The coronavirus is already impacting demand for tourism and other services, but the biggest effect on the Italian economy will be via global value chains. The subsequent effects of the supply disruptions will translate into lower wages and employment, or reduced income and demand: another global crisis whose effects many fear are as severe as those of the financial crisis. We know the virus it has more serious consequences in already weakened people and the same applies to the economy. The previous pathological condition from which the Italian economy suffers is called productivity stagnation.
The coronavirus therefore multiplies the need to recover productivity and removes alibis from too many supporters of the status quo & blame-Europe. We know China will be able to recover quickly from the epidemic, but what about us? Our response to the immediate crisis must contain the foundation for lasting growth.
Productivity stagnation is a quarter of a century old problem in Italy, but knowledge of productivity dynamics has made a quantum leap in recent years, i.e. since a private individual has created a database of 360 businesses.
Analyzing this data has swept away the previous industry data-driven interpretive paradigms that were contradicted by growing exceptions (just like pre-Galilean cosmology). We have thus discovered that companies at the border register a labor productivity of 3,5% per year, and a total productivity of 2,5% (or higher) per year as in the best moments of the post-war period and at the turn of the century.
Total factor productivity, ie the efficiency in organizing production factors inside and outside firms, drove Italian growth in the 60s and 70s. But between 95 and 2007 its growth fell to 0,2% per annum against 0,7% for the EA. From 2007 to 2015 it became negative at 0,9% against +0,3% for the EA. In Italy the main causes of the fall have 4 names: innovation, training, justice and PA.
Here we will discuss the first two to find the solutions to break out of the vicious circle: low productivity, low growth, low wages and declining living standards, high public debt to GDP and reduced ability to cushion crises which in turn reduce productivity…
The solutions have also changed. What characterizes businesses at the frontier is innovation (number of patents), larger size, position on international markets, greater profitability. In addition to R&D, even imitation, the adoption of digital technologies can increase the productivity of the company, however, in the presence of an appropriate size, business model and international position.
By now, even in Confindustria, small is no longer beautiful. Let's hope it means promote the growth of companies and stop encouraging the little ones who don't grow. Some argue that the fight against small business evasion should be considered an innovation policy. This is priority number 1, which does not need new resources because it decreases state spending and increases its revenue.
Digital technologies allow "scale without mass" allowing innovative start-ups to grow and establish themselves on the markets. But they can also create “winners takes it all” and market concentration. And the gap between companies at the border and the others continues to widen. So public regulatory policies, digital infrastructure, incentive or support for R&D and training of managers and workers are essential priorities. Even for these policies, the funds are already there to a large extent and only ask to be used in a coordinated and efficient way, reallocating them within each category according to the capacity demonstrated by each project to achieve its objective.
For this reason, the European Commission and the Council recommend the creation of National Productivity Committees (NPCs). Erik Canton spoke about it, head of the National Productivity Boards in Brussels, presenting the best practices discussed in their European coordination. An important element of the activity of the NPCs is the possibility to provide inputs for the country report of the European Commission.
Taxation must be the partner of business growth and AI adoption which so far reduces the share of labor in income, rather than jobs, and therefore also demands appropriate forms of income redistribution. In addition to training and research, public action can abolish obstacles to labor mobility, from transport to homes and kindergartens.
In fact there is no need to be Edison or Steve Jobs, just being able to imitate and apply the ingredients of super stars at the global frontier. Digital is defined “general purpose technology” like electricity: it can be applied to the construction of spaceships as to the harvesting of tomatoes.
Electricity-related innovations have grown large corporations that have survived more than a century and destroyed many others that have been slow to change and have been swept away by the competition.
Italy was slow in the introduction of digital technologies due to the small size of more than 90% of the enterprises. Furthermore, the family management of these companies, even more than family ownership, affects managerial ability, because the managers move from one company to another bringing the most effective experiences.
Every step in technology adoption has consequences for well-being. We know well that the female participation in the labor market is low in Italy compared to the rest of the EU and could get worse with unchecked automation: an IMF study finds that, analyzing tasks rather than the workplace, women have more routine and less analytical tasks than men, in all countries, sectors and occupations. And those with the lowest skill levels are disproportionately exposed to automation.
This process it would further reduce household incomes and population growthwhich depends on it. Furthermore, since in the transition the super stars increase productivity and not jobs, the latter increase in industries, but above all in low-productivity and low-wage services that create serious social tensions (Gilets jaunes) if support measures are not taken timely.
In ITalia la broadband connection super-fast serving at control of production processes e to the manufacturing itself with the internet of things does not yet cover the whole national territoryional, but not even the whole center of the capital. What limits the public and private investment necessary to complete broadband coverage and the other investments - transport and housing - necessary for mobility and therefore for the recovery of productivity?
Among the speakers on innovation and productivity, Professor I scan of the Tor Vergata University and right-hand man of the Economy Minister Giovanni Tria for public investments, answered these questions recalling that the stability of incentives is just as important as the incentives themselves for private investors and recommended extending the super-amortisation to investments for the digital and energy transition, as defined in the European classification.
Robert Torrini of the Bank of Italy and former president of ANVAR as well as co-author of a recent book on productivity, recalled how the demographic decline in Italy can only be neutralized by an increase in productivity. Furthermore, he indicated precise articulations of policies for business-school dialogue and preparation for the advent of automation. Everyone prioritized the growth in size of companies and continuous training to get out of the production stagnation, including the discussant prof. Giampaolo Galli of the CPI Observatory which showed how the European indicator for the various aspects of digital adoption places Italy in 25th place out of 28 European countries.
Training is decisive in the use of innovation
To those listed by Cottarelli in his latest book, I would add another “establishment hoax”: that investments in ICT are enough to restart productivity.
In the figure below on the right are investments in information and communication technologies (ITC) which have been pulling productivity since the mid-60s. Spain has invested heavily in IT since 1995, unlike Italy, but the same investment has not translated into the equal increase in productivity of Spain and Germany. The reason for this difference can be found in the insufficient managerial capacity of Spanish companies as shown by the World Management surveys.
While in the decade 1985-95 managerial ability was not so important, since 1995, that is, since the introduction of digital technologies, it has become decisive for the growth of productivity.
But even more serious is not having trained those who have to use digital in production processes or in the acquisition of knowledge. And a training and research system that reduces the possibility of creating spin-offs and new high-tech companies.
The Formation of human capital was the theme of Stefano Scarpetta, Director at the OECD, whose priorities were commented by Prof. Egidi, former Rector of LUISS and of the University of Trento. In this field, the OECD has key publications for the assessment of knowledge of XNUMX-year-olds (PISA) and for adults (PIACC) and the Country Skills Strategy.
And the recent Pisa 2018 results show i Italian fifteen-year-olds below the average of advanced countries not only in science, but also in critical reading skills, i.e. evaluating and selecting information found online. This ability to distinguish between true and false and to reconstruct information is a fundamental part of knowledge in an era in which there is no longer just a textbook, but thousands of online information to navigate through.
With PIACC the OECD finds that in Italy current jobs lend themselves to being automated up to 50% compared to 30% in Norway. This depends on the qualifications of adults who, for 38%, have low basic skills. An international comparison shows that skill mismatch and education level are not very different in Italy from other OECD countries: companies that cannot find the skills they are looking for are just over 20% compared to 80% in Japan and more than 40% % in Germany. The specific problem of Italy seems rather that few adults receive training and few companies offer training opportunities. The skills strategy in Italy, approved in 2017, remains in a drawer.
Prof Egidi pointed out that with few companies on the border and most in traditional industries, it is no wonder the apparent contradiction between the fact that we produce fewer graduates than the European average and at the same time many of them do not find employment in Italy. We therefore export many qualified young peoplefurther impoverishing the composition of skills in the production system and reducing the possibility of creating spin-offs and new technology-based businesses.
The fact that scientific-technological invention in universities and the opportunities for business in companies refer to very different objectives and styles of analysis than in the United States and Asia. The integration or at least the dialogue between academic research and industrial innovation are affected and weaken the incentives for researchers to operate in the two fields.
Instead of fearing any form of evaluation, rememberrere to international rating agencies not only would it provide companies with credible information to identify potential businesses but would also encourage universities to design valid development strategies.
Even the proposals relating to the contents of training ("Strengthening technical-scientific competences, ... soft-skills" etc.) are acceptable, but in order for Manzoni's cries not to remain, it is necessary, on the one hand, to monitor institutional, public and private individuals, who will have to operate in this sense, monitoring that does not exist to date, and above all that trainers be trained: the formation of critical thinking is a complex process that requires to be accompanied by experts; soft skills and problem solving have been talked about for too many years without actually doing anything to create the skills of trainers in these fields.
°°°° The solutions indicated in this article derive from the proposals of the speakers and from the discussion at the conference of the Observatory for productivity and well-being on "5 Priorities to trigger a new dynamism in Italian society" on February 28, 2020
