Business

Graeme Roy: Productivity task is a long-term one

Hundreds of pages have been written over the years seeking to explain Scotland’s productivity performance. Almost as many pages have been written on new policy ideas designed to boost our productivity growth rate.

For many businesses, productivity remains an abstract term irrelevant to their day-to-day activities. But it does matter. For a country of Scotland’s size, with limited population growth or income “catch-up” available, productivity is key to growing the economy.

Scotland’s productivity is now broadly in line with the UK as whole. But that’s not much to write home about. Over the last decade, UK productivity growth has been amongst the weakest of any high-income economy.

A recent report by colleagues in the Adam Smith Business School at the University of Glasgow – Scotland’s Productivity Challenge – seeks to throw new light on the age-old productivity puzzle. Their report for the UK’s new Productivity Institute – a £30 million investment by government into understanding our productivity challenges – is well worth a read.

It talks of Scotland’s economy being a story of contradictions. We have an economy with world-leading companies in sectors from energy through to life sciences, financial services, and food and drink. But alongside that, we have a business base that is often less innovative and entrepreneurial than other parts of the UK. We have one of the most educated workforces in Europe. But skills shortages across key sectors and a higher percentage of adults without qualifications than the UK average.

Some will argue that seeking to boost productivity should no longer be a key priority. Instead, tackling inequalities and achieving net zero are more important. But this assumes that these objectives are inconsistent. A more prosperous economy, within the constraints of protecting our environment, can be a key driver of wellbeing. It is vital for generating the resources in the public and private sectors to support a better quality of life.

Innovation and research and development, and the adoption of new processes, will be crucial to the technological breakthroughs required to help us tackle climate change. We must remember too that productivity can improve not just because we are producing “more” but because we are producing “better quality”. Equally, it is not about working harder but working smarter. A country like Scotland should focus on quality and smart working – not volume.

So, what are insights from this new report?

One is that change isn’t easy and any claims of transforming Scotland or the UK’s productivity performance in the short term should be met with scepticism. Boosting productivity, just like initiatives such as levelling-up, are endeavours measured in decades not years.

On practical measures, one suggestion is that alongside seeking to support high-end firms operating at the sharp end of the productivity curve, we need to consider how to best support the productivity of our core business base. This is less about developing new technologies but being better able to adopt existing ones.

It also suggests focusing upon boosting core digital skills just as much as trying to grow the next generation of digital tech superstars. Crucially, this isn’t just about public money but collaboration across businesses themselves.

Supporting the growth of digital skills and adoption of technologies has long been a priority of successive governments in Westminster and Holyrood. The focus of the Productivity Institute in tracking “what works” and developing an evidence base on the benefits – and challenges – that firms face in the digital world should lead to better targeted policy and business support initiatives.

It might only be a small step, but if successful then it will offer one solution to the productivity puzzle that has dominated debate for so long.

Graeme Roy is professor of economics at the University of Glasgow’s Adam Smith Business School

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