The role of technology and technology-based firms in economic development: rethinking innovation and enterprise policy in Scotland

The report explores the role of technology and innovation in driving productivity growth and economic growth, and the extent to which employment and wealth trends are driven by a few high-growth firms in most economies. It examines the dynamics of technologies absorbed by firms and technology-based firms themselves, their growth dynamics in Scotland and their contribution to the Scottish economy.

The methodology consists of a literature review of evidence on: the role of technology and technology based firms in an economy; barriers to innovation and growth; and R&D, technology development and innovation in Scotland.

The report finds little evidence that high-tech sectors or hi-tech-high-growth firms are the driving forces in the Scottish innovation system, and that innovation in Scotland is largely done through technology adoption rather than more radical product development. It suggests that the barriers to innovation in smaller Scottish firms are due to a lack of in-house capabilities to undertake R&D and innovation (non-technological) and that this may be linked to an overemphasis on higher as opposed to vocational education. The failure on behalf of Scottish firms to absorb the research output of the university system is highlighted. Although high-growth firms are found to be under-represented in high-tech sectors in Scotland, this is comparable with their representation in other countries. The report concludes that high-growth firms are not exclusively found in high-tech sectors and play two different roles in the modern economy: high-growth firms create jobs and economic growth; and high-tech firms to generate productivity growth over the longer term.

It is recommended that current Scottish innovation and enterprise policies be rebalanced towards increasing innovation activity in existing companies rather than on creating new technology-based firms. The report calls for greater integration of innovation and business support policies with education and training policies in order to tackle the problem of the low absorptive capacity of Scottish firms.