Why raising our productivity has never been more important
National Productivity Week probably passed most of us by, but there are good reasons why we should care. Economist and New York Times columnist Paul Krugman’s observation that “Productivity isn’t everything, but in the long run, it’s almost everything” remains apt for a Scottish economy looking to rebuild.
Productivity – what we can achieve with the resources we have – either as a country or as a business or employer, has never been more important to Scotland’s future economic success.
In terms of output, the Scottish economy flatlined in the second quarter of this year and the outlook remains weak with less than 1 per cent growth expected in 2024 and just 1.25 per cent forecast for 2025.
The rate at which our labour productivity has been increasing, particularly since the financial crash, is also lacklustre relative to the decade up to 2008.
Employment rates remain relatively high and unemployment low, so while we have managed to create new jobs in recent years not enough of them have been in high-productivity and high-paying sectors such as aerospace or life sciences.
We have also underinvested, as a nation and as businesses, for several years for a variety of reasons and where we have invested, we have failed to realise enough of the benefits.
There are good arguments for why we should look beyond a single measure of output to capture wider wellbeing indicators – a subject of ongoing discussion for the Wellbeing Economy Advisory Group, in which we are delighted to play our part.
However stimulating growth, which can enable higher productivity and higher living standards within planetary boundaries while funding the public services we would like, must be the overarching priority for government both here in Scotland and at Westminster.
Our recent letter to the Scottish Government, on behalf of our members, sets out the case for improving Scotland’s long-term economic performance.
As ever with such complex challenges there is no silver bullet, but our letter sets out four clear areas of action that can boost Scotland’s economic recovery.
These range from the immediate unlocking of the flexible workforce development fund, (which supports businesses of all sizes but most importantly hard-pressed small businesses to invest in training), to halting the erosion of investment in our colleges and universities which is putting the significant contribution they make to our increased prosperity and competitiveness at risk.
The recent Innovation Strategy outlines programmes that, if funded and taken forward, can make a difference.
Finally, creating the right environment for investors encourages businesses to invest as well as attracting foreign investors. Getting this right now will set us on the right path to prosperity for the long term.