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27 August 2020

The report that should shape Scotland’s economic future is the one everyone’s missed

The world-class Logan review on tech should be at the heart of manifestos for next year’s Scottish election.

By Chris Deerin

Two reports were released by the Scottish government on Wednesday (26 August). The wrong one has dominated the headlines.

The Government Expenditure and Revenue Scotland, or Gers, figures, which measure the nation’s spending and revenues for the past 12 months, are always a variation on a theme and spark the same predictable and angry debate each year. The latest stats show Scotland’s net fiscal balance in 2019-20 – that is, the gap between revenue and spending – was a deficit of 8.6 per cent of GDP, or £15.1bn. The previous year’s Gers put the gap at 7.4 per cent, or £13.1bn. 

The SNP blame the widening gap at least in part on Covid-19 (though the stats run for the year to March 2020, so just as the crisis had begun to bite). Unionists point out that the figures show Scotland benefits from the UK to the tune of circa £2,000 per person. What it would all mean for independence will fill the newspapers for days to come.

The numbers matter hugely, of course. But they merely confirm something we have known for a long time – redistribution within the Union is a significant economic benefit to Scotland. An independent nation would face multiple and complex challenges in closing the gap. That doesn’t mean it’s not worth doing, of course, and there’s more to nationhood than money.

The second document was a review of the “Scottish Technology Ecosystem” by Mark Logan, a former chief operating officer of Skyscanner, the online travel business that became one of Scotland’s few tech unicorns before being sold to a Chinese company.

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The paper offers something genuinely original and potentially seminal, which is rare enough in politics. It is a comprehensive analysis of the state of play in the Scottish tech sector – good but not as good as it needs to be – and a detailed and exciting route map for how the government and the private sector can work together to build Scotland into a global leader. As Logan says, “there is a tipping-point within tech ecosystems after which certain virtuous network effects establish themselves, and at which point the ecosystem is essentially self-sustaining. Scotland’s tech ecosystem has not reached this…” 

Whether you’re for or against independence, you should want the Scottish economy to be better and globally competitive in growth areas. Success advances your constitutional case, either way. The Logan report is world-class and should be at the heart of policy-making and all the manifestos for next year’s Holyrood election.

The author visualises an environment in which computer science has the same centrality in the school curriculum as maths and physics. More computing graduates should be recruited into teaching, perhaps via a rapid-access scheme. The subject is still often taught by non-specialists.

This pipeline of young talent would emerge into a higher education system where the incentives are restructured to increase entrepreneurialism, boost the number of software engineering and computer science graduates, and to improve the number of spin-outs in both number and quality. Logan makes a telling point about the existing set-up: “If Larry Page had attended a Scottish university, a KPI [key performance indicator] somewhere would have tipped towards amber when he co-founded Google, then towards red when Sergey Brin joined him.”

It is hard to attract the best talent from London or Silicon Valley because there are not enough job opportunities to tempt senior figures to move their families. But without these people, start-ups struggle to scale up or have to move south. Equally, Scotland should do more to tap its diaspora, as Ireland has done – there are plenty Scots in senior tech jobs in Silicon Valley and elsewhere.

Logan suggests the Scottish government works with venture capitalists to address the shortage of seed capital, and creates a joint investment fund to boost the sector. He believes that these steps, amid a series of other, smart recommendations, could push Scotland to that tipping point “at which the ecosystem hosts a critical mass of viable start-ups and scale-ups.” At this point, the virtuous network effects would kick in, reducing the need for state intervention. The theory is similar to that behind the UK government’s Green Investment Bank, though that was privatised too early.

Scottish ministers, it’s fair to say, are delighted with the depth and quality of the report, and seem determined to pursue its recommendations. Pleasingly, the excellent Kate Forbes is Scotland’s Finance Minister, and gets it. Our national debate is not policy-heavy, dominated as it is by the constitutional question. But the real world stubbornly refuses to go away, and the effects of Brexit, Covid-19, a global downturn and the rise in economic nationalism all threaten Scotland’s future prospects, and with it its ability to pay its bills, fund its public services and keep its citizens gainfully employed.

We all know the future is tech, and that even now we are only in the foothills of its ultimate potential. There’s also no doubt Scotland has the native genius to thrive. The question is, amid the perma-row over independence, does it have the attention span and the will?

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