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Industrial policy and technology in Italy

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Abstract

After the crisis started in 2008 Italy’s industry has lost close to one quarter of its industrial production. The article documents the decline of Italy’s industry and technology, setting it in the context of the demise of post-war government intervention and of the current European debate on industrial policies. An analysis of the current tools used in Italy’s industrial and innovation policy is carried out, showing its ‘horizontal’ approach, limited resources and fragmented measures. Current initiatives appear unable to support a revival of production and investment and to reduce Italy’s gap in technological activities. The conclusions argue that the possibility to reconstruct the country’s production capacity largely depends on the development of a new industrial policy combining Italian and European initiatives.

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Notes

  1. It is remarkable that US President Barack Obama in a long interview to the New York Times at the end of his mandate chose to associate his economic legacy to the industrial policies he introduced as a reaction to the 2008 financial crisis. The key example he discussed is US government support for environmentally friendly production of innovative car batteries, by a French-owned firm in new, high technology Florida plant (Sorkin 2016).

  2. In 2013, only the 11 % of manufacturing value added is located in the South of Italy, as opposed to 16 % in the Centre, 33 % in the North-East and 41 % in the North-West.

  3. Data for this article are drawn from Eurostat website in May 2016. For the manufacturing sector, the first recession took place between Juin 2008 and March 2009; the second from August 2011 to March 2013.

  4. The improvement of this index is mainly due to the performance of motor vehicles, which had a 27 % increase.

  5. Eurostat defines high technology manufacturing industry on the basis of R&D intensity for industries classified in the NACE Rev.2 classification at 3 digit level. High tech industries include: pharmaceuticals (NACE 21), computer, electronic and optical products (NACE 26), aerospace (NACE 30.3). The full classification is available at http://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:High-tech_classification_of_manufacturing_industries.

  6. However, high tech sectors in Italy account for about 9 % only of total value added in manufacturing and for 6 % only of total employees (full-time equivalent units in 2013).

  7. In 2015 some of the most important and strategic Italian firms, including Telecom, Pirelli, Italcementi have become majority-owned by foreign investors.

  8. The latest Italian Innovation Survey, reporting 2012 data, has shown that only 35.5 % of firms have introduced at least one process or product innovation in the crisis years 2010–2012, much below the EU average; in 2012 16.3 % only of total turnover has been originated by sales of new products—a record low; only 12.5 % of innovating firms reported some cooperation with the public sector and Universities, as opposed to a EU average of 31.3 % (ISTAT 2014).

  9. An evaluation of the action of state-owned holding companies in Italy and other European countries is provided by Eichengreen (2007) who argues that their “intervention worked because the problem to be solved was no mystery. Initiating extensive growth required undertaking a constellation of complementary investments, mainly investments in mass production industries pioneered previously by the United States. This was something that bureaucrats could do tolerably well” (p. 92).

  10. IRI, the Institute for Industrial Reconstruction, founded by the Fascist government in 1933, has played a key role in the development of strategic sectors such as military industry, mechanical engineering, shipbuilding, iron and steel. It later supported the development of the country’s high tech production in electronics, telecommunications. For decades, public enterprises have accumulated expertise and technological knowledge and have carried out most of R&D expenditure in Italy. Public enterprises also played a decisive role in fostering the growth of suppliers networks of small and medium-sized firms with specialised competences (see Ciocca 2015; Antonelli et al. 2015).

  11. After a temporary stop after the 2008 crisis, the Italian government is extending privatization to minority stakes in Poste Italiane and, in 2016, in the National Flight Assistance Agency ENAV and in the national railway company Ferrovie dello Stato.

  12. State Aid expenditure is defined on the basis of four requirements. A State aid must come from a public source and must give an advantage to specific firms with an alteration of business competition and of the flow of exchanges between states. It refers to manufacturing industries, services, agriculture and fisheries. and includes resources devoted to “horizontal” objectives of common interest or granted to particular sectors of the economy and for specific objectives, such as rescue of firms and restructuring aid. Aid granted to the financial sector as a response to the financial crisis is excluded from non-crisis State aid.

  13. Italy’s resources devoted to industrial policy have been investigated by Brancati (2015), who found that from 2002 to 2013 State aid was reduced by 72 %. Resources were reallocated to Northern and Central regions, where they supported efforts for the internationalization of firms and focused on support for R&D and innovation.

  14. The recent evaluation of the programme made by Italy’s Corte dei Conti documented the failure of such measures as out of an appropriation of 663 million, 23 million only have been spent, concluding only three of the planned projects (Corte dei Conti 2014). This failure is also due to the change of Italy’s government in 2008 and the lack of interest of the new Centre-right government in such policy (Di Vico and Viesti 2014).

  15. The specific targets include the goal of devoting 3 % of EU GDP to R&D expenditure (in 2008, R&D in EU-27 amounted to 2.1 %). Innovation capacity should be supported by the formation of human capital: the share of early school leavers should be under 10 % in 2020 (it was 14.4 % in 2009 in EU-27) and at least 40 % of the younger generation should have a tertiary degree (32.2 % in 2009 in EU-27). Progress towards such goals has been highly uneven and the recession has rolled back advances in “periphery” countries. The strategy includes a set of indicators from the 20/20/20 climate/energy targets established in 2009 by the European Council (a 20 % reduction of emissions by 2020 on the levels of 1990; a reduction of 20 % in the use of renewable sources; a rise of 20 % in energy efficiency).

  16. A critical review of TTIP is in EuroMemo Group (2014, ch. 7).

  17. Cassa Depositi e Prestiti is a joint-stock company owned by the Italian Ministry of Economy and Finance (80 %). It manages the most of the savings of Italians—postal savings—which is its main source of funding. Its resources are mainly used to the financing investments in public entities and infrastructures and supporting national firms.

  18. According to national accounts (SEC2010 handbook definitions), in 2014 firm subsidies amounted to 50.8 billion euros, including the following four activities: production subsidies (29.5 billion) including subsidies for public services such as transportation; current transfers to firms (1.3 billion); capital transfers to firms (10.7 billion); other capital transfers to firms (9.4 billion). These definitions are much broader than industrial policy incentives, but they exclude renewable energy subsidies and support coming from EU funds.

  19. An additional question is the ‘cost’ of the business tax benefits sustained by public budgets in terms of foregone income. The Ceriani Commission has addressed this issue and estimated an annual loss of around 32 billion of revenues for the public budget, as documented by the Giavazzi report (Giavazzi et al. 2012).

  20. On Italy’s prospect for innovation see also Banca d’Italia (2013) and Varaldo (2014). In 2016 the new National Research Programme has been published, with funds drawn from existing budget allocations and from EU Structural funds; priorities include human capital formation, regional policies for the South and technology transfer, absorbing three quarters of resources.

  21. Resources were reduced in October 2012 after the reprogramming of MISE and MIUR. Funding from the European Regional Development Fund (ERDF) is €3102 million (http://www.ponrec.it/programma/risorse-finanziarie).

  22. This strategy follows the actions takes by other countries with the key role of the German Kreditanstalt für Wiederaufbau (KfW), of the French Caisse des Dépôts et Consignations (CDC), of the Spanish Instituto de Credito Official (ICO), which have sustained investment and allowed better credit conditions to firms especially in the aftermath of the financial crisis, playing a crucial counter-cyclical role (Mazzucato and Penna 2014).

  23. The need for a ‘development bank’ able to provide capital to firms has been pointed out also by the Governor of the Bank of Italy Ignazio Visco (Visco 2015).

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  1. Istat, Rome, Italy

    Matteo Lucchese & Leopoldo Nascia

  2. Università di Urbino Carlo Bo, Urbino, Italy

    Mario Pianta

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Lucchese, M., Nascia, L. & Pianta, M. Industrial policy and technology in Italy. Econ Polit Ind 43, 233–260 (2016). https://doi.org/10.1007/s40812-016-0047-4

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