Ian McConnell: Bold Scottish industrial policy requires grown-up politicians

Recent carping from the sidelines and an almost-obsessive and politically blinkered focus by some on a few, albeit highly unfortunate, episodes of intervention by the Scottish Government, including the saga at the Ferguson shipyard in Port Glasgow, suggest major attitudinal challenges here.

That said, any fears among whichever politicians end up occupying the top jobs in the next Scottish government about future sniping from the various other parties should not stop the examination of the case for an ambitious industrial policy. And, if a major strategy can be formulated which looks compelling, it should be embraced.

Hopefully, if a consensus could be formed around such a policy, the often-sapping snarking and over-the-top hand-wringing over efforts to support the economy by deploying public money in the commercial sphere might recede at least a bit. It is obviously too much to hope all of the negative forces on this front would be consigned to history.

Accountability is obviously crucial and projects need to be executed well but some things will work and others will not if Scotland decides to pursue an ambitious industrial policy. Major companies often face large write-offs after taking the wrong path, for example with ultimately ill-starred investment in certain technologies, products or markets or in big new information technology systems which do not work out. And it is important to realise that, if the state is going to intervene to try to boost the economy, create jobs and improve living standards, not everything will work out, no matter how well it is done.

Sir Tom Hunter Picture: Colin Mearns (Image: Colin Mearns)

Policy-makers and opposition politicians should ask themselves whether they think it makes sense for Scotland to accept the risk of setbacks on various fronts in the hope there will be an overall net benefit for economic prosperity, if a coherent strategy can be formulated.

The report commissioned by Ayrshire entrepreneur Sir Tom Hunter’s foundation, and produced by consultancy Oxford Economics, flags past successes of “very interventionist policies” in the likes of Germany and Singapore. It is worth noting here that the report offers an opinion that the £2 billion of funding announced for the Scottish National Investment Bank “does not appear to be particularly generous” given this institution’s remit.

Laying out the arguments for a much more ambitious industrial policy here, the report declares that one way “in which policy might seek to achieve a major transformation of Scotland’s economic prospects is for government – whether in Edinburgh or in London – to become more interventionist”.

The report meanwhile highlights “politics” as one hurdle to achieving success with industrial policies.

It says: “The problem is that the track record of industrial policies, at least in the UK and also Scotland, has not been very positive. One reason is politics. Government interventions are often criticised for being biased towards creating ‘photo opportunities’ – most obviously the opening of a new bridge or business park – but also the announcement of a new tax break, or rescuing a business that was otherwise likely to fail (and that often does so, a year or two later). And government schemes and bodies themselves sometimes persist even when the evidence is that they are failing, or else they get cancelled or abolished without a good economic reason, just because of a change of government or minister.”

Scotland has a good track record in smaller-scale investment stretching all the way back to the days of Scottish Development Finance (SDF). This has been continued through the Scottish Co-investment Fund. It is interesting to note former SDF chief Calum Paterson has gone on to enjoy great success in a private sector setting with Glasgow-based Scottish Equity Partners.

However, the Hunter Foundation-commissioned report highlights well the huge challenges around large-scale, interventionist industrial policy.

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Putting up large amounts of taxpayers’ money to support strategically important businesses or sectors, especially when this is done in straitened circumstances, as it often is, amounts to a risky adventure. Sometimes things will go right. At other times, they will go wrong. You have to weigh the risks of losing public money against the potential benefits, all going well, of retaining a strategically important asset and all the jobs and economic output that could provide over years and decades.

Returning to the very high-profile example of Ferguson, which has attracted a huge amount of attention in what sometimes seems like a Scottish goldfish bowl, there is no doubt this has been a sorry saga. However, it was never an easy project. The Dunnet family, who purchased the Port Glasgow yard in 1995, made a huge effort to try to ensure the shipbuilding business had a viable future. Conversations with management at Ferguson during this era left you in no doubt about the passion and commitment to making it work. Sadly, the shipbuilding business fell into administration in 2014.

Entrepreneur Jim McColl stepped in and bought the yard through his Clyde Blowers Capital vehicle. Things looked good for a while, then came unstuck in spectacular style over a major contract to build ferries to be used by Caledonian MacBrayne. The episode featured a souring of the relationship between Ferguson and Caledonian Maritime Assets Limited, which is owned by the Scottish Government and was responsible for procuring the complex ferries. The saga also involved major cost over-runs, and large Scottish Government loans.

The Ferguson yard fell into administration for a second time, in 2019, and was taken into public ownership by the Scottish Government.

However, while it is obviously vital that state backing for projects that go wrong is scrutinised to learn lessons for the future, it has seemed at times as if some have almost delighted in the Ferguson saga.

It has become a stick to poke with, when the main focus should have been and must in future be on how to preserve the yard and the jobs, whatever happens from here.

It is important to recognise that what is suggested on industrial policy in the Hunter Foundation-commissioned report is not focused on government stepping in with funding in specific urgent situations but deals more broadly with identifying companies, technologies or sectors which might need backing to realise their potential. Artificial intelligence and tackling climate change are flagged as possible areas of focus in this context.

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The report, setting out “several arguments in favour of an ambitious industrial policy”, declares: “One of the most important is that Scotland might have an industry that is small but with high growth potential, and that needs support to get to a scale where it becomes globally competitive. The underlying assumption here is that the financial system (banks, bond and equity markets, venture capitalists) will not do this, perhaps because of short-termism, or perhaps because it is difficult for any single company to prevent its good ideas being adopted by its rivals – so that an investment which is very growth-positive at the Scottish level is not so for the individual company.

“This may be especially the case where similar companies cluster together in a local or regional area, since such clustering perhaps accentuates ‘spill-overs’ from one company to another. And it may be especially the case where there are overseas rivals that are already much bigger, implying that the Scottish company needs to be given extra help until it is of equivalent strength in the global market.”

It adds: “A variation on this is that rather than identifying industries, the focus should be on identifying technologies, or on addressing whatever major societal challenges seem likely to generate the biggest market opportunities. So, for example, artificial intelligence is a technology with applications across many industries, and climate change is a challenge that many industries can address.”

The report suggests the actual help provided could include specific support for research and development investment, or for scale-up companies in their growth phase when they are no longer a start-up but are not yet benefiting from economies of scale (describing this stage as “the so-called valley of death”).

These are good, solid suggestions. But it is evident that such support will not be without risk, as can be seen for example from the observation that individual companies in need of support might face much bigger international rivals and from the use of that “valley of death” phrase. Sizeable sums of public money would at times, in an ambitious industrial policy, of course be directed to things which simply do not work out.

It is not clear, given sarcastic sniping from the sidelines around the Scottish Government’s involvement in the likes of Ferguson, Burntisland Fabrications and Prestwick Airport, that some would-be experts, notably in the political sphere, are grown-up enough to embrace an ambitious industrial policy.

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If we are to pursue this route, people must recognise that, with potential major rewards come very significant risks and the possibility of unfortunate losses. The situation with BiFab was curious with the Scottish Government at the same time seemingly criticised for staking large sums of public money to try to save the business and also for not doing enough.

It is always easy to be wise after the event and some individuals would rather point the finger and try to attribute blame. Such an atmosphere is not conducive to bold industrial policy succeeding. That does not mean a much more ambitious industrial policy for Scotland is not the right way ahead. It is just that some people might have to adjust their attitudes.