The Key Ideas

#37 Create a national strategy for supporting micro-, small- and medium-scale manufacturing

Two linked areas where there are very substantial opportunities for interventions to stimulate nationwide economic activity are in food production and the small and medium scale manufacturing sector. In both cases Scotland has enormous potential and in both cases there are similar barriers to achieving that potential.

In food and drink, Scotland has a globally recognised reputation for quality. It also has much more potential for supplying Scotland with homegrown and locally-produced food. One of the models which demonstrates this potential is the remarkable success of the Scottish craft brewery industry. Beginning with very little, Scotland now has a booming industry made up of small, locally-owned brewing companies producing high-quality beers which are sold successfully to Scottish customers. This is high-skill work and involves effective and often local supply chains.

This model can be replicated in other areas such as artisan bread baking, cheese-making, and a range of other craft food making. But beyond this, there is also the scope for many more small and medium-scale farmers and other food producers (from game to seafood to cured meats) to sell quality food products directly to Scottish customers, and to export high value products. This can produce substantial economic benefit to rural areas but also opens up opportunities in craft food processing right across the country (and new technologies such as developments in assisted growing using grow-lights can extend both seasonal and geographic availability).


This same model of small-to-medium disaggregated businesses in high-value production applies to design and manufacture. Scotland is a design-rich country with world-class art schools and universities. There is already a developing design and small manufacturing sector in Scotland. It is producing everything from clothing to furniture to technology to household goods. It is also working to develop good connections and effective supply chains. Technological developments mean that the economics of micro-, small- and medium-scale manufacture are viable (computer-controlled technologies enable activities at a small scale which once would only have been possible in a large factory). And the quality of Scottish-designed products is high, creating desirable consumer goods.

These two sectors create exactly the kind of economic activity that Scotland should aspire to. It is high-skill and high-quality. It is dominated by large numbers of small businesses with strong ethical values, good employment relationships, and comparatively high pay. Many of them can operate in a disaggregated way, meaning any placerural or urban, small town or citycan aim to develop a thriving local economy in these modern industries. They generally have good environmental performance, encourage consumers to buy quality which lasts, are highly innovative, and have very substantial growth potential, including in international export markets. They make Scotland an even more attractive destination for tourists and within these businesses are visionary (and often young) designers, manufacturers, and managers who, if we can keep them and help them grow their businesses, offer great promise for Scotland's future economy and society. And they capture all of their economic value in the Scottish economy, for the Scottish economy.

But both face similar barriers. The strategy of 'let them do as they please' actively rigs the market against these industries. In effect the means of distribution (the shops in which you can buy these types of goods) are a cartel which controls what goods people have access to and what price will be paid to producers and manufacturers. The ideological theory behind this is that these big cartel players are inherently more efficient because of their size. And they are efficient, but the benefits of that efficiency do not always flow to customers as much as to shareholdersand the price of efficiency is almost always borne by the producers.

To take one example, there have been occasions on which Scottish potato growers have been paid five pence per kilo for their produce. This has then been sold in supermarkets within an hour of where they were grown (transport costs being very little) for £1 a kilo. The position of milk producers is well known. But we may not be aware the extent to which imported goods force Scottish goods out of the market, not because they are cheaper or better but because it suits the economics of supermarkets. This is both effectively monopsony (an economic term which refers to a market where there is only one buyer who can dictate the price paid to producers) and can be close to monopoly (a market where there is only one seller who can dictate the terms to customers). Which means that the vast majority of the national means of sourcing and distributing food has been left in the hands of four supermarket corporationsand similar problems are encountered in other areas of retail.

So by far the biggest barrier to the development of these sectors is that they are locked out of the market for domestic customers and are forced to market themselves as niche or specialist and cannot easily achieve a high street presence. Allowing the access to Scotland's consumer markets to be so overwhelmingly controlled in ways which harm Scotland's manufacturing sector is not wise. To tackle this Scotland could set up a National Distribution and Export Company to help small producers in the logistics of achieving the benefits of critical mass which would enable them to compete fairly and on an even playing field with corporations.

Such a company would need to be highly innovative in how it is designed and in how it addresses the problems of market access. One approach might be to develop very efficient Scotland-wide delivery systems linked to online ordering. If there was a rapid, affordable home delivery network designed specifically to support domestic manufacturing and food production it would rapidly increase the size of market for these producers. Another might be to develop 'hub shops'. These would be open-access facilities in every town where producers could bring their produce and products for sale. Each producer could be identified by a barcode on products. Shoppers would simply put products in their basket like in any supermarket and as they were scanned at the checkout the price of the goods would be transferred straight to producers' bank accounts (minus a fee to cover the running of the shop). Subject to quality standards, anyone could become a registered supplier which means that cottage industries could develop. There may be other even more innovative means of getting Scottish goods to Scottish customers, and we must explore these options to grow these industries.

Another area where critical mass would help is in accessing export markets. Already small suppliers have to turn down export orders because while the order may be very substantial for the producer, they are just too small to make the economics of exporting viable. If exporting can be done not on the basis of individual producers but on the basis of syndicates of producers organised through a national export company, it should be possible to make those export markets viableand in so doing, more Scottish suppliers currently exporting through deals with intermediaries could develop direct exporting links of their own.

A second factor where collective intervention could make a substantial difference is in the provision of processing facilities. Many small and medium producers struggle to expand because of the barrier of infrastructure. They may require access to facilities, but not such that they are able to make the full investment on their own. For example, if a Scottish apple grower wished to juice all of the apples produced, it could afford to do it via very small-scale equipment that would make the task very time-consuming and inefficient, or via a large facility which it might only use for one or two days a year. And yet a mobile processing facility can be built on a lorry which could serve many growers across the nation over the course of a season, making the economics viable again. There are already wonderful examples of open access, shared manufacturing facilities and they are already making a differencebut they are insufficient to stimulate the scale of expansion this sector is capable of. The job of providing this 'right size' infrastructure should be given to Scotland's economic development agencies and to local authorities, which should create this infrastructure according to local demand, the scope for developing local industries, and the potential for future industries in the region.

Similar support could be offered collectively by economic development agencies to help achieve critical mass on the services (particularly the legal and financial services) which these types of businesses need. The process of securing protection for intellectual property, trademark protection, and patents can be complex, expensive, and time-consuming. Big companies have in-house legal teams which deliver services such as these and this gives them a substantial advantage over smaller competitors. Again, collective provision can level the playing field and enable smaller businesses to compete.