Scotland’s Productivity Challenge

A digital technology skills gap, low rate of business start-ups and adoption of technologies, and low proportion of businesses that export are some of the key factors contributing to Scotland’s slowdown in productivity. Innovation stemming from new products and services, and digital adoption is another area where Scotland lags behind.

Academics from University of Glasgow Adam Smith Business School, one of the partners of The Productivity Institute, examined data from 1999 to 2019 from the 23 regions of Scotland to identify why Scotland’s productivity sits both below the UK average and Organisation for Economic Co-operation and Development (OECD) countries’ median productivity.

Productivity measures the amount of economic output generated by each worker. Unlocking Scotland’s productivity potential will help to increase living standards and build a stronger, more resilient economy with sustainable growth.

The research also highlights examples of areas where productivity is flourishing including professional services, knowledge intensive services, the oil and gas sector and the finance sector. Further findings include:

Scotland has one of the most highly educated workforces through its universities, however it also has the highest number of adults without any qualifications in the UK

  • There is a wide variation on productivity across Scotland with uneven development across regions
  • Business investment in capital such as machinery and equipment, buildings, ICT, research and development has been chronically low
  • There is a huge potential for Scotland to transform its oil and gas sector into green energy.

The report, ‘Scotland’s Productivity Challenge: Exploring the issues’ identifies areas for targeted interventions including harnessing the power of digitization in the SME ecosystem; benefits of diversity and addressing leadership skills gaps to improve business start-up activity and evaluation of the economic impact of policies among others.

Work is already underway on a digital adoption project to enable more Scottish businesses to capitalise on the power of digital and how they can best use technology to support economic recovery. In addition, a masterclass on practical productivity has been delivered by Mark Logan, former Skyscanner Chief Operating Officer, start-up advisor and investor. It provided businesses with a framework and range of tools to tackle enduring business constraints and boost efficiency.

Professor of Economics, John Tsoukalas, who is leading Glasgow’s contribution to the project said: “This is an excellent opportunity to join forces with the Scottish Government, Scottish Council for Development and Industry Productivity Club, and business ecosystems to break the barriers and fears of developing and implementing digital strategies and to quantify the benefits of digitization. The project will seek to measure the transformative power to business practices, performance, access to markets and resilience, employee engagement and digital upskilling, and contribution to development of business sustainable goals.

Jo Chidley, founder of scaling business Beauty Kitchen who attended the practical productivity masterclass commented: “Some business challenges can feel daunting and the masterclass gave us a set of practical approaches to break down issues, resolve them and improve outputs. We are now identifying and tackling constraints and can see the benefits already.”

Bart van Ark, Managing Director of The Productivity Institute and Professor of Productivity Studies at The University of Manchester said: “These insight papers provide an excellent account of the productivity gaps across and within all regions in the UK, which are large by international standards. The papers identify the obstacles faced by people, firms and places in attaining the capabilities required to invest and achieve higher levels of productivity. They will provide policy makers at a local and central level with a clear guide to the levers of productivity for each region and devolved nation in the UK.”