Soul searching is a new sport in Scotland at the moment now that its GDP growth rate has dropped below the UK average for the first time in over 10 years. The Fraser of Allender Institute at Strathclyde University used this as an opportunity to call for the Scottish Executive to spend more on economic development through enterprise agencies.

Indeed, the success of the Scottish economy over recent years has been largely down to public sector intervention. Without the attraction of inward investment, particularly for electronics firms, it is highly unlikely that GDP growth in Scotland would have matched the UK average over the recent past. However, this inward investment is precisely the reason why Scottish growth may lag behind over the next few years.

Inward investment can kick start an economic backwater. However, it does leave it more vulnerable to downturns in the global economy. At the same time a subsequent upturn in the global economy does not mean that higher growth will automatically return, as investmnet may go to the next location to develop rather than to an existing favourite for inward investment. The answer is to use the more highly skilled workforce that emerges from temporary inward investment to encourage innovation in the economy through home grown industry.

The problem with public sector boosts to economic development is that it is far easier to get short term inward investment gains than to develop a long term strategy to encourage innovation.