Inclusive growth: First Minister's speech

It's always a great pleasure for me to be here at Glasgow University – where I spent five very happy years as student. It feels like yesterday but I can tell you it's a lot further back in the past than that. Back in those days I would never have seen inside a lecture theatre on a Friday morning. So this is at least one marked difference from my student days.

And it's a particular pleasure to welcome all of you here today. This is, I can safely say, an extremely distinguished international gathering. I know we have guests here today from Australia, New Zealand and Costa Rica, as well as representatives several of our European neighbours and indeed from across the UK.

So I welcome all of you very warmly to great city of Glasgow. As First Minister I probably shouldn't show favouritism when it comes to adjudicating the various merits of different Scottish cities so I will settle with welcome to the wonderful city of Glasgow and I hope you enjoy all of the hospitality that Glasgow and Scotland has to offer. Although some of the most famous hospitality, I should say, should probably enjoyed in moderation. I hope you have a wonderful time here.

The Scottish Government really values the chance to engage with international experts. Indeed that's one of the reason I am so delighted that this conference also sees the first meeting of the 'Wellbeing Alliance'. It's a partnership, between different regions and countries, that seeks to develop a sustainable economic model focussed on wellbeing. This is really important work and I'm delighted Scotland is playing a leading role.

Today's conference is important and there are two reasons why the conference is also very timely. We live in a world where it can appear isolation and protectionism are on the rise, so against that backdrop it's all the more important that different countries and like-minded people come together to learn from each other and both imagine and realise how we can advance a better world, if I can be as idealistic as that. In my view politicians are perhaps not as idealistic as we should be.

The second reason this is timely is that we now have a situation where the topic of inclusive growth is talked about in a more mainstream way than has ever been the case before. I remember around three years ago when the Scottish Government started talking about inclusive growth it sounded like quite a niche subject. That's different today, as international organisations like the IMF and OECD, and countries across the globe, have placed inclusive growth much higher up the agenda.

So we have made significant progress in changing, or starting to change, the narrative about what we should be seeking to achieve through economic policy. But we still have a way to go in determining the actions we must take to give some substance to that agenda. And that is the second reason why I think today's conference is really timely, because it allows us to come together to look not just at the theory of inclusive growth but how we advance the practice of it. So for both these reasons we could not have a better time to gather people here to discuss this important issue.

Right now, in the UK and in Scotland, we don't have to look very hard for tangible and practical examples of why this agenda matters. Just last week the Office for Budget Responsibility set out just how deep-seated and damaging the UK's productivity crisis has been during the decade since the financial crisis. And that combined with inequality – inequality that is being exacerbated by stagnation in real wages and also the attack and undermining we have seen of the welfare social safety net - all of that has contributed to some of the the political shocks we have seen, and will continue to see, not just in this country but across the world.

Here in the UK there is no doubt that sense of legitimate dissatisfaction around living standards, inequality and the economic status quo was one of, and perhaps the biggest, factor in the outcome of the EU referendum. It's also undoubtedly one of the factors in the outcome of the other politicised developments we've seen across the world - perhaps most notably in the USA.

So the issues we're talking about today really matter and that's why it's so important to have all of you here to turn your minds and attention to how we address these factors.

Before I talk a little bit about what Scotland is doing to try and address these issues it's probably a good idea to give some context on our position at the moment and the measures, over the last decade, against which we are doing relatively well. I want to stress and for you to keep that word in mind – 'relatively'. What I'm about to say here is not some kind of complacency around our progress, so that word 'relative' matters.

So, on some measures we have done relatively well. For example over that ten year period we have virtually closed what was a long-standing productivity gap with the rest of the UK. We also have lower income inequality levels than the UK as a whole. But our income inequality levels are still far too wide. The value of our international exports has also increased in the past five years by two fifths. And we have also seen unemployment levels at or near a record low.

These are all measures where we are doing relatively well – and we shouldn't dismiss that. They reflect many of economic strengths we have as a country. For example, we have more world-class universities per head of population than any other country in the world bar Luxembourg – and we have Luxembourg firmly in our sights.

That is part of the reason we have what has been described as the most highly qualified population anywhere in Europe. We are clearly an attractive place to work, to live, to do business. We are also the most successful part of the UK outside London, when it comes to attracting international investment.

We have a well-deserved international reputation in a range of sectors of the economy that are important now and will continue to be important in the future. Sectors like life sciences, creative industries, food and drink, tourism, energy – not just oil and gas but renewable energy as well. Energy is a good and timely example. Earlier this week I had the privilege of opening the world's first floating wind farm, 25 miles offshore in the north east of Scotland. Now that's an incredible example of the scale of Scotland's renewable energy resources, and also of the technological ingenuity that is now starting to harness those resources. One of the big challenges for us in the future is that we make sure that more of the economic benefits are realised here in Scotland.

So on the face of it, Scotland is a nation of great wealth. But like most advanced economies, we also face long term, structural challenges.

Although, for example as I said a moment ago, Scotland has closed its productivity gap with the rest of the UK, we still lag significantly behind countries such as Sweden, Germany and the USA. We, like countries across the globe, need to adapt to an ageing population, we make progress towards the low-carbon age and we must ensure skilled and well-paid job opportunities in an age of increasing automation.

And of course, deep inequalities still exist in our society. These are reflected in reduced educational outcomes, poorer health and lower life expectancies, which are big challenges for any country. Of course, in Scotland and across the UK they are made all the more acute and difficult by the shadow of Brexit, which looms over everything we do. There is no doubt that Brexit, particularly if we end up outside the European market, will make it harder to address many of the issues we are talking about. But that doesn't mean we shouldn't and mustn't do everything to address these issues, it simply heightens the responsibility that is on our shoulders. So we must use the potential we have to become a more productive economy, as well as a fairer and more equal society.

One of the things we have sought to do since we decided to prioritise inclusive growth, and many other countries are now doing as well, is increasingly recognise that those two challenges, of competitiveness and equality, are not competing with each other but two sides of the one coin. We will have an even more productive and competitive economy, if we had a fairer society.

It's where I think in Scotland we have made significant progress in shifting the terms of that debate, but there is more work still to do. And that point is now borne out by a really significant body of analysis. OECD, for example, estimate that between 1990 and 2010, rising income inequality in the UK reduced our economic output per head by 9 percentage points – to put in context, that's approximately £1,600 for everyone in the country. So this is hard evidence that rising inequality harms economic growth and the living standards of people right across the country.

Later today you'll hear from Gerry Rice of the IMF. The IMF just last week published a report which set out how measures like more progressive taxation could tackle inequality. The report also made it clear that inequality can "erode social cohesion, lead to political polarization, and ultimately lower economic growth".

I think it's really important that we have the evidence to back up what many of us have believed instinctively for a long time. That the greater the inequalities in your society, the less you will be able to reach your full potential.

It stands to reason, when you take a few seconds to think about it, that societies are more likely to succeed if every individual within a society has a fair chance to flourish. That's what we've always believe instinctively but it can't be overestimated how important it is to have the evidence to back that up.

This is the view that the Scottish Government has not only been talking about but sought to put right at the heart of our economic approach. When we revised our economic strategy back in 2015, we based it upon 4 interdependent themes,. For reasons that will become immediately obvious to you, we describe this as the four i's - innovation, internationalisation and investment were three of them, and the fourth was inclusive growth. So we put inclusive growth right up there with the other objectives at the heart of the strategy.

What does that means in practice? Well it means a number of things. I don't have time to talk about all of them, but it means a shift in how we see policies that are traditionally seen as social policies. Expanding childcare, for example, which we have ambitious plans to do, raising attainment in schools – these are important social policies but they are policies that have a very significant economic impact as well. It has meant intensifying our efforts to tackle poverty.

We in Scotland intentionally choose to mitigate the worst aspects of the welfare reforms we are seeing across the UK because those have the effect of driving more people into poverty. More fundamentally, and within admittedly limited powers here in Scotland, we are legislating for targets to to reduce, and ultimately eradicate, child poverty. Legislating for targets is the easy part, we are also backing that with a range of policies to deliver on those targets.

We also understand the fundamental importance of place. The investments we're making in transport and digital infrastructure are designed to improve connectivity across our country – particularly for rural, coastal and island communities. One in five of the Scottish population live in what would be described as a rural community so that is really important.

We have established the Scottish Cities Alliance – a partnership between the Scottish Government and the leaders of our seven cities – and that's working increasingly closely with the OECD, on things like the New York Proposal for Inclusive Growth in Cities, and the Champion Mayors for Inclusive Growth Initiative.

We are taking steps to promote greater gender equality. Talking to Gerry earlier on he made the comment that the single most important thing that can be done to reduce inequality is to invest in women, which I agree with wholeheartedly.

Promoting greater gender equality the workplace and across society is not only the right thing to do, it matters hugely to our economy. As Gabriela (Ramos, of the OECD) pointed out earlier, if as many women as men were in work, the total output of OECD countries would be 12% higher over the next 20 years. So that is hugely and fundamentally important to what we are talking about.

And more broadly what we are developing in Scotland – and I would say, while we have made great progress, it's still at an early stage – is developing our approach to that we are calling fair work. And when I say this is at an early stage it's simply to remind ourselves that we still have work to do to ensure it's more than a tick box exercise about specific fair work practices, important though they are, but about embedding a different approach to the workplace through everything we do.

As part of that we are encouraging employers to boost productivity by investing in their workforces – not just as it's the right thing to do but because it will see them become more profitable and successful. We have put particular focus on the living wage, for example. When I became First Minister, we had around 50 companies in Scotland accredited living wage employers. Now, there are more than 900. A higher proportion of employees are paid the real living wage in Scotland than in any other country in the UK.

We have developed the Scottish Business Pledge, which celebrates companies which voluntarily agree to progressive business practices. I am delighted that Dougal Baillie – a consultancy and engineering firm, who are here at today's event – has just become the 400th company in Scotland to sign the business pledge.

A key point here, the fundamental point, is that inclusive growth isn't and cannot be separate from other strands of our economic strategy. All of them are interdependent. The Scottish Business pledge in some ways epitomises that point by celebrating and encouraging internationalisation and innovation as progressive business practices - alongside employing young people, promoting gender equality and paying the living wage.

Our vision overall for Scotland – and our programme for government this year is very clear on this – is to be a country whose economy is based on innovation and internationalisation. And of course those two things are very closely linked. We live in a world this is changing at a more rapid pace than has been the case at any time in my lifetime.

Our challenge in Scotland - our ambition - to be a country that develops, manufactures and exports the innovations of the future, not just simply consumes and deploys them. So we need businesses, across all sectors, to have that ambition and to see themselves as innovators in their own fields.

We've announced some significant measures in recent months to promote innovation – and in doing so advance the inclusive growth agenda - increased funding for business research and development; provided additional support for manufacturing and key sectors of the economy; increased investment in skills and in our enterprise agencies.

We've also set out what I think is a really important intention, to create a Scottish National Investment Bank. My Council of Economic Advisers, which advises me and the government – some of whom are here today, including the chair – identified that such an institution could help deliver support for infrastructure development; more finance for high growth businesses; and strategic investments in innovation. Today, we are launching a consultation on the detail of how the Bank can achieve those aims.

However, we recognise – coming back to the point of today – that inclusive growth is an essential part, not an add on or a luxury, of that focus on innovation and productivity.

So we've also announced a range of measures to ensure that as we transform our economy, we're doing everything possible to ensure that we no one in society is being left behind.

For example, we will establish a Just Transition Commission – which will be a panel of experts from across society to advise us on making the move to a low-carbon economy as equitable as possible.

We are looking at ways in which we can support the growth of employee ownership, a key part of our fair work agenda.

And, despite the fact this has some critics, we are also going to work with interested local authorities to fund research into the feasibility of a citizens basic income scheme. I should stress that our work on this is at an early stage. It might turn out not to be the answer or feasible - but as work and employment changes as rapidly as it is doing I think it is really important to look at and be open minded about different ways we can support individuals to participate in the new economy.

Of course, all of this will continue to sit alongside our wider action to tackle poverty and raise attainment in schools and promote gender equality, to give life to that belief that, if our economy is going to be more successful, we must have a society that allows every individual to participate to their full potential. That then is our commitment to building a truly inclusive economy.

When you came up here today some of you will have undoubtedly passed and perhaps photographed the statue of Adam Smith. Adam Smith was, of course, a student and later a professor here at Glasgow University.

Smith is – and this is a source of frustration I think to many of us in Scotland – one of the most misquoted and misinterpreted economists in human history. He's often held up as this believer in untrammelled free markets. But actually, when you read Adam Smith, you quickly understand that he would have been an enthusiastic proponent of what we are talking about here today.

As he wrote in "The Wealth of Nations" - "What improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can be flourishing and happy, of which the far greater part of the members are poor and miserable."

So Smith recognised that the major choices we make in economic policy aren't about what sort of economy we want to create, they are about what kind of society we want to live in.

That's something I hope is reflected in our wider approach to Government. GDP is an important indicator of economic performance, but it is not and shouldn't be the only one. That's why we link our performance to a wider range of indicators and why we are have – and indeed are one of the first countries – to adopt the UN's Sustainable Development Goals.

I hope that gives you a sense of what we are doing in Scotland. But if I could finish on this final point, which brings us back to why we are here today. We are proud of the work we are doing in Scotland but we don't have all of the answers and there are more things that we can and should be doing. So we want to hear from you as well as share what we are doing, and for you to take that experience back to your own countries. We want to learn from you as well.

Please enjoy today's session. We certainly look forward to hearing your contributions. Together we are at a really opportune moment in history when we can perhaps change the paradigm of economics, putting inclusive growth not just at top of the agenda in theory but at the top of the agenda in practice as well. In so doing we can change the lives and life chances of the people we are here to represent and serve.