Ron Hewitt: Why education reform is key to economic recovery

THE secret to prosperity in modern economies lies in attracting, nurturing and creating human capital. Edinburgh and Glasgow have higher productivity than other regions of the UK because they bring highly skilled people together.

Successful cities act as markets in ideas and information, and it is this interaction that creates real prosperity.

So economic policy should focus on attracting and creating skilled labour. This is not just a question of keeping taxes down, though that is important. The public sector has a proactive role to play, too. For example, it is responsible for formulating a sensible planning system that enhances our landscape while encouraging investment. Government must also enable an effective road network and other transport infrastructure.

Perhaps most important of all, government should promote excellence in our education system. Good schools and colleges create the raw material of human capital. And they also attract skilled workers who are concerned for the welfare of their children, or else looking for opportunities in further education.

We live in an age of financial austerity, when government budgets are squeezed and the threat of higher taxation and service cuts is omnipresent. Yet I believe this is a good time to look again at the delivery of public services and see where we can improve them.

Why so? Because opportunity and necessity go hand in hand. Some forecasters see a reduction in the Scottish Government's budget of between 10 and 15 per cent in the years to come. If we are to avoid tax hikes or service cuts, we must improve public sector productivity. Reform is a must.

Public spending per capita in Scotland is already some 15 per cent higher than the UK average. Yet in education we do not seem to be getting a return for that extra investment. There is a growing acceptance that the performance of Scottish schools has not improved over the last decade, despite a 50 per cent increase in funding. Key measures of attainment have now fallen behind England, and international studies of student performance show a relative decline in outcomes.

Meanwhile, in the university sector, principals are increasingly concerned that we are doomed to fall behind the international competition unless we can find new sources of finance. These are clearly not going to come from government coffers.

Both these problems are worrying, but both offer scope for meaningful reform that will help us in our quest to nurture human capital. That will in turn help drive economic growth.

Real reforms to Scottish schools, granting them more autonomy and accountability, can improve productivity so that standards rise without the need to rely on ever more injections of cash.

In higher education the debate has started in earnest. Almost every week we hear of another idea to allow universities to raise finance without restricting access. Greater self-reliance will also encourage the commercialisation of university research – an essential ingredient to building a knowledge based economy.

I don't pretend to know whether bond issuance, a graduate tax, endowments or philanthropy is the best way to achieve fiscal independence from the state. But what's clear is that reform is a must if we want higher education to flourish.

Scotland has a superb educational tradition. Excellence in our schools and universities gave Scots a competitive advantage in the first ages of globalisation in the 18th and 19th centuries. It is time now to re-ignite that tradition and take our place once more among the educational – and economic – elite.

• Ron Hewitt is chief executive of the Edinburgh Chamber of Commerce.