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The spin-off benefits of an imaginative grants system

February 15, 2001

Giving universities a share of cash for new graduate jobs would boost knowledge economy

 

WHAT KIND OF NEW economy do we want for Scotland, and what kind of tools do we need to make it happen? If the only tool you have is a hammer, then most objects will tend to look like a nail. No joiner would hope to get very far with only a hammer, but recent Scottish economic development has had to manage with one main type of industrial support tool.

 

Regional Selective Assistance (RSA) grants are the mechanism by which new business are encouraged in Scotland. They have underpinned the ‘transition agenda’ – the successful inward investment policies of the 80s and 90s which has seen old industries such as steel, shipbuilding and mining replaced by new sunrise businesses such as electronics, high value manufacturing, and call centres.

 

RSA grants offer financial assistance to companies to encourage them to invest in infrastructure and create jobs in areas of high unemployment or economic disadvantage. The triggers for receiving RSA are the amount of capital investment and the numbers of new jobs created, and so an RSA grant is particularly suitable for a major new manufacturing plant, such as might be brought to Scotland by a multinational corporation such as NEC, Motorola, or Sun.

 

But whereas an RSA grant discriminates in favour of the area, it does not discriminate in favour of the type of work. Low-value screwdriver or call-centre jobs are just as valuable under the RSA banner as high-quality research jobs in, say, software or biotechnology. And because it is biased towards capital investment, the RSA grant tends to favour traditional manufacturing plants, rather than the service or research-based businesses more appropriate to the modern global economy.

 

A successful RSA application also needs to show that the grant will be necessary to allow the project to go ahead, and so huge multinational corporations have become adept at putting forward the case that, without the RSA grant, they would be forced to build their new plant in another country.

 

Unfortunately, it is not at all easy for homegrown Scottish companies to play by these rules. One Fife-based company I know was awarded a £100,000 RSA grant last year as it was being formed. One year later, the company has created over 50 jobs, almost all graduate-level, and opened offices in London, New York and Tokyo to service their fast growing export markets around the world. Great stuff, you might think. Exactly the kind of new knowledge economy company that Scotland must create to stay competitive.

 

So how about the RSA grant now. Sorry – the company has funded its growth by a venture capital investment. As a result it can no longer show that it needs to have the RSA grant and it has been withdrawn. The fact that the company had to sell a major stake in its future to raise this investment money cuts no ice. As far as the government are concerned, the tiny start-up Scottish company no longer needs the money it was awarded, whilst the $50Bn multi-national corporation that is setting up a Scottish based plant needs every penny. Barking mad maybe, but that’s how it actually is.

 

Now there are signs that change might be underway. The Executive has renewed the RSA system for only 12 months and a search is on for a replacement. So I have a modest proposal…

 

Let’s award £10,000 per new graduate level job created, whether it be inward investment or an indigenous team – encouraging high-value employment. Even better, split the ‘bounty’ 50/50 - £5,000 to the new company and £5,000 to the university or research institute it spun out off, say for the first three years.

 

Thus a new start-up University spin-off company which creates 50 graduate jobs would attract £250,000 of grant to the company, and a further £250,000 grant to the University from which it came.

 

Universities are self-governing organisations, but one thing is for sure; if you really want them to change their behaviour, you have to dangle a bribe. Most Scottish entrepreneurs will give testimony to the difficulty of organising a spin-off company out off a Scottish University. “Never again” is a common cry.

 

So lets bribe them with this new grant. The more spin-off companies they can claim credit for, the more money they can get. I confidently predict that Scotland will soon top the league table for University spin-out companies. Suddenly the complexities in dealing with University commercialisation officers will melt away and they will, many of them for the first time, start concentrating on what should be their true purpose in life – ensuring that Scotland creates powerful new knowledge-based businesses.

 

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