – but it robs young people of two things. Firstly, it encourages them to embrace a worldview of rational calculation of risk and return, rather than one of unlikely adventures, allowances for failure, and artistic flair. The banks waffle on about the ‘entreprenurial culture’ inside them, but the true entrepreneur ethic cannot flourish in giant institutions that have a sole goal of extracting as much out of individual employees as possible.

Secondly, it pays them too much money, and in so doing removes the sense of true risk from their lives. The authentic bootstrapping spirit of the entrepreneur is one who is forced to be resourceful and flexible, living by their wits, not someone bloated from too much money, and overconfident with unnecessary skills. You need experience of the diversity and richness of life, not experience with how to build spreadsheets for elites.

Furthermore, there is more to a startup culture than just the entrepreneurs. You also need the venture capitalists and mentors who can give them support. Ideally those people should be ex-entrepreneurs. Take a look at Mark Andreessen, Jason Calacanis, Theresia Gouw and Vinod Khosla. These people invest with their gut based on personal experience, not with spurious attempts to quantify the value of unquantifiable companies.

If you look at the UK venture capital scene, the money doesn’t come from ex-tech entrepreneurs, it comes from ex-finance workers who are now trying to get creative. That’s fine to start off with, but to build intuitive VCs for the future requires a decisive shift away from the financial sector now. This is why I welcome initiatives like Escape the City, which is trying to catalyse that shift. Their tagline is simple: “We help talented people escape or avoid jobs at big corporates”.

These observations resonate with broader points raised in Nick Shaxson’s new book called ‘The Finance curse’: How oversized financial centres attack democracy and corrupt economies. Here’s an extract from the press release:

A resource curse casts a shadow over certain mineral- and oil-rich nations damaging their economic growth and development. Now [The Finance Curse]… shows countries with oversized financial services suffer similar fates. As the resource curse stalks Nigeria, Angola and the Democratic Republic of Congo; so a finance curse has captured the UK, Cyprus and Jersey.

It’s a catchy concept, but it’s backed with hard-hitting evidence that most people intuitively sense already. Most people easily recognise that a vibrant economic life in a nation does not come from the domineering, patronising sneer of an arrogant overbloated sector. It isn’t particularly prudent from a long-term perspective, and as Shaxson notes, such a sector acts like a cuckoo “crowding out productive, sustainable industrial sectors”, “exaggerating and routinely overstating their economic contribution to gain distorting tax subsidies and lax financial regulation” and generally exerting an unhealthy level of political sway.

To put it bluntly, the sector is a net loss, and furthermore, it increases inequality, helps authoritarian regimes and tax avoidance via upholding the global system of tax havens, and generally behaves like the loud egotistical drunk at the party.

The final point though, is that even if it was proven that the financial sector was actually on net, an economic positive, it is still, deep down, unrewarding. Does the UK want to be a nation of money-obsessed people with narrow skills and no time, or a nation of creative people solving real world problems? I’d take lower income any day over a slow-motion impoverishment of imagination at the hands of an oligopoly of outdated institutions.

I’d be interested to know if you would to, so please do leave comments. Have I been unfair? What could be done to change this situation? Which areas would you like to see graduates applying their skills to?

Brett Scott is a campaigner and writer who works in alternative finance and financial activism. His new book – The Heretic’s Guide to Global Finance: Hacking the Future of Money – is published by Pluto Press and is available now. Brett tweets as @suitpossum.

Topics discussed:

Political Economy

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  1. Posted by Mark

    There is plenty of institutional funding in the US on the same type you decry in London.

    The difference is that for start-ups in the US market opportunities are 5, 10, 20 times those in the UK, and with equivalent scaling in revenues and higher profitability the pay-offs to successful founders are generally much greater than in the UK. So they have more funds and greater willingness to re-invest as angels.

    As to your comment

    ‘Take a look at Mark Andreessen, Jason Calacanis, Theresia Gouw and Vinod Khosla. These people invest with their gut based on personal experience, not with spurious attempts to quantify the value of unquantifiable companies.’

    Certainly Andreessen and Khosla would completely disagree with that characterisation, and Calcanis is not rated except as a self-publicist. Don’t know Gouw.

    Seems you’re trying to take limited understanding and evidence to justify having a teenage whine about the big bad City. It might be emotionally satisfying to you, but its transparently weak to anyone who knows the startup scene in both US and UK (my online legal services company has offices in London and California).

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  2. Posted by Mat

    As a young graduate about to move into a city roll; no, I wouldn’t. Kindly naff off and stop trying to pull the ladder up behind you.

    Oh, and I’ve no desire to live by the seat of my pants, so entrepreneurship would not be the next choice down for me. That would be doing the same thing I’m going to be doing, but in a different country.

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  3. Posted by Brett Scott

    Mark, I’m sure you are very knowledgeable about the startup scene, but I don’t really think my argument is undermined by whether or not my characterisation of Marc Andreessen is accurate. The basic point is that the cultural ideal set up in the UK is that a young graduate should enter the financial sector, whereas in the US there is a lot more encouragement for startup culture. Yes, the US is bigger and has more opportunities, but with the intellectual resources the UK has, there should be way more innovation coming out. I don’t really think of the financial sector as the ‘big bad City’ either – the City is a pretty straightforward, and in my opinion, a lot more safe and less exciting than many other options.

    Mat, there’s obviously a place for a financial sector. I’m not saying there shouldn’t be people doing it, and yes, I’m sure people like you will go in and enjoy the security and clearly defined career paths it offers. That’s great. The sector though, sucked in far too many people who don’t know why they’re there. I know loads of people who literally hate what they do in the City but don’t know how to get out, and need encouragement to build up the courage to do so. That’s partly what I’m trying to do.

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  4. Posted by Sophie

    We started up in business 2 years ago, having gone through the similar encouragement into the financial services, I realised early on that large corporations were a difficult environment for me to work in. I recognise a lot of what you say especially when trying to explain what I do and the spirit required to be an entrepreneur to someone who has a very text book idea of what business is.

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