Return to investing in knowledge and remove obstacles to innovation. The governor of the Bank of Italy Ignazio Visco sees in these two guidelines the best and indispensable cure to bring Italy back to growth. The Italian GDP per capita jumped back 30 years, returning to the levels of the late 80s, and the reason, he explained during his speech at the Esof (Euroscience Open Forum) in Trieste, is certainly due to the collapse of the economy due to the Covid19 pandemic. But the second, no less important reason is that since the 90s the country's growth has been very weak. In fact, no other large advanced economy has recorded a leap backwards as large as Italy. What to do then to get back on top? Here is a summary of the governor's analysis and proposals.
- The role of the human capital and innovation as determinants of economic growth: it is to knowledge lags that we owe the slow growth of GDP in the last 30 years.
• The emergency Covid-19 it has deeply affected the Italian economy: in mid-2020, GDP returned to levels observed in early 1993. In per capita terms, GDP fell to the values recorded in the late 80s.
• There global response of governments, central banks and supervisors in most countries was immediate and extraordinary. Central banks used a wide range of tools to ensure more accommodative monetary conditions, counter market tensions and support loans to households and businesses.
• It is essential that they are implemented reforms aimed at creating a more business-friendly environment by increasing the quality and efficiency of public services, reducing administrative and bureaucratic burdens, lowering the burden of tax evasion, corruption and other criminal activities.
• A long-standing problem in Italy is linked to the low level of spending on research and development (R&D). Italy is among the lowest ranked countries in the OECD with spending of 0,9% of GDP against an OECD average of 1,7%.
• Low spending on research is accompanied by insufficient investment in'instruction. As regards the quantitative dimension, the data show that Italians do not attend school long enough. The qualitative dimension of the educational problem affects the fact that Italian students do not seem to learn enough.
• Private companies also have a key role to play. Their reaction to the enormous transformation induced by technological progress and globalization during the 90s was reflected in a demand for lower labor costs, rather than higher and more adequate investment in new technologies. This would have stimulated the demand for highly skilled labour, possibly triggering a virtuous cycle of higher education supply and demand.
• Innovation and training are shaped by structure of the extremely fragmented production system in Italy. The "dwarfism" of the Italian production system is related to the ability of companies to introduce good managerial practices, adopt new technologies to develop innovation and invest in human capital.
• These characteristics of our industries profoundly influence the average productivity of the economy. The larger Italian firms are often more productive than the corresponding French and German firms, but the very large group of smaller firms is much less productive and drives down the average.
• A weak capacity for innovation, a low level of human capital and a predominance of small businesses characterized Italy even when its economic growth was rapid. Two factors contributed to halting Italy's recovery and triggering its decline: first, the lack of autonomous capacity to innovate to fuel economic growth; second, the world has changed radically in the last 30 years, due to the globalization of markets and the information revolution.
• In the long run, a major productivity it is the key element for economic development. For a sustainable growth path, the measures necessary to address the urgent problems created by the current pandemic crisis must be accompanied by interventions aimed at tackling the obstacles that hold back innovation.
• Despite its limitations, the Pro-capite GDP it seems to have a very strong correlation with the fundamental variables for a country's well-being (more than 90 percent correlation of GDP with the human development index).
• There is a dimension where the GDP, however, it does not work well as a measure of well-being, i.e. its impact on the environment. It's time to direct increasing resources and efforts to deal with the side effects of economic development. Knowledge is once again the key resource we need to invest in to make further economic progress while preserving the environment.
