3 days ago
- Business
- The Herald Scotland
Can Scotland regain its status as an innovation nation?
About a third of the slowdown in growth is coming from the aforementioned lack of investment, but the rest is linked to something called "total factor productivity".
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On that first point, Scotland has for decades had very low levels of private investment, as has the UK which on this measure has been at the bottom of the G7 league table for many years.
According to the Productivity Institute in Manchester, UK workers are operating with a third less capital - less software, fewer machines, a lack of R&D and organisational capacity, and so forth - than their counterparts in the US, Germany, France and the Netherlands. Give people fewer tools, and they'll produce less.
Those figures were highlighted last week by economist Daniel Turner, head of research and analysis at the Centre for Progressive Policy, who noted that the difference is "particularly stark" in the case of France.
"A worker has about half of the stuff with which to produce their outputs if they are based in the UK than if based in France," he said at the Creating the Jobs of Tomorrow conference in Glasgow.
"But just fixing that problem of low investment will be nowhere near enough to reverse Scotland's slowdown in productivity because two-thirds of that gap comes from something called total factor productivity. Usually this is what economists attribute to ideas [and] innovation, bot the basic ideas from universities and also how we can make more effective use of production processes, how we design, and how we market our goods."
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So, Mr Turner asserted, there is no path for Scotland to return to a high productivity growth economy, and the higher incomes that come with that, without raising the level and quality of innovation across all industries.
"This is as near as we get, if you can productivity, as near as we get to a panacea in economic policy because it makes all of the other economic trade-offs that we have to grapple with harder. If we don't fix this is will be harder to raise standards of living, to fund public services, and to create good jobs everywhere."
Fortunately, it's not all doom and gloom. Scotland is among the best places in the UK to establish an innovation business, with the university spin-out rate per head of population the highest of any nation or region in the UK. In addition, half of the UK's most active angel investor networks are based north of the border.
But each £1 spent on innovation in Scotland via the public sector and higher education generates just £1.46 in private sector research and development, which is about half the rate of the UK as a whole, roughly a third of that of the 38 countries that are members of the Organisation for Economic Co-operation and Development (OECD), and less than a fifth of returns in the US.
The first step towards solving this, according to the conclusions from Mr Turner's latest research, is to set out a single Scottish industrial strategy backed by both the UK and Scottish governments. This should focus on a handful of globally significant clusters in sectors such as life sciences, green manufacturing and digital exports.
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"The absence of co-ordination, the absence of a shared set of goals over the past few decades has led to this proliferation in Scotland of different agencies, different strategies, different documents, which is not necessarily wrong in and of itself, but in practice what we hear from the business community in Scotland is it's created a bit of a spaghetti junction that people struggle to navigate and negotiate when it comes to accessing public support," Mr Turner said.
He added: "As a result Scotland is smaller than the sum of its parts, I think, so there is an opportunity to consolidate, to coordinate, and to start to deliver some of that value for money that is lacking."
These consolidated funds should then be directed into "growth zones", a physical campus for innovation investment in Scotland's main urban areas. These zones should be governed by new Scottish combined authorities that would be "clearly attached and to leading that process".
"This is based on something like that successful Manchester model that you will be familiar with, and it's not a substitute to cooperation with Holyrood and Westminster - all of that needs to go hand-in-hand, and that's why you need the shared strategy - but it provides a single locus of someone who can go out and champion the growth zone in greater Glasgow, broker deals with multinational companies alongside the trade minister at UK level and in the Scottish Government, in order to bring in that flagship investment," Mr Turner explained.
And finally, there should be no complacency in protecting the advantages Scotland already has with its strength in university spin-outs and early-stage angel investment.
"At a moment of striated public finances, now is not the time to reduce funding for universities or especially the funding for applied research and innovation and spin-outs that universities have been developing over the past decade," Mr Turner said.
