Government policy and inward investment attraction in Scotland

Hood, N. and Young, S. (1981) Government policy and inward investment attraction in Scotland. Quarterly Economic Commentary, 6 (4). pp. 39-47. ISSN 0306-7866

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Foreign direct investment has played an important role in the development of the Scottish economy in the post war period. Accounting for over 90,000 jobs in Scottish manufacturing industry or around 16% of manufacturing employment, Scotland is marginally more dependent on investment from overseas than the UK as a whole (at around 15%). An important dimension of foreign direct investment in Scotland over the past ten years has been a substantial decline in employment in some of the long established plants of major corporations, especially those with mechanical or mechanical engineering orientations. While the explanations of this trend are complex the net effect has been a growing recognition that in order to "guarantee stability of employment (in the foreign sector overall) there would have to be continued pressure to add significantly to the 'feed-stock' of new entrants to offset the employment decline in the integrating and rationalising corporations". The problems in even attempting to maintain the existing overall employment levels in the foreign owned sector are substantial, given the recession conditions, reduced levels of foreign direct investment from the US, the dramatic increase in competition for mobile projects and so on. It is perhaps not surprising, given this environment, that the past year has seen a growing interest in improving the effectiveness of Scottish efforts to attract additional, and develop existing, foreign corporations. Such an evaluation of Scottish practice is long overdue. Nor has this solely been of concern in Scotland since the Select Committee on Welsh Affairs has also been collecting evidence on the same issue in the recent past. The purpose of this paper is to make a critical appraisal of policy towards inward direct investment in Scotland. Having identified the crucial issues, the policy directions are considered in the light both of the findings of the Committee on Scottish Affairs (August 1980) and of the Government response (March 1981). Thereafter a proposed programme of action is examined for both the newly-established 'Locate in Scotland' (LIS) unit and for the UK as a whole over the next few years.