A LEADING economist has called on Scotland to embrace an "ambitious" new industrial strategy in order to revitalise the country’s financial fortunes.
In a report published jointly by the UCL Institute for Innovation and Public Purpose and Future Economy Scotland, Professor Mariana Mazzucato and fellow economist Laurie Macfarlane describe the economic challenges facing Scotland and said the Scottish Government must “avoid reheating old orthodoxies” in order to thrive.
They said Scotland had faced a “chronic problem of low investment”, which continues to undermine living standards, stifle innovation and hold back the move towards net zero.
It comes ahead of the Scottish Government’s expected proposals on a new green industrial strategy, which are set to be published later this year.
But Mazzucato and Macfarlane warned that as other countries enact ambitious industrial strategies Scotland risked being left behind without a similarly bold proposal.
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They said Scotland should embrace a “mission-orientated” approach, replacing sector-focused strategies with cross-sectoral “missions” that address some of society’s biggest challenges like climate change and inequality.
Scotland, they argue, should learn from “entrepreneurial states” which work to “actively shape markets, not just fix them”.
The concept of an “entrepreneurial state” comes from Mazzucato’s 2013 book entitled The Entrepreneurial State: Debunking Public vs Private Sector Myths.
In the book she argues that the economic success of the US relies upon public investment in innovation and technology rather than the free-market doctrine typically associated with US capitalism.
US President Joe Biden’s Inflation Reduction Act of 2022 sought to pull the country out of its post-Covid slump through mass public investment in infrastructure and environmental programmes.
The US now has a fast-growing economy which far outpaces its global competitors, particularly those in Europe including the UK.
The report makes several specific recommendations to the Scottish Government.
They include:
- Moving away from acting primarily as a ‘lender of last resort’ by bailing out struggling firms. Instead, the report states that the Government should proactively invest in new technologies and industries.
- Promoting greater co-ordination between policies such as procurement, subsidies and innovation funding, as well as institutions such as Scottish Enterprise, the Scottish National Investment Bank and state-owned enterprises.
- Creating a new “social contract” between government and business by reviewing conditions on private sector access to state funding, and taking equity stakes in major projects.
- Strengthening capabilities within Scotland’s public sector to reduce reliance on external consultancy firms.
However, the authors also warn that ambitious rhetoric must be accompanied by action.
“Old approaches to industrial strategy are not well equipped to address 21st-century challenges,” said Mazzucato, who served on the Scottish Government’s Council of Economic Advisers between 2015 and 2022.
“To succeed, Scotland’s new industrial strategy needs to do more than just hand out support to certain sectors.
“Our report offers a clear roadmap for a new type of industrial strategy that catalyses cross-sectoral investment oriented around bold goals, and maximises the public value of these investments.
“By embracing a mission-oriented approach, the Scottish Government can drive investment and innovation-led growth, and align social and environmental priorities with economic goals.
Macfarlane added: “As other countries embrace ambitious industrial strategies, it is critical that Scotland does not get left behind.
“Although the Scottish Government does not have control over all aspects of economic policy, this makes it ever more critical that the powers it does have are harnessed most effectively.
“The mission-oriented approach we outline aims to fully harness the Scottish Government’s tools, institutions and resources to drive the structural change that Scotland’s economy so desperately needs.
“In doing so, it can help deliver the First Minister’s three stated priorities of growing the economy, eradicating child poverty and tackling the climate emergency.”
