Between innovation and status quo

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Italian manufacturing companies have to decide whether investing in research and development or maintaining their position. Until it lasts. Gianfranco Viesti, professor of Applied Economics at the University in Bari, tells how much a new industrial policy is indispensable to make companies grow and, with them, the Country

The economist Gianfranco Viesti
The economist Gianfranco Viesti

By Lara Colombi

No long-term vision. On the contrary: no vision at all. The judgment of the economist Gianfranco Viesti is hard. He explains how the total lack of an industrial policy compromises the entire country-system. Investments in innovation are scarce just because of a lack of long-term strategies. Both by companies and, above all, by the Government. The consequences are serious, especially for companies, such as those of White Goods sector, working in the central part of the value chain, with standardized productions subject to competition by Eastern countries. To start again it is necessary to go back upstream, dealing with design and development. In one word, with innovation.

Professor, the continuous decline of the Italian manufacturing system does not stop to worry about. What is the situation of our industry compared to that of other European countries?
A portion of our manufacturing is not healthy, both because of austerity policies, that have been taking place from 2011 onwards, and for reasons that have roots far back in time, such as the emergence of new competitors, the strong exchange of euro and an only partial adaptation to new information technologies. The result of all this is that we have a bit smaller and split in two manufacturing compared to what happens in other countries. A group of companies, not very small, which fortunately do it very well and a group, more numerous, which report difficulties.

What are the characteristics of the companies that do it very well?
They are larger, more internationalized and more innovative.

What are the factors that allow to define a company as innovative?
This is not a size in absolute value, it depends much on the sector in which the company operates. Innovation can be measured both as an effort in terms of research capacity, but also of more general innovative activities, as it emerges from the index of the European Commission that assesses the state of innovation in European countries and compares it with some of the more industrialized non-European countries (Innovation Union Scoreboard 2015 ). Another measure, although unreliable, can be that of patents.

What link is there between innovation and performance?
It’s easy, those who innovate have better results. Then there is the link between innovation and internationalization.

How are exports linked with the ability to produce innovation?
Innovators can operate on international markets and, at the same time, companies present on the international market can finance more the innovation. All this falls back on the size which, in turn, has effects on innovation and internationalization.
Businesses able to trigger this virtuous circle have positive effects and positive performance.
The interesting thing is that it is not a sectors’ problem but a companies’ one. In all sectors there are companies that go well and companies that go wrong.

Although there are areas, such as for example that of White Goods, that in Italy saw the production volumes decreasing more than others.
More than on the sectors it depends on the placing within the value chain, composed by several phases as product conception, engineering, prototyping, production, marketing, sales and after sales service. If we place all the Italian companies along this value chain we discover that the most weak are those who are at the center, that is those who have a part of manufacturing without having upstream activities in the design or downstream in the distribution side. White Goods sector has the problem of being a relatively standardized and little innovative manufacturing, in which competitors from Eastern countries manage to be more competitive in terms of costs.
And so they crush us.
In the area of the home appliances itself there are other products that, instead, have a stronger part upstream and that, focusing more on the engineering, resist better. It is not a sector problem, it is a problem of placement in the value chain.

Is this the only reason for the collapse of the Italian productions value?
There is a statistical illusion. As in the other advanced countries, many activities that nowadays we call “service” were previously inside the businesses, which today are resizing. There is a physiological part in this decline. Regardless of this, if you are not strong upstream and downstream, to keep manufacturing in Italy remains very difficult, because it is in the central part of the value chain.
Contractors, who followed the defined and standardized productions for Germans in the 60s and 70s, today are no more. But contractors resist who make differentiated products, more refined, that have a value part in the conception.

Among your last publications there is the book “Screwdriver, robot and tablet” where, for Il Mulino, with the journalist Dario Di Vico you faced the theme of the Italian industrial decline. Are the tools in the title those necessary to give the start to the Italian manufacture recovery?
I am convinced that despite a strong euro, emerging economies and austerity policies, a great part of the Italian industry is performing well and will continue to do so. I also think that another big part will not be able to face the change. We will know it in ten years. There is this risk and, instead of waiting to see what it will happen, it would be opportune to intervene.
It is evident that all European countries are doing so. All in front of the shock represented by the emerging economies arrival and by large technological transformations are reflecting on the future of their industry and on what to do to strengthen it. In Italy, we are more ideological than Germans and British, who are instead more pragmatic. We are still imbued with this marketist ideology, for which anything we do in industrial policy is a residue of the past. Conversely, industrial policy is one of the most modern thing in the world.
European states, the United States and emerging countries are adopting policies to support companies in this process. Of course there is no single recipe for industrial policy: it depends on the available funds, on how the country is and how the companies that operate in the nation are. We must find the Italian way, as well as Germans found theirs.

What features should the “Italian way” have?
This Italian way must be very simple from a political point of view and very complex from a technical point of view. Industrial policy must start from a clear and long-term message by the Government, which until now has been lacking. Instead, for the technical side, there is no magic wand, or a single instrument that solves everything. We are speaking of a “symphony” of interventions that can also be different in costs, some mainly regulators and other of incentive.
My own recipe is that interventions need to strengthen the enterprise capital and size; a continuous innovation of product, process and organization; measures to improve the skills of workers and measures to encourage the expansion to new growing markets.

What could be the actions to promote innovation?
I’m talking about a very wide range that goes from little measures like vouchers for innovation, to actions to support partnerships between Universities, businesses and research centers. Then there may be bigger tax credits for innovation or more articulated measures, such as, for example, that of France, which has a very interesting long-term strategy of building and strengthening of technological companies. Or we could take Germany as a model that for fifty years has having a strategy based on structures that favor the encounter between those who produce researches and those who must apply them in the company. To the use of public demand for innovation, salient feature of the American system that could be repeated by us too. Speaking about innovation policy means to touch so many different factors.

More than all: from which European country should we learn?
From the Scandinavians, who are on the top list for investments in research, and then from Germany.

Does an investment in research repay less in Italy than what happens abroad?
Innovative activities imply high risk and so are difficult to foresee and measure by definition. It is complex to evaluate the return of an investment in R&D. What is clear is that money invested in research in Italy remain overall few. Far fewer than in other European countries.

Instead, what role should the Universities have for the innovations production?
An important role of interface, but unfortunately in Italy we are adopting a policy of great compression of the university system. We are the country in the world that for 7 years has been cutting more the resources, whereas also the countries more affected by the crisis are realizing that reducing funding to the university and the research is like shooting the feet. If I am in crisis and I do not invest on the people’s intelligence and creativity, namely on research activity, I do not go very far. On the contrary, I don’t go anywhere. We only move, with great tranquility, to become the twenty-eighth country on 28 in the European Union for percentage of young graduates.

How much are the registrations dropped?
We must pay attention to the absolute numbers and to the relative numbers. There is a demographic phenomenon of young people decreasing and a phenomenon of reduction in the transition from high school to university that has a main reason in the income. The poorest families cannot invest on the education of young people. We give up cultivating the skills of a part of our society simply for economic reasons. This is trivially very serious because it is not said that the richest are also the most intelligent.

What should be done in your point of view?
Two very simple things, absolutely in contrast with what has been done in recent years. The first is to increase funding by giving yearly a billion more to the university. The second is to dismantle the Byzantine and very distorted allocation system of resources among different Universities, which is weakening some. It is as if somebody had decided that for the country it is better to have ten excellent universities and the rest poor. It is a choice that all other European countries are not making.

What is instead necessary to strengthen the link between universities and business?
We have to work as much as possible on the territories by encouraging the curricular stages, the opportunities for permanent relationship between universities and business representatives, the establishment of centers of technological transfer and innovation diffusion and the strengthening of the spin-offs. This is not an instantaneous mechanism such as the construction of a road, we are talking about very long processes and far more risky. You should not expect that every action has a corresponding effect. They are social interactions that need to mature over time.

Looking ahead, are there hopes that things will change?
It seems to me that the Government trust much more in what will happen spontaneously. It seems to me they are putting in place a series of interventions more occasional than systematic. And this weakens their effectiveness.

Does it lack a long-term vision?
It does not lack, nobody believes in it. If I can interpret, with the benefit of the doubt of course, it seems to me that the Government’s setting does not particularly believe in the long term. It acts in each case with actions that have immediate effects.

Let’s hope the companies have it, if it lacks elsewhere…
Companies move following their interest. For a company can also be very rational to survive as much as possible by maintaining the status quo without venturing in doing new things, until it lasts. As well as it may be rational to continue to invest in innovation to try to improve. Now, in the second case the sake of the company coincides with that of the country, in the first case it is not said that what is good for the company is necessarily good for everyone.

What should be done to persuade entrepreneurs to invest in innovation?
It must be made convenient and it is necessary reduce the risk through a set of interventions. For example, a circumstance they talk very little about in Italy is the idea that companies move also based on what the other are doing and the overall conditions. The behavior of the one also depends much on that of the other.

So must we establish who gets the first move?
No, we must not. The first move is for the public policies, which must look to the overall long term. Thinking about the future, if they want one.

Who is Gianfranco Viesti?
Viesti, professor of Applied Economics at the Political Science Faculty of the University in Bari, is one of the leading expert in Southern economy. He worked for the OECD, the World Bank, UNIDO, and is considered close to Fabrizio Barca, Romano Prodi (of which he was economic advisor) and Massimo D'Alema. It is a board member of the magazine "Il Mulino", and a member of the Steering Committee of the Foundation ItalianiEuropei, of the scientific committees of Nomisma, Legambiente, SRM (Studies and Research for the South, Intesa Sanpaolo), and the Foundation Res. Among his books the last is "Screwdriver robot and tablet", written with Dario Di Vico for Il Mulino.