RSE Wealth Creation Conference

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RSE Wealth Creation Conference 17 Nov 05 Wendy
Alexander MSP The Role of Government
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1950 The Scottish Economic Challenge

• Scotlands apparently healthy condition in the
• midst of a period of fast economic growth and
  with
• low unemployment concealed serious structural
• weaknesses
• A continuing heavy dependence on the industries
• An out of date infrastructure
• An appalling urban environment giving rise to
  severe social problems
• Sir Alex Cairncross

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1980 The Scottish Economic Challenge

• By contrast Scotland in 1980 was in almost the
  opposite situation, the worst recession in fifty
  years causing stagnation of output and
  intolerable levels of unemployment. But
• A modernised infrastructure
• A much improved environment
• And although some of the problems of the older
  industries remain, a strong representation of new
  advanced industry with good prospects of future
  growth
• Gavin McCrone, 1984

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2005 The Scottish Economic Challenge

• First, get the diagnosis right, on both
• Growth challenge
• Governance challenge
• Only then can the policy solutions follow

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Diagnosis, Growth Scotlands International
performance GDP per capita
Source Angus Maddison The World Economy, A
Millennial Perspective (OECD), and ONS
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Diagnosis, Growth Growth of real GDP per capita
1970-2000
per annum
1.9 2.3
IRIreland, PPortugal, NNorway, JJapan,
FIFinland, SPSpain, BBelgium, GGermany,
CACanada, FR France, NENetherlands,
SCScotland, AAustralia, DDenmark
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Diagnosis Growth

• Current position
• Employment levels higher than 23 of EU 25
• Growth for 2005 forecast above France, Germany
  and Eurozone average
• Net in-migration
• Imminent rates and planning reform

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Diagnosis Governance, the balance sheet?

• Scotland a Johnnie come lately to federalism
• Parliament still an infant
• Building capability is challenge for all regional
  governments

Scots
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Diagnosis Governance

• The system was hugely dated
• Most rapid updating of Scottish law for 3
  centuries
• New economic direction, but
• Time for fresh thinking

Scots
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The Policy Solutions?

• Allander Series
• Define growth and governance challenges and offer
  solutions
• Worlds best economists, on Scotland
• Evidence based non-partisan economists not
  policy wonks
• New wealth for old nations

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What Allander Contributors saw?

• We focus on remedying weaknesses rather than
  building assets
• Scottish policy solutions parallel those for
  the rest of Old Europe
• Laggards in structural reform pay price in
  sluggish growth
• Five big ideas.

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First big idea Birth rate and immigration
Scotlands birth-rate in a European context
Total fertility rate, 2001
Ireland
France
Denmark
Finland
Netherlands
England
Belgium
Sweden
Scotland
Portugal
Greece
Germany
Spain
Italy
Source Government Actuaries Department (GAD)
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Second big idea Returns Highest in Earliest years

• The young where growth and opportunity collide
• Invest in under 15s, returns highest in earliest
  years
• Education leadership about cognitive and non
  cognitive skills, I can, as much as IQ
• Basics matter

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Third big idea Raise the innovation rate

• Only 3.5 of UK business RD expenditure is spent
  in Scotland
• Productivity in 8 of Scotlands top 10
  manufacturing sectors is significantly higher
  amongst foreign firms
• Today 24/25th research takes place elsewhere,
  so tech transfer key
• In future Innovation but also imitation, and
  collaboration

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Fourth big idea Cities drive growthSun,
Population Growth 1980 - 2000
Avg. Daily January Temperature (F)
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Fourth big idea Cities drive growthSun, Skills,
Population Growth 1980 - 2000
Percent Persons 25 with BA or Higher
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Fourth big idea Cities drive growthSun, Skills
and Sprawl

• Cities now built on linking people not goods ie.
  Glasgow-Edinburgh one city region
• Successful modern cities drive national economic
  growth by providing the conditions for the
  attraction of skilled workers and businesses
• Scale matters Milan/Turin Liverpool/Manchester
  Malmo/Copenhagen
• Profound implications for coherent planning,
  housing, transport infrastructure and
  connectivity

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Fifth big idea Raise public sector productivity
Public
Public
Government
Employment
Gross Value
Expenditure
Taxation
as of Total
as GDP
as of GDP
as of GDP
Scotland
26.8
21
46
41
24.3
18
45
45
UK
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Fifth big idea Raise public sector productivity

• Public services monopolistic, top down, target
  driven
• Too often unclear objectives, weak incentives,
  lack of competition, poor information and
  monitoring.
• Risk aversion in public services reward maxima c
  2000pa
• Place for contestability and competition

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Five Actions to achieve growth objectives

• Birth rate and immigration
• Returns highest in early years
• Raise the innovation rate
• Cities drive growth
• Raise public sector productivity

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Making it happen

• Will depend on
• Creating attractive places to live / work
• Cities as motors for national growth
• Expanding Openness
• Strengthening Incentives
• Extending internal Competition

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Government To Do list

• Articulate a vision of reform
• Borrow with pride
• Nurture competition
• Drive best practice and organisational change
• Support regulatory reform

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Private sector To Do list

• Act as if your sector is twice as competitive
• Seek out best practice
• Imitate, collaborate, innovate
• Be ruthless about getting value from IT

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Conclusion
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UNITED STATES MENTIONS IN THE LAST 12 MONTHS
Business
47
Politics
6
Sport
0
Culture/tourism
8
Other
0
Total
61
Source McKinsey analysis of The Wall Street
Journal, June 2004-05
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WHAT DO THE FOLLOWING HAVE IN COMMON?