Introduction
The Italian economy has been dragging itself wearily on instrumental research into the causes of its slowdown for twenty years, but there is always some reasonable justification. There was and is unanimous agreement on the need to resume growth and on the strategies: increase productivity, reduce taxes, improve the efficiency of the markets, increase competitiveness with interventions on the labor market, reduce the public debt, modify the expectations of speculation on the stability of the euro, etc. The agreement ends when it enters into the merits of who, how and what results are expected.
Italy has followed the evolution of the EMU but its fall has been more pronounced and the rebound only partial. In 2012 the level of GDP at constant prices was 6,4% lower than in 2007 and in the last twenty years it has increased by only 20% (+0,8% per year).
The international aspects
The weight of the BRICS (Brazil, Russia, India, China, this group also includes the other late comer countries) in international trade has increased and has highlighted a situation of overproduction in traditional manufacturing activities, putting the industrialized countries in crisis with the reduction of prices . Another signal for countries like Italy are the relative prices between manufactured goods and raw materials, the dynamics of which have benefited the latter. The problem of real and monetary imbalances also exists within the EMU since twelve years after the relationship between the individual national currencies and the euro was fixed, there is an implicit overestimation of the purchasing power of the countries in deficit and a undervaluation of the euro against the mark. For the euro area there are three solutions: a) the country with a surplus finances the country with a deficit to allow the adjustment of productivity and wages; b) the surplus country increases its internal demand and the deficit countries reduce their demand but for a limited period to avoid a spin-down of their economies; c) deficit countries improve their competitiveness by increasing productivity and the reallocation of resources but with a considerable effort in innovation.
The absence of one of these solutions risks provoking the disintegration of the EMU, which is also desired by some political forces, businesses and banks inside and outside the Union. Looking for the culprits is useless in crisis situations that impose attention on survival.
What paradigm
The European Commission, individual governments and the financial markets have adopted a very simple economic analysis scheme but unfortunately confused in the identification of causal links and totally detached from potential GDP. In summary, the scheme is the sum, with the respective signs, of the monetary imbalances between savings and investment of households, businesses and public administrations and the result is the imbalance of the current account balance. To bring the external accounts back into balance (thus eliminating the real overvaluation of the euro for Italy) it is necessary to increase savings with respect to investment and/or reduce public debt. Private individuals and Public Administration interact, for example an increase in the interest rate to reduce the external deficit favors savings and depresses investments but this reduces effective demand and therefore the GDP and also increases public spending for interest and therefore the public deficit.
The resulting GDP will be lower than expected and the same will be for expected profits and investments and there is therefore the risk of a spiral into the crisis. A similar embarrassment is created by the containment of public expenditure or the increase in revenues and if deflation continues over time expectations worsen and therefore focusing only on the rebalancing of balances it is difficult to activate the way out of the crisis.
The scheme referred to applies well to a situation of excess demand but not so well if the problem is competitiveness with foreign countries. In particular, the liberal scheme neglects the functional distribution of added value between profits, wages, interest and rents but price stability is preserved if the wage increase is compatible with the increase in productivity, while the increase in profits and of those expected should induce entrepreneurs to invest and therefore to innovate.
In the context of the EMU, the synthesis of an imbalance between the dynamics of productivity and wages is not inflation as observed until the beginning of the nineties but unemployment and there is the risk of causing a negative change of GDP which shifts the distribution of added value: a) from manufacturing to the tertiary sector because the tertiary sector is a sector protected from foreign competition b) from profits to wages due to the relative rigidity of wages and employment c) from profit to rent because firms in protected sectors (services and monopolies) defend their profit rate and react to the reduction in revenues with a price increase, thus worsening the underemployment imbalance.
Having ascertained that internal and external stability is the primary objective for the EMU countries and that the call for economic growth is only a politically necessary but not a priority act, if one intends to increase real production, it must increase labor productivity and/ or employment, at the same rate of profit, but what productivity?
The structural productivity of labor depends on the available productive capital, the professionalism of the work, technological progress and improvements in products, processes and organization (ie innovation). Short-term productivity depends on aggregate demand and on the trend of the cycle, present and expected, therefore a deflationary policy, in the short term, decreases cyclical productivity and therefore total productivity which is the weighted sum of the two productivity. The increase in productivity, during a deflationary phase, is obtained only with the closure of marginal plants and the dismissal of less productive personnel, ie by intervening on structural productivity.
Another argument related to relative prices indicates that with technological innovation a part of the capital becomes obsolete and therefore also in this case productivity increases only with the closure of the plants (e.g. closure of companies not equipped with ICT services, or with plants energy intensive). There is also a technological obsolescence of the entrepreneur and/or manager similar to that which weighs on capital and labor and the market should signal this but these entrepreneurial rigidities have been known for almost twenty years.
Having analyzed the issue of productivity, the other element that influences competitiveness is the cost of labour. The wage and resulting employment depend on the demand and supply of labour, the first influenced by technology and the organization of the company, the second by the state of necessity, the economic and social role of women, the professionalism of the worker, not to mention immigration, emigration, market power of the worker and the entrepreneur and their respective unions, etc. The height of the tax wedge between the cost of labor and the worker's paycheck assumes importance for competitiveness and therefore for employment. All these elements contribute to determining the activity rate, job segmentation, the social reputation of the unemployed but also the size of the shadow economy.
Technological progress produces a mismatch between labor supply and demand, ie between the professionalism required by the company and the professionalism offered by the worker. This unemployment therefore has a cause external to the market and the cost is paid above all by the worker who is said not to be professionally able to use the new technologies even if a few months of training would be enough to fill the professional gap for the majority of jobs and of the workers involved.
The exit from the crisis
A first step towards recovery is the recovery of the 7% lost in GDP in the last five years, not an ambitious goal but difficult to achieve in the short term. Productivity should increase by 3% per year, unemployment should remain constant, the accumulation rate increase by 2 points and the balance of the Bpc recover almost 3 percentage points in relation to GDP. The reference indicators for the five years preceding the crisis are: GDP growth (1% per year), stable productivity, unemployment rate (7%), accumulation rate (21%), Bpc (-1,4% of GDP), nothing exciting.
In the next two years there will be no structural changes in the capital endowment nor in the distance between the cyclical GDP and the potential GDP, but it is hoped that we can at least reverse the sign of expectations. The start of this process must be given by companies by identifying innovations and making investments, at least partly financed by banks and financial markets. The next step is the increase in structural productivity to which the exit of marginal firms is algebraically added.
The increase in efficiency and innovations allow for an increase in Italian exports and a reduction in competitive imports and therefore wages, profits and domestic demand grow. With the increase in production, cyclical productivity and employment increase. The weak point of the scheme is the service sector with its revenues but it will not be possible to make the tertiary sector efficient until it is clear that manufacturing and services, in the near future, must be complementary especially in innovation processes. It is imperative to transfer efficiency from manufacturing to services and to arouse attention to customer demand and satisfaction in manufacturing.
In this paradigm, banks play a role of financial support to efficient and dynamic companies and the public sector activates industrial policies aimed at growth. It is relatively easy to find agreement on these topics but the next step is who and how: a) identify the innovations; b) to convince companies to make large investments; c) finance these investments given that banks fear, initially, the risk of insolvency of their innovative customers, especially small-medium ones; d) maintain the stability of the macroeconomic distribution of added value. The technologies are available and the union between information, knowledge and research requires a systematic interaction between new technologies and new skills.
It has been demonstrated that the dwarfism and undeclared nature of businesses prevent the diffusion of new technologies and new professional skills, except for highly trained young entrepreneurs. It should be remembered that the labor productivity differential between small businesses and businesses with over 1000 employees is 1 to 4. Added to this is the difficulty of generational turnover which also affects medium and large businesses.
The most difficult and controversial aspect is who and how the relative prices between manufacturing, tertiary and rent can be rebalanced, i.e. how to make the markets work correctly automatically and/or through controls to protect the systemic efficiency and the position of consumers/customers . Experiences so far have not signaled significant interventions by the Authorities.
What policies
The first point to highlight is the end of the public administration as a centralized and monolithic structure and its transformation into a set of public administrations. These institutional changes and the consequent interference between the different levels of government have reduced the effectiveness of economic policies and increased fears of corruption/bribery. The objectives of the central government rarely coincide with those of the regions and Italian-style federalism is showing its limits in the current crisis.
Policies require efficient, effective tools and certain times and analyzes suggest:
1) remodel both public expenditure and the tax authorities to make them consistent with the objectives of growth, competitiveness and efficiency of public and private services. Requalify public spending by reducing product purchases and shifting it towards integrated services provided by high-tech products.
2) Streamline and rationalize the administrative services that must be reported within the PAs to reduce costs for the administrations and for citizens and businesses by limiting the cases of replacement by private individuals (patronatos, accountants, etc.).
3) Privatize non-essential public services identified by electoral theory and programs to reduce losses and outstanding debt.
4) Selling movable and real estate properties and state assets is an extraordinary financial manoeuvre, but it is essential to correctly identify the times and possible buyers, avoiding hasty solutions. Their sale favors the friends and investments of the criminal economy.
5) Make a financial effort to reduce the submerged debt of the PAs with the collaboration of the treasurer banks. However, it is essential to improve the billing process (eg electronic billing) by involving suppliers and banks, but also to simplify and make the tax obligations that affect billing more controllable.
6) Fiscalize social contributions for companies that invest in new technologies and do not fire; the wage subsidy must have a defined time frame and the activation of the innovations must be controlled.
7) It is useless to tax social security contributions on marginal businesses which should instead be closed and a minimum income coverage can also be envisaged for small entrepreneurs. System costs are reduced and the identification of tax and parafiscal evasion is made more efficient.
8) Encourage mergers between SMEs to improve the productivity and growth of startups and spin-offs with interventions that can take into account the risk associated with these initiatives. In this case, a strategic role must be played by universities, research centers and large companies. Monetary policy cannot have positive effects without a convinced and lasting commitment by the banks to finance innovative investments and to reduce the working capital of businesses, another anomaly of the Italian economy.
Conclusion
The economic system is a complex and interconnected structure that cannot be dissected to fix its individual elements. It is not enough to have the goal of eliminating the public deficit to ensure stability or to focus solely on increasing productivity in order to grow.
The expected growth makes the sacrifices necessary to rebalance the public accounts and the balance of current payments more acceptable. The tools cannot be the traditional ones because they have been blocked for years (public budget) or out of national control (liquidity and interest rates) but non-traditional tools are instead intelligence, knowledge, generational change, the merger of SMEs, the supervision of the functioning of the markets, re-engineering of processes following technological changes, etc. and the most incisive interventions, even if innovative and complex, can be based on these tools.
Not even the reforms escape institutional and operational conditioning and vetoes that slow down government action. It is never clear whether the unanimous and often uncritical adherence to the reform policy derives from a shared skepticism about the efficiency and effectiveness of ordinary interventions or whether it is a choice dictated by realism, hope and/or the need to buy time .
