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?