Can Chief Entrepreneur revive Scotland’s economic fortunes?

Can the arrival of Scotland’s first Chief Entrepreneur, announced last month by the Scottish Government, bring change? The role is part of an ambitious national strategy for economic transformation, aiming to embed entrepreneurial thinking and skills in education and across the economy. Scotland has heritage in entrepreneurial thinking, but has found it harder to build and retain major independent businesses. The pandemic has changed attitudes - creating competition for talent and new perceptions of work/life balance and risk. The danger is in expecting entrepreneurs to fix too much – we need to be clear on priorities. Focus should be driven by national debate on the importance of entrepreneurs and their contribution to economic development. We should not underestimate the scale of the change needed.

The economic challenge of the pandemic was met by supporting established businesses and jobs, with less help for smaller and earlier stage businesses or for the self-employed. Certainly, there were new opportunities for remote working and e-commerce, and a greater sense of community outside cities, but it was a risky time to begin a new venture. Despite these headwinds, Scotland’s early stage entrepreneurial activity remains in-line with the UK average, sharing the UK’s upward trend over the past two decades. In little over ten years, entrepreneurship amongst young people in Scotland, under 30, has grown steadily from being the lowest in the UK to the highest. But the competition is global and this is no time for complacency. There are new business challenges in the form of rising costs, a squeeze on incomes, and competition for much-needed talent.

In the wake of the pandemic, remote working and an acute shortage of skill in sectors such as technology, has let many specialists set their own working terms. This greater control over working practice is creating more flexible roles for specialists in big companies, with better work/life balance. Previously, talented people were often driven to create their own opportunities. Now starting-up a business may be seen as riskier without significantly improving career prospects.

The Global Entrepreneurship Monitor found that only a minority of those who start a new enterprise are focused on growth and profit. Fewer women than men are reported as motivated to start up in order “to build great wealth or a very high income”. More than three-quarters of women become entrepreneurs “to earn a living because jobs are scarce”, hinting that current higher employment levels might soon lower the rate of business formation. The employed jobs may represent better work and more progress towards Scotland’s social and inclusion objectives, but it does show that many complex factors go into the rates of new business formation. Overall entrepreneurship policy is just one of those. The building blocks may need to start very early in education.

New business start-ups are already distributed much more evenly across Scotland than is typical of big businesses, giving an opportunity to support communities otherwise challenged. Many new enterprises have found ways to tap into local needs; often connecting services, or structured as a community enterprise. Scotland has developed some good support services for helping people to set up a new business. But, can a Chief Entrepreneur really influence the pattern of start-ups, such as enhancing technology-driven business or tackling climate change? How long will it take to enshrine entrepreneurial thinking and skills in the curriculum and across all of Scotland’s activities? Scotland may face some hard choices in setting the balance between growth and desired social aims. Inclusion and equality might be more readily delivered at scale by the public sector and existing organisations. A focus on new enterprises should not divert attention from encouraging established organisations to distribute their work and supply chains more evenly across Scotland, anchoring local communities.

New types of legal corporate structure allow for social enterprises, whose value can be less readily measured by turnover or profit. Scotland has a history of mutual and cooperative businesses, particularly in finance, but in recent years these have much reduced under regulatory pressure and fierce competition. Scotland once had much greater presence in listed banks, insurers, transport and oil service. The national ethos for shared enterprise remains, but is more likely to re-emerge in sectors such as food, agriculture and community services. These should develop in partnership with support for a more circular, sustainable economy.

The importance of new business formation in Scotland is underlined by today’s rapid economic change. We need to look back to the oil price shock of the 1970s and subsequent inflation to realise how quickly cost changes can kill entire industries. And recent years have seen takeovers of a number of Scotland’s successful businesses. This loss of local control leaves Scotland with fewer big listed companies than Ireland, Sweden and Denmark. Sometimes takeovers recycle capital and spawn new start-ups, but it will take many years to rebuild the scale of major Scottish headquartered businesses that are needed for a resilient economy.

Motivating young entrepreneurs is greatly helped by role models who can illustrate the path to success. Undoubtedly the Chief Entrepreneur brings this leadership, but does Scotland have enough mentors at this stage? The framework needed to foster entrepreneurship is complex; involving mindset skills, connectivity and finance. Scotland needs to spend time now in learning how other small nations have delivered this infrastructure. We should not underestimate just how much commitment and resource it will take to embed a new culture; less risk averse and more understanding of how business works. It is difficult to see how this can happen without more interaction between the business world and education.

The challenges to re-establishing entrepreneurship, and the limited number of national champions currently, should not discourage. What Scotland does have - which should be a major impetus for growth – is a set of world-class universities. Scotland’s leading universities have come through the pandemic well, dealing with Brexit challenges in the process. There is huge potential in the talent that is attracted here to study and in the research done in universities. Closer contacts with business could accelerate this.

A Chief Entrepreneur is a bold move, adding to the plans for technology hubs and the start-up nation programme. But radical change in mindsets will take more than top-down initiatives.

A version of this article was published in The Herald on 12.8.2022.

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