As part of the programme to mark 20 years since the creation of the Scottish Parliament, SPICe will publish twenty “20 year” blog posts on SPICe Spotlight over the course of 2019. Our earlier post sets out more information on the programme and the series of blogs. This blog explores Scotland’s economic policy landscape.
Economic trajectory
The current value of Scotland’s GDP (onshore) is estimated at £162.4 billion, or £32,000 per person. In 1999, the corresponding values in cash prices were £78.6 billion and £15,500 per person. This represents growth of 107% over almost two decades. When adjusted for inflation, the real terms growth was 30%, the equivalent real terms rate for the UK as a whole was 41%, as illustrated in the chart below. While it is becoming more common to look beyond GDP to understand an economy’s performance, at present this is the best long-term information we have to understand the economy.
Let’s look at the economic policy landscape that has been a factor in this economic trajectory for Scotland. Supporting economic growth is complex, as many factors influence the economy.
How many economic strategies, plans, and frameworks since devolution?
There have been ten strategies, plans and frameworks to develop Scotland’s economy since 1999.
The Way Forward: Framework for Economic Development in Scotland was introduced by the then Scottish Executive, in 2000. This was built on by the first economic strategy for devolved Scotland, A Smart, Successful Scotland, introduced in 2001. The strategy and framework were refreshed in 2004.
Shortly before the onset of the financial crisis and recession in 2007, the Scottish Government published the Government Economic Strategy. The Government then published an Economic Recovery Plan in 2008, with the Government Economic Strategy updated after the 2011 election.
The Government then published Scotland’s Economic Strategy in 2015. This 2015 strategy is currently Scotland’s main economic policy document, but there has been continued policy churn to support this since. The Enterprise and Skills Review was launched in 2016, resulting in the Enterprise and Skills Board: Strategic Plan in 2018. And late 2018 saw the arrival of the Economic Action Plan. Though this could be classed less a plan, and more a website, capturing a range of initiatives and support linked to the economy.
A Fraser of Allander (2018) blog recently described Scotland’s economic policy landscape as complex and suggested that this can lead to confusion, a lack of alignment, duplication, weakened accountability, and makes evaluating what actually works all the more difficult. The blog provided the following advice.
Strategies and advisory groups are no substitute for good policy delivery based upon evidence and data. Back in 2007, the Scottish Government promised a streamlined and effective policy landscape for the economy. Ten years later it may be time to look at this again.
The launch of the Economic Action Plan in late 2018 was seen by some as a response to this criticism.
Trends in policy
The contents of Scotland’s economic strategies, plans, and frameworks has evolved with each iteration since devolution.
- The vision of the 2000 economic framework was “to raise the quality of life of the Scottish people through increasing economic opportunities for all on a socially and environmentally sustainable basis”. This framework emphasised the importance of supply side drivers of productivity such as innovation and skills, stressed the key role of market forces and offered the primary justification for policy intervention as market failure.
- Scotland’s first post-devolution economic strategy, A Smart, Successful Scotland, was viewed as an attempt to promote a science-based economy. The implementation of the strategy led to the adoption of some major policy innovations, such as Intermediary Technology Institutes (ITIs). However, they didn’t stand the test of time and were abolished in 2010. An academic study concluded that ITIs “badly malfunctioned” and were “a spectacular failure”.
- The 2004 update of the strategy had a much more explicit spatial dimension than its predecessor, with a focus on city regions and rural development, regeneration and strengthening communities. There were also two cross-cutting themes: sustainable development and closing the opportunity gap for people and places.
- The 2007 strategy marked a step change in terms of coverage yet had large overlaps with the contents of the previous strategy and framework. Indeed, the biggest difference was the setting of specific targets. However, commentators at the time believed ambitious targets were not in themselves sufficient and the lack of clear and radical initiatives to achieve them was an important omission. The 2007 strategy also introduced the concept of the “key sectors” (which in the 2015 iteration would become “growth sectors”), the Arc of Prosperity countries, and bold targets around growth and productivity.
- Compared with other governments at the time, the Scottish Government had a narrower range of options available to consider in terms of promoting economic recovery for the 2008 Recovery Plan, as it had no powers over monetary policy and limited fiscal powers. The Plan had three broad themes: supporting jobs and communities, strengthening education and skills, and investing in innovation and the industries of the future. The Scottish Government stated the Plan supported 15,000 jobs across Scotland. The financial crisis of 2008 highlighted the importance of responding flexibly to emerging pressures and challenges. It also emphasised the need to create an economy that was more resilient to shocks and economic uncertainty. Developing a more resilient and adaptable economy were the key aims of the 2011 strategy, reflecting the zeitgeist of the time.
- The purpose of the 2015 strategy is to create a more successful country, with opportunities for all of Scotland to flourish, with sustainable economic growth remaining at the core. This strategy introduced the concept of the “4 Is” (investment, innovation, inclusive growth, internationalisation). Overall it is a broad, high-level strategy and does not set out in detail how underpinning policies and initiatives will be implemented.
The first strategy, following devolution, started out as direction for the enterprise networks. Successive strategies gradually tackled wider social challenges and offered direction for the wider public sector, eventually arriving at the “One Scotland Approach” in the 2015 Strategy. SPICe’s 2015 briefing looks in more detail at the evolution of economic strategies.
Measuring – making a difference
It is difficult to identify whether Scotland’s economic strategies have led to direct changes in the nature or mix of public sector interventions or even economic growth that wouldn’t have happened anyway. Measuring impact is complicated, particularly economic impact (see SPICe’s blog on smoke and mirrors), given the diverse range of support and interventions enabled by the strategies.
- The Smart, Successful Scotland strategy was measured through annual progress reports. The reports included progress indicators covering each of the strategy’s priorities, benchmarked against OECD countries where possible.
- The 2007 Government Economic Strategy included nine targets linked to the 2007 National Performance Framework. The targets were Specific, Measurable, Achievable, Relevant and Time-Constrained (SMART). For example, the growth rate targets were specific and can be measured with economic data. They were potentially achievable and relevant to the purpose of increasing sustainable economic growth.
- The current Scotland’s Economic Strategy did not introduce any explicit targets. The strategy states that the National Performance Framework (NPF) will be “central to monitoring our progress against the objectives set out in this strategy”.
Since devolution, successive economic strategies have set out a range of different priorities. However, there has been no explicit review of the success of these strategies. There have been no formal procedures in place to collate progress or to form an overall assessment of the success of previous economic strategies. Doing so would allow the Scottish Government to ensure that its economic strategies remain applicable and fit for purpose.
Key players – who has been in charge?
Over the last two decades, eight individuals have led the economic portfolio with varying titles, including only one female holding this role. It was 2014 before the word ‘economy’ appeared in the relevant ministerial title for the first time. And in 2016 it got full prominence with the creation of the ‘Cabinet Secretary for Economy, Jobs and Fair Work’ title. However, this prominence was short lived, when in 2018 it was subsumed into the finance portfolio.
Despite the distinction of ministerial tittles, the responsibility for economic policy has evolved significantly since 1999 and is now spread widely across ministerial portfolios. Scotland’s original devolved economic policy focused on enterprise agencies, but the most recent strategy applies to all government departments and agencies. There are pros and cons to this holistic approach. However, it is fair to ask whether this dilution hinders the government giving economic policy the rapid reaction and sharp focus it needs.
The principal delivery agencies of economic policy, over the last two decades, have been Scottish Enterprise and Highlands and Islands Enterprise. In addition, some organisations have been lost (e.g. Local Enterprise Companies) and some others have been created or evolved (e.g. Skills Development Scotland).
Everything has changed but nothing has changed
Reading a FAI Quarterly Economic Commentary from 1999 provoked an unexpected sense of familiarity. Many of the economic issues that policy makers were grappling with then still seem to linger on 20 years later. It would seem that ‘everything has changed but nothing has changed’.
- In 1999, the then Scottish Executive published a new quarterly GDP series which was described as an important development, given data deficiencies at the time. Another concern was the absence of separate price inflation data and inflation forecasts for the Scottish economy. These types of issues around economic data remain today, as explored in a 2018 Scottish Parliament committee inquiry on economic data.
- There were concerns about the weaker performance of businesses in Scotland, which at the time was linked to the Scottish economy’s lack of corporate headquarters. It was felt Scotland’s low business birth rate and a relative failure to ‘grow’ independent Scottish firms had compounded the problem. Similar issues were discussed in a 2018 SPICe blog on entrepreneurship and the business base.
Other notable economic milestones and issues prominent in 1999 included:
- the beginning of an upward trend in oil prices following the historic lows of 1998
- unwinding of the dampening effect of earlier appreciation of the pound
- difficulties for textile firms described as a ‘depressing situation’ resulting in closures
- polarised spatial development of UKs nations and regions
- pessimistic tourism sector because of slower consumer spending and a strong pound
- concerns about population decline was a topic of concern.
Again, lots of these matters frequent economic policy deliberations today.
One significant change from the economic commentary of 1999, is the decline of the electronics sector. By the late 1990’s Scotland’s so-called ‘Silicon Glen’ reached its peak, with politicians ‘waxing lyrically about Scotland’s future as the European centre of electronics and the country was responsible for manufacturing 35 per cent of Europe’s PCs’. But as dramatically as it had risen, by the early 2000’s the dotcom bubble had burst and with it the rapid decline of electronics manufacturing. Early warning signs of the sector’s decline were starting to show in 1999, with business surveys citing lack of future orders as a concern for the sector. Somewhat belatedly, Scottish Enterprise announced the formation of a cluster-based strategy for the electronics industry in 1999, which aimed to double the number of people employed in the sector.
Looking to the future
Over the last 20 years, Scotland’s economic policy landscape has evolved from a narrow enterprise agency approach to a wider whole government approach. Mirroring this, ministerial responsibility for economic policy has come in different shapes and guises. While there is merit to this more holistic approach to economic policy, it has weakened accountability, and makes evaluating what actually works all the more difficult. There have been no formal procedures in place to form an overall assessment of the success of successive economic strategies. A more stringent effort to do this would allow the Scottish Government to ensure that its economic strategies remain relevant and fit for purpose.
Looking to the next 20 years, it’s likely we’ll see further evolution of economic policy. This blog started looking at the trajectory of GDP. In 20 years’ time will GDP still be the main measure of economic progress?
It’s difficult to forecast with any accuracy how Scottish people will produce and consume goods and services in 2039. However, this will be the challenge for policymakers as they respond to future developments in robotics, the gig economy, automation, big data, transferable skills, etc. Currently, Brexit remains the greatest headwind the Scottish economy faces, and policymakers are having to adapt to a world of uncertainty. Despite this, there are lots of positive economic policy developments, currently in progress, to see Scotland into the next 20 years, with the birth of the Scottish National Investment Bank and the South of Scotland Enterprise Agency, and initiatives such as Scotland is Now portraying a dynamic and inclusive Scotland to the world.
Alison O’Connor, Senior Analyst, Financial Scrutiny Unit
Blog image by Nick Youngson CC BY-SA 3.0 Alpha Stock Images