Reflections on Scotland’s National Strategy for Economic Transformation
This week Kate Forbes, Scotland’s finance secretary, launched the Scottish Government’s long-awaited 10 Year Strategy for Economic Transformation. The SNP’s 2021 manifesto committed to delivering the strategy within the first six months of the new parliament, but its publication has been subject to repeated delays.
That such a strategy is needed is not in any doubt. The need to recover from the Covid-19 pandemic, decarbonise the economy, raise living standards, and tackle inequalities will require a fundamentally different approach to economic policy than what has come before.
The strategy’s opening vision indicates that it has grasped the scale of the challenge. According to the finance secretary, the strategy “takes decisive steps towards the creation of a wellbeing economy, and drives a green economic recovery to meet our climate and nature targets while ensuring we maximise the benefits as part of a just transition.”
But beyond this grand rhetoric, in the pages that follow the strategy quickly loses its transformational groove. Many of the strategy’s 56 pages are dedicated to promoting familiar goals: encouraging entrepreneurialism, boosting skills, and raising productivity. While these may be worthwhile aims, they are far from new. In practice such an approach has formed the basis of Scottish Government policy for years, and has failed to deliver much in the way of tangible transformation.
There is also a heavy emphasis on driving innovation, but the question of what kind of innovation, for what purpose, and for whose benefit, are not addressed beyond a few vague pledges. With the exception of a new ‘National Challenge Competition on Economic Transformation’, precisely how the government will seek to catalyse innovation in support of its overarching vision is left unanswered, although it is indicated that a forthcoming innovation strategy may provide some answers.
Crucially however, economic transformation is not just about growing hi-tech sectors. As the STUC have pointed out, the strategy makes little reference to ‘foundational economy’ sectors such as food, transport, retail, energy, health and care. While these sectors may not be particularly glamorous (compared to say the space sector, which gets mentioned multiple times throughout), in practice they are the sectors where most Scots work. Jobs in these sectors are often characterised by low pay and insecurity, and some – such as high street retail – face a highly uncertain future after the Covid-19 pandemic. For a strategy focused on economic transformation to say precisely nothing about such a large and crucial part of the economy amounts to a major oversight.
Another area that receives curiously little attention relates to the role of the state. While many pages are dedicated to how the state can support entrepreneurship, there is precious little detail on how the state itself can become more entrepreneurial in order to drive economic transformation. Given the vital role that state industrial policy has played in virtually every economic transformation throughout modern history, this is a strange omission. The strategy makes a few passing references to a new ‘net zero industrial strategy’, but no substantive detail is provided on what this will look like or what it will involve in terms of concrete policy. The commitment to applying ‘Fair Work’ criteria to public sector contracts and grants is welcome, but it is not new. In addition, the strategy states that the Scottish Government’s approach to public ownership will be subject to a ‘review’, but beyond that there is little indication of how the government sees its role in the economy going forward.
In some places the strategy contains glimmers of some new and interesting thinking. Community wealth building is mentioned as a way to “create new employment opportunities, help local businesses to expand, and place more assets in the hands of local people and communities.” There is a mention of tailored support for “alternative ownership models, including cooperatives and social enterprises as well as in our rural and island areas.” As already mentioned, the strategy puts the creation of a wellbeing economy at the centre of its vision. But at no point are any of these ideas fleshed out to resemble a concrete shift in policy direction. As a result, they sound like they have been name-checked to placate certain audiences rather than forming key pillars of a new economic strategy.
The type of development model underpinning the strategy is perhaps most clearly revealed in the accompanying economic modelling that was published separately. Stripped of the transformational rhetoric that is sprinkled throughout the main strategy paper, the modelling reveals that the strategy has three primary ‘programmes of action’. The first is to increase Scotland’s international exports from 20% to 25% of GDP, as outlined in the Scottish Government’s trade strategy that was published in 2019. The second is to increase Scotland’s attractiveness as a destination for inward investment to ensure that Scotland’s Foreign Direct Investment (FDI) generates benefits on a par with East of England, as outlined in the Scottish Government’s Inward Investment Strategy that was published in 2020. And the third is to increase the flow of “internationally mobile finance” into projects and businesses in Scotland, as outlined in the Scottish Government’s Global Capital Investment Plan published in March 2021. As the strategy states, the aim is for Scotland to become a “magnet for inward investment and global private capital.”
In other words: the strategy’s core aims are neither new, nor particularly transformative. Instead it represents the continuation of a development model focused on attracting foreign investment and international finance, in the hope that this will boost exports and innovation. This is not a programme of national economic transformation: it is a programme for economic continuation. Rather than outlining a ten year plan for transitioning towards a greener, fairer and more dynamic economic model, the plan is underpinned by a desire to make Scotland more attractive to international investors, in the hope that they will do the job for us. At a time when muscular industrial policy is making a return globally, it is strange to watch Scotland embrace an approach that would be more at home in the 1990s than the 2020s.
The point here is not to downplay the role of the private sector, which has a crucial role to play in any economic transformation. Instead, it is a case of recognising that private sector activity is directly shaped by the policies, rules, regulations and legal frameworks set by government. As a result, economic transformation must be led proactively by the state, working in partnership with the private sector, trade unions and civil society to steer the economy in a new direction. The state should lead and businesses should follow, not the other way around.
There are of course limits to what the Scottish Government can deliver under the current devolution settlement. The strategy is keen to point this out, stating that “the full powers of independence would enable an even more ambitious and joined up approach to transforming Scotland’s economy.”
It is certainly true that many vital economic levers – including macroeconomic policy, employment law, energy policy, migration policy and more – remain reserved to Westminster, and this significantly limits the scope for transformative policy. But there are many powers that the Scottish Government has control of today that the strategy chosen to overlook or ignore. Tax policy, for example, is not mentioned once in the whole report, despite the Scottish Parliament now having control over a number of key taxes. There are only fleeting references to planning and land ownership and use, despite these being key to unlocking economic potential across the country. The Scottish National Investment Bank gets a passing reference, but only to acknowledge what it is already doing.
If the Scottish Government wants to convince people that Scotland would be better off as an independent country, it should start by demonstrating that it is willing to use the powers it already has. Transformative rhetoric may sound impressive, but actions speak louder than words. Despite containing a few welcome initiatives, overall the strategy fails to live up to its promise.
The Scottish Government’s National Strategy for Economic Transformation can be read here.