Peter Jones: We can't build industry on guesswork

ABSENCE of thorough research casts doubt on centre of excellence policy, writes Peter Jones

Nicola Sturgeon has announced a new centre for excellence. Picture: Lisa Ferguson

In an effort to boost the Scottish economy, First Minister Nicola Sturgeon has announced the establishment of a Centre of Excellence for Manufacturing and Skills Academy. Sounds like good news deserving a loud welcome. But how will we know if it does what it says on the tin? The answer, I fear, is that we won’t have a clue.

The idea is to bring together industrialists, who are keen to make their businesses more productive and innovative; universities, which have lots of clever people and laboratories for testing out new technologies and processes; colleges and schools where teaching in science, technology, engineering and maths is essential to produce a future innovative and productive workforce; and government which will (mostly) pay for it.

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Variants of these things have been tried before, not just here, but all over the world. Sometimes they work; sometimes they don’t. A basic problem is to get everybody focused on the same objective because experience says that mixing academics, whose primary goal is undertake research leading to papers published in prestigious journals, and businessmen, whose goal is to improve the company and generate more profits, presents obvious problems.

But if everyone is agreed on the goal and is prepared to make some compromises, it can work. Moreover, there are opportunities out there, some of which we have a vague idea about, others we don’t know of. Two historical examples make the point. Of the hundreds of ships in the world servicing the oil and gas industry, not a single one was built in Scotland. And yet at the time North Sea oil was beginning to be a success, Scottish shipbuilding was failing. Why did no-one see that this new offshore industry could be the answer to an onshore industry’s problems?

If that was a vague idea that might have worked, flat-screen technology was something that nobody knew about apart from a handful of scientists at Dundee University. Their scientific breakthroughs 30 years ago made possible the flat screens everyone takes for granted – from televisions to mobile phones. But none are made in Scotland, nor does anyone get a licence income from the discovery.

New energy technology – from not just renewable generation, but also energy storage and smart grid distribution – ought to be an area Scotland can capitalise on. And there will be things being worked on by a few academics that could turn into jobs- and money-spinners. If the new centre unearths one of these, it will be hailed a roaring success.

But mostly, industrial innovation and productivity enhancement is just about incremental improvement – finding better materials to use, upgrading workforce skills alongside improved IT and machining technologies, and working out better processes to apply to the chain of production.

In these circumstances, it can be hard to see results. If a company used the centre to improve its widgets and sells more of them, is that a success for the centre or is it really down to the company replacing its sales director with a much better one?

Assuming that such questions can be answered and that hard numbers can be produced to prevent success measures being swamped by PR hyperbole, then we might be able to know. Unfortunately, the Scottish Government’s record on this is extremely poor.

One broad measure of whether this centre does a good job or not might be exports. If there is a step change in Scottish manufacturing, one of the positive effects should be improved exports. You may think there are lots of numbers around to show this. There are, but they vary wildly and each is highly questionable.

One problem is that the numbers are two years out of date. The most recent year for which there is a complete set of data is 2013. In that year, according to the Scottish Government’s annual Global Connections Survey (GCS), exports to the world outside the UK had a total value of £27.9 billion.

However, the Scottish Government’s national accounts has a different figure - £24.7bn. And HMRC has yet another number - £20.7bn – though this does not include invisible trade such as that from banking and tourism.

The government’s statisticians tell me that the GCS numbers are the most reliable. However, Margaret Cuthbert, in a paper available on the Jimmy Reid Foundation’s website, has gone through the GCS with a fine analytical toothcomb, and has found plenty of reason to doubt that.

She notes that this is a survey, ie that companies are not obliged to fill in the forms as they are with HMRC returns. Only 27 per cent of companies who were asked to take part did so. She also reports that there were no returns from known telecoms exporters.

What information was supplied was supplemented with data from various UK National Statistics sources and from trade groups such as the Scotch Whisky Association, to try to fill the holes. Ms Cuthbert comments that this “makes it impossible to put confidence limits on the resulting estimates”, ie that we don’t know how reliable the numbers are.

She is equally critical about the HMRC figures and positively scathing about the measurement of results from the agencies – Scottish Enterprise, Scottish Development International, and Highlands and Islands Enterprise – which are charged with helping companies to grow their exports. While there are plenty of figures given for targets to be achieved by these agencies, there is a paucity of information about actual results achieved, she says.

Ms Cuthbert makes a trenchant critique of other sources, such as HMRC, but her main overall point is that in the absence of reliable statistics, there cannot be any valid analysis of why one sector might be succeeding in growing exports while another is not. And, she concludes: “We fool ourselves about the future and about economic strategy without knowledge based on an analysis of the facts.”

So, while Nicola Sturgeon’s intentions for the centre and its impact on manufacturing may be sincere and good, unless she also intends for there to be enough facts about its work and its impact to be available, she is fooling herself about whether it will really make a strategic difference to Scotland’s economic future.