National Economic Forum: March 2022

Host: Tom Arthur, Minister for Public Finance, Planning and Community Wealth

Facilitators: Jackie Brierton, Chief Executive, GrowBiz Scotland

Scribe: Pippa Gardner, Scottish Government

Discussion group overview

Scotland needs a strong future economy where secure and well-paid jobs and thriving businesses help drive a reduction in poverty and inequalities.

The purpose of this group is to invite debate on the potential and delivery of the actions and programmes detailed in the NSET to drive productivity improvements. The outcome of these is to drive economic growth across Scotland focused equally on prosperity and wellbeing. It is also important to consider how the benefits of growth can be spread across all parts of Scotland and how the assets that we have in our regions, localities and communities can be brigaded and optimised to contribute to faster and more sustainable growth that supports a wellbeing economy.

Background

The overall aim of the NSET is to create “…a strong economy where good, secure and well-paid jobs and growing businesses have driven a significant reduction in poverty and, in particular, child poverty. It means a nation of entrepreneurs and innovators, with resilient supply chains and competitive advantages in the new industries generated by technological change, scientific advance and our response to the climate and nature crises. It means a society in which everyone can participate in economic success, in every community and in every region. Our vision is to create a wellbeing economy: a society that is thriving across economic, social and environmental dimensions, and that delivers prosperity for all Scotland's people and places. We aim to achieve this while respecting environmental limits, embodied by our climate and nature targets.”

This session, we are focussing on the projects and actions that are noted in Chapter 4 of the NSET text, the key aim of which is to “make Scotland's businesses, industries, regions, communities and public services more productive and innovative” Underpinning this aim are 13 actions across three projects.

Project 8: improve connectivity infrastructure and digital adoption across the economy

Key actions include:

• deliver the Strategic Transport Projects Review 2 to help make Scotland more accessible; create better connectivity; and highlight the contribution that transport investment can play in enabling and sustaining economic growth
• provide an efficient and resilient digital infrastructure
• establish a Digital Productivity Fund focused on supporting business to improve firm-level productivity
• develop joint programmes of action to increase digital understanding and adoption in sectors where business models have been transformed rapidly due to new technology

Project 9: upskill business and public sector leaders, pioneering new approaches to driving productivity improvements

Key actions include:

• design and implement programmes to upskill business and public sector leaders in the practical actions they can take to boost productivity, at scale
• design and implement a Team Scotland leadership programme across the public and private sector to attract and develop the ambitious, skilled, empowered leaders that Team Scotland need
• appoint Productivity Ambassadors to promote understanding of driving productivity improvements, build international networks with their peers and deliver learning as part of the Team Scotland leadership programme
• establish a new measure of the resilience of the economy, monitoring, assessing and identifying actions to future-proof the productivity of Scotland’s economy over the long term
• launch the Centre for Workplace Transformation in 2022 to support experimentation in ways of working post-pandemic, including hybrid working
• expand Scotland’s SCDI-led network of Productivity Clubs

Project 10: realise the potential of the different economic and community assets and strengths of Scotland’s regions

 Key actions include:

• reinforce our commitment to regional collaboration through our Regional Policy Review and continue to work with Regional Economic Partnerships to deliver Regional Economic Strategies with strong regional economic policies and tailor interventions to evidenced regional strengths and opportunities
• introduce Community Wealth Building legislation
• undertake and publish a review of how best to significantly increase the number of social enterprises and cooperatives in Scotland

Scotland’s productivity performance

There is no definitive explanation of Scotland’s relative performance, however there is a degree of consensus that the causes of Scotland’s relatively weak performance are likely to be found in the following factors: 

• the small size and lack of dynamism of our business base; particular attention has been paid to the scarcity of middle-sized firms and domestically owned and controlled companies of scale but the fundamental problem may simply be too few firms
• very low levels of investment by business - data show that Scotland’s business investment rate has been lower than nearly all other OECD countries for a number of years, resulting in a low level of capital stock per worker
• historically low levels of business innovation - the latest data show a decline in the proportion of innovation active businesses from 51% in 2012-14 to 46% in 2014-16. Particular attention has been paid to low levels of Business R&D (on which we have good comparative data) although the general capacity of the Scottish economy to absorb and adopt new ideas (processes as well as products) may better explain the low aggregate levels of innovation
• a “narrow” exporting base, with fewer companies exporting, in a narrow range of markets and sectors
• low take-up of digital technologies and progressive business methods

Digital

Digital connectivity increasingly underpins businesses right across the economy as well as the delivery of flexible and resilient public services. Access to connectivity has, in the past, been a barrier to take-up of digital technologies but with significant investment in Scotland’s digital infrastructure in recent years – from a range of commercial suppliers, working alongside publicly funded schemes like the R100 broadband and Scottish 4G Infill programmes – the coverage gap is reducing.

Adoption of connectivity-enabled technologies will be critical to Scotland’s economic future and to driving more productive businesses and regions. Increased use of data, cloud computing and automation can increasingly inform decision-making and help create new ways of working. The digitalisation of physical industries – such as manufacturing, transport, energy, agriculture – should also drive energy efficiency, reducing consumption and contributing to net zero ambitions.

Digitalisation is an important driver of aggregate productivity and is fundamental in building an innovative and resilient economy. Not only must we support our businesses to adopt digital technologies, we must improve our management and leadership practices along with our digital skills.

Work to support and showcase innovation in these areas is already being led by the Scotland 5G Centre and Scotland’s Innovation Centres, with a national network of tech scalers being established to provide the infrastructure to support, educate and scale our tech businesses.

Regional productivity

NSET offers a strong narrative on regional empowerment, and supporting Regional Economic Partnerships (REPs) (or equivalent collaborations) to develop strategies that use sectoral strengths within their regions as a catalyst for boosting productivity. The REPs are able to build on the large scale enabling investment delivered through City Region and Growth Deals, playing to those regional strengths in a way that offers direct opportunities for local businesses and communities.

For example, the Ayrshire Growth Deal has taken a Community Wealth Building approach to the entirety of its Deal investment, not only by funding a pilot to fund a programme of work across the region, but also by embedding it in every single project, such as the Prestwick Aerospace projects, ensuring an intentional approach to driving inclusive growth and improving regional productivity in a high value sector; working with local schools and colleges to develop the skills pipeline, and building the local supply chain to help grow businesses and create jobs. 

Rural economy

Scotland’s natural capital and entrepreneurial culture have a significant role to play in supporting our just transition to a net zero, nature positive and wellbeing economy. Rural local authorities contributed £39.15 billion (27% of the Scottish total) in GVA in 2019). This figure under-represents the true contribution of the rural economy, as we know that in addition to the 49,000 registered businesses that operate there are a further 44,000 unregistered businesses, covering sole proprietorships, partnerships that are not VAT registered and businesses not PAYE registered (2021). The rural economy employs 433,800 people (2020), with a further estimated 53,000 people employed in the unregistered businesses referred to above.

Nine out of ten businesses in rural areas are micro enterprises (0-9 employees). The needs of rural businesses differ to those of urban businesses, with the social dimensions being vital. The commitments made in NSET - including to establish a programme to radically transform the way in which the public sector in Scotland provides support for workers and businesses - will ensure that our small and micro rural businesses are supported to play their role in Scotland’s economic transformation.

The Scottish Government is investing in our rural communities and businesses directly through the forthcoming £20m Rural Entrepreneur Fund and our £14.6m investment in Community Led Local Development between 2021 and 2023.

Community wealth building

As an example of our commitment to advancing a wellbeing economy, the Scottish Government has adopted the internationally recognised Community Wealth Building (CWB) economic model as a means of maximising the impact of public expenditure and anchor institutions through their procurement, grant investment and other means to drive fair work, shorter supply chains and improve sustainable local economies. We want to work with partners in the public, private and third sectors to enable net growth in locally owned businesses and social enterprises. Adoption of CWB through local public sector and business partnership can drive successful local economies which employ local people in good and rewarding jobs.

Suggested discussion questions

• increasing Scotland’s rate of productivity growth is a complex long-term project. How are current SG-led programmes assisting, and how do the commitments in NSET square with the need to improve productivity. Is anything missing?
• taken together, is our programme of investment in infrastructure, digital connectivity and transport ambitious enough to help us realise our objectives?
• what are the key factors that will drive adoption of new technologies and encourage data-driven innovation in your sector? What are the barriers and what support is required to overcome these barriers?
• what actions would increase the pace of digitalisation in more traditional parts of sectors such as manufacturing, transport, energy and agriculture?
• what can we do collectively and individually to support the creation and development of more productive businesses, and how can we gain maximum impact from business behaviours, corporate models and governance, and investment in leadership development?
• the majority of Scotland’s businesses are small and micro (particularly in rural and island areas). What contribution do you think smaller businesses can make to drive productivity growth, and what support do you think they need in order to play their part in Scotland’s economic transformation?
• how can we improve productivity growth in Scotland’s low wage/low productivity sectors and regions? What role can regional and local actors play, including Regional Economic Partnerships, and how can social enterprises, Co-ops or employee-owned businesses support our drive to increase productivity?
• what is the role of business in supporting Community Wealth Building and how would you influence the Scottish Government CWB Bill?
• as we go forward in implementing NSET, how can we best assess how effectively delivery fully reflects the different circumstances across all of Scotland's regions?