First Minister speech at Economist event on inclusive growth
11 April 2018
It is a huge pleasure to be here in Shanghai – undoubtedly one of the great global cities, and one which has strong historic ties to Scotland. I understand that a Shanghai Scottish society was established here as far back as 1866, which I can confidently say was before the time of anybody in this room today. The year before that, Thomas Sutherland who hailed from Aberdeen established the first Shanghai branch of the Hong Kong and Shanghai Bank. Fittingly, the Scottish financial presence here continues to this day – in fact, Aberdeen Standard Investments are currently setting up a base here.
That fact demonstrates one of the things that has been very clear to me on this visit. The links between Scotland and China – links of trade and commerce, education and culture, family and friendship – they are probably stronger now than they have ever been at any time in our history.
Since I arrived in Beijing on Sunday I have met representatives of more than 20 Chinese businesses covering sectors such as textiles, technology, renewable energy and food and drink. I have seen significant new agreements signed between Chinese and Scottish universities.
Indeed, just after this event, I’m meeting Vice Mayor Weng - we will announce that the Shanghai Festival’s production of the “Rite of Spring” will be part of the programme for next year’s Edinburgh International Festival programme. And on the very first day of my visit I met 20 young Scottish students who are staying in China on scholarships, and who have been overwhelmed by the warmth of the welcome they have received. I think that connection, those interactions between our young people, really augurs well for the future friendship and relationship between our two countries’ friendship.
What’s also worth noting is that my personal impressions over the last few days – that the friendship between our nations is flourishing – is also borne out by the economic statistics.
On average, Scotland’s exports to China have grown by more than a third in each of the last four years. In the last year alone, Scotland’s exports to China increased by 40%, that’s higher growth in exports to China than with any of our other trading partners. Inward investment to Scotland from China has also increased. More than 9,000 people from China now study in Scotland’s universities. As a result, communities across Scotland mark the Chinese new year, just as Burns night is celebrated regularly in Shanghai and Beijing.
Now, much of this upsurge in trade, investment and study is obviously due to China’s extraordinary economic growth in recent years. But it is also at least in part a testament to Scotland’s own economic strengths.
When Premier Li – although at that time he was Vice Premier Li – came to Scotland in 2011, I remember that he spoke at a welcome reception at Edinburgh Castle. And almost the first thing he said was “it’s great to be in Scotland. The land of invention.”
The compliment was of course all the greater because of China’s own history of invention and innovation. China was of course the country which gave the world the compass, paper and printing, and countless other inventions.
Premier Li was referring in part to Scotland’s history – the fact that people from Scotland developed an astonishing proportion of the technologies that helped to shape the modern world, the world we live in and take advantage of today. James Watt’s steam engine, the television, the telephone and beta blockers for example.
So that history of invention is a long and a proud one. But Premier Li, I think, was not simply talking about our past when he made that remark. I think he was also looking at our present and our future. Scotland today has more top-class universities, per head of population, than any other country in the world, with one exception – not China, but Luxembourg. So we have Luxembourg in our sights and hope to pass them in the future!
Partly because of that influence, we are one of the world leaders in some of the key technologies of the future. In renewable energy, Scotland is a major centre for offshore wind research – in fact we are home to the world’s first floating windfarm.
We are also a pioneer in developing wave and tidal power. We have significant strengths in some related areas such as battery storage and smart grids, which will be of growing importance as the world moves to a low carbon future.
In life sciences, we also see significant success, due to the quality of Scotland’s research, which is internationally recognised. In fact, I’m at an event tomorrow where 5 Scottish universities will sign life sciences collaboration agreements with partners in China.
And Scotland also has one of the largest cluster of data analytics researchers in Europe. As a result of that, we’re starting to see exciting developments in areas such as fintech, digital health and precision medicine, which is an area of increasing importance.
That is one reason, among many, why Edinburgh was recently named the best city in Europe in which to start a technology company. Later today I will meet C-Trip, a Shanghai company which last year purchased Skyscanner, one of Scotland’s most successful tech companies.
It’s also worth noting that there is often remarkable innovation in sectors which are commonly seen as traditional. A good example is our textiles firms, which continue to make tartan cashmere for luxury brands, popular across the world – not least here in China. However they also design materials which are now being used in artificial heart valves. Even our traditional companies in traditional sectors are innovating and growing in to new areas.
All of that helps to explain why Scotland outperforms every part of the UK with the exception of London for attracting inward investment. In fact, for research and development projects, we outperform even London.
A key purpose of my visit is encourage further investment. To any of you in the audience considering further investment, my message to you is that Scotland is open for business.
Alongside our reputation for innovation, Scotland also has what is, by some measures, the most highly qualified workforce anywhere in Europe. In addition, we have a strong and supportive public sector. Many of you will be familiar with my colleages in Scottish Development International, who are always looking at how we can support companies with growth ambitions. We also can offer a fantastic quality of life – and the weather is not as bad as reported! Yes, it was snowing in Scotland last week but it was also snowing in Beijing. In short, Scotland is an ideal country in which to live, work, study or invest.
So as you will, I hope, have gathered, Scotland has a strong and successful economy and we have real ambitions to grow that economy further. All of that said, we also face challenges, and we are not unique in that. One of the big challenges right now as we look ahead is the UK’s decision to leave the European Union – something Scotland did not vote for in the EU referendum, but which will affect us greatly, not least the impact on our economy.
Other challenges faced by Scotland confront almost all countries across the developed and developing world- how do we move quickly to a low carbon economy, how to adapt to an ageing population – a good thing but one that presents challenges for all of us – and how to ensure good, secure, fulfilling employment in an age of increasing automation.
In addition, in recent years, economic growth in Scotland has been lower than we would have liked – partly, but not entirely, that is due to a slowdown in our oil and gas sector, which is something we are very focused on in the years ahead. And although Scotland’s productivity in the past decade has largely caught up with the rest of the UK, closing that gap, our productivity remains behind some of our European competitors. In the long term, that will have an impact on living standards.
Many of those economic challenges are inextricably linked to social challenges. In particular, although inequality in Scotland is lower than it is across the UK as a whole, it is still higher than anyone should be comfortable with.
I spoke yesterday at an event in Beijing on child poverty which was organised by Unicef and the Chinese Friendship Association. One of the points I made there is that almost a quarter of children in Scotland grow up in poverty. That is completely unacceptable in itself - it’s why we have launched an major new initiative to tackle child poverty.
The point I want to make is that poverty and inequality – as well as being morally unacceptable – are also deeply economically damaging. The OECD estimated recently that between 1990 and 2010, rising income inequality in the UK reduced our economic output per head by 9 percentage points – that’s approximately £1,600 for everyone in the country.
Low incomes reduce aggregate demand. They restrict the tax revenues needed for investment. And unequal economies are also less resilient– they are more likely to depend on borrowing and credit, which means their growth is less likely to be sustainable.
So it stands to reason that we will do better as a society, if we can benefit from the skill, talent and innovation of all of our people.
I talked earlier about Scotland’s history of invention. This is interesting because the reason many of the inventions that shaped the modern world came from Scotland was it was one of, if not the, first society to introduce universal free school education.
By educating more people than other nations, we nurtured more individuals who had the skill and talent to invent. Of course, at that time it was almost exclusively men who could make full use of their talents. The key point was that we gained a competitive advantage.
And if we are to make the most of our potential in the 21st century we will have to do more to maximise opportunities for all – regardless of gender or background. Promoting equality doesn’t detract from our focus on innovation – it is an essential part of our focus on innovation.
Now of course in looking at economic development and inequality, China is starting from a very different position from Scotland, and will often have a very different perspective. China’s population is also, of course, vastly larger than ours – Shanghai on its own has almost five times the population of Scotland.
However, I know that some of the questions Scotland grappling do have some resonances here in China.
When President Xi addressed the 19th National Party Congress last autumn, he pledged to address “development’s imbalances and inadequacies, and push hard to improve the quality and effect of development.” As part of that, he has of course pledged to eliminate absolute poverty by 2020.
I know that China is also looking at regional inequalities. When Christine Lagarde spoke in Beijing last year about the “Belt and Road” initiative, she praised the fact that it would contribute to more balanced economic growth.
And China also of course has a deep interest in how the international economy works. President Xi last autumn stressed the need to make globalisation “more open, inclusive and balanced”.
There’s an important point to make about that. Policies such as free trade and immigration will often bring benefits to the economy as a whole, but they also have the potential to disadvantage – or be seen as disadvantaging - particular areas and particular groups.
We’ve seen some of the consequences of that in Europe and the USA in recent years. In fact, the UK’s vote to leave the European Union is a case in point.
It’s an important reminder to those of us who believe that the benefits of globalisation, if properly managed, should outweigh the costs. We can only sustain support for a dynamic and open economy if we do more to build a fair and inclusive society.
For all of these reasons – moral, economic and political - there is growing interest around the world in promoting growth that is inclusive. Growth which everyone has a fair chance to contribute to, and from which everyone in society can benefit.
The Scottish Government has been trying to take a lead here. In 2015, when we revised our Economic Strategy, we ensured that it focused jointly on increasing competitiveness and tackling inequality as the twin aims at the heart of that strategy.
What that means in practice, is that the Scottish Government recognises that there is an economic case for many of our key social interventions, such as tackling poverty, increasing attainment in Schools, and significantly increasing childcare provision.
And we encourage progressive employment practices. We attach a high priority to fair work. We also support what’s called the living wage – a level of pay, higher than the legal minimum wage, which has been calculated to ensure that people who work can afford the basic necessities of life.
We also promote gender equality in politics, in wider society, and of course in the workplace. This is something I spoke about on my last visit to China. I pointed out that for virtually all nations, fully empowering women is probably the single and most straight forward way, in which they can sustainably increase their economy’s productive potential.
If you look at employment specifically, in Scotland we are encouraging more women to become entrepreneurs – it’s been estimated that if as many women as men in Scotland started up and ran their own businesses, it would add almost £8 billion a year to our economy. That would represent an increase of 5% in Scotland’s GDP.
Our major expansion of childcare, often seen as a social intervention, is also a hard edged economic intervention, helping women in particular to get back in the workplace and pursue careers.
And in doing all of this, one point we try to get across is that gender equality and fair work aren’t simply things that are good for employees – although they are, and that is important. They are also good for employers and good for business. It helps the bottom line to ensure the talents of all are recognised.
So one of the things we are trying to do is to work with business to create a partnership for productivity – one where Government is supportive of business, so that Government and business together can support a fairer, stronger, more prosperous society.
And of course we know that it’s easier to encourage that sense of partnership, if government is doing everything it can to create an environment which promotes enterprise.
We invested in infrastructure – for example we are committed to ensuring that every home and business in Scotland has access to superfast broadband by 2021.
And we also set out important measures to work with businesses to promote growth. In particular, we want to further enhance Scotland’s capacity for innovation.
We are significantly increasing government support for business research and development. We are establishing a national institute to build on our current strengths in advanced manufacturing.
And we are in the early stages right now of establishing a national state investment bank which can provide mission-led, long-term capital for ambitious companies and important infrastructure projects in key sectors.
That mission-led objective is important. The low carbon economy is an obvious mission to look at. But there is also scope and need for innovation in other areas- for example how we adapt to an ageing society, investing in places. The objective of the new bank will provide will provide strategic investment and support more and faster innovation.
So that’s just a sense of the work we are doing in Scotland why it’s relevant to the world in which we live.
The final point I want to make – and it’s one which has been apparent throughout this speech - is that virtually all of the issues I’ve raised this morning are ones which are faced not just by Scotland or the UK, but by countries around the world. So it makes sense for the Scottish Government to work with other countries around the world – through trade, through joint investment, and through collaboration on research, and the sharing of experiences and expertise.
That’s why it has been so gratifying, throughout my visit to China this week, to see that the partnership between Scotland and China – between our governments, our universities, our businesses and our people – getting stronger and closer than ever.
I am really hopeful that by working together on new research and new technology, we can develop innovations which bring greater prosperity and economic growth.
And through events like today, we can also explore – from our different perspectives and starting points – how to ensure that that growth is sustainable and more inclusive.
By doing so, we can benefit people not just in Scotland and China, but also around wider world.
So it’s great to be here and have this opportunity to share my thoughts with you. But perhaps more importantly to give you the chance to share your thoughts with me.