Draghi, Scribonio and Italy sick of slow growth

Ship with helmsman in a great storm, Dante would rewrite today. Looking at Italy, he is no longer a servant, yet still difficult to govern. He is now at the helm a true long-time captain. Will he be able to put it back on the path of growth? Perhaps yes, if you will beware of the sirens that sing the song of too high a public debt as the source of all Italian evil.

Let's examine first the disease of slow growth that afflicts Italy, and we mention some causes. To conclude with a thesis up to now against the tide, but which is starting to establish itself across the Atlantic.

The illness. If it really were a ship, thepace of the Italian economy would be "slow forward, almost backwards". In the last twenty years his GDP fell by 0,3% annually. If we exclude theannus pandemicus, rose 0,2% annually. While the income per inhabitant, which is the most appropriate yardstick for assessing material well-being, has nonetheless decreased: -2,0% cumulatively in 2000-2019, -9,7% from 2000 to today.

The fall is highlighted in all its gravity if we pass from absolute quantities to relative ones. Meaning what the Italian GDP per capita is compared with that of other nations. A comparison that further reveals how the disease of slow growth is typical of Italy. Because in the same period of time the other nations have nevertheless moved forward, despite having also had to face the information revolution, Chinese competition, the financial crisis, that of sovereign debts and the pandemic. At 2020 the income per inhabitant of Italy was below "quota 90", made 100 in 2000, against 120 USA, 118 German, 116 Swiss, 105 French and 104 Spanish.

If we do the comparison at purchasing power parity, i.e. taking into account how many goods are "commanded" (Adam Smith would have said) by 100 euros, the result is even more merciless: in 2000 an Italian was above a French (+5%) and slightly below a German (-2%), more than 20% above that of a Spaniard. The Swiss were already on another planet then (-45%), and without taking into account the capital income received from abroad (but not even the remuneration of cross-border workers), and the Americans were almost a quarter richer (+23 %).

In 2020 the Spaniards reduced the distance to a quarter (Italy + 5,1% above Spain), while France and Germany clearly lengthened (-11% and -34% the differential for Italy, respectively). Switzerland doubled the lead (+87%) and the USA almost tripled it (+66%).

These numbers mercilessly document the real and serious disease of the Italian economy: low growth. Not the public debt, as we have already told in the article published by FIRSTonline on March 27th.

Three numbers to learn. Cold statistics, some would argue. So, to better represent the Italian evil of slow growth here three numbers, to keep in mind: 11, 25, 44. They outline a sequence that tends towards infinity.

In Neapolitan grimace, which translates dreams into the arithmetic signs invented by the Arabs, 11, 25 and 44 respectively are the mice ('E suricille), Christmas, and prison ('E ccancelle).

Don't think, however, that giving these numbers is an invitation to count once again on the star of good luck, or to play them in the Lotto invoking San Gennaro. Not even all the Saints in Heaven they could do a lot, if we Italians don't believe in the goal of returning to a good path of development and we don't commit ourselves first.

Really those three numbers are the years of work needed to double the country's income. During the post-war boom, from 1950 to 1970, 11 were enough. multiplied by 12 times during the working life of a person (40 years old).

In the following twenty years, including two oil shocks, the international monetary disorder and, within the country, terrorism (491 dead and 1181 wounded), the number of years rises to 25. At the speed of that period, between the beginning and the end of the working career one could expect to see Italy's GDP increase more than 3 times. While at the pace of the nineties it did not exactly double, but went up by 1,9 times (becoming 44) the necessary years). Still an increase.

At the opposite, in the worst twenty years of the country's economic history, 2000-2020, GDP went backwards. Here we are, that is, impoverished. And we could wait forever (Who can live forever? Queen would sing) without expecting not only a doubling, but not even an increase in the nation's income. Not to mention the per capita income.

The company gets angry. Failure to grow is also the cause of deterioration of the social climate. As Benjamin Friedman explains: «The rampant intolerance and incivility and the erosion of generosity and open-mindedness, which have marked important aspects of society in the recent past, have been, to a significant extent, a consequence of the stagnation of the standard of living of the middle class during the last quarter of the twentieth century" (The Moral Consequences of Economic Growth.

Friedman refers to the United States, but immediately broadens the discussion to all advanced and emerging nations. To the Italians, above all to their ruling class, their ears should ring. From you fabula narratur.

If the company goes bad, democracy weakens. And it becomes more difficult to break the chains of stagnation and decline.

Productivity is down. Diagnosed the disease, in order to heal it is necessary to establish its origin. Why the Italian economy has it gone from one of the most brilliant and surprising performances on the world scene to decline in such a short time?

The analysis of near and far causes (more distant than near) would require not an article but a tome; and many have been written and more will be written, assuming originality.

Out of necessity and for the sake of synthesis, we focus here on a datum that is the litmus test of stagnation: total factor productivity, i.e. that part of productivity that cannot be attributed to labor or capital.

Developments in total factor productivity have been similar to GDP, being a component of it. Its growth has decreased over time to zero.

Why this flattening? How to restart it?

Act on supply factors. The total factor productivity it is both the measure and the essence of economic growth. It measures because it is part of GDP and its dynamics. Essence because it indicates the ability of a country to combine productive factors in the best possible way, an ability that depends on entrepreneurship, knowledge, social cohesion and participation, striving for progress, sharing of values, ease of doing business, sustainability in the broadest sense. All socio-economic elements that economists call supply.

Hence, economists themselves logically conclude that if total factor productivity is not doing well, supply elements need to be improved. And how do you improve the elements of the offer? The remedies depend on the element on which you want to intervene.

For example, for increase legal certainty and compliance with contracts, it is necessary to have a rapid justice and not subject to strong fluctuations of interpretations. This reduces uncertainty about the profitability of investments, increases confidence and the propensity to take risks and invest, even on the part of foreign operators.

Or, to increase people's skills you need to enhance education and training. In a rapidly changing world, ongoing training is essential. Because, to paraphrase a saying of our elders, you can never stop learning.

Or, finally, it matters a new way of doing business, where the entrepreneur is no longer the paron, but is a leader of a close-knit team, where all employees are first and foremost people, who are and feel involved and involved, where there is attention not only to the product but also to customers, innovation, marketing, to the territory, to the environment… A vision and a mission widely shared among Italian entrepreneurs, however acted upon by a decidedly minority number. Between saying and doing…

They are just examples of a long and well-known catalog which contains many other areas in which Italy can improve a lot. Taking into account that the other countries are not standing still, but are modernizing. And therefore the country must run to keep up and together recover the distance that divides it from the rest of the group of advanced countries.

On these aspects there is great agreement among professionals. Maybe we discuss which are the most important and how to best reform the Italian system.

But pay attention to the question. There is, however, an aspect on which the theory ofexpansive austerity. A sort of oxymoron. The theory essentially says that the reduction of public intervention in the economy and above all the reduction of the public deficit and debt free up space for private action, resources to spend on households and businesses, and generate confidence and entrepreneurship, so that the economy restarts . And, to demonstrate this, we cite the cases of some countries in which that theory would have worked (such as Denmark, Belgium…).

For expansionary austerity theorists, public debt is the main enemy of Italian economic growth. And the temporal coincidence between the rise of the former and the fall of the latter is indicated as evidence that public debt is bad for the economy.

Far be it from us to assert that public debt is good for us or that growth is created with public debt and public spending. Otherwise it would be easy to cure Italy of slow growth. However, among the supreme guardians of monetary stability, i.e. central bankers, the idea has gained ground that the expansionary economic policy not only does it increase demand and therefore GDP in the short term, but it also increases the development potential of a country. Because it includes more and more people in the production processes, who learn and become more competent as they work. Furthermore, investments are stimulated by expectations of greater demand, and with more investments the technology incorporated in the plants is updated. In both cases, increases productivity. Conversely, restrictive policies penalize productivity.

Incidentally, we recall that he was the first to support this thesis Alan Greenspan, Federal Reserve Chairman 1987-2006. And today he took it up again with similar arguments, but in a more guise social and more convincing Jerome Powell, FED President in office since 2018. Both certainly cannot be labeled as liberal and progressive.

To confirm that thesis is the fact that the tough fiscal consolidation policies conducted by Italy in the last 35 years have not increased the country's growth potential. And, at the same time, the sovereign debt crisis in the Eurozone (2010-2012) demonstrated the fallacy of the expansive austerity theory and contributed to triggering very dangerous deflationary pressures that have not yet been arrested.

Scribonius said. Draghi, called to the bedside of sick Italy, was well aware of the precept of Scribonius Largus, court physician in the early years of imperial Rome: non-nocturnal primum.

Therefore Draghi clearly stated that this «now is not the time to ask for money, but to give it». He must have made many widowers turn up their noses at thinking well about public finances. But he knows what he says. And thanks to his consequent action, Italy's ability to grow will be helped.