There was nothing pre-ordained about America dominating the online world. Many of my contemporaries at university packed in traditional jobs in the 1990s to launch start-up companies and claim their stake in the internet boom. Now almost all have gone back to careers they left behind.

What is striking is not that so many British start-ups failed in the dot-com crash, but rather that not a single one has made it into the super league. Nor are we seeing new British entrants. Many of the companies I am visiting, such as Mozilla, have rocketed to success since the crash. It cannot be simply because the US market is bigger. The whole point of the internet is that the entire world is your market. A website based in Manchester can just as easily attract users as one in San Francisco. Nor are we slow getting connected as a nation. Broadband penetration is higher here than in the US. Yet none of the world’s top 15 IT companies is British and when American internet companies have set up European bases they have often chosen Ireland instead.

Part of Ireland’s success is down to its low corporation tax rate. The Irish example shows why we must move in the direction of lower and simpler taxes. I have singled out business tax reduction as the priority. Of course stability must come before upfront promises of specific tax cuts. But businesses must know that the direction is clear.

The broader danger here is not just that Britain misses out on one of the fastest-growing industries in the world — a visit to Google’s global headquarters reminds you of the jobs and wealth these companies create. The risk is that we fail to create a pool of talent and capital. Britain cannot reverse its declining competitiveness unless it embraces these industries of the future.

So what do we need to change to get it right? I still have a great deal of listening to do, but some things are already clear.

First, we must start with our universities, the hubs of innovation. While only two of the top 20 universities in the world are British, America is home to 17 of the others and California alone has three of the top ten. Silicon Valley exists because Stanford set aside land near its campus on which graduates could set up their own businesses. One of the first to do so was William Hewlett, who founded a company that now employs 80,000 people. Google and Yahoo were just two of the 2,000 companies started by Stanford graduates. Both their headquarters remain next to the university, key players in what is now an extraordinary centre of innovation.

There is nothing that comes close to this in Britain. Public research funding is unfocused, government interferes in too many aspects of higher education, and top-down attempts to force innovation have had disappointing results. We need government to set a framework that encourages universities to forge strong relation- ships with business, and allows the new intellectual property to be developed.

Secondly, those intellectual property rights need to be protected and enforceable. The Bayh-Dole legislation in America in the 1980s enabled the commercialisation of university research, with the number of patents issued to universities rising from just 250 to 4,000 a year. The Economist regards it as the single policy measure that did more than anything to reverse America’s economic decline. In Britain the intellectual property regime is far too costly and bureaucratic. Enforcing intellectual property is more expensive here than in Europe, and four times as much as in the US. European intellectual property documents still have to be translated into every European language. The whole system is in desperate need of reform.

And then, thirdly, we have to get the venture capital regime right. Perhaps the most impressive of all the people I have met here is Mike Moritz. He is the legendary British-born venture capitalist who spotted the early potential of Google, Yahoo! and Paypal, and who helped to finance companies that now make up more than 10 per cent of the entire Nasdaq. His company, and its many rivals, are risk takers — backing new ideas, supporting talent and ensuring that good ideas do not remain in the laboratory or the computing department.

While Britain has a good private equity sector, and impressive companies such as 3i, it simply does not have this kind of abundance of venture capital looking for small university spin-offs to support.

World-beating universities with strong links to business, a modern intellectual property regime, better access to venture capital for innovative businesses — all part of an economic policy that equips Britain for the 21st century. Gordon Brown has talked the talk but the results speak for themselves: falling productivity growth, low business investment and a declining competitive position in the world.

Here in Silicon Valley I have seen the future and at present Britain is not part of it. That has to change.

George Osborne is the Shadow Chancellor

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