There is a lazy explanation for why Britain has fewer billion-dollar companies per head than the United States, why our founders sell up earlier, and why some are leaving. That explanation is culture. All too often, I hear that Britain lags the US on entrepreneurial culture, with many arguing, by the same logic, that Europe lags behind the UK.
As Alex Nowrasteh argues this week, culture is too often a placeholder where an explanation ought to be. His target is the social scientists’ habit of invoking culture whenever a real mechanism proves elusive: fertility rates, corruption, train punctuality, economic development — all attributed to culture when a better answer may lie in the incentive structure:
“Someone observes a behavioral difference between groups or countries. They can’t immediately identify the mechanism. So, they invoke ‘culture’ as an explanation or, even worse, ‘the culture.’ The word lands with a satisfying thud that sounds like an explanation but isn’t one. It is the terminus of inquiry, not the beginning.”
As Nobel Prize winners George Stigler and Gary Becker cautioned in 1977 in De Gustibus Non Est Disputandum, we should not explain behavioural differences by assuming people in different places have different preferences. Instead, we should treat preferences as broadly stable and look harder for differences in prices, constraints and incentives. Douglass North made a similar point in 1990 in Institutions, Institutional Change and Economic Performance: culture is a partial solution to problems repeatedly encountered in the past. It is an output, not a cause — the behavioural residue of incentive structures that have been in place long enough to harden into norms.
Perhaps the cleanest test of this argument comes from Daron Acemoglu and James Robinson, whose work on institutions and prosperity won the Nobel Prize in 2024. Their signature example is North and South Korea. Same language, same ethnicity, same history, and the same culture up to 1945. One is now among the richest countries on earth, the other among the poorest. The culture was identical on both sides of the border. The institutions, and the incentives they created, were not.
Many of you reading this will share our world view. The good news is that, unlike with the hand-wavy explanation of culture, this gives us something to work with. We can change the rules. After all, Britain has done exactly this, repeatedly.
Right to Buy, introduced in 1980, helped turn Britain into a nation of homeowners. What followed was an asset-conscious, equity-minded electorate, attuned to property prices in ways that still shape politics today. Millions of people were handed a significant financial asset and, rationally, began to behave like people who owned one. Our property-owning culture is, in large part, the product of a policy choice made four decades ago.
The privatisations did something similar. The “Tell Sid” campaign for British Gas shares was not a cultural exercise. It was an attempt to create a class of retail shareholders, and it worked. Popular capitalism was not latent in the national character, waiting to be unlocked. It was downstream of a set of decisions about who could own what.
Introduced in 1994, the Enterprise Investment Scheme created tax advantages for investing in early-stage companies. Before it, angel investing in Britain was extremely niche. After it, a new pattern of investor behaviour emerged, scaled up and eventually became normal enough to attract the label of culture. What looks like cultural change is often just tax policy.
The point is not to defend each of these policies. It is simply to note that, in each case, behaviour followed the rules. Culture was the lagging indicator, not the force leading the charge.
The most common claim I hear is that the US has a culture in which failure is more accepted — even celebrated — than in the UK. But this is often asserted without reference to the fact that the institutional treatment of failure differs substantially too. US Chapter 11 bankruptcy law is explicitly designed to let businesses reorganise and continue. Britain’s insolvency law remains more creditor-oriented, with personal liability attaching more readily to directors. The founder walking away from a failed company in Delaware does so in a different legal environment from the one in Doncaster. Whatever attitudinal differences exist are at least partly downstream of that.
Nowrasteh is careful not to dismiss culture entirely, and rightly so. Values and norms are real. His argument is methodological: look first for the institutional and incentive-based explanation. If you exhaust those and culture is still standing, then perhaps you have found something. But more often, you probably just have not looked hard enough.
Treasury officials reading this will be pleased to know that incentives don’t just mean more money. For instance, despite flaws, patents and the legal system in Britain encouraged innovation to flourish, creating a market for inventions. And as we argued in Honours for Innovators:
“Raising invention’s status and prestige was crucial to how Britain first got its reputation during the Industrial Revolution as the best place to innovate. Invention came to be seen as a viable and attractive career path, not just financially but in terms of the social standing that could result from it – something that was purposefully cultivated by those seeking to improve the country’s technological prospects.”
The Enterprise Investment Scheme didn’t exist in 1993. Right to Buy didn’t exist in 1979. The entrepreneur who couldn’t find an angel in 1992, or couldn’t spin out of a university in 1998, wasn’t held back by culture. They were held back by the absence of policies that came later.
The culture isn’t the problem. The rules are.
A Working Theory
Over on Network Effects, this week we published a cracking interview with Alfie Pearce-Higgins, co-founder of Rodeo on the impact of AI on job markets. Alfie makes a great point about the unintended consequences of making it costlier and riskier to employ people:
“[T]he question everyone is asking — “will AI destroy jobs?” — is less important than the question almost nobody is asking — “will AI change how work is contracted?” If even a moderate fraction of employment shifts to self-employment, the consequences for tax revenues, pension saving, the welfare safety net, and the entire social contract that has been built around the employee-employer relationship are extremely significant. And that shift may well happen not because of any deliberate decision or policy, but as the accidental byproduct of three trends that nobody has bothered to join up.”
Read it in full here.
блакитне озеро
Our good friends at Blue Lake VC have just announced the launch of this year’s UK–Ukraine TechBridge Investment Accelerator, delivered with support from the UK Government and Ukraine’s Ministry of Digital Transformation.
The programme will support 20 high-growth Ukrainian startups at Late Seed to Series A stage, helping them get investment-ready and build connections with UK investors ahead of a pitch showcase at London Tech Week in June.
Over five weeks, participating founders will receive hands-on mentorship from UK venture capitalists, investor office hours and practical support on pitching, UK market entry and scaling. The programme is equity-free and designed to help Ukrainian startups overcome one of the biggest barriers to expansion: building a fundraising network in a new market.
Applications are open until 27 April 2026. More information here.