In recent weeks in Italy there has been an alignment, as the astrologers say, of international events fraught with consequences. Two conferences on productivity and the new Europe of growth and innovation and a third on Joseph Schumpeter, the economist of growth based on "creative destruction", all concluded with a superb sporting victory for Italy!
The common goal of the three conferences was to understand how accelerate post-pandemic recovery keeping the course of sustainable growth both for the environment and for the social fabric. L'increased productivity it is the driving force: in the US, if productivity were to grow again by 2% per year as in the period 1995-2005, the income of Americans would double in a generation. In Europe we haven't had that recent period of peak productivity corresponding to ICT adoption (and we should ask why) but achieving 2% per year productivity growth would have the same effect on income growth.
Enough for the short-term economic recovery the support of the application, which the government is already doing thanks to the monetary policy of the ECB and the suspension of the stability pact. Instead, the funds of the Next Generation EU are used for medium-term growth by increasing productivity which has stagnated in Italy for a quarter of a century. In Italy, the stagnation of productivity since 1995 has led to the insufficient creation of new jobs with wages that have made the best-prepared young people flee to more dynamic countries and frustrated the aspirations of others. I remember today's minister Daniele Franco saying years ago that he was amazed every evening that the first news item on the news wasn't the pitiful state of productivity in Italy.
During the pandemic the priority was support for families and businesses. Without forgetting the support of demand, we must now move on to targeted interventions for businesses. There were almost no bankruptcies in 2020. But if this continues, we will become the country of zombie companies.
What priority of state support for the post-pandemic? Targeting what makes the economy grow: innovation and the creator/user of the innovation, human capital. This is what increases the so-called intangible capital, closely related to productivity. In other words, the engine of growth is the adoption of digital technology, a new "general purpose" technology (for all uses, such as electricity at the end of the 800th century) but only if accompanied by managerial skills to modify processes and tasks. And it should not be forgotten that the virtuous circle is triggered when the product increases for the same number of hours worked, finding the necessary demand. Not constant product with fewer hours worked.
Lo OECD study on business dynamism, presented at the international conference in Villa Mondragone, shows that the gap between the superstars (the most productive companies with the highest profits) and the least productive ones (mostly small or micro enterprises) has so far widened and determines the low productivity of 'economy. While increasing the market power of superstars who have no competitors.
Instead, for growth we need the diffusion of innovation, a contagion capacity of innovation as high as that of COVID 19. This infection of innovation will above all benefit small and medium enterprises, where they are the vast majority of employed people and half of the product.
Be careful though, innovation alone is not enough. The gap between leading companies and the others depends as much on digital technologies as on investment in intangible capital: while digital technologies can lower the cost of entering a market, the need for intangibles such as software, databases, R&D, intellectual property (such as vaccine patents) and managerial skills contribute to the Winner takes most (if not all) dynamic. The value distribution of the 500 largest-cap US companies published in a recent FT article shows this effectively:
The antitrust work will not be easy and it too will have to innovate. In fact, how to consider the platforms created by the technological superstars that have allowed innovation and the birth of startups? We must ask ourselves: how to reproduce for small and medium-sized enterprises the complementarity of technologies What characterizes superstars?
Since the policy proposals must be specific for each country, for Italy the study (ISTAT, BdI and MiSE) of the results of the Industry 4.0 incentives and in particular of hyper-depreciation, shows that the increase in productivity has been 12% plus 3% due to specialized staff (graduates).
Hyper-amortization initially only covered tangible capital, not the complementary technologies that make it up intangible capital. Therefore it was the medium and large companies that recorded these increases in productivity. Management skill explains the differing returns on digital investments across firms. And it explains the differences between North and South. For micro and small businesses, what makes the difference is the capable manager. In this case they manage to have even better results than medium and large companies since the adoption of new technologies.
In growth driven by the ability of entrepreneurs to adopt new technologies, the role of the state is immense: to stabilize the economy, modernize the education system, make physical and digital infrastructures efficient and sustainable, finance R&D, encourage the diffusion of new technologies, guarantee competition and social security. In Italy, everything in the Recovery Plan is necessary to increase productivity. From infrastructure to justice and public administration reform.
Among the emergencies: first, include the teaching of coding and digital data processing in school curricula. (Type the title of a song very quickly is NOT digital competence) And encourage continuous training of staff and teachers (see the catastrophe of the recent competition for teaching scientific subjects) also with artificial intelligence systems. Second, equally important and quicker to obtain, is access to high-speed broadband. Which together with productivity can increase equality of opportunity.
Indeed innovation has its dark side: involves what Schumpeter called Creative Destruction. Obsolete and incapable of renewing industries disappear making way for new businesses and new jobs with better prospects. The transition is painful for closing businesses. It doesn't have to be for the people who work there IF the income protection and retraining institutions function according to the needs of the job demand.
Numerous studies were presented both in Venice and in Rome on the inequalities created by automation and teleworking during the pandemic. The consequences of automation particularly affect less educated women whose tasks are disproportionately routine. The lockdowns imposed during the pandemic have had a differentiated impact on economic activity and employment depending on the possibility of working remotely. And the ability to work remotely depends on a number of circumstances: stable access to the Internet, the professional field, the ability to use digital technologies.
I workers without teleworking skills they are young, without university education, with non-standard contracts, employed in small firms and in the lower income distribution. Even without waiting for official data, this suggests that the pandemic has increased inequality.
Furthermore, even for professions capable of working remotely, also increasing productivity, an internet connection at home is essential: but in the comparison between countries in the teleworkability & internet use index, Italy is closer to Mexico than to Greece, also far from the advanced countries. Yet, comparing teleworkability with business broadband connections, while Greece remains next to Mexico, Italy is in the group of advanced countries. The explanation for this discrepancy would appear to be inadequate home internet connections which have also weighed on distance learning.
Almost 2 years of stop teaching is estimated to have negative effects on global potential output up to 2080.
Finally, a World Bank study shows that we need to improve the climate sustainability of recovery measures so that they are green or at least neutral, but not brown!
The game is difficult, but if entrepreneurs, trade unions and politicians play their game in agreement with the government, it can be won.
1) Villa Mondragone International Conference, Lessons from Covid-19. A Stronger EU: Staying together in a new policy space, Rome; Annual Conference of the Global Productivity Forum, OECD/G20 Venice; Conference of the International Schumpeter Society, LUISS Rome: Schumpeterian Perspectives on Radical Change: Robotics, Artificial Intelligence and Broad Societal Transformations”
2) Starting from the micro-estimates of Fuchs-Schudeln et al (2020) the change in employment per group of students is converted by Fernald into % reduction of labor input.
3) The studies cited here can be found on the Productivity and Well-Being Observatory website of the Tor Vergata Economics Foundation
