Again, doing that would require a crystal ball, to some extent.
You have raised a number of issues. A key issue in this context is productivity, which should be at the core of any industrial strategy. It is easy to think in abstract terms about the key factors that determine productivity. Everybody can name them: infrastructure, skills and so on. However, a deep understanding of productivity requires to be evidence based, because there will be different reasons behind the poor or successful productivity performance of different sectors, regions and firms.
Professor Darby talked about the LSE growth commission’s productivity report. The core of that research is really the idea that the profile—the size and productivity distribution—of industries is important in determining aggregate productivity. We discussed that with the committee in the context of your inquiry into economic data.
An interesting stylised fact is that there is a positive correlation between the size, distribution and productivity distribution of firms and aggregate productivity. However, although we know that Scotland is primarily made up of small and medium-sized enterprises, Scotland does not score badly compared to the rest of the UK in that dimension. For example, 64 per cent of new firms in Scotland are zero-employee firms, which is a lower percentage than that in the rest of the UK. The percentage of bigger firms with 250 or more employees is higher in Scotland than it is in the rest of the UK, but productivity performance has been worse in Scotland. It is important to understand why the link that exists in the aggregate breaks down when we compare Scotland with the rest of the UK. What is it that means that the productivity profile of firms does not translate into better aggregate productivity performance?
I am working with a colleague and a PhD student in Aberdeen on the effects of firm characteristics on mismatch. We know that Scotland has a greater problem of skills mismatch, so firms in Scotland have more difficulty than firms in the rest of the UK in finding the right skills. Yet, the profile of firms in Scotland is, if anything, better than that in the rest of the UK.
When I gave evidence to the committee recently, I talked about productivity as a process that is akin to peeling an onion. The key issue is that we need to understand what lies at the core of the onion. What is the root cause of the country’s productivity problems? That requires evidence-based analysis.
There may well be a Scottish factor that is to do with the region, such as the characteristics of industries or the fact that industry in Scotland may not be as large as industry in other parts of the UK—a scale factor that Marshall called external economies. The productivity of individual firms depends on the productivity of the sector and on whether there are industrial clusters, which plays a role in facilitating the growth of individual firms, as we know.
Those factors all require a deep understanding of the issues. A good suggestion would be to set up a productivity commission in Scotland to look at those issues.
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