Solving the Productivity Puzzle

3 Oct 2017

We all know that we have a problem with productivity in the Scottish economy.

Productivity grew 20 per cent in the first eight years of the Scottish Parliament. But during the SNP’s decade in power, it increased by only 2% in total. Last year, it actually dropped by 1.5 %.

The productivity puzzle is not a uniquely Scottish problem. Economists and politicians across the globe have pondered the problem for decades.

In recent times, there has been a revolutionary move to instant communication and global connectivity. We’ve seen the rapid technological advance of the internet, iPhones and iPads. The world has shifted pace. Companies now demand economic performance by the minute and quarter, instead of the day and year.

But somehow, in this age of haste, the returns from the hours we work have fallen. Everything has gotten faster, except our work rate.

Today we have record high employment levels, and historically low unemployment, but we haven’t seen economic output grow in comparison. Those in work simply aren’t being productive enough.

It is imperative that we find a bespoke Scottish solution. Improving productivity is how we can deliver better opportunities to Scotland’s skilled workers, university graduates and ambitious young people.

There is a whole generation of ambitious Scottish workers who want their jobs to be more worthwhile. To be doing something more with their talent. To fully utilise the world-class education they’ve received at Scotland’s renowned colleges and universities.

When we improve productivity, the quality of jobs rises. Wages rise. And by extension, our standard of living rises. When businesses innovate, the benefits pass to families through lower prices and better value.

The independent think tank, the Fraser of Allander Institute, recently wrote that: ‘stimulating productivity is crucial not only for growth prospects but also household income.’ They highlighted the ‘subdued debate’ around critical, long-term economic challenges facing Scotland, and Scottish Government failure to identify and alleviate historic problems to boost our international trade market.

The Scottish Conservatives will drive this debate forward. We need to create a culture of opportunity. A culture where development, job growth and upskilling are the centrepiece of economic planning.

At the moment, Scotland is lagging behind the rest of the UK in the digital skills needed for the future. The SNP in Government have cut college places by 152,000. Training or development for staff at Scottish small and medium enterprises dropped by 7% in 2016.

Nicola Sturgeon’s failure to build a culture of opportunity for Scotland’s young workers and aspiring business leaders has produced a vicious cycle of low wages and low growth.

The great Scottish economist, Adam Smith, wrote: “Where wages are high, we shall always find the workmen more active, diligent, and expeditious, than where they are low.” Scottish workers have had the lowest rise in gross annual pay from any UK region, in both nominal and real terms, under the SNP.

The National Living Wage – introduced by a Conservative government – may have increased wage bills for some small and medium businesses. But half of those businesses reported a rise in productivity.

The SNP Government spends less than the UK average on research and development as a proportion of GDP. They cut Skills Development Scotland’s budget by a fifth in real terms. In September, Nicola Sturgeon’s own advisers noted that business investment as a percentage of GDP has fallen over time, and is ‘a consistently lower level than that for the UK, whose rate of business investment is itself low by international standards.’ Business investment in Scotland is down 7.6 per cent in the last year. It dropped by 3 per cent in quarter one alone this year.

Productivity is a broad impression of economic performance – but the broad impression the SNP is in danger of creating is of a country closed for business. In September, the Federation of Small Businesses highlighted a sharp drop in small business confidence. Scotland’s insolvency service revealed a 17% increase in the number of personal insolvencies and bankruptcies between April and June.

You cannot create a culture of opportunity while attacking ambition and raising the rates of income tax.

While the SNP’s economic advisers are being pushed by Nicola Sturgeon to find sketchy justifications to hike the top rate of tax to 50p, our Scottish Future Growth Council will ask the difficult question: how do we improve productivity in our economy?

This talented new group of business leaders and economists will come up with proposals and policy changes to improve the environment in which Scottish business operates. We look forward to hearing their suggestions.

One thing is clear – we can’t go on as we have been doing. We can’t ignore the productivity puzzle, like the SNP have been doing, and hope that it will go away.  If the current Scottish Government are incapable of addressing this vital issue, then the Scottish Conservatives will. And that will deliver better quality jobs, and living standards, for all.

Murdo Fraser MSP, shadow finance secretary