'Chronic' Scotland problem found in damning report by ex-Government adviser who inspired Sir Keir Starmer

The paper by Professor Mariana Mazzucato, whose ideas inspired UK Labour leader Sir Keir Starmer's “mission-driven” approach to government, and the Future Economy Scotland (FES) think-tank said the challenges facing Scotland "cannot be addressed by making minor tweaks". 

The document’s authors called for the Scottish Government to embrace a "mission-oriented" industrial strategy that would see it "aim to act as a lead investor and risk-taker in the economy".

The report found a "chronic problem of low investment has undermined living standards, hampered productivity growth, and stifled innovation" in Scotland. The document added: "Meanwhile, the huge economic opportunities associated with Scotland’s net zero transition have been hampered by a weak industrial base and a lack of investment. We also find that inequalities of income and wealth, as well as between different regions of Scotland, threaten to undermine Scotland’s just transition."

However, the paper said a new industrial strategy could provide an opportunity "to transform these challenges into opportunities for economy-wide investment and purpose-oriented innovation".

The Scottish Government is expected to publish its green industrial strategy later this year.

The new report was co-authored by Prof Mazzucato, founding director of the Institute for Innovation and Public Purpose at University College London, and Laurie Macfarlane of FES.

They said the Scottish Government must “move away from being a market fixer, and embrace its role as a market shaper", while learning from successful “entrepreneurial states” across the world.

"In recent decades, the Scottish Government has often acted as the ‘lender of last resort’ – stepping in to support firms facing financial difficulties," the report said, referencing examples such as Ferguson Marine shipyard and Prestwick Airport.

"But throughout history governments have successfully played an important ‘investor of first resort’ role, acting boldly to create new technological and industrial landscapes."

The report said a successful strategy would require "changes to the way that policies are delivered, the way that resources are allocated, and the way that government and public institutions operate". A further paper will set out how to implement a mission-oriented industrial strategy in Scotland.

Prof Mazzucato served on the Scottish Government’s Council of Economic Advisors between 2015 and 2022. A Scottish Government spokesman said: “Driving innovation and investment across our economy is vital to helping unlock each of the Scottish Government’s priorities of eradicating child poverty, boosting economic growth, achieving net zero and improving public services. Working with the limited policy and fiscal levers in the devolved settlement, we are making strategic investments, including through our economic agencies and the Scottish National Investment Bank, in priority sectors.

“This approach secured a record number of foreign direct investment (FDI) projects last year, according to independent analysis, and is unlocking major projects such as Sumitomo Electric’s £350 million inward investment to deliver a new manufacturing facility in Nigg, and £100m joint SNIB and UKIB investment into Ardersier Port.

“Our forthcoming green industrial strategy will be a key tool in helping business and investors realise the enormous economic opportunities ahead and we look forward to working with businesses and wider stakeholders to deliver it.”