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2nd – 3rd November 2006

PROCEEDINGS OF THE3RD BUSINESS IN THE PARLIAMENT

CONFERENCE

Published by the Enterprise and Culture Committee on behalf of The Scottish Parliament and The Scottish Executive, February 2007

CONTENTS

Page

Foreword 1

Programme 3

Alphabetical list of delegates 5

Reflections from the discussion sessions 9Report on investment, innovation and excellenceReport on sustainable developmentReport on skills in the modern workforceReport on Scotland’s infrastructureReport on government and businessReport on businesses of the future

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Transcript 31

FOREWORD

“It is with great pleasure that we have provided this joint foreword to the proceedings of this year’s Business in the Parliament Conference. These conferences are now considered to be one of the flagship events in the calendar for both politicians and business people. They differ, however, in one crucial respect from many of the other conferences and seminars that take place through the year. The Business in Parliament Conference is jointly organised by both the Scottish Executive and the Scottish Parliament and also enjoys the strong support of our partners amongst the business organisations and trades unions. Held in the Scottish Parliament building, it is truly, as was the intention, a “gathering place” and “a place of shared conversations, not sterile conversations” between Scotland’s business leaders and practitioners, government ministers and parliamentarians.

This sense of dialogue, often robust but nonetheless welcome, is critical if we as policy-makers and legislators are to understand the needs and views of our wealth creators and vice versa. The opportunity to discuss plans and priorities is vital to achieving our shared goal of growing our economy.

Both the Scottish Executive and the Enterprise and Culture Committee of the Scottish Parliament agreed as an outcome of the latter’s inquiry into business growth that there needs to be a national consensus on growing Scotland’s economy. Although we enter a period running up to the elections in May 2007 where there will be much debate on the issues of the day, we both share the view that government, Parliament, business and trade unions must continue to strive for a common understanding on the way forward. That is something which will require a mature debate and a meeting of minds. The very fact that we, albeit representing different political parties, can jointly organise this conference is testament to our recognition of the need to work together on the priorities for business.

We don’t intend to comment at this stage on all of the points raised during the Business in the Parliament Conference. But it is important that politicians of all political persuasions as well officials in the Executive and its agencies look carefully at the views expressed by the business community and take them properly into account when considering their policies and priorities.

We are very grateful to all those that took part in this year’s Conference and to the continued support of Scotland’s business organisations and the Scottish Trades Union Congress. We also thank all of our keynote speakers for their involvement and the facilitators of this year’s discussion groups for their assistance. We are particularly grateful for the collection of reports provided by the facilitators that can be found in these proceedings and it would be remiss of us if we didn’t comment on some of the ideas they contain.

We are struck by the comments from Professor Russel Griggs that, in disseminating Scotland’s vision for the future across the globe, we cannot rely on government or economic development agencies alone. Scotland’s businesses and their staff are a vital resource in promoting Scotland worldwide.

We also agree with the observations in Professor Griggs’ report that 98% of Scotland’s companies employ fewer that 10 people and that it is the transition of these firms into larger, more profitable businesses that is critical to the growth of our economy. We must provide an environment for more of Scotland’s smaller firms to grow into companies of

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scale, active and located in Scotland. Part of this must come from efforts to increase the levels of investment by companies in research, development and innovation.

This point is also highlighted in Liz Cameron’s report which also noted that we need to continue to work to ensure that excellence within our Universities is fully exploited commercially if Scotland is to remain ahead of its competitors in this area. But, as her group noted, we also need to build on initiatives such as Determined to Succeed, if we are to nurture and encourage an innovative business-focussed attitude amongst our young people.

Both Niall Stuart’s and Shonaig Macpherson’s reports have highlighted the need both in government policy generally, and in the sustainable development agenda more specifically, to get both the principle and the detail right in our legislation and policies. We note the frustrations amongst some in the business community that the principle behind our efforts is often sound but the detail needs to be implemented sensitively and timeously. We agree, and plan to look carefully at the points raised in this year’s conference on procurement, getting the planning system right, on measures to support R&D and the regulatory environment.

Grahame Smith’s report rightly emphasises the importance of providing the workforce of the future with the right mix of skills and attitudes, especially a spirit of entrepreneurship, to succeed. But he also stresses the clear need to remain committed to investing in improving the skills of our existing workforce if we are going to maintain and improve our competitive position.

We also share many of the views expressed in Iain Macmillan’s report in relation to the critical importance of the need to develop Scotland’s infrastructure and improve the connectivity of air, road and rail. In recent weeks government has acted on concerns in relation to the Firth of Forth.

The group could not have put in better when he indicated that there is a political side to infrastructure which is about delivering on economic objectives. As the group observed, if everything becomes a priority it means nothing is a priority.

We share this view and would not restrict it to only infrastructure issues. Achieving an informed vision of our shared priorities for, and respective roles in, growing Scotland’s economy is precisely why we have, and will continue to support, the Business in Parliament Conference.”

Nicol Stephen MSPDeputy First Minister and Minister for Enterprise and Lifelong LearningThe Scottish Executive

Alex Neil MSPConvenerEnterprise and Culture CommitteeThe Scottish Parliament





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PROGRAMME

Thursday 2nd November, 2006Evening Reception at the Scottish Parliament

6.30pm

7.00pm

7.45pm

9.30pm

Guests arrive

Welcome - The Rt. Hon George Reid MSP, The Presiding Officer

An evening withSir Tom Farmer CBE KCSGHosted by Sarah Smith, journalist and broadcaster

Drinks Reception in the Garden Lobby

Close

Friday 3rd November, 2006

8.15am Arrival and Registration with refreshments and a light breakfast

9.15am Welcome – The Rt. Hon George Reid MSP, The Presiding Officer

9.25am Opening Address - The Deputy First Minister and Minister for Enterprise and Lifelong Learning, Nicol Stephen MSP&Alex Neil MSP, Convener of the Enterprise and Culture Committee

9.45am Business Futures & Future Businesses – challenges of the 21st Century Mary Dickson, Managing Director, First ScotRail Sir Alan Langlands, Principal & Vice Chancellor, University of Dundee Jim McColl, Chairman & Chief Executive, Clyde Blowers David Milne, CEO, Wolfson Microelectronics

10.25am Discussion Sessions

12pm Feedback and Open Forum

12.35pm Scotland’s place in the worldGerry Rice, Deputy Director of Communications, International Monetary Fund, former Communications Director, The World Bank

12.55pm Closing speech - The First Minister, The Rt. Hon Jack McConnell

1.10pm Closing Remarks and Close

1.15pm Lunch

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ALPHABETICAL LIST OF DELEGATES

A Brian Adam MSP (Aberdeen North) (SNP)Mr Mark Adams (Microsoft)Bill Aitken MSP (Glasgow) (Con)Mr Hugh Aitken (Sun Microsystems Ltd)Mr Neil Anderson (Scottish and Newcastle UK)Mr Erik Archer (Fullex Architectural Aluminium Ltd)

B Jackie Baillie MSP (Dumbarton) (Lab)Shiona Baird MSP (North East Scotland) (Green)Richard Baker MSP (North East Scotland) (Lab)Mr Edgar Balfour (Orkney Meat Ltd)Mark Ballard MSP (Lothians) (Green)Mr John Banister (Ackergill Tower)Scott Barrie MSP (Dunfermline West) (Lab)Mr Mark Batho (Scottish Executive)Mr David Bleiman (Scottish Trades Union Congress)Professor D Jane Bower (Centre for Enterprise Management)Mr Stephen Boyd (Scottish Trades Union Congress)Rhona Brankin MSP (Deputy Minister for Environment and Rural Development)Mr Tom Brock (Scottish Seabird Centre)Mr Ted Brocklebank MSP (Mid Scotland and Fife) (Con)Mr Derek Brown (The Edrington Group)Mr George Brown (Brown and Brown Consultants)Derek Brownlee MSP (South of Scotland) (Con)

C Ms Lezley Cameron (Lezley M Cameron DL)Ms Liz Cameron (Scottish Chamber of Commerce)Mr Tony Cameron (Scottish Prison Service)Mr Peter Campbell (D.H. McKellar)Mr Michael Cannon (Scottish Enterprise)Mr Duncan Cantor (HBOS plc)Mr David Carrick (Memex Technology Ltd)Mr David Chalmers (Federation of Small Businesses in Scotland)Mr George Chalmers (REM Ltd)Mr Keith Chapman (Curtis Fine Papers Limited)Mr John Clark (John Clark Motor Group)Mr Alan Craig (Caledonian Financial Planning)Mr Bruce Crawford MSP (Mid Scotland and Fife) (SNP)Mr Jim Crawford (Dowhill Country Fayre & J.C. Energy)Mr Sandy Cumming CBE (Highlands and Islands Enterprise)

D Mr Graeme Dalziel (Dunfermline Building Society)Mr Bruce Davidson (Loch Fyne Oysters)Mr David Davidson MSP (North East Scotland) (Con)Mr Niall Davidson (Scottish Council for Development and Industry)Mr Ben Dawson (Ben Dawson Furniture)Susan Deacon MSP (Edinburgh East and Musselburgh) (Lab)Mr John Devine (Greater Easterhouse Development Co)Mr Brendan Dick (BT Scotland)Mr Graeme Dickson (Scottish Executive)Ms Mary Dickson (First ScotRail)Mr Domhnall Dods (THUS plc)Mr Bryan Donaghey (Diageo Global Supply)Mr Harry Donaldson (Scottish Trades Union Congress)Mr Brian Donnelly (Devro Scotland)Mr Alastair Dorward (Perthshire Chamber of Commerce)

E Mr Gerard Eadie (CR Smith)Mr George Eadie (CR Smith)

Ms Helen Eadie MSP (Dunfermline East) (Lab)Mr Gerry Edwards (National Semiconductors (UK) Ltd)Dr Janet Egdell (Transport Scotland)Fergus Ewing MSP (Inverness East, Nairn and Lochaber) (SNP)Mr Ian A Ewing (Sovereign Homemaker)

F Linda Fabiani MSP (Central Scotland) (SNP)Mr Martin Fairbairn (Scottish Further & Higher Education Funding Council)Mr Dominic Fairlie (Scotia Homes Ltd)Sir Tom Farmer CBE KCSG (Maidencraig Investments)Mr Iain Ferguson (CBI Scotland)Alex Fergusson MSP (Galloway and Upper Nithsdale) (Con)Ross Finnie MSP (Minister for Environment and Rural Development)Mr Hamish Fraser (Federation of Small Businesses in Scotland)Murdo Fraser MSP (Mid Scotland and Fife) (Con)Mr Harry Frew (Scottish Trades Union Congress)

G Mr Peter Gardner (Annick Manufacturing Ltd)Mr Jim Garrity (Pollock Credit Union)Ms Moira Gash (Federation of Snall Businesses in Scotland)Mr David Gibb (Wavegen)Rob Gibson MSP (Highlands and Islands) (SNP)Karen Gillon MSP (Clydesdale) (Lab)Marlyn Glen MSP (North East Scotland) (Lab)Miss Annabel Goldie MSP (West of Scotland) (Con)Mr Alan Gordon (Stena Line)Mr Charlie Gordon MSP (Glasgow Cathcart) (Lab)Mr David Gordon (Windsave Ltd)Dr Andrew Goudie (Scottish Executive)Mr Keith Gowenlock (WSP Development & Transportation)Mr Iain Graham (Graham Technology plc)Mr Steve Graham (Scottish Manufacturing Advisory Service)Christine Grahame MSP (South of Scotland) (SNP)Mr Paul Grant (Mackays Ltd)Mr Richard Grant (BP)Mr Douglas Greig (Scottish Executive)Professor Russel Griggs (Imes Group Ltd)

H Robin Harper MSP (Lothians) (Green)Mr Stephen Harwood (Balumbie Castle Golf Club)Mr Patrick Haynes (Thus plc)Mr Mark Hedley (Scotchem Ltd)Mr Phil Henderson (Scottish Power)Hugh Henry MSP (Deputy Minister for Justice)Mr Gavin Hewitt (Scotch Whisky Association)Mr Ron Hewitt (Edinburgh Chamber of Commerce)Mr Pete Higgins (CGI Media Ltd)Mr John Howie (Babcock Naval Services)Mr Martin Hunter (Federation of Small Businesses in Scotland)

J Mr Allan James (Semefab)Cathy Jamieson MSP (Minister for Justice)Alex Johnstone MSP (North East Scotland) (Con)

K Mr John Keenan (Scottish Trades Union Congress)Mr Bob Keiller (PSN)Ms Fiona Killen (Anderson Strathern)Mr Billy Kirkwood (RDK Construction/Robert Ryan)Mr Aydin Kurt-Elli (Lumison)

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L Mr Alistair Lamont (Wamcal Ltd)Johann Lamont MSP (Deputy Minister for Communities)Sir Alan Langlands (University of Dundee)Mr John Langlands (British Polythene Industries)Mr Bob Leitch (Ayrshire Chamber of Commerce)Ms Liz Lewis (Scottish Executive)Mr Namasiku Liandu (Scottish Trades Union Congress)Mr David Lonsdale (CBI Scotland)Ms Alison Loudon (NXD Recruitment)Mr Keith Lough (Composite Energy)Ms Susan Love (Federation of Small Businesses)Dr Janet Lowe (Skills Committee)George Lyon MSP (Deputy Minister for Finance and Public Sector Reform and Deputy Minister for Parliamentary Business)Mr Inglis Lyon (Highlands & Islands Airports Ltd)

M Ms Margo MacDonald MSP (Lothians) (Independent)Mr Iain MacGregor (Vested Interest Design Ltd)Mr Rory Machail (Federation of Small Businesses in Scotland)Mr Maitland Mackie (Mackie’s of Scotland)Mr Murdo MacLeod (MacLeod Construction Ltd)Mr John Macpherson (Alloa Hire Centre Ltd)Ms Shonaig Macpherson (Scottish Council for Development and Industry)Mr Graham MacQueen (MacQueen Bros. Removals & Storage)Mr Warrick Malcolm (Society of British Aerospace Companies)Ms Christine Manson (Simply Organic)Paul Martin MSP (Glasgow Springburn) (Lab)Mr John Mason (Scottish Executive)Jim Mather MSP (Highlands and Islands) (SNP)Michael Matheson MSP (Central Scotland) (SNP)Christine May MSP (Central Fife) (Lab)Mr Robert McAlpine (Hydrasun Group Ltd)Mr Tom McCabe MSP (Minister for Finance and Public Service Reform)Mr John McClelland CBE (Scottish Funding Council)Mr Jim McColl (Clyde Blowers Ltd)Rt Hon Jack McConnell MSP (First Minister)Ms Claire McCormickMs Leona McDermid (HISEZ)Mr Tom McGhee (Spark of Genius)Mr David McGinley (Babcock Engineering Services)Jamie McGrigor MSP (Highlands and Islands) (Con)Mr David McIntosh (BAA Glasgow)Mr Dominic McKay (Chivas Brothers)Mr Ian McKay (Royal Mail Group plc)Ms Flora McLean (Scottish Food and Drink Federation)Mr Norrie McLean (Scottish Food and Drink Federation)David McLetchie MSP (Edinburgh Pentlands) (Con)Mr Iain McMillan CBE (CBI Scotland)Mr Duncan McNeil MSP (Greenock and Inverclyde) (Lab)Ms Joanne Miller (Federation of Small Businesses in Scotland)Mr David Milne (Wolfson Microelectronics plc)Mrs Nanette Milne MSP (North East Scotland) (Con)Mr Alan Mitchell (CBI Scotland)Mr Bill Mitchell (Greenock Chamber of Commerce)Mr Gordon Mitchell (Caledonian Paper)Mrs Nosheena Mobarik OBE (M Computer Technologies)Mr Alasdair Morrison MSP (Western Isles) (Lab)Mr Paul Motley (European in Scotland)Mr Dave Moxham (STUC)Bristow Muldoon MSP (Livingston) (Lab)Mr David D Murray (Charlotte Capital)

N Alex Neil MSP (Central Scotland) (SNP)Ms Sarah Neil (Database Business Systems Ltd)Mr Douglas Niven (Integrated Marketing Associates)

O Mr John O’Neill (Strathclyde Homes)

P Mr Jack Perry (Scottish Enterprise)Dave Petrie MSP (Highlands and Islands) (Con)Mr Andrew Pinkerton (Construction Industry Group)Ms Aileen Ponton (Sector Skills Development Agency)Mr Iain Provan (Direct Telecom, East Renfrewshire Chamber of Commerce)Mr Dacre Purchase (Scottish Coal Company Ltd)Ms Polly Purvis (ScotlandIS)

R Mr Hugh Raven (Soil Association Scotland)Rt Hon George Reid (Presiding Officer)Mr Gerry Rice (International Monetary Fund)Ms Maura RiceMs Nicola Richards (Columbus 1400)Mr William Roe (Highlands and Islands Enterprise)Mr Kenneth Ross (Elphinstone Group)Mr Geoff Runcie (Aberdeen Chamber of Commerce)Mr Jamie Russell (Tree of Knowledge Ltd)Mr Peter Russell (Scottish Executive)Mr Bill Rutherford (Powerall Systems Ltd)Mr Philip Rycroft (Scottish Executive)

S Mr Stephane Sallmard (Optos plc)Tavish Scott MSP (Minister for Transport)Mr Hugh Scullion (Scottish Trades Union Congress)Mr John Seddon (Maxwell Conversions)Mr Peter Selmen (Elphinstone)Mr Wilson Shaw (BCA Insulation)Ms Anita Shelton (Scottish Trades Union Congress)Mr Norman Simpson (Renfrewshire Chamber of Commerce Ltd)Professor Charles P Skene OBE (Skene Group)Mr Duncan Skinner (Production Services Network Ltd)Mr Grahame Smith (Scottish Trades Union Congress)Margaret Smith MSP (Edinburgh West) (LD)Mr Peter Smith (Diageo)Ms Sarah Smith (journalist and broadcasterMr William Smith (WSP Development and Transportation)Mr Martin Stepek (Scottish Family Business Association)Nicol Stephen MSP (Deputy First Minister and Minister for Enterprise and Lifelong Learning)Mr George Stevenson (R Mathieson & Sons Ltd)Stewart Stevenson MSP (Banff and Buchan) (SNP)Mr Tim Steward (Federation of Small Businesses in Scotland)Mr Tom Stokes (Evans Easyspace)Mr Jamie Stone MSP (Caithness, Sutherland and Easter Ross) (LD)Mr Charles Struthers (Enstone Thistle Ltd)Mr Graham Struthers (Federation of Small Businesses in Scotland)Mr Niall Stuart (Federation of Small Businesses)Ms Winifred Sutherland (Federation of Small Businesses in Scotland)Mr John Swinney MSP (North Tayside) (SNP)

T Mr Miles Templeman (Institute of Directors)Mr Ivor S Tiefenbrun MBE (Linn Products Ltd)Mr Murray Tosh MSP (West of Scotland) (Con)

U Ms Linda Urquhart (Morton Fraser LLP)

V Mr Brian Veitch (Arup Scotland)Mr Henk Verweijmeren (Invisible Heating Systems Scotland)

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W Mr Derek Walker (The Tree of Knowledge)Mr Jim Wallace MSP (Orkney) (LD)Sir John Ward (Scottish Enterprise)Mr Andrew Watson (Federation of Small Businesses in Scotland)Mr David Watson (David Watson)Mr David Watt (Institute of Directors)Ms Maureen Watt MSP (North East Scotland) (SNP)Mrs Jo Wedlock (Homecoming Scotland)Mr Alfred Weir (NVT Group Ltd)Mr Roger White (AG Barr plc))Mr Gareth Williams (Scottish Council for Development and Industry)Mr Tim Williams (Millstream Associates Ltd)Mr Andy Willox OBE (Federation of Small Businesses in Scotland)Mr Scott Willox OBE (Gold Star)Mr Allan Wilson MSP (Deputy Minister for Enterprise and Lifelong Learning)Dr Peter Wormald (Ciba Speciality Chemicals)Mr Andrew Wright (Long Life Solutions Ltd)

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REFLECTIONS FROM THE DISCUSSION SESSIONS

As part of this year’s Business in the Parliament Conference, six discussion groups were held for delegates on the following themes:

Investment, innovation & excellence- Stimulating business investment- Funding new ventures- Encouraging R&D

Sustainable development- Businesses’ future energy needs - Water and sewerage services

Skills in the modern workforce- The strategy for those not in employment, education or training- Developing the workforce- Education and skills

Scotland’s infrastructure- Transport priorities- Telecommunications- The planning system

Government and business - Business rates- Better regulation- The role of Business in the Parliament Conferences/Economic Forum for Scotland- Public sector reform

The Business of the Future- Globalisation- Technological challenges

Each session was hosted by a minister of a member of the Parliament’s Enterprise and Culture Committee. Each session was co-hosted by a representative of one of Scotland’s primary business organisations and the Scottish Trades Union Congress. These co-hosts were asked to produce a short article, reflecting on the conversations in their discussion groups and providing their own expert opinion on the subject matter. These have been collected together and are published below as an integral part of the proceedings of this year’s Business in the Parliament Conference.

Disclaimer

The contents of the articles are the responsibility of the co-host for each of the discussion sessions. Although drawn on the conversations that took place in these sessions, the views expressed may not necessarily represent those of all the delegates that took part in each session, or the opinions of the Scottish Executive or Scottish Parliament.

REPORT ON “INVESTMENT, INNOVATION AND EXCELLENCE” DISCUSSION GROUP

Host: Nicol Stephen, MSP, Deputy First Minister and Minister for the Enterprise and Lifelong Learning

Facilitator: Liz Cameron, Director, Scottish Chambers of Commerce

It was difficult to cover this interesting and varied topic in the hour allocated. The Deputy First Minister, Nicol Stephen, appreciated this and kept his opening remarks brief. He wanted to explore the current position in Scotland in relation to support from the Venture Capital and Financial communities. On R&D, he stressed that this was at the heart of what we as a country need to do to grow companies of scale and generate the growth of local companies and those with Headquarters here.

We probably did not get the opportunity to fully explore these topics but I can assure you there was a wide and varied contribution from those present. I would like to take this opportunity to thank everyone involved again. It had been agreed that the issues raised and discussed in this session would be non-attributable. The following is my report on the discussions which I have tried to address by themes rather than the order they were expressed. It is not a verbatim report and I apologise if anybody feels I have not accurately covered their personal contribution.

Investment

To begin the discussion I posed the question “Do businesses have difficulty accessing venture capital?”

Initial responses from the delegates suggested that there was certainly a difficulty when looking for small amounts of money; it was thought that if you were looking for larger amounts it was less difficult.

Indeed the problem of accessing equity below £5 million was highlighted. Initiatives such as the Scottish Co-investment Fund and the recently introduced Scottish Venture Fund were welcomed in addressing this area.

The particular problem of not having enough successful Scottish companies was also raised as an issue in relation to VC investment here.

One delegate suggested that there were not enough projects being presented and those that were had a poor success rate. We have good ideas but present them badly. It was suggested that businesses should be more ambitious and look at the longer term picture when pitching for VC support.

Another delegate raised the instance of his own company, which hade made the top 10 in a world wide technology award competition, being unable to attract support from the Scottish financial community and which had to go to London. He believed that pressure needs to be exerted to encourage our financial institutions to support Scottish proposals. It is considered that it is less of an effort to do an equity investment deal down South. 3i’s decision to all but abandon the Scottish market was also mentioned.

It was suggested that VC’s don’t understand technology businesses although this could be addressed by better presentation of proposals.

Our VCs seem to be less likely to take a long-term view on an investment, unlike foreign VC’s who are more patient. This could be addressed by businesses being prepared to make short-term partnership agreements and being prepared to change funding partners every 3 years.

A delegate also mentioned the regional aspect of equity investments within Scotland, where this is seen as a finance solution in the East but less likely an avenue for companies in the West.

Innovation

If there was one underlying theme that continually arose it was on the need to ensure that entrepreneurship/innovation was taught at an earlier age than currently. One delegate suggested that we expect this to happen when they turn 18. It was highlighted that, in Iceland, innovation education begins at 3 and carries on to 18. We need to be prepared to look to other countries to consider what can be done on this front whilst accepting that the Determined to Succeed initiative is already in place.

Our education system is aimed at equality of opportunity rather than competition and achievement and it was thought that we need a system to identify and nurture skills.

It is important that we become a more entrepreneurial nation and look at countries such as Taiwan as an example of how this should and could be done. We also have very few companies who are prepared to do business in the Far East/India where vast opportunities exist.

Our position in the competitiveness league (we are 61 out of 61) was highlighted as disappointing and it was suggested that this isn’t down to lack of good ideas but an inability to present them effectively.

On a positive note Scotland is generally seen as a good place to come from when working abroad.

However, at home, our people tend to lack ambition and indeed failure is seen very negatively and sometimes you are considered a villain if you fail. It was suggested that this can also be the position when you succeed! We need to consider how we can improve national self-esteem.

Excellence

The discussion concentrated on the impact of our universities, one delegate highlighted that academic excellence was the main motivation and not about producing products and new processes.

This was not fully accepted and the Knowledge Transfer support scheme was highlighted as being aligned with the main motivation of getting IP out of our universities faster. Although the question how we go about doing this needs addressed. We need to make a substantial investment in education in relation to IP and Scotland’s output; we cannot afford to stand still as other countries are catching up

Legislation was also raised as a particular stumbling block. An example of this was the loss of our competitive edge on wind technology development to the Danes. The Government needs to ensure a level playing field.

The development of our manufacturing base was mentioned and a delegate suggested that, given the expense to manufacture here, we should concentrate on our service sector.

Other areas covered included tax and in particular R&D tax credits, which were seen as particularly complicated. It was highlighted that a business is not able to claim more than their PAYE in a particular year. EIS tax relief was seen as a positive initiative which allows companies to utilise the wealth of Scotland’s high net worth individuals. It was, however, thought that current tax breaks were inadequate.

Procurement

This was also raised with one delegate suggesting a competition be run to improve energy storage and the winner given a contract: this would stimulate investment in this particular area.

There was a final word of warning that a lot of the issued raised during our discussions are the same which have affected us for the last 10 years and we need to address these and move on.

Given timing constraints the Minister briefly summarised the discussions and thanked everyone for their contribution.

Liz CameronDirectorScottish Chambers of Commerce

REPORT ON “SUSTAINABLE DEVELOPMENT” DISCUSSION GROUP

Host: Ross Finnie MSP, Minister for the Environment and Rural AffairsFacilitator: Shonaig Macpherson CBE, Chairperson, Scottish Council for Development

and Industry

Remit

The ‘Sustainable Development’ discussion session, arguably, underpinned all Business in the Parliament discussion groups. For example, it clearly related to the discussion sessions on skills or Scotland’s infrastructure and also links into the discussion on Scottish competitiveness. For the sake of brevity however, the Scottish Executive and Scottish Parliament instructed the break-out group to focus on three key areas of resource efficiency: energy, water and business waste and discuss the challenges in each area.

The Discussion

Sustainable Development

At the top of the discussion was what was understood by the term sustainable development and what challenges lay in the key areas under discussion: waste, energy and water. Broadly speaking, it was suggested that improving resource efficiency; environmental policies in businesses; new markets for green products and technologies, and encouraging businesses’ own staff were key challenges within a wider principle, which at its heart was simply about using scarce resources in an economically and environmentally responsible way.

The discussion group agreed that sustainable development contained a social equity/economic dimension as well as environmental one. Indeed, the goal of the sustainable development drive should be to become normal development – not an extra cost. In this context, the enablers of development, such as the planning system, building standards etc were considered to be very important.

In the wider context, the benefits of travelling by rail vs. car were outlined by the group, but the practical difficulties of enjoying these benefits were also highlighted – such as lack of train services in rural parts of Scotland, as well as cost and reliability. This led the discussion group to underline the importance of policies that take advantage of technology to provide innovative national and local transport and communications infrastructure, such as park and ride and video conferencing facilities.

There was also some appetite for more stringent approaches by the Scottish Executive. Comparative approaches in other countries such as Sweden and New Zealand were held up as examples where widespread sustainable development practice could be observed, often incorporating tough legislation and regulation. Given the rising price of oil, many in the group saw a need for more collaboration across government, looking at integrating transport, energy and waste strategies.

However, it was accepted that sustainable development had a challenge to confront the realities of societies that exist on the principles of personal independence, marketing freedom and financial liability – which in many cases do not fit with the more collective spirit of sustainable development. There is a need to develop, within businesses, an appreciation of a triple bottom line – financial, social, and environmental. There was an

acknowledgment that the public, government and visitors to Scotland want to see businesses do more. With an equally keen desire, many businesses are currently engaging and many want to do more. The challenge therefore is for the government to create the conditions in which businesses of all shapes and sizes can positively engage in sustainable development practices.

Waste

Some businesses in the group commented that they were trying to lead by example but that the options for recycling were simply not present, or if they were the time and cost made them prohibitive, particularly for smaller businesses. This left many in the unenviable situation of land filling their waste; made even worse in a climate of reducing sites and rising costs. There was some concern that current targets were limited to domestic waste, excluding business waste, which often meant local authorities uplifting domestic waste but not business waste. This left many businesses, particularly small businesses in rural areas, with real problems planning for their own resource efficiency. The reality is that many people in small businesses want to make a difference but simply do not know how to, or have the time to find out how. It was suggested that government needs to support delivery rather than just advise and that there should be some kind of strategic delivery service for SMEs to help them engage in these activities. There was also a brief discussion around more innovative policies which could encourage greater involvement i.e. through rates reductions to incentivise effort.

Government initiatives, such as Envirowise were very welcome, particularly the time saving benefits of having a resource efficiency audit undertaken and solutions tailor-made for businesses. But there was also a desire to see these activities rolled out on a greater scale. There was also some confusion regarding the number of different government initiatives underway e.g. Carbon Trust, WRAP and Envirowise, and how they operated together. Given the time constraints of those involved in running businesses, many would prefer a one-stop-shop for all their resource efficiency needs.

At the same time, some in the group suggested that this was a business opportunity. It was widely acknowledged that there were many companies involved in recycling business waste, although not all catered for small companies, particularly in rural areas. Those involved in the industry remarked on the fundamental reality which meant that only when there is a market can businesses make a profit from waste.

Energy

Scotland’s energy mix

Leading on from the discussion regarding the challenges of reducing and recycling waste, the group turned to similar challenges with energy. At a more strategic level the necessity of maximising Scotland’s ample mix of natural resources was discussed, as well as diversifying the energy mix with alternative technologies. Given projections by the DTi and the Scottish Executive in their respective Energy Review and Energy Study, most around the table were aware that left unchecked Scotland will need to import more of its energy needs, particularly gas, by 2015 - moving from being an energy exporter to importer. The implications of this shift were discussed, focussing on the increasing energy costs which have hit Scottish businesses – particularly those in the energy intensive industries.

In addition to rising energy costs, many businesses, particularly those engaged in energy intensive activities, already pay various carbon taxes through the Climate Change Levy and Emissions Trading Scheme. There was a call from those representing their industries for an understanding of the realities facing Scottish manufacturers before a drive to further green regulation and tax was initiated. UK electricity prices are currently the highest in Europe and in the past year UK gas has been the world’s most volatile commodity. In one particular case the group heard of a manufacturer where the owners transferred winter production to Scandinavia because energy costs were 40 per cent more expensive in Scotland. The feeling was that the Scottish Executive needs to look at the whole picture when considering the drive towards green regulation and the cost on business.

This discussion led to a general agreement that the existing base-load generation in Scotland must continue to form the backbone of Scotland’s energy mix – to offer some form of protection against unacceptable levels of energy dependency from abroad. Coal, particularly using clean coal technology, must have a role to play, although any impact on the landscape would have to be mitigated. Many around the table also agreed that existing and perhaps new nuclear generating capacity would need to form part of the mix if security of energy supply was to be maintained in the near term.

Renewables

In terms of renewables, all were in agreement that these technologies offered Scotland a unique chance to develop sustainability energy supplies, now and increasingly in the future. However, for many in the renewables industry how the industry moves forward very much depends on how the debate is conducted. Whilst there was a general welcome for politicians talking up new technologies, there was also concern that the same politicians seemed to be unable to do so without putting the boot into existing technologies. Tinkering with the mechanisms which have supported the growth of the renewables industry, albeit for aims, raised concerns from those involved in the more mature renewable technologies, such as onshore wind. The fear is that too much change undermines investor confidence.

Infrastructure was another issue raise by many in the renewables industry. Planning consents for development and connections to the grid were seen as the real priority areas for action if ministers’ ambitions for the amount of electricity generated from this industry are to be realised. At present most of Scotland’s renewable energy capacity is tied up in the planning and consents regimes, with some schemes unable to be connection until well into the next decade. This was simply not good enough for many around the table and the concerns applied as much to those involved in the development younger technologies, such as marine, as those involved in the more mature technologies, such as onshore wind. Planning changes were discussed and most were cautiously optimistic that these changes might help enable future development more efficiently. For the developing marine industry, capital and revenue funding were both essential and those representing the industry welcomed the Scottish Executive’s commitments on both fronts. Finally, there was an observation that Ofgem currently does not look at the costs of unsustainability i.e. that too much weight goes on discouraging transmission losses.

Energy efficiency

Climate change also linked into the debate on energy as it was seen as an economic issue – particularly in light of the conclusions of the Stern Report and the Tyndall Report, in which a four to ten window was suggested before a ‘tipping point’ is reached. There was a

concern that government, businesses and the public had simply not grasped the concept of energy efficiency and that a sudden drive towards green taxes would affect the disadvantaged the most. It was agreed that the outcomes of successive reports made it clear that there is not a lot of time for technical fixes but that everyone and every business can all get involved in resource efficiency right now. This was effectively described as one big communications challenge, in which the aim should be to make waste in any form socially unacceptable in the same way that as smoking or drink driving.

There was some evidence of the beginnings of the cultural shift needed to address some of the issues. Businesses tend to look at three year payback periods, but there was some evidence that in certain areas businesses were moving to longer periods for environmental projects, e.g. anaerobic digestion in distilleries. It was agreed that undertakings such as the Stern report would change the mind set of many, but there was an appreciation that it is a slow process with many technologies just emerging.

The power of inertia was also discussed. Businesses in Scotland need support to change, including appropriate incentives and proportionate penalties in the policies designed to change behaviour. On government funded advisory bodies, such as the Carbon Trust, there was a general welcome for consultancy advice. However, there was also an observation that in many cases they lack specialist understanding on the technologies, and that free advice isn’t always valued as highly. Some around the table talked of a need for qualified specialists who could provide advice. In terms of the insulation problems inherent in Scotland’s housing stock, the Energy Performance of Buildings Directive certification was seen as providing key role. With 13000 new social homes being built over the next 10 years, Communities Scotland was also a key player but there was surprise that there was nothing in the grant conditions on building standards for this large development.

Finally, it was agreed that in many respects a small nation such as Scotland, which produces just 0.02 per cent of global carbon emissions can make greatest contribution to tackling climate change by developing and exporting the technology to achieve this, rather than regulating its wealth creating businesses out of the global marketplace. If businesses face unsustainable costs and unnecessary regulatory practices, production will simply be transferred to countries where the social and environmental cost of production is wholly disregarded. In terms of influencing other countries’ behaviour, the EU must to offer sticks as well as carrots to developing economies. Tariffs, properly reflecting the full cost of goods from these countries i.e. the environmental and social costs, should be considered.

Water

The advantages of a twin track water system for consumers and industry was discussed. It was agreed that industry does not need high-class potable water, but could use grey water instead. However, it was felt that the creation of a national twin track water system would be impractical. It was pointed out that water is a more local utility than energy and suggested that one way of overcoming these capacity problems would be for the water industry and businesses to develop a more local system of grey water.

The development constraints for housing and industry due to difficulties in connecting them to water and sewage treatment was discussed. It was highlighted that sewerage connections are often the bind for housing developments, and agreed that there is a need for planners and developers working together to fund new capacity.

It was mentioned that there is a social equity dimension to the provision of water. Water services should not be marginalised as an environmental or health issue. There is also a strong economic and social development aspect.

Conclusion

The Minister for the Environment and Rural Affair had the final word. In his summation of the debate he saw a need for the Scottish Executive to do more to disseminate the messages that are in its Sustainable Development Strategy: Choosing our Future. The Minister mentioned the TV campaign that was part of this strategy. The minister also talked of the optimism saw through engagement with the next generation and greatly welcomed the enthusiasm in Scotland for eco-schools. Sustainable Development is about three issues: society, the economy and the environment. In that structure, more partnership between government, business and academia is clearly needed.

Niall DavidsonPolicy AnalystThe Scottish Council for Development and Industry

REPORT ON “SKILLS IN THE MODERN WORKFORCE” DISCUSSION GROUP

Host: Allan Wilson MSP, Deputy Minister for Enterprise and Lifelong Learning Facilitator: Grahame Smith, Deputy General Secretary of the STUC

Introduction

Around 50 participants took part in the discussion and, though the majority of these came from businesses or business organisations, the group also contained MSPs, union representatives, learning providers and policy makers from the Scottish Executive.

The Minister posed two questions to focus the group’s discussions as follows:

In developing the skills of the workforce, where does the balance of responsibility lie between the government, the employer and the individual learner?

Are employers given enough opportunity to feed into policy on skills development and if not, how could this be improved?

Session Summary

At the end of the session the Minister summarised the discussions and outlined the main points raised by every contributor (these are described in the following section). He highlighted four themes that he felt had dominated the workshop as follows:

Soft skills – these were mentioned by a number of participants as being important for business. Some contributors felt that the education system could do more to develop learners’ soft skills and the need for more extra-curricular activity in schools was mentioned. One business representative stated that he often has to develop the soft skills of those he employs. Others felt that the development of soft skills was a dual process, with a role for both the individual and the employer.

Early intervention – a number of those who participated in the discussion stressed the importance of investing in early year’s education, but the discussion did not go into greater depth around this issue.

Enterprise education – this issue, in particular the Determined to Succeed programme, emerged as a popular theme not just in the workshop, but in the conference plenary session. There was considerable positive praise for the initiative and for the benefits of business involvement, but concerns were also raised around the issue of future funding and the uncertainty this created.

Red tape – some of the participants mentioned the issue of bureaucracy in schools. Views were expressed that such bureaucracy is crippling enthusiastic teachers and that freedom and flexibility were needed instead of red tape.

Although much of the discussion was around school related issues, some contributors to the discussion highlighted that around 75% of the workforce in 2020 was already in work and that the workers of the future were not just those currently in school. The need for policy and investment emphasis on improving the skills of the current workforce was therefore a priority.

Emerging Issues

The points above outline some of the key themes from the workshop, but they do not capture all of the content of the discussion. A great many issues were raised by participants across a broad range of areas. However, what is reflected above is the fact that a sizeable proportion of the discussion revolved around schools and school pupils. Soft skills, bureaucracy and Determined to Succeed aside, the debate also included reference to the appropriateness of targets for school education. Views were presented that there is a need for an emphasis on science and technology, as our future will be secured through the generation of ideas, an area where these subjects were deemed to play a key role. One participant felt that there was less application of resources to these subjects and pupils often had to choose a second option to study due to a lack of student numbers. This was highlighted as a problem for rural areas where schools could not work together to offer subjects.

Targets were also mentioned in reference to life skills (linking back to soft skills) and the view was put to the group that the metric you measure schools by should not just be about academic achievement. Achievement overall was put under the spotlight by one participant who felt that secondary education could be broadened out to the private sector as one means of addressing failures in delivery by Local Authorities. The participant felt that private sector involvement would introduce greater accountability and lead to improvements in quality. However, another participant contrasted this view with the belief that partnership was more important than privatisation. She felt that there was a need for business to see the education and training system responding to their needs, but that there was also an onus on employers to get involved in initiatives like Determined to Succeed.

Methods of assessing learning ability were raised by one participant who discussed how profiling techniques have been very effective for his organisation. He felt that currently in Scotland talent is being squandered and careers advice is pathetically inadequate. He stressed the view that in order for schools to properly assess pupils’ potential, a national means of profiling young people needed to be established.

Though schools were a popular topic, the point was made more than once that the group also needed to recognise the importance of those already in work. Employability was discussed, with some participants emphasising that this was the responsibility of both individuals and employers. One participant suggested that there should be a dual process, with employability focussing on what the individual can do and employership being about the role of the employer.

Another focus for discussion was investment in training both by business and by government. One participant felt that businesses were getting the message that training was important and that there was a lot of training taking place across Scotland. It was stressed that not all of this was easy to measure as not all training led to qualifications. The participant emphasised his belief that voluntarism had worked and compulsion was unlikely to work in this area. Others made the point that training budgets were usually the first to be cut and that employers needed to recognise that their people were an appreciating asset and not a depreciating one. One business participant stressed that his organisation provided mentoring and training and did recognise the importance of investing in this area. Some participants felt that there was a need for greater collaboration between business, universities and colleges and in one case suggested that businesses could sponsor young people through their academic career.

The role of individuals also came to the fore around the subject of investment, with one participant stressing that the ILA model could be an important tool for leveraging three way investment. The participant felt that there was a need to incentivise investment by individuals and by businesses. Another view about individuals related to HE funding and the protection of Scotland’s intellectual capital. It was suggested that HE could be totally publicly funded, but that students would then be obliged to work in the UK. If they chose to work elsewhere they would have to pay pack the cost of their tertiary education.

In a similar vein, one participant stressed that employees need to be committed to finishing their apprenticeships or training courses. He felt that employment contracts are grossly biased in favour of employees and that there needed to be a better balance.

The issue of migrant workers also featured in the discussion. One participant felt that migrant workers could make an important contribution to Scotland, but that a balance had to be struck between supporting migrant workers (through programmes like ESOL) and growing and developing the indigenous skills base. A group member from the construction industry felt that he often had no choice but to employ foreign labour as many young people were turned off the construction industry by their parents who felt that the jobs available weren’t good enough. A contrasting view came from another construction representative who felt that there were many young people wanting to join the industry and many businesses using apprenticeships. He felt that there was a need to encourage more businesses to use apprenticeships and made the point that adult apprenticeships are also available.

Vocational qualifications received attention from one participant who stressed that they don’t have enough gravitas and that there isn’t enough funding support for the vocational assessment system. This participant also felt that CSR had a role to play both in the mainstream workplace and the education system and that many businesses could provide resources to support this aim.

Other issues raised during the discussion included the suitability of the Fresh Talent initiative, which was felt to offer too short a timescale to allow those who come through the programme to train and develop. Languages also featured and the view was presented that we need to recognise the importance of language skills and encourage more students to participate in programmes such as ERASMUS. It was suggested that improvements in language skills would lead to greater opportunities for Scots workers to experience work abroad.

Finally, a point was made around the consultation on lifelong learning issues in Scotland. The view was expressed that the consultation needed to focus on skills and not lots of separate strategies.

Grahame Smith, Deputy General Secretary of the STUC

REPORT ON “SCOTLAND’S INFRASTRUCTURE” DISCUSSION

Host: Tavish Scott MSP, Minister for TransportFacilitator: Iain McMillan CBE, Director, CBI Scotland

Introduction

The Minister for Transport opened the meeting by introducing the three themes of the discussion: Telecoms, Planning and Transport. He highlighted the importance of investment in broadband and transport in ensuring Scotland is not at an economic disadvantage, and noted that the new Planning Bill is the first comprehensive review of the system since 1988. The Minister emphasised the need, with regard to Transport, to make long term investment plans, and how the National Transport Strategy, due to be launched before Christmas would help government make coherent decisions for the future.

Iain McMillan welcomed Parliament’s engagement with businesses, noted Jim McColl’s earlier suggestion that government should be setting ambitious growth targets for the future, and invited contributions from those present.

Summary of Main Points Raised

Transport

Need joined up thinking across government – propose one Minister responsible for all infrastructure.

Target of 3-5% growth should be included in National Planning Framework.

Better use should be made of road budgets to enhance not just repair roads.

Spend in rural areas must not be neglected, whilst all funds targeted on cities, or the central belt.

Need to improve connectivity of air, road and rail. Integrated transport system essential if growth is not to be restricted. Support for Edinburgh Airport Rail Link.

For businesses to transport their goods more efficiently, need to invest in local infrastructure within our cities. Intra-regional transport should come second, although would welcome a 4 lane motorway between Edinburgh and Glasgow.

Priority investments? Passing places on the trunk roads leading to Cairnryan, better links to Prestwick, Kilmarnock rail link, improved links to Inverness, particularly the A96, airport at Caithness. AWP welcomed. Need to encourage business to use rail, especially supermarkets. Would like to see airport hubs developed in Scotland to compete with SE England.

Forth Road Bridge – because of serious corrosion it will not be able to carry heavy vehicles in the future. The Forth Bridge is a vital link. We should address this now as next year may be too late.

Minister reassured the group that the current work appraising options would be complete next May, ensuring decisions on a replacement crossing, if needed, will be provided in time.

Railway projects are debilitated by 19th century legislation. We should have a fast new way of dealing with growth.

There is a political side to infrastructure which is about economic objectives. We have to trust each other (public and private sector). If everything becomes a priority it means that nothing is a priority. We have not reached a stage where the whole is working better than the sum of the parts.

Planning Infrastructure

Planning applications which used to take 1 year are now taking 3 years. The new Planning Bill will not cut the time for the planning process. Still relying heavily on local plans. Delay in obtaining planning permission costing business, often tying up capital in land for 2 or 3 years.

There is a problem with resource – Councils do not have resource to respond to enquiries, or necessary quality of planners. We need a more entrepreneurial attitude within the planning processes. We need to turn planning applications around quickly. We need the correct level of consent. Planning applications are required to go out to a 12 week consultation. We need Planning safeguards to allow a fast track to compete with other European Countries.

Give credit to the Scottish Executive for listening to the needs of business /public by dropping the 3rd party appeal in the planning system.

E-plans welcome way forward - allows the applicant to view all relevant planning information electronically. The Plan led system is a critical way of addressing distrust; it is a stand alone planning system which allows planners to zone in on applications at the earliest opportunity in the planning process.

The new Planning process has to be integrated, accessible and Local Authorities must deliver. Must ensure that it is delivered in the same way throughout Scotland.

Telecoms

Scotland now has better broadband coverage than any other G8 country.

How can we exploit this opportunity? Use telecom systems creatively to benefit business. Reduce our need to travel every day, encourage flexible working.

How can we join up our infrastructure? Government could strategically drive technology so that it impacts on other areas. Use reform of rating system to target expansion of broadband through reduced charges for underground cables.

The Highlands are a good example of where businesses, including small, are using ICT to their advantage.

Summing Up

This was a good session and reflected the fact that lots is already happening. For example, advances have been made in technology. There are also some challenges with the Planning system that the Bill may tackle. And, in Transport, the currently committed projects to complete the M74, M8, M80, the Aberdeen Western Peripheral Route and Rail links to Glasgow and Edinburgh Airports are welcome. The important question for business is what should be the next advances?

Iain McMillanDirector CBI Scotland

REPORT ON “GOVERNMENT AND BUSINESS” DISCUSSION

Host: George Lyon MSP, Deputy Minister for Finance, Public Service Reform and Parliamentary Business

Facilitator: Niall Stuart, Parliamentary Officer, Federation of Small Businesses (FSB) Scotland

Introduction

A broad outline of the role of the session was given at the start, with a number of possible discussion points highlighted. These were neither exhaustive nor prescriptive, but resulted in discussion on the following issues:

R&D Grants Universities and HEI Planning and Land Use Shared Services and Procurement Business Rates

The context and importance of the session was set by a reminder that the previous Business in the Parliament Conference (BIPC) in 2005 was seen as crucial in starting the work on public sector procurement, the McClelland Review and subsequent eProcurement programme within the Scottish Executive. Delegates were reminded that “Government” was intended to cover the widest possible interpretation – covering councils, Scottish Executive, the UK government and European institutions. The discussion was highly consensual in nature.

R&D

The role of R&D was seen as crucial in driving forward business and growing the top-line. However, while R&D tax credits were meant to encourage innovation, the process of applying for them – involving moving between DTI guidelines on what constituted R&D and HMRC administration of the scheme - was not easy, and had discouraged some delegates from applying.

There were also several comments from delegates on the difficulties encountered with year-end activity with Inland Revenue, within Scotland, once businesses had received an R&D credit: accounts could take several years to be signed-off, yet in England (once a business had relocated part of its work, for unrelated purposes) the process was seen as taking no more than 2 weeks.

In contrast, the application processes for R&D grants from the Scottish Executive, such as SMART Scotland, SPUR, SPUR Plus, SCORE and SEEKIT, were seen as fairly straightforward, although again there was comment that these were too focused on the process of the grant procedure rather than the economic benefit to the business.

There was agreement that the level of R&D spend was too low, but that other initiatives (such as targets for Higher Education Institutions (HEIs) in respect of graduate employment) were also draining resources and attention away from longer-term R&D needs.

Quite how that longer-term need could be assessed and perhaps measured was also discussed, with agreement that outcomes in terms of economic activity were desired, without undue emphasis on monitoring the minutiae of the processes to achieve that outcome.

Universities and HEI

There was discussion over the interaction between universities and business. In general, where delegates had been able to develop a relationship with universities, it was felt that the relationship was productive for both parties. However, the opportunity to develop that relationship in the first place was not consistent. It was wholly contingent upon what the university was currently doing (in research or outreach), rather than the potential for building longer-term strategic partnership. Yet excellent R&D, plus excellent staff and a world-class product would not only draw multi-national companies into Scotland, it would also be a better base from which to grow local companies to multi-nationals themselves.

Moving on, there was concern over the falling number of students studying science and mathematics. However, setting targets for universities was again seen as counter-productive to the drivers of economic activity and there was a need to attract people to science degrees. It was also felt that it would be useful to have some management and other business skills integrated into courses, as this would be needed for the vast majority of them in future employment.

Planning

There was a useful starting point for the discussion which was that, in relation to land use planning “Scotland needed to behave like a small state”: ensuring that the Scottish Executive, regulators, other stakeholders and a company could work together to deliver speedy and timely decisions. Time is of the essence and, under the current system, finding out who can make the relevant decision let alone getting them to make it, can take time. Other comments saw mention of the need to identify blockages in the system and to re-engineer the work.

The current Planning etc. (Scotland) Bill seeks to “improve the planning system to strengthen the involvement of local communities, speed up decisions, reflect local views better and allow quicker investment decisions.”1 Several delegates saw this as the start of a process enabling the current planning systems, practices and underlying culture to be subject to change.

A more strategic approach was suggested by several delegates, with a shift towards an explicit nationally articulated statement of that which was prohibited and a duty to promote that which was therefore permitted. Although the proposed need for councils to update Local Development Plans every five years was welcomed as a step in the right direction, there was seen to be no national driving force behind the planning system. A contrast with the perceived speed of the planning system in England was highlighted as well as the absence of any current direct incentives for councils to “grow” businesses within their area.

A clear need had emerged for a planning system which was open, nationally coherent, transparent, given clear priorities and prohibitions and was capable of dealing with infrastructure schemes of national importance. This would result in a system which

1 para 2, Policy Memorandum, Planning etc. (Scotland) Bill, SP-Bill 51-PM

encourages and fosters business, in which stakeholders are encouraged (if not required) to work together and which results in a speedier process.

There was some discussion about handing over responsibility for processing building standards consents from councils to private sector contractors, but no firm decision taken on what to recommend, given that speed and responsiveness were key irrespective of which sector the system was run by. Shared Services

Related to the eProcurement discussions, the role of SMEs in the move towards Shared Services was discussed. Whilst the experience of many delegates was that smaller businesses were subject to lower scaling costs and a better standard of service, there was widespread concern that they were being excluded from competing for contracts. The value added by having a small company carry out, for example, pilot work and then transfer that tacit knowledge into full-scale implementation was noted, (in a theme later echoed by Dr Wolfson in his address to the plenary).

Public Sector procurement was still characterised as being unsatisfactory, but the motivation to address the issue, and a commitment to work with SMEs, had been clearly demonstrated by the McClelland Review. The inability to compel all parts of the public sector to comply was noted, and regretted.

However fears were expressed that when contracts for large public service delivery contracts were let, these would go to global players who would be under no compulsion to use local suppliers, or labour. A contrast with the USA was made, where Federal law requires a minimum of 26% of procurement to go to small enterprises2. Whilst EU procurement law would not allow only Scottish SMEs to be considered, delegates expressed an interest in whether SMEs from across the EU could be considered.

The processes of Public Sector procurement were also seen as inefficient, with examples of small companies having to divert proportionally huge amounts of resource into tenders – all of which were similar, but none of which were identical. In addition, delegates felt that the company information required in respect of issues such as equalities policy, sustainable development, margins, staff reward etc were discriminatory, intrusive and irrelevant to the key question of whether they would be capable of delivering the required task.

Business Rates

There was agreement that bringing business rates into line with those in England was helpful, but only as a start: there was wholehearted agreement that business rates LOWER than those in England would give a huge competitive boost to businesses in Scotland – enabling growth, expansion and go some way towards making Scotland more competitive and off-setting the inherent disadvantage of the cost of access to other markets generally being through London and the south-east of England.

2 “A Strategy for Increasing Federal Contracting Opportunities for Small Business”, Office of Federal Procurement Policy, Office of Management and Budget, Executive Office of the President , 29 October 2002

Conclusion and Summing Up

In concluding, the following was agreed as the key points which the Rapporteur should feed back to the plenary discussion:

Procurement welcomed the prioritisation accorded the enabling of SME access, but noted

that this primarily remained at a policy level: there was still a need to drive the work until the impact was felt, and benefits realised, on the ground, by the SMEs themselves

a substantial step forward would be a standardisation and simplification of the documents required.

Planning a hope that the new Bill, once an Act, would enable the system to work better

and faster a recognition that the administration of any eventual Act would remain with

councils and that there needed to have greater incentivisation for councils to grow businesses

Business Rates

support for reduction in Business Rates below that in England to ensure a competitive edge for businesses in Scotland

R&D Tax Credits register concern over the administration of this scheme by HMRC within

Scotland express support for the Scottish Executive’s grant schemes

Shared Services a concern that the move towards Shared Services is a threat to SMEs and

that the Scottish Executive should consider all ways of ensuring small firms are able to compete for work, including the approach of the US government, exploring targets for SMEs, within the existing European procurement frameworks.

Niall StuartHead of Press and Parliamentary AffairsFederation of Small Businesses in Scotland

REPORT ON “BUSINESS OF THE FUTURE” DISCUSSION

Host: Christine May MSP, Deputy Convenor of the Enterprise and Culture Committee

Facilitator: Professor Russel Griggs, CBI Scotland, Growing Business Forum

Introduction

Christine May, MSP welcomed the delegates to the discussion session and recapped on the main themes of the opening business presentations in the Parliament. The meeting was asked to consider what would need to happen if the Scottish economy was to achieve the significant growth levels that would allow us to be internationally competitive.

Russel Griggs welcomed everyone to the meeting and stimulated the discussion by considering some of the relevant themes raised in the earlier business presentations. In particular, reference was made to Jim McColl’s talk and the opportunity we had to start with a clean sheet of paper. David Milne’s talk and the importance of people making things happen was also very relevant.

Summary of Main Points

Scotland’s Vision For the Future

The first topic centred on Scotland’s vision for the future and in particular, whether there was a generally understood vision for Scotland – one that was accepted by business, Government and the general public.

The consensus view was that if politicians and the Parliament had a vision for the future, this was not being well communicated to the public and business community. It would be difficult to obtain a coherent picture from central Government as issues tended to be dominated by personalities and party politics. For example, would there be the political will to carry forward unpopular policies that would be necessary in order to achieve a future vision?

There were existing strategies and visions for Scotland. Examples were highlighted including “Smart Successful Scotland” and “The Best Small Country in the World”. Although most people were aware of these terms, it was less clear whether anyone had looked closely at the steps involved in achieving these goals. There was agreement that industry had to become increasingly involved in pushing this agenda forward. It was not possible to rely solely on Government or the Economic Development Agencies.

Public sector should provide consistency of support and address important issues such as improving SMEs involvement in the procurement process. However, approaches such as Scottish Enterprises concentration on 6 key industries were questioned. How were they identified and why had they changed over the years? The importance of supporting growing companies in all sectors with consistency was recognised as an important role of the public sector.

A clear long-term vision was vitally important. Other successful nations were able to establish clear goals and unity on social structure, and communicate these internationally with one voice.

Scotland’s Strengths

It was clear that Scotland had several key strengths, areas upon which we had the potential to build a successful economy. Scotland was frequently guilty of talking itself down and often without good reason. Comparisons were drawn with Switzerland, a small nation that has gained an international reputation for quality and excellence. Switzerland was viewed as a relatively small nation of “global citizens”, identified as people who quietly carried out their business in areas such as high quality precision engineering, but who were also able to trade globally. We had the capacity to build a similar reputation based on important values such as financial probity, science excellence and an outstanding educational system.

A more positive and confident picture had been emerging since Scottish devolution. There was a feeling that Scotland wanted more of a say and it was increasingly looking towards Europe rather than elsewhere within the UK. In addition, there was a premium on education, foresight on environmental issues and a sense of social conscience. These strengths all helped to make Scotland unique. However, there was a clear need for leadership and the ability to convey this picture to the outside world and to the Scottish public.

Business Confidence

Business confidence and ambition were a key themes. In Scotland, 98% of businesses employ fewer than 10 people. It was clear that few businesses were making the transition from small to medium-sized and in order to create a vibrant economy we needed more companies of scale, with the confidence and ambition to grow. While the decision to grow or sell a business was always going to be a personal choice, we can provide an economic context which might influence thinking and a vision is key in that it gives that context. This lack of company growth was a significant factor in Scotland losing talented individuals to overseas competitors.

Issues limiting this growth were considered. Business attitudes emerged as one vitally important factor. Were Scottish firms overly conservative in projecting growth potential and, as a consequence, in setting out their funding requirement? Experience had shown US investors unwilling to invest in a business plan showing $10m growth, but attracted to investing more significantly against an ambitious target of $50m growth. Scottish firms were also more likely to be acquired during a growth phase, rather than looking to acquire businesses themselves. This was largely seen as an issue of confidence.

Manufacturing Future?

Scotland’s inability to compete internationally in high volume manufacturing was universally accepted. Although there were exceptions in certain areas, particularly high margin/low volume goods, there was a need for Scottish firms to identify new ways of remaining competitive. Partnering was one possibility. There was potential for Scotland to partner with other smaller nations (50-100m population) in manufacturing.

The Scottish whisky industry was a good example of effective partnering between small firms and large organisations in the delivery of a successful route to market. Once

again, the issue of confidence and national pride was seen as important in developing these strategic relationships.

Looking to the future, it was clear that Scotland’s businesses would need to retain and maximise their intellectual assets, regardless of where manufacturing is undertaken. Increasing business investment in R&D would also be vitally important.

Scotland’s Overseas Image

The importance of leadership was highlighted when considering how other nations presented their image and strengths internationally. Ireland was highlighted as a good case study of a nation that successfully sold a “united picture” internationally, resulting in outstanding success in securing inward investment. The example was cited of a speech given by the mayor of Belfast to an audience in Boston. During his address he only made reference to Ireland and did not highlight Belfast specifically, in the firm knowledge that an element of inward investment would locate in Belfast. Although Scotland had a good reputation for quality of life, we had a tendency to act regionally and without a single voice on the international stage.

Sales and Marketing – a Key to Success

Perhaps associated with the issues of confidence highlighted earlier, Scotland lacked core strengths in sales and marketing. Economic growth would only achieved through profitable business and selling product is central to the delivery of company profits. A significant programme was required to address this skills deficit. Possibilities may involve placement of young people in large successful companies, where there would be opportunity to gain hugely valuable experience in the key areas of brand awareness and marketing on a global scale.

Professor Russel GriggsCBI Scotland, Growing Business Forum

TRANSCRIPT

Friday 3 November 2006

Col.BUSINESS FUTURES AND FUTURE BUSINESSES—CHALLENGES OF THE 21ST CENTURY........................................1

The Deputy First Minister and Minister for Enterprise and Lifelong Learning (Nicol Stephen).......................1Alex Neil (Central Scotland) (SNP)................................................................................................................6Ms Mary Dickson (First ScotRail)................................................................................................................... 9Sir Alan Langlands (University of Dundee)..................................................................................................12Mr Jim McColl (Clyde Blowers Ltd)..............................................................................................................15Mr David Milne (Wolfson Microelectronics plc)............................................................................................20

FEEDBACK AND OPEN FORUM........................................................................................................................... 25SCOTLAND’S PLACE IN THE WORLD..................................................................................................................36

Mr Gerry Rice (International Monetary Fund)..............................................................................................36CLOSING ADDRESS........................................................................................................................................... 41

The First Minister (Mr Jack McConnell).......................................................................................................41

45 3 NOVEMBER 2006 46

Business in the ParliamentFriday 3 November 2006

[THE PRESIDING OFFICER opened the meeting at 09:15]

Business Futures and Future Businesses—Challenges of the

21st CenturyThe Presiding Officer (Mr George Reid): Good

morning and welcome back. After yesterday evening’s gentle start, we move straight to the business of “Business Futures and Future Businesses—Challenges of the 21st Century”. In this session, there will be six speeches—two from the parliamentary side and four from the business side. The first speech will be by the Deputy First Minister and Minister for Enterprise and Lifelong Learning, Nicol Stephen MSP.

09:15The Deputy First Minister and Minister for

Enterprise and Lifelong Learning (Nicol Stephen): It gives me great pleasure to welcome everyone to this year’s business in the Parliament conference. We have more than 200 people in attendance, most if not all of whom are from within Scotland. As I mentioned last night, we had a fantastic globalscot conference in Edinburgh that brought together Scottish businesspeople from all round the world. It was a huge success, but I believe that today’s event is even more important for Scotland’s future because, whereas those people can disappear and do great things for Scotland internationally, at the end of the day the business must go on here in Scotland.

I hope that the business in the Parliament event will grow in importance and stature over the years and continue to be alive and vibrant. That is why I am pleased with the turnout and the quality of the businesspeople in the chamber today—I am sure that all present will agree with me on that point—and with the quality of the speakers who will deliver presentations to us this morning.

Last year’s conference was a bit sparky and controversial at times. If that continues, it will be no bad thing. I woke up to the radio this morning to discover that I will report back today on progress on public procurement, which was the big issue at last year’s conference. Iain Graham and Nosheena Mobarik, who I believe are here today, were among the exponents of that issue with whom I had follow-up meetings. My diary was crashed—I have received some criticism for the grammatical construction of that horrible Americanism—with meetings with both those

people. We have also published the McClelland review on public procurement. We will not have gone from all bad to all good in 12 months, but I hope that we are making progress on that important issue. We will now have a public procurement advisory group for the public sector and we want to have a single portal for small and medium-sized companies in Scotland. We will monitor SME involvement in, and access to, public contracts across the Executive and all its agencies and non-departmental public bodies, including areas such as the health sector.

Another important initiative in the past 12 months has been to get the life sciences sector in Scotland working with the Minister for Health and Community Care and our health boards to try to ensure that we have a far better relationship between our public sector health bodies and our new, strong and emerging life sciences sector.

By way of giving a few pointers to some of the key discussion topics of this year’s event, let me run quickly through the five or six topics that will be the main subject areas for the break-out sessions. I will try relatively quickly to sketch in some of the big issues. When I meet business and industry in Scotland, infrastructure is usually the first issue that is raised in the question and answer session. I want to mention that some positive things are happening on infrastructure. On roads infrastructure, we are at last seeing work being done on the A8000, which is the link road through to the Forth road bridge. Of course, once we have completed that work we may require a new bridge, but it is good to see that the work is happening at last. The M74 is also proceeding, so some big roads projects are under way.

We are investing more in public transport than ever before and new rail projects are getting off the ground. The Larkhall to Milngavie line was opened this year and the Minister for Transport, Tavish Scott, laid the first section of track in preparation for the Stirling-Alloa-Kincardine line. We have the Borders railway and we have trams on track to come to Edinburgh. All those projects are progressing, and the airport rail links are progressing, so there is significant investment in transport.

However, infrastructure is not all about transport. We were very pleased this year to complete the roll out of the broadband initiative, so that all communities in Scotland are now connected to broadband. That does not mean that every home and every business in Scotland is connected, because there are still some technical problems with reach, but every community in Scotland is now connected and we are going on to the next stage to see whether we can overcome some of the individual problems, whether through satellite or through some other technical solution.

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Energy is an important infrastructure for Scotland’s future and for the business future. This year’s energy review has dominated headlines, not just in the United Kingdom but right around the globe, largely because of the price of a barrel of oil. There are huge opportunities for Scotland in relation to energy. As you know, we have ambitious targets for renewable energy. It is important that we hit those targets, and that we get 18 per cent of our electricity generated from renewables by 2010 and 40 per cent by 2020. I believe that we can beat those targets and beat them significantly. If we can, we should, because the sustainability of our future energy supplies depends on our taking action now on, and making the most of, the green job opportunities that exist—big opportunities.

I believe that Scotland is in a strong position to be the leading player in the new UK energy technologies institute, which promises to bring investment of around £100 million per year. We are making the case for Scotland, in a joint effort to include our universities, industry, economic development agencies and local government, and we are determined to ensure that Scotland benefits from that opportunity. I have written to the Chancellor of the Exchequer and to Alistair Darling to emphasise the power and importance of Scotland’s case and our strengths for winning that opportunity.

A core area for our future, and one about which I am particularly passionate, is investment and innovation. Listen to these statistics. Our private sector research and development investment in Scotland is 0.58 per cent of our gross domestic product—or £521 million per year. The UK figure is 1.24 per cent. The figure in Finland is 2.45 per cent. The figure in Sweden is 2.93 per cent—five times what we spend in Scotland on private sector R and D. That is a significant challenge for us, and we have to move our figure upwards. Finland has achieved that. Over a 10-year period, Finland increased its private sector R and D by more than 1 per cent of GDP, and the Finns have a fantastic agency called Tekes that helps to invest public sector money leveraging private sector investment, supporting even their biggest companies such as Nokia. I believe that Scotland must take action in that area.

On the other side of the investment coin is capital investment, venture capital and how we get more of our small companies to medium, and from medium to large. Let me mention three worrying signs—not necessarily bad signs, because it is a global marketplace, but signs that we should be aware of.

The first is Pelamis—ocean-power delivery, our wave-power generating company and the first in the world at a commercial level. Its latest funding

round, announced in the middle of this year, was £13 million of new investment. How much of that came from the Scottish financial community? Out of £13 million of new investment, £0.5 million came from Scotland, and half of that was from the Scottish public sector. The second is Cyclacel in Dundee—a fantastic company with huge potential for the future. Its latest fundraising was through a flotation in the United States, achieved through a merger into a NASDAQ-listed company. The third is Wavegen in Inverness, one of the great companies that has huge potential for the future. It is now owned by Voit Siemens.

I suggest that none of those facts is troubling on its own, but that there are signs that we need to do more. That is why helping to leverage greater interest from our fantastic financial services community is so important. The co-investment fund has been important in that and, last week, we launched the follow-on, the Scottish venture fund. The co-investment fund is about helping to leverage in private sector investment at the lower level. The new venture fund is for the £3 million to £5 million level of capital or equity investment.

I turn to a very important area on which I am sure Jim McColl will go into greater detail: skills and training and those not in education, employment or training—known as the NEET group. Scotland has some worrying statistics in comparison with other countries. I am pleased that we now have a strategy for those who are not in education, employment or training, which was launched in June this year.

I am even more pleased that we have Sir Robert Smith, Jim McColl, Tom Hunter and other leading businesspeople and educationists working together to develop the plan. I strongly believe that the key is to involve the private sector in helping to inspire more young people to go into training, learn skills and develop new opportunities. There are probably about 15,000 to 20,000 young people in Scotland for whom the difference could be made. That can be turned around pretty quickly.

I was very proud to chair the determined to succeed task force, which has been looking into enterprise in our schools, which is another issue that I feel very strongly about. We need to do more to encourage enterprise and financial awareness in our schools. Some people here were involved in that task force. We set a target of 2,000 business-school partnerships over the first two to three years of the determined to succeed programme. There are now more than 7,000 business-school partnerships, such has been the level of response. Scotland is a small enough nation that, when we have problems involving 15,000 to 20,000 people, we can, and should, do something about it.

The next area that I will mention is internationalism and excellence. We have some

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fantastic companies and organisations in Scotland. The Royal Bank of Scotland now has a stake in Bank of China, which brings huge opportunities for the future. Cairn Energy has its developments in India. It has grown from a relatively small energy company into a £3 billion energy company. Pelamis in Portugal is the first commercial wave-energy machine in the world. It was bought by the Portuguese from a Scottish company. Clyde Blowers is working globally, particularly in China, seizing new opportunities there. Wolfson Microelectronics is helping drive the iPod revolution.

Then there are our universities. The University of Edinburgh is number 34 on the planet. Any of you who do not think that that sounds too fantastic should remember that about 25 of those top universities are in North America. We have very strong success in our universities, with Glasgow, Dundee and Edinburgh all in the top 100 on the planet in terms of life sciences.

When I was in China, the Chinese science and technology minister spoke about the opportunities there. The United Kingdom needs about 60GW to 70GW of electricity. The Chinese have now set a target of 300GW of renewable energy by 2020, and they will make it happen—do not doubt that they will make it happen. That is still small fry in terms of their total energy needs, but it is 300GW. No wonder the Chinese energy minister, when I met him just last week, described the opportunities there as unprecedented and almost unlimited for Scottish companies. There are big, big opportunities there. We must recognise where we have excellence, and we really have to go for it and go for it with passion.

There are other areas where government can contribute—not just in procurement. There is the matter of red tape. I am pleased that we have delivered progress with a reduction in business rates. Government can hold back industry and development, as well as create opportunity. I hope that this event is all about maximising the latter and minimising the former. We need to take action. We need to work together. We need to be in partnership if we are going to get it right.

We are getting close to an election, but I hope that, today, we can set aside our political divisions and be relentlessly positive. We need to sparkle with intent in our determination to change Scotland’s business and economic future.

Our long-term growth rate is not fantastic, but this year at least our growth rate will be ahead of the long-term growth trend. I hope that that will continue in the years to come. There are positive reports and indicators from the Confederation of British Industry, the Scottish Chambers of Commerce, the Federation of Small Businesses, other business organisations such as the Institute

of Directors, and in bank surveys from financial institutions. We are doing well, but we could do much better.

Policy is part of the issue, but passion has a big role to play. Last night, Tom Farmer was passionate, although he talked about obsession rather than passion. Commitment, determination, blood, sweat and tears are needed. I hope that everybody here wants to make a difference and I thank you for your contributions.

The Presiding Officer: I call Alex Neil MSP, who is convener of the Parliament’s Enterprise and Culture Committee.

09:31Alex Neil (Central Scotland) (SNP): I want to

add to what Nicol Stephen said. He mentioned political consensus. He and I totally disagree about what Scotland’s constitutional future should be, but, like 95 per cent of members, we agree on what needs to be done to boost Scotland’s economic growth rate.

This year, the Enterprise and Culture Committee’s major piece of work has been its inquiry into business growth in Scotland. Five political parties are represented on the committee. We unanimously decided that that inquiry would be the committee’s major inquiry this session for three reasons. First, economic growth is important. Without it and the required wealth creation, we cannot fund our key education, health and transport services, the justice system and so on, and society cannot function in a civilised way. Economic growth is key to Scotland’s future.

Secondly, although our economic growth rate has improved recently, it is still in relative terms much as it was 20 to 30 years ago. There has been some convergence between the UK’s and Scotland’s economic growth rates, but that has been because the UK’s economic growth rate has gone down rather than because Scotland’s economic growth rate has dramatically increased. I do not often agree with Scottish Enterprise nowadays, but we should consider what Sir John Ward said recently. He said that we must try to achieve an economic growth rate in Scotland that is double our current long-term rate, which means achieving a rate of around 4 per cent rather than the 1.7 or 1.8 per cent rate that we have had for most of the past 30 years. I will come to the proposals in our report, which I recommend as midnight reading, on how such a rate can be achieved.

The committee’s third reason for carrying out an inquiry into and producing a report on economic growth was the need to achieve a national consensus that economic growth should be the Scottish Parliament’s number 1 policy target. I

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think that all the main parties now agree that it should be our number 1 target. The key issue is what we can do to achieve such growth.

I have been reading Nigel Lawson’s memoirs recently. One of his claims to fame is that he changed things round so that, whereas inflation used to be controlled by micro policy and growth was determined by macro policy, inflation is now controlled by macro policy and growth is determined by micro policy. If that is the case, we should be able substantially to increase economic growth by our own efforts. I do not entirely agree with Nigel Lawson, but I think that we can do many things and do things better.

The key recommendation of the committee’s inquiry is that the growth that we need to achieve must be investment led. As a percentage of our national wealth, Scotland’s levels of investment from the private and public sectors are 70 per cent of what is achieved by our Organisation for Economic Co-operation and Development partners and competitors. OECD countries have twice our investment growth rate. Their investment growth rate is 6 per cent per year, whereas ours is 3 per cent per year. That is why the committee said that if we start at 70 per cent and grow at half the rate of our competitors, an algebraic calculation shows that we need to double the level of investment as a percentage of our national wealth in the next 10 years. Unless we do that, we will not achieve the growth that we all desire.

That is an investment challenge for the private and public sectors. Investment in the public sector has increased substantially in recent years, but as a percentage of total public spending it is still not near the average percentage of public spending that is dedicated to investment in OECD countries.

Nicol Stephen mentioned the level of investment in research and development in Scotland. To be frank, it is pathetic by any standard. If we are to reach the UK average, the private sector needs to double the amount that is put into research and development. If we are to achieve the same level as our European Union partners, we need to multiply that figure by four. If we are to achieve the same results as the best in the business, which Nicol Stephen mentioned—Norway, Sweden and Denmark—we need to multiply the figure by five. Doing that would mean that instead of spending £517 million a year on research and development, the private sector would spend about £2.5 billion a year.

Public sector programmes that have been introduced in the past couple of years have helped. The R and D plus programme has managed to leverage additional investment in research and development of about £120 million in return for a public sector investment of £15 million. That is welcome, as is the work that our

intermediary technology institutes do, but we are still not investing on the scale that is needed to be up there with the average, let alone with the best. How we boost investment in the private sector as well as the public sector, to build on the achievements of recent years, is a key challenge for us all. Investment has increased, but not by nearly enough. Without the required level of investment, we will be unable to compete in the 21st century’s economy.

The Presiding Officer has talked about globalisation. We must think global but invest local. The Indonesians and the Malaysians have a strategy: their response to globalisation is what they call glocalisation, by which they mean that they have identified in the global economy where they can make a major contribution and earn their bread tomorrow.

We have to do the same. Scotland has identified six key sectors of its economy, but we must work together on them. The political parties must work together and the public and private sectors must work together. A key lesson from the international studies in the committee’s inquiry is the need for the triple helix, particularly in the life sciences, energy and tourism sectors. The phrase will not trip off the lips in the local steamie, but the triple helix describes the public sector, the private sector and academia working together formally to ensure that we maximise our effort. Every one of the 15 high-tech hotspots in the US was created through a mechanism like the triple helix. The public and private sectors must work together with academia to ensure that we get not only the level of investment but the quality of investment that is required and that the investment is tailored to the global market’s needs. If it is not tailored to the market’s needs, it will be a complete waste of time.

There are huge challenges for us in Scotland and we cannot afford to rest on our laurels. As the Deputy First Minister said, the level of growth in China and India is huge and is dominating the debate not only on the economy, but on the environment. However, it is not only China and India: look at what is happening in Indonesia, Malaysia and Brazil. They are all emerging economies—emerging competitors—and unless we up our game, we will not be able to achieve the national consensus goal of doubling the level of economic growth in Scotland.

That is why it is not only the public and private sectors that we have brought together today. One of our key speakers is Alan Langlands from the University of Dundee, from which I graduated a few years ago. That university is a classic example of what we can do in Scotland—over the past 10 years, it has become a centre of world excellence in life sciences. In cancer research, it is probably

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now not one of the centres of excellence but the centre of excellence not only in Scotland, Britain and Europe, but worldwide.

We need to ensure that we have many more Dundees to make a success of the Scottish economy. We launch this conference on that positive note of looking to the future rather than harking back to the past. We parliamentarians, irrespective of party, want to work with the private sector, and with the entrepreneurs in the public sector, to ensure that we do what is necessary for Scotland and its economy.

The Presiding Officer: We will now have four speeches from the business sector. First, I call Mary Dickson, the managing director of First ScotRail.

09:44Ms Mary Dickson (First ScotRail): Good

morning, First Minister, ladies and gentlemen. As we have heard this morning, infrastructure is a core component of future economic growth in Scotland. As delegates probably expect, I will focus on rail infrastructure. I will talk not about the four Ps but about the three Ps—performance, partnership and progress.

To recap, the rail service that we operate in Scotland runs 95 per cent of passenger services in the country. We run more than 2,000 services a day to 341 stations and cover slightly less than 70,000 miles a day. To put that in context, that is nearly equivalent to going three times round the world every day. We are already a big business, but we want to grow, because core infrastructure development and expansion are vital. We have 4,000 staff delivering a service to high levels that Scotland has not seen for the past six years. On our current performance, we already provide a good service in Scotland, but the core issue for us is to consider where we are going in the future. A recent transport survey revealed that more than 75 million passenger journeys were recorded last year, which is a 9 per cent growth from the previous year. We now carry more passengers than were carried in the 1960s. People use the rail service.

That takes me on to how we manage the further growth in the future and the increasing expectations from all quarters, not least the business community, and how we harness the core priorities in achieving a world-class service. We have mentioned that before and I believe that we can achieve it. The appetite and the backing are there. In my position at the forefront of running the operation right now, I am enthused by that. To achieve that aim, it is crucial that we create and deliver a coherent rail strategy that is part of the overall national transport strategy, which I will

speak about in a minute. Our role within that is as a franchise operator for a finite period of time, but we also see ourselves as a strategic partner and we wish to align ourselves closely with our Minister for Transport, Tavish Scott, and Transport Scotland, our governing agency.

The theme of the conference is business in the Parliament, but I do business in the Parliament every other day. That is not new to me—it is part and parcel of my role. I find the Parliament very accessible. I have a relationship with all the parties, and with our transport agency and Minister for Transport, in which we acknowledge that there are difficult decisions to be made and that it is not easy to chop and change our transport infrastructure in discrete parts. We must consider the entire network in its existing format and what we want to achieve in the future. In the core relationships, there is an understanding and appreciation of some of those difficulties, which are debated and discussed regularly, not least in the Parliament.

We are all aware of the ambitious projects that are under way, such as the widely debated Edinburgh airport rail link, the Glasgow airport rail link and the Airdrie to Bathgate railway. We heard about the Borders rail line—yes, that is a challenge and there are still some unanswered questions about it but, my goodness, we should applaud and embrace the ambition in saying, “Let us not just stay within our core framework; let us go beyond it.” That does not mean that we do not have to deal with some of the issues for the existing network in Scotland. I am sure that all delegates will have a personal view on what they would like to be changed in our infrastructure in its current format and a view on future changes. However, we should accept that there is an appetite and backing for developments, which to me shows real progression. I am talking about real progression within Scotland—that is my role and that is where we are looking and where I am focusing the energy.

We should all get behind Glasgow’s bid to host the Commonwealth games in 2014. We are one of the major supporters of the bid. It is predicted that the net benefit to Glasgow alone would be £26 million and that, for Scotland, it would be £81 million. Of course, there would also be knock-on effects from showcasing our country for tourism and bringing in other communities and even an offshoot for business and skills. We should embrace and get behind that bid. It presents a fantastic opportunity, and business is certainly getting behind it. Of course, we need the infrastructure not only to deliver the major projects that we are already discussing but to service such a major event in Scotland. That will require an awful lot of energy and commitment and should result in many financial benefits. Indeed, I see that

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that issue is particularly high on the agenda at the moment.

We also realise that the rail network must be enhanced in various locations. Later this year, Tavish Scott will announce the contents of the national transport strategy, in which rail will play a key part. The strategy will not only set out new initiatives and projects that will encourage growth but highlight required service enhancements including double tracking, dealing with lines that inhibit any changes to the timetable and providing further capacity. After all, the service is growing at 9 per cent, and we have to manage that growth if we want to stimulate additional passenger usage. We will also need to focus on the infrastructure on the approach to railway stations, park-and-ride schemes and car parks and work with all other public transport operators to provide a coherent structure that will allow us to move forward.

We have not had such a structure before. With the powers that have been devolved to Scotland, we can—and do—have debates on very local issues as well as on more ambitious matters. We are also able to solve some of the problems of the day job and find the solutions that are required sooner rather than later. The business community, in particular, has called for certain aspects of the service to be expanded. For example, some want trains to run later at night and others want issues such as stopping patterns and frequencies to be addressed. Previously, we did not have such a coherent approach and I feel that, since First ScotRail took over the franchise two years ago, a much more structured approach has emerged.

Of course, there are thousands and thousands of different views about how the rail network should be operated. However, we are talking about a complex jigsaw. As whatever we do in one part of the country has a knock-on effect on other parts of the country, we have to take a coherent approach to our work. Network Rail’s route utilisation strategy, which deals with issues such as the future of rail in Scotland, where capacity should be enhanced and where services should go, has been out for consultation since August. The consultation ends on 16 November, which gives the business community a chance to channel its views and thoughts through the various active and successful representative bodies such as the CBI, the Scottish Council for Development and Industry, Scottish Enterprise, the chambers of commerce and the Institute of Directors Scotland. Of course, people can offer their views and set out their aspirations directly, but going through those bodies will allow the many views and thoughts out there to be heard and considered in a more coherent way.

Every day, I have debates on the train, on the phone and in meetings with people representing

every kind of political and business perspective. I welcome those daily debates, because they help to refresh our focus on the matters in hand and stop us from getting caught up in our own propaganda of what we think we are delivering. Yes, we have a great service; yes, we have ticked all the boxes; and, yes, we are the UK public transport operator of the year. However, we have to keep our eyes firmly on the agenda and find out how we go forward, how we harness and improve on what we are currently delivering and how we accommodate the further growth that we know is coming in Scotland and that we hope will come from outwith Scotland in the form of tourism.

I welcome the continued debate on these matters. However, as I said, we need to harness views through the various bodies that have a powerful voice and get themselves heard.

Thank you very much.

The Presiding Officer: Sir Alan Langlands is the principal and vice-chancellor of the University of Dundee.

09:55Sir Alan Langlands (University of Dundee):

Good morning, everyone. That £5 I gave Alex Neil earlier seemed to do the trick of getting him to promote the university and has made my job somewhat redundant.

I have never been very good at future gazing and thinking about the challenges of the 21st

century was just a bit too much for me. The current challenges that we face in the world—the risks of war, nuclear brinkmanship, climate change, bird flu and a slowing global economy—are things that we need to worry about now, not just across the world but here in Scotland.

Health care, the issue about which I know most, is key in every country of the world. The developed world focuses on cost control and the onward march of science and technology, while poorer countries strive with minimal resources to reduce child mortality, improve maternal health and combat HIV and AIDS, malaria and other infectious diseases. All those things offer important context for this morning’s discussion. All of them resonate with the economic, social and cultural life of Scotland, sometimes indirectly, but sometimes very directly indeed.

As most people here know, I am positive overall about life in post-devolution Scotland, which is a good place to be. We have heard this morning about the collective commitment to tackle a lot of the big issues and to increase productivity, competitiveness and entrepreneurship and some of the underlying causes of social exclusion and disadvantage. Universities are an essential part of

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that effort, which I am pleased has been recognised this morning. Universities contribute to the policy priorities of the Scottish Executive, they spend public money wisely and better than most other publicly funded institutions and they lever resources from a wide range of industry and charitable sources. Universities are places where we think globally and act locally.

There is a lot of evidence to suggest that the direct economic importance of higher education will continue to grow in the future with universities producing graduates and postgraduates who are not just academically qualified, but who can hit the ground running in business, commerce and the professions, who can lead on basic and applied research—I will say more about that in a second or two—and who can adopt new approaches to knowledge transfer whereby intellectual assets are treated more like capital and something to be shared and invested, not hoarded in academic ivory towers.

Scotland’s universities are among some of the most productive in the OECD. This morning, we heard comparative figures about our economy. Scotland has greater academic output and influence per billion dollars spent on university-based research than all the countries that were mentioned this morning—the USA, France, Sweden, Finland and Japan. When it comes to producing spin-out companies, licences, disclosures and patents, Scotland gets more value per $100 million invested than even the top US universities.

As delegates have heard, we aim to live up to some of those high standards in Dundee. We are currently thinking about four things that are relevant to this morning’s discussions. We are thinking about the professions—70 per cent of our graduates enter professional disciplines, so we are investing in high-value relevant areas of the workforce such as accountancy, law, architecture, engineering and medicine. We place increasing strength on links with professional bodies and, even more important, with employers, so that we understand more carefully employers’ needs.

We are thinking about the distinctive contributions that universities can make to some world issues. We heard earlier this week about the Stern report on the economic impact of climate change, and you might wonder what a little university in the north-east of Scotland can do about such an issue. However, at the same time as the report came out, we were launching new educational programmes on renewable energy, with the help of Ian Marchant, the chief executive officer of Scottish and Southern Energy. Also, with the support of the Parliament, we are developing a centre—which has United Nations Educational, Scientific & Cultural Organization status—that

applies good science and good policy to the world’s water problems. Uniquely, I think, the centre links its work to the rules of the game, codified in transparent and enforceable legal instruments, which is something that universities can do well. We are working with universities in Delft, in Holland, and Tokyo, and we are dealing with problems in places such as India, Cambodia, Vietnam and Africa.

Alex Neil mentioned the “triple helix”—the notion of academia and industry working together with the public sector. We have seen a stunning example of that in Scotland this year, in the form of a £50 million investment in the translational medical research collaboration. That collaboration involves Wyeth, which is a major pharmaceuticals company based in the United States; Scottish Enterprise; and four universities—Aberdeen, Edinburgh, Glasgow and Dundee—and their partner health authorities. The first scientific programme to come out of the collaboration, which will be based at the University of Aberdeen, has been signed just this week. The hub research laboratory that will support the networked effort across Scotland will be in Dundee, and it will create up to 120 high-profile jobs.

In Dundee, we are also working separately with six major drug companies to exploit the commercial potential of targeting protein kinases and protein phosphates to develop new drugs to treat cancer, coronary heart disease and diabetes. That work is reflected in 30 per cent of current drug discovery programmes worldwide.

We should remember that there is another part of the world to think about. With huge support from the Wellcome Trust in Dundee, we have just invested in our own in-house drug discovery programme to address some of the neglected diseases of Africa—diseases such as African sleeping sickness, Chagas disease and leishmaniasis, which kill hundreds of thousands of people every year. Such work is going on right now.

We also have to think about demographics. Universities in Scotland face problems because of the shrinking market of 18-year-old school leavers. We are trying to broaden our reach to attract new streams of students who will go on to thrive in the workplace. Our access programmes in Dundee are well developed, drawing in Scottish people from various backgrounds and of various ages, and supporting them to make the transition to higher education. We have been quick to see the potential of the fresh talent initiative. Some of our very best overseas graduates are now being linked up by a joint initiative involving the Scottish Executive and Scottish Enterprise Tayside. Organised events bring the graduates together with local companies.

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All such initiatives are important. Much has been said about Scottish Enterprise in the chamber recently, but Scottish Enterprise nationally and Scottish Enterprise Tayside have been thoroughly supportive and have been key partners in making the initiatives happen. I greatly appreciate the support that has been offered to higher education in general and to the University of Dundee in particular.

The challenge now is to strengthen our education and research and to link them to the notions of creating competitive companies and encouraging a spirit of enterprise—especially among our own staff and students.

Scotland and Scotland’s universities are part of a global competition for capital and good people. We will continue to succeed only if we invest in our research-intensive universities and if—as we do in Dundee and, I am sure, in all universities in Scotland—we continue to take an uncompromising approach to hiring, retaining and rewarding the very best minds, because they will deliver the future.

10:05Mr Jim McColl (Clyde Blowers Ltd): Good

morning, ladies and gentlemen and First Minister. I have been very impressed by the timing this morning. First ScotRail came in 20 seconds early on the 10 minutes and Alan Langlands was only five seconds late. My secretary told me that my speech lasts 13 minutes, so I have been scoring things out.

I am the chairman and chief executive of Clyde Blowers Ltd. We have 27 companies in 19 countries around the world and our corporate office is in East Kilbride. We are involved in clean energy technologies, metals and minerals processing and intermodal transport and logistics. You can look at our website if you want to know more about that.

I am also chairman of the Glasgow welfare to work forum, a member of the Smith group and chairman of the Entrepreneurial Exchange. The exchange has a strong loyal membership of more than 400, with a collective turnover of more than £6.4 billion and almost 100,000 employees in Scotland. The member companies are focused on economic growth and helping one another. My comments are drawn from my experience in all those organisations; I will touch on a few key areas.

In Scotland, as in any other democratic country—and probably most non-democratic countries—we are interested in growing as quickly as possible the quality of life for all God’s souls living here. Worthwhile work provides the means to enjoy a happy and fulfilling life. We want to have a safe

environment, good health care and good quality infrastructure and facilities. How do we achieve that vision? Too many people look to the Government, our elected leaders, to provide that utopia without fully understanding the importance of enterprise and wealth creation in the whole endeavour. To achieve the vision, we require significant investment, which we heard a lot about today. Enterprise creation and growth are key.

Our businesses need an abundant supply of well-educated people. By that I mean well-educated in their chosen field of endeavour—they do not all need to be rocket scientists. In general, our education system in Scotland is good, but it needs to be better at the extremes. At the lower end, we still fail too many people, which leads to the creation of an underclass—the size of which is unacceptable in Scotland—living in unacceptable economic conditions. We need to educate those people appropriately and improve their basic economic conditions. I do not believe that we are educating them appropriately just now.

The present secondary education system is geared towards standard grades and highers. We push kids through that system, but not all pupils are able to cope with it and they deal with it by rebelling, because they do not fit in. Schools get no credit for doing anything different with those pupils. They are judged on the grades that pupils get at standard grade and higher. Many think that those pupils have a negative impact on the school. I have visited secondary schools throughout the country and have heard a variety of views from secondary teachers. Some say, “Take them out of the school,” and others say, “No, we need to keep them in and cope with them.” However, the general feeling is that we need to work with those kids in the school.

On a recent visit to Forth Valley College to meet some young people on a get ready for work course, I asked the lecturers how they would address the NEET problem and what they would do if they had a clean sheet of paper and could redesign the system. The answer was one that I had heard at least half a dozen times before from teachers and lecturers.

At the time that pupils start secondary school, primary school teachers can identify those pupils who are likely to become NEET. From feedback that I have received, I know that, prior to comprehensive education, such pupils were sent to what was called a junior secondary school, where they were taught in a different way. They would do subjects such as metalwork, woodwork, technical drawing and domestic science—all skill-based subjects. They would also learn maths and English in a different way. Their confidence would be built up and they would fit in. After three years, many of them would move on to the senior

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secondary and take up their standard grades and highers.

We need to find a way for our secondary schools to reintroduce that type of skill-based learning. We are picking up those individuals when they are already disaffected. We need to engage their attention in learning earlier on. We should also give the schools credit for their achievement of competence in vocational skills with those individuals. Scotland has a skills shortage, as does Europe. We need a good stock of skilled people in the system, and the system is not delivering them.

At the top end, we must also ensure that our universities are among the best in the world. I think that they are, but we need to keep the pressure up by supporting them and finding new ways to support them. They generate a continuous flow of new ideas and well-educated people to feed our organisations in the future.

The key to improving our economic lot is enterprise, which must be a top priority for the Parliament. I was glad to hear what the parliamentarians said earlier—it was very positive. We need to grow more businesses. I do not want to get into the issue of public procurement again because I know that work is being done on that, but we cannot underestimate the effect that it can have on small and medium-sized enterprises in Scotland. We must keep the pressure on to make sure that we are engaging SMEs in the public procurement process.

We need more companies to start up, as we are not starting enough. Glasgow alone has identified a gap of 2,500 companies. This is not a funding issue, as there are private equity companies and banks that will support new companies. The Scottish co-investment fund—a very good initiative—has £45 million of equity to invest alongside private sector firms, but only a small amount of that has been invested so far. Although Scottish Enterprise believes that that fund is performing well at a national level, there have been very few investments in the west of Scotland, which has the largest European regional development fund allocation, and there have been no investments in the south of Scotland. We need to establish whether there is a real shortage of deal flow in the west and, if so, identify the reason and suggest solutions. We have heard a lot of positive talk this morning, but we have to get into action and do things when we see problems.

Business start-ups need to be given high priority through Scottish Enterprise and they should be more actively managed. I am particularly thinking of the Scottish co-investment fund.

New businesses need to be attracted to Scotland. There has been some success in that,

but we could do better. I do not believe that our economic growth targets should be based on an extrapolation of our current business activity, which is based on economic cycles. In Clyde Blowers, we do not set our budgets by looking at what we did this year and adding a bit on; we have a vision and we work back from that vision to find out what we need to do to achieve it, then take those steps. We have to come at our growth targets from a vision of where we want to be. Our growth targets should come from the rate at which we have to grow to achieve that vision. We should not use the UK as our benchmark; similar-sized European countries would be a more appropriate benchmark.

Earlier this week, I visited Wujin, which is three hours north of Shanghai. We are considering starting a new business there, and I was met by the local mayor and a senior official from the Communist Party. My introduction to Wujin was a virtual tour of the city as it will be in 2010, which started with a visit to a large room in which a huge model of the city was laid out. We walked round the model and each area of development was explained to us. At the end of the tour, a 180˚ screen around us burst into action and took us on a virtual spaceship journey around the city. The animation was fantastic—it was better than the rides at Universal Studios. We had to hold on to the bar to prevent ourselves from falling over as we went through the streets. Wujin had put a lot of effort into communicating its vision in a very effective way. I came out believing in the story, which was fantastic. We could do more to sell the positive aspects of Scotland by using technology. We could use companies in Scotland to do that.

In Wujin, GDP growth during the past two years has been 20 per cent per annum. During the final three years of the five-year plan, it is thought that GDP growth might drop to 15 per cent. That growth has happened because people set out their vision and implemented what was needed to achieve it. The growth is the result of action. A key part of the Wujin plan is significant investment in infrastructure, such as a high-speed rail link to Shanghai, which will reduce the journey time from three hours to 40 minutes, numerous four and five-lane highways to the five major cities in the Yangtze delta and a light rail network around the city. It is truly a 21st century vision being put into action.

As Alex Neil said, Sir John Ward said recently that in Scotland we need GDP growth of about 3.5 per cent. The remark attracted quite aggressive comment in the press from an economist from one of our esteemed universities—an expert—who said that Sir John’s remark was ridiculous, because growth in Scotland would be less than 2 per cent. We cannot afford to listen to such experts and let them hold us back. They do not

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understand what this is all about. I would rather adopt Sir John’s vision of what we need to do and work out how to achieve it. We can plot our course and steer the ship; we do not need to drift with the tide.

I want to see a significant improvement in transport links in Scotland. I have heard about all the good stuff that is going on, but we could aim higher. I would like to travel on a high-speed rail link between Edinburgh and Glasgow. I would also like to drive between those cities on a 21st century road with a minimum of four lanes on each carriageway, instead of a two-lane carriageway that is more like a country road than a 21st century road. I would like similar connections to Dundee and Aberdeen and a modern transport system to get me around cities, particularly Edinburgh and Glasgow—I am being selfish, because those are the cities where I spend most of my time. A high-speed rail link to London is also essential. If we had a magnetic levitation system between Scotland and London, like the one in Shanghai, the journey time would be less than two hours. Can you imagine the impact that that could have on the Scottish economy? However, a high-speed rail link would do as a second best. We see 21st

century technology operating and being expanded in China—why not in Scotland?

I would like the Executive to have greater devolved powers. Time does not permit me to go into that in detail, but if people want help in mapping out what is needed, I will be free to do that later. However, I will give an example of a change that I would like to see, which I think came up when Nicol Stephen spoke. A few years ago, we applied for an R and D grant from the Inland Revenue for a project that we were developing. We fought for two years to get the grant and eventually got £24,000, but it cost us more than that in fees to PricewaterhouseCoopers, which won the grant for us. PWC sportingly halved the money with us, so we ended up getting £12,000. The technology that we developed went into action at Heathrow airport’s terminal 5 and saved 1.5 million road miles—58 trips round the world—so it has made a significant contribution to the reduction of greenhouse gases.

There must be a better way of dealing with R and D support. I would like such matters to be handled by the Executive and not London. The attempt to secure R and D money became a game for us. It was enjoyable, but it is something that we need to get right for other SMEs in Scotland.

Over the past few years the Executive has been innovative in finding ways round the reserved powers. The fresh talent initiative is a great example of that. I also welcome the NEET strategy.

I would like to make a whole lot of other

comments, but I am out of time. Thanks for giving me the opportunity to talk to you this morning.

The Presiding Officer: The final speaker in this session is Dr David Milne, the chief executive officer of Wolfson Microelectronics.

10:21Mr David Milne (Wolfson Microelectronics

plc): Good morning, ladies, gentlemen and First Minister. I am privileged to talk to you today.

I will approach my talk from the perspective of what we would traditionally think of as the high-tech side of things. I am not suggesting that Jim McColl’s company is not high tech, but I will talk about what is viewed as more traditionally high-tech.

I will illustrate some of my comments by mentioning issues that we have had within Wolfson and by discussing how we have grown. Many of you will know that we—or rather I—started off in the University of Edinburgh. I was running an institute there which we spun off to become a separate company. We raised money successfully—in Edinburgh, as it happens—from the pension funds in those days.

The company started as a design company. Many delegates will know the meaning of that: it is well known that it is a business that is difficult to scale because it is people-related and its scale is related to the number of people one has, but we were successful. We decided to move into production in the area of microelectronics in which the company was involved because we got a multiplying effect on sales of the products in return for the design engineering talent that we had used. I mention, as an aside, that one of the leading consultancy houses told us that we should not do that—perhaps that is a pointer on the use of consultants.

We moved from custom products into standard products, because owning the standard product offers much more leverage in the marketplace in terms of gross margins and the contribution to the business: over the years, we have developed a series of standard products that are used in a wide range of different applications. As a result, we have a wide range of customers. Part of our strategy was to target original equipment manufacturing customers around the world. They are the so-called tier 1 customers—many of whom delegates will know—that include Sony, Panasonic, Hitachi, Apple and so on. We developed the company mainly with private equity until 2003. We raised about £15 million to develop it to that stage, then in 2003 we floated on the London Stock Exchange. We were one of the first companies that came out after the bubble burst following the internet company collapses. I am

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pleased to say that earlier this year we broke through the $1 billion valuation barrier.

I will talk about the key decisions that allowed us to make progress and I will comment on some of the issues that we faced. The first key decision was that we went global at a very early stage, even when we were doing consultancy-type work—design for third parties. Clearly, one of the issues for companies in Scotland is that there is a relatively small market, but that does not matter in technology because people work in a world market.

We went first to Taiwan, where we were not particularly successful. We had to build up our knowledge of how one does business in Taiwan. Of course, we started off with an agent, but we did not make progress until we had our own people on the ground—Taiwanese people. We gradually moved into other countries, again using local nationals to support our work. That approach has been quite successful.

The second key decision was to manufacture our products. One of the big differences is that to do that a company needs marketing and it needs to understand what products it should develop. The products that it will develop depend on what markets there are, what opportunities there are and where development work is aimed. The strategy was to examine the high-growth markets in semiconductors and to determine what was likely to happen in the future, and to focus our activities on developing products for those emerging markets. The digital revolution—to use a little bit of jargon—has been one of the driving forces for us to succeed.

As an aside, on the amount of investment that we make, any semiconductor company will invest something like 15 per cent to 20 per cent in research and development. We spend slightly less than that because we have been growing rapidly and it is difficult to keep up with that level of expenditure. We are spending several million pounds—about 14 per cent of our revenue—on R and D. That is absolutely essential, but some people in the financial community did not understand that. On one occasion, when I was raising money, I was telling people in the financial community about the products that we had developed and how the revenue would flow from them when they were successful. They said, “That’s great, now you’ve developed the products, we’ll be able to see lots of profit coming back from that.” That is not how things work in technology; there is a continual need for development and improvement.

When one has ownership of one’s own products, one builds up a lot of knowledge in the company. I describe that as “tacit knowledge”. That is part of the barrier to others who want to compete with

you. There is a formal process for patenting products, but often that is not done, mainly because companies do not want to tell other people what they are doing. One of the strengths of a company that has its own products is that it has a lot of knowledge that it can use to create wealth.

The situation is different with regard to companies that we may call manufacturing companies. They might be quite high-tech companies, but they tend to get their product ideas from elsewhere. The research and development is carried out somewhere else and the knowledge is then transported to an offshore location. Those companies can be successful in manufacturing but, of course, they do not get the added value or the multiplier because they are not creating the new products.

In Scotland, we must concentrate on getting more companies that have product ownership—that is one of the keys. I do not want to say anything negative about service companies because we have to have them as well, but one of the ways of getting big profits and greater leverage is to ensure that the products and the tacit knowledge are owned locally and that products for the marketplace are defined locally.

One of the issues that we faced when we were growing the company was that there was no one around to ask. In Scotland, few successful high-tech companies have started from scratch and have grown to any appreciable size. Every time we got to a new stage, we were learning for ourselves. That takes time and I make no apology for the time it has taken Wolfson to grow to its current size. In California, companies have in the past taken just as long to grow to such a size. Clearly, there are examples there of people who have done it before and who can grow a company more rapidly when they start a new one because they know exactly what to do. Here, we had to learn many things for ourselves. Here is a good pointer: if companies in this country are successful and have gone through that painful process, we should be able to use their leverage to help others to do the same.

Wherever high-tech companies come from, whether they are spin-outs from universities or have started from their own ideas—we tend to concentrate on spin-outs from universities, as that is an exciting area, but we should not forget the latter sort—we should be encouraging those companies to develop and we should be encouraging them to develop not just as technology demonstrators. Many people in Scotland are heralded as great successes when they get a company up to a certain level of revenues and then sell out to somebody larger. Clearly, there are cases in which that is

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appropriate, but Scotland needs companies that grow to the next stage and we need to encourage people to continue to have the confidence to take their companies to the next stage. There is no reason why somebody who takes a company to $10 million or $20 million of revenue cannot get it to $200 million if they have the ambition to do so and are encouraged to do so.

There is an enormous amount of entrepreneurial activity in universities. That situation has transformed in the past few years—I am pleased to see that and am supportive of it as an individual. However, the universities must accept that the issue is to create companies, not to retain their intellectual property. Universities need to get that intellectual property out into companies much more freely than they do. In places where that has happened in the past, clusters have grown because that intellectual property is traded. It gets into the companies and the companies grow and develop. I believe that where the environment is such that there is good interaction between companies and universities—as has happened in California, Sweden and Cambridge—and no one is trying to formalise the arrangement and make it contractual, the companies have succeeded much better and have fed back into the universities at a later stage in the form of money, joint research projects and so on. It is an act of faith, but that entrepreneurial spirit is needed by the universities, which are big organisations that, structurally, tend not to be entrepreneurial.

It is people who make things happen. Parliament tries hard to make things happen in Scotland, but there is a tendency to set up organisations and structures to help people to do things and to say how they should do things. That is wrong and should be minimised because it is not what entrepreneurialism is about; it is about individuals doing things themselves. In the cases in which we have had good interaction with organisations such as Scottish Enterprise, there has been an individual who has worked closely with us in a flexible way, who has taken responsibility for what we say we will do and who has monitored that rather than asking a consultant to vet what we are doing, wasting time and all that sort of thing. It is better to encourage individuals than it is to set up structures.

In Scotland, we have a tremendous opportunity to do much better than we are doing now. If we can free up some of the structural stuff that we do, we will see tremendous developments, because we have the right people.

The Presiding Officer: That concludes the first session this morning. I hope that it has given the business community and the politicians pause for reflection. We will now split into six discussion groups that will meet in different locations on the

parliamentary estate, and where coffee now awaits delegates. I will see you back here in the chamber at noon for feedback from the open forum, a world view from Gerry Rice and the keynote address from Scotland’s First Minister, Jack McConnell.

10:33Meeting suspended.

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12:03On resuming—

Feedback and Open ForumThe Presiding Officer: Welcome back. We

move into open forum, where almost anything goes. This is the chance for everyone to voice opinions. First, we will hear feedback from the six discussion groups. I invite the rapporteurs to summarise, in bullet-point form, what was discussed.

Mr Grahame Smith (Scottish Trades Union Congress): I was the facilitator of group 3, which looked at skills in the modern workforce. I will do my best to summarise briefly the key issues that were raised in our discussion.

The group looked at what the future skills demands in the Scottish labour market may be over the next 10 to 15 years. We identified the central role that employers and employees have in determining those skills needs. We recognised that, although considerable investment—public and private—has been made in skills, more investment is needed. We considered what the balance of that investment should be and where the focus should lie.

I turn to the skills profile and where investment should go. The general theme that emerged from the discussion was that more emphasis should be placed on soft skills and on investment in early years education—nursery schools, in particular. It was recognised that, although the determined to succeed programme is valuable, improvements could be made, so some areas for improvement were identified.

The importance of having an effective careers guidance service was also identified. It was suggested that perhaps there needs to be a change in direction and emphasis in provision of careers guidance. Mention was also made of the need for more investment in, and concentration on, education in science and languages.

In the discussion on the skills of those who are currently in the workforce, it was noted that although the modern apprenticeship programme in Scotland is successful, more attention should be given to some of the traditional skills and there is perhaps a lack of capacity to deal with significant increases in the demand for skills in some areas.

More investment is needed in addressing the skills needs of people who have few or no skills. Particular mention was made of the reliance on migrant workers in some areas of recruitment. Investment in those in the workforce who have low skills levels could assist in addressing the needs of the not in education, employment or training group as well as those who are seeking to re-enter

the workforce but who are currently on incapacity benefit.

It was mentioned that 75 per cent of those who are currently in the workforce will still be in the workforce in 20 years, so significant attention must be paid to supporting people in the workforce to upskill. It is unclear, however, what support is available. It is felt that attention should be paid to building on the individual learning account model, perhaps with a view to expanding it to ensure that investment from Government, employers and individuals can be combined to help people who are already in the workforce to upskill. The Executive is considering refreshing its lifelong learning strategy, which might be the occasion to consider how a skills strategy for Scotland could be drawn up, looking across the range of Executive departments and portfolios to ensure that all the aspects of skills and the skills strategy are comprehensively addressed.

I am sure that I have missed out a considerable number of points that were made in the discussion, but I hope that I have managed to cover some of the key ones.

The Presiding Officer: I remind delegates that all the proceedings of the conference will be posted out to you in due course. I will take one more report from a rapporteur. Niall Stuart, from the Federation of Small Businesses, was in the group that covered Government and business.

Mr Niall Stuart (Federation of Small Businesses): Good morning. Our theme was how government at all levels can help business rather than get in its way or hinder it.

Frustration was expressed about the speed of the planning process and the time public agencies take to make decisions. There is a real sense of frustration at organisations’ failure to work together to help local and national businesses. Nevertheless, delegates welcome the political commitment to open up procurement to small and medium-sized enterprises. There have been some signs of improvement, but progress has been slow and there is frustration because there is no clear strategy for driving those changes right across the public sector.

The group also expressed frustration with the Westminster scheme for research and development tax credit, but there was positive feedback about the Scottish Enterprise schemes to help Scottish businesses to invest in research and development. Lastly, delegates made a plea for either small business rates relief or a cut in the headline business rates so that Scottish businesses are not just on a level playing field with UK and European competitors, but have a real competitive advantage and a means of helping them to invest in their businesses—for training,

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recruitment, marketing, or whatever—so that they can compete with UK and European rivals.

The Presiding Officer: Thank you very much. The clerk to the Enterprise and Culture Committee tells me that each of the rapporteurs has been tasked with writing an essay covering in some detail what was discussed in the workshops. Those will be sent out to delegates in due course, surprise though that may be.

We now have about 20 minutes for general questions and comments. I will try to encourage dialogue with the ministers and members who are present.

Mr Ian A Ewing (Sovereign Homemaker): Good morning. I am semi-retired, but I have been an entrepreneur all my life.

A lot of people have taken the time and paid the expenses to come here today to take part in the groups. Most of those people will have given their questions to the group leaders. Will you tell me which rubbish bin you are putting them in, so that I can pull them back out? I genuinely feel that, although people have taken the time and trouble to come here, all their concerns cannot be addressed—certainly not equally. However, I would like to think that some of the thinking could be outside the box. Some of it will certainly be complementary to existing policies. I would like to think that a skeleton of those ideas will be taken forward, and I would like to know what route that will take.

The Presiding Officer: I can give you a half-answer to that. I talked yesterday about this being a participative Parliament. As Mary Dickson of First ScotRail said, the doors are open here all the time. The minister will consider all the ideas that are coming through, as will Alex Neil, who is the convener of the Enterprise and Culture Committee. There are also a range of cross-party groups into which ideas can be fed regularly. Nicol Stephen and Alex Neil might like to address the issue.

Alex Neil: A good example is what happened last year on procurement, which was followed through very thoroughly by ministers and MSPs generally and which resulted in a successful change of policy. However, we may have further to go, so we want feedback on that.

This is not an academic chat; we are looking for ideas and we are pursuing issues of concern across all the parties. These are not particularly party-political issues—procurement is an example. We are all keen to ensure that small and medium-sized businesses in Scotland can maximise their opportunity to benefit from public procurement.

Nicol Stephen: I agree with what Alex Neil has just said. I think that, in order to keep the conversation flowing, we should move on.

The Presiding Officer: I agree.

Mr Kenneth Ross (Elphinstone Group): We have heard all the parliamentarians today endorsing the fact that sustainable economic growth is the first item on the agenda for the Executive. I thank them for that. It was interesting to hear Mr McColl suggest that we should target 3.5 per cent as the level of growth that we should try to achieve.

Can the First Minister tell me how he will ensure that Executive policies cascade down to all agencies of Government and local authorities? I recently tried to invest £10 million in the agricultural sector only to hear the planning convener of Stirling Council say that economic matters are not to be taken into account in determining a planning application. I know that that is wrong. How can we change the culture so that sustainable economic growth is actively encouraged by all sectors of Government and all local authorities?

The Presiding Officer: There are ministers here. The First Minister will address us formally shortly. Perhaps Mr Stephen can answer your question.

Nicol Stephen: It is important to show leadership on such issues, but the power of that leadership is greatly reinforced if business is behind it and if there is a strong partnership on the issue. We must encourage change in the agencies. In speaking about agriculture, I thought that you were going to turn to issues to do with the Scottish Environment Protection Agency, Scottish Natural Heritage or Scottish Water, in which case it would be an issue for Ross Finnie. However, it could just as easily be a transport issue. Tavish Scott knows that transport issues are raised regularly because of the frustrations of business.

As you will know, the planning process is a subject for major legislative change at the moment. We want to get a faster and more supportive framework in place as soon as possible. All of us experience frustrations or are told about them, and we want to drive change. There are still Neanderthals around and we need to see the situation change. We must drive that change right across the Scottish economy.

12:15Mr Martin Stepek (Scottish Family Business

Association): I am the chief executive of the Scottish Family Business Association. I have two points to make. We formed because we perceived that 60,000 family businesses in Scotland did not

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have a forum at which to discuss their unique problems, which are largely family-related and psychological or emotional rather than to do with business.

We have looked into the market of business support in our first year of operation and have identified a significant overlap among the business support organisations. A previous speaker criticised the perspectives of the Government and of politicians, but I do not think that we as a community of business leaders have got our act together. The Confederation of British Industry, the Federation of Small Business, the Scottish Chambers of Commerce, the Institute of Directors, Scottish Enterprise, the business gateways and the universities all provide services. Our business diaries are overwhelmed by training, development and social commitments but there is no strategic streamlining or co-ordination of those bodies. We need to get our act together in that regard, so perhaps the Government could facilitate a meeting. I do not care how it turns out, but we as a business community need to be streamlined nationally and regionally.

My second point is about the invitation process for this gathering. If I look around, I see that the male-female split is roughly 80:20. That situation is inappropriate and wrong and we need to do something about it. I hope that the women here will not find it patronising if I say that in the 21st

century, increasingly it is women’s skills that are admired. I think that the leadership of women in business is core and crucial for the 21st century. We need women’s multitasking, listening, caring and people skills, as well as their practical innovation, and the organisers need to sort that out.

The Presiding Officer: Let me take that forward a little. Does anyone else want to comment on the same issue? Do you feel that you are divided? Do you feel that this is a listening Parliament? Do you feel that politics these days is too important to be left to just the politicians? How do you feel about how you engage with us? I take on board Ian Ewing’s remark about questions being put in the bin.

Mr Iain McMillan CBE (CBI Scotland): I am from CBI Scotland. I want to address Martin Stepek’s point about the business organisations. Membership is market driven and that is the way it should be. Our members join us because of the propositions that we offer. The proposition that the CBI offers is different from the one that the Institute of Directors offers. Individuals join the IOD, whereas companies join the CBI. The Federation of Small Businesses concentrates on the SME end of the market, whereas organisations such as the Scottish Council for Development and Industry are broadly based.

Although we all exist for slightly different reasons and have slightly different clienteles, we work together closely—the six business organisations come together. For example, last week we met the Secretary of State for Scotland and next week we will meet Philip Rycroft and his top team. A great deal of co-ordination goes on, so I would be happy to speak with Martin Stepek offline to give him more information about that.

I agree with the comment about the shortage of women here and in business generally. I would like more women to go into business—we do everything we can to encourage that. I want more women to participate in business so that one of these days I can bring out the rocking chair and let them get on with it.

The Presiding Officer: My question was to what extent you can engage with Parliament, rather than just sit on the sidelines. The door is open.

Mr McMillan: I agree that the door is open. Today is a good example of the door being open in a formal sense. My colleagues in the CBI, our members and the other business organisations find that Parliament’s door is open. We do not think that there are any significant barriers to engagement.

The Presiding Officer: We are holding a joint dialogue—members of Parliament are present, too. Johann Lamont does not usually get to ask questions because she is a minister.

The Deputy Minister for Communities (Johann Lamont): I am not going to ask a question but answer one by way of making an observation on the issue of women. Our Parliament would not have looked like this if we had not actively done something about it. The challenge for business is to act to ensure that business looks this way too.

On the challenge of planning, I am one of those people who think that planning should be exciting and important, rather than the drudgery that it too often feels at the moment. It is critical for economic development, which can be a material consideration. Our planning proposals are important because they will allow certainty for businesses and communities. I urge people to engage in those proposals and to recognise that they will lead to a culture change, not least for local authorities, which are our partners—not whipping boys—in the process. If anybody knows how planning in local communities should look, it is local authorities, with whom we are working closely. We want to move from hand-to-hand combat to a plan-led system.

While I recognise the challenges of planning and the frustrations of those who are most directly related to it, it is critical that such people engage

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with the proposals. That is only partly about the Planning etc (Scotland) Bill; more important, it is about what comes after. On engagement, the business community has played a critical role in the shaping of our planning proposals. I hope that it will play as critical a role in delivering them in future.

Ms Liz Cameron (Scottish Chamber of Commerce): I shall not comment on being one of the 20 per cent minority, so let us park that one.

There has been a massive growth in the number of women starting up in business with support from Scottish Enterprise and others—let us hope that that will continue. On the question whether the door is open in the Parliament to engage with business, yes, the door is open but we need faster results than at present. There is still bureaucracy, which we would like to see less of. I would like the formation of a stronger partnership. Events such as this enable that to happen.

We talk about innovation, investment and R and D, and my next point relates to an issue that I was unable to feed back from my wonderful group. The main focus of the discussion in the group was the fact that it is people who make things happen and that we need to instil more ambition in our people, in our employees and in those developing policy. Willie Roe from Highlands and Islands Enterprise suggested that we consider more closely the Finnish model of education. Let us do as Finland does and instil in our young people, from the age of three, the idea of being competitive and that, although we may not all be equal, we can all have an entrepreneurial spirit and, indeed, a hunger for success. That is what we want to happen in education.

Mr Jamie Russell (Tree of Knowledge Ltd): I want to add to what Liz Cameron said. Anybody in here who owns a business or works for one will know exactly what I am talking about when I say that we absolutely must wow our customers 100 per cent in order to keep them. Is this a listening Parliament? Nobody in this room will know until they have been wowed to some extent.

If we come back here in a year’s time and talk about parliamentary committees meeting to discuss certain things, nothing will have changed. People are frustrated. For example, we all agree that the road between Ayr and Stranraer should be better. It has to be better, so get it done. Another example is whether we need more money in education to resource initiatives such as determined to succeed. Our conversation in the skills development session was largely centred around intervention at primary school age. Show us the money. Put more money into education in order to keep that work going.

If nothing happens, this is not a listening

Parliament. That is people’s frustration. I am excited to find out whether I am going to be sufficiently wowed over the next 12 months that I will want to come back and give my opinions next year.

Mr Maitland Mackie (Mackie’s of Scotland): I am a bit nervous about this, but the Presiding Officer asked how politicians should interact with us in the business world and in non-political circles. What I would like to say is that there should be, more from the politicians’ side, a much deeper understanding of how to make things happen, as distinct from the high ideals that you all have about the education service, the health service and so on. If you guys—a generic term nowadays—really understood the fine principles of good management and used our sector a lot more in developing the modus operandi of delivering your high ideals, that would move us a hell of a long way down the track of making a better Scotland.

Mr Namasiku Liandu (Scottish Trades Union Congress): I just want to make a point about ensuring that in our relentless pursuit of improvement and development we do not forget that our employees need a good life-work balance. Families need to be taken into account to ensure that, as we go forward, children develop as they should and are not neglected by their parents’ pursuit of work.

I want also to make a plea to all employers, Government, small businesses and single employers to remember that health and safety issues are important to us all.

The Presiding Officer: There are one or two people in the back row who are almost out of the body of the kirk, if I can put it that way. I ask them to come forward and take the microphone at the top of the stairs.

Mr Ivor S Tiefenbrun MBE (Linn Products Ltd): I am the founder of a manufacturer in the west of Scotland that makes better sound equipment than you have here. [Laughter.] The late Donald Dewar promised us that we would get the opportunity to tender for the systems here; sadly, that was an unfulfilled promise.

A lot of people have devoted a lot of time and energy to participating, but I feel that the whole event is too managed. I know that last year some individuals felt trashed by some of the criticism from some business participants, but you have gone too far in the other direction. Not enough use has been made of the time, energy and investment of all the people here.

The Presiding Officer: What would you have liked to see?

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Mr Tiefenbrun: I would have liked to see more preparation and focus on what the Scottish Parliament can do to improve our competitiveness as a nation. What can you and we do to make Scotland more competitive, our business community more successful and our people better remunerated and equipped and more employable?

The Presiding Officer: I put that point to the managerial dirigiste Alex Neil, who as convener of the Enterprise and Culture Committee has some hand in the agenda.

Alex Neil: That comment is part of the feedback from the conference. We took feedback from the first two conferences and adjusted the agenda accordingly. For example, one suggestion from both politicians and the business community was to finish a bit earlier than 4 o’clock on a Friday. I hear what Ivor Tiefenbrun is saying, and we will take it into account for next year.

Mr Martin Hunter (Federation of Small Businesses in Scotland): We have been encouraged to have a two-way conversation today. Can I ask the Parliament what it sees as the serious threats posed to business in the future?

The Presiding Officer: In fairness to the Deputy First Minister, he produced a shopping list of areas of difficulty. I do not know whether he wants to speak again briefly.

Nicol Stephen: I think that it would be better to keep the conversation flowing, but I will respond briefly. Of course, there are threats and challenges, but the real purpose of an event such as today’s is to focus on the opportunities and try to turn some of the big challenges, such as climate change and our energy future, into opportunities for Scotland. We have some leading-edge technology, fantastic companies and great universities, but somehow we are not making the most of the opportunities compared with other European countries of a similar size. We have to lift the rate of economic growth and give meaning and substance to our statement that growing our economy in a sustainable way is our number 1 priority.

12:30Mr Allan James (Semefab): Today we have

heard clearly that there are two main drivers for economic growth in Scotland: skills and investment. On investment, I make the point that the money must come from somewhere. The economy is capable of delivering a certain amount today. We are one of the most highly taxed nations on the planet, and we must think about where investment will come from. It can come from the public sector or the private sector; we

heard this morning about a partnership arrangement between the two.

At more than 50 per cent of GDP, the public sector is becoming very unwieldy. There are great possibilities for efficiency improvements. This is a beautiful building, but it is also a monument to inefficiency in public sector spending. If we are to have a real partnership approach, both industry and the public sector must do their bit.

Ms Alison Loudon (NXD Recruitment): I will bring one of my other great skills into play—the nagging skill that females have—and will make a very specific request. I am slightly disappointed that the forum that was looking at skill sets did not identify the biggest issue that businesses face—the lack of sales expertise in our young people and in people who are coming through. I ask for a bald programme that is aimed at individuals who are coming out of school or who are at graduate level and which takes them away from the culture of thinking, “Someone else will do it for me.” From birth, we have the attitude that everything is provided for us—that someone will look after us and provide us with health care when we are young and in our old age. I hear what people are saying about the complications of doing business, expense problems and tax issues. However, you build a successful business not by cutting your costs but by driving your top line.

We need people who understand how to sell on an international stage, in a global situation. We do not have such people, because many are either focused on the Scottish situation or are not surrounded by a culture that will put them into sales. We want people to become professionals—bankers, medical staff, advisers and so on. The professions are great—I am a chartered accountant—but even at the parental level, selling or creating a bottom line is seen as dirty. That is an enigma. We think that it is much better for people to count wealth than to create it. I ask the Parliament to set up a programme—perhaps in partnership with the public and private sectors—to put 1,000, 2,000 or even 5,000 individuals into corporate environments that have great track records of developing sales, marketing and branding skills and expertise. We will lose some of those people out there, but many will come back and will be stronger for it. We do not have many large corporates or mid-size businesses that can develop those skills, and we do not have the culture that would enable that information to be exchanged.

The Presiding Officer: I have to be out by 12:35, so there is time for only one more intervention. I was going to give it to a member of Parliament, but instead I will give it to one of our guests.

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Mr Andrew Pinkerton (Construction Industry Group): In the chamber this morning and in the session that I attended, we heard about the economic growth that we want to achieve and about the need for investment in infrastructure. We have also heard about sectors such as the financial sector, tourism and life sciences. However, we have not heard much about the construction industry. We must all recognise the importance of that industry in delivering many of the achievements that we seek.

I urge the parliamentarians who are here to recognise the unique opportunity that the construction industry offers to deliver not only economic growth and sustainability in Scotland but social and environmental sustainability. As we go forward into a new parliamentary session, we look for recognition of the industry’s importance and the right level of ministerial support for it.

The Presiding Officer: I am afraid that that takes us to the end of the open forum. I am sorry that it was so short, but there will be opportunities to continue the discussion informally over lunch.

Scotland’s Place in the WorldThe Presiding Officer: I call Gerry Rice, who is

a former official of the World Bank and now the deputy director of communications at the International Monetary Fund. He will speak on Scotland’s place in the world.

12:35Mr Gerry Rice (International Monetary Fund):

I thank the Scottish Executive and the Scottish Parliament for inviting me to be here. I consider it an honour. I have a sense of humility about speaking to this group, which constitutes much experience and knowledge and is doing much to drive Scotland forward daily. I take my hat off to you all.

I should caution you that I have spent much of my working life in institutions that are full of economists. I am reminded of the story, which you may have heard, about two Scots who go up in a hot-air balloon and proceed to get lost. One of them sees someone on the ground and calls down to him, “Where are we?” The fellow on the ground calls back up and says, “You are in a hot-air balloon.” One of the fellows in the balloon turns to the other and says, “That guy must be an economist.” The other asks, “Why do you say that?” and he says: “For three reasons. First, he responded immediately and without hesitation. Secondly, he spoke with absolute precision—I mean, he told us ‘You are in a hot-air balloon.’ Thirdly, the information he gave us was bloody useless.” That is your health warning.

I speak not as an IMF or World Bank official but as a returning Scot. I have lived a life in global economics and development and poverty issues but I assure you that I am always proud to be Scottish. In fact, I have traded on being Scottish and on the Scottish brand, which I consider to be trust and integrity. The brand usually induces a smile the world over—people like the Scots. I now live in the United States, a country where 40 million people claim Scottish heritage and where being Scottish is something to aspire to.

That is the context. My job is to step back a little from your discussions of the nitty-gritty business challenges that face Scotland and to consider Scotland’s place in the world. I will talk about two things: the big economic forces that are shaping our world—the megatrends, if you like—that have come up in some of the discussions; and the opportunity that those megatrends and the changing world present for Scotland. I believe that that opportunity is unprecedented in our history.

First, I will address the megatrends—the seismic economic shifts that are taking place in the world. We are going through a transformation that many

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people believe to be as profound as the industrial revolution. It is a combination of technological change and the entry of billions of people from developing countries into the global economy.

I will start with the technology. We live in a world where the marginal cost of collecting, accessing and transmitting information is rapidly falling towards zero. Already, more than 1 billion people have access to the internet, 2 billion have mobile phones and the potential for the spread of wireless access is enormous. As delegates know, this new connectivity is transforming how economies operate, business gets done and relationships are formed. I understand that that is not news in the context of today’s meeting. However, the headline is that we are only at the beginning of the process. This goes way beyond the dotcom boom and bust; we are only just at the beginning of how best to use information technology, process design and knowledge development and accessibility. We are just beginning understand the impact of all of that.

When I was a kid growing up in the Calton in the east end of Glasgow, my main access to knowledge was the library down at Bridgeton Cross. It was a good library, but it had its limitations. The kid in the Calton today—or the kid in Cambodia—with an internet connection, using dial-up broadband or whatever, has access to the same level of knowledge on a topic as a university professor has. More people have more access to knowledge through technology today than has ever been the case in human history. We need to think about that. Although we do not know where it is going, surely the potential is huge.

If that is the first big seismic shift, the second is the rise of the emerging economies and their rapid growth and development. The basic reference point is that, in our world of 6 billion people, 5 billion live in the developing countries. They do not live in countries like ours; they live in poorer countries. Of course, as other speakers mentioned, the change that is taking place in those countries is led by China and India, with their combined population of about 2.5 billion people—half the planet, in two countries.

Data that was released earlier this year suggests that China has already bypassed France, Italy and the UK to become the world’s fourth largest economy. Projections indicate that it could overtake the United States of America as early as 2035. A billion new consumers from those two countries will enter the global marketplace in the next decade. Over the next 15 years, they are expected to spend some $2 trillion on infrastructure. That presents major opportunities for doing business. Of course, there are major challenges too, including poverty, politics and the environment. Nevertheless, the opportunity is truly historic and not only in China and India. The rise

of those countries is followed by Brazil, Russia, the other east Asian economies and those of eastern Europe. Together with technological change, the rise of those developing nations constitutes a transformation that is taking place almost before our eyes.

I turn to my second topic. Where does Scotland stand in that changing world and how are we doing. My outsider’s perspective is that, in many respects, we are doing well. We have a steady economic growth. I agree that it could be stronger; it is not as spectacular as China’s 10 per cent or Ireland’s 8 per cent, but it is steady nonetheless. We have made the successful transition from a mostly manufacturing economy to a service-based economy. We have the lowest unemployment rate in 30 years, which is not to be sneezed at. On a per capita basis, we put more of our kids through higher education than is the case in any other country on the planet. An increasing number of our companies are going global and are doing well. A number of things are going quite well for Scotland.

I was interested to note that, last year, the Financial Times fDi magazine named Scotland as European region of the future 2006/07. That is not bad. There is clearly no room for complacency, however. In this global economy, other countries are competing in the same markets as we are; they are doing extremely well. I refer not only to China and India; closer to home, we can see the astonishing success of Ireland.

What is at stake here is huge and important. It is the future—future growth, jobs and prosperity. The good news is that Scotland has never had a greater opportunity to do even better in the global economy. There are three reasons for its having that opportunity. First, we have new global access. Scotland has traditionally seen itself and been seen as a small country on the periphery, but with technological change, there is potentially a global market for our services and ideas. We have traditionally seen our main customers as our 50 million or so neighbours south of the border. England is a wonderful partner for Scotland. We should continue to value and nurture that partnership, but there are another 1 billion customers out there in other parts of the world for whom Scotland’s small size and geographical location are of little consequence. They want quality and reliability, which we can provide.

Secondly, there is the global emphasis on knowledge. Most of the new economic growth in the world is the result of the production and application of knowledge. We should consider what is happening in finance, education, communication, the creative industries and even in manufacturing. Today’s most dynamic companies and economies trade in ideas. With our strong history of innovation and invention, we are surely

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smart enough to turn the knowledge economy to our advantage.

The third thing that gives Scotland an unprecedented opportunity in the global economy is devolution. We should think about how the rest of the world perceives devolution. For the first time in centuries, Scotland has taken to the global stage in its own right. A major goal of devolution was to give Scotland greater self-confidence and the capacity to speak with and interact with the rest of the world. The question now is how Scotland wants to use its global voice.

We have a lot going for us in the financial sector, which has been mentioned, science, basic research, the oil and gas industries and tourism. The Stern report on the environment and the economics of climate change was published this week. Al Gore recently visited Scotland and commended Scotland for being in the lead in the environmental sciences. A lot is going on.

As an outsider, I have been struck by the number of initiatives that have been taken under devolution and how they are being emulated. Positive initiatives to take better care of our elderly citizens, attract specialist skills and ban smoking in public places—which is an initiative that is being emulated in nearby countries—give us much to build on.

To the outsider looking in, Scotland seems well placed to take advantage of emerging global opportunities. However, to take full advantage of them we must find a way to tell Scotland’s story better, to ourselves and to the rest of the world. When I was home six weeks ago, I was struck by an article in The Herald that said that two thirds of Scots want the Parliament to have more powers and that voters think that the Parliament is “trustworthy, modern and accessible”. The poll to which the article referred also indicated that there is significant “confusion or ignorance” about exactly what is being achieved. We must therefore tell the story better. The story is there and must be told internally because internal consensus is important in giving direction.

When I was back last year for the G8 summit at Gleneagles—which was a tremendous success for Scotland—I walked through the Scottish village exhibit and read there that Scotland is the best small country in the world. All the world leaders at the summit walked through that exhibit. People have debated again this morning whether it is right to use that phrase or branding. We can have that debate, but I like the aspiration in going for being the best in the world. I like the fact that the rest of the world saw that, too.

If I may be so bold, I think that in telling our story, we sometimes tie ourselves up in knots unnecessarily. Is it historic Scotland or modern

Scotland? Is it tartan tradition or economic tiger? Is it Rabbie Burns or Franz Ferdinand? You all know the answer—it is both. Why should we not have a Scottish story that honours the past while embracing the future—a Scottish story that is rooted in Scotland’s place in the world?

Before I finish, I will return to the economists in the hot-air balloon. Do you remember them? They are still floating—some hot air is left, as you have no doubt noticed. They like to measure a society by classical economic and social statistics: GDP ratios, unemployment rates, literacy levels and so on. Such statistics are of course important, but I will leave you with a statistic that is harder to measure but perhaps more revealing. Does our society have more memories than dreams or more dreams than memories? By dreams, I mean positive aspirations for the future. We do not want to forget the past—our tradition and memories—but when memories exceed dreams, too many people spend too much time looking back instead of forward. I know from my interactions today that Scotland’s dreams to memories ratio is in good shape. The dream of being the best small country in the world is alive and kicking and so is the opportunity to make it a reality. Thank you very much indeed.

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Closing AddressThe Presiding Officer: I call the First Minister of

Scotland, Jack McConnell, to give the closing address.

12:52The First Minister (Mr Jack McConnell): I

thank everybody for their attendance, which all the ministers and MSPs who are here appreciate. I hope that the discussions have been useful and productive and I am certain that Alex Neil and his colleagues will take on board for next year any views about how proceedings have been conducted. I particularly thank delegates who volunteered to sit on the side of the chamber that is to my left, given the history of the beam that is above them. I am glad that they have survived the morning and that they live to fight another day.

The event is important. I thank Gerry Rice for his address and for the work that he has done to promote Scotland, in the US and elsewhere, alongside his day jobs over the years. I also thank Mary Dickson, David Milne, Jim McColl and Alan Langlands for their addresses.

I agree absolutely with David Milne that people can make the difference. I am certain that almost all the key initiatives that we have pursued in recent years have been driven by people who made them happen. Undoubtedly, we in the Parliament can create structures and institutions and can devise policies and legislation, but without people and a partnership—some consensus alongside the debate—we will not make the difference that we want to make. That is one reason why events such as the conference are important.

Ian Ewing asked where ideas will go. Some of the most worthwhile action that the devolved Government and the Executive have taken has come from ideas that have been placed with us by others in recent years. For example, the fresh talent initiative came from a suggestion by people in the audience of a chamber of commerce lunch in Edinburgh about what we might do to take up the population issue and to attract more talented people to Scotland. Determined to succeed was driven in the initial years by the members of the Entrepreneurial Exchange, and individuals came forward with the idea of making it into a national programme.

If I agree with anything that Gerry Rice says, it is that the story about what happens to those ideas is not always told in Scotland. As well as listening and working together in dialogue, we need to communicate the outcome of such discussions and what happens as a result. I would never want anyone to lose confidence in the fact that we listen

and take up ideas, and if we work together on those ideas, we can make a difference.

I am therefore keen to encourage this conference or other opportunities for dialogue, and I am sure that that view is shared by people across the political spectrum in the Parliament. Without moving into political debate this morning, I also want to say that engaging in debate on ideas and the future of Scotland during the next six months is going to be very important for the business community. Without commenting on one direction or the other, the choices that are made in Scotland in May 2007 will determine this country’s future. This is not a Mickey Mouse parliament; its views are not second-guessed by anyone else. The parliamentary elections will shape the future of Scotland in a way that will affect every business represented in this room today and everyone who lives here. It will be important for the business community of Scotland to engage with politicians of all parties during the next few months, to be well informed, and to help to inform and encourage participation in that election. I am sure there are many debates to come so, for the moment, I will leave it at that.

In 2003, we deliberately determined that the need for a high level of economic growth in Scotland had to be the number 1 priority of Parliament and the devolved Government in its second session. During the early days of the first parliamentary session, the Parliament was still growing, there were uncertainties and development had to take place. There was also a massive downturn in the electronics industry that affected the Scottish economy and everyone’s confidence. The requirements of the future security of the Scottish economy and businesses drove the need for change and meant that we had to become more entrepreneurial, grow more companies of scale in our own country, change the culture and ensure that we had the right infrastructure to back that up. I hope that, during the past three and a half years we have made that priority a reality. Although movement on transport projects is, as ever, never speedy, the additional investment in rail, roads, direct routes and other transport initiatives has made a difference.

Our investment in universities, skills and education more generally was made deliberately to give Scotland a competitive edge and make a difference. I believe that expansion of the determined to succeed strategy into every school in the country, trying to create an enterprise culture and ambition in our young people, is significant in its own right, however much smaller its budget requirements might be when compared to our other great intentions.

The globalscot network is about the promotion of Scotland worldwide and the telling of the story to

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which Gerry Rice just referred resulted in that fantastic conference just six weeks ago when members of the globalscot network came to Edinburgh from all over the world at their own expense to help Scottish companies to grow, to learn more about our story and take it back home with them. That initiative and our efforts to promote Scotland overseas are designed to help Scottish companies, rather than just attract other companies here, and that is also important.

I might have done this last year, and I will do it here again today. I praise the leadership of Scottish Enterprise and Highlands and Islands Enterprise. Sandy Cumming and Willy Roe are in the gallery, and Jack Perry and John Ward are also here. We need to have sharp, fit-for-purpose enterprise agencies that are determined to help Scottish companies grow, as well as to attract business to this country. That is not always a painless process of change, but it is important that we support those who are trying to carry it out on our behalf.

We needed to change the planning laws, and this month the Parliament will pass the new planning system for Scotland that will speed up decisions, achieve greater consistency and allow major developments to be determining national priorities in the way that they should always have been. That has been about us listening to business in Scotland, which wanted that change. And we have brought that change about in a way that will improve community involvement, too. Reversing Scotland’s population decline and attracting fresh talent to Scotland has to remain a major national priority for our devolved Government, for which we need the support of the UK Government.

In the reorganisation of VisitScotland, we have shown that it is possible to deliver reforms, even when they are controversial, in the interests of getting greater consistency throughout the country. Having a tourist organisation with a greater consistency of purpose, which is more focused on the market—and which was given the budget to deliver that once it was reorganised—has resulted in the record tourism figures that we saw just two weeks ago, on which we can build. That example highlights the point that Ken Ross made earlier about the need for consistency where it is appropriate, although there is always a place for local decision making, too.

Although the politicians need to listen to and have dialogue with business in Scotland and we all need to learn and should never be complacent, it is also important that we promote inside and outwith Scotland the confidence that we will need if we are to grow our economy at an even faster rate than we have done so far. There is definitely a need for constructive engagement and there is

always a need for new ideas and criticism of each other—not just in one direction—but we also have to ensure that when things are going well, those involved get the praise that they deserve and are celebrated as a result. That is one of the things that have changed in Scotland in recent years, which I celebrate, because it can only be good for us in the longer term.

I want to respond to Gerry Rice’s point about how Scotland looks from elsewhere. We inside Scotland need to remember that at a time when we have lost such a significant chunk of the electronics industry, which represented 23 per cent of our manufactured exports, we have had higher economic growth in Scotland every single year since devolution than elsewhere in the euro zone. We now have a growing population. In the past two years we have had the highest net in-migration since records began in the 1950s.

In recent weeks, largely because of the work of successful companies in Scotland—I hope supported by Government—we have seen research and development in Scotland now taking 14 per cent of the UK’s R and D investment, which is far above our population share. The number of inward investment jobs coming to Scotland is higher than that for any other region in the United Kingdom. Just this week, we have seen that wages are now rising faster in Scotland than in any other part of the United Kingdom. At long last we are achieving a long-term objective, which has been hard to realise, but is now making a difference. Unemployment in Scotland is now below the UK average.

We are not delivering that and the UK Government is not delivering it alone. The emerging consensus, partnership and sense of purpose in Scotland today is delivering it. I hope that this conference and others like it can build on that. If we have a sense of purpose and set of common objectives towards which we can work and learn from each other at the same time, we can go even further. That is absolutely achievable.

Whether in financial services, life sciences, construction or some of our more traditional industries, if we are working together and supporting those who need to grow, devolution will have been worth it.

I spoke last week about the union dividend. To ensure that we do not have a debate with Alex Neil, I will not talk about that today. However, I think that there is also a devolution dividend in Scotland. The fact that, in a country of our size, we are pulling together, working together, talking to each other and learning from each other is making a difference. I always believed that devolution could achieve that, but I am surprised that we are achieving it so quickly. The momentum behind that will be able to grow in the years to come. That is

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why the business in the Parliament conference remains an important date in our calendar.

I turn to the futures project that we have been working on for the past 18 months. As a Government—probably for the first time anywhere; Gerry Rice will know the international position better than I do—we decided that we would analyse our position against other nations and look honestly at where we were positioned, at the good and the bad. We published that research back in May. We also agreed to examine global trends and consider what will affect Scotland in the next 20 years. All the research is published and available and if any of the delegates have comments on it, I would be glad to receive them.

Certain issues arise clearly from the research. The first is that we are affected by an aging population, so our drive to increase the working-age population by attracting talented, hard-working people to come to Scotland and to stay must continue. We also need to change our attitude to the aging population. Malcolm Chisholm, the Minister for Communities, will publish a new strategy for an aging population either later this year or early next year that will address that issue. Increasingly, people who are older are healthier and more able to contribute to the economy. We should acknowledge that, rather than think of them as simply a drain on our resources.

Crucially for this audience, the second big trend of which we must take account, and which has been mentioned, is globalisation. Our response to that must be to ensure that we in Scotland have the skills that we need to compete globally and that skills and learning are absolutely central to Scotland’s strategy for the future. That will mean investment in education and learning being the next big priority for the Parliament. We have invested significantly in our universities and colleges—I opened a new college building this week in Cumbernauld—and in schools and nursery education, but we will have to go much further than that, for which we will need a national consensus. I hope that, from discussions such as this, a national consensus will emerge that, as well as needing the vocational education and skills that Jim McColl and others spoke about, we must hold no child back and stretch those who are most able, so that they can compete in our universities with the talented students who come from elsewhere. We need to ensure that education and learning throughout life are at the core of our society in Scotland—they once were and they can be again.

Therefore, although we are working on all the issues that affect the business environment in Scotland, such as taxation, research and development, planning, transport infrastructure, access to procurement and the many other issues

that have been debated in this conference and in previous ones, the work that will give us a competitive advantage will be that of building on the trust and integrity that have been spoken about that give us an open door internationally, and on the skills and learning that will give people the chance to compete, not just with the rest of western Europe or North America, but with China, India and other countries that are training graduates far more quickly than are most of the developed western countries and which are building new universities. They know that they have a long way to go to catch up with us. With the right investment, we can stay ahead and ensure that Scotland is competitive and successful in the years to come.

Alison Loudon spoke about the sales and marketing expertise of people in Scotland. I believe that the determined to succeed programme in our schools remains one of our greatest assets for the future. We need to encourage in our young people greater confidence and ambition, a greater understanding of enterprise and business and a willingness to think globally. I believe that the projects and initiatives under that programme and the culture that has been created in classrooms can ensure that the next generation of young Scots are far more enterprising and entrepreneurial than my generation were and that they can compete and believe that they can succeed. I thank all the businesses that are represented today that already make a contribution to that programme in their local schools or nationally. For those of you who are not already involved, I urge you strongly to become involved, as the programme is in all our interests. If we can create an ambitious, confident and entrepreneurial—but also caring—generation of young Scots to lead the country in the future, we as a country can realise not only the devolution dividend, but much more besides.

The Presiding Officer: Those remarks by Scotland’s First Minister conclude the business in the Parliament conference. Safe home and stay in touch, but first we invite you to join us for lunch in the members’ dining room and the garden lobby.

Meeting closed at 13:09.

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