SCOTTISH EXECUTIVE RESPONSE TO THE ENTERPRISE AND CULTURE COMMITTEE FINAL REPORT EC/S2/06/R5 ON
BUSINESS GROWTH - THE NEXT 10 YEARS
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The Scottish Executive recognises the significant work the Enterprise and Culture Committee has undertaken during its Business Growth Inquiry and welcomes this report as an important contribution to the debate on economic policy development both in the short and long term.
Growing the economy is the Scottish Executive's top priority and any evidence which helps to strengthen our approach is welcome. The Scottish Executive particularly welcomes the fact that the Committee recognises and supports a wide range of our existing business growth priorities and actions.
This document reiterates briefly the Scottish Executive's policy framework for economic growth and the market rationale for public sector intervention in taking forward our key business growth policies and priorities. It then responds in detail to each of the Committee's individual recommendations. The response to the main recommendations/conclusions are in Annex A, and the remainder of the recommendations and key points are responded to in Annex B, under the same thematic basis adopted by the Enterprise and Culture Committee.
This response to the Committee needs to be read in conjunction with our original evidence paper. In that document, the Scottish Executive set out the overarching strategy for increasing economic growth through dynamic competitiveness and, in particular, higher productivity as laid out in The Framework for Economic Development in Scotland (FEDS). FEDS is based on the underlying principle that growth is primarily determined by the success of private enterprises that can compete effectively both domestically and throughout the world. While government can make an important contribution by creating an environment where enterprise can flourish, it is the dynamism of the private sector on which future prosperity depends. The Scottish Executive's role is therefore to complement private enterprise and encourage increased productivity and competitiveness.
FEDS underpins the Scottish Executive's enterprise strategy, A Smart Successful Scotland (SSS), which aims to contribute to growth and productivity by focusing in on aspects of FEDS that are key to enterprise, under three broad organising themes - growing businesses, learning and skills, and global connections. All three are of course fundamental to Scotland's business growth performance.Reasons for Public Sector intervention
It is also important to recognise the rationale which underpins the case for public sector intervention in the economy - based on the concept of "market failure". Market failure describes inefficiencies which arise due to imperfections in the market system. There are various types of market failure which may justify interventions, for example to aid small and growing firms. The background analysis to FEDS  examines market failure in various policy contexts.
Establishing the existence of market failure is however by no means wholly sufficient to justify public involvement. This requires that intervention should aim to tackle the causes rather than the consequences of market failure. The issue is where public intervention is most effective.
Market failure is not the only justification for government intervention; there may be equity grounds or other reasons. Government can intervene to improve the business environment generally, be that to encourage positive attitudes to entrepreneurship or improve transport infrastructure.
Our response to the Committee's recommendations should be read in conjunction with this overarching approach and these key principles for public sector intervention in the economy.
The Scottish Executive is very happy to work with the Enterprise and Culture Committee to do more for business growth in Scotland over the next 10 years and beyond. We welcome the Committee's proposals - some of which we accept, some of which we were already acting on, and some of which we reject. The Committee's report has made an important contribution to the overall debate on Scotland's economic future and will no doubt stimulate further healthy debate.
We are determined to deliver real action and real progress - making a real difference to stimulating business growth and ensuring the right conditions are in place to increase productivity and improve competitiveness.
 "Background Analysis to the Framework for Economic Development in Scotland"; Scottish Executive, 2004.