Productivity: the long game for Scotland

Scotland sits mid-table when it comes to productivity in the OECD, according to a report by the David Hume Institute. 

The think tank’s assessment, published last year, was that productivity has all but stalled in the country for the last 15 years, despite a longstanding recognition that education needs to better reflect modern industry and skills gaps.

In 2007 the Scottish Government set targets to take Scotland into the top 25 nations in the OECD, but progress in the 12 years since has been minimal. Capital spending has been above the UK average in that time, but has remained considerably behind other developed countries as a proportion of GDP.

The David Hume Institute said policymakers needed to “get their act together” to address the issue.

DHI director Jane-Frances Kelly, who wrote the report, said: “While the Scottish workforce is well educated, it is not clear we make the most of it, given our relatively low levels of management quality and our high concentration of small, lower-productivity firms; recent declines in Scottish education survey scores are also cause for concern, as is our shrinking working-age population.”

She added: “Productivity is a long-term game, and turning it around is something a whole country does – government, business, unions and others – by acting together.”

The most recent statistics on productivity show a real-terms growth in output per hour, but this is counterbalanced by an increase in total hours worked by Scotland’s workforce. In fact, Scotland is working the highest number of hours since 1998.

In response, CBI Scotland director Tracy Black said: “Weak productivity growth has been a major challenge for the Scottish economy since the financial crisis, and these figures, showing that real output per hour worked was flat in the latter half of 2018, hardly fill us with optimism that things are on the up.

“Addressing weak productivity is a complex challenge, but it’s one we cannot lose sight of. That means continuing to focus on productivity enhancing measures, such as investing in innovation, boosting exports, improving connectivity and better calibrating the education and skills system to the needs of modern businesses.”

But ministers will argue that these things have already been the focus of government, and will point to subdued economic forecasts as a direct result of Brexit.

Business confidence continues to fall in construction, financial and business services, retail and wholesale, tourism and manufacturing.

Yet at the same time, ONS figures show unemployment in Scotland has fallen below 100,000 for the first time. 

While this has obviously been welcomed, a potential downside is emerging skills gaps becoming acute as the jobs market gets more competitive.

In other words, more jobs don’t necessarily mean more skills. The question then becomes what will businesses do to plug the gaps?

Whether government is successful in creating business conditions for innovation or not, business practice and education culture will remain important factors if Scotland is to meet its challenges.

In construction, two innovation bodies have joined forces to address the growing shortage of innovation skills in the industry.

The Construction Scotland Innovation Centre (CSIC) and the Construction Industry Training Board (CITB) have announced a strategic partnership to provide incentives for the sector to innovate by offering training opportunities.

Rohan Bush, head of public partnerships and future workforce at CSIC, said: “Our objective is to support the construction workforce to become more innovative, dynamic and globally competitive. 

“Similarly, CITB has identified the need to develop future skills and innovation within the workforce as part of its reform programme.”

The ongoing productivity conundrum is the subject of a new project by the Scottish Centre for Employment Research (SCER) at the University of Strathclyde.

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The centre has been awarded £860,000 funding for a project investigating management practices and their effect on innovation and productivity.

The SCER-led research collaboration, ‘Improving management practices: work engagement and workplace innovation for productivity and wellbeing’, will seek international collaborators and benefit from contributions from Professor Graeme Roy from the Fraser of Allander Institute and Sir Harry Burns, director of Global Public Health at Strathclyde.

Director of SCER Professor Patricia Findlay said the project “will focus on the workplace practices and factors that support innovation, enhance productivity and deliver employee engagement and wellbeing”.

“Our aim is to identify work practices that can deliver positive business outcomes and benefit employees at the same time,” she said.

The research team will work with businesses across Scotland and the North of England. 

“In Scotland, we have one of the most highly qualified workforces in Europe but productivity outcomes don’t fully reflect this – part of the explanation of why is likely to relate to workplace and management practices,” said Findlay.

“Better jobs, fair work and more engaged workers may well be the key not only to improving innovation and productivity, but also to addressing economic inequality.”

The skills and knowledge of the workforce is also seen as an obstacle to productivity, and this is reflected in the new Enterprise and Skills Strategic Board’s strategy for its agencies.

Skills Development Scotland, Scottish Enterprise, the Scottish Funding Council, Highlands and Islands Enterprise and the future enterprise agency for the south of Scotland will all focus on upskilling and reskilling, it said.

Industry sees a key driver for this to be the impact of technology on jobs. The Scottish Council for Development and Industry (SCDI) has called for a transition of Scotland’s existing talent pool of people into new roles, where digital disruption has impacted on existing roles or where automation has or will displace roles completely. 

SCDI is piloting two ‘productivity clubs’ with the Scottish Government to support improved leadership. SCDI’s director of policy and public affairs, Matt Lancashire, said: “There is real enthusiasm from the business community to get involved and support the clubs. We will also work with our partners in the private sector and in higher and further education.”

But while education policy has been about addressing inequity, there are still calls for more investment in vocational training.

The Scottish Government’s flagship ‘Developing the young workforce’ programme is halfway through its lifespan, but many of its key targets are not being met, MSPs warned in November.

In a report, the Scottish Parliament’s Education and Skills Committee said more one-to-one careers guidance and opportunities for work experience was needed in schools, and more support for businesses seeking to engage with schools and provide apprenticeships.

As Sir Ian Wood concluded in his 2014 ‘Education working for all!’ report: “This is not part of the corporate responsibility agenda. It is very much in business and industry’s self-interest to maximise the skills and talents of an incredibly important resource – their future staff and workforce.”
If Scotland is to catch up with European countries on productivity, it cannot just keep doing what it is doing.