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The new Italian manufacturing: American and Asian models

    Presentation of Aspenia 63
    • Milan
    • 27 January 2014

          The manufacturing sector has changed considerably over recent years across the entire globe, and Italy too has undergone some very profound adjustments. But while every advanced country, with the exception of Germany, has lost major chunks of the manufacturing export market, a gradual upgrade and redistribution process has kept Italian manufacturing competitive despite a steep drop in domestic demand, and Italian sector firms have lost a smaller share than those of other more mature economies. Some of those losses will be irretrievable, due to the massive growth of Asian competitors and other emerging economies, but, in any case, in Italy this is true of some less pivotal sectors, with Italian medium and high tech having generally performed well throughout the crisis.

          Nevertheless, there are certain specific factors capable of encouraging dynamism and adjustment by both businesses and households: these are the time-tested “enablers” of the country’s growth as a whole. Critical to this process will be the integration of services with manufacturing, since one of the greatest innovative opportunities to date lies in the supply of pre- and post-production services.

          With the help of the Internet, some Italian firms – even in traditional manufacturing and artisanal sectors – are overcoming their limitations of size and location and gaining access to global markets without having to alter their identity as small and medium-sized local enterprises. Another interesting aspect is that medium-to-high-tech, one of Europe’s proven strong-points, is on a global upswing and Italy is well-placed. It is here that creativity may be more crucial than cutting edge technology as such, and models for supporting innovation should also put that into the mix.

          The United States remains a vast laboratory that almost always anticipates European economic cycles by approximately one year, offering a toolbox of lessons learned and best practices. A 15-year period of outsourcing and de-industrialisation, whose end coincided with the financial downturn, is traceable more to a lack of industrial policy than to specific choices, and resulted in massive job losses. Among the major motivating factors for America’s attempted economic transition were, first and foremost, a loss of energy independence that led to the need to reduce production costs (typically in the manufacturing sector) and over-confidence in the “new economy” (both as a source of direct profit and as a factor in reducing costs and increasing production) and, consequently, in intangible services or, in any case, products.

          A recent return to manufacturing, referred to as “reshoring”, was triggered by two main factors: new developments in shale gas and shale oil extraction methods, which bring production costs down considerably and give the U.S. a competitive edge over other economies; and serious political concern over the failure to generate new employment, which is a major manufacturing sector sore-spot. With regard to the latter, respective American and European choices have been almost diametrically opposed from a certain standpoint. While the United States let the work-force bear the brunt of the crisis (in the interests of maintaining productivity), Europe sacrificed productivity in an attempt to contain unemployment – what’s more, with clearly less than brilliant results.

          As today’s American economy fully exploits high productivity and low capital costs, its debt burden has also been substantially lifted from the shoulders of business and families onto those of the State. Nevertheless, there are some reasons for reduced optimism or, at least, caution: successful re-industrialisation is not a foregone conclusion since demand remains feeble; the risk of an increasingly moderate and less expansive monetary policy is high; and substantially unimproved credit conditions persist. Finally, the energy revolution under way will not be comparable in its effect to that of the 1990s new technologies boom and, indeed, is likely to widen profit margins without creating new sectors and markets.

          In any case, as a comprehensive Euro-American association/integration operation, the Transatlantic Trade and Investment Partnership (TTIP) negotiations are important, and a positive outcome would certainly also facilitate the global growth and repositioning of European firms. In that sense, the negotiations are of specific interest to Italy, which is endeavouring to address and overcome the various obstacles that have arisen. 

          As for the Chinese economy, the authorities there have embarked on a sweeping transformation that will work in favour of the services and other higher added-value sectors, even though they may register only moderate growth in the coming years. This  slowdown, however, is not to be interpreted as a sign of weakness but of strength, since it will have the effect of improving the country’s medium-term prospects. What has followed a phase of more tumultuous growth is what could be termed a “soft landing”, in any case in line with what everyone has been hoping for and in the general interests of the world economy. It has been predicted that the new Chinese development model will rely more on regional agreements and links than in the past, and this aspect too could have a positive impact on a strategically delicate, and certainly not entirely stable, area.

          Throughout its protracted economic decline, Japan has suffered from a prevailing vertical and rather rigid business vision, a characteristic that has limited the country’s ability to keep pace with innovation in spite of its great past successes. In direct contrast with the Italian model, the backbone of the Japanese economy consists of a few true giants that are still able to penetrate global markets but that also lack flexibility. The Abe government has implemented new monetary and fiscal policies that have produced positive results fairly rapidly, but structural reforms are proving much more difficult – in this case, not at all unlike Italy.

          What we must not lose sight of, against this dynamic international backdrop, is a much more macroscopic phenomenon: no more than 25 or 30 years ago, finance was the instrument of production, and the total mass of financial wealth was vastly smaller that it is today; the mutation that has taken place has overturned that relationship, placing finance at the helm of world capitalism. Although there is widespread awareness today of the serious risks associated with this model, changing it is going to be neither easy nor painless.


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