Why is average Norwegian 35 per cent more productive than average Scot? – Craig Vickery

Solutions to Scotland’s productivity problem include better mental health care as well as training in digital skills and other more radical ideas, writes Craig Vickery.

Something in the fjords? Norways productivity rate makes Scotland look sluggish (Picture: Getty Images/iStockphoto)

The Nobel Prize-winning economist Paul Krugman argues that “productivity isn’t everything, but in the long run it is almost everything”.

How then do we begin to solve our own long-standing ‘productivity puzzle’ – especially as UK productivity fell at its fastest annual pace for five years in the second quarter of the year.

To address this often enigmatic issue confounding policymakers, CBI Scotland and professional services firm KPMG created a new index to measure the productivity levels of Scottish businesses and determine the effectiveness of productivity-enhancing measures.

The Scottish Productivity Index tracks performance in business practices, skills and training, health and wel-lbeing, infrastructure and connectivity.

It finds that Scotland’s productivity is lower than that of the UK as a whole, which itself is in the bottom half of productivity internationally, according to the Organisation for Economic Co-operation and Development (OECD). Scotland languishes in the third tier – the equivalent of football’s League One – lagging behind leaders Ireland, the US and other continental powerhouses like Germany. To illustrate the significance of Scotland’s sluggish showing, workers in Norway – a comparable country in population – are 35 per cent more productive than their Scottish counterparts, meaning they could produce as much as we do in a five-day week in just three-and-a-quarter days.

The index highlights the low rates of innovation, investment and research and development in companies in Scotland. The index’s recommended solutions include employers treating mental health with equal priority as physical health, basic digital training for all in the workforce, and a ‘data bank’ to improve the tracking of data across the public and private sectors.

Radical innovation

These radical responses and more are needed to successfully advance the Scottish economy. Innovative ideas are necessary from our Holyrood representatives about the dizzying array of difficulties all governments now face, from declining public trust to technological disruption. There are considerable challenges facing the public sector in particular – from budget reductions to talent shortages – along with an increasing urgency and need to modernise processes, data and technology, and human resources.

Despite the many questions, the answer that accountancy body ACCA identifies in a new report, Innovation in public finance, is that governments must shift from incremental to more radical forms of innovation.

Policymakers and public sector leaders should share a vision and strategic direction, allowing staff to understand how their organisation can proactively address the complex challenges it faces.

Almost 4,500 ACCA members across 142 countries took part in the survey, including 56 accountancy experts in Scotland.

The report asserts there are three specific challenges to overcome for radical innovation to flourish.

‘Arrows in their backs’

First, maintaining a stable environment while innovating – bringing new ideas to life can be disruptive, and this is a risk for public services that often serve the most disadvantaged in society.

Second, the risks of first-mover disadvantage. As the old adage goes “pioneers often die with arrows in their backs” – meaning being the first trailblazer to innovate in a particular area can lead swiftly to increased competition, losses from costly investments in R&D and resistance from established vested interests.

Lastly, the challenge to spread innovation effectively and share ideas – since innovation can often be context-specific, and competitive forces do not comparably operate in the public sector to spur widespread adoption of successful innovations.

The future is unpredictable, uncertain and unclear.

Our leaders and representatives – at Holyrood and Westminster, from Kilmarnock to Kirkwall and Stornoway to Stonehaven – need to be able to experiment and adapt to find the clear way forward. Our elected officials and public servants need an understanding of our challenges and such a brave determination to make a difference that they will openly embark on a journey without knowing definitively where it will end. Any leader doing this will often feel disorientated and vulnerable – like navigating an unfamiliar maze or solving a perplexing riddle. But only the best leaders in our public sector will have the ability to continuously experiment and adapt.

Silver bullet

The public sector’s predicament is intensifying in the face of political upheaval, climate crises, and technological disruption and globalisation. New, innovative and radical approaches are required to address them.

In a period of decreasing economic confidence, in an age of diminishing expectations in our political institutions and declining faith in the UK’s ability to move beyond Brexit, innovation alone will not be a silver bullet in the short term.

But, to paraphrase Professor Krugman’s 1994 verdict in The Age of Diminishing Expectations – innovation, in the long run, is almost everything. Describing the concept of productivity further, Krugman said “a country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”.

And Scotland’s ability to improve its standard of living over time will depend almost entirely on its ability to raise its game to embrace and execute innovation radically.

Only then can we unlock the growth potential in our country and assemble together the pieces necessary to build a more successful, prosperous and dynamic Scotland.

Craig Vickery is the head of accountancy body ACCA Scotland