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Scotland Inc – Delivering A Scottish Industrial Strategy

Picture of Eddie Barnes

Eddie Barnes

Eddie Barnes is the Director of Our Scottish Future

Most of the publicity around Humza Yousaf’s new year speech at Glasgow University on Monday focussed on his claim that independence could deliver a £10,000 windfall to households in Scotland.

The First Minister’s Panglossian assumptions around that have been well covered elsewhere. For the purposes of this blog, we will focus on the central argument in the First Minister’s speech: the case for an industrial strategy for Scotland.

We disagree at Our Scottish Future with Mr Yousaf’s belief that independence is needed to deliver this (as, one suspects, do the ghosts of former Scottish Secretaries such as Willie Ross and Tom Johnson who pursued industrial strategies without even the need for devolution, never mind independence). 

But we can agree with Mr Yousaf that an economic plan for Scotland is required if the holy grail of above-inflation growth in Scotland is to be realised. We also agree that, whatever Scotland’s constitutional status, it will require those levels of above-inflation growth to pay for the wraparound public services, the generous benefits, and above-inflation pay rises that the Scottish Government has committed itself to. It’s an important subject and it requires serious attention.

The case for an industrial strategy

By industrial policy, Mr Yousaf told his audience in Glasgow that he meant “the idea of direct government intervention to boost specific sectors”. It’s an approach that has been derided by free-market opponents as “picking winners”. At its worst, it’s seen government throw money away at short-term flops. But, said Mr Yousaf, in the modern world, it’s time has come again.

“…Significant successes were too often overlooked. These include the pivotal role of state industrial policy in the rapid development of Japan, Korea and Taiwan as well as the ‘de-facto industrial policies’ pursued in the US through the Pentagon and NASA which contributed so substantially to general technological progress. Today, across the globe, explicit industrial policy is back.”

He’s right about that. Indeed, it was only last month – at our conference on the Scottish economy in Edinburgh – that former Science Minister Lord Sainsbury set it out. Between 1997 and 2007, Sainsbury oversaw the biggest growth in public investment in science and R+D ever seen in the UK. You can watch his speech here. He also published a new pamphlet setting out why we need a new industrial strategy now.

In it, Lord Sainsbury sets out four ways in which a modern Industrial Strategy differs from the old “picking winners” approach.

·       It’s not about “bailing out individual loss-making companies”

·       Strategies should be led, initially, by growth sectors themselves, not government.

·       Those sectors must be those which can show competitive international advantage, not in industries in decline

·       This isn’t about a “planned economy” approach: it’s about deploying targeted public investment in a way that unlocks “the power and ingenuity of private markets, innovative firms and competition to lay a foundation for long-term growth”.

Lord Sainsbury speaking at our conference last month on his plan for a new British industrial strategy. “This is not the old kind of industrial strategy where government said to industry – you’re one of the advanced industries, and we’ll support you; this is a case of government saying to industry, come up with a plan.”

It’s by following these rules that industrial strategies in places such as the USA, Canada and Singapore have found success in recent years. A future Labour UK government should, Lord Sainsbury concluded, follow suit.

“The Labour Party should now adopt a policy of supporting Industry Sector Strategies in addition to policies on macroeconomic stability; horizontal policies to help all industry in areas such as skills, R&D and investment; and regional policy. If the UK is to prosper in today’s highly competitive global economy British companies have to become more competitive, and Industry Sector Strategies are one of the key ways that the government can help them be successful.”

Getting on with it

So far so consensual: this is precisely what Mr Yousaf was talking about on Monday. But here’s where the agreement ends.

Mr Yousaf’s argued on Monday that this kind of Scottish industrial strategy was only possible via independence. The three foundations for a successful strategy were, he declared:

·       Joining the EU.

·       A “dynamic government ministry to drive industrial policy”

·       A special fund which, he said, “we would use to undertake capital spending of up to £20bn over the first decade of independence…financed through oil revenues and if needed borrowing”.

By contrast, OSF’s view is that an industrial strategy can be put in place right now within the UK. There is already vast amount of money swilling around the Scottish and UK Government in a plethora of investment vehicles: more than would be available in the years after independence. With the UK heading back into EU programmes like Horizon we can now work with EU allies on joint R+D programmes. As for a “dynamic government ministry” delivering economic growth we’d hope that this is something Mr Yousaf might be keen on having right now.

As we proposed in our paper “From Growth to Good” in December that we believe what we’re lacking is more collaborative, simplified, and focused joint plan from our two UK and Scottish Governments.

Or as Gordon Brown puts it in Lord Sainsbury’s paper:

“What is needed…is consistent support from government backing those who are the innovators in key industrial sectors. In Scotland’s case that means we need to build on our universities’ research strengths, expanding the available research support that can help Britain’s regions and nations become centres of new economic dynamism. It means we need our two governments working together in cooperation by forming a new unified Scottish Development Fund capable of incentivising key areas of exporting strength.”

You can read more about the ideas in “From Growth to Good” here.

Take your pick

Independence supporters will doubtless argue that this joint approach won’t happen and that Westminster has proven itself an unwilling partner, so what’s the point in trying.

We’d argue, firstly, that the strategy outlined by Mr Yousaf is both unrealistic and currently unavailable; and, secondly, that just because the kind of collaborative Joint Venture approach by the UK and Scottish Governments hasn’t been tried over the first 25 years of devolution doesn’t mean it can’t happen in the next quarter of a century.

There’s growing agreement on the need for an industrial strategy in Scotland. The immediate question for the SNP government in Scotland and the next government in London is whether they are prepared to expend the time and energy to deliver one, now.

Mr Yousaf has started an important debate: we hope to see positive and practical action over the coming months to turn a debating point into reality.

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