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Although it is easy to adopt a declinist outlook about Scotland’s long-term industrial trajectory over the past century, it is important that we do not view the loss of the once iconic staple industries of shipbuilding, steel and coal, which had their genesis in the first industrial revolution, as part of a terminal decline of our manufacturing capability. Indeed it is a sector that we urgently need to reposition at the heart of our economic future in order to maximise our country’s productive potential.
Currently, Scotland’s productivity ranks in the third quartile of OECD countries, and although productivity growth has been better than the UK average since 2009, the rate of productivity growth in Scotland lags behind many of our competitors. To catch up, Scotland must expedite a significant increase in that rate. Achieving the required growth would be truly transformational. Increasing Scotland’s productivity to the level of the top quartile of OECD countries would grow GDP by almost £45 billion—an increase of 30%—and annual average wages could be more than £6,500 higher. That would be an increase of 25%, which is a huge prize.
It is in Scottish manufacturing that we can find the prime mover towards any significant realisation of that opportunity for enhanced productivity. The firms in that sector continue disproportionately to drive innovation, investment and international exports.
On some measures, Scotland’s innovation performance is improving. However, performance still significantly lags behind many other countries on key innovation measures. Despite some signs of improvement, Scotland’s research and development performance continues to be below that of the UK and most OECD countries. Although business enterprise R&D increased by 45% to £905 million per annum between 2010 and 2014, which was faster than the OECD and UK average, Scotland’s performance is near the bottom of the third quartile of OECD countries. To reach the top quartile, Scottish R&D investment would need to be 200% higher—an increase of £1.8 billion. The need to close that gap is critical. Although 2,790 businesses in Scotland invested in R&D in 2014—an increase of 23% since 2012—R&D remains heavily concentrated, with just 10 businesses accounting for 45% of the total investment in R&D in Scotland. Almost 70% of R&D investment is by non-Scottish-owned businesses.
Labour plans to support the growth of Scottish engineering and manufacturing in a number of ways. It would create a national investment bank that would see £20 billion of capital structured in Scotland for industrial strategy and investment. The SNP has recently announced the creation of a Scottish investment bank, but it will be capitalised to the tune of a mere £322 million. If the SNP is so inspired by our policies, it might as well do it properly and ensure that the Scottish investment bank is appropriately and properly scaled so that funding is made available in this vital area.
It is also Labour policy to set up a national transformation fund, which would see £40 billion of capital investment in Scotland, in areas such as infrastructure and house building, creating jobs and boosting the economy. In total, Labour policy in Scotland would see £70 billion of investment in industry in Scotland. That is the scale that is needed—it needs to be to the tune of billions of pounds of investment, not just millions of pounds.
The country stands on the cusp of a great disruptive opportunity with a new industrial revolution emerging. It is therefore imperative that the nation’s industrial base is encouraged to adopt the characteristics required to advance growth by being more innovative and international, while investing adequately in the most advanced plant and processes. These are not alien ideas; they are some of the very same ones that originally drove Scotland’s capacity to lead the world in industrial development through the 19th century.
We must seize the opportunity to issue a clarion call to reindustrialise Scotland. The country does have one distinct advantage over most others, in that it has done most of this already, albeit quite some time ago, although it may have failed to learn the most challenging lessons about its weaknesses as well as its many strengths. The trick now is to learn from both and do it all over again.