What Was – What Next? What the evidence tells us for next steps for Scotland’s economic strategy Professor Anton Muscatelli

Background & stimulus The aim was constructive & two-fold;  to encourage the development of effective and strategic policies for Scotland’s economy based on solid evidence.  to challenge some assumptions that influence the debate in Scotland but which don’t stand up to scrutiny.

The report looked at: The structure of industry in a global economy Competitive advantage labour market and skills needs Productivity and the deployment of technology, innovation & skills

It concluded: Scotland needs an industry replacement strategy Industries rise and fall in their economic importance as they gain and then lose competitive advantage in global markets. The economic problems caused by rapidly-shrinking industry sectors are mitigated only if there is an emergence of new, rapidly expanding industries. In Scotland’s recent history each replacement industry had been typified by higher knowledge content than the one it replaces. We have to plan to stimulate and encourage new industries and be prepared to recognise that they may not take the same form as those which have gone before.

It concluded: There is only one direction of travel if Scotland is to remain competitive There is no scope for Scotland competing on the basis of labour costs or business costs. Other countries are better placed to out-compete us on these grounds and Scotland will only compromise its standard of living by doing so. Scotland is well placed to compete on high-level skills and innovation. However, we cannot be complacent. Others are investing heavily and gaining ground.

It concluded: To realise economic growth public investment must be targeted where it will offer the greatest return Models of competitiveness encourage countries to invest in factors that will have the biggest impact dependent on their level of development. Advanced or innovation-driven economies like Scotland will see the greatest impact from investment in “innovation and sophistication factors”. Scotland can only expect to see diminishing economic returns from investment in more basic “factor” or “efficiency” factors such as mass education or comprehensive infrastructure networks. Obviously public investment is made on the basis of other factors other than just economic, however economic impact is the focus of this report.

It concluded : The skills debate in Scotland is often misinformed or uninformed. Rather than skew investment further towards lower- or mid-level education the evidence suggests that Scotland should in fact emphasise the highest level of education – degree and above. Labour market projections point to a polarisation of skills. The growth in demand will almost all be for degree levels skills and above. Mid-level skills are forecast to be squeezed out of the labour market. There are real risks that high-level skills supply shortages could be a major break on economic growth and transformation in Scotland. A risk exacerbated by general lack of awareness. Future demand points toward higher-levels skills

It concluded: Scotland’s productivity increases will come from innovation, high level skills and incentives that can reinforce this. As well as expanding exports, Scotland’s best hope of economic growth is through improvements in our productivity. Productivity increases in Scotland will come from better use of skills, innovation and the deployment of technology, not from squeezing more out of workers. Incentives and competition will also increase productivity, but mainly when they encourage the type of virtuous behaviour which results in better skills, more innovation and more effective technology.

How was the report received?  Prior to launch of the report we consulted informally with many relevant external organisations such as CBI and Scotland’s Colleges.  Positive debate with MSPs at event in Parliament  Private brief with Fiona Hyslop MSP and John Swinney MSP  Good media coverage  Some mixed reactions  An element of: “they would say that wouldn’t they”  Many organisations identified with certain aspects of the report  Significant interest & support for moving forward constructively

What Now for What Next? Now that we’ve got people’s attention, we want to get them talking. Universities Scotland to reconvene group of economists. Start to map out the major challenges as identified by the evidence and start to think about new approaches to these challenges. Engage with other stakeholders: CBI, Scotland’s Colleges, NESTA and all those who are prepared to think differently & move forward informed by evidence. No room for recycling old policies. This includes reflection within and challenges for Scottish higher education.

Universities Scotland – evidence based approach to policy & funding bids spending review: Measures of efficiency & effectiveness – Making Every Penny Count Measures of economic impact – Prosperity Scotland Measures of social, cultural & community impact – Wellbeing Scotland Perhaps it was imperfect but who else did more? The importance of demonstrating impact

Challenge within New Horizons “….In future, though, the Scottish Government will expect the University sector to demonstrate more explicitly how the funding it receives from the Government contributes to delivering against the National Outcomes, thereby ensuring there is alignment of publicly funded activity against the Scottish Government’s Purpose – its vision for the whole of Scotland – as set out in the National Performance Framework. In turn the sector, delivering outcomes so aligned, will continue to receive public resources at a level to help to keep it nationally and internationally competitive.” Section 1.15 in New Horizons