It’s called “innovation capital”, a synthesis of people skills, cutting-edge technologies, and infrastructure, and it’s a determinant factor in a nation’s productivity level and it’s ability to compete internationally. It is also yet another area in which Italy is lagging behind the rest of Europe, according to a study just published by McKinsey (as reported in Corriere della Sera on 28 June). We do have innovative, competitive enterprises thanks to our flexible (“resilient”, adaptive to change, economists would say) culture of enterprise, which is recognised around the world, and our manufacturing (machinery automation, food and agriculture, fashion and interior design, automotive, chemicals and rubber) is one of the best worldwide. And yet Italy has, for some time now, been struggling to post any significant growth, and our “production excellence” is having a hard time keeping businesses and the nation as a whole competitive in today’s rapidly changing marketplace. Why? Because of our lack of “innovation capital”.
The McKinsey study explains that 16% of innovation capital is made up of public and private-sector investment in high-tech infrastructures (such as broadband). Then at 60% of the total there is “knowledge capital” – research and development, software, architecture and design, marketing and advertising, financial innovation, culture spending, and so on. Finally, 24% is in the form of “human capital” – university education, career training and investments in organisational improvement. Within the sixteen nations (U.S., U.K., Sweden, Germany, France, Spain, Italy, Denmark, etc.) analysed as part of the McKinsey study, all of this innovation capital is worth a total of 14 trillion dollars. This rich “economy of the intangible” accounts for 42% of their GDP and grew at a rate of 4.6% annually from 1995 to 2007. Of these three types of capital, the one that provides the greatest return is human capital, coming in at 40% greater than the return on knowledge capital.
Over the extended period from 1995 to 2007, innovation capital accounted for 53% of the growth in productivity, so it clearly played a crucial role. But Italy lagged behind, with production increasing by just 0.5% annually, as compared to growth in Germany of 1.7% and 2.8% in the U.K. Why? Looking at the various nations individually, we can see the differences more clearly. In Italy, innovation capital came in at just 25% of GDP, whereas it totalled 34% in Germany, 35% in France, 40% in the U.K., and 51% in the U.S. “Italy isn’t investing in the future,” was the assessment of Leonardo Totaro, managing director of McKinsey for the Mediterranean region. There is no emphasis on innovation. Education and know-how is being ignored (as can also be seen in the latest figures on investment in research and development, which reached just 1% of GDP, whereas public funding for cultural initiatives at the national, regional and local levels fell from €7.5 billion to €5.8 billion in 2012). In other words, Italy is becoming dumber, less innovative, less productive and less competitive.
So we are seeing a trend of increasing marginalisation that needs to be turned around through reforms that place the emphasis on innovation capital, and on human capital in particular – something that Italy has a wealth of, but is unable to take full advantage of. And how? McKinsey shows us the way: remove barriers to international investment (that brings in research and innovation); stimulate businesses and organisations that conduct research, including through tax incentives; better protect patents and other intellectual property rights; facilitate new business, and nurture a robust culture of enterprise based on the recognition of merit. In other words, innovate to grow. We’ve known the formula for some time, so now we have to make it a part of public policy.