A Framework for Economic Development in Scotland
The Royal Society of Edinburgh welcomes the opportunity to comment on the development of a framework for economic development in Scotland. The Society has been actively engaged in the national Technology Ventures initiative to promote the commercialisation of the Scottish science base, and the promotion of a better understanding of the issues involved in innovation and commercialisation. This response has been compiled with the assistance of a number of Fellows from a range of backgrounds including universities, small and medium sized enterprises and multi-national companies.
The RSE strongly supports the vision of Scotland as a small country but with a global position as a key player in the increasingly knowledge-based world economy. Achieving this, however, will require a strong innovative business culture, with effective cross-fertilisation of ideas and people between industry and academia. Scotland’s role will be determined by how it progresses its affairs nationally and internationally in the harsh global world of the 21st Century. The RSE is seeking to contribute positively in helping to progress a national culture which encompasses a knowledge-based economy whilst retaining what is best in our national heritage. Success will depend on supporting the very best people and particularly the younger and more innovative researchers who can pursue research, well-supported and untrammelled by bureaucracy and administration. As Michael Porter concluded in his seminal work "The Competitive Advantage of Nations":
"skilled human resources and knowledge resources, perhaps the two most important categories of factors for upgrading competitive advantage, are particularlydepreciating assets, though infrastructure is not far behind"
The Society is firmly of the opinion that continuing investment in upgrading people's skills and the country’s knowledge resources must lie at the heart of any economic development strategy for Scotland.
Among the most important debates in recent years were those concerned with the links between science and wealth creation and between academia and industry. The RSE is committed to promoting the economic well-being of Scotland by encouraging closer links between the country's research base and its commercial sector. This already happens in a number of ways, including supporting the Government's Foresight programmes in Scotland, and by undertaking work leading to, and in support of, Technology Ventures: a national strategy aimed at increasing the volume of Scottish-based businesses exploiting Scotland’s world class Science base.
The questions identified within the consultation document are dealt with below:
What should be the key elements of the Framework?
In evolving an economic framework for Scotland the following key elements should be included:
A well-educated and trained work-force
Lifelong learning is central to current Government strategy with considerable emphasis being placed on continuing professional development and the provision of suitable courses in both further and higher education establishments. A new Framework needs to give continuing, indeed increased, priority to education and training at all levels. Response to the challenge posed by economic change in a highly competitive global economy depends on having skilled researchers, managers and workers. IT skills are particularly important for workers at all levels and this calls for substantial investment in IT in schools, colleges and universities. Within the context of the Scottish economy, where there are relatively few large industrial companies, it will also be essential to provide positive incentives to both small and medium sized enterprises (SMEs) (and 'one-person' businesses) to take advantage of such facilities.
Science and technology need to be promoted more strongly within schools - and steps should be taken to ensure parental support for this policy. If Scotland is to succeed in the 21st century, more and more careers are likely to demand a good understanding of technology. In addition, the roles of higher and further education institutions are likely to become more varied. Some will produce high quality researchers and honours graduates; others may concentrate on producing graduates and diplomates with a strong vocational focus. More of the latter are likely to be required as jobs at all levels become more technical, so that expansion of higher and further education is likely to continue and will need to be adequately financed.
As pointed out in McBrierty and Kinsella's book "Ireland and the Knowledge Economy - the New Techno Academic Paradigm", the higher education (HE) sector is a rich and diverse source of new knowledge that underpins the Nation's overall innovative culture. In Scotland we are fortunate in having an outstanding, internationally recognised research base within our higher education institutions.
Efforts to commercialise the research base need to continue and Scottish businesses, particularly the SMEs, should be encouraged to use the institutions to greater effect. It should be recognised, however, that this will not always involve exploitation of the results of research within Scotland, though clearly that is to be preferred. The reality is, however, that industry within Scotland is not always in a position to pick up a piece of research and run with it. Spin-outs may also not be practical in all cases, though again the spin-out route has many attractions. In some cases the international quality of the research in our institutions means that it can only be exploited by international companies. Collaborative research with such companies can bring real benefits to the institutions, and to Scotland, and improve Scotland’s standing as a centre of excellence at an international level.
Support to foster and exploit an enterprise culture
The universities and other providers of higher education have a crucial role to play in producing the graduates with the skills and entrepreneurial flair essential to the creation of wealth in the 21st century. In addition, the provision of incentives for people to take risks, including direct grants, low interest loans, well-serviced locations for growing companies in attractive surroundings with strong supporting infrastructure, are also important.
How should the framework incorporate the lessons of our past successes and failures in economic development?
The economic position of Scotland has improved over the last decade. Scotland has a strongly growing economy, unemployment is low, inflation is low, interest rates are relatively low compared with the past (although not as low as in Europe, and not as low we would necessarily like), and we are becoming increasingly competitive in many fields. Particularly important is the fact that Scotland has completed a great deal of its major industrial restructuring compared with the 70’s and even 80’s. As a consequence, our industrial strategy, and the institutions set up for this purpose, should be looking forward to creating opportunities, within an encouragingly positive environment.
However, we still lack a sufficiently robust manufacturing base and a critical-mass industrial research and development base. Over the last few years, considerable emphasis has been placed on encouraging commercialisation of research-generated ideas. However, one of the major weaknesses of the Scottish economy in this respect is the absence of locally-based businesses capable of developing such ideas. The model currently is very much one of higher education institutions (HEIs) 'pushing' research findings out into the community rather than industry 'pulling' such ideas and actively developing them. Scotland does not lack 'institutional push'; it does, however, lack 'industrial pull'. Of the top ten publicly-quoted companies in Scotland, five are either banks or utilities and, as a country, we have no major research-dependent industries.
A key objective must be to increase the number of companies performing effective R&D in Scotland. This is a long-term goal. Therefore, while efforts to attract inward investment should continue, these should be matched with a comparable development of Scotland's indigenous industry, whilst recognising that building an R&D culture and capability is both risky and expensive for smaller companies and is therefore unlikely to happen without significant public investment. As stated in McBrierty and Kinsella's book: "a philosophy of investment must replace the more established notion of expenditure in areas of education and R&D".
In terms of publicly supported research while it might, therefore, seem attractive only to maintain applied science, engineering and technology (SET) capabilities in Scottish research institutes and HEIs which directly underpin current needs, this is not a viable option. The technologies which underlie most daily life that are at the heart of economic competitiveness, medical care, natural resource use and environmental protection are increasingly driven by scientific innovation. The time taken to pull innovation in basic science through into application by new technologies appears to be getting shorter, producing shorter-term interdependence of basic, strategic and applied research. This trend is led by the USA where the citation of basic research papers in patents is growing in all sectors. Basic research is increasingly likely to be the engine of strategic and applied research in developing new technologies and must be maintained if only to support them. Moreover, knowledge developed elsewhere which may create new technologies is not automatically made available to another country. Effort and deep understanding are needed to acquire it and harness it to meet domestic needs. A domestic capacity to absorb foreign knowledge requires a domestic capacity to perform research at high, internationally competitive levels. A productive and robust modern economy cannot depend largely upon scientific output from elsewhere.
How, and in what circumstances, should the Executive seek to contribute to the direction of economic development?
The most important influences on industrial development will be macro-economic factors. These will include encouraging enterprise in sectors where there is a premium price for the goods and services which fulfil real market demand and which exploit indigenous or acquired skills (electronics, financial services and life sciences) and indigenous assets (food, beverages and tourism).
Strong interaction will be crucial in linking strategic and applied research to its industrial application. The success of Japanese industry in marketing new technology through the 1980s is believed to reflect their capacity to mobilise two-way flows of information between R&D and production divisions in vertically integrated company structures. A Scottish Government should take steps to ensure that the many routes by which the public purse funds the SET base and its exploitation are managed in such a way as to maximise opportunities for efficient vertical integration, and that public/private partnerships are facilitated. The recent White Paper on competitiveness emphasised the importance of regional partnerships between the SET base, industry and statutory agencies. For these to be effective, there must be mutual understanding of the objectives and strategies of partners in the region and each must be aware of national and European policies and opportunities. It is also important to create an environment which encourages entreprenurial attitudes and which is able to provide finance to support those who see opportunities for the development of innovative technologies.
The point along the basic-applied research spectrum at which public funding is replaced by private funding is a key policy issue. A helpful model of the role of public sector intervention is provided by recent developments in the microelectronics industry in Scotland. Microelectronics manufacturing, largely by inwardly investing companies, has become a major industrial sector in Scotland. It has not, however, included a significant R&D capability and has not been able either to respond to technological change (unless the overseas parent companies decide to implement innovations in Scotland) or to interact with the SET base. During the last two years a US company, Cadence, decided, because of the excellence of microelectronics and computer science research in Scotland, to invest in a significant R&D capability in Scotland and to link its development with training and research within the universities. It is now hoped that other companies will do likewise as part of the Scottish Enterprise Project Alba, and that home-grown service companies will develop to broaden R&D based activity and pull more strongly on the SET base. This hoped for pattern of closely knit activity involving different types of companies, the SET base and government agencies, is the essence of the Scottish Enterprise 'cluster strategy'. The challenge now is to create analogous development in other areas such as biotechnology, biomedicine, wider dimensions of information technology, optoelectronics, chemistry, etc., where there is also great strength in the SET base in Scotland.
Overall, one of the major elements for sustainable economic growth will be policy stability - a consistent policy without constant rule changes, special inducements, and no confusion over who-provides-what in the economic development field.
How should the Executive make best use of the devolved arrangements and powers that it has at its disposal?
It is clear that not every possible enterprise sector can be supported, and Scotland must consolidate its development targets with their potential to thrive in selected areas. Accordingly Scotland’s economic framework should selectively focus on creating clusters. The means required would therefore be:
With devolution, however, there will be a natural tendency to focus attention on enhanced economic exploitation of the existing, internationally competitive SET base in Scotland. If it is insensitively exploited, there is a risk not only that the creativity and excellence of the science base will deteriorate, but that the economic benefits which it currently brings to Scotland will decrease. It is important therefore that the SET base is exploited sustainably, that enhanced economic benefits are reaped from it whilst maintaining its breadth, its capacity for creativity and innovation and its attractiveness to scientists of the highest calibre. The market for the good scientists is competitive and international, and they can easily be lost from a badly managed system. It will be vital to achieve an appropriate balance of resourcing between basic science and the promotion of application, with mechanisms to sustain both.
A rapidly evolving knowledge based economy depends upon skilled people and constant up-dating of the skills base. It is not obvious, however, that a greater degree of strategic manpower planning in higher and further education by their funding agencies is the correct response. The rapid rate of technological change, often in unforeseen directions, and the rapid obsolescence of existing technologies argue for an education which inculcates a capacity for broad scientific understanding coupled with on-the-job specific training as the most flexible approach to training.
How should the Framework link to on-going work?
The Framework should be taking measures to anticipate medium-term quantum technological changes to be ready to maximise leverage of our skills base and to avoid being ‘wrong-footed'. This is more risky, but potentially more lucrative for the economy and will require strong linkage with Government’s Foresight programme and commercialisation activities such as Technology Ventures.
In commenting on this document the Society would like to draw attention to the following Royal Society of Edinburgh responses and publications which are of relevance to this subject: Commercialisation Enquiry: Final Report (1996); The Innovation - Exploitation Barrier (January 1997); Engineering and Physical Sciences Based Innovation (March 1998); A New Strategy for the Scottish Enterprise Network (October 1998); Devolution and Science (April 1999) and Developing Scotland’s Clusters (June 1999).