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The challenge of solving Scotland’s productivity puzzle

Scotland is a prosperous nation. We boast world-class universities, our food and drink, tourism and finance industries continue to flourish and we have key strengths in emerging sectors that will help secure our economic future.

However, we need to raise our game. In 2007, the Scottish Governmentset a target to be in the top quartile of OECD countries for productivity. More than a decade later, we remain as far outside this group of countries as we did then.

Brexit uncertainty has impacted on progress, but it is not the sole explanation.

This year, the Fraser of Allander Institute was commissioned by law firm Shepherd & Wedderburn to work with Scotland’s business community to understand why we have not closed this gap.

Although our research delivered clear recommendations, there is no simple solution to Scotland’s productivity puzzle.

Our ageing population will alter both the nature and structure of our labour force in the coming years, whilst technological change is turning many traditional approaches to business on their head.

The growth of new markets will open up new opportunities for Scottish firms, but also increase competition. The demands we have put on our planet’s natural resources cannot continue, so we will need to keep looking to new sources of sustainable growth.

Despite these challenges, we must move forward and sharpen our approach, operate more efficiently and smartly. The question is, how?

First, we must embrace technology. The last 30 years have seen the rise of globalisation; the next 30 years will see huge technological advancements. The speed of change brings uncertainty, but it would be a mistake to draw back. It is essential we play a leading role in the development of these new technologies – in advanced manufacturing, fintech and life sciences – and maximise their usage across our economy.

More generally, we must improve how we approach the research and development required to develop our services and products. As a nation, we are excellent at “research” but often lose sight of how to “develop” it.

Rethinking the value of our universities, not just as educators, but as growth engines for our economy’s productivity will be vital.

The Glasgow City Innovation District, Scotland’s first innovation district, centred around the University of Strathclyde, and the new National Manufacturing Institute Scotland in Renfrewshire, demonstrates how the public sector, universities and industry can work together to boost productivity.

Our workforce must also be better equipped. We have one of the most qualified workforces in Europe, ranked only behind London and Paris in terms of the proportion of people with a degree qualification. But businesses consistently feedback that they face crucial skills gaps, which impacts on their productivity.

The onus needs to be on anticipating and developing the skills businesses will need in the future. Some of this is about basic skills, such as in digital, and work-based training. But it is also about better training, mentoring and leadership programmes that will help deliver the incremental improvements that will increase productivity and profits.

Scotland’s top-performing companies are among the best in the world. However, our core business base trails behind. Too often business decisions are motivated by short-termism leading to lower levels of investment, ambition and strategic planning. The same is true of policy.

We can close Scotland’s productivity gap – but we must be brave and forge our way forward.

Source: The Herald

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