Some Italian companies have entered the 100 European digital champions of the Financial Times. But the growth of total productivity in our country places us far from the productivity frontier: we are the last of the large European countries and all of Europe is weaker than the United States and even China. In the list of 2500 companies at the border for R&D, Europe excels in the automotive sector, but is weak in digital infrastructures, cybersecurity, the electronics sector and services.
Even knowing that the engines of the digital economy are innovation and human capital, in Europe investment in R&D and in intangibles, i.e. data, software, intellectual property rights and human capital, is clearly lower than in the USA. Many companies do not innovate at all, and only 8% qualify as "leading innovators" compared to 16% in the US. Europe has recovered from the financial and sovereign debt crises, but the growth in real GDP and employment has not been matched by adequate growth in investment. In particular, European investment in R&D is at 2% of GDP as in China, but almost one percentage point less than in the States and 12 pp less for intangibles. It is the gap that is widening in digitization and automation that puts European competitiveness and also social peace at risk, as shown by France where 90% of new jobs in the period 2010-16 are in low productivity sectors and low wages.
The preponderance of small companies and the fragmentation of the financial market make it more difficult to disseminate digitization in Europe, which would increase productivity even in businesses not at the border, and the prevalence of business financing with bank debt penalizes young businesses without previous relationships with banks or real guarantees.
Furthermore, the digital economy has polarized the labor market by reducing intermediate jobs and has increased inequality in many advanced countries. While the usual focus is on rising wealth and incomes at the top and rising poverty in the bottom decile of the distribution, we have overlooked a phenomenon that has even greater policy implications: the immobility in a growing part of women's incomes. families. A 2016 study by the McKinsey Global Institute found a substantial increase in this audience: in 25 advanced countries between 65 and 70 percent of households, or 540-580 million people experienced stagnant or declining incomes between 2005 and 2014 .
In contrast, between 1993 and 2005 less than 2% or less than 10 million people found themselves in a similar situation. Transfers by governments that could afford it increased disposable income by reducing the shocking percentage mentioned above. But adding demographic trends to the reduction of intermediate jobs, the Mckinsey study predicts that 30 to 40% of incomes may not increase in the next decade, a percentage that would double with low growth rates, similar to those experienced after the crisis.
Apart from the effect on the increase in public expenditure for subsidies, the McKinsey survey finds serious effects on social and political-institutional cohesion: a third of the interviewees believed that the income stagnation would extend to their children and expressed negative opinions on the international trade and immigration. Anemic growth would further reduce upward social mobility, such as that described above, which is the universal aspiration of parents for a better life for their children. Without increased productivity, growth stagnates and social cohesion is at risk due to competition between groups to share a pie that does not increase.
The need and urgency of digitization must take into account its risks. Late comers like Italy can avoid the mistakes of other countries and incentivize digital within the framework of adequate regulation and taxation. Intangible capital is estimated to represent 90% of the total value of the top 4 digital companies and generate rents since products based on intellectual property have zero marginal costs. In these conditions, the opening of markets increases concentration more than competition and foreign investments also have opposite effects in the digital and non-digital economy.
There is a feature of the digital economy that we must keep in mind because it determines both its benefits and its dark side. It is synthesized by an expression that has also become a hit song: Winner takes it all. There may be thousands of patents in a digital product due to the built-in standards that allow the product to interact with others. Those who have a patent cannot enjoy the monopoly rent as they once did: they must continually expand their networks to collect all the initiatives that can enhance or render their activity obsolete.
The reduction of new entrants in Europe above all, but also in the United States seems to confirm the growing market power of existing companies. According to the EIB Investment Report1, 90% of world R&D is done by 2500 companies, 70% by 250 companies: while China is growing in this group, Europe is losing positions above all among the new entrants, as can be seen from the following graph. Only in manufacturing have digital technologies been adopted by the same percentage (60%) of European and US companies, while in services the former are digitized by around 70% against 80% in the US. Not only innovation, but also the adoption of digital techniques already available is associated with better production performances and with the subsequent transition to innovation by companies.
The country that it does not keep up with the pace of innovation or at least the adoption of innovations and sees its productivity gap widening with respect to companies at the frontier. The obstacles to productivity that have characterized Italy for a quarter of a century are becoming fatal: the inefficiency of justice favors established companies over start-ups; cumbersome insolvency proceedings slow down the exit of less productive firms; mutual support between businesses and politics, especially at the local level, prevents the physiological turnover of less productive businesses with more productive ones. Now that the financial causes of survival of zombie companies are disappearing, these obstacles must be overcome to allow our startups to run and grow. By removing the incentives for dwarfism and tax evasion. Otherwise, the losers will be, as they already are, the workers who find themselves without an alternative to low-productive companies with low wages and no future.
But the role of States, federations and multilateral institutions is not limited tothe regulationindeed the most important role today is to guarantee security and the future of "human capital" to win the war of the digital economy. An obstacle to the development of human capital is that employment has increased in the lowest productivity sectors. In the United States, all three sectors where employment has increased are low productivity. So at low wages. Also in Germany and Great Britain 2/3 of new jobs in the period 2010-16 are in sectors with below average wages and in France 90%. What helps to explain the yellow vest phenomenon.
The EIB's annual investment report reports that almost 80% of European companies say they have to limit their investment in digital due to a lack of appropriate skills. Since we've been busy 2 of the limits to productivity posed by inadequate management, we see here the other side of the human capital necessary for the digital economy, i.e. the labor employed. The companies that train and update their personnel - equal to 73% in Europe - are on average more productive, even if 20% consider the training given in the company insufficient.
As with innovation, the small size of firms and associated financial constraints limit training. Companies that adopt advanced digital technologies report unfilled vacancies more often than the others and 60% of companies expect digitalisation to increase the demand for higher skills.
It's la mahigher education and technical training is responds to needs is of businesses more productive than to the demand of young people to participate actively in social development. Also in this sense, a greater supply of training would contribute to social cohesion, particularly in countries such as Italy, which still has an unacceptably high youth unemployment which today is channeled into dead-end welfare systems.
Despite the slowdown in productivity in the EU since the financial crisis and the importance of labor mobility in the single market which guarantees the sharing of acquired skills, only 1% of education expenditure in Europe is funded at European level. A new program could be built on the experience of the Youth Guarantee and there should be unanimity in allocating an increasing part of the European budget to this area, even if unemployed or under-employed young people are not an organized lobby in Brussels.
We are still in time to reallocate funds from the multiannual European budget in this direction, but not only: given the inefficiency of many local administrations in Italy, initiatives that are not only financed but directly managed at European level, such as those supporting investment, they should extend to training and professional Erasmus. These initiatives must have targets defined for each country, with results continuously monitored to allow for necessary adjustments, as we should have learned from digital projects.
If human capital, like other intangibles, is more productive than physical investments in the digital economy, it would be time to translate this statement into educational policy measures starting from elementary school and in continuous training inside and outside the company, instead of unemployment benefits and to widen the participation of women and older workers in the labor market.
In the words of the 2018 Nobel Prize in Economics, Paul Romer: ideas become sources of broad-based productivity growth, which let us do more with the same or fewer resources. Knowledge, then, is a very special resource, but it has in common with other resources the fact that you can invest in it, and that your investment brings a return of more knowledge.
