Innovate and let Scotland flourish

So far I’m not seeing much evidence of that. In particular, I’ve been really disappointed by the Scottish Government’s  apparent unwillingness to tackle head on what for me is the single most important economic issue Scotland faces which is our relatively  poor economic growth rate born of our low levels of innovation. The latter is the dynamo for most of the economic growth in rich countries like ours.

Nor is it only research and development (R&D) where do really badly; Scotland spends less on business R&D than  England, Wales or even Northern Ireland. By itself this is worrying but not disastrous, albeit politicians do seem to fixate on R&D as a proxy for wealth creation. But more important is ‘intangible’ innovation in areas such as skills development, good management, organisational processes and clever marketing. Overall, innovation contributed between 55% to 60% to UK productivity during the 1990s and 2000’s. As such it is the well-spring of wealth creation.

The fact is that unless we get much better at all forms of innovation then an independent Scotland will be in serious difficulty so for the life of me I can’t understand why there is so little public dialogue on the issue. Over a year ago I was told by a senior Scottish civil servant that ‘they’ (the Government?) had a good grasp of the innovation system.

I took the charitable view that by this he meant that they knew about the components of such a system which are easy to identify, but this is a long way from knowing how the parts interact to support the innovative process because if we did then why does the country languish in the third quartile of the OECD league table for innovative activity as a March 2011 Scottish Enterprise Board report so honestly reported?

Without a significant surge in innovative businesses (the SE report estimated we need an additional 5,000 to get into the first quartile) then our trend growth will continue to bump along on a low level trajectory. What is clear is that the policy interventions tried over many decades have failed to accelerate innovation.

In recent decades Scotland has imported innovation from overseas via foreign investment. This is a pretty common and a very effective approach as the Irish, Singaporeans and Chinese will attest. The downside is that it makes a country very dependent on decisions taken elsewhere and subject to the vagaries of shifting skill needs, corporation tax movements, competitor grant regimes and the competitiveness of domestic infrastructure.

Those readers old enough will remember  when Scotland had Europe’s largest semiconductor manufacturing industry and was the continent's biggest exporter of personal computers.

Foreign investment is an important part of a balanced economy and brings great benefits including significant productivity gain, access to new markets and advanced management techniques. But it should be second in importance to domestically created innovation. In any case however laudable Scotland efforts in attracting inward investment are - bringing in some 6,000 jobs last year- it is still significantly less than was achieved in the 1990s. Even then the surge we enjoyed  wasn’t sufficient to address Scotland’s comparatively poor performance in innovation.

Unless and until the innovation gap is addressed then Scotland will continue to be a laggard in the international growth stakes. But if the only difficulty was slippage in international league tables then I guess we could all live with that. However, it’s far more important than comparative slippage.

The problem goes to the heart of how Scotland pays for the goods and services we consume and the number of high value jobs we create post-independence. Successful innovation is what makes consumption and distribution possible. Without it then services will have to be cut and borrowing and taxes will have to rise. Welcome to Greece - a really low innovation economy.

In fairness, low levels  of innovation is not an easy matter for policy-makers to deal with. One can take the horse to water.... or in this case provide a series on incentives to innovate from R&D grants and tax credits through to skills support but if there is insufficient demand and the management foresight necessary to capitalise on these programmes then one can hardly lay the blame entirely  at the door of Government.

I have come to the view that this is a deep-seated cultural and historic phenomenon which is why supply-side offerings aren’t working and they are never going to. We need to break out of the downward spiral.

Of course, we have businesses of all sizes led by outstanding managers at all levels. The trouble is that there are too few of them, most are pretty big and sadly there are so few of them many of us name many of them without much effort. The real failure is in the SME (small and medium-sized enterprises) arena and here the  story is seriously depressing .

Across all industries Scotland’s small and medium sized enterprises are third from bottom in the UK’s 12 nations and regions when it comes to ‘accessing knowledge’ such as using employees with STEM skills (aka knowledge workers), using research networks and market research. To be fair we do much better in manufacturing but that’s a diminishing part of the economy). The same is true for SMEs commercialising innovation where we also come tenth out of 12 in the UK.

Scotland in common with most other countries confronting this problem applies variations on the same theme including focusing on fast growing sectors and businesses; providing grants including to R&D; building science and technology parks; providing skills support and pursuing inward investment.

It is incredible just how many low performing nations and regions pursue these policies to little effect. But it's entirely understandable because a really radical examination of the alternatives creates major political problems and the civil service deal in 'safety first' so they need to be led by radical and creative thinkers .

Over the years I have played more than my fair share of promoting such interventions, but in recent years I have become more and more sceptical of their value when it comes to their impact on long term business innovation driven growth. The evidence just doesn't support the view that they address the growth problem. In fact within the UK those parts of the country which have been the biggest recipients of these support frameworks have continued to bump along the bottom for decades.

The cure isn’t working and the disease of low growth caused by low innovation is as bad as ever and may worsen as a result of the ‘great recession’. I strongly believe that that London and the South East will power even further ahead in the years ahead as they suck in greater amounts of intellectual and investment capital. Smart people migrate to opportunity and who can blame them?

If the issue is, as I have come to believe, is at least as much about the  ‘culture’ and ‘attitude’ of all of us and not just our businesses of us then surely there is no better time to address this than in the debate about ‘independence’? The problem is that we seem to be held in a straightjacket of a policy consensus suffocating all of the parties which puts a low premium on challenging prevailing economic delivery models. In fact the only fault line in Scotland sometimes appears to be 'independence' and nothing else.Take away that and what's the difference between the parties. Is it any wonder we are low innovators?

We need to start considering very radical alternatives to policies which have done little to foster innovation and private sector driven growth and I don’t just mean about lower corporation tax but going beyond this to an avowedly low regulation, low tax economy ;a radical review of public service delivery –and this doesn’t have to be privatisation; attracting highly skilled immigrants; a complete review of our schools curriculum to make our children much more savvy about what is going on in technology  and the socio economic changes across the globe; using public procurement powers to foster innovation as well as save money; we also need to consider how to make available to entrepreneurs the the IP owned by but not exploited by universities.

Frankly, a list of options that doesn't cost us anything except challenging tradition and convention can be as long as creative people with an open mind want it to be. But unless we start changing the model the future is bleak with or without independence.

Dr Robert Crawford, CBE, is Director of Innovation, Investment and Growth at NESTA (National Endowment for Science, Technology and the Arts). He writes in a personal capacity.