Business-led Inclusive Growth in Scotland – SMEs, Good Jobs and Places

The Scottish Government wants businesses to play a central role in delivering its inclusive growth policies at the national, regional and local levels. It recognises that engaging constructively with businesses is contingent on a deep understanding of the links between business practice and inclusive growth policy. The OECD has highlighted the need for building this understanding so that inclusive growth becomes a common agenda which unites businesses, governments and communities (OECD, B4IG platform).

This blog reflects on a new study – Business-led Inclusive Growth in the South of Scotland – which provides evidence and direction for the Scottish Government and the new South of Scotland Enterprise Agency (SOSA). The study was carried out by The Good Economy in partnership with the Ethical Finance Hub. Its core empirical research is an interview survey of 68 SMEs in October/November 2019.

The study’s contribution to Scotland’s and SOSA’s inclusive growth strategy extends to four areas that are relevant to business:

• Inclusive job growth: good job creation across Scotland is a necessary but not sufficient condition for inclusive growth, which also requires redistributive social, regulatory and fiscal policies. Inclusive job growth can be business-led, but inclusive growth can’t. (Good jobs provide for a decent standard of living, security and personal fulfilment.)
• SMEs: generate 55% of Scotland’s private sector jobs, this figure rising to over 70% in the South of Scotland. SMEs are the dominant employers in every Scottish local economy, making them ‘natural partners’ in place-based inclusive growth as a nationwide policy.
• Impact Investing: a global financial market trend that should be grounded and harnessed to support local inclusive growth, and linked to the Scottish Government’s roll out of the Sustainable Development Goals (SDGs). We interviewed leading players in Scotland’s financial community to explore the prospect of place-based impact investment in the South of Scotland.
• Business Metrics: extending the Local and Regional Inclusive Growth Diagnostic tool that underpins Scotland’s strategy. We propose a layered set of metrics: The Good Economy’s place/sector metrics for national policy; this study’s SME Questionnaire Survey metrics for business practice; and, Service Provider metrics for delivery. This ‘metric system’ for business-led inclusive growth should be aligned by policy, practice and delivery.

Inclusive growth is a slippery concept. A majority of SME directors and senior managers could generally relate inclusive growth to their business operations, but a minority were aware of the Scottish Government’s inclusive growth policies per se. Talking with businesses directly and working on the ground in real places are both essential to constructive inclusive growth policy-making. This is the key message of our study – the need to reach out to businesses.

We interviewed a range of SMEs from individual entrepreneurs to the local subsidiaries of global companies. The survey included machinery and knitwear manufacturers, gin distilleries and diversified farms, software specialists and accountants, town centre shops and bistros and out-of-town sports facilities. These structured ‘conversations’ yielded a vision of business-led inclusive growth and a coherent set of strategic priorities for the South of Scotland Economic Partnership (SOSEP). The Good Economy’s own conceptualisation of business-led inclusive job growth was substantiated by the SME interviews: A backbone of SMEs characterised by high business dynamism in terms of sustainable growth, good job creation and social impact, thriving on an economic landscape rich in finance, skills, infrastructure and accessible market opportunities.  (The Good Economy position paper)

The SMEs interviewed here are a positive force for business-led inclusive job growth in Scotland. 70% were growing and creating ‘good jobs’; 60% were paying the Real Living Wage, 7% planned to. Although 5% were formal signatories of The Scottish Business Pledge, more than 50% reported meeting the Pledge’s decent work and progressive workforce development criteria. Some businesses were interested in the Pledge as a development tool. The Pledge should be a vehicle for Scottish Enterprise’s new strategy of backing businesses by their ‘good jobs’ impact and places by their ‘good job’ need.

The Region needs a broad front of business-led inclusive job growth. There is a stark contrast between the strong performance of the 68 SMEs and the weak performance of the Region as a whole. The Good Economy’s place-based metrics for mapping and measuring business-led inclusive job growth showed the Region lagging behind the Scottish average locally and regionally. Notably for the Scottish Government national priority, 2 in 3 local authorities and 7 in 9 regional economic partnerships are behind the national average. The social need for business-led inclusive job growth is nationwide

SOSA’s challenge is to ‘widen the circle’ of business-led inclusive job growth. SMEs identified two shared priorities for local businesses. The first is an integrated, multi-modal sustainable regional transport system. Inclusive growth and connectivity are inextricably intertwined, especially in rural areas like the South of Scotland. The second is an integrated strategy for attracting and retaining talent. The Region should concentrate on attracting graduates and skilled people with young families by developing high-quality housing and first-class education, vibrant ‘smart town’ centres and excellent outdoor leisure and recreation, and infrastructure for SME growth in creative, technology and ‘green economy’ industries. Tourism would also be boosted if these two priorities were met. All of this calls for place-based investment, inclusive regeneration partnerships, and local authority leadership.

There are intangible ways of ‘widening the circle’. It could be done ‘at a stroke’ by relaxing the growth and sector eligibility criteria used to allocate Scottish Enterprise and Business Gateway finance and know-how. 90% of local SMEs don’t use these public ‘gateways’. Halve this rate of uptake and the Region would leap forward on business-led inclusive job growth. Inclusive growth, as a new paradigm, means that every business and every place is included. It also means interconnecting businesses and places, rather than seeing them as ‘islands’ – ‘network externalities’ are a source of business-led inclusive job growth. ‘Communities of businesses’ should be the building blocks of place-based inclusive job growth throughout the Region.

We hope that our study has a seminal influence on inclusive growth policy-making aimed at businesses, and SMEs in particular. Scotland is an excellent context for innovative research and policy. We are delighted to be working with SOSEP on developing a vision and inclusive growth strategy for the South of Scotland – with the new Enterprise Agency around the corner it is an exciting place to be.

Mark Hepworth is Director of Research and Policy at The Good Economy