Alex Daish

My colleague @pdmsero has written a really important piece on the supposed access to capital gap between Britain and the US. He argues, against popular opinion, that access to capital isn't the reason why British companies are small. The issue is that a range of different problems can appear like access to capital problems. If a firm has a bad idea, or the market is too small, or regulatory and infrastructure costs are too high, these will all limit a company's ability to raise capital. European founders will then complain about access to capital, when the real problem lies elsewhere. Pedro argues that we can see this in returns data. If European countries were underpriced by capital markets, we would expect to see returns that outpaced US counterparts. But this is not what we see in the data. Instead, Pedro argues that European companies are "constrained by barriers to scale that make them less capable of delivering the returns required to encourage more investment." These barriers can be regulatory, or the result of smaller market size, or high costs of infrastructure (housing, energy, construction). The policy implications are significant: if capital is not the main issue, then we should spend less time trying to force capital into British firms (e.g. through pension mandation or financial incentives). Instead, we should focus on making Britain, and Europe, an easier place to scale, with fewer regulatory barriers and cheaper fundamentals. Read the full piece on the @BritishProgress substack here: britishprogress.substack.com…