7. Final Remarks

7.1 The fragility of economy

7.1.1  Like all rural areas, the Western Isles has a unique and fragile economy. Its problems include:

·  remoteness, reflected in high transport costs;

·  dependence on a relatively few basic economic sectors, several showing marked seasonality and/or vulnerability to economic cycles and shocks;

·  loss of economically active population;

·  dependence on the public sector for employment, transfer payments such as social security and state pensions, and capital grants.

 

7.1.2  In addition to the long-run structural decline in several of its traditional sectors (in particular agriculture and textiles), the economy has had to come to terms with the globalisation of basic commodity and manufacturing production, which has resulted in increased competition for undifferentiated and low value products. In response, the region (like others) has increasingly been trying to exploit its unique characteristics in terms of environment and culture. One indication of its success in this respect is the continuing growth of income from tourism (see chapter 4).

 

7.1.3  The Scottish economy as a whole is facing very similar issues to the Western Isles but, due to its size, is more able to cushion itself from adverse changes in the economic environment.  In comparison, the Western Isles economy is far more sensitive to economic downturns (such as the loss of a major employer) and is far more likely to “overheat” when circumstances change for the better (as reflected in the house price increases associated with recent in-migration).

 

7.1.4  The rural development literature is increasingly stressing the role of intangible as well as tangible factors in explaining the development trajectories of regions where intangible factors relate to the social and cultural capital of a region and the strength of internal and external networks of local business people and policy makers. Certain changes in the political environment, in particular, the increased encouragement of community involvement in developments (for example through the Land Reform Act) and the ongoing dispersion of public sector activity, will have helped to strengthen such intangible factors in the Western Isles. Qualitative findings from this study, coming from the key informant interviews, interviews with local business managers and households, suggest that the Western Isles is better placed to take advantage of opportunities than was the case when the previous study was conducted at the end of the 1990s.

 

7.2 Key issues for businesses participating in the survey

7.2.1  Analysis in Chapters 4 and 5 of this report point to several changes that have occurred in the Western Isles economy in terms of sectoral contributions to employment and GRDP.  Some sectors have grown in importance since the previous 1997 study, others declined. However these changes at sector level mask many other changes that have occurred at an individual firm level. 

 

7.2.2  Based on the responses to business survey, this section considers some of the changes that have affected and issues facing individual firms in the region.  Responses to the open-ended questions in the business survey and analysis of the 62 businesses that participated in both the 1997 and 2003 study, indicated that these have been considerable.

 

Changes at the firm level highly variable  

7.2.3  Around two-thirds of respondents to the business survey said that there had been a key development or a significant change in the operation of their business over the past six years.  Changes at the business level varied enormously.  There were several instances of firms contracting while their sector was undergoing expansion. Similarly, there were some cases of businesses doing very well over the period despite, at the regional level, their sector declining in importance.  The responses thus confirmed that in many cases, sectoral trends within the region are determined by the performance of a relatively few large businesses.  This relates to another point made by many respondents, that it was the characteristics of the region (including its size and remoteness) which made it particularly prone to displacement effects following the establishment or growth of a business within a sector.

 

Technological change

7.2.4  Technological developments (in particular improvements in communication technologies) were viewed as having enhanced the relative competitiveness of Western Isles businesses over the period, reducing the problem of the geographical remoteness of the region. Changes included on-line order and payment for goods and services, the creation of an internet shop window, computerisation of accounts and bills leading to better relationships with customers, and, more specifically, the use of GIS leading to better communication between factory and fishermen.  On a more negative note, a variety of different kinds of businesses said that tighter regulations were making it harder to compete.

 

Labour skills shortages

7.2.5  An overwhelming majority of respondents felt there were problems with the local labour market which were inhibiting economic development. A wide number of particular skills shortages were mentioned from professionals such as lawyers, doctors, specialist lecturers/teachers, allied health professionals to semi-skilled manual work and workers who “did not mind getting their hands dirty”.  

 

7.2.6  Many businesses said they had difficulty in finding employees with previous experience or the skills that they required and, as a result were required to train employees on the job and bear the costs associated with such training. It was not uncommon for employees to leave a job once trained and to seek work on the mainland.  Some respondents stressed the problems of having to compete for the same pool of skilled employees while particularly in the case of the traditional sectors, the key issue seemed to be a lack of successors.

 

Transport infrastructure

 

7.2.7  With regard to transport, the extra ferry links and the freight ferry were felt to have been extremely beneficial to the local economy, with many respondents suggesting that the increase in ferry links had brought substantial positive benefits to their business.  Many respondents went further, suggesting they would like more sea and air links developed.

 

Regional differences

 

7.2.8  In general, respondents suggested that the economic environment in the region is strong at present although there were some regional differences in this respect.  In particular, while the view was that the economy was particularly strong in Barra (since the increased ferry links) and Lewis, there were suggestions that the economy in South Uist was weaker.  Some businesses felt that too high a proportion of business support services went to businesses in Harris and Lewis. 

 

7.2.9  Finally, there were suggestions that developments in the housing market were leading to intra-regional effects in terms of population movements, with in-migrants tending to locate in the more peripheral parts of the region, and locals re-locating closer to or in Stornoway.  There was however no suggestion that these shifts were mirroring or giving rise to similar shifts in employment location. 

 

7.3 Study limitations and future research requirements

7.3.1 This study has been based on a variety of data sources including extensive primary survey work amongst the businesses and households of the Western Isles, and a variety of secondary sources. The SAM approach has enabled a wide-ranging analysis to be pursued within a comprehensive and internally consistent economic framework, but its limitations should be recognised.

7.3.2 The SAM multiplier model which forms the basis of  Chapters 5 and 6 of the report ignores possible supply side constraints in the economy, instead assuming that following an injection to the economy, there is surplus employment and industrial capacity available as and when required to satisfy new sectoral demands.  In other words, it ignores possible adverse effects in terms of labour shortages and/or wage increases associated with the increased activity, physical capacity and/or capital constraints on business activities. 

7.3.3 The basic SAM model[1] also assumes that household consumption patterns and production technologies remain identical to that observed in the base year, 2003. For example, it is assumed that, in response to a 50% increase in export demand for their output, textile producers would increase the use of all their inputs and their labour by exactly 50% and input proportions would remain fixed. Similarly, a doubling of income of a Western Isles household is assumed to result in a doubling of all consumption expenditures etc..  Basic economic theory however suggests that business and household behaviour is more complicated than this and, as a consequence the results from the model may be overstated. 

7.3.4 Despite these limitations, the approach offers a means of understanding more about the nature of the Western Isles economy and identifying the important interactions occurring within its boundaries.  This report has focused on using the SAM to identify changes that have occurred in the economy since 1997 and, in some cases, since 1988/89. It also provides a strong basis for more sophisticated and narrowly focussed investigations into a number of areas.  For example, it would provide a good starting point for investigating further the geographical dispersion of economic activity within the region, with initial indications suggesting that the islands may be following different development trajectories.  Through appropriate extension, the model could be used to investigate the implications for the local housing market of different economic developments or the benefits arising from further improvements in transport infrastructure.   Finally, the model provides a strong basis for exploring further the linkages between the Western Isles, other Scottish regions and beyond.  A greater understanding of such inter-regional linkages would be useful basis for identifying new development opportunities.