The potential to generate a healthy independent economy is not just a romantic ideal, writes Alasdair Reid
Consider a northern European country of five million people with limited natural resources, a sparsely populated rural north, a few major exporting companies and a couple of research-intensive universities located in the cities of the south-central belt of the country. When a global financial crisis hits, the result is predictable. Or is it?
If politicians, business people, civil society and the scientific sector – not forgetting popular opinion – reach a consensus on a long-term vision of a future in which the public and private sectors commit to investing in education and innovation; where broad-based partnerships support the emergence of new innovative business models, the economic outcomes can be staggering. This was the case of Finland, circa 1990, but the Finnish economy has been transformed and is now in the global top five innovative nations.
Our Nordic neighbours, like Finland, have sustained higher growth rates and lower poverty levels than the UK, thanks to a greater rate of investment in innovation. But they also succeed by being able to bring the full set of policy levers available to an independent state to bear on their “innovation system”. The evidence is that when it comes to innovation, small(er) is (definitely) beautiful.
Here in Scotland, in considering the future of the economy, most commentators assume that structural economic change, if it occurs, will be marginal and that productivity rates will not diverge significantly from current ones.
At first glance, these are reasonable assumptions. Scottish economic performance, after all, has not deviated significantly from the UK as a whole in recent decades. But even short-term projections can vary significantly depending on investment rate assumptions. Add a dose of innovation, and long-term trends can be boosted significantly.
By contrast, some people seem to believe that the rate of economic growth Scotland achieves within the UK is as good as it gets. To prosper, Scottish businesses must extend their horizons far beyond the low-growth rest of UK (rUK) market.
A second false assumption is that the Scottish innovation system requires rUK investment to prosper. In 2011, rUK-owned firms contributed less than 5 per cent to Scotland’s “innovation effort”. At the same time, thanks in part to the enterprise agencies, there has been an upward trend in absolute and relative R&D expenditure by Scottish-owned firms.
Moreover, in a 2012 study for Scottish Enterprise, we found no evidence that Scotland gets an innovation dividend from being part of the UK. Indeed, given that the UK spends comparatively more on defence related R&D, which contributes less to productivity growth than civilian R&D, an independent Scotland would receive an innovation bonus by re-orientating R&D investment towards new markets and societal needs.
We also found that, far from the popular myth that high-technology firms spun out of academic research are driving innovation, the growth of Scottish business R&D over the last decade has been driven by sectors often considered as low-tech. Major Scottish innovators include bus manufacturers, food and drink firms, engineering and service companies. Innovation is also flourishing in rural areas such as the digital health corridor between Inverness and Elgin or the Orkney marine energy “campus”.
Since 2007, the Scottish Government, in partnership with industry leaders, has driven forward an economic strategy based on a number of key sectors. The renewable energy investments attracted, or the sustained export growth of the Scottish food and drink sector, illustrate that when political vision and target setting is combined with business ambition, the scope for generating alternative economic futures is broad.
However, as a nation, we can and must do even more to foster innovation. The recent Common Weal paper from the Jimmy Reid Foundation calls for “more domestically owned medium-sized enterprises with a long-term ownership strategy” focussed on innovative and productive enterprise.
As I argued in a 2012 report on Scottish innovation policy for the European Commission, such companies of scale can be key players that allow smaller firms to take a first step on the innovation ladder. I also recommended a hands-on innovation policy to support ambitious enterprises (both for-profit and community-ownership models) that sustain quality employment and generate wealth in rural and less advantaged urban areas.
In short, innovation needs to become a more collective and even more widespread endeavour in Scottish society.
We need to challenge regional partnerships of businesses, universities, local authorities, health services, etc. to become involved in open innovation where new products and services (public and private) are tested and developed by and for users.
In marine energy, for example, Scotland is already a test-bed for a large share of the global tidal and wave technologies. And from a social-innovation perspective, the Inverness-Moray digital health cluster brings together local businesses and health and social care professionals to test new approaches to personalised care.
We need to multiply such examples, and we need to inspire people from all sectors of our economy, in all our communities, to become ambassadors for change. Scotland can prosper, if we put our collective creativity to work.
• Alasdair Reid is a director of the Technopolis Group, based in Brussels.