The Scottish Government

Growing Scotland's economy

GLASGOW UNIVERSITY, KELVIN GALLERY JANUARY 21, 2004

A speech by Enterprise Minister Jim Wallace

Introduction

I am delighted to have this opportunity to speak to you this evening. Thanks to Muir Russell etc.

I am conscious that we are gathered in such magnificent surroundings, a place dedicated to William Thomson, Lord Kelvin, who in his time was a great scientist. But he was also a pioneer in terms of commercialisation, with over 70 patents to his name, and could lay claim to have laid the first transatlantic cable in 1866. Lord Kelvin is truly an inspiration, particularly in relation to some of the issues I wish to raise - and discuss - with you this evening.

The idea for tonight's event grew out of a couple of factors. In the Scottish Parliament, it is often impossible, because of the legitimate pressure of business, to have enough time during Chamber debates to cover the range of important issues that affect our economy. I'm not criticising the Parliamentary authorities but I would have liked to have seen George Bush's reaction last night before his State of the Union address to Congress if he had been told : "Good luck Mr President. You've got twelve minutes.")

The other reason was that I have held a number of business breakfasts across the country since taking up this post. In places like Nairn, Glenrothes, Troon, Dumfries. The format has proved to be popular with business people turning up in their hundreds to cross examine me. I have found it very useful in terms of finding out what issues are causing business the most concern. So I hope tonight will prove useful to you and I look forward to engaging more informally after the question and answer concludes.

Tonight, I want to talk about my vision for the Scottish economy and how the Executive, in partnership with the people in this audience and other stakeholders, is working towards that.

I want to set out some key aspects of our fundamental economic strategy and its underpinnings. I will also describe how I see Scotland's recent economic performance. But most of all I want to set out my main priorities for the coming year.

Economy as a priority

First the strategy: Growing the economy is, of course, this government's top priority.

And there is a very good reason for that. Sustained and sustainable economic growth is about more than just statistical indicators and whether they are pointing in the right direction. Growth has a very human side. Growth brings jobs. Growth brings fulfilment to individuals and communities. Sometimes it brings hope when it is most needed. It has the ability to revitalise people and the areas in which they live. That should not be overlooked and that is why it is our top priority.
through growing wealth we can more readily tackle social injustice and deprivation, and make adequate provision for health and education.

The key monetary and fiscal levers may be reserved to Westminster, but let me be clear about what growing the economy involves and why it can - indeed must - be achieved. Certainly, my responsibilities for the economy as the Minister for Enterprise and Lifelong Learning are considerable. The enterprise and lifelong learning sectors have absolutely critical roleS in this process. But economic development encompasses anything that increases the wealth-creating capacity of our society.

This includes our transport infrastructure, on which annual spending in Scotland will exceed £1billion by 2005-6 and where delivery of our ambitious agenda is the key challenge. It includes our electronic infrastructure, and particularly in the context of our surroundings today, investment in our single biggest asset, our people. Indeed there are few parts of the Executive which will not have some contribution to make to our economic development.

For example, primary and secondary education delivers the raw material - the core skills upon which we can build. The health of the work force has a direct bearing on productivity, whilst our policies on justice create a safer environment for people to live in, and for businesses to operate in.

And, whatever some commentators might say, equity and Social Justice are not optional extras in pursuing growth. Tellingly, if Glasgow's employment rate of 65% could be brought up to the Scottish average of 74%, it would involve tens of thousands of people achieving productive employment. As people participating in the labour market - participating indeed in society - their lives and their health would improve whilst they add to the nation's economic output. How this can be achieved is a real challenge - but there can be no doubt that it is a challenge that we must rise to, and one which will require the collaborative effort of many present here this evening.

I never tire of pointing out that it is not Government that creates wealth. It is business. But we can help. If you have the ideas and the ambition then we can often help you to succeed. Just before Christmas I visited Total Repair Solutions. A company who received a significant RSA award from us. This will help them to expand and provide the growing need for their service. They repair mobiles phones that have become damaged - often through exposure to water. I'll be honest, before I visited them I was thinking to myself, there can't be that big a demand for this type of thing. When I opened their new facility in Inchinnan they soon set me straight. Do you know how many mobile phones get dropped down the toilet each year? 6000. Perhaps even more bizarrely, 4000 end up in beer. And as a result we have a high tech facility hoping to increase their workforce to more than 300 in the next few years.

FEDS

The Framework for Economic Development in Scotland (FEDS), published in June 2000 set out for the first time the Executive's overarching economic strategy.

The vision set out in FEDS was ambitious. It asked what kind of society would we like to see in 5 or 10 years time, and what kind of economy would best serve that purpose.

The Framework's answer was that economic development should raise the quality of life of the Scottish people, through increasing economic opportunities for all, on a socially and environmentally sustainable basis.

It was clear that economic growth through international competitiveness was critical. Growth in productivity is the key element here. It is fundamental to stimulating international competitiveness and sustainable growth, and in my speech tonight I will illustrate how our policies are directed at improving Scottish productivity.

While the Framework set out the Executive's overarching economic development strategy, Smart Successful Scotland provided the more detailed strategic direction to the activities of the enterprise networks. So I see FEDS as encompassing the objectives of SSS, while covering the much wider range of drivers of economic development.

Despite the welcome for FEDS when it was published, we made it clear back in 2000 that Ministers intended to refresh this framework periodically in order to take on board new evidence, or set the analysis within the context of the more recent developments in the Scottish and global economies. This process is currently underway and I acknowledge the expertise and input we have been able to draw on from many individuals and organisations represented here.

We know from the regular discussions we have with you all that the underlying principles are the right ones, and that the overall vision and enabling objectives have broad support. The current exercise will build on the fundamentals, taking into consideration new thinking on, for example, Scotland's demographic challenges and sustainable economic development, as well as improvements to our national economic infrastructure. The focus on improving productivity, however, remains.

Theory

And we will continue to listen to new ideas. While our tactics may adapt to suit changes in circumstances, I believe the strategy we have is the right one.

Often politicians are criticised for not lifting their sights long enough to see beyond the next election. New initiatives may make for good headlines. But from talking to businesses across the country over the last 8 months, I am more convinced than ever that we are on the right track and must now focus on delivering the long term vision set out in FEDS. This is a long term strategy, and in the face of challenging global conditions, we have held our nerve and stuck to it. And we will continue to so do.

My confidence comes from the fact that the underpinnings for our strategy are firmly rooted in recent economic thinking. And let me be frank, lest there be any risk of complacency, this is also a strategy being followed by our competition in the OECD as well as the developing world.

A nation's standard of living is broadly determined by the productivity of its economy. Productivity enables us to support high wages and attractive returns to capital, bringing with them a high standard of living. Increasing our productivity is at the heart of our strategy. It not only means seeking efficient and high value business activities, it is also about making people more productive. We must ensure more people have the right skills to contribute to businesses.

Governments can and must influence productivity and growth by encouraging investment in knowledge and innovation.

The range of our policies are consistent with this growth framework. The Fresh Talent initiative, for example, aims to increase the supply of talented individuals - including retaining Scots in Scotland - and to encourage foreign students to consider remaining here after they complete their studies. After all, we face the demographic reality that in the next 15 years in Scotland, the population of working age will fall by 400,000. Education policies which motivate students towards creativity, innovation and entrepreneurship also have a crucial role in bringing benefits in terms of increased growth.

Support from academics

The final point I will make about our economic framework is that it is consistent with the advice of some of the key strategic thinkers in the field of competitiveness. For example, there is work which Harvard's Michael Porter did for the DTI last year. The key messages for the UK were broadly those which are already set out in our own strategies here in Scotland - the need to enhance knowledge flows, innovation and creativity in order to improve productivity and competitiveness. He has stated that:

"a sound macro-economic, political, legal and social context creates the potential for competitiveness, but is not sufficient. Competitiveness ultimately depends on improving the micro-economic capability of the economy and the sophistication of local companies and local competition."

This message, from arguably the leading authority in the field has great relevance to us. Porter is not a lone voice however. In his recent Allander lecture, Paul Krugman emphasised many of the features which are already contained in our economic strategy. This is not to be complacent; but is a reassurance that there are no 'magic bullets' out there which we might have missed.

Here in Scotland, our circumstances mean we have the potential that Porter speaks of. Devolution accompanies a sound macro-economic, political, legal and social context. We can take this as a given. Devolution means that business in Scotland currently benefits from interest rates and inflation at historically low levels and from favourable levels of corporate taxation.

The Scottish Executive does not control the key fiscal and monetary macro-economic levers. And it most certainly does not control the global factors that have such a great bearing on our open, trading economy. But we do have the powers that now matter.

Devolution allows us to improve the micro-economic capability of our economy, just as Porter describes. Pre-devolution, governments perhaps tended to overlook these important levers but I believe that since 1999 Scottish Ministers have been freed up to focus on the tools which can enhance innovation, skills, R&D, creativity, technical progress, the transport and electronic infrastructure. We will use these tools to help increase the value of our economy's output and the efficiency with which it is produced.

We will keep on top of every single aspect of it to ensure we are making progress. Where that progress is not happening, I will not hesitate to change things. While I am convinced that the strategy is the right one, I am equally convinced that successful delivery of that strategy is what matters most.

Economic outlook

So how are we doing in 2004?

It may be useful to take a few minutes to provide a brief overview on the latest economic developments in Scotland. For while our strategy is focused on the medium to long term, current indicators are important to understand both the cyclical and structural changes taking place in Scotland's economy.

Of course 2003 began with a global downturn in electronics having lead to a world wide restructuring of this industry. we cannot deny that This hit Scotland particularly hard. We also saw downturns in all of the major global economies, again hitting our trade hard.

GDP data for the third quarter of 2003 will be released at the end of this month, but most business surveys have already published their findings for this period. In the main, these point towards a continued modest strengthening of business activity in Scotland, particularly in services, but with some welcome signs appearing in manufacturing as well.

The most recent labour market data showed a slight fall in the employment level but also a slight fall in the unemployment level. This is probably the lagged effect of those acute problems now coming through. While this means that employment has now fallen from its highest ever level, it remains true that the Scottish labour market continues to perform remarkably strongly in historical terms. This is reflected in the continuing strength of retail performance and - to a lesser extent - consumer demand.

Looking more to the present and the future, things continue to be positive. Globally, the United States economy is growing again and key Eurozone economies such as France and Germany appear to be returning to growth. Our major trading partner - the rest of the UK - continues to grow. As company finances in these economies recover, business are beginning to invest again.

These factors are all crucial for Scotland. We need to export to grow ourselves. Thankfully, these improved prospects are now manifesting themselves on the ground. The most recent business surveys from the Royal Bank of Scotland, Lloyds TSB and the Scottish Chambers of Commerce for the fourth quarter of 2003 all confirm encouraging increases in business activity.

Especially pleasing is the large consensus developing that the prospects for manufacturing are improving. Although looking at the UK rather than just Scotland, the Ernst and Young ITEM club most recently concluded that manufacturing growth will match GDP growth for the first time in a decade. The main independent economic forecasters who look at the Scottish economy all predict that our manufacturing sector will return to growth. Scotland is well-placed to capitalise on this global upturn as it becomes established, given the robust economic fundamentals such as low inflation, low interest rates, low unemployment and strong domestic demand.

Priorities in the coming year

While the background of an improving economic outlook is encouraging, it is certainly not a cause for complacency. Quite the reverse. There is a heavy programme of work for both the Executive and Enterprise Networks over the coming years and I look forward to working closely with Jack Perry and his colleagues as we keep our foot firmly on the pedal.

The fundamentals are in place and the long term strategy is broadly the right one. However, there are a number of areas where I am determined to focus my attention over the coming 12 months. This certainly does not reflect the entirety of the work at hand. And simply because something is not specifically mentioned tonight, it doesn't mean we are not taking it seriously.

However, the priorities which I am setting out here are fundamental to bringing about the vision set out in FEDS and SSS.

Some of these are about getting the context right - the necessary conditions as Prof. Porter would put it. Some will be about going further in improving the micro-economic capability of the economy.

SR2004

The background to this year will of course be the 2004 Spending Review which will cover the 3 years from April 2005. Those of you who have studied the Chancellor's pre-Budget report will know that the Spending Review will have a much different flavour from its predecessors. This time it will be much more about setting hard priorities for additional expenditure and finding places where we can make savings to fund these priorities.

As I mentioned earlier, growing the economy is not just a matter for the Enterprise and Lifelong Learning Minister. It is an objective the Cabinet shares.

We all have a direct responsibility in creating the conditions for growth and in creating the right conditions for innovation. We also need to make sure that our investment of tax payers' money is in areas where there is genuine market failure.

Higher Education

Turning to higher education, and its contribution to the economy, my main ambition for the forthcoming Spending Review, is to build on the substantial investment we are already making in tertiary education. I will argue the case as strongly as I can for higher education wherever it is delivered.

It is imperative, therefore, that work continues - in collaboration with the universities and other stakeholders - to ensure that the most robust case possible can be made.

But let me be clear: devolution has already delivered for Scotland's higher and further education sectors and helped maintain our competitive edge.

Our track record to date speaks for itself. Since the Parliament came into existence, our investment in higher education, by 2005-2006, will have grown by over a third, from around £600 million to over £800 million. By 2005-06 further education sectoral funding levels will have increased by 74% over the 1998 baseline, bringing the Executive's investment into the FE sector to over half a billion pounds. In that sector we have addressed years of neglect. Quality has increased and enrolments are up 25% on 1998.

And while we are on the subject of our young people I would like to point out one of the things that has struck me most in this portfolio. Everywhere I have travelled around Scotland I have been impressed by calibre of the young people I have met. Too often our youngsters are portrayed as a problem. The truth is that they are our future and they must be part of the solution. The school pupils I have met in places like Harris, Cumbernauld, Tain and the Scottish Space School in Texas last week have a staggering amount of sophistication, energy and ambition. This will see many of them arrive in places like this in the not too distant future. An ambition I hope they will be encouraged to pursue in the knowledge that they will not be paying tuition fees or top up fees.

Before Sir Muir gets to his feet I will repeat once again that the Executive appreciates that we have world class universities in Scotland and they are vital to our future economic success. The Executive will not let that diminish. We will take whatever action is necessary to ensure that our universities retain a competitive advantage. This is bound to include some additional investment. I'd like to say just how much and when we would make it, but no-one would forgive us for rushing into a commitment without knowing the impact of the proposals for England and Wales. That is why we have a review. We also need to know what is affordable. That is why we have a spending review. Good governance means it is much better to consider these things properly.

My passion for investment in Higher Education should not come as a surprise to those who have read my speeches over the years [- a minority of you, I am prepared to concede.] And while knowledge creation and knowledge transfer are critical, I believe this investment has a hard and irrefutable business rationale to it. It is vital to boost the skills and knowledge in our workforce and to increase our research and development capacity.

As Richard Florida says:

"Creativity has come to be valued because new technologies, new industries, new wealth and all other good economic things flow from it."

He also highlights what he describes as the "three T's" - talent, tolerance and technology - which flow into communities from a vibrant higher education sector.

We already have 50% of our young people going into higher education in Scotland. That has led some commentators to suggest we are going too far and we need to redress the balance in technical skills.

However, while we are very successful in getting new graduates into the workforce, we still lag behind our competitors. Only 16% of our workforce has a degree, which is some 4 percentage points behind the UK as a whole and well below the United States at 31%. We still have a long way to go in addressing the skills of our existing workforce. Remember that 70% of the people who will be in the workforce in 2020 are already there.

Skills and ILAs

So we need to find ways to help those existing workers' skills. Most of the investment will of course be made by employers themselves. But there are areas where we can give encouragement.

Despite the problems that beset the Individual Learning Accounts, I remain committed to that principle. They remain a key element in our portfolio and we are making good progress in taking forward our Partnership Agreement commitment to introduce a new ILA scheme.

The new scheme will address specific Scottish needs, circumstances and policy objectives. It will be launched when - and only when - I am satisfied that the lessons of the first ILA scheme have been fully learned, and a robust and fully tested systems and controls are in place.

Research

We must also remember that higher education is very important in boosting our research capacity. Many studies over the years have shown the high return to governments from investment in blue skies research. It is one of the clearest areas where the state rather than companies needs to invest for the benefit of the nation.

In Scotland we have a dismally low level of spending on R&D. We are brought up the league a little by Government investment. Our HE sector, in particular, performs well for its size. However, the most recent figures show that we have had 2 years of growth in business spending on R&D. They are very much to be welcomed, but we are still a long way down the league table. The competitiveness of world markets means we must continue to make significant strides.

As well as increasing R&D, I want to see us doing more to boost innovation. That may not involve large sums, and must not involve "picking winners". However, it does mean making small but strategic investments where the market fails.

Innovation

We already have some very successful schemes through SMART and SPUR and the Proof of Concept fund that have helped gain early stage support for new discoveries and inventions. Companies such as VOXAR, Wolfson, Cyclacel and Optos have all benefited from these schemes.

A few months ago I announced 2 new related initiatives that will come into play during this year. They go under the acronyms of SEEKIT and SCORE. They are designed to tackle the market failure of our many SMEs to link up with universities and other institutions to help them innovate.

The first part of the scheme will help boost the capacity of universities such as Glasgow to liaise with their local SMEs. The second part of the scheme will then help our SMEs work on specific projects with universities by part funding them.

These 2 schemes fill another gap in the pipeline of support between idea and product. We need to continue to look for and help bridge gaps in that flow of support. We are talking about fairly small scale support here - around £5-10m a year for some of the schemes - but the awards are often critical to the academics, inventors and companies at the very early stages.

Finally, on the subject of innovation I want to give a brief mention to our new Intermediary Technology Institutes. All 3, in Energy, Life Sciences and Tech Media are now up and running and have recruited staff. I expect the first research contract will be let in the near future. Encouragingly the response to the ITIs I received in both the Far East and recently in the US has been exceptionally positive. Not least, people have been impressed by the proposed level of funding - £450 million over ten years. They see it as a clear sign of Government commitment.

We have chosen sectors where Scotland has a proven strength in global terms and where we want to push even further ahead. Take the Biotechnology sector in Scotland where the figures speak for themselves.
-In the past four years the Scottish life science sector has grown at 30 per cent per year - more than double the European average.
- There are now more than 470 life science organisations in Scotland.
- Around 25,000 people are employed in the Life Sciences sector in Scotland. And with only one third employed by inward investors this is clearly not just a branch cluster.
- Our universities provide 13 per cent of all the life science first degree graduates; including 61 per cent of all pharmacy first degree graduates. They also produce a third of all the UK's genetics postgraduates and a third of microbiology PhDs.

Another sector where he undoubted excellence in Scotland is the energy sector. In order to be able to work in the conditions presented by the North Sea our oil and gas sector have had to be at the cutting edge of technology over the years. Innovation is at the very heart of this sector and when I was in Houston last week I met up with a number of Scottish companies who are taking their innovations and services into the world market.

One such company is Merpro, who I visited in their Montrose base last summer and who, with the help of Scottish Development International are now establishing a base in Texas. They provide a classic example of what innovation and research can do for a company and a local community. While I was at their Montrose plant last year they showed me a new solids transportation product they were very excited about. Now I won't begin to try and explain to you how it works. Suffice to say that it involved an awful lot of research, intellectual property, and international patents. This product was contributing to a sales revenue that has increased from £17 million to £25 million over the past couple of years. It has resulted in a number of awards. It is providing a lot jobs in Montrose. It is also providing a lot of pride to the employees about their work.

So, there is a lot to do on skills and innovation. But there are also success stories that we should celebrate.

Entrepreneurship/Schools

Boosting entrepreneurship has been one of the themes for the past few years and it will continue to be a priority in the current year. We launched "Determined to Succeed" last year. It builds on the work already being done by some of our leading entrepreneurs and will give all of our school pupils experience of entrepreneurship.

The strategy is ambitious and wide ranging. We are not trying to make every school pupil a budding Tom Hunter. But we can give all of them the opportunity to become better prepared for the workplace: giving them the right skills; and developing in them positive attitudes. We are tackling a relative lack of confidence in some of our young people and addressing their fear of failure. The outcome is therefore about creating more confident, ambitious and creative employees and employers, as well as those starting and running their own business.

And again, this is an area where we are getting better, but where we are still not in the first division. The recent GEM survey suggests that we have moved from the middle of the lowest band of countries to one where we are ahead of countries such as Hong Kong, Italy, Japan, France and the netherlands. Of course, we need to remember the dangers of becoming overly euphoric when snatching a narrow advantage over the Dutch - but I believe that this achievement should not go unacknowledged or underestimated. We must now build on it.

Existing business

There have been suggestions that while we do a lot for start-ups and high tech companies, our existing businesses receive less attention. This may have more to do with perception than reality. However, it is clearly an issue for many people. So a further priority this year will be addressing the issue of growing our existing companies to boost our economy.

I am aware that many of our businesses and enterprises face particular points in their existence when there are barriers to their growth. It could be caused by both lack of resources or capacity. There are points where people may need some intensive help to get over the next stage.

I know the Enterprise Networks already do a good job with many of our businesses on this score and are working with some potential high growth companies. However, I want to work with business bodies to establish what more we can do to break down some of the barriers to growth.

There are certainly success stories in our traditional sectors. Success based on innovation and ambition. During the summer I visited a farm in Perthshire. The farmer had recently decided to stop working with cattle and move into soft fruit. Not only that, he soon decided upon a few innovations that he felt would help him in his new venture. He designed and built this home made vehicle which could spray the strawberries much quicker than before and also save significantly on the amount of insecticide required. Simple but brilliant. Now you probably won't see this machine on Tomorrow's World but you will see his vehicles on plenty of other farms now - in Scotland and even in Europe. He is making them during the winter. And you will also see his strawberries on the shelves of Tesco across the United Kingdom.

In addition we are offering support to our more traditional sectors to ensure they are ready to meet the challenges ahead. We have, for example, brought the primary sectors into the Business Gateway and are currently undertaking an in-depth look at whether aspects of the Manufacturing Advisory Service currently operating in England and Wales and based upon the US model might be introduced to Scotland. A joint Scottish industry-government group hope to report on this soon.

Support for sectors

I was also told early in my new portfolio that we do not do enough for some of our existing large companies and sectors. In the past, the Executive has perhaps been seen to ignore these companies because they are so successful and, quite frankly, they did not appear to need our help.

From discussions which Jack McConnell and I have had with the leaders of some of our biggest companies, it IS clear that they want to have a dialogue, and there are where we can work together. The result has been that we have set up a clear - and hopefully productive dialogue - with companies in 2 specific sectors - renewables and the financial services sectors.

We have established a group to look at how renewable energy can boost economic development in Scotland. We missed out on wind power, although we have still created jobs through companies such as Vestas in Machrihannish but Scotland has great potential in both wave and tidal energy, which also have the advantages of being more constant and predictable than wind power. It will be challenging. However, I am grateful that as well as some of the smaller companies who specialise in the technology, we are also working with our 2 biggest energy companies - SSE and ScottishPower - in this venture.

Green jobs

Renewable energy is a key area for Scotland's future economic development. But my aspirations go much further. There are other so-called 'green' sectors in which I believe this country is well placed to lead the world. Recycling is a good example. Or manufacturing innovative new products from what would once have been viewed as waste materials. Or developing a new generation of cleaner technologies to meet the burgeoning global demand for greater efficiency and reduced waste. There are significant opportunities here for new and existing Scottish companies and entrepreneurs, harnessing our strengths particularly in R&D and engineering.

Moreover, I want to make it clear that improving our environmental performance makes good business sense, and can have a real and positive impact on the bottom line. By using resources more efficiently and reducing waste we can increase productivity and competitiveness.

The environmental sectors offer Scotland a real opportunity to develop a strong, dynamic and - just as important - sustainable economy. We will be launching a major public discussion exercise on a Green Jobs Strategy in the next few months. I am keen to hear views from interested parties across the public, private and NGO sectors.
Financial services

The second area of engagement will be with financial services. The success of this sector and the significant contribution it makes to our economy should not be underestimated.

It directly employs 106,000 people in Scotland and contributes some £7 billion a year to our GDP. Contrary to recent press reports and despite challenging economic conditions, I firmly believe that the sector's fundamental strengths - its investment in capital, technology and skills, its reputation for probity and the soundness of its investment and business advice - stand our companies in good stead for the future.

The establishment of the Financial Services Strategy Group, set up in response to approaches from the sector, is about ensuring a dialogue with business about things that matter to them. I am confident that this can be a mature debate about the threats and opportunities, our strengths and things we must improve. It is about ensuring that we take account of their views in planning for the future. It is about creating a Scotland which is a dynamic and vibrant place to do business as much for our world size companies as for the new entrepreneur.

New approach

So, if you want to take something from the last few topics and ask what is different, I would say the following. We recognise that, while we need entrepreneurs and many new businesses, we also need to help businesses to grow and there is something we can do for our large companies. It will be different things for different people. And different types of intervention, much of it not financial.

Smart Successful Scotland is not just about small, high tech companies. It is about the competitiveness of the entire business sector. It is not just about technology, it is also about services. It is about graduate skills and about core skills in the workforce.

Infrastructure

Finally, I want to say something about our infrastructure.

Transport is an issue of significant importance for business and for the economy. For that reason I take an interest thought it is not my direct responsibility. You already know that we have ambitious plans and that we are now in delivery mode. As Deputy First Minister, I will be keeping a firm eye on that delivery and ensuring that our main projects stay on track. Projects like the Larkhall to Milngavie rail line and the M77 are now being seen on the ground. In the air we now have 17 air routes being assisted through the Route Development Fund.

The planning system is, I know, something that concerns the business community. And I know that there are particular concerns around the commitment in the Partnership Agreement to consult on a wider right of appeal in planning. I understand those concerns but planning decisions have a very significant impact on the quality of life of individuals and communities. And complaints about planning decisions that fly in the face of development plans or where seemingly well founded objections are set aside by councils are a regular feature in the Communities Minister's post bag. So there are very strong pressures for individuals and communities to have the same rights as developers in relation to planning decisions.

The introduction of a wider right of appeal would be a very significant step. It is most certainly not something that can be bolted on to a planning system that is clearly under pressure. But it is a complex issue and one that does merit a full and informed debate in advance of the introduction of legislation to modernise the planning system. We intend to issue a consultation paper shortly and I urge the business community to participate in that debate. Do not regard the outcome of the consultation as pre-ordained, one way or the other. Our final decision will be informed by the quality of the arguments and potential impact on business and investment is certainly something that will weigh heavily with us."

One area I do have direct influence in is broadband for business. Just over a year ago my predecessor announced a target of 70% coverage of broadband - principally ADSL - for Scotland by March this year. He also announced that we would make £24 million available to achieve it.

I am happy to tell you [as I told Parliament earlier today] that we have already met that 70% target. Moreover, we have done so well under budget. Please note - a project ahead of time and under budget! I want to thank the enterprise networks and the industry for their part in that success. And to challenge them to work with us and go on now to reach every community in Scotland.

Conclusion

Let me conclude by emphasising the 3 mains points I made to you this evening.

First, we have the right fundamental economic strategy in place. It has a good pedigree; it is backed by academics and copied by others. We will monitor it, refresh it and amend it. But we are sticking to it for the longer term.

Our economic position looks set to improve and our growth to recover. We have been badly hit by world trends but seem ready to benefit from a global upturn. Our labour market is healthy and our companies seem ready to reinvest.

Our priorities across the Executive reflect the importance of the economy. I have only given you a flavour of some of the work that I have commissioned since May last year and this is ongoing. The initiatives we take are consistent with our fundamental strategy and the role of Government in creating the right conditions for growth. We will rightly address the fundamentals of lifelong learning, skills, innovation and entrepreneurship. We will get our infrastructure - both physical and electronic - fit for the 21st century. We will work with all our companies from start-up to world leader to ensure that we help and do not hinder their growth.

There will be announcements of new initiatives over the coming year. But, I can assure you, they will not be gimmicks or initiatives for the sake of it. They will be measures that are fully consistent with the strategy.

Taking the long view is never easy. Or newsworthy. But it is the course I am determined to take. It is the course we need for the economy, for our companies and for this university.

One of the first engagements which I undertook as enterprise minister was to present the Scottish awards for the shell livewire entrepreneur of the year. There I met 17 new dynamic Scottish companies whose young enterprising owners showed a flair and enthusiasm that was infectious.

Yesterday at the launch of the sigma innovation fund - a private public partnership to invest in early-stage Scottish companies - I had the pleasure of talking to the talented innovator behind Secuirivox from Dundee - a company which produces state of the art speaker recognition software for the security market.

And during the intervening months I have been privileged to meet enterprising business people all over Scotland - a healthy and inspiring antidote to those who trade in doom and gloom.

Of course I recognise that along the way businesses can and will face difficult times and encounter hurdles. But whilst I said earlier that we must break free from a culture of risk aversion because of fear of failure, we should also guard against that part of our collective national psyche which fears success.

So we would do well to give greater recognition to the enterprise and success to be found in Scotland today. These are the solid foundations on which we can grow the Scotland of tomorrow. And I am determined in doing so that government should play its role in helping to make a difference.

Of course there are, and will be, global economic factors. Of course there are macro economic levers which we don't control. But we do control a number of very important levers which do matter to the Scottish economy. I have seen for myself the difference that one individual firm cam make to a community and our economy. I have seen the difference that one individual can make. I don't accept that we, as a devolved Government, can't make a difference. We can. And with your help, we will.