Tough decisions needed to improve Scottish economy, researchers claim

Scotland's economy is lagging behind its competitors as regards productivity, and tough decisions are needed to position it to take advantage of emerging global trends, according to a new research report.

The interim report by the Fraser of Allander Institute is part of a study commissioned by legal firm Shepherd & Wedderburn to mark its 250th anniversary this year. It aims to "initiate a conversation with business leaders and industry bodies on how
Scotland could best position itself for the future", ahead of a final report in early 2019.

Key findings include:

• Scotland realised average GDP growth per head of just 0.2% between 2008 and 2017, compared with annual growth of 2% between 1998 and 2007.
• Scottish productivity is currently 20% lower than the top-performing countries in the OECD. The Netherlands can produce in four days what it takes Scotland five days to produce.
• Scottish exports and Scotland’s tourism sector support around 952,600 jobs, but five sectors account for more than half of all Scottish international exports and just 70 companies account for more than half of Scotland’s exports.
• As a percentage of GDP, Scotland exports less than the majority of small countries within the EU, even when including exports to the rest of the UK; and compared with similar sized nations, including Ireland, Scotland depends much more on one market – the rest of the UK.
• New and growing markets, investment in technology and innovation (including renewables) all provide significant opportunities for Scotland in the years ahead. In particular China, India, Indonesia, Brazil and Russia present significant opportunities for exporters.
• Scotland’s working age population is forecast to fall over the next decade, while the comparable age group within the UK as a whole is expected to rise. 

The report states that while the emerging markets present significant opportunities, accessing such markets is not easy, and "Businesses need to adopt flexible, dynamic and patient strategies to navigate these complex markets, as well as constantly seeking out new opportunities elsewhere."

Predicting a "fourth industrial revolution", it identifies two key elements in looking at the opportunities that will bring: positioning the country to take advantage of the new developments, by focusing on digital infrastructure, cybersecurity, transferable skills and an openness to adopting new technologies; and "leading the development of these new technologies ourselves".

Looking at the role of policy, the report observes: "What is clear is that countries that have been successful in turning around their international ambitions have developed a clear plan and stuck to it. This has meant that they have had to make difficult choices and cannot be ‘all things to all people’.

"Ireland has, for example, developed a model based around low taxes, an amendable regulatory regime targeted at multinationals and access to the EU. In contrast, Sweden has focused upon a high-tax, high-wage, innovation and domestic-based economic model, with emphasis on fiscal discipline and investment in social policies, education and infrastructure."

And it concludes: "It is easy to say that we must take the opportunity to position the Scottish economy well for these emerging trends. Delivering the change required to actually position the Scottish economy in this way is far harder.

"This is not about slogans or marketing. This is about the practical and tough decisions that need to be made to ensure that Scotland’s workforce is prepared with the skills required by the jobs of tomorrow. It is also about creating an entrepreneurial culture to compete in a globalised world.

"This will involve both political and business leadership. It will also need tough decisions as it will undoubtedly require re-prioritisation from ‘business as usual’ to new areas of potential."

Click here to access the report, and to "join the conversation".