DISRUPTIVE TECHNOLOGIES: THE IMPACT ON WORKERS IN … · This paper lists 10 disruptive technologies which are the driving force of automation. It is important to understand the effects

DISRUPTIVE TECHNOLOGIES: THE IMPACT ON

WORKERS IN SCOTLAND

24.12.18 Common Weal Policy

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Common Weal Policy — Disruptive Technology: the impact on workers in Scotland

Common Weal is a Scottish ‘think and do tank’ which promotes thinking, practice and campaigning on social and economic equality, participative democracy, environmental sustainability, wellbeing, quality of life, peace, justice and culture and the arts.

Common Weal is entirely funded by small donations from members of the public and is entirely independent of any political party. It is governed by a Board drawn from across the spectrum of progressive politics in Scotland.

Common Weal also runs a news service called CommonSpace and has a network of autonomous local groups who seek to put Common Weal ideas into practice in their communities.

For more information visit:www.commonweal.scotwww.commonspace.scot

Or contact us at:[email protected]

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Common Weal

AUTHOR Craig Berry is an electrical design engineer with cross industry experience, working throughout the UK. Craig is actively dedicated to brining forward our innovative ideas in engineering, science and technology, making them work for benefit of humanity.

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Disruptive Technology: the impact on workers in Scotland

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Common Weal

CONTENTS5. Executive Summary7. Introduction7. Section A – Labour Disruption and Inequality

7. Scotland’s automation rate on the world stage10. Industries at high risk13. Occupations at high risk14. Wages at high risk16. Demographics17. Productivity and growth18. Inequality20. Investment

20. Section B – Disruptive Technologies20. Additive manufacturing21. Automated services22. Big data23. Exponential computing25. Space technology26. Internet of Things27. Smart Cities28. Autonomous Vehicles29. Artificial Intelligence (AI)30. Sharing Economy

32. Section C – Policy32. An investment-led model32. Funding investment33. Innovation Strategy33. Technological Paradigm Shifts34. Directional innovation34. Network innovation34. Organising innovation35. Innovative state35. Smart specialisation36. Creative Adaptation36. Relationship with automation37. Technology Infrastructure37. Shared State Platforms38. Utilising Health Data38. New Space 38. Diversification agency39. Job Guarantee Scheme39. Regional development 39. Industrial Democracy 40. Employee ownership models41. An independent state

42. Conclusion43. References

Disruptive Technology: the impact on workers in Scotland

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Common Weal Disruptive Technology: the impact on workers in Scotland

EXECUTIVE SUMMARY

Section A

Nordic countries are the least at risk of automation. Scotland would see significant benefit in attempting to replicate some of the Nordic style approaches.

Rapid deployment of automation technologies is likely to exceed the pace at which economies can reabsorb and redeploy the millions of workers who may lose their jobs to automation.

Across Scotland’s industry sectors we expect employment to decrease by more than 30%. The exact amount is difficult to quantify. However, based on the industry sectors at risk, 30% should be considered the minimum.

There is a risk that Scotland’s non-UK workforce is at greater risk of the threat from potential automation rates as a proportion in comparison to UK nationals in Scotland.

Occupations within industry sectors vary in terms of share of employment. However, these play an important role to where automation is going to take place as Machine workers are at higher risk during the automation wave.

Automation is expected to have the most profound effect on the lowest paid workers the most in Scotland.

Scotland’s population is ageing over the coming years, which will alter the composition of the Scottish population and provide significant financial challenges.

Automation will increase the profitability largely flowing to owners of capital and further reduce the share of national income allocated to labour. This will then widen the gap between rich and poor, causing further inequality in Scotland.

Because capital ownership is tilted toward those already in higher-income brackets and also much more narrowly concentrated than income, this

shift toward capital income is likely to contribute to rising income inequality.

Social grades A and E are expected to be the least affected by automation, representing 13% of Scotland. Grade B is at medium risk of automation, representing 23% of Scotland. Classes C1, C2, and D are expected to be at high risk of automation, representing 64% of Scotland.

The SNIB is an important tool to reinvest in the economy to spur job growth. However, the SNIB should have a demand-led capitalisation which can fund long term, more than 30 years, investment in infrastructure as well as SMEs.

Section B

This paper lists 10 disruptive technologies which are the driving force of automation. It is important to understand the effects of automation at the level of technologies so that we can develop bespoke policies for ensuring that there is minimal damage to the economy. These technologies are only disruptive in that they drive the change in the economy, but through our policy development, that disruption can also bring forth systems of public value.

Section C

An investment-led modelIf we are to deliver smart, sustainable economic growth, then we must focus on how to rebalance away from consumer debt driven growth and towards an investment-led growth model.

Innovation policy also needs a progressive economic model which can ensure that economic management creates the availability for investment. The foundation of an investment-led economy requires us to utilise the public sector as the basis for generating all wealth into the economy.

Scotland requires an approach to economic management which builds on the ideas that monetary sovereign governments face no purely financial budget constraints and the government faces limits relating to what can be produced and consumed.

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An active state providing this investment to central infrastructure needs a progressive innovation policy concerned with both technological and social progress so to ensure the level of investment can outstrip the effects of automation on the Scottish economy.

Government deficits can play a supportive role, allowing the private sector to receive necessary investment. We require an innovation strategy which refocuses on building sustainable and inclusive growth.

Innovation Strategy

Scotland needs to understand economic development, not as a natural competitive advantage but with the creation of new opportunities that lead to the establishment of competitive advantages.

The Scottish state must work with industry sectors so to organise the capacity to think big and formulate bold policies. The government should be developing a portfolio so that any losses made in investment can be covered by the gains in successful investment.

Our innovation strategy needs the state to begin ‘crowding in’ business investment, but it must also create the vision and begin to plan on how to reach it. We must look to understand the general areas which are ripe for development and where pushing the boundaries of knowledge is desirable. The state must engage in the exploration and production of new products which lead to economic growth.

We need to utilise our innovation strategy so to change our economic system that it is fit for disruptive technologies. Our attempts to do this must be focussed first on how to create a vision for our new future which nurtures new technologies. However, this must also be coupled with socialisation of both the risk and the rewards.

Scotland should develop its innovation strategy to provide smart specialisation, the ability to identify where there are real opportunities for industries to become better through specialisation in areas where they have competitive advantages.

This smart specialisation can happen on the large scale with Scottish industries, but allowing a platform for small scale innovation to develop sector-specific and enterprise specific innovation through employee-led innovation can also provide benefits.

Technology InfrastructureWith the Scottish National Investment Bank at our disposal, we can begin a demand-led innovation strategy which creates national companies as the driving force for investment from the national investment bank into the Scottish economy.

Scotland could provide a nation market access platform with regional or local input so to maximise the effectiveness of the platform for each local economy. This would then allow the sharing economy to be run on the basis of public value as opposed to the current basis of private profit, continuing the collaboration and coordination across the Scottish economy.

Creating a national pharmaceutical company could be utilised to develop more medicines and potentially more domestic production of generic medicines. It could do this with shared access to controlled electronic patient records so that they can remain efficient in the production and development of new and existing medicines. There is further scope for medical technologies to also be developed through the national pharmaceutical company, encouraging Scotland to be a leader in health industry.

A Scottish Space Agency could be developed to encourage this industry to grow and provide the investment within the research and development of new space products, ensuring Scotland keeps its competitive advantage.

A Job Guarantee Scheme will allow Scotland to provide a floor for wages and job conditions in the private sector, and it allows economic activity to continue in deprived areas that face high unemployment figures. It is understood that the cost to fund this scheme is repaid in part by the economic activity this flows to the local economy, including the increase in expendable capital towards private companies.

Enhancing Democracy

Scotland must see a phase of democratisation and decentralisation of the Scottish economy on a local and regional scale. This will give local communities the democratic structure to make decisions about its economic strategy.

Employee Ownership Trusts (EOT) can be

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reformed so to increase employee ownership in the private sector. We can deliver corporation tax exemption in return for EOTs.

The drop in revenue from EOT tax exemption should come from increasing the level of mandatory pension contributions from 8% to 15% to be paid into the employees’ pension accounts.

Mirroring the ‘right to buy’ scheme, a ‘right to own’ could also be put in place which would offer employees the right of first refusal to buy out a company that is being sold or floated on the stock exchange.

Cooperative business law should be modernised to make it more practical and ensure that cooperatives have every advantage they need to remain competitive.

An independent state

Scotland should take the opportunity to become an independent state with its own currency so to lead the investment-led growth model.

INTRODUCTIONChange in technology provides a fundamental capability for two things: digital connectivity, connecting more people together; and a set of tools and mechanisms for analysing the data associated with multiple aspects of daily life. The potential for utilising this is huge. The positives of being able to access any service you want, or physical asset or tool you need, when and where you need it; or being able to predict a serious health problem before it happens, and get the needed service – or an organ perfectly made just for you – wherever you are. However, there is a great deal of challenges with this also. What will happen to the sense of worth, place and contribution to society that people derive from work and have felt throughout history? Will individuals still have acceptable levels of privacy?

In our interconnected world, we all collectively work towards sustaining our own economies.

The wealth of the economy is collectively produced and privately appropriated, yet this can only happen so long as there are people in the economy earning a decent wage and contributing that wage towards the economy when they buy their consumer goods. As companies aim to see greater productivity and growth by replacing employees with machines, they are destroying people’s participation in the economy. The increased wealth that they temporarily gain will decrease when there are less employees to contribute to the collective production of wealth. This doesn’t just see increased wealth inequality; it also damages certain sections of the economy.

What this report seeks to do is explain automation and its effects on the Scottish workforce. Once we understand that, we can begin to understand what policies can be used to ensure that jobs can continue to grow without affecting the level of automation in our society. First we identify how Scottish industries look in detail and how they look comparatively to other nations. Then we go on to look at the technologies themselves to better understand how ne technological change is going to force economic change. Then we can better create bespoke policy which encourages growth without increasing inequality.

It is imperative to the success of our nation that we develop a coherent and sustainable strategy to understand automation. This paper has attempted to develop this strategy with the aim of producing a result which creates systems of public value.

SECTION A – LABOUR DISRUPTION AND INEQUALITY

Scotland’s automation rate on the world stage

Automation rate estimates require two key factors; 1

― A country’s share of employment across industry sectors.

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― The potential for each job to be automated on a sector by sector basis.

Technology is going to arrive in different forms. We have identifies technological change to unfold in three waves until 2030;

― Algorithm wave - The automation of simple computational tasks and analysis of structured data such finance and communication.

― Augmentation wave - This represents automation of repeatable tasks such as aerial drones and warehouse robotics exchanging information and performing statistical analysis of unstructured data.

― Autonomy wave - This represents automation of physical labour and performing problem solving tasks in real-world situations such as manufacturing and driverless technology.

Due to this, the labour market structures and government policy across each country gives rise to differences in estimated automation levels. Countries can be distinguished into four groups:

― Industrial economies - Typically characterised by jobs relatively more automatable and concentrated in industry sectors with high potential automation rates. E.g. Germany, Italy.

― Service economies - Jobs that are more automatable based on their characteristics, but there is a concentration on service sector jobs which are less automatable than industry sector jobs. E.g. USA, UK, France, Scotland.

― Asian countries - Jobs are relatively less automatable overall. However, there are high concentrations of employment in industrial sectors with high potential automation rates. E.g. South Korea, Japan.

― Nordic countries - Jobs are less automatable and in industry sectors with relatively low potential automation rates. E.g. Norway, Denmark, also includes New Zealand and Greece.

Countries which have a greater concentration on its industrial sectors tend to have a higher potential for automation rates. Countries like Germany and Italy, with higher shares of employment in the manufacturing sector, are estimated to have increased potential for automation rate.

In Europe, there is a strong correlation between countries which have a high risk of potential automation and a countries education metrics.2 These metrics include a government’s expenditure on education as a percentage of GDP and the pupil-to-teacher ratio in primary schools. For the Asian countries this relationship

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isn’t as strong, they have proportionally lower education spent but they also have a higher pupil-to-teacher ratio than Europe. However, they achieve high educational outcomes so the underlying negative relationship between high education and low potential for automation remains.

Another factor which may impact Asian countries more is the technological levels of countries and the extent to which job automation has already started taking place. There is a negative correlation between the potential jobs at high risk of automation, adjusted to account for industry composition, against the density of industrial robots in the country3. This suggests countries like South Korea and Japan are working alongside robotics and are adjusting already to automation to some degree and so may be a lower risk.

Different regions of the world are expected to see different tipping points – the point in which most losses are expected – in reaction to the three waves at different points of time4. Asian countries are expected to face greater impact during the Algorithm wave. However, industrial and service countries are expected to face greater impact during the Augmentation and Automation waves.

It is important to bear in mind that economic, legal and regulatory rules may act as constraints to the effects of automation. We expect AI and robotics to bring new jobs as well as making some obsolete. The boost to productivity will increase income and wealth, with the potential to demand additional labour with this new capital. However, wealth is collectively produced through consumer demand and if jobs displacement is greater than productivity increases, we should expect to see companies begin to struggle.

The net long term effect on employment in advanced economies like the USA and the EU may be generally neutral5. It is difficult to quantify new job creation compared to the automation of existing jobs as these jobs exist, therefore we can better understand their characteristics.

Although the Nordic region is considered generally safe, Nordic manufacturing has undergone dramatic changes during the last two decades. The term “deindustrialisation” is often

used to describe the development, as thousands of manufacturing jobs annually have been lost in the Nordic countries, as well as in other Western countries.

On average, the manufacturing’s share of employment has dropped by approximately six percentage points over the last two decades. In absolute numbers, employment in Nordic manufacturing has been reduced by approximately 500,000 people since 19916.

Manufacturing has a superior productivity performance. On average, manufacturing productivity grow by more three percent annually in the Nordic countries, as opposed to less than one percent in the total economy.

More than 50 percent of Nordic exports stem from the manufacturing sector, which makes the sector very important for the balance of trade and for foreign exchange earnings. Between 33 percent (Norway) and 77 percent (Finland) of private research and development are carried out in manufacturing. Thus, the sector is of high importance for our ability to develop new technologies, including digital technologies, to be used in the society as a whole.

In Scotland, there is so little information on our export data that our attempts to quantify the level of manufacturing exports as a percentage of our total exports would be revealed as inconclusive.

Manufacturing companies in the Nordic region draw on a number of sub suppliers in the service sector. In this regard, new jobs in the manufacturing industry create new jobs in the service sector.

Manufacturing jobs are geographical widely spread across each country with the lowest shares of total employment in the capital regions. In other words, manufacturing is an important sector in order to keep the job creation balanced between capitals and big cities on the one hand and rural areas on the other hand.

Most manufacturing companies are small companies, but big multinational companies at the same time represent a high share of employment, research and development and

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value added. Especially in Finland and Sweden, multinational companies play a vital role for manufacturing value added.

The Nordic manufacturing sectors are dominated by business-to-business (B2B) suppliers. Furthermore, traditional sectors as machinery, metal products, food products, as well as computer/electronics are dominant in all or almost all countries

The Nordic people are world leaders when it comes to use of digital technologies, and they represent high digital competences in a number of areas. The Nordic countries are among the nations that spend most on research and development (compared to GDP) – an important prerequisite for developing new digital technologies. Optimal use of digital technologies is closely linked to intra-organisational cooperation and customised production. The informal work place culture and low power

distance in the Nordic countries represent an important competitive advantage in this regard.

In terms of automation, Scotland would see significant benefit in attempting to replicate some of the Nordic style approaches to manufacturing. The earlier this is imposed the more job losses can be mitigated.

Industries at high risk

The potential for high rate automation is estimated to vary across industry sectors7. Transport and storage has a higher potential for automation than manufacturing, however, the median employment share across countries is 14% in manufacturing and 5% in transport and storage. In figure 2.2, we can see the minimum and maximum expected effects to industry

through automation.

Industries are expected to be effected by automation differently over time, depending on how each wave interacts with the industry. The financial and insurance sector is expected to face its highest automation rate during the Algorithm wave, but will begin to peak once the augmentation and automation waves are introduced. In contrast to this, we expect manufacturing to see relatively low automation rates initially, increasing once we start to reach the automation wave.

Figure 1.3 – Top 5 industries by employment share at high risk of automation

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Country

Manufacturing (%

)

Retail trade (%)

Health & social

work (%

)

Education (%)

Construction (%

)

Italy 55 35 29 17 44

USA 53 51 28 12 34

France 53 41 29 17 41

Germany 49 43 24 9 39

Ireland 50 39 17 7 33

UK 45 42 18 8 23

Denmark 46 33 17 9 44

Norway 33 34 16 6 35

New Zealand

36 32 16 6 23

Greece 35 23 20 3 25

South Korea

31 24 23 6 31

Median 14.4 13.7 10.7 8.7 7.6

The tasks involved in the jobs within a sector act as important drivers to the sectors potential automation. Manufacturing and Transport & storage have a higher proportion of manual labour conducting routine tasks, which is a high risk of potential automation during the Automation wave. In comparison, the Financial and insurance sector shows a different path of automation and has a higher potential of automation in the short term during the Algorithm wave. However, the Human health and social work sector and the Education sector have a greater focus on social skills and creativity. These tasks are very difficult to replace with a machine within the coming three waves, with a potential of future shifts in a longer time period beyond the scope of this report.

In figure 2.4, we can see that the top 5 industries at risk of automation in Scottish industry make up 35% of employment8. These have already begun to fall by up to 8% since 2007, prior to the financial crash. However, we can expect further decreases throughout other industries, such as Mining, quarrying & utilities – which includes Scotland’s Oil & Gas industry.

Figure 1.4 – Scottish Employment by industry, 2016

Sector

Share of em

ployment (%

)

Change 2007 – 2016 (%

)

Agriculture, forestry & fishing 3 -6

Mining, quarrying & utilities 3 10

Manufacturing 7 -6

Construction 5 -4

Motor trades 2 11

Wholesale & retail 12 -3

Transport & storage 4 2

Accommodation & food services

7 4

Information & communication 3 12

Financial & insurance 3 -9

Property 2 22

Professional, scientific & technical

7 9

Business administration &support services

7 3

Public administration & defence 6 1

Education 7 -4

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Health 16 6

Arts, entertainment, recreation & other services

5 27

Source: Scottish Government data

Figure 1.5 – Non-UK nationals share of employment, 2017

Sector

% of em

ployment

(EU)

% of em

ployment

(non- EU)

Manufacturing 10 Inconclusive


9.1 2.9

Financial & insurance 6.3 3.0

Transport & Storage 4.1 6.2

Construction 4.0 Inconclusive

Public administration, Education & Health

3.3 2.4

Other services 4.7 2.8

Source: Scottish Government data

EU nationals account for 10% of all employment in the Manufacturing sector, 12% of the Accommodation & food services sector, Manufacturing and Construction estimates are suppressed as they are not considered reliable estimates for use.

Non-UK nationals are a strong and important section of Scotland’s workforce. However, they make up 8.3% of the workforce but they are, at a minimum, 10% of manufacturing employment9. There is a risk that Scotland’s non-UK workforce is at greater risk of the threat from potential automation rates as a proportion in comparison to UK nationals in Scotland.

Across Scotland’s industry sectors we expect employment to decrease by more than 30%. The exact amount is difficult to quantify. However, based on the industry sectors at risk, 30% should be considered the minimum.

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Occupations at high risk

As well as understanding industries, it is also important that we understand occupational risks of automation10. The impact of automation shows difference between occupations over time. Clerical workers are estimated to face the greatest potential impact in the short to medium term. The proportions of these clerical jobs are estimated to be a potential high risk of automation during the Algorithm wave and the Augmentation wave during the 2020s.

The potential in automation rates is different

across occupational categories is greater than across industries. Machine operators and assemblers have a high potential for automation which is 10% above the highest industry most at risk of automation during the Autonomy wave. This is due to the tasks associated with the role, primarily manual routine tasks, which are at greater risk of automation.

Clerical workers are at greater risk during the Algorithm and Augmentation wave. This is due to tasks associated with the role, primarily routine processes simple computational tasks, which are

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at high risk of automation during this stage.

Professional workers, including senior managers, are expected to be at lower risk of automation throughout the three waves. However, depending on the extent of artificial intelligence, this occupation can increasingly start to head towards reached high risk. This is entirely dependent on the future of technology which can be difficult to predict. The nature of their work is expected to change over time should historical precedent be taken into consideration, such as the advent of the personal computer. Because of this, we consider this occupation medium risk.

Occupations within industry sectors vary in terms of share of employment. Machine operators and assemblers are estimated to account for 20% of occupations in the Manufacturing sector; however these occupations are less common in the financial and insurance sector and education sectors. Financial and insurance sector is generally represented by clerical workers and associate professionals by around 51%.

In terms of gender, it is expected that automation is at greater risk for male workers, with median automation rate estimated to be 34%. For female workers it is estimated to be 26%. This is typically because male workers are over-represented in industries with a high risk of automation, whereas female workers are generally over-represented in low risk automation rate industries. This does

not negate the seriousness of gender imbalances within workplaces.

Wages at high risk

The UK workforce is going through a changing picture of the distribution of wages. The sectors with the three largest increases in overall wage contribution were health & social work, with £27.36 billion added in wages, between 2001 and 2015. £23.91 billion was added from professional scientific & technical roles and £18.53 billion was added from financial & insurance services. However, the manufacturing sector decreased by £16.52 billion, followed by retail, with a decrease of £4.14 billion, and transportation & storage with a decrease of £2.23 billion11.

Each new job pays approximately £10,000 more than the job is replaces on average, Based on 2013 earnings data. Jobs paying £30,000 or less are five times more at risk of automation than jobs paying £100,000 or more Frey and Osbourne found12.

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Sector

Share of em

ployment (%

)

Change 2007 – 2016 (%

)

Agriculture, forestry & fishing 3 -6

Mining, quarrying & utilities 3 10

Manufacturing 7 -6

Construction 5 -4

Motor trades 2 11

Wholesale & retail 12 -3

Transport & storage 4 2


7 4

Information & communication 3 12

Financial & insurance 3 -9

Property 2 22

Professional, scientific & technical

7 9

Business administration &support services

7 3

Public administration & defence 6 1

Education 7 -4

Health 16 6

Arts, entertainment, recreation & other services

5 27

In Scotland, pay rates have been catching up with rates in the rest of UK, closing Scotland’s historical pay gap with the rest of the UK. However, this has happened at a time when pay in the UK has fallen in real terms. In the last year the median income across the rest of the UK has

increased at a faster than the Scottish rate13.

The median weekly pay in Scotland has grown from £393.30 to £434.10 between 2010 and 2016, while in the UK over all it has grown from £403.80 to £438.60 in nominal terms. This represents a Scottish median pay growth of 10.4% compared to UK growth of 8.6% over the last six years14.

In terms of mean weekly pay growth, Scotland has seen growth of 9.7% from £462.70 to £507.50, while in the UK it has grown 7.6% from £487.60 to £524.50.

The proportion of workers progressing from low-skilled jobs to mid- or high-skilled jobs in Scotland is lower than in the UK as a whole. The average proportion of low-skill workers who moved into mid- or high-skill work per quarter between 2011 and 2015 in the UK was 5.04%, with 4.43% moving into mid-skill work and 0.61% moving into high-skill work on average per quarter over that period. In comparison, 4.43% of Scotland’s low-skill workers progressed out of low-skill work per quarter, on average, with 3.65% moving into mid-skill work and 0.78% moving into high-skill work on average per quarter over that period.

We have not seen increases in employer investment at UK level as public spending on adult skills has dropped across the UK. Spending per employee also fell by 3.4% in real terms, from £1,697 to £1,640, and employer spending on training dropped by £1.1 billion in real terms between 2011 and 201515.

Educational levels are a key differentiating factor as workers with lower levels of skills are more at risk of complete automation of their jobs. For those with undergraduate degrees or higher, the estimated potential risk of automation is around 12% in the UK, but this raises to 46% for those with GCSE-level education or lower16.

The correlation between wages and skill level is high; automation is also expected to affect the low paid the most. Automation has the potential to substantially increase income inequality in the UK when combined with increasing wage inequality.

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Demographics

Scotland’s population is ageing over the coming years, which will alter the composition of the Scottish population and workforce in multiple ways, bringing with it significant financial challenges.

Scotland will see a large increase in the non-working population in the coming years. The population aged 65 and over is expected to

increase by 30% (from 1.017 million to 1.327 million) between 2017 and 203017. This would represent 19-24% of the total Scottish population. By 2030, the 75 and over population is projected to increase by 42% (from 451,000 to 640,000) and the 85 and over population is projected to increase 51% (from 124,000 to 187,000).

Scotland will also see a gradual decrease in the working-age population in the coming years. The 15-64 population is expected to decrease by 3% (from 3.518 million to 3.414 million) between 2017

and 2030. This would represent a represent 61% of the Scottish population, a decrease from 65%.

The employment rate in Scotland is currently 74.3%, while the UK is 74.7%18. This is 0.7% higher than it was before the 2009 financial crash, when it was 73.6%. However, across the 32 local authorities in Scotland, only 20 are higher than they were prior to 2008, with 11 actually decreasing over the year. 9% of workers in Scotland were born overseas19.

Youth employment (ages 16-24) in Scotland is currently 59.4% in 2017, while the UK rate is 54.1%. This places Scotland 8th in the 28 members of the EU20. The youth employment rate in Scotland in 2017 was 1.3 percentage points

lower than the 60.7% rate seen in 2008 while the youth employment rate in the UK was also lower than in 2008 (down 1.8 percentage points from 55.9%).

The female employment rate in Scotland increased by 1.6 percentage points over the year from 69.3% in 2016 to 70.9% in 2017, while the UK rate increased by 1.2 percentage points over the year from 68.9% to 70.1%. The female employment rate in Scotland during 2017 was 2.5 percentage points higher than the 68.4% rate in 2008 while the female employment rate in the UK was also higher than in 2008 (up 3.8 percentage points from 66.3%).

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With a decreasing working-age population and a significant increase in the older population, we may see financial challenges through decreased tax revenue, increased spending on entitlements and increased demand for public services. This brings additional financial pressure to the public sector. This will then require increases in productivity and tax revenue per head in order to grow the economy. In the coming automation waves, this adds additional pressure as jobs are becoming at greater risk. The focus on improving immigration to tackle the ageing-population by the Scottish Government is a positive step forward. However, as stated previously, migrant workers are at a greater proportional risk of automation, narrowing the opportunities available for migrant workers in Scotland and any future migrants hoping to move here.

Government transfers can also affect spending patterns and business opportunities. Increasing transfers to non-working population will likely trigger greater spending in that category. By contrast, a shift in the balance of transfers to working-age households may diminish opportunities for senior-focused goods and services. As opportunities also begin to fall for working-age households, this can affect the governments transfer plans, requiring innovative solutions to ensure both groups aren’t neglected.

Productivity and growth

Labour productivity growth has been relatively stable in advanced economies since 1980 up until the early 2000s. Since the financial crash in 2008, it has steadily declined to nearly zero21. This basic pattern holds across all OECD nations – labour productivity growth reaches around 2%, but after the 2008 crash, this sees a sharp deceleration to about 0.7%.

After the financial crash, the amount of capital deployed per worker (capital stock) stopped growing in the UK22. Without increasing the capital per worker, productivity won’t increase by any sizeable amount. The low level growth we see today - 0.7% per year in the OECD – is correlated to the slow progress with no additional boost from capital. To increase capital, companies are investing more on labour saving capital, machines, to boost productivity on a

cost-analysis.

Between 2016 and 2017, annual labour productivity in Scotland, measured by output per hour worked, decreased by 1.9% once adjusted for inflation23. This release also contains a trend-based estimate of productivity growth. Once seasonal and irregular movements are removed from the data, it is estimated that the trend in real output per hour worked actually increased by 1.0% in the 2017 Quarter 4.

Scotland has seen steady improvements in recent years, as the most improved area of the UK. However, recently Scotland has seen lower productivity rates compared to the rest of the UK. The gap between labour productivity levels in Scotland and the UK average has narrowed since the onset on the recession from around 5/6% points prior to 2008 to less than 1% since 201324. It should also be noted that output per hour worked is now 9.4% higher in real terms than in 2007, prior to the recession.

It should be noted that this is within the context of the UK which has seen poorly performing productivity. The UK currently ranks 18th out of 34 Organisation for Economic Cooperation and Development (OECD) countries in terms of GDP per hour worked25. Output per hour in the UK was 18% below the average for the rest of the major G7 advanced economies in 201426.

When the UK is compared to other European countries, UK GDP per hour worked ranks 15th out of 17 western European countries27. Employers in the UK tend to invest less that comparable employers in Europe and the wage sectors in the UK tend to less qualified than others in Europe. If the UK were able to raise the productivity in low-wage firms to the EU average, the UK could close a third of the productivity gap with Belgium, France, Germany and the Netherlands28.

The UK and Scottish GDP grew at similar rates. However, in 2015 and 2016, Scotland’s economy grew at a slower pace than the overall UK economy. Scotland’s Gross Domestic Product (GDP) has grown by 0.3% in real terms during the fourth quarter in 2017. However the pace of growth has slowed since 2015. The third quarter of 2017 saw growth of 0.3%. In comparison, the

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UK as a whole saw a growth rate of 0.4%29.

Region

Median incom

e (£)

Change in cash (%)

Real term change (%

)

United Kingdom 23,099 3.0 2.7

North East 21,215 2.4 2.1

North West 21,609 3.0 2.7

Yorkshire 21,235 3.3 3.0

East Midlands 21,172 2.6 2.3

West Midlands 21,746 3.3 3.0

East 22,374 3.3 3.0

London 31,476 2.3 2.0

South East 24,542 3.2 2.9

South West 21,250 2.9 2.6

Wales 20,810 2.6 2.3

Scotland 22,918 2.2 1.9

Northern Ireland 20,953 3.0 2.7

Output and services grew by 0.5% in the last quarter. Output in the Production sector grew by 0.9%, and output in the Construction sector fell by 2.6%. Compared to the same quarter last year, Scottish GDP has grown by 1.1%. Equivalent UK growth over the year was 1.4%.

In 2017, annual GDP increased by 1.8% compared to 2016 in the UK. The equivalent Scottish growth rate was 0.8%. GDP per capita in Scotland increased by 0.2%, the same as the UK as a whole.

Inequality

For decades, income and wealth inequality have reached historic highs in many countries. The UK, USA and China have seen a pronounced rise, yet countries which have usually fared well, Japan and Sweden, have seen inequality continue to rise. Automation is likely to see this rise further within Scotland.

Between 2011 and 2015, employer investment in training has dripped by £1.1 billion in real terms30. Spending fell per employee by 3.4% (from £1,697 to £1,640) between the same timeframe. It was also found that employees are twice times as likely to receive in-work training if they had higher levels of qualifications (SCQF 6 and above)31. This provides a risk that those in Scotland which are at risk of job automation could be less equipped to sustain a career loss, widening the gap of social mobility rates in Scotland.

There are a greater number of training opportunities for employees in Scotland as there are elsewhere in the UK. In 2016, 71% of employers in Scotland funded or arranged training for their staff. In the UK, the average was 66%.

Between 2011 and 2015, employer investment in training has dripped by £1.1 billion in real terms32. Spending fell per employee by 3.4% (from £1,697 to £1,640) between the same timeframe. It was also found that employees are twice times as likely to receive in-work training if they had higher levels of qualifications (SCQF 6 and above)33. This provides a risk that those in Scotland which are at risk of job automation could be less equipped to sustain a career loss, widening the gap of social mobility rates in Scotland.

There are a greater number of training opportunities for employees in Scotland as there are elsewhere in the UK. In 2016, 71% of employers in Scotland funded or arranged training for their staff. In the UK, the average was 66%.

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Inequality can occur due to many possible causes, such as demographic or technological change and government policy. Rapid deployment of automation technologies is likely to exceed the pace at which economies can reabsorb and redeploy the millions of workers who may lose their jobs to automation.

In addition to job loss, demographic imbalances and wage suppression, automation may also increase income inequality by increasing the share of income going to profits vs wages. The share of income produced by labour already is declining, and with automation, it likely will fall further. By 2030, we estimate that operating costs at an industry level could decline depending on the industry’s current cost structure and the level of automation expected in the base-case scenario time frame. Under those conditions, increased profitability would largely flow to owners of capital and further reduce the share of national income allocated to labour.

Capital ownership is already highly concentrated. Wealth inequality levels in France have been declining, but the top 10% of wealth holders still own 55% of wealth34. In the US where the wealthiest 10% own 73% of wealth, while the share for the next 40%—roughly corresponding to the middle class—has fallen from 36% in 1986 to just more than 27% today35. Because capital ownership is tilted toward those already in higher-income brackets and also much more narrowly concentrated than income, this shift toward capital income is likely to contribute to rising income inequality.

Automation investments are likely to generate supply growth just as demographics and investment both spur demand growth, creating a reasonable balance. Once the investment boom ends, however, the negative effects of automation will become more visible—namely, high levels of unemployment, wage suppression and slowing demand.

Scottish social grades play an important role in automation. Figure 2.9 identifies Scotland’s economic classifications36 and from this we can estimate which economic classes are expected to be at the highest risk of automation.

Grades A and E are expected to be the least

effected by automation, with Grade E expected to increase, representing 13% of Scotland. Grade B is at medium risk of automation, representing 23% of Scotland. Classes C1, C2, and D are expected to be at high risk of automation, representing 64% of Scotland.

With these classifications, we can expect the working class of Scotland to represent the highest risk of automation, with the middle class increasingly becoming at risk. This means that medium-high risk automation rates are expected to affect a maximum of 87%. This supports the estimation that 30% of Scottish jobs are expected to be lost, as a significant number of the 87% of jobs are expected to be protected through automation mitigation and some not being automatable.

Inequality in Scotland is expected to increase for a significant amount of time as the higher social grades are protected from automation as economic wealth is distributed less due to a decrease in employees. This may become disrupted when the collective wealth produced from the lower social grades are decreased, meaning there is less wealth for the higher social grades to appropriate.

Figure 1.10: Scotland’s Economic Classification

Economic Description

Social Grade

% of Population

Higher managerial, administrative and professional occupations

A 4

Lower managerial and professional occupations

B 23

Supervisory, clerical and junior manager, administrative and professional

C1 27

Skilled manual workers C2 21

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Semi-skilled and unskilled manual workers

D 16

State pensioners, causal and lowest grade workers, unemployed with state benefit only

E 9

Investment

The UK and Scottish Governments were committed to using private finance to renew infrastructure and invest in new plants and industries. However, Scotland has detached itself from this model after the creation of the Scottish National Investment Bank (SNIB).

The UK model, investment often only occurs at significant long term costs such as Hinckley Point Nuclear stations which will pay oversea profits for 40 years. Frequently no investment occurs and infrastructure deteriorates. There is a trend towards minimising the government’s debt, even where investments will generate additional tax revenues

The SNIB allows the Scottish Government the ability to increase investment levels. An early commitment to this has been made by the Scottish Government in the 2018-19 Draft Budget with an undertaking to provide initial public capital of £340m for 2019-20 and 2020-21. The Draft Budget also established a new £150m Building Scotland Fund (£80m in 2018-19 and £70m in 2019-20)37.

Such investment banks have played a key role in the economic development of many countries, and continue to do so around the world today. The roles performed by National Investment Banks (“NIBs”) have evolved over time in line with country-specific developments and challenges. While the traditional functions of NIBs were in infrastructure investment and broad capital development, their activities have evolved over the course of the 20th century38.

If structured effectively, and with the appropriate attitude to risk and return, a Scottish National Investment Bank can also play a leading role driving growth and innovation, helping

to transform Scotland’s economy. This is an important tool which can help resolve the economic revival of the Scottish economy and it can also be an effective tool in mitigating against the loss of jobs through automation.

However, the funding of the SNIB allows £2 billion of capitalisation within ten years and it is also focussed on supporting SMEs. There is a significant amount of funding required in Scotland, thus the capitalisation should be demand led so to ensure the economy is growing to its highest capacity. This demand based funding should also be coupled with “patient finance” which would allowing long term investment towards 30-60 years so to reap the largest efficiencies in the infrastructure projects. Limiting the SNIB limits our ability to ensure automation can be mitigated by reinvestment in our economy.

SECTION B – DISRUPTIVE TECHNOLOGIES

Additive manufacturing

Additive manufacturing, or better known as 3D printing, is the process of creating physical objects utilising a layer-on-layer printing process from a digital 3D model. 3D printing has the potential to create complex products without complex equipment, allowing for greater bespoke design. Different types of materials are increasingly being used for 3D printing such as plastic, aluminium, stainless steel and advanced alloys. It will be able to produce products which complex factory processes within manufacturing are producing now. Beyond this, 3D printing may become increasingly involved in bio-printing and in personal capacities.

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Positive impacts Negative impacts

Greater product development.

Environmental and economic benefits from the reduced transportation requirements.

Creation of new industry to supply printing material.

Easily manufactured intricate parts.

Democratised power of creation/manufacturing.

Growth in disposable waste.

Privacy.

Intellectual property as a source of value in productivity.

Further job losses in industry sectors.

Production of parts in the layer process that is anisotropic.

3D printers were only capable of producing with soft plastic during the mid-2000s with limited applications. However, since then the range of materials that can be used has expanded significantly. Applications across sectors have risen from aerospace, electronics, health, automotive and much more39. The innovative techniques are reducing complexity, which then enables highly optimized, in-demand and customizable solutions are a reducing cost per unit40.

International Data Corporation forecasts global revenues for 3D printing, from the printers themselves to the materials, software and related service, is to more than double from $15.9bn in 2016 to $35.4bn in 202041. More than half of this (56%) is expected to come through the manufacturing industry. Through 2020, healthcare will remain the second biggest industry by revenue, with retail growing fast behind it42.

In Scotland, an investment of £65m was released to create The National Manufacturing Institute for Scotland. This is an industry-led international centre of manufacturing expertise where research, industry and the public sector work together to transform skills, productivity

and innovation to attract investment and make Scotland a global leader in advanced manufacturing, investing 65 million43.

The Scottish Library and Information Council announced in 2016 to ensure every public library service in Scotland received both 3D printing technology and training. Today, every Public Library Service in Scotland has a 3D printer, opening up a whole new world of creativity and digital learning in public libraries. The recommendation in “Ambition & Opportunity”, Scotland’s first national strategy for public libraries, identifies the expansion and development of 3D printing in Scotland’s libraries. In particular, it encourages digital inclusion and the implementation of a learning and development programme for all library staff44.

Enterprises will adopt and use 3D printers and associated technologies faster than the consumer market, due to the benefits and the costs involved. Enterprise use of 3D printing will rise in the next two to five years. Today, approximately 40 manufacturers sell the 3D printers most commonly used in businesses, and over 200 startups worldwide are developing and selling consumer-oriented 3D printers, priced from just a few hundred dollars.

Consumer adoption of similar technologies is at least five years away. However, even this price is too high for mainstream consumers at this time, despite broad awareness of the technology and considerable media interest45.

Automated services

The International Federation of Robotics estimates that the world now includes 1.1million working robots, and machines now account for 80% of the processes required in manufacturing a car. The workplace is being automated and streamlining supply chains which are delivering a more efficient and predictable business result, increasing productivity, yet this is influencing many jobs across industry sectors.

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Improved health outcomes.

Supply chain and logistics reduced.

Increased leisure time.

Greater access to materials – Production “re-shoring”.

Banking ATM as early adopter.

Major job losses.

Change in day-to-day working norms, such as an end to 9-to-5 shifts with increased 24-hour services.

Hacking and cybersecurity.

Accountability/liability.

The International Federation of Robotics surveyed 7,000 employees in seven countries and estimated that 70% of employees believe that robotics and automation offer the opportunity to qualify for improved skilled work, In Figure 2.1 below we can see that 3 million industrial robots will be in use in factories around the world by 2020, doubling in operational stock within seven years46.

Professional service robots sold 59,706 units in 2016, up from 48,018 in 2015. This represents a 24% increase. The related sale value increased by 2% to $4.7bn47. The applications these robots are servicing include;

― Medical robots

― Defence robots

― Logistic systems

― Field robots (milking robots)

― Powered human exoskeletons

― Public relations robots

KPMG research shows that labour automation using robotics process automation promises significant benefits to business in terms of reshaping workforce needs and reducing costs.

Advisors say robotics process automation will free workers doing routine tasks to assume more strategic roles48.

Logistic systems sold 25,400 units in 2016, up from 19,000 in 2015. This represents a 34% increase. This accounts for 43% of the total units and 21% of the total sales of professional service robots. These applications include automated guided vehicles in manufacturing and non-manufacturing environments. The value of sales of logistic systems is estimated at about $992m, and increased by 27% compared with 2015.

In Scotland, robotics plays a similar role as seen across other service countries. However, the development of could play an important role in Scotland’s offshore renewable sector. This could increase the servicing to offshore wind turbines utilising robots to increase turbine efficiency. As offshore wind is usually developed in the periphery of Scotland, this could play a potential impact to Scotland’s rural areas which rely on these jobs. An additional Impact could be felt on the local communities49.

Big data

We are gaining more data about ourselves over time, but we are also increasing our ability to manage that data. Big data can be leveraged can enable better and faster decision-making in a wide range of industries and applications. A government’s ability to utilise automated data can reduce complexities for citizens and enable businesses and governments to provide real-time services.

This requires us to establish trust in the data and algorithms used to make decisions. Citizens have a concern over privacy and establishing accountability in legal structures, so clear guidelines for use in preventing profiling and unanticipated consequences are increasingly important.

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Faster and more efficient real-time decision-making.

Reduced complexity and more efficiency for citizens.

Innovation for open data.

Cost savings.

New categories for jobs.

Losses in jobs.

Accountability issues on algorithm ownership.

Concerns on privacy.

Citizens – Data trust.

In a report on big data by the Broad Institute in Massachusetts, a large number of genetic datasets was show to make a critical difference in identifying meaningful genetic disease50. A genetic variant to schizophrenia which was not detectable when analysed in 3,500 cases was weakly identifiable in 10,000 cases. With 35,000 cases it became statistically significant, meaning there is an inflection point in which things become increasingly easier to identify.

Scotland’s physicists are involved in a number of large-scale projects as an increasing number of fields increase their use of big data techniques. Physicists in the Scottish Universities Physics Alliance (SUPA) are significant users of the UK High Performance Computing (HPC) and associated storage at the Edinburgh Parallel Computing Centre (EPCC). SUPA can provide

an overview of data intensive work in Scotland, but two areas of activity are worth noting. First, in Glasgow, gravity wave research 51 and the International Max Planck Partnership focussing on quantum phenomena involve big scientific data52. Second, in Edinburgh, key HPC support for big science and the Higgs Centre for Innovation focus on space science and big data53.

Biothematics & Statistics Scotland (BioSS) is one of the main research providers for strategic research in environment, agriculture and biological science in Scotland. It focuses on mathematics and statistics as applied to agriculture, food, health and the environment.

Within the health and medical research sector there is significant activity, encouraged by the

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Health Directorate of Scottish Government working alongside NHS Scotland. Scotland’s eHealth Informatics Research Centre is led by Dundee, laying the foundations for the Farr Institute. The Farr Institute hosts a ‘safe haven’ for data, which facilitates medical research depending on controlled access to patent records54. The Scottish Health Informatics Partnership is also involved in related activity in research based on electronic patient records.

A £7 million Phase 2 centre was awarded to the University of Glasgow in January 2014 to develop the Urban Big Data Research Centre (UBDRC). 55 This aims to establish a world leading facility to create a multi-sectoral urban linked data resource from local government authorities and business owners in Glasgow. The UBDRC will provide a unique facility for researching cross-cutting urban issues and complex urban challenges by enabling access to multi-sectoral linked data from local government, business and other sources. UBDRC will focus on bringing together myriad of datasets, from multiple urban sectors, to create a linked urban data resource that allows comprehensive and cross sectoral research.

Exponential computing

Accessibility to a computing device is increasing every day. Computing power has been advancing exponentially, increasing its availability to individuals. Regular internet access to information is no longer a benefit of developed economies, but could become a basic right just like clean water. Due to wireless technologies requirement for fewer infrastructures than electricity, roads or water, it will very likely become accessible quicker than the others.


Access to education, healthcare and government services.

Greater civic participation and democratization/political shifts.

More economic participation of disadvantaged populations located in remote or underdeveloped regions.

Increased transparency and participation.

Expanded market size/e-commerce.

Political fragmentation.

Increased potential for manipulation.

Full access in some regions/countries limited.

In 1995, less than 1% of the world’s population was connected to the internet. As of July 2016, it was 46.1%. 56 The number of internet uses has increased tenfold from 1999 to 2013. The first billion was reached in 2005, the second billion in 2010 and the third billion in 2014. We can see the increase of internet usage in Figure 2.3 below.

Scottish digital participation identifies some of its key strengths57;

― 98% of Scottish businesses have internet access,

― Employment in the digital sector was 64,100 in 2015,

― Scotland’s digital sector contributed £4.45 billion to GVA in 2014,

― Total digital sector exports were £4.24 billion in 2015.

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88% of premises have a next generation broadband access, with 83% having superfast broadband. However, this in contrast to rural areas where only 46% of rural communities have access to superfast broadband. This can also be seen in average broadband download speeds where 35Mbits/s is the average across Scotland. Yet, in rural areas the average speed is 15Mbits/s.

For adults, 82% access the internet for personal use, yet 81% of adults have basic digital literacy. This is usually within the older population; one third of citizens over 75 use the internet. There is also a divide seen between deprived and non-deprived areas. Almost 3/4 of adults in the most deprived areas use the internet for personal use, compared to around 90% in the least deprived

Quantum computing technology is becoming more and more advanced. The quantum bit is more versatile and more long-lived than the electron alone, allowing the development of more reliable quantum computers. In 2014, the UK government invested over £270 million in the development of quantum technologies58. Quantum computers will begin to outperform everyday computers. Quantum computers can also greatly improve the performance of existing AI technology.

Space technology

Space technology helps address some of the major challenges the world is facing, such as depleting natural resource, universalising access to healthcare and education and catastrophic risks to the planet. However, spectrum congestion and interference blocking space services, space debris damaging our space asset infrastructure and the increase in space actors causing potential destabilization, all these issues are putting the industry under threat. Without space technology, many applications and services that we rely on would not exist.


Jobs increase.

Expanding marketplace.

Increased serviced delivered by constellation of assets.

Boost to local economies.

Increased pollution.

Requires large scale investment for infrastructure.

Increased noise pollution to local communities.

According to the Space Foundation, the space sector is one of the fastest growing in the world with $314bn in commercial revenue and government spending in 2013, and an average annual growth rate between 5% and nearly 8%59. This growing sector supports an ever-increasing range of downstream products and services across multiple users and markets.

Space asset infrastructure works as an economic enabler for many other sectors, such as transportation, internet services, telecommunications, healthcare, energy and agriculture. Because of this, it is no longer just wealthy nations that are reaping the benefits as global competitiveness expands. Satellite technologies are becoming smaller and cheaper which allows developing countries to invest in space with the aim to expand their economies. In 2001, 26 countries have at least one of their own satellites with more than 60 today60.

America is currently leading the world in space spending, as NASA, the National Oceanic & Atmospheric Administration and the Department of Defence spending $48bn, whereas other countries spend a total of $31bn. Of those countries; Europe spends $5.1bn, Russia spends $4.6bn, Japan spends $4.4bn and China spends £3.1bn61.

Research by London Economics estimates that the space economy is valued between £155bn and £190bn in 2016. The UK contributes £11.8bn, equivalent to a share between 6.3% and 7.7%. Estimates of employment in the space economy

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are difficult to verify because of the lack of reliable data. However, based on the OECD, the global space employment is estimated in the order of 890,000 full-time equivalents, but the estimate is highly uncertain.

Scotland’s share of GVA in the UK space economy amounts to 5.8% when direct-to-home satellite services are included. However, DTH is near saturation in the UK, and the space economy growth that is required to achieve the UK’s targets needs to be driven by other space activities. Considering GVA of non-DTH sectors, Scotland currently accounts for 9.2%. As these sectors are strong candidates for delivering the growth required in the UK, the current Scottish proportion can be considered an indicator of what can be achieved outside DTH if the relative size of the sectors remains constant.

Scotland’s achievable share of the UK space economy by 2030 is suggested to be 9% excluding activity expected in the case Scotland is selected to host the UK spaceport. If the UK spaceport were to be located in Scotland, the country’s space economy could be expected to amount to 10% of the UK total. However, Scotland already accounts for 18% of British space industry jobs over more than 100 companies and public organisations62.

The Spaceport, which would be the only one of its kind in Europe, would provide a major boost to the local economy of the dedicated site in which it was located through increased employment and economic activity. An estimate for the potential of a Spaceport is between 490-550 extra jobs and £60-100 million in additional economic activity63.

A report by Common Weal estimates that the sector’s continued progress could be halted by a lack of investment and infrastructure development at government level. Research & Development as a % of total income from the space sector has dropped from 90% in 2012/13 to just 3% today, meaning the funding fall well outstrips the pace of growth in the sector64.

Internet of Things

In line with Moore’s Law, computing power is

increasing as hardware prices fall; this creates the conditions for the economic feasibility to connect more things to the internet. As things increasingly become connected to the internet, we are enabling greater communications and new data-driven services based on analytic capabilities. In the future, we can expect most physical objects to be connected to ubiquitous communication infrastructure.


Increased efficiency in using resources.

Increased productivity and quality of life.

Things will be enabled to perceive their environment comprehensively, and react and act autonomously

Even hard, real-time applications feasible in standard communication networks

Shift in labour markets and skills

Losses of jobs.

Privacy issues.

Hacking and Cybersecurity.

More complexity and loss of control.

Fifteen years ago, the internet revolution begun to redefine business-to-consumer industries such as media, financial services and retrial. From now and 2030, the Internet of Things will begin to dramatically revolutionise manufacturing, energy, transport and other industrial sectors. It will also begin to alter the relationships with people and machines as it fundamentally changes how we interact with them.

Research by the World Economic Forum reveals that the disruption which is expected to come from new value creation will be made possible by massive volumes of data which is transferrable between connected products65. This will increase the ability to make automated decisions and take action in real time. It is expected that this can take form in four phases;

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Phase 1 - Operational Efficiency: Through predictive maintenance and asset management, we expect asset utilization to increase. This reduces operational costs and can boost worker productivity.

Phase 2 – New Products & Services: The emergence of new products and services could deliver software-driven service utilising pay-per-use. The monetisation of data could also be an effect as we have increased visibility into products, processes, customers and partners.

Phase 3 – Outcome Economy: Coalescing around software platforms, we could see new connected ecosystems which blur traditional industry boundaries with platform enabled marketplace and pay-per-outcome.

Phase 4 – Autonomous, Pull Economy: With full automation, we could see resource optimization & waste reduction, end-to-end automation and continuous demand-sensing.

For phases 1 and 2, we expect immediate opportunities that drive the near-term adoption, starting with operation efficiency. We are seeing these accelerate today. Phase 3 and 4 include more long-term structural changes.

It is estimated that 20 billion connected devices across the world will require “Internet of Things” networks by 2020. This is increasing as the race to develop market-ready solutions is advancing66. However, a recent survey by PwC also found a majority of consumers currently lack an interest in “Internet of Things” technology or are unaware of its benefits. PwC added that it took around eight years for a tech revolution such as broadband or smart phones to become the norm67.

In Scotland, the NHS spends an estimated £30 billion every year managing its estates and facilities, but consultant-led studies suggest many of its buildings are being used to a fraction of their capacity68.

A recent trial by a Scottish start-up company – Beringar, confirmed this analysis by collecting 160,000 data points and detecting empty space that the staff thought was in regular use. Extrapolated across the entire estate, the

technology could be transformative for the UK’s NHS.

Smart Cities

Cities will begin to connect its services, utilities and roads, through the internet, together for a more efficient infrastructure. This means cities utilising their data-driven services, including intelligent parking solutions, smart trash collection and intelligent lighting to become far more efficient and more in tune with the environment. Smart cities are continuously extending their network of sensor technology and working on their data platforms, which will be the core for connecting the different technology projects and adding future services based on data analytics and predictive modelling.


Increase in productivity.

Improved quality of life.

Increased access to resources for the general population.

More transparency around the use and state of resources.

Effect on the environment.

Increased vulnerability to cyberattacks.

Surveillance, privacy.

Risk of collapse (total black out) if the (energy-) system fails.

The share of the world’s population living in urban areas is expected to increase to 66% by 2050, adding 2.5 billion people to the urban population, with about 90% of the increase concentrated in Asia and Africa. This geographic concentration is already reflected by the world’s most populated urban agglomerations as of 2014 (Figure 2). Living in cities allows individuals and families to take advantage of opportunities arising from proximity, diversity and marketplace competition. The number of megacities has nearly tripled since 1990; and, by 2030, 41 urban agglomerations are projected to have populations of at least 10 million each69.

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Urbanisation is increasing. According to United Nations data, the proportion of the 2014 world population living in urban areas was 54%, heading for 66% by 2050. Inhabitants consume 75% of the planet’s natural resources and contribute to urban activities responsible for 75% of all greenhouse gas emissions70.

The European Regional Development Fund (ERDF) has developed a ‘Scotland’s 8th City – the Smart City’ programme to develop collaborative innovation to enhance Scotland’s seven cities. This aims to expand Smart City capabilities and deliver city priorities through improved integration of service delivery, community engagement and innovation71.

The ‘8th City’ programme is being progressed via ‘Phase 1’ ERDF grant of £10 million enhanced by Scottish cities match funding of approximately £14.5 million to create a £24.5 million programme of Smart City projects across all cities. It is anticipated that a similar level of support may be available to support a Phase 2 of the programme running from 2019 to 2022.

A report was published in 2016 by Smart Cities Alliance to detail Smart Cities Blueprint. This was to give a more strategic approach to Smart Cities Scotland. Its development was led by future cities consultancy Urban Foresight, which worked with the Alliance to engage all seven cities, the Scottish Government, Transport Scotland and Scottish Enterprise72.

Today, cities occupy just 2.6% of the earth’s crust, but are home to more than 50% of the world’s population, generate more than 80% of the world’s GDP and use 75% of the world’s natural resources. The UN estimates that our global population will rise to 9.6 billion by 2050. The majority of this growth will occur in cities, with an estimated 66% of the global population living in urban areas by 2050. Cities are evolving faster than at any point in our history, putting them on the cusp of major transformation which, if managed well, could lead to unprecedented economic growth and prosperity for all, but if managed in an uncoordinated manner could drive social, economic and environmental decline73.

The city of Santander in northern Spain has 20,000 sensors connecting buildings,

infrastructure, transport, networks and utilities. The city offers a physical space for experimentation and validation of functions, such as interaction and management protocols, device technologies, and support services such as discovery, identity management and security74.

Autonomous Vehicles

We are beginning to see both driverless cars and autonomous distribution service vehicles tested on our roads. These vehicles can potentially be more efficient and safer than cars with people behind the steering wheel. Moreover, they could reduce congestion and emissions, and upend existing models of transportation and logistics.


Improved safety.

Improved mobility for those older and disabled, among others.

Adoption of electric vehicles.

More time for focusing on work and/or consuming media content.

Effect on the environment.

Job losses.

Hacking/cyberattacks.

Legal structures for driving.

Upending of insurance and roadside assistance.

Lobbying against automation.

Autonomous vehicles will come in two stages. First is the connected vehicle which is a vehicle which has technology enabling it to connect to devices within the car as well as external networks, such as the internet. An autonomous vehicle is a vehicle which is capable of fulfilling the operational functions of a traditional vehicle without a human operator.

Connected and autonomous vehicles have a large potential to provide huge social, industrial and economic benefits. However, they also represent many issues with redesigning infrastructure to become more efficient and in line with the needs

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of autonomous vehicles. Yet, these innovative vehicles can expand our industrial base, improve safety and congestion and free up space usually devoted to vehicles in our urban areas.

According to a research by the Society of Motor Manufacturers and Traders (SMMT), Autonomous vehicles will transform the lives of six out of every ten people in the UK75. More than 3,600 respondents were canvassed by the first comprehensive UK-based study of human impact of connected and autonomous vehicles. It found that autonomous vehicles will offer freedom to some of society’s most disadvantages, including those with disabilities, older people and the young.

In the UK, 31% of women do not hold a full driving license. For men, it was 14% and for 17-30 year olds, it was 46%76. Autonomous vehicles open up opportunity to these people. However, this does not include an understanding of how public transport plays into those people. We believe that autonomous vehicles could become commentary with a strong public transport infrastructure.

There is already a staggering level of connectivity and autonomy in vehicles compared to just a decade ago – in 2015, more than half of all new cars sold in the UK featured autonomous safety features. Autonomous emergency braking and lane assist technologies provide safer driving and internet connectivity over mobile networks is capable of keeping vehicle occupants connected to the online world.

According to the KPMG study commissioned by SMMT77, connected and autonomous vehicles are set to add £51 billion a year to the UK economy by 2030. This is in addition to creating 320,000 jobs news, 25,000 specifically in automotive manufacturing.

The World Economic Forum estimates that $2 billion of value will migrate from traditional vehicles to connected vehicles78. In addition to this, $16 billion will also migrate to operating profits from higher ticket prices for connected vehicles and associated add-ons. It is assumed that by 2019, the first commercially viable products would appear in the market. By 2025 the share of annual vehicle sales contributed by connected vehicles is assumed to grow to

5%, with 80% of the market going to connected vehicle add-on packages such as more evolved versions of the RP-1 product by Cruise. It is anticipated that the remaining 20% of the market would be captured by autonomous vehicles such as the ones being piloted by Google.

The European Commission-funded Safe Road Trains for the Environment project seeks to implement lorry platooning in the EU79. Lorry platooning is the deployment of a lead lorry that makes decisions on the road and communicates wirelessly with Lorries behind to form a road-train. This has seen trails begun across northern Europe, showing the system to be more fuel-efficient80.

Artificial Intelligence (AI)

AI has the ability to learn from previous situations to provide input and automate complex future decision processes. Providing the machine learning in automation, it can make it easier and faster to arrive at concrete conclusions based on data and past experience.


Rational, data-driven decisions; less bias

Reorganization of outdated bureaucracies

Energy independence

Job gains and innovation

Advances in medical science, disease eradication

Job losses

Liability and accountability, governance

Increased inequality

Accountability

Hacking/cybercrime

According to PwC, AI is expected to add an additional 10.3% and over to UK GDP in 2030. That’s the equivalent of £232bn to the UK economy, making it one of the biggest commercial opportunities81. The expected productivity gains

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are expected to be 1.9% and with a consumption side product enhancements increasing 8.4%.

The gains across UK regions are expected to vary. England is expected to see the greatest gains from AI as a percentage of GDP and in absolute magnitude. However, in Scotland we expect to see GDP increase by £16.7bn in 2030, which represents 8.4%. That would provide £2,209 extra spending power per household annually.

We expect AI to affect our economy in four ways;

― Uptake of workforce replacing AI: All jobs that are at high risk of automation by 2030 with a probability of 0.782. A fraction of labour cost savings from automation are spent on replacement AI, this fraction is determined by the current fraction of capital expenditure on AI and emerging technologies

― Speed of AI uptake: The scale the rate of AI uptake in the UK based on the Global Innovation Index (GII) as a proxy for AI readiness shows us that UK-specific adoption rate is delayed in reaching full AI adoption based on the UK’s score vs. the highest score83.

― Profile of AI uptake: It is assumed an ‘S-shaped’ profile of AI uptake for the UK between 2017 - 2030, where some countries only reach the ‘end’ of the S-curve many years later, depending on their rate of AI uptake from the GII84.

― Consumption side impact personalisation: Personalisation captures both the increase in utility from existing goods and variety of new goods. This allows us to proxy personalisation with increased goods variety. This is the increase in marginal utility associated with a percentage increase in ‘quality’ as defined by the AI Index85.

Scotland is currently leading in AI, with the computer science research base in Scottish universities. Universities in Glasgow and Dundee provide significant work towards machine learning, with Edinburgh University establishing

the Artificial Intelligence Application Institute, the first AI research centre in the UK86.

A survey by PwC in the UK also found the following87;

― 39% are willing to engage with artificial intelligence /robotics for healthcare. Men are significantly more willing than women – 47% compared to 32%.

― 18-24 year olds are the most willing (at 55%), with willingness decreasing by age group until over 55s are least willing (at 33% - still an interesting finding that fully 1/3 are willing)

― Wales and Scotland are far more willing to engage with AI and/or robots for healthcare than other UK regions – at 52% and 47% respectively, compared to England (38%).

― It also found that more people would be prepared to engage with an ‘intelligent healthcare assistant’ for themselves, for example monitoring their own diabetes and being advised on subsequent lifestyle changes (47% willing), but less so for their loved ones/family (54% unwilling).

― Whilst the willingness for robots to be involved with major surgery was low (27%) there was some willingness for them to be involved in the more minor, non-invasive procedures (36%).

Sharing Economy

In the sharing economy we would see technology-enabled ability for entities (individuals or organizations) to share the use of a physical good/asset, or share/provide a service, at a level that was not nearly as efficient or perhaps even possible before. The sharing economy has any number of ingredients, characteristics or descriptors: technology enabled, preference for access over ownership, peer to peer, sharing of personal assets (versus corporate assets), ease of access, increased social interaction, collaborative consumption and openly shared user feedback (resulting in

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increased trust). Not all are present in every “sharing economy” transaction.


Increased access to tools and other useful physical resources.

Better asset utilization.

More personal services available.

Increased ability to live off cash flow.

Better environmental outcomes.

Less resilience after a job loss (because of fewer saving).

More contract / task-based labour.

Less investment capital available in the system.

More opportunity for short-term abuse of trust.

Decreased ability to measure this potentially grey economy.

To understand the sharing economy better it is important to note that;

― The largest retailer doesn’t own a single store in the UK (Amazon).

― The largest movie house owns no cinemas (Netflix).

― The largest phone company owns no telecoms infrastructure (Skype).

― The largest accommodation provider owns no real estate (AirBnB).

There are several ways that the sharing economy will take form88;

Peer-to-peer: this refers to the decentralization of the economic model which has no formal marketplace for buying/selling assets or services; instead the peer-to-peer system would rely on an online platform. These would facilitate transactions by supply and demand requests between private individuals. The platform is primarily used for matching and may not

necessarily validate transactions or create trust, so all liability for resolving conflicts in such cases falls on transacting parties.

On-demand economy: This refers to economic transactions enabled by online platforms that matches expressed supply and demand in real time. Netflix or Spotify are examples of this. However, this also includes the delivery of the product or service. The on-demand platforms deliver a service – and often collect data to customize the service or offer dynamic pricing. ODE refers to the speed of response in providing the service, and can include sharing and community elements or not.

Crowd Economy: A group of participants connected through a platform with the purpose of achieving mutual interests. This has recently taken the form of “crowd-sourcing” products such as Kickstarter or “Crowd-voting” such as change.org. The sharing element of crowd economies is the formation of a community of common purpose that can gain access to a greater variety of resources to accomplish collectively set goals.

In Scotland, AirBnB was estimated to have delivered 1.4 million users over the last year, delivering £483m89. The report revealed that Edinburgh has earned £240m from rentals, in comparison to £280m brought in during festival season.

As well as Edinburgh, Glasgow and the Isle of Skye are also popular destinations. However, there are negative effects if the sharing economy isn’t managed sufficiently. Responsible Travel, a specialist UK travel agency, has called to end marketing of overcrowded tourist destinations such as the Isle of Skye.

PwC has calculated that the sharing economy was worth £9bn in 2014 on a global basis90. This is then expected to rise to £230bn by 2025. The research then goes on to detail how the five sub-sectors of the sharing economy in the UK is worth around £500m, which could grow to £9bn a year by 2025.

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SECTION C – POLICY

An investment-led model

Automation represents one of the great challenges faced by the world economy in the twenty-first century, along with related issues such as demographic ageing, climate change and increased inequality. State innovation strategy represents a central element in both solving and preventing societal problems ensuing from the transformation of our economic model. Innovation is not only a path for economic growth but also as a crucial tool for tackling societal challenges.

The role the state plays in protecting against automation is a significant one. However, there is varied understanding to what extent the state participates. Within neoclassical economic theory, competitive markets gain optimal outcomes when they participate in the market freely, with the state performing a market failure correction function. Government intervention in the economy is only justified when there are explicit market failures91.

If we are to deliver smart, sustainable economic growth, then we must focus on how to rebalance away from consumer debt driven growth and towards an investment-led growth model. This requires us to step out of the market failure paradigm and begin to understand growth as a reward from effective innovation. We must perform market creation and shaping, as well as market fixing.

The common perception of innovations is biased towards technology. Innovations are often referred to as the path to economic growth, enabled by entrepreneurial visionaries and promising game-changing technological and product revolutions. However, innovations are more than just new technologies, enabling new products to be sold in new emerging markets – which they have not infrequently created themselves. Innovations in telecommunications (tele graph, telephone, radio, TV, internet), transportation (trains, cars, planes) and health and hygiene (penicillin, X-rays) have not only created markets for products, but have often

helped to solve societal problems.

Funding investment

Innovation policy also needs a progressive economic model which can ensure that economic management creates the availability for investment. The foundation of an investment-led economy requires us to utilise the public sector as the basis for generating all wealth into the economy. It is necessary to understand the role the public sector plays in the relationship between the private sector and national infrastructure & services.

The private sector’s main focus is to make the maximum private profit from its economic activities. However, in the public sector our attention is on how best to invest and manage these economic activities to maximise their development impact and how best to properly understand their role in the overall economy. That requires the state to run, regulate & intervene in the economy on the basis of securing efficiency, quality and wider economic impact. This could take the form of returning rail and postal services to public ownership and creating a National Energy Company to return the management of the electricity grid to the public sector. Yet, to do this, we need to understand how we can afford to invest in these industry sectors92.Modern Monetary Theory (MMT) is an approach to economic management which builds on the ideas that monetary sovereign governments face no purely financial budget constraints and the government faces limits relating to what can be produced and consumed without introducing significant inflationary periods93.

The inflation that the government can cause is through either spending too much into the economy or not taxing enough money out of the economy. The reason this causes inflation is because the available capital spending in the economy exceeds what can be produced by the resources available. These resources include labour, natural resource, skills, etc.

Exceeding the production of available resource is not directly linked to the level of government’s financial budgets. A deficit within the financial budget is considered to be a surplus to the

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private economy. If a government is running a surplus that means that it is extracting money from the overall economy. If our aim is to increase the wealth of the economy without increasing inflation, the government will need to run a deficit at a sustainable level that is appropriate for the economy.

In this scenario, the debt which is accrued by the budget deficits signifies the overall money circulating within the private economy of the monetary boundary. At times, it may be fiscally responsible to run budget surpluses. However, Scotland is facing a period where economic development is a priority. As automation has a growing effect on the current economic policy in Scotland, we require the government to ensure there is a significant demand-led investment in the economy.

An active state providing this investment to central infrastructure needs a progressive innovation policy concerned with both technological and social progress so to ensure the level of investment can outstrip the effects of automation on the Scottish economy. This means that it is a necessity for the economic policy in Scotland to follow the investment-led growth model.

The link between investment and innovation strategy is an important one. Government deficits can play a supportive role, allowing the private economy to receive necessary investment. However, we can damage our economic ecosystem if we overinvest into the wrong industry sectors. This can especially be seen across service countries which have seen increased financialisation and falling index of production. This requires an innovation strategy which refocuses on building sustainable and inclusive growth.

Innovation Strategy

Innovation in the UK is generally driven by private investment. It is understood that this investment is driven by costs. However, studies have identified that innovation is more likely to be driven by perception of technological and market opportunities. In one of these studies, the relationship between entry of new firms into

industries and the current levels of profits in those industries is generally weak94. The private sector has historically entered new industry sectors after high uncertainty is absorbed by the public sector, such as the biotechnology 95 and the nanotechnology industries96. With the aim of developing an innovation strategy, we need to create a policy framework of market creation looking at several areas where we expect to encourage growth.

Technological Paradigm Shifts

A technological paradigm us an outlook of the relevant productive problems confronted by firms; it also represents a set of routines of how these problems shall be approved and defines the relevant problems and associated knowledge necessary for their solution. When we see a technology paradigm shift represents a change of direction within that paradigm.

Technology development is a problem solving activity. Market signals are limited in terms of providing direction to techno-economic development; they only work within the parameters of the paradigm, and thus influence more the rate of change than its direction. When more than one paradigm shift occurs, markets may influence which one is selected, which usually tends to be the one with minimal cost. Some technological possibilities are discarded because they are incompatible with the prevailing paradigm and are therefore ‘invisible’ to agents. The trajectory of this paradigm shift will then lock a techno-economic system of innovation into self-reinforcing.

When a new technological revolution emerges, economic systems are stuck within the bounds of the previous paradigm, which means market forces are incapable of directing the system towards a new paradigm, which would modernise and rejuvenate the new revolution. This means there are mismatches between the elements of the social and techno-economic systems such as R&D routines, labour regulations and tax regimes. All of which we are expecting to need adapting within the paradigm of the automation revolution.

To overcome these, we need to build new institutions that favour the diffusion of the new

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paradigm. The role of public policy allows the full deployment of technological revolutions, such as the effect of suburbanization on the ability of the mass production revolution to diffuse throughout the economy.

The state plays a crucial role in creating a new vision that will coordinate the effects of different agents, public and private, and direct their action to areas beyond the existing paradigm. To be effective in providing the direction of change, a vision must be created and shared. The role of bottom-up participatory processes to ensure directionality is an important step.

Directional innovation

Innovation policy must go beyond market failure and also include a system failure correction function which allows horizontal institutions to allow new knowledge and technology to diffuse across the entire economy. This form of strategy supports basic research which allows the development of technologies to diffuse, expanding the economic sector which is important to innovation. Beyond this, it also promotes the development of infrastructure97. This gives an explicit technological and sectoral direction to achieve its aims. Policy initiatives have already seen practice across the world, such as the US, Germany and the UK.

An example of directional innovation is prevalent in the 1950s and 1960s, where military and space sector motives were predominant. The US’s attempt to beat the Soviet Union in the “space race” led NASA to place a man on the moon. The competition between these two superpowers enabled directional innovation within the space sector to expand, with significant technological advancements also seen in the Soviet Union, such as the R-series rocket which has remained the predominant launching technology in Russia since the end of the cold war.

In similar cases, the US developed other successful programmes such as the National Institute of Health (NIH) 98 and the grand mission of agricultural innovation99. These organisations had decentralised control over the direction of their funding, thus were more capable of understanding the greatest direction

of investment. This is not just the state ‘picking the winner’; it is also intelligently picking the direction.

Key to directional innovation isn’t what direction to go, but rather how to understand the directions of the past to develop your understanding of going forward, allowing directions to be broad enough to allow bottom up exploration, discovery and learning. This requires us to identify missing links and form concrete strategies towards producing market landscapes which do not exist.

Network innovation

Important in innovation is to have a decentralised network of different types of state agencies which can foster innovation and development. Success in innovation strategies have often been found by a network of innovative firms as opposed to having an individual national champion100. These successful policies include R&D support, training, and support for marketing and export and funding programs in an early-stage of venture capital.

Economic development is not the result of natural competitive advantages but of the creation of new opportunities that lead to the establishment of competitive advantages. By fulfilling this developmental role, the state does much more than just provides financial capital to fix failures. Because economic development is an endogenous process, the state provides social capital, coordinates initiatives and public-private partnerships and fosters synergies.

Organising innovation

In order to understand and promote the transformation of our economy, by shaping and creating technologies, industry sectors and markets, the state must organise itself so that is has the capacity to think big and formulate bold policies. To do this public organisations are essential.

The key concern should be to establish which skills, capabilities and structures are useful to increase the chances that the state will be

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effective both in learning and in establishing effective partnerships with the private sector through an engaged public sector. We must also explore alternative ways in which the state can engage with and assume risks. It does this by both picking the winners and the losers in its portfolio approach to investment.

When you drive the economy with an aim, you require direct and in-direct investment in particular areas. This requires a level of risk, which sees the state invest in losers as well as winners. The Obama administration invested in two companies; Solyndra and Tesla Motors, receiving $500m and $450m respectively. Tesla Motors has seen its share or success; however, the same cannot be said of Solyndra101. This can be used as an example of a government picking a winner. This suggests that the government should be developing a portfolio so that the losses can be covered by the gains. Using this approach to public investment means we are able to back up the reward from the wins in order to fund the losses.

Innovative state

The innovation strategy for the state must seek to challenge the notion of innovation being embodied in the private business. This will build on an industry dynamic that has a weak relationship between entry of new firms into industries and the current levels of profits in those industries. Private venture capital funds have focused on financing firms’ mid-stage, which had previously received early stage financing by public programmes. These dynamics have been described in terms of ‘crowding in’, but this ignores direct risk-taking that such public activity entails, and hence the occasional failures that will inevitably result102.

Our innovation strategy needs the state to begin ‘crowding in’ business investment, but it must also create the vision and begin to plan on how to reach it. We must look to understand the general areas which are ripe for development and where pushing the boundaries of knowledge is desirable. The state must engage in the exploration and production of new products which lead to economic growth.

Expanding investment in ‘innovation centres’ which connect university R&D with industry sectors, including making innovation centre plans integral to sector associations are a way to foster this development of new products and economic growth.

The state has to take the lead by formulating a vision of a new area (for example, Scotland’s growing space sector). Public financing of this innovation comprises investing in the earliest-stage research and development; creating and funding networks that bring together business, academia, and finance; funding high-risk ventures; and investing in high-risk demonstration and deployment. A theoretical framework of public financing of innovation starting from these preconceptions would emphasize the influence that public institutions take on the course of transformative innovation and their risky active involvement in financing of that innovation.

In sum, with our attempts to bring Scotland into a new automated paradigm, we need to utilise our innovation strategy so to change our economic system that it is fit for disruptive technologies. Our attempts to do this must be focussed first on how to create a vision for our new future which nurtures new technologies. However, this must also be coupled with socialisation of both the risk and the rewards. This is to ensure that all citizens can reap the benefits of a new technologically advanced society.

Smart specialisation

Following this innovation strategy we need to ensure that the direction of innovation follows specialisations unique to Scotland. This allows Scotland to focus on its strengths through smart specialisation103.

The Nordic region has been identified as having greater economic development than the UK as it also follows this form of smart specialisation. The example used in previous work by Common Weal identifies the Nordic timber industry as utilising smart specialisation. In the 1970s they focussed on the timber industry to explore what it could be. That industry has now developed into one of the world’s leading advanced material

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manufacturing sectors. No parallel process happened in the UK. This process achieves ‘smart specialisation’, the ability to identify where there are real opportunities for industries to become better through specialisation in areas where they have competitive advantages.

This smart specialisation can happen on the large scale with Scottish industries, but allowing a platform for small scale innovation to develop sector-specific and enterprise specific innovation through employee-led innovation can also provide benefits.

Developing ground-level expertise of employees can provide a major advantage to the smart specialisation process. Management structures need to create more empowered workers who are in greater control of aspects of their work. This allows them the flexibility to introduce efficiencies in their work process. This is also true of sector-level policy where sector associations can tap into employee expertise.

Creative Adaptation

Automation, and all the economic responses to it, is going to require major economic restructuring. This restructuring has a long history of engaging free market forces to adapt our economy through ‘creative destruction’104. This can be compared to the ‘oil bubble’ in Aberdeenshire, where a significant amount of the local economy is reliant on the oil & gas industry. Once the oil & gas deposits run out or become too expensive to drill, the local economy would face a rapid shock and decline. In this scenario, the state only becomes involved to mitigate the damage which is caused.

An alternative to this ‘creative destruction’ is to pursue a course of creative adaptation. This means the state can actively help industries and communities adapt to economic changes as it goes through a restructuring. This enables the state to guide the roll out of technology on the basis of inclusivity and sustainability as opposed to competition. In this scenario, the state can coordinate with suppliers and others to design and deliver an overall system which is coherent, effective and efficient as per the requirements for the economy. This form of coordination isn’t possible within the private sector as the state

plays a role in encouraging other necessities of an economy beyond profitability.

Relationship with automation

Through an investment-led economy with an innovation strategy, Scotland can begin to reshape the economy so that it can become adaptable to automation and the dangerous discussed in Section A.

Scotland’s automation rate on the world stage: As discussed, we can see that the Nordic region is successful through its investment in research & development. However, the economies of the Nordic region are not centred on the basis of investment-led growth. Scotland focussing its economy on the investment in its people can give it a competitive advantage in regards to automation.

Industries at high risk: With an innovation strategy which develops our industry with smart specialisation and creative adaptation, industries can develop on the basis of productivity and efficiency in respect to the economy. As automation reshapes our industries, the state can begin redeveloping the economy and utilising automation to drive growth in our industries.

Occupations at high risk: As our industries begin to see investment and redevelopment on the basis of automation, the state must also look to grow the economy on the basis of sustainability and inclusivity. Occupations can be nurtured within the economy as the state looks to reskill the workforce. This can only be achievable if the state invests in the adaptability of the workforce. Occupations which are at higher risk are also targeted in an investment-led economy for the reskilling to redeploy out workforce in more productive industries.

Productivity and growth: Productivity within automation and growth has the capacity to increase as inclusivity and sustainability decreased. However, the intrinsic nature of automation rates outpacing the rate of jobs being created will encourage economic deprivation. Refocussing the economy on the inclusivity and the sustainability of the economy will encourage growth to become people focussed.

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Inequality: Investment on the basis of predistribution will allow the state to invest in those most affected by automation as a priority. This allows the state to support the livelihoods of those affected, as we enhance our central infrastructure, which boosts economic activity both during and post-construction.

Investment: A demand-led economy allows investment to meet the needs of the population. This encourages the economy to grow not on the basis of profitability, but on the basis of the nation’s needs.

Technology Infrastructure

As automation continues to affect Scotland’s economy and with an understanding of the disruptive technologies which is driving automation, we can begin to utilise our innovation strategy to focus on these technologies so that the state can absorb both the risk and the reward in investing in these technologies. The reward that we gain is used to support systems of public value, improving the lives of the people in Scotland.

With the Scottish National Investment Bank at our disposal, we can begin a demand-led innovation strategy which creates national companies as the driving force for investment from the national investment bank into the Scottish economy.

Depending on the needs of the economy, these national companies would identify the investment needs of their given industry and then would devise business plans to source the necessary investment from the Investment Bank and direct it towards economic opportunities.

The investment that these national companies support would be an injection into Scottish economic activity which would encourage growth and jobs. As this follows an innovation strategy which works alongside disruptive technologies, this ensures that the jobs which are created are done so to ensure that there is low risk of automation in the short to medium term. It would be wrong to assume this resolves issues in the long term as technological advancement is constantly changing. However, this model does create the capability to constantly work

with technology as it also injects capital into the economy, ensuring that jobs are sustained in our economy.

This model creates a structural sustainability against automation. However, there needs to be further detail on these technologies and their relationship with the Scottish economy.

Shared State Platforms

Big businesses dominate the retail sector which are monopolising market access105. As the sharing economy grows within this monopolised economy, we are witnessing a disruption by equally damaging monopolies. The defining part of sharing platforms is its ability to minimise the costs in building corporate infrastructure whilst using technology to increase its profitability. This creates a market access issue on two fronts for Scottish producers.

Market access facilitation platforms can provide online market access to Scottish producers. However, the monopolistic nature of these platforms provides a driving force against the Scottish economy. The Isle of Skye has seen low wage citizens struggle to find affordable housing as the ratio between housing let to tourists through AirBnB and affordable rented housing widens. There is no capacity for AirBnB to limit the number of tourist accommodation which works best for the local economy as profit is still the driving force behind its business model.

Scotland could provide a nation market access platform with regional or local input so to maximise the effectiveness of the platform for each local economy. This would then allow the sharing economy to be run on the basis of public value as opposed to the current basis of private profit, continuing the collaboration and coordination across the Scottish economy.

This isn’t just something Scotland could do with AirBnB, but it is something we could explore on a wider aspect through tourism, online retail and taxi distribution. This could even be seen in a range of smaller specialist platforms providing logistical support, IP protection and more.

The foundation of digital platforms, especially

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in rural areas, could be provided through high-speed broadband. A national telecommunications company should be established to take over and invest in the provision of broadband infrastructure in Scotland.

Beyond digital infrastructure, Scottish businesses could be provided physical services and infrastructure which are shared by the state, allowing businesses the capacity to expand. Scottish Enterprise could ascertain the level of needs across businesses in Scotland, identifying what common needs are required to boost the businesses profitability. An example of this could be to provide a facility which gives the process capacity for craft brewers to utilise shared process equipment, allowing craft brewing to become more affordable. This could be based on business needs within certain locations or it could even be provided in mobile processing technologies.

Utilising Health Data

There is significant scope for the advancement of controlled electronic patient records in Scotland, utilising big data technology to encourage the collaboration between NHS Scotland and state supported private pharma companies which develop fundamental research carried out in publicly-funded universities. However, there are a significant proportion of the profits made in private pharma companies which are expended on marketing and advertising than on research and development. This is so the private pharma companies can continue to charge extortionate rates for drugs to the NHS.

Creating a national pharmaceutical company could be utilised to develop more medicines and potentially more domestic production of generic medicines. It could do this with shared access to controlled electronic patient records so that they can remain efficient in the production and development of new and existing medicines. There is further scope for medical technologies to also be developed through the national pharmaceutical company, encouraging Scotland to be a leader in health industry106.

Beyond this, there is economic activity generated through the high-paid jobs this company would

generate, and the significant savings this could have on the NHS.

New Space

Scotland is already excelling within the space industry with its innovation within the design and manufacturing of small-scale space assets. However, this industry is generally funded through private investment as the share of public investment has dropped significantly. This identifies a potential threat to the future of the industry as the lack of investment could allow other nations to overlap its share and potential share of this new growing industry107.

Utilising the innovation strategy, a Scottish Space Agency could be developed to encourage this industry to grow and provide the investment within the research and development of new space products, ensuring Scotland keeps its competitive advantage. Further, this would take the task of creating and managing of the necessary infrastructure and facilities. Scotland has been designated to be home of the first spaceport in the UK. This will become an important asset to the space industry in Scotland and it would need to be under the control of the Scottish Space Agency to ensure it is utilised to its full effect.

This is an example of smart specialisation. Where Scotland has an industry where it is doing well in. The Scottish Space Agency should work to improve the core industry and the supply chains, strengthening this industry and ensuring Scotland becomes a specialist in space technology.

Diversification agency

A diversification agency is required to reskill the economy and increase the negotiating power of labour. Increasing production and reducing low-pay drudge work will require coordination. The diversification agency would be responsible for developing a plan of action in which this can become possible. Public procurement would seek to promote domestic production by favouring domestic produce and reduce the reliance on imports (which generally only require low-pay

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labour)108.

Financial support to enterprise would be shifted from unproductive sectors like retail and finance and redirected towards high skill businesses, with quality of jobs being the priority for all public support. The diversification agency would be tasked with rebalancing the level of high productivity and low productivity work within the economy.

Job Guarantee Scheme

Provided that the investment-led model could create more jobs in our economy, there may still be a gap of unemployed in Scotland. Central to a social security system of the future could be the Job Guarantee Scheme. This makes the government the employer of last resort, offering employment to anyone in Scotland that is unemployed109.

This allows Scotland to of provide a floor for wages and job conditions in the private sector, and it allows economic activity to continue in deprived areas that face high unemployment figures. It is understood that the cost to fund this scheme is repaid in part by the economic activity this flows to the local economy, including the increase in expendable capital towards private companies.

There is a concern that this scheme could fail if it is done badly, focussing on the wrong industry sectors or not providing sufficient employment. This can be resolved by enhancing democracy in the development of this scheme by providing control to regional authorities, which themselves are elected by their local constituents. This gives an avenue to the local people to ensure this scheme is run in their benefit.

Regional development

For many people in Scotland, especially the periphery, the economy is much more localised to their local community. Economic centralisation has focussed the economic attention on the places that do well. In Scotland’s case, this is the central belt. Regional development has become less important which can only result

in the ‘Londonisation’ of the Scottish economy. This means just as the UK focuses too much on London and the South East, Scotland focuses too much on the central belt. However, rather than subsidising the regions of Scotland with the economy of the central belt, Scotland should look to decentralise economic policy-making110.

As automation increases its effects on the Scottish economy, regional development must also be coupled with socialisation. That is, to ensure the democratisation and decentralisation of the Scottish economy on a local and regional scale. However, Scotland currently has the least local democracy in Europe. Because of this, the local communities have no capacity to take responsibility for their local economy and so cannot act autonomously to improve their local economy111.

Once local community powers are increased, local communities will then have a democratic structure in place to make decisions about its economic strategy. Local communities would have the power to choose their own strategy and to deliver that strategy using bespoke techniques. On a regional scale, infrastructure planning for larger geographical areas should also see decentralised control with different forms of economic power.

This is an example of democratic power in the public sector, but the private sector must also see a form of socialisation through better industrial democracy.

Industrial Democracy

The current ownership model of our economy encourages financial excess and ecological overshoot. Automation is a threat to our economy due to the dominance of private, investor-led, extractive models of business ownership and management: the decision-making which values short-term results, resulting in an environment of poor productivity and investment performance; the lack of control we have over the decisions which affect us the most; and the inequality and insecurity it promotes, including in the stewardship of common but finite natural resources.

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Valuing our shareholders over our workers and consumers excludes them from exercising corporate governance rights and incentivises short-term and extractive business behaviour. The UK comes near the bottom of OECD economies in terms of the extent to which patterns of ownership and business forms support economic democracy.

The distribution and nature of business ownership is a critical factor in inequality. Through increased automation, capital’s share of national income has increased over time. This would be less of a problem if capital was broadly owned. Yet, 45% of the nation’s wealth is owned by the wealthiest 10% of households. That is five times more than the bottom half and almost 70% of financial wealth, including stocks and shares. In a time of rising capital income, the narrow ownership of economic assets is likely to drive rising inequality without redistribution of ownership.

Development of a new architecture of democratic ownership must then be at the heart of economic transformation. We have to build forms of ownership that are distributive by design, generative in purpose, democratic in orientation, and have a sense of connection to place. We must achieve this through pluralistic and proactive strategy to scale alternative models of ownership which can reorientate enterprise towards the common good.

Employee ownership models

To deliver production growth, we need to ensure that growth is also inclusive. The employee ownership model is one in which inclusivity is engrained. As an alternative to foreign acquisition, employee ownership offers a model that can deliver job retention and growth in Scotland112. There is estimated to be around 100 employee-owned companies operating in the Scotland, with 7,000 employees with company ownership113.

In most cases there is a greater feeling of investment in the success of their company by employees. Karen Pickering agreed that by being employee-owned, Page/Park Architects had become more productive and had retained its

local identity114.

In the UK, Employee Ownership Trusts (EOTs) were established in 2014. These trusts hold a share of capital funds for the benefit of the employees in a company. Currently, they enable a business owner to sell a minimum of 51% stake in the company to an EOT; in return the company would be exempt from capital gains tax.

However, it has been found that there has not been enough attraction towards EOTs from external investors. Private equity purchasing power still far outstrips the ability of EOTs and private investors are less likely to invest in an EOT under high capital investment requirements.

There needs to be greater incentives for investment in EOTs. This incentive could come from corporation tax exemption. This would increase the after-tax returns for all shareholders in the company, increasing the profits of all employees in the EOT as well as external investors. This reform would have high fiscal costs. However, this can be resolved by altering pension contributions.

By 2018, all employers have been enrolled all in the auto-enrolment pension system; this contributes a total 8% of employees’ gross pay to a low-cost pension scheme. This estimates that three-quarters if all workers are eligible for auto-enrolment, which will lead to £17 billion of extra pension saving per year by 2020115.

To try to make up for the loss in corporation tax, the level of pension contribution under auto-enrolment should increase over time from 8% to 15%, putting Scotland into line with the best pension systems internationally, such as the Netherlands and Australia. This would cause additional savings in the government pension expenditure.

These would normally be paid towards conventional pensions. However, studies have identified these to be generally wasteful. Productive capital which could be invested in the business is instead lost to third parties; additionally there is a loss in fees and commissions. Fees can erode up to 40% of the retirement pot over a working life116. So, the increase in pension contributions should be

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paid into the employees’ pension account, as opposed to conventional pension portfolios. These new pension contributions could also be fully tax exempt if contributed towards an EOT to incentivise the development of employee capital stakes.

A similar aim should be set for increasing the role of cooperatives in Scotland. Vendors should receive capital gains tax exemption when they sell to a cooperative. Additionally, mirroring the ‘right to buy’ scheme, a ‘right to own’ could also be put in place which would offer employees the right of first refusal to buy out a company that is being sold or floated on the stock exchange.

Yet there are some legal disincentives to cooperative. An example of this is they are not included in government impact assessments on the effects of new legislation, potentially creating negative consequences. To resolve this, cooperative business law should be modernised to make it more practical. This could include; creating a legal underpinning for common ownership and common capital funds, providing insolvency framework that encourages conservation of cooperative capital, and importantly, providing the option for cooperatives to adopt a statutory asset lock that would prevent the underlying assets of a cooperative being disposed of for private gain.

In terms of automation, these policies would allow greater industrial democracy, which means that any major decisions such as substantial job loss would be the decision of the employees of that company. This means that employees have a greater say in the future of the company and its relationship with machines. Further, this would not see a decrease in the implementation of new technologies as companies would still be required to remain competitive.

An independent state

The UK economy has an overreliance on the South East and London as economic centres. Growth, development and investment are generally focussed on enhancing the economic abilities of these regions at the expense of the remaining regions of the UK. This imbalanced economic model then creates a strongly

negative impact on the remaining regions. This concentration of wealth is then focused both demographically and geographically in a way which impacts negatively on Scotland117.

The needs of Scotland are thus superseded by the needs of London and the South East through the UK’s intrinsic macroeconomic calibration. This disrupts the investment available for Scotland at a proportion of the UK, suppressing the development of the economy and leading to a low-wage, low-productivity economy.

Through independence, Scotland can begin to reshape the economy in a way which is more suited for itself. Tax law is an example where, in the UK, Scotland has an inconsistent level of powers. The Scottish Government have implemented additional income taxes for higher earners. However, this tax law does not include dividend tax rates. This means that anyone in Scotland who own their own business can pay themselves in dividends, something done very easily, which would be taxed at the English, Welsh & Northern Irish rate, legally avoiding additional income taxes in Scotland.

This example is indicative of Scotland as a whole. Without full control over Scotland’s economic capabilities, there will always be discrepancies between Scotland and the rest of the UK118.

Deficit-reduction strategies have been central to the UK economic model over the last decade. As discussed in the sections above, this has led to a reduction of surplus to the overall economy. This unnecessarily suppressed economic development in the UK as a whole and in Scotland as part of the UK. An independent Scotland could escape this failed model and refocus on an investment-led growth model which allows sustainability and inclusiveness to be central to the economic model of a reinvigorated Scotland.

If Scotland is to become an independent country, it is necessary for it to also create its own currency119. This would create a Scottish monetary boundary which would allow it to focus it macroeconomic policy solely on the benefit of Scotland. Scotland would then have an optimal currency area and match monetary policy to the economic cycles of the Scottish economy.

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This creates a closer relationship between the Scottish state and the Scottish private economy.

Once independent, Scotland will inevitably go through a rapid period of transition after independence as it decouples itself from the UK economy. During this period it is essential that we maximise investment in the economy. However, to ensure we maximise the success of a new currency, we would need an additional 18 months to create the institutions necessary for its success. So long as an independent Scotland is set up with its own currency from day one it should aim to run budget deficits throughout the transition and development period. This will help to maximise investment in the private economy120.

Looking at Scotland from an economic perspective, the creation of an independent Scotland is an important aspect of this report. There are areas in this report which are excluded from Scotland as part of the UK, meaning that Scotland is limited in its ability to redefine its economy from the failed UK economic model. Through independence, Scotland can gain the powers necessary to become an entrepreneurial state and begin investing in its people.

CONCLUSIONDisruptive technologies are disruptive in that they transform the market from one form of production and service to another. It is understood that these technologies will begin to have a profound effect on our economy and under our current economic strategy; we should expect to see drastic changes.

These are the driving forces of automation and it is important to understand these as the root cause to job loss that we expect to happen to our economy. These technologies are going to affect different industry sectors in different ways, so to better understand how we can ensure that these industries continue to flourish without having a profound effect on the economy; we must focus on the technologies which will reshape them.

Automation is expected to have a significant effect in our economy, as well as the world

economy. This forces greater inequality as we seen non-UK nationals and lower social grades at the highest risk of automation. However, there are areas in the world, such as the Nordic region, which has been successful in preventing some of the effects of automation. They do have their challenges but the pressure is significantly less than other places in the world.

We need to ensure that there are structural changes to our economic system so that we can be prepared to live in a world of high levels of automation. To do this, we need to reimagine how we can use the state to its full effectiveness and redesign our society. The wealth in the world of automation is increasingly becoming concentrated, as jobs begin to fall. What we need to ensure is that we can redistribute this increasingly concentrated wealth so that inequality in our society doesn’t spiral out of control.

An investment-led economy with an effective innovation strategy is key to creating a Scotland which can begin to work for its people. This is about developing a vision of the future which looks to build systems of public value not private profit. However, this needs to be focused on industries where Scotland understands its current or potential strength. Using smart specialisation to build on Scotland’s strengths and develop our industries.

The technological revolution must be coupled with a democratic revolution, which sees worker ownership begin to flourish in Scotland, as the state introduces institutions of public value. Our economy needs a phase of socialisation to ensure the rewards of automation is provided to the Scottish people.

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DISRUPTIVE TECHNOLOGIES: THE IMPACT ON WORKERS IN … · This paper lists 10 disruptive technologies which are the driving force of automation. It is important to understand the effects