It is possible to get out of the post-Covid-19 economic crisis

It is possible to get out of the post-Covid-19 economic crisis

Economic theory can give us the economic policy recipe to get out of the crisis triggered by Covid-19. The speech by Giuseppe Capuano, author of Covidnomics

In a moment of profound economic and political as well as health crisis such as the current one and on the eve of the sending to the EU Commission of the final version of the Italian Recovery Plan (Pnrr), it seems appropriate to reflect on the role that economic theory (notoriously a science not exact) can give useful and effective economic policy indications and “recipes” to get out of the “crisis tunnel”.

A crisis which, according to authoritative analyzes supported by the main theories of the economic cycle due to an "exogenous shock" (the infamous "black swan", the Covid-19 pandemic), despite being very profound, could quickly "re-emerge on the surface" and disappear thanks to the "antibodies" present in the "healthy" Italian productive fabric.

The reflection takes its cue from some analyzes and proposals of economic and industrial policy present in the recent book Covidnomics written for the "Led editions" where my proposals, ideas, ideas and reflections developed in recent years and already partly published by me are also collected on this newspaper. Above all, the book provides a contribution to the lively debate that has developed in recent months in Italy in relation to which decisions to take in economic policy in order to indicate a new path of sustainable development in the post-Covid-19 crisis and give a future of hope to the new ones. generations.

An economic policy strategy that cannot ignore a Europe with the euro that in any case must review its governance: from the introduction of a common European budget financed by greater own resources to a single fiscal policy that combats "fiscal damping" between Member countries and which has as its objective the reduction of the tax burden, in addition to the appointment of a European Minister of Finance and a change to the Statute of the ECB which also includes development among the policy objectives in addition to the control of inflation on the model of the American Fed . Changes and reforms necessary for greater European integration and preparatory to a progressive but constant and necessary elimination of the Maastricht parameters. Parameters conceived more than thirty years ago in another historical moment and in the economic cycle and now obsolete.

For a European Union closer to citizens, micro and small businesses (with a higher propensity to innovate and operate online) and territories, which gives greater impetus to the reduction of economic and social imbalances and the introduction of a new model development based on the transition from the linear economy to the circular economy.

An economic strategy that can achieve the aforementioned objectives in the medium to long term and that can overcome the contradictions of the theory of "expansive rigor" and the restrictive fiscal policies supported in Europe in the last twenty years and which has caused so much damage by increasing the imbalances between member countries . To this end, Italy will have to:

– overcome the short-term emergency logic dictated by the Covid-19 pandemic and favor interventions focused on the country's infrastructures (tangible and intangible infrastructures) financed with a wide use of national savings (approximately 4,500 billion euros) and European funds, first of all the Italian Recovery Fund endowed with approximately 209 billion euros in addition to the resources deployed by the Structural Funds (approximately 100 billion euros);

– manage the serious situation of public finance accounts, strongly conditioned by the negative impact of the pandemic crisis which will bring the debt / GDP ratio over the next two years to a value of more than 160-170%, with the introduction of a serious and sustainable plan of ten-year repayment of the public debt which contemplates, among others, the doubling of the Italian share of the ownership of debt securities now largely in foreign hands and a serious and non-ideological reflection on the correct use of the approximately 120 billion euros in gold held "non-interest-bearing" by the Bank of Italy .

Think, therefore, of structural interventions which, on the one hand, will have to contribute to improving the supply of production factors, on the other, will have to support productivity growth. Among the context interventions we indicate:

  • The resumption of a process of administrative simplification;
  • The digitalization of the public administration which suffers from a strong gap in the EU;
  • The reduction of the tax burden among the highest in Europe, contributing to the high tax evasion
  • Facilitations for access to finance (little used) and credit for businesses (ours is a bank-centric system: for every 100 euros invested as many as 89 come from the banking system) in particular of small dimensions, today heavily penalized;
  • The improvement of the “traditional” and digital infrastructural equipment, accompanying the digital transition with important training interventions on already employed and / or newly hired personnel;
  • The reduction of public debt (we are the third in the world in terms of debt / GDP ratio) which, at current levels, in the medium-long term could be unsustainable;
  • Innovation and research where spending in these sectors is among the lowest in Europe;
  • The gradual transition from the line economy to the circular economy, with green investments and renewable energy, bearing in mind the needs of the production chains and not only of individual companies / sectors.

These "deficits" will have to be reduced over time because they constitute costs that weigh directly and / or indirectly on businesses, undermining their international competitiveness and making the Italian economy very fragile.

It will also be necessary to identify measures that progressively (short-medium term micro objectives), with a view to the growth of the entrepreneurial system, favor the improvement of the structural conditions both internal and external to companies.

In this strategy, among others, it is necessary to underline the importance of providing “permanent” policy interventions dedicated to: Micro-SMEs and production chains, favoring aggregation processes between companies also using the network contract; the relaunch of the “Industry / Enterprise 4.0” Plan (the economic impact assessments carried out to date provide very positive data in terms of GDP growth and turnover); to the reorganization of our economy from a "linear economy to a circular economy" (for this purpose the "circular network contract" is proposed to encourage business aggregation in their transition to "circular organizational models"); to the "re-foundation" of scientific and legal metrology (a subject unknown in Italy and little considered unlike other European countries, primarily Germany) as preconditions of industrial policy for respecting public faith and market rules to guarantee companies and consumers.

It will also be strategic to rethink the ways of "creating value" through value chains that make better use of the "short networks" (with reshoring plans for Italian companies) to support the competitive positioning of companies on international markets in all their organizational functions (production, marketing, finance, etc.).

The set of these and other industrial policy interventions (micro impact), combined with those of economic policy (macro impact) previously suggested, will have to contribute to a big push in terms of innovation, not only technological and of competitiveness of our country necessarily. included in a new circular development model that must be the fil rouge of every policy and entrepreneurial business intervention.

What has been proposed above means that economic policy will have to contribute in the new decade 2020-2029, to the transformation of the idea of ​​a country and a Europe of the future, positively conditioning the new programming of the Structural Funds 2021-2027 (within the budget of the Union) and favoring the good use of the Recovery Fund (extra EU budget). From this point of view, the presentation on schedule by Brussels and the rapid implementation of the Recovery Plan (more investments less transfers / rain aid) recently proposed by the Italian government will prove to be the discriminating factor between a rapid exit from the crisis and getting bogged down in quicksand of the "secular recession" known by Italy (and beyond) in the last fifteen years.

In conclusion, the answer to the initial question whether economic theory can provide useful and effective indications and "recipes" of economic policy to get out of the "tunnel of the crisis" is positive provided that politics does its part and operates its own choices quickly as the "time variable" in these cases is decisive, under the same conditions, to correctly achieve the objectives set.

This is a machine translation from Italian language of a post published on Start Magazine at the URL on Sat, 16 Jan 2021 14:40:03 +0000.