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Challenges for the new government: relaunching productivity that has been stagnant for twenty years, creating more innovation and jobs

The Green New Deal is meant to cut the tax wedge in order to benefit workers, minimum wage and measures for business innovation in association with collective bargaining. There are efforts to kick-start the Italian economy set out in Prime Minister Conte’s second government programme. With the aim of keeping public finances under control and ties close with the EU, it plans a review of the rules and restraints (as suggested by the Quirinale and shared by the Commission in Brussels, the latter chaired by Ursula von der Leyen and featuring Italian Paolo Gentiloni as head of Economic Affairs). During the previous yellow-green government (Conte was there too, but less of a leader), everything concentrated on welfare, early pensions and breaking up the EU rules for public spending, increasing deficits and debt. Even so, carefully reading the speeches, programmes and declarations of the leaders of the newly allied parties (PD, M5Stelle and LEU), there remain programmatic shortcomings and the absence of a real economic policy strategy to kick-start growth. It lacks a series of choices capable of tackling one of the essential crossroads in the economy: low productivity, both in the general system and hours worked.

The starting point is to acknowledge that the country is stagnant (ISTAT documented this on 6 September, registering “zero growth” in the first half of 2019 and “a weakness of production rates” as reflected in employment trends). We are behind other EU countries, even those (Spain, Portugal) that were once in crisis. The difficulties in the German economy and the problems in the automotive sector are effecting us strongly and we are paying a heavy price as an exporting country for the trade and currency tensions between the US and China. But we are also suffering from our own internal limitations, from the quality of our administrative and production system.

Italian productivity – this is the crossroad – has been flat for twenty years. Actually it has gotten worse and is receding. Using 100 in 2010 as a base, Eurostat documents that productivity per employee in the euro zone (19 countries) rose to 105.1 in 2018, while in Italy it fell to 98. We are losing competitiveness. The productive apparatus is ageing and getting worse, while international competitiveness is radically changing under pressure from transformations induced by the spread of all things digital and by the great leaps forward of the knowledge economy.

Without even addressing the issues of productivity and competitiveness, no growth is possible and there are no opportunities for creating either prosperity or jobs. The same stimuli for income and consumption, and the policies that lead to low taxes can’t have significant effects in terms of development. Experience from recent years proves this.

We therefore need a development-oriented economic policy. How? The possible directions have been known for a long time, but not applied, especially by those who preferred the propaganda of “easy” spending and welfare rather than far-sighted reforms. Intangible infrastructures (hi-tech, digital) and communication and service materials (high-speed railways, ports, airports, Genoa’s Gronda, motorways, etc:  precisely those hindered by one of the parties that was and still is in government). It requires efficient public administration (in any case not “emptied” and semi-paralysed from “quota 100” for pensions). Quality, widespread training for long courses beyond normal school cycles. Research. Tax incentives for companies that innovate and grow, in the wake of what had already been done by the Letta, Renzi and Gentiloni governments. An ambitious programme of public investment and a stimulus for private investments, “euro bonds” to renew and strengthen the Italian productive apparatus, in quantity and quality (is this, the “Green New Deal” announced by Conte?).

One point must be clear: there is no recovery without business. And there is no business growth except with a future based on trust, security and stability.

Over the years, many Italian companies have done their job well, investing to innovate, grow, conquer markets in the world and create prosperity and jobs. They are the key lever for economic policy that stimulates growth. In many industries, Italy continues to be a European avant-garde: mechatronics, pharmaceutical, chemical, rubber-plastic, but also the three bigs of the Made in Italy tradition: food, furniture and clothing. A competent economist like Marco Fortis is right when he speaks (Il Foglio, 16 July) of a “GDP1” (that of individuals and industries in the North) and of a “GDP2” (that of the state and the South), where dynamic and competitive productivity is flanked by an inability to produce wealth and continuous failures. Of course, it’s not a question of playing with geographical contrasts or claiming space for the “party of the North” against the South. Rather it is a serious conversation about development and setting policies that place businesses and manufacturing companies in the centre in order to restart the virtuous cycle of growth and new jobs.

To sum up, the reasons for low productivity lie in the public sector and in (small and very small) private companies that have not been able to innovate and grow, therefore they ask for protection, subsidies and aid. This, of course, is what a good economic development policy should not do.

The Green New Deal is meant to cut the tax wedge in order to benefit workers, minimum wage and measures for business innovation in association with collective bargaining. There are efforts to kick-start the Italian economy set out in Prime Minister Conte’s second government programme. With the aim of keeping public finances under control and ties close with the EU, it plans a review of the rules and restraints (as suggested by the Quirinale and shared by the Commission in Brussels, the latter chaired by Ursula von der Leyen and featuring Italian Paolo Gentiloni as head of Economic Affairs). During the previous yellow-green government (Conte was there too, but less of a leader), everything concentrated on welfare, early pensions and breaking up the EU rules for public spending, increasing deficits and debt. Even so, carefully reading the speeches, programmes and declarations of the leaders of the newly allied parties (PD, M5Stelle and LEU), there remain programmatic shortcomings and the absence of a real economic policy strategy to kick-start growth. It lacks a series of choices capable of tackling one of the essential crossroads in the economy: low productivity, both in the general system and hours worked.

The starting point is to acknowledge that the country is stagnant (ISTAT documented this on 6 September, registering “zero growth” in the first half of 2019 and “a weakness of production rates” as reflected in employment trends). We are behind other EU countries, even those (Spain, Portugal) that were once in crisis. The difficulties in the German economy and the problems in the automotive sector are effecting us strongly and we are paying a heavy price as an exporting country for the trade and currency tensions between the US and China. But we are also suffering from our own internal limitations, from the quality of our administrative and production system.

Italian productivity – this is the crossroad – has been flat for twenty years. Actually it has gotten worse and is receding. Using 100 in 2010 as a base, Eurostat documents that productivity per employee in the euro zone (19 countries) rose to 105.1 in 2018, while in Italy it fell to 98. We are losing competitiveness. The productive apparatus is ageing and getting worse, while international competitiveness is radically changing under pressure from transformations induced by the spread of all things digital and by the great leaps forward of the knowledge economy.

Without even addressing the issues of productivity and competitiveness, no growth is possible and there are no opportunities for creating either prosperity or jobs. The same stimuli for income and consumption, and the policies that lead to low taxes can’t have significant effects in terms of development. Experience from recent years proves this.

We therefore need a development-oriented economic policy. How? The possible directions have been known for a long time, but not applied, especially by those who preferred the propaganda of “easy” spending and welfare rather than far-sighted reforms. Intangible infrastructures (hi-tech, digital) and communication and service materials (high-speed railways, ports, airports, Genoa’s Gronda, motorways, etc:  precisely those hindered by one of the parties that was and still is in government). It requires efficient public administration (in any case not “emptied” and semi-paralysed from “quota 100” for pensions). Quality, widespread training for long courses beyond normal school cycles. Research. Tax incentives for companies that innovate and grow, in the wake of what had already been done by the Letta, Renzi and Gentiloni governments. An ambitious programme of public investment and a stimulus for private investments, “euro bonds” to renew and strengthen the Italian productive apparatus, in quantity and quality (is this, the “Green New Deal” announced by Conte?).

One point must be clear: there is no recovery without business. And there is no business growth except with a future based on trust, security and stability.

Over the years, many Italian companies have done their job well, investing to innovate, grow, conquer markets in the world and create prosperity and jobs. They are the key lever for economic policy that stimulates growth. In many industries, Italy continues to be a European avant-garde: mechatronics, pharmaceutical, chemical, rubber-plastic, but also the three bigs of the Made in Italy tradition: food, furniture and clothing. A competent economist like Marco Fortis is right when he speaks (Il Foglio, 16 July) of a “GDP1” (that of individuals and industries in the North) and of a “GDP2” (that of the state and the South), where dynamic and competitive productivity is flanked by an inability to produce wealth and continuous failures. Of course, it’s not a question of playing with geographical contrasts or claiming space for the “party of the North” against the South. Rather it is a serious conversation about development and setting policies that place businesses and manufacturing companies in the centre in order to restart the virtuous cycle of growth and new jobs.

To sum up, the reasons for low productivity lie in the public sector and in (small and very small) private companies that have not been able to innovate and grow, therefore they ask for protection, subsidies and aid. This, of course, is what a good economic development policy should not do.