Scotland must match ambitious words with meaningful action to grow economy

There is certainly no shortage of ambition. Today the Scottish Government aims to deliver an economy that is ‘fair, green and growing’. Yet recent economic growth has been weak, climate targets have been missed, and inequality remains stubbornly high. Too often Scotland has been long on vision, yet short on implementation.

As other countries use industrial policies to reshape their economies, Scotland can’t afford to sit on the sidelines. In this rapidly changing world, small economies face a stark choice: act boldly to shape markets, or be shaped by global forces you don’t control. The Scottish Government has recognised this, and published its Green Industrial Strategy nearly exactly a year ago. While the strategy marks an important first step, it shies away from the kind of whole-of-government reforms that are required to achieve its goals. It correctly identifies the importance of mobilising investment, yet hopes are pinned on luring inward investment into green sectors. While attracting high-quality inward investment should remain a priority, it cannot be relied on to deliver the necessary transformation. Scotland has consistently drawn more FDI than any UK region outside London, yet business investment overall remains among the lowest in the developed world. This chronic problem of low investment in turn has undermined living standards, hampered productivity growth, and stifled innovation.

Closing the gap between ambition and delivery will require more than a few tweaks to the status quo. Instead, it requires a more proactive state acting boldly to create and shape the industries of the future. This in turn requires a more joined-up approach to policy making, and more effective coordination of key tools and institutions.

Take the recent case of Alexander Dennis, Scotland’s home-grown bus champion. In 2023, the Larbert-based firm invested heavily in repurposing its factory to expand production of electric buses. When the Scottish Government launched a £100m subsidy scheme for net zero buses, the company looked set to lead the way.

But of the 523 vehicles ordered under the fund, two-thirds were awarded to manufacturers based overseas, including over half in China. Shortly after, Alexander Dennis announced plans to shut down its Scottish manufacturing, resulting in up to 400 job losses.

At a time of record public funding for green buses, why is Scotland’s domestic champion shutting up shop? While various factors are at play, the Scottish Government’s £100m subsidy scheme for green buses inadvertently favoured cheaper overseas competitors.

Evaluation criteria were weighted heavily towards financial cost, while little emphasis was placed on local content or job creation, as Alexander Dennis has pointed out. At a time when Scotland should be expanding its green industrial base, jobs are instead being lost as work is offshored abroad. To make matters worse, in some cases the process is being underwritten by taxpayer-funded subsidies. With North Sea oil and gas in decline, and Grangemouth closing its doors, there is an urgent need for a more proactive approach to shape the green industries of the future. In other words: Scotland needs to stop talking the talk on industrial strategy, and start walking the walk.

Our new report sets out a roadmap for how Scotland can rise to this challenge. We set out detailed proposals for a mission-oriented industrial strategy. Unlike traditional approaches to industrial strategy, this isn’t just about picking a few sectors and throwing money at them. It’s about coordinating all available tools, institutions and capabilities to drive system-wide transformation.

In Scotland’s case, it means using the power of procurement more effectively but to maximise public value and create good green jobs. It means fixing Scotland’s messy landscape of subsidies to support Scottish industry, not undermine it. It means strengthening the conditions attached to government contracts and funding, and taking equity stakes in future industries like offshore wind. And it means unlocking the true potential of institutions like the Scottish National Investment Bank and Scottish Enterprise — not as passive funders, but as strategic actors co-shaping the economy.

Crucially, it also means rebuilding capacity within the state. In recent years, the Scottish Government has come to rely heavily on consulting firms to shape policy. However, outsourcing policy in this way weakens government, hollows out state capacity and often extracts value rather than creates it. If a new industrial strategy is to succeed, it is crucial that public institutions have the capacity to think and act big.

Perhaps most importantly, it means embracing a whole-of-government approach and a more joined up approach to delivery. In place of siloed policymaking, we recommend establishing a First Minister-led Industrial Strategy Council to drive cross-government action and ensure accountability for progress.

For too long, Scotland has hoped that ambitious rhetoric will save the day. But a fairer and more sustainable economy cannot be wished into existence. Instead, it requires wholesale changes to the way that policies are delivered, resources are allocated, and public institutions operate.

None of this will be easy, and mistakes may be made along the way. But the prize to Scotland of getting industrial strategy right is enormous. Structured and governed effectively, it can mobilise investment to tackle Scotland’s social and environmental challenges – while also achieving higher productivity, investment and prosperity. In other words: it can achieve the ‘fair, green and growing’ economy that the Scottish Government aspires to, but has not yet delivered.

Mariana Mazzucato is Professor in the Economics of Innovation and Public Value at University College London

Laurie Macfarlane is co-director, Future Economy Scotland