Why Do Oxford & Cambridge Persistently Under-Perform?
A salutary tale of how bad thinking triumphs over reason
Initially one might think that the idea of Oxford and Cambridge universities under-performing is hyperbole. After all, between them the two ancient institutions have provided the vast majority of Britain’s Prime Ministers over the last four hundred years. They are globally recognized as excellent educational facilities and every year hundreds of thousands of aspiring students apply to be admitted despite each institution accepting fewer than four thousand new undergraduates per annum. Cambridge is famous for the Cavendish Laboratory where empirical proof of atomic theory was secured and the Oxford Union is widely acknowledged as the training-ground for aspiring politicians of all nations.
And yet…
Despite excellence in a wide range of subjects including chemistry and physics, the two ancient universities are strikingly unable to transform academic achievements into commercial successes. Comparing the British universities to MIT and Stanford, for example, instantly reveals how very poor the British are at building on initial breakthroughs. This is not to claim that a university can only be successful if it also engenders commercial spin-offs, but clearly there is something very wrong when two prestigious universities generate a long stream of intellectual property that others then go on to exploit and benefit from because the universities themselves remain incapable of doing so.
Why, then, are Oxford and Cambridge so very bad at taking novel ideas and commercializing them? Clearly it can be done, and is worth doing. The enormous sums earned by MIT and Stanford fund more learning and more facilities that enable learning. Moreover, as Stanford has clearly demonstrated, the network effects that flow from deep relationships with successful alumni also trigger new thinking and new innovations. A very virtuous circle that benefits all parties is created when universities are able to leverage their intellectual wealth. And yet despite the examples of Stanford and MIT (among many others), the two great British universities continue to fail, and they do so because of some very British cultural underpinnings.
Although it may be difficult for US readers to believe, the British have a long tradition of pretending that commerce is “grubby.” This nonsensical notion arose as a psychological defensive reflex by the landed gentry several centuries ago and was motivated by two main factors. The first factor was that the gentry weren’t averse to ordering things from tradespeople and then refusing to pay. By pretending that vendors asking for payment was “grubby mercantilism” the gentry could pretend their theft was a reflection of their “good breeding” and “inherent superiority.” This psychological posture of self-serving evasion was strengthened during the Industrial Revolution when families that had dominated British life for centuries suddenly found themselves losing ground to the industrialists whose factories generated wealth on a scale the landowners had no hope of matching. To soothe their humiliation, the landed gentry doubled-down on the pretense that commerce is “grubby” even as, of course, they relied on selling the produce grown on their estates in order to continue to fund their indolent lifestyles.
This absurd anti-trade nonsense meant that for a very long time those in charge of Oxford and Cambridge had a reluctance to attempt any commercialization of the intellectual breakthroughs that they developed because that would have been “grubby.” In addition, various idiotic government regulations acted to dissuade such commercialization as the government wanted to retain control over the universities by means of the funding grants it disburses every year.
Next comes the problem of planning permission.
It’s all very well having an important intellectual discovery, but commercializing it requires some kind of physical facility. British planning laws are famously difficult to navigate and British people absolutely loathe the idea of anyone building anything anywhere near where they live or work. It can take decades to crawl through the various reviews, consultations, revisions, new reviews, new consultations, and all the other thousand-and-one methods that have been developed over the years to enable politicians to avoid taking any responsibility for anything that is done — or far more frequently, not done because everyone gives up long before the silly process can even reach beyond the perpetual limbo stage. Avoiding opprobrium is Job One for any politician and the British do so by creating so many barriers to doing anything that everyone simply gives up. From a political perspective this is a highly successful strategy. Economically, of course, it’s suicide, but who cares about the long term when short-termism is inherent in all democratic systems?
So whereas entrepreneurs in the San Francisco Bay Area have long enjoyed access to a wide variety of business parks ready to house all manner of startups (because this is profitable for those who own the properties), would-be British entrepreneurs at best end up renting low-quality space a long way from anywhere (or stuck in congested dirty London) and at worst can’t find anywhere to base themselves at all. This is bad enough when all you want to do is assemble a group of software developers but it’s catastrophic if you actually need manufacturing space.
Then comes the problem of capital.
Tax laws in the USA favor the development of venture capital and the can-do attitude prevalent in parts of the USA favors risk-taking. Britain’s tax laws don’t favor venture capital, which means there isn’t very much of it indigenously, and British culture favors risk-avoidance. In Silicon Valley if your first startup fails it’s generally regarded as a great learning experience. In the UK if your first startup fails, it’s time to forget all about any dreams you may have had about being an entrepreneur. That failure will mark you forever in the eyes of the business community. This in turn means that there are very few successful entrepreneurs, and as successful entrepreneurs are also very often sources of funding the result is that in addition to the paucity of early-stage venture capital in the UK there is also a paucity of wealthy entrepreneurs with an appetite for early-stage investing as “angels.”
For decades this has meant that indigenous UK venture funds are really nothing more than mezzanine shops that waited until a low-risk low-return opportunity arose and then they invest just before the near-certain IPO or acquisition. There was no early-stage investing at all before US venture firms began to establish outposts in the UK. British tax laws also are not designed to encourage any risk-taking from an investment perspective, so wealthy individuals are always better-off investing in property or some other relatively safe asset class. Simply put, the risk of losing one’s venture investment is never compensated by the prospect of outsized gains if the investment pays off, because the tax authorities will siphon off most of the gains.
As a five-time cofounder of venture-backed startups I can state from personal experience the result of all this anti-entrepreneurial dead weight is that many aspiring British entrepreneurs do the rational thing: move to Silicon Valley, thus further reducing any chance of truly innovative startups appearing in the UK. Sure, London has some companies making trivial products to feed into the social media maw, but nowhere to be seen are any real sustainable fundamental new technologies being created. Even AI-related ventures are more bubble and hype than meaningful new products.
And then, on top of all these impediments, comes the classic British mentality of “it’s not working and therefore we don’t need to change.”
Oxford University, my own alma mater, decided some decades ago to create an “innovation center” by means of which to commercialize the various intellectual discoveries made by its professors. This institution was then staffed by people who’d never been anywhere near a startup, which meant they were totally clueless about every single thing that matters. But they were good at form-filling and being part of the “good old boys’ club” and really that’s all that matters, right?
These people then clung to a guaranteed-to-fail formula: when setting up a new (and poorly-funded) enterprise, it should be led either by (i) the academic whose intellectual property was the basis of the company, or (ii) an accountant.
Academics are rarely (if ever) entrepreneurial types who understand the importance of marketing and sales as well as the technical underpinnings of whatever product it is they’re charged with producing. They are rarely of the personality type to willingly embrace risk and uncertainty. They never, in my experience, have any sense of how vital it is to move quickly with incomplete information. Academics are used to low-risk slow-paced Monday-to-Friday environments in which there’s rarely if ever any real financial risk. They also tend to lack people-management skills and simply have no idea of the mix of talent required to take an idea to successful commercial exploitation. Not surprisingly, they then fail to hire the right talent and the company is unable to do what it needs to do in order to succeed.
When the company they’ve been tasked with part-time running (because they keep their real jobs in academia) fails, the professors simply shake their heads and console themselves with their comfortable tenure. They never even wonder why they failed, they learn nothing from the experience, and they never repeat the experience. Thus such “innovation centers” generate a series of one-time failures from which no benefits are ever drawn.
Accountants are an even more disastrous choice. By nature, accountants are risk-averse, seeing every expense but never understanding how revenues are generated. They are generally extremely poor at people-management and the very last people they want to hire are the forward-thinking risk-taking go-getters who are always crucial for gaining early traction in a market. Accountants reliably report at each Board or Oversight meeting the monies that have been disbursed and on what items of expenditure each disbursement is associated with. They can tell you precisely how many days of funding remain. If you’re very lucky indeed, an accountant may be able to talk vaguely about some potential external partner who expressed some vague curiosity over a pleasant lunch earlier in the month but they will be entirely unable to consider how to qualify this supposed interest and how to follow up, aside from a polite email in a few weeks asking if the supposed potential parter may be interested in having another pleasant but entirely ineffectual lunch meeting at some unspecified point in the future.
The accountant will be able to explain to the Board precisely when the startup ran out of funds and how much it drained from the meagre funding pool the University made available. And precisely because the accountant is such a responsible fellow, he (and it’s always a he) will very likely be asked to “lead” another startup and repeat precisely the same pattern of failure next time around.
I wish I was joking about this, but my experiences with ISIS Innovations, Oxford University’s supposed startup incubator, have shown me very clearly why Oxford is so very bad at turning ideas into cash. According to some of my entrepreneur friends, Cambridge is only marginally better. For every one semi-success that generates modest returns, there are literally dozens of failures. And most of the failures are due to the wrong people being put in positions of leadership.
As a multi-time entrepreneur CEO I was once asked by ISIS Innovations if I’d be interested in leading one of their spinouts. Although it would have required me leaving California and taking a huge pay cut, I wanted to return something to the university that literally changed the course of my life. But guess what? After a couple of emails, I was told that they’d decided to appoint an accountant as this was a far safer choice.
It certainly led to a very predictable outcome. The startup was shut down after only eighteen months as zero market traction had been achieved and no one involved had any clue how to change the situation. And no one seemed to believe they had anything to learn from the succession of similar failures, so the wrong-headed approach continues to this day.
The mix of culture and poor incentives is what continues to cripple Oxford and Cambridge. The current UK government is desperate to find ways to drag the UK out of its extremely-low-growth high-cost situation and, as always happens with new UK governments, they imagine that encouraging Oxford and Cambridge to commercialize their innovations is one way to achieve the goal. But, as always happens with UK governments, no one is willing to alter the incentives nor take the time to understand why failure is baked into the British approach. So, like all British governments, they’ll make a few announcements, set up a Committee, perhaps even set aside a tiny fund to “kick-start” investments, and then… it will all fail, just as it’s failed every single time before.
In a rational world the UK government would change tax laws so as to reward risk-taking, primarily addressing both carry and capital gains. In a rational world the government would pass legislation to sweep aside the thousand-and-one impediments to building anything larger than a Lego house for one’s children in their tiny bedroom. And in a rational world the government would strongly suggest to the supposed “innovation centers” of Oxford and Cambridge that it really might be a rather sensible idea to hire former entrepreneurs to lead their startups rather than build inevitable failure into them from the very beginning by appointing precisely the wrong types of people to (fail to) lead them.
But we do not live in a rational world. We live in a world of empty-headed blustering populists whose cluelessness and ineptness would be staggering were it not the default seen everywhere. And so the failure of Britain’s two oldest universities to exploit their intellectual developments will continue ad infinitum. Stanford and MIT need fear no competition from Britain’s historied but impotent pinnacles of academia.
