The Scottish Government

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A. THE PURPOSE OF THE NEW GOVERNMENT AND THE NEED FOR THE GOVERNMENT ECONOMIC STRATEGY

A.1 A NEW SENSE OF PURPOSE

Our Purpose as Scotland's Government is to increase sustainable economic growth. Higher sustainable economic growth is the key which can unlock Scotland's full potential and create benefits for all our people. Our future prosperity as a nation depends on everyone playing their part - as workers, consumers, volunteers and business people. We, as government, have a role too in the way we invest in Scotland's people and places and in tackling unnecessary obstacles to growth.

This Government Economic Strategy sets out how we will support businesses and individuals and how, together, we can deliver the following Purpose:

to focus the Government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth.

By sustainable economic growth we mean building a dynamic and growing economy that will provide prosperity and opportunities for all, while ensuring that future generations can enjoy a better quality of life too.

The benefits from delivering the Purpose of increasing sustainable economic growth will be shared by all Scotland's people, helping to:

• generate greater and more widely shared employment;
• create more highly skilled and better paid jobs;
• provide better quality goods and services and additional choices and opportunities for Scotland's people;
• stimulate higher government revenues, supporting better quality public services;
• foster a self-sustaining and ambitious climate of entrepreneurial advance;
• encourage economic activity and investment across Scotland, thereby sharing the benefits of growth;
• bring a culture of confidence and personal empowerment to Scotland; and
• secure a high quality environment today and a sustainable legacy for future generations.
• This section sets out:
• what makes this Strategy distinctive;
• the different elements of the Strategy and how these fit together; and
• the macroeconomic and microeconomic levers available to deliver the Purpose.

A.2 A DISTINCTIVE STRATEGY FOR SCOTLAND

This Strategy represents a fresh approach for Scotland:

• it is the first to focus central government and the wider public sector on one Purpose - increasing sustainable economic growth;
• it is the overarching Strategy that sets the direction for Scotland's public sector - the Scottish Government, local government, the enterprise networks and other key agencies - to work collaboratively with the private, academic and third sectors, in pursuit of increasing sustainable economic growth;
• it presents a new target framework, which represents a higher level of ambition and sharper aspirations for the future;
• it has been informed by the new Council of Economic Advisers - a group of leading international economists and business people which has been established to directly advise the Scottish Government on how to increase sustainable economic growth; and
• it draws on the lessons and approaches of the successful small independent economies of Norway, Finland, Iceland, Ireland and Denmark - henceforth referred to as the Arc of Prosperity countries - which are similar to Scotland in scale and geographically close.

A.3 THE STRATEGIC APPROACH FOR DELIVERING INCREASING SUSTAINABLE GROWTH

The Strategic approach consists of:

• the overall Purpose;
• five Strategic Objectives - embedded within which are five Strategic Priorities that are internationally recognised as being critical to sustainable economic growth; and
• national targets - which include specific benchmarks for economic growth and golden rules for ensuring that growth is shared and sustainable.

Figure A1 illustrates how all these elements interact with each other and fit together.

Figure A1: The Strategic Approach

THE PURPOSE

The starting point is the Purpose - to increase sustainable economic growth - to which all else in government is directed and contributes. The Purpose will provide a clear focus for all our work over the term of this Parliament. Financial and other resources will be aligned to ensure that policy development and spending programmes are sharply focused on the delivery of the Purpose and, specifically, on delivering the challenging and ambitious targets that we are setting for Scotland.

STRATEGIC OBJECTIVES

Delivery of the Purpose requires the development of a country that engenders individual and collective success. This is encapsulated in a set of five Strategic Objectives (set out below) which map a Scotland that is wealthier and fairer, smarter, healthier, safer and stronger, and greener.

WEALTHIER & FAIRER - Enable businesses and people to increase their wealth and more people to share fairly in that wealth.

SMARTER - Expand opportunities for Scots to succeed from nurture through to life long learning ensuring higher and more widely shared achievements.

HEALTHIER - Help people to sustain and improve their health, especially in disadvantaged communities, ensuring better, local and faster access to health care.

SAFER & STRONGER - Help local communities to flourish, becoming stronger, safer places to live, offering improved opportunities and a better quality of life.

GREENER - Improve Scotland's natural and built environment and the sustainable use and enjoyment of it.

The five Strategic Objectives have been used to facilitate and add momentum to the realignment of both central government and the wider public sector. Through the alignment of our Government with these Strategic Objectives - each focused on the delivery of the Purpose - we will increase the prosperity of Scotland.

We will not merely seek to align policy and resources. Better alignment will be combined with a far greater emphasis on the effectiveness of our policy and spend, and on achieving a real difference for the people and businesses of Scotland, in both the short and longer term.

The call to action for all arms of the public sector to support increasing sustainable growth is not an invitation for a proliferation of initiatives, however well intentioned. To maintain focus and maximise the leverage of the public sector, the Government Economic Strategy will require a clear rationale to be established before specific economic interventions are considered. Without addressing significant market failures or legitimate equity concerns, government action risks crowding out private sector activity or creating new sources of inefficiency or inequity. In deciding which course of action to take, a range of options - financial incentives, regulation, direct provision, better information and doing nothing - need to be appraised on the basis of sound analysis and evidence.

This Strategy identifies the need to balance economic growth and the important social, regional and inter-generational equity objectives of the Government. Growth needs to provide more choices and opportunities for all of Scotland's people. Unlocking the potential and sharing the fruits of growth across communities and regions is crucial to the healthy development of society. It is equally critical to achieving the economic growth targets themselves. Similarly, protecting and enhancing Scotland's biodiversity and landscape for future generations is integral to our thinking. Again, the environment can be an important source of growth.

The Strategic Objectives, therefore, play a key role in focusing all the activity of Government, and, indeed the public sector in its widest sense, on increasing sustainable economic growth:

• by making Scotland wealthier and fairer we will generate wider opportunities for work, increase our competitiveness and make Scotland a more attractive place to live, work and invest;
• by making Scotland smarter, we will lay the foundations for the future growth and well-being of our children, increase skill levels and better channel the outputs of our universities and colleges into sustainable wealth creation;
• by making Scotland healthier through more anticipatory, timely and effective services and encouraging healthier lifestyles, we will increase the productivity of Scotland's workforce, reduce absenteeism, improve public sector efficiency and increase participation by reducing the numbers of workers on Incapacity Benefit;
• by making our communities safer and stronger, we will increase the attractiveness of Scotland as a place to live and work, attract talented migrants and high quality businesses, reduce out-migration and secure the productive engagement in proactive activity of an even higher proportion of the population; and
• by making Scotland greener, we will improve the natural and built environment, valued by those living and working in Scotland and underpinning many of our businesses and key sectors.

It is no coincidence that, as well as benefiting from higher incomes, countries within the Arc of Prosperity also perform relatively well in terms of inequality, crime, waste management and life expectancy (See Figure A2 below).

Figure A2: Relative National Performance: Scotland, the Arc of Prosperity and UK¹

There will always be the potential for tension between the five Strategic Objectives, and, equally, there will always be scope for significant complementary gains. While sustainable economic growth is core to the Purpose, we will resolve any tensions to the benefit of Scotland and, indeed, the experience across the Arc of Prosperity demonstrates that this is eminently possible. A wealthier Scotland can and should be greener, fairer, healthier, stronger, safer and smarter, too.

STRATEGIC PRIORITIES

In order to deliver sustainable economic growth, we must give priority to the specific channels through which growth is most effectively driven. As illustrated in Figure A1 the Strategy identifies five Strategic Priorities. These are internationally recognised to be critical to economic growth:

• Learning, Skills and Well-being;
• Supportive Business Environment;
• Infrastructure Development and Place;
• Effective Government; and
• Equity.

Each of these priorities is critical to the delivery of our Purpose and will be embedded in the approach to each of the Strategic Objectives.

Further details on the priorities, and how they will contribute to delivering the Purpose, are set out in Section C.

TARGETS

Our Economic Strategy will be given momentum by the challenging targets that we have set. These will take two forms:

• clear aspirational targets that set the direction and ambition; and
• shorter-term targets against which we can judge our progress and the sharpness of the strategic approach.

The targets are presented in Section B. We will monitor these rigorously and we will be judged by the progress that we make towards them. They will provide the evidence to judge whether the Government is making a real and measurable difference to the lives of the people of Scotland.

A.4 THE ROLE OF GOVERNMENT: THE MACROECONOMIC AND MICROECONOMIC LEVERS

In an increasingly competitive and interdependent global economy, knowledge
plays a critical role for those economies seeking to grow and develop more rapidly. Government at all levels still has a key role to play, with a particular focus on the human capital that generates and uses knowledge. We have powerful levers at our disposal. By creating a fertile business environment, rewarding success and investing in its people and places, Scotland can increase its comparative advantage on the world stage. The Irish experience demonstrates how the opportunity of globalisation can be realised by delivering accelerated rates of growth through developing, attracting and retaining mobile capital and labour.

Although it is a challenge for Scotland to achieve the levels of success and prosperity enjoyed by comparable independent nations in Europe, it is a realistic challenge and one for which Scotland is well equipped. The Arc of Prosperity countries have demonstrated what can be achieved through a combination of well-directed and effective government and a highly responsive and dynamic private sector.

However, without greater autonomy over the levers of the economy, generating a step-change in Scotland's growth path is made more difficult:

• devolution of responsibility for economic and fiscal policy would allow a Scottish Government to tailor a tax environment suited to attracting investment to Scotland and funding public services appropriate to the needs of the Scottish people;
• by taking responsibility for oil and gas reserves in Scotland and Scottish waters these could be supported to optimise long-term production and give Scottish people a say in how this massive resource could be re-invested to bequeath a legacy for future Scots;
• a Scottish competition authority could more fully consider Scotland's interests. Greater consumer sovereignty in Scotland would stimulate more dynamic competition, innovation and growth;
• further devolution of employment policy would improve accountability and provide greater coherence between economic and employment policy, allowing the balance between workers rights, the level of minimum wage and the need for a flexible workforce to reflect Scottish labour market conditions; and
• greater Scottish representation in Europe would allow particular Scottish circumstances to be addressed in the negotiation, transposition and enforcement of regulation.

The Government has recently launched the White Paper, Choosing Scotland's Future, which sets out the ground for a national conversation on independence and other constitutional possibilities. The Government Economic Strategy focuses on how the Government's Purpose will be achieved through the existing powers of the Parliament. However, because of the extent to which a broader set of economic levers would accelerate sustainable growth, the Economic Strategy must form a key part of the National Conversation. In the meantime, with the existing levers at our disposal, we will continue to work with the UK Government and European institutions, to co-ordinate activities in support of higher sustainable growth.

We are clear that, as in every economy in the world, microeconomic measures have a fundamental role to play in determining the underlying drivers of growth. While we do not have responsibility for all the microeconomic levers, we do have responsibility for some critical ones. The Government's approach to utilising these to the full is set out in Section C.

The remainder of this document focuses on three different elements of the Strategy:

• the economic challenge that we face - this is our starting point and includes a diagnosis of Scotland's performance in terms of growth, fairness and sustainability;
• the targets that we are setting ourselves; and
• the Strategic Priorities and how we will secure our ambitions.

Section B explores the first two of these, and in Section C, we set out the five Strategic Priorities that will help us achieve sustainable economic growth. We have identified these priorities in collaboration with many individuals and groups across Scotland, building on conversations with the academic and business communities and with a wide range of public sector interests.

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