John Ruddy considers what an industrial strategy for Scotland – which so many say is necessary but so few have ever defined – might actually look like.

 

A lot of people talk about an industrial strategy; the UK Government has a department devoted to it, the Scottish Government has asked its Council of Economic Advisers to come up with one, and, of course, Scottish Labour’s policy is to have an industrial strategy. Scotland’s economic growth has lagged behind that of the rest of the UK, and even behind many regions of England, and despite promises to tackle this right back to 2007, little has actually been done to improve it.

It must be clear, however, that no matter what government does, the days of a Scotland dominated by the heavy industry of the coal mines, steel mills, ship yards and other heavy manufacturing are gone and are never going to return. Half a century ago manufacturing accounted for over 40% of the Scottish economy, but in 2015 it had declined to less than 12%. Employment in the sector has likewise shrunk. Our industrial strategy must concentrate on supporting existing manufacturing rather than attempting a return to the good old days.

So “industrial strategy” is perhaps a bit of a misnomer. What we actually need is a business strategy, to include major industries, but to develop so much more. That will include an investment bank that will actively support businesses, especially smaller enterprises which are crucial to job creation, and the delivery of super fast broadband across Scotland, at a reasonable price in rural areas, with ultra fast connections to urban areas and new business parks.

Any business strategy must also address the low levels of investment in research and development in Scotland. While traditionally the research that has been undertaken at Scottish universities has been ranked highly in global terms, this has not translated into commercial R&D. More needs to be done to link the higher education sector with business, and encouragement given to link up the two with joint ventures.

Investment levels across Scotland are still low, both by historic standards, and by comparison with other parts of the UK and Europe. One proposal worthy of examination is to consider getting public sector pension funds to use their resources to invest in local production and infrastructure, boost local supply chains and stimulate employment. This could include new council housing, generating a net positive cash flow back into the funds.

There are several methods of enabling this, from capitalising an expanded infrastructure bank as described above, through to pension funds merging funds, or dedicating a proportion of their funds to support local investment opportunities. While pension funds’ trustees have a duty is to ensure that the members’ contributions provide for a safe and secure pension there are surely opportunities for pension funds to invest in Scotland that would both provide the return on investment required and, at the same time, contribute to the delivery of infrastructure and jobs investment to support the modern economy, and not least allow disinvestment of these funds from problematic areas such as fossil fuels.

While recent City Deals have shown the way for targeting investment into the engine rooms for growth, the £370 million bond issue in Aberdeen is another way in which local government has shown how to generate the capital required to develop business and infrastructure. It will be used to support £1 billion of capital investment in major projects in the city. This initiative opens up a new vehicle for generating funds for investment which can be driven by local government. It’s something that all our major cities should be doing.

Central government therefore must be prepared to devolve power to those who know their communities best and are accountable to them – recognising they can work in partnership to deliver major economic change. But cities need support from the centre too. We need a dedicated Cities Minister to signal that driving growth through our cities is a priority for government.

Targeted industrial and fiscal policies will stimulate investment, innovation and jobs in public and commercial services and manufacturing supply chains. We need an economy in which proactive government is seen as a supporter of sustainable industrial development, not a brake upon it. Public as well as private enterprise has a part to play in building a full employment society and nourishing and so developing our industrial base.

We need a Scottish Government with a plan for jobs and economic development, instead of one which sits back and leaves it entirely to the market.