In Scotland, tech firms fear independence vote

One tech start-up founder says such a move would be cataclysmic

Scotland vote, 2014
REUTERS/Cathal McNaughton

The one sure thing a "yes" vote Thursday for Scottish independence will bring to its high-tech sector is a long period of uncertainty.

Scotland is not a major high-tech employment center, but it has good universities and entrepreneurial energy. About 70,000 people work in IT out of a total workforce of about 2.5 million, or about 3%. By contrast, financial services accounts for about 15% of employment in Scotland.

Scotland has 5.3 million people and is just a little larger than Colorado; in terms of size, it's almost as large as South Carolina.

A separation from the U.K. would be jarring and would bring big problems to solve, including currency and European Union membership issues to settle. Passions are high.

"Honest, I've never been so scared in my life," said Euan Mackenzie about the prospect of separating from the U.K. He runs a 16-employee start-up, 1partCarbon, in Edinburgh, a platform that builds medical systems.

Mackenzie believes that independence will make life "a whole lot harder" for multiple reasons. Capital and people, particularly senior managers in financial services, will relocate. Scotland will lose direct access to European Union markets until it gains EU membership -- and that's not certain. Some countries may veto Scotland's entry into the EU because "they do not want their own secessionist regions to go for independence," he argues.

"For tech start-ups, funding will be tougher to find and more expensive, there will be no local banks, access to EU markets and the freedom of movement will be curtailed," said Mackenzie. He believes transportation links to London and Europe will be diminished "as the financial sector is the main contributor to the current air routes and plans are already in place to move jobs south.

Mackenzie also worries that a loss of research funding to Scottish universities will diminish them, "meaning our universities will be starved of the best talent from undergraduate through to teaching staff."

"As someone who enjoys risk and new opportunities, my company will remain in Scotland and make the best of whichever side prevails on Thursday, but the effect of independence on tech start-ups and the whole Scottish economy will be cataclysmic," said Mackenzie.

Most tech firms in Scotland are small and employ less than 10 people. Ross Brown, a lecturer at the University of St. Andrews School of Management and program director of masters in international business, said there are about 7,500 high-tech firms in Scotland. Only around 1,000 of those companies employ more than 10 people.

Many tech firms are foreign owned. "Indeed, a recurring feature in Scotland is that the few successful tech firms who grow in Scotland end up being acquired often by U.S. firms," Ross said via email. "Arguably, these kind of inward investment flows could diminish post-independence."

Higher education institutions in Scotland received more than $500 million in 2012 from the U.K. Research Council -- it's similar to the National Science Foundation in the U.S. -- in terms of grants, support for students and infrastructure. Independence could risk that government research support, as well as some private research contributions.

There is also the possibility Scottish engineering firms could lose defense contracts. And some financial services firms have warned that they will move their headquarters to London to ensure the protection of a central bank, a lender of last resort.

Proponents, the "yes" side in the debate, believe that an independent Scotland can improve economically by adopting tax and regulatory policies, coupled with targeted financial incentives, to create an economic model more on par with Scandinavian countries.

Those voting yes argue that an independent Scotland could align its research investments with its industrial needs to foster innovation and adopt immigration policies to attract the workers it needs.

Much will depend on the currency. Potentially, Scotland could use a new currency to its advantage.

"If they devalue the currency, and they lower the corporate taxes, will they attract investment? Probably. Is it the kind that they want in order to match their vision of an independent Scotland? Nobody really knows," said Michele Mastroeni, who co-authored a study that looked at the effects of independence on innovation policy.

The study, conducted by the Innogen Institute at the University of Edinburgh, is based on research that includes interviews with senior businesses executives and others. It examined the pros and cons of independence, but generally found that too little is known about the real-world consequences of a "yes" vote.

"Nobody knows what is actually is going to happen," said Alessandro Rosiello, a co-researcher on the Innogen report and a senior lecturer and program director of the master's program in Management of Bioeconomy Innovation and Governance at the University of Edinburgh.

The EU membership will be particularly important -- and complicated. It's possible that the U.K. may hold its own vote on whether to maintain its EU membership. If the U.K. were to exit the EU, Scotland might be in a stronger position, said Rosiello.

But EU membership outcomes are nothing more than a "what-if" scenario at tis point -- one of many uncertainties facing Scotland and its voters on Thursday.

Copyright © 2014 IDG Communications, Inc.

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