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STUC Submission to the Scottish Government on its New Economic Strategy

October 2007

Executive Summary

Some 5 years after publication of A Smart, Successful Scotland and with a new Government in place, the STUC agrees that now is an appropriate time to revisit Scotland’s economic development strategy. The following submission highlights the following key points:

Increasing wealth should be a lever to create a better society for all Scotland’s citizens. The new strategy will only be successful if the majority of Scotland’s citizens believe they will benefit from its implementation.
The STUC is concerned that the new strategy could place undue significance on reducing both business taxation and regulation. We do not believe that an approach predicated on these twin pillars is desirable or sustainable.
The STUC believes the Government’s new economic strategy must be evidence based and not pander to ideologically driven myths about taxation, regulation and the size of the public sector.
Policy development based on partial accounts of other models is unhelpful – perhaps the only definitive lesson to be learned from practice elsewhere is that there is more than one route to economic success. The strategy should have Scotland’s long-term interests in mind and should aim to create a model fit for Scotland in 2007.
The impact of any forthcoming reductions in business taxation must be rigorously monitored and evaluated. It is incumbent on Ministers to revisit the strategy if investment does not improve as a result of business tax reductions.
The new strategy should not pander to the myth of a red-tape crisis. If Ministers do indeed seek to create a consensus for growth (and we agree that this is a very legitimate aim) then they must consider the impact of pursuing policies which could restrict employment, consumer and environmental protection.
The STUC doubts the efficacy of the Government’s growth target and cannot support the establishment of a competitiveness target.
It is essential that the new strategy addresses the quality of the Scottish workplace and whether or not it is fit to meet the challenges of the global economy
The strategy must focus on encouraging higher levels of investment and the promotion of high performance workplaces able to make the most efficient return on capital and skills investment.
The STUC believes that the Scottish Executive should establish a Scottish Investment Bank (SIB) to overcome market failure and stimulate new investment from existing financial institutions.
The STUC wishes to see an increasing profile for science, an improvement in the co-ordination of policies across Government departments, and appointment of a science ‘champion’ to take these issues forward strategically.

1 Introduction

The STUC believes that Scotland is well placed to meet the challenges of globalisation. In many ways, Scotland has coped remarkably well with the massive industrial restructuring over the past three decades. However, current evidence is that we are making insufficient progress towards the creation of an economic and social framework that is wholly fit for purpose. If Scotland’s success in the global economy is to be assured, it is vital that substantial progress is made in achieving the twin aims of raising productivity and reducing inequality.

Therefore, in seeking to develop a better society, it is important that the Scottish Government gives equal weight to all five of its Strategic Objectives:

Wealthier and Fairer;
Healthier;
Safer and Stronger;
Smarter; and,
Greener.

Scotland’s trade unions challenge those who claim that Scotland requires major economic ‘reform’ in order to catch up with growth rates in competitor nations. Proponents of this view, who increasingly dominate the public debate, apparently believe that the route to economic success is down the low road of lower business taxation, deregulation and a smaller public sector.

The argument that such reform will necessarily increase growth is weak. Weaker still is the claim that it can do so whilst improving cohesion, tackling inequality and safeguarding the environment.

It is also important that the new strategy should recognise, and then build on, good practice already underway at national, regional and local levels. In developing and implementing the new strategy, the Scottish Government must be careful not to throw the baby out with the bathwater.

The STUC eschews short-term economic fixes. The conditions required for enduring economic success, the fruits of which are widely shared amongst all citizens, are different from those that facilitate short-term business profitability. The two goals, although not necessarily incompatible, are nevertheless different and should not be confused and conflated.

2 Scotland in 2007

The arc of prosperity

Scottish Government Ministers have highlighted the ‘arc of prosperity’ surrounding Scotland. This is supplemented by a willingness to discuss the natural economic advantages supposedly accruing to small independent European countries.

The STUC does not find this approach illuminating. Assessed on the basis of GDP growth only, it is not incorrect to state that Scotland has under-performed in relation to some of these nations. However, great care must be taken in drawing lessons from this limited comparison. Ireland has pursued a different path from the Nordic nations and its recent impressive performance in GDP growth started from an economic and social base bearing little relation to Scotland in 2007.

Scotland is still coping with the effects of massive industrial change and decades of under-investment. Government at all levels is still burdened by the consequences of the disastrous labour market policies of the 1980s and 1990s in the shape of persistently high levels of economic inactivity, particularly in West Central Scotland. The economic and social costs are massive and enduring.

In contrast, the Nordic nations have benefited from decades of social democratic consensus allowing high levels of investment in people, communities, infrastructure and business to be maintained. High productivity economies such as these also realise the social and economic benefits that can accrue from relatively high rates of taxation and policies aimed at restricting inequality.

The STUC is concerned that the new strategy could place undue significance on reducing both business taxation and regulation. We do not believe that an approach predicated on these twin pillars is desirable or sustainable.

Calls to set Scotland’s economic development strategy within this context are often based on a mistaken assessment of both the roots of Ireland’s ‘Celtic Tiger’ model and the extent of its success. Key factors (social partnership, language, demographics, the efficient use of high levels of EU funding, membership of the Eurozone, timing of the European single market etc) explaining the success of the Celtic Tiger are almost completely overlooked. The sustainability of the model is never questioned.

The debate over the factors underpinning Irish economic success will continue but there is one key fact on which all the actors in the Irish economy are agreed: their model is not exportable. Scotland cannot replicate Ireland’s first mover advantage on business taxation and shouldn’t try.

Scotland – a bad place to do business?

Current orthodoxy has it that the UK is a bad place to do business and that Scotland is somehow worse. Orthodoxies, rooted in the highly selective analysis promoted by employer organisations, some politicians and elements of the media are becoming increasingly ingrained: the public sector is ‘crowding out’ the private sector, businesses are hamstrung by huge levels of new regulation and business taxation is too high.

Is Scotland a difficult place to do business? The evidence suggests that it is not.

The UK is ranked 6th out of 175 countries in the World Bank’s Ease of Doing Business rankings 1;
The OECD recently constructed a composite policy indicator of flexibility which ranked the UK the highest among all OECD economies 2;
A recent PricewaterhouseCoopers survey demonstrated that the UK has the 4th lowest ‘total tax burden’ out of 22 OECD countries surveyed and is 5th in terms of the time required to comply with the tax burden 3. These are authoritative reports from credible sources. (Of course, it is helpful to bear in mind that scoring high on ‘ease of doing business’ is not necessarily consonant with high investment, high productivity, economic success or a better society).

Conveniently forgetting that the vast bulk of regulation affecting business emanates from Westminster and Brussels, some will claim that these surveys refer to the UK as a whole and that the business environment in Scotland is much less conducive to growth. Proponents of this view argue that the Scottish Parliament is placing additional ‘burdens’ on the business community and/or that the higher public sector to GDP ratio is ‘crowding out’ private sector growth. 4 Evidence to support either proposition is, to say the least, hard to find 5.

The STUC believes the Government’s new economic strategy must be evidence based and not pander to ideologically driven myths about taxation, regulation and the size of the public sector.

Policy development based on partial accounts of other models is unhelpful – perhaps the only definitive lesson to be learned from practice elsewhere is that there is more than one route to economic success. The strategy should have Scotland’s long-term interests in mind and should aim to create a model fit for Scotland in 2007.

The impact of any forthcoming reductions in business taxation must be rigorously monitored and evaluated. It is incumbent on Ministers to revisit the strategy if investment does not improve as a result of business tax reductions.

The new strategy should not pander to the myth of a red-tape crisis. If Ministers do indeed seek to create a consensus for growth (and we agree that this is a very legitimate aim) then they must consider the impact of pursuing policies which could restrict employment, consumer and environmental protection.

3 A New Economic Approach for Scotland

What is the point of economic growth?

Increasing wealth should be a lever to create a better society for all Scotland’s citizens. The new strategy will only be successful if the majority of Scotland’s citizens believe they will benefit from its implementation.

Unfortunately, the debate about growth tends to focus on what is good for business. Government must strive to set the growth agenda firmly within a framework aimed at creating a better society. One that provides all Scotland’s citizens with the means and opportunity to live full and rewarding lives and share in the wealth that we as a country create.

The strategy should reflect the fact that modern economies require a highly complex collective effort to function effectively.

“To achieve important economic and social objectives under these conditions requires solidarity, widespread commitment to the same goals and an equally widespread commitment on how to realize them. None of this is possible without a collective ‘harmony of interests’ – achieved by a high degree of social inclusion and a distribution of the benefits from economic progress which is generally regarded as fair. People will give full support to economic change when they have a stake in it. An economic system designed specifically for the benefit of a privileged minority is bound to be sub-optimal and ultimately fail” 6.

The STUC looks forward to participating in the Government’s National Economic Forum, which, if handled correctly, can be a vehicle for creating and sustaining this ‘harmony of interests’.

Therefore, the STUC believes that the new strategy should:

Support as far as possible all five of the Scottish Executive’s Strategic Objectives which, in any case, should be mutually reinforcing;
Aim at all times to maximise quality job opportunities for all Scotland’s citizens; and,
Be based on an accurate and mature assessment of the Scottish economy in 2007.

What priorities should the new strategy address?

We have already noted that the three economic ‘problems’ dominating public debate are taxation, regulation and the size of the public sector are a distraction from the key issues facing the Scottish economy. To these can be added another tier of issues on which the STUC can agree action is required: low investment in R&D, low rates of innovation and low rates of entrepreneurialism.

However, another tier of long-standing structural problems are often overlooked altogether in the policy debate:

Workplaces dominated by outdated command and control management that are wholly unfit for purpose – particularly in effectively utilizing public investment in skills;
Low capital stock;
A lack of ‘dedicated and patient capital which has often been traced to the short-termism of the UK’s financial institutions’; and,
the UK’s deregulated labour market which provides opportunities to Scottish firms to pursue low road strategies based on cost-cutting and work intensification.

The STUC’s view is clear – the new strategy should focus on improving the productivity of the Scottish workplace. Priorities for action include:

Increasing investment in skills;
Action on skills utilisation;
Improving the quality of the Scottish workplace;
Increasing innovation – including innovation within the workplace;
Increasing business investment; and,
Addressing the long-standing structural problem of the lack of patient capital for growing businesses.

This submission will not cover skills in depth given our ongoing dialogue with the Scottish Government on its new skills strategy. However two points must be stressed:

Given that over 70% of the workforce of 2020 are already in work, a focus on upskilling the existing workforce is required. For too long the focus has been on transition from school, unemployment or inactivity to work;
Urgent action is required to improve skills utilisation – we will return to this point later in the submission.

Targets

The STUC is concerned about the possibility of the new strategy setting targets on growth and competitiveness:

Growth: it appears the Scottish Government is committed to establishing a target for growth. Given that Scotland is a small, open economy this could turn out to be the political hostage to fortune to end all others. However, this is quite properly a decision for the Government to make.

The STUC’s concern is that by adopting such a target, an incentive is created to ignore or overlook the employment, social and environmental impacts of policies aimed at boosting growth. We do not believe that the workers we represent or the Scottish people in general, will accept an approach to economic development that prioritises growth over well-being. The target could also serve to further embed the culture of short-termism that has so damaged the Scottish and UK economies.

Competitiveness: more of a concern is the possibility of a competitiveness target being set. Competitiveness is a controversial subject within economics but we tend to agree with Paul Krugman that ‘it is sensible to talk about the competitiveness of the Scottish economy’ 7 whereas the concept makes little sense when applied to larger economies less exposed to global trade. However, the STUC is less reassured by international surveys of competitiveness which tend to assess policy rather than outcomes.

If the Government is to set a target for competitiveness then it must be clear about the methodology. There are two main international surveys of ‘competitiveness’: the World Economic Forum and the IMD surveys. Both institutions support a very particular view of development and the surveys are designed to promote such an approach. John Kay of the First Minister’s Council of Economic Advisers has described the problem with these surveys:

“…These rankings receive extensive media attention and are representative of the opinions of business people and sympathetic economists, on which they are based. IMD’s ‘principles of international competitiveness’ are a mixture of facts – ‘prosperity of a country reflects past economic performance’ – and opinions about policy – ‘state intervention in business activities should be minimised’. The major European economies all have scores which lag behind their actual economic performance. When France, Italy and Japan rank behind Estonia in competitiveness, what does competitiveness mean? What it means is the international agencies have more influence over the policies of Estonia than in France, Italy or Japan. Competitiveness is consonance with the policies of the American Business Model, and the United States regularly tops the rankings” 8.

The STUC cannot support the adoption of a target based on either survey. If the Government is insistent that a competitiveness target must be adopted we would encourage the use of a new composite indicator which adequately embraces the principles of sustainability and is designed to promote a high productivity approach to development – the Work Foundation’s recent survey of the competitiveness of UK regions and nations provides a helpful template for application to the international sphere. Annex 1 provides further detail on the measures which could be used to build a new indicator which has credibility with the broad range of stakeholders.

Institutional restructuring

The Cabinet Secretary for Finance and Sustainable Growth only announced his plans for reform of the enterprise networks on 26 September 2007 and therefore, for the purposes of this submission, the STUC has had little time to absorb the full implications of his statement. However we would make the following key comments:

the creation of an additional interface through separation of responsibility for skills and business support is potentially a barrier to creating the high performance workplaces Scotland needs to compete in the global economy;
the proposal appears to do little to tackle the democratic deficit in economic development structures; and,
the alignment of business and innovation grant functions with broader business support is to be welcomed if the intention is to use these functions strategically to enhance the priority industry strategy.

Governance

Economic development should benefit all Scotland’s citizens. The economy is more than just enterprise. Therefore, it is appropriate that any new governance structures established under the new approach include a range of non-employer interests including trade unions.

The role of trade unions

The STUC supports the Scottish Executive’s primary objective of sustainable economic growth and recognises that growing the number and size of Scotland’s businesses is necessary to meet this objective. Trade unions have a central role to play in developing and implementing an effective growth strategy that also meets the needs and aspirations of Scotland’s workforce:

Trade unions share an interest in the success of individual firms and the economy more generally;
Our representatives bring to the table expertise and knowledge of the labour market as well as company and sectoral intelligence that adds value to the strategic discussion;
Trade unions are engaged in a range of initiatives to promote job security, productivity and competitiveness; and,
Perhaps most importantly, in this age of short-termism and shareholder value, trade unions advocate a long-term approach to business growth; one that seeks to build businesses with a sustainable future through investment in people, plant and research.

In England, there is a reserved trade union seat on each RDA board. RDAs therefore benefit from particular expertise which is currently largely absent from Scotland’s enterprise networks.

An example: In June 2007, the RDA Yorkshire Forward launched a Carbon Capture and Storage Partnership for Yorkshire and Humber, an initiative that, if successful, could bring huge industrial development and climate change benefits to the region. Engineering consultants AMEC have embarked on a 4 month study to examine the most economic approach to this challenge, preparatory to bid for Government funds. At the request of the RDA, the regional TUC is now leading on the employment, skills and training aspects of the study.

The Government should resist the temptation to allow employers to lead on all initiatives. ‘Employer-led’ has been the mantra for over two decades and the results, particularly in skills development, have not been impressive.

Evidence and Scottish Economic Statistics

This submission, by occasionally using UK statistics as a proxy for Scottish statistics, highlights the need to radically improve the quality and range of statistics on the Scottish economy. This will enhance the ability of all to assess performance and target interventions appropriately.

It is also vital that policy initiatives are robustly assessed for their contribution to performance. This is especially true of proposed cuts in business taxation. The potential impact of business rate cuts often appears to be an article of faith rather than a policy rooted in empirical evidence.

The Government may wish to note the strategic role played by Ireland’s National Economic and Social Council. The main task of the Council is to analyse and report on strategic issues relating to the efficient development of the economy and the achievement of social justice. Its board comprises equal representation from trade unions, employers, agricultural and community interests. It is pivotal in creating the consensus that has driven Irish growth over the past two decades. The STUC would support moves to develop a comparable institution in Scotland.

Industrial Strategy

In a modern European economy, it is necessary for government to use all the available levers to support their key industrial sectors – this is not asking for a return to industrial strategies of old whereby vast amounts of money were poured into industries that were not, and could never become, internationally competitive.

Instead, it is appropriate that Scotland continues to make the most of its comparative advantages in the national and regional priority industries. The broad sectoral support currently being provided by Scottish Enterprise should be augmented by the strategic alignment of all interventions and support mechanisms.

For example, procurement policy should, as far as possible under EU law, seek to support Scotland’s priority industries. Building on the example of the Defence Industrial Strategy, other sectoral procurement initiatives could be explored.

The Scottish Workplace and the Productivity Challenge

The policy framework for economic development in Scotland (FEDS and SSS) under the previous administration correctly identified improving the rate of productivity in the public and private sectors as the key economic challenge. However, it is doubtful that the policy prescriptions contained in these documents would ever have proved sufficient to improve productivity to the levels of our main competitors. Neither document addressed the issue of the Scottish workplace and whether or not it is fit to meet the challenges of the global economy: making the most of investment in skills, the organisation of work and the treatment of staff were all completely absent from the old policy framework. It is essential that the new strategy remedies this anomaly.

The measuring Progress towards a Smart, Successful Scotland: 2006 report confirms the lack of progress achieved to date:

In 2004, Scotland was ranked in the second quartile of OECD nations;
GDP per hour worked in Scotland has showed little change relative to the UK or the United States between 1999 and 2004 (note: it is interesting that the report chooses to specifically highlight Scotland’s performance against the United States. Data included elsewhere in the report shows that GDP per hour worked is actually higher in Norway, Belgium and France); and
To reach the top quartile, GDP per hour worked would have to increase by 7 percentage points.

The long-held trade union view is that there is huge scope for improvement in the UK skills base and the range of activity trade unions are currently involved in to promote learning and skills is testament to our commitment to address this enduring structural problem.

However, it is also crucially important to emphasise that although investing in skills is a necessary condition for higher productivity, it is by no means sufficient.

In the past, the UK’s productivity gap with competitors was blamed on poor industrial relations but, whilst this was never a compelling analysis, it no longer has a shred of credibility. Instead, employers and media commentators look to blame poorly skilled workers, a declining work ethic, over regulation and deficiencies in the school education system for the failure to improve productivity.

Of course, these explanations conveniently omit any reference to the effectiveness of employers in deploying their resources productively. Policy interventions continue to focus on increasing the stock of skills whilst ignoring the ability of employers to utilise new or higher skills effectively.

Unfortunately, all too often the pressure on companies to deliver short-term efficiencies prevents the adoption of the kind of practices required to become more productive in the longer-term. For instance, under-staffing and work-intensification, often the result of the need to boost short-term gains, limit the opportunities for effective staff training.

The results are as inevitable as they are disappointing. As Mayhew and Keep (2006) 9 point out: “If organisations, sectors, or indeed, an entire economy reduce their systemic capacity to replicate the skills they need to sustain and improve production of goods and services, the cumulative long-term consequences are liable to be serious. The most likely outcome is a transfer of responsibility and hence of cost, from the employer to the public purse”.

The authors continue:

“While it may seem a statement of the blindingly obvious that having upskilled the workforce it will be essential to ensure that their jobs are redesigned in order to allow their new-found skills to be deployed to maximum productive effect, the fact is that while there are numerous expensive public programmes aimed at enhancing the skills of the future and existing workforce, there is no parallel effort aimed at bringing about work organisation and job redesign. Despite much talk about the need to ‘work smarter’ a realisation of what this might mean, and what might be needed to help make it a reality seems absent”.

The authors go on to note that the UK is unusual in taking such an approach. How work is organised is widely recognised as an important issue in a number of other European countries, where state-sponsored workplace development programmes have emerged in the pursuit of enhanced productivity and improvements in the quality of working life. Countries that have adopted such an approach include Norway, Sweden, Germany, Finland and Ireland. The introduction of the Manufacturing Advisory Service in Scotland was a step in the right direction but the approach requires to be broadened and profile and resources increased.

Investment

Academic studies identify skills deficiencies as accounting for only between a fifth and an eighth of the UK’s relative productivity gap with France and Germany 10. Skills do not appear to account for the skills gap with the USA at all.

The main explanation for the gap with Germany, France and the USA remains the UK’s persistently poor record on investing in physical capital, R&D and infrastructure. Despite over a decade of macroeconomic stability, the Government’s own evidence suggests that UK companies fail to invest to the levels of our competitors.

The UK Government and Scottish Governments have identified five ‘drivers’ of productivity through which improvement occurs. The STUC believes these drivers have been arbitrarily chosen and represent only a partial account of the influences on productivity performance. However, it is instructive to assess performance against these drivers to date as reported in the DTI’s Productivity and Competitiveness Indicators 2006 11:

Business Investment: it is reasonable to assume that the macroeconomic stability maintained by the Government through the last decade would have provided firms with an ideal platform on which to invest. However, performance is disappointing:

“The indicators show that the UK has experienced a period of relative macroeconomic stability, compared to its competitors, as measured by the volatility of GDP growth and short-term interest rates, since 1998. However, this has not yet translated into a superior investment performance, as assessed by other investment indicators. UK business investment has averaged a lower proportion of GDP than France, Germany and the USA since 2000. …the UK’s relatively low investment over the last few decades means that the capital stock has a long way to go to catch up with the US, France and Germany”.

Innovation: the report extols the virtues of the UK’s science base but notes the lack of success at exploiting the benefits it provides:

“The ratio of both total and business R&D expenditure to GDP has been consistently lower than in the US, France and Germany over the last decade. This gap may be partly explained by the UK’s sector mix, with the UK having more sectors with low intensity of R&D use. While R&D expenditure is an imperfect measure of innovation, it does provide a measure of the resources in the economy that are devoted to the generation of new knowledge”.

Scotland continues to lag behind in terms of R&D investment. The Scottish Executive’s January 2007 report on business research and development in Scotland reveals spending in 2005 was £584m, 0.59 per cent of GDP compared with 1.08 per cent for the UK. The Scottish Executive report notes that ‘the leading countries in terms of business R&D [in the EU] have expenditure levels more than four times higher than Scotland’ 12.

Recent analysis 13 suggests that the lack of R&D investment is attributable to the lower levels of retained profits in UK based firms. The main reason for this is the higher dividend payments in the UK. The pressure for UK firms to deliver high returns is undermining prospects for long-term growth. Growth cannot be sustained indefinitely with low levels of investment.

The response therefore, surely must be to encourage higher levels of investment and the promotion of high performance workplaces able to make the most efficient return on capital and skills investment.

Many innovative Scottish owned and/or based companies also continue to struggle to find the investment needed to grow. In his keynote speech to the third annual Business in the Parliament Conference on 3 November 2006, Nicol Stephen MSP, Deputy First Minister and Enterprise Minister discussed Scotland’s long-standing deficit on R&D spending before mentioning three examples of Scottish companies having to find investment elsewhere despite Scotland’s highly developed financial sector:

“The first is Pelamis – Ocean Power Delivery, our wave-power generating company and the first in the world at a commercial level. Its latest funding round, announced in the middle of the year, was £13m of new investment. How much of that came from the Scottish financial community? Out of £13m of new investment, £0.5m came from Scotland, and half of that was from the Scottish public sector. The second is Cyclacel in Dundee – a fantastic company with huge potential for the future. Its latest fundraising was through a flotation in the United States, achieved through a merger with a NASDAQ listed company. The third is Wavegen in Inverness, one of the great companies that has huge potential for the future. It is now owned by Voit Siemens” 14.

The previous administration undoubtedly recognised these problems and sought to act by introducing an array of R&D and co-investment support mechanisms. The question is whether the support currently available is sufficient in aggregate and targeted appropriately.

The STUC believes that the Scottish Executive should establish a Scottish Investment Bank (SIB) to overcome market failure and stimulate new investment from existing financial institutions. As a first step, this could bring existing support under a unified structure. A bigger impact could be made if a fully fledged industrial development and reconstruction bank were to be launched. A Scottish Investment Bank should:

Provide grants, loans and equity to fill funding gaps;
Assist in unlocking funds from private providers of capital; and,
Tailor UK and European programmes to fit the Scottish needs and economic conditions.

The STUC proposes that the SIB’s services could be marketed and operated through the enterprise networks. Policy guidelines for the Bank should be set by a management board that reflects the diversity of the Scottish economy and recognises that sustainable economic development should aim to make Scotland a better place in which to live and work as well as a better place in which to do business. The board should therefore comprise the Scottish Government, the enterprise networks, local authorities, trade unions and employers from both the financial community and manufacturing industry.

Science

The STUC welcomed the previous administration’s consultation document ‘Science and Innovation Strategy for Scotland’, and continues to support the objectives of developing a medium to long-term approach to take Scotland forward as a ‘science and innovation’ nation. The STUC also believes that undue focus should not be placed on either innovation or commercialisation of science at the expense of ensuring adequate resources in terms of both funding and skills for public interest science.

Good science does not always have commercial applications and science in the public interest is now under threat. Three research establishments in Scotland have closed within the past 18 months, leading to the termination of research programmes into breast cancer, chemicals in food and animal diseases; further cuts already announced will impact adversely on impacts of climate change, pollution and biodiversity. A significant loss of expertise has also resulted as a result of job losses.

Because Research Institutes face a lack of certainty over their future funding, many remaining scientists face uncertain futures, continual organisational reviews and poor career prospects. Whilst the Scottish Executive recognised in its consultation document that it should seek to attract top international researchers, it should also pay attention to developing and retaining world-class Scottish researchers. To achieve this, and to ensure that the skills base is developed more broadly, improvements are needed in science pay and careers. Action to promote science education is equally a priority, but, unless joined- up thinking prevails, then the outcome will be a continuing decline in Scotland’s reputation as a nation of scientists.

The STUC wishes to see an increasing profile for science, an improvement in the co-ordination of policies across Government departments, and appointment of a science ‘champion’ to take these issues forward strategically.

Ownership

On the back of Scottish Power’s sale to Spanish firm Iberdrola and the near sale of Weir Pumps to Swiss firm Sulzar, the ownership of Scottish industry is a topical but fraught issue. Many commentators express concern when foreign companies buy out UK or Scottish businesses but any action that could possibly curtail this increasingly common process is casually dismissed as protectionism.

Few dispute that indigenous ownership provides benefits in terms of control and high quality HQ and research jobs. Scotland needs a mature debate about ownership of industry. The debate has to be informed not just by a full and proper understanding of the constraints on Government’s ability to act but also of the un-level playing field that exists whereby tax breaks are often available to foreign-based companies purchasing UK concerns.

Politically and psychologically, it is easier for foreign owners to cut jobs here than for British-based firms: if the HQ is elsewhere, jobs here are seen as peripheral. It is also practically easier to shed workers in the UK than in, say, France or Germany, where employment protection is much stronger. There are benefits in Scotland being a very open economy. But as long as the playing field remains uneven, we are likely to suffer from the loss of ownership. Other nations, including India, persist in erecting barriers to overseas investors. It would be helpful to know whether the UK and Scottish administrations believe any industries remain that would be considered too strategically important to pass out of domestic control? The ‘Wimbledon’ theory of ownership states that the takeover of UK firms by foreign owners shouldn’t concern us as long as the business takes place in the UK. Wimbledon after all, is a successful British institution even although our players don’t win.

It can be argued that the theory holds true for the City. The fact that US and European banks have colonised the City with no discernible adverse impact is explicable by the special factors at play: the English language, a convenient time zone and a favourable tax regime. These do not apply to manufacturing industry.

Positive action can also be undertaken to promote business models that have a higher chance of sustaining indigenous ownership. This is one of the main reasons the STUC supported the establishment of Co-operative Development Scotland (CDS). However, we are less than assured that the organisation is receiving sufficient support or resources as part of the enterprise networks.

Ministers should promote the positive benefits of Scottish ownership of industry;
Ministers must address the lack of a level playing field at EU and WTO level; and,
CDS should receive more support and resources.

Annex 1

The STUC’s initial thoughts on measures relevant to a new competitiveness survey:

Creativity

R&D Employment in the Business Sector per 1,000 inhabitants
R&D Employment in the Government Sector per 1,000 inhabitants
R&D Employment in the Higher Education Sector per 1,000 inhabitants
R&D Expenditure in the Business Sector per capita
R&D Expenditure in the Government Sector per capita
R&D Expenditure in the Higher Education Sector per capita
Number of Patent Applications per 1 million inhabitants
Employment in ICT Services per 1,000 inhabitants

Economic Performance

GDP per Capita
Labour Productivity
Unemployment Rate
Long-Term Unemployment Rate
Mean Gross Monthly Earnings
Activity Rate (inc. regional data)
£ of Imports per Head of Population
£ of Exports per Head of Population
Proportion of Exporting Companies
Weekly FT and PT pay inc. gender analysis

Infrastructure and Accessibility

Motorway Length per km 2
Motorway Length per vehicle
Length of Railway per km 2
Air Freight Disembarked per 1,000 inhabitants
Air Passengers Disembarked per 1,000 inhabitants
Number of Vehicles per 1,000 inhabitants
Broadband Access Lines per 1,000 inhabitants (national data only)
Secure Servers per 100,000 inhabitants (national data only)

Knowledge Employment

Employment in Biotechnology and Chemicals per 1,000 inhabitants
Employment in IT and Computer Manufacturing per 1,000 inhabitants
Employment in ICT Services per 1,000 inhabitants
Employment in Research and Development per 1,000 inhabitants
Employment in Telecommunications per 1,000 inhabitants
Employment in Machinery and Equipment Manufacturing per 1,000 inhabitants
Employment in Instrumentation and Machinery per 1,000 inhabitants
Employment in Automotive and Mechanical Engineering per 1,000 inhabitants

Education

Number of Students in General and Pre-vocational Upper Secondary Education per employed person
Number of Students in Vocational Upper Secondary Education per employed person
Number of Students in Academic Tertiary Education per employed person
Number of Students in Vocational Tertiary Education per employed person
Tertiary Education Expenditure per Capita (national data only)
Secondary Education Expenditure per Capita (national data only)

Further work is required to develop the SSS measures of in-work training as well as sustainability and quality of life indicators.

Footnotes

1 http://www.doingbusiness.org/EconomyRankings/

2 Product Market Regulation in OECD Countries, OECD Working Paper no 419, April 2005.

3 The Economist, 18-24 November 2006

4 See ‘Challenging the Red Tape Myths’, STUC 2006

5 See for instance Cumbers and Birch, ‘Public Sector Spending and Regional Economic Development: Crowding Out or Adding value’, CPPR 2006

6 Pg 151, Does Europe need neoliberal reforms? Mica Panic, Cambridge Journal of Economics 2007, 31

7 Pg 37, New Wealth for Old Nations, Princeton University Press 2005

8 Pg 311, The Truth about Markets, John Kay, Penguin 2004

9 Keep, E, Mayhew, K and Payne, J (2006) “From Skills Revolution to Productivity Miracle: not as easy as it sounds?”, Oxford Review of Economic Policy, Vol. 22, No.4

10 Ibid

11 DTI Economics paper no.17, UK Productivity and Competitiveness Indicators 2006

12 Business Enterprise Research and Development Scotland 2005, Scottish Executive, January 30 2007

13 See Guardian articles

14 Report of Business in the Parliament Conference 2007, Transcript of Chamber discussions http://www.scotland.gov.uk/Topics/Business-Industry/Enterprise/18977/Conference2006/transcript2006

Copyright

STUC October 2007