Since 2004, Italian industrial companies have made investments that are lower than simple self-financing and also make less depreciation than necessary, thus leaving the production plants aging. Then they present profits that exceed their actual amount and distribute almost all of them to shareholders as dividends. The surplus of uninvested resources is allocated to a percentage reduction of financial debts.
Is this defeatist behavior by entrepreneurs the effect or cause of the loss of competitiveness of the Italian economic system? Will the Government's measures for development be able to reverse the trend and cause an increase in investments starting from the next 2012 budget?
This is the gist of the inaugural lesson of the master's degree in management, innovation and service engineering (MAINS) for the 2011-2012 academic year at the Scuola Superiore S. Anna in Pisa held today by Riccardo Gallo, professor of Applied Economics at Sapienza University. Gallo illustrated a series of his elaborations on data from 1992 to 2010 published by R&S Mediobanca relating to industrial companies, medium-sized enterprises and foreign multinationals. The opening speech was given by the president of Scuola S. Anna, Riccardo Varaldo, while Marco Frey presented the Institute of Management recently created and directed by him.
From Gallo's lesson it emerged that the Italian industrial system in the last twenty years has lost about a third of its weight in terms of added value and a quarter of its employment base; for many years it increased productivity, had an annual growth rate of just over 2% and then collapsed starting in 2007. A couple of years after the introduction of the euro, medium and large industrial companies started to rely on an increasingly prolonged life expectancy of the production plants (from 16,4 years in 2003 to 26,4 in 2010), with fewer provisions each year. Hope has proved illusory in the face of a continuous process of innovation that has taken place in the main industrialized countries, as evidenced by the behavior of multinationals around the world which, in order to compete in production and marketing, have relied on a shorter and shorter useful life of the plants. In 2010, Italian industrial companies recorded a useful life for their plants (26,4 years) double that of multinationals (13 years)! Furthermore, the age of the technical assets at the end of 2010 reached 100% of the useful life in 2003, before the artificial extension. That is, the technical heritage of Italian industry has reached the end of its life!
This imprudent behavior has allowed companies to show on their balance sheets an average return on sales fluctuating around 5%, therefore not too far from the minimum 8% of multinationals. In reality, with depreciation consistent with international dynamics, the budgets would have barely closed in balance. The effective rate of taxation in Italy has penalized medium-sized companies even more than large ones, and both of these categories are strongly disadvantaged compared to international competition.
In general, for the growth of a production system it is necessary that the investments are higher than the self-financing (depreciation plus retained earnings), i.e. it is good that the "lead more than one leg", i.e. an acceleration of investments, is financed with new bank credit, with the contribution of shareholders, with extraordinary finance operations. Instead, the Italian production system has invested less than self-financing, this already made very low by the compression of depreciation and by the distribution of profits.
Gallo naturally referred not only to technical investments, but also to financial ones for the acquisition of controlling stakes in other companies, perhaps foreign ones. As a result, industrial plants from the middle of the past decade have continued to age.
Another consequence of all this is that the financial debts of medium and large industrial companies do not increase, indeed in many cases they decrease, if referred to total liabilities. Therefore, the hypothesis according to which there was no satisfactory growth because the banks did not lend is not confirmed. Instead, as they say in the jargon, it's the horse that doesn't drink.
Over the years, by allowing the distribution of profits without a fight, the directors of industrial companies have shown little independence from the shareholders. The managers and workers of the companies themselves suffered from it. Instead, it would be appropriate for the directors to be required to formulate a reasoned proposal for the destination of the income, with the prior endorsement of the board of statutory auditors. If this were the case, the financial statements would also give indications on the company's prospects.
Compared to this general picture, the measures that the Government is about to issue in support of economic development are eagerly awaited. Whether or not they are effective will first of all be measured by the propensity of Italian industrial companies to invest massively again. October is the month in which the three-year plans and the 2012 budget are made.
