New report from CBI Scotland reveals how unlocking regional productivity growth can bolster Scotland's economy. 

Overview

What steps can we take to turbocharge productivity in Scotland and what effects would that process have on our economy, businesses and society as a whole?

In December 2016 the CBI published 'Unlocking regional growth', a report exploring the drivers of growth and productivity differences across the UK and what could be done to fix disparities between regions and nations.

The analysis identified four main drivers of productivity differences: educational attainment, transport links and connectivity, management practices and innovation, as well as the proportion of firms who export.

Pursuing prosperity explores the significance of these drivers for Scottish productivity.

Key findings

The scale of productivity differences across Scotland:

  • Scotland's productivity performance has fared better than the UK as a whole over the last decade. The historical gap between productivity levels in Scotland and the UK as a whole has narrowed significantly, with Scottish productivity levels now about the same as the UK average. However, both nations fall behind on international comparisons.
  • Crucially, there are significant differences in productivity between regions that need to be addressed. CBI analysis found that the most productive local authority area in Scotland is 50% more productive than the least productive local authority area.
  • The Scottish parliament’s new revenue raising powers and the challenges facing the Scottish economy make boosting productivity even more important for future prosperity. Supporting private sector growth in Scotland will be essential.
  • The Scottish government must take the opportunity to turbocharge the economy and ensure Scotland is an attractive place to do business. City Region Deals can play a role in spreading the benefits of improved productivity.
  • This isn’t just a challenge for the Scottish government. A successful UK economy needs all its component parts firing on all cylinders. Therefore, the UK government must back prosperity in Scotland. It is essential that Scotland’s business and political leaders are involved in a meaningful partnership with the UK government to address key challenges.

Education and skills:

  • Education and productivity are related – a greater percentage of pupils with higher qualifications is linked to higher levels of productivity, with academic and vocational qualifications both playing a role.
  • A focus on school results alone is not enough. Young people also need the attitudes,
  • aptitudes and wider life skills that will bring them success over a long career.
  • Improving schools, encouraging business-school interactions and offering better vocational options for young people are all important.
  • Access to skills presents a productivity challenge across Scotland. Businesses must get inwork training and development right. Attracting the right international talent and skills to Scotland will also be vital in helping firms stay competitive.

Transport and connectivity:

  • Getting the right infrastructure in place is crucial for connecting people to where jobs are being created and driving economic growth.
  • Improving connections between urban areas can boost productivity by giving businesses access to a greater pool of skills and talent. Reducing journey times within local authority areas can have a similar impact. High levels of urban congestion not only causes stress to individuals but also limits the potential size of the talent pool for local businesses and compresses work time for people.
  • But connectivity isn’t just about transport. Digital connectivity is part of our critical national infrastructure and ensuring we have the digital infrastructure in place to meet business’ needs and drive economic growth in the future will be key to lifting productivity.

Management practices and innovation:

  • Boosting productivity on the ground must be led by businesses themselves. Better management practices and a vibrant innovation culture at firm-level play a key role, alongside business growth intentions and aspirations.
  • Scotland has a developed innovation ecosystem but risks falling behind the rest of the UK and internationally, particularly on research and development (R&D).
  • The Scottish Government should set a concrete target for combined public and private R&D spend as a percentage of GDP. Boosting business expenditure on R&D and harnessing the strength of our universities to maintain university-based research as a key contributor to the Scottish economy will be vital to meeting any goal.
  • Companies that plan R&D investment tend to be more productive than firms that do not. Businesses have a role to play by increasing their own investments and ensuring they have the right in-house skills and culture to make the most of innovation opportunities.

Exporting:

  • More productive firms are more likely to be exporters, but exporting also makes firms more productive. Some local authorities have a higher proportion of firms that export than others, and this provides another part of the puzzle as to why there are differences in regional productivity.
  • Encouraging businesses to export and promoting Scottish firms abroad must continue to be a priority. 8% of firms in Scotland have characteristics similar to other firms in their sector that are currently exporting, but do not export themselves. Providing these non-exporters with support and encouragement to venture into international markets could help to generate productivity gains.
  • Making Scotland a global player on the world stage has become even more important as the UK renegotiates its relationship with the European Union (EU) and new trade links are established. On the UK’s negotiations with the EU, a joined-up conversation needs to take place between the UK government and Scottish government that provides opportunities for Scottish businesses to feed in.

The size of the prize: an economy that is £25bn larger:

  • To give an illustration of the potential gains from raising productivity, CBI Scotland calculated what the economic impact could be by 2024 if each NUTS3 area1 could improve at the same rate as the top performer in Scotland. Doing so could translate into more inclusive and sustainable growth, higher standards of living and greater global competitiveness.
  • Our analysis finds increasing productivity within Scotland could add £25bn to the economy over the next decade.
  • Shaping a more productive and inclusive economy right across Scotland is a goal shared by government and business. Making it a reality requires a true partnership between both parties. CBI Scotland would be happy to support the Scottish government in establishing a business-led productivity taskforce.
  • Only by working together can we create the kind of sustainable, inclusive growth needed to benefit the whole of Scotland.