In the fourth of our Scotland the Brief series we look at innovation in Scottish business and explain why it’s the key to driving Scotland’s economy to future success. So let us be clear, Scotland is an innovative nation. Not just in the past in a “Wha’s like us way” but across many sectors; information technology, life sciences, software, gaming, space technologies and even in terms of university research grants Scotland is performing well, but we can do beter still.
The growth in some of the sectors that Scotland has a leading presence in has been astonishing. For example, the life sciences sector has seen a 24% growth in turnover. The software sector has expanded by 72% over an 8 year period, with projected growth of 17% in the next five years creating 63,000 new jobs. The rapid growth in gaming companies, up 1,900% over a nine-year period, demonstrates that Scotland’s entrepreneurial base is innovative and ready to lead in emerging new industrial sectors.
The jobs growth has also been impressive, but with digital industries predicting the need for 12,800 new highly qualified staff a year, the threat of Brexit looms over the sector like the sword of Damocles. Highly skilled EU nationals need to fill the gaps left by the fact that many Scottish-born workers are going to other parts of the world and the fact that we are just not producing enough homegrown talent to meet demand. If Brexit comes without freedom of movement then those industries will stall, the new investment will dry up and, even if Brexit were to be stopped, many EU nationals are wary of bringing their skills and families to the UK.
The fact that Scotland, and Glasgow in particular, are leading the way in satellite technology across Europe is something that often surprises people. With 70 satellites a year built in Glasgow, it’s no surprise that Scotland will also be the location of the first spaceport in the UK. Where else could you find enough room and the ideal conditions to launch so many satellites?
The nature of innovation is changing and Scotland needs to invest and promote innovation so our economy can grow in added value sectors and create more highly skilled, highly paid, better quality jobs. We often think of innovation as the breakthrough technology that cures a disease, or a new material that you can make suits out of that is bulletproof and doesn’t ever wear out. Well those eureka moments are few and far between (did someone mention Dolly the sheep). Real economic growth comes from what is known as close to market, applied or downstream innovation.
Downstream innovation is all about adding value to products, understanding customer needs, analysing niches, proof of concept and testing prototypes. The need for businesses of all sizes to connect to and partner with universities conducting relevant research is key. The fact that we have four universities in the top 200 in the world for research, more than any other nation on a per head basis (that has more than one university) is a real advantage but one we are not able to take full advantage of as part of the UK.
The USA has a giant lead due to the size of its technology cluster and the willingness of a huge group of tech investors to put their money at risk in new research-led ventures. Outside of London, there is nothing even remotely like such an investment cluster meaning the Scottish Government has to intervene. However, the Scottish Government with limited powers and restricted finances can only do so much. The Scottish investment bank is a start, the new £5 million investment in Interface, a programme which connects companies with universities, colleges and research organisations is also good news. This comes on top of the Scottish Government’s announcement of a £78 million fund for business over the last three years that offered bespoke advice and financial support, mostly to SMEs looking to innovate. The fund’s goals included helping an additional 1,200 businesses work directly with universities, creating an open dialogue on innovation through Scotland CAN DO Innovation Forum. But it’s not enough.
The Scottish Government doesn’t have the powers to change corporation tax and offere credits to encourage innovation, nor any control over the nation’s defence budget – most of which does not directly benefit Scotland as it is spent elsewhere. Defence spending does directly impact on innovation and the spin out benefits to defence-related innovation (even in collaboration with other nations) are enormous. The USA has DARPA (Defence Advanced Researched Projects Agency) which for sixty years has been making pivotal investments in breakthrough technologies for national security, This has also benefited ordinary people: without DARPA there would be no iPhone, no internet in fact many of the things you think of as American innovations are military spin offs. The US recognised that it needed to stimulate innovation and develop clean, affordable, and reliable energy to stay ahead of the pack so they created a civilian version of DARPA – Advanced Research Projects Agency-Energy (ARPA-E) with an initial $400 million budget.
Smaller nations however with the full powers of independence can also create an innovative economy with nations such as Norway, Belgium, Ireland and The Netherlands outperforming the UK and therefore Scotland on research and development (R&D) spend, as does Germany and even France.
The faster growing, more prosperous, smaller European nations spend an average of 3.4% on R&D but Scotland spends only 1.25% of GDP on R&D and that’s the problem. A report by the innovation think tank NESTA claimed if Scotland started to build towards an R&D spend of 3.4% of GDP over a five year period, this would mean that Scotland’s economy would grow by around £12 billion a year.
If you want to find an opportunity for rapid growth within the Scottish economy then it is to rapidly increase R&D commercialisation and innovation/productivity investment in SMEs.
So Scotland is an innovative nation, but we lack the powers to create the taxation, research connections and investment culture that could take that success to the next level. The key innovative sectors we have rely on EU skilled labour and access to the single market, so Westminster’s Brexit infatuation is a real threat.
Investing in innovation and in cutting edge industries plus creating bespoke innovation policies for Scotland rather than a one size fits all policy fit only for London’s needs will be a key plank of the economic strategy of an independent Scotland.
All we have to do is Believe in Scotland and take control of the powers we need to build a better future and an even stronger economy by doubling down on innovation.