How is Scotland's economy performing - and how can it improve?

How can Scotland's economic performance be improved? It's heading towards two decades of very sluggish growth, and hardly any rise in disposable household income.

That's in common with output from the UK as a whole.

The recent Westminster Budget brought home ever more clearly the problems that arise from trying to tackle rising pressures on public spending and demands on the welfare budget without having a rising tide of prosperity to pay for it.

With growth, there's a race to win a share of an increasingly large pie, where everyone can hope for at least some uplift in living standards and improvements in public services.

Without much growth, the political debate focusses more on how to share a pie that's barely growing in size. And that shifts political choices to fighting over who has to lose so that others can gain.

So what's the evidence on Scotland's economic performance, and where does it have to improve if we're to get back to growth?

Each year, the Scottish Productivity Index, external gives us a dashboard of the most recent available figures, pulled together by economists at the Fraser of Allander Institute in Strathclyde University.

It's published by the series sponsors, CBI Scotland employers forum and law firm Addleshaw Goddard. And it offers some sort of balance of the good, the bad and the middling.

On the more promising side of the ledger, there are some factors that have been engrained over the years, and Scotland's high level of workforce qualification is one.

The flipside to that is that Scotland continues to have a relatively high proportion of people with no qualifications.

But if we're to leverage those higher educational attainment levels, we ought to have good workplace training. And once trained, we ought to utilise those skills effectively.

Both those indicators are flashing red. Workplace training is down.

There is also a significant problem with workers whose skills are under-utilised. The figures aren't the freshest, coming to us from the years 2020 to 2022. They show a rise in the share of the workforce whose skills are not used to the full. That's estimated to have risen to 37% of workers.

There are big regional variations. The sharpest recent increase has been in Ayrshire, rising to 45%, but that's still behind Dumfries and Galloway and west of Scotland, both on nearly half.

Even if you were to ignore all the other constraints on productivity, that is perhaps the starkest. And the CBI itself might wish to ask the question: could this have something to do with the quality of management within its own membership, as well as the public sector?

It's hard to make the most productive use of either your skills or your equipment - say, in manufacturing - if the workplace is a bit dysfunctional.

Other better signs for the economy include the catch-up on digital infrastructure. It remains more of a patchy, rural drawback.

The most positive sign is of increased investment by business - not in workplace training, but in equipment, software, market intelligence or buildings and work spaces.

That's gone above 10% of national output and above the trend rate for the first time since 2005, when the financial sector was pumping money into investment.

It's not what you might expect to find when there's been so much doom and uncertainty around the economy, and when borrowing costs have been heightened.

But this report doesn't break down what kind of investment. It could be that this reflects improved boardroom confidence, or a backlog of projects from the austerity and pandemic years. Think of all the vehicle fleet renewal on the roads.

Or it could be that this is a measure of the vast amount of business investment required for the great energy transition, which will boost such numbers for the next decade and probably longer.

That improved investment figure does not extend to research and development, where business in Scotland tends to leave the public sector to do the heavy lifting through its universities. Scotland lacks the research intensity in product development that could see businesses grow faster.

While there are some very successful sectors competing overseas - whisky springs to mind - the country's export performance is heavily skewed to very few such sectors and companies. Without that wider horizon, it's easier to sit back and provide for domestic demand - so why spend on research?

It's in health that Scotland's economy is most in need of a cure. Some indicators are improving, such as sick leave falling to pre-pandemic levels.

Longer-term ill-health - the kind that keeps people out of the labour market - remains elevated, at a higher level than the rest of the UK, where it's also seen as a problem.

The data on this is not wholly reliable, but nevertheless, it's being treated as one of our more serious challenges. So it makes a big a call on public funding to repair the disconnect with the job search and workplace that blights the chances of so many to get the benefits of work. It also blights the economy.

That choice of where to place public spending in order to get improved productivity out of the economy, leading through to more prosperity and better living standards, is going to be a feature of next year's Holyrood election.

In this Productivity Index report, there's much for the candidates and parties to chew over. It's clear there are no easy or quick fixes. It's less clear, from this publication at least, that there are quick and easy ways to undermine productivity and growth.

The CBI is setting out the challenge. Scotland director Michelle Ferguson observes: "With a Budget in January and elections to Holyrood next year, firms will be looking to the Scottish government for decisive moves on tackling economic inactivity, addressing challenges around skills and training as well as boosting exports.

"If we want higher growth, better wages and improved living standards, we need a plan of action which delivers."

At the Fraser of Allander, Mairi Spowage says: "We have known for many years that the Scottish workforce has higher levels of inactivity due to illness or disability.

"This means that policy initiatives have to consider a much wider range of issues than simply economic development or investment if we are to improve productivity of Scottish workers."

Nobel economics laureate Paul Krugman has observed of productivity: "It's not everything, but in the long run, it's nearly everything".

There are alternatives, however, to measuring a nation's economic success by how much a paid worker adds value in the course of an average hour worked.

Wellbeing is one that gets a lot of attention. It can improve quality of life, which is not to be dismissed lightly. But does it pay increasing bills from an ageing population and climate change, and does it improve prosperity?

These may seem like abstract economic concepts, but they directly reflect factors in the real world that determine our living standards and drive our politics.