Democracy is beginning to falter – not least, and above all because, it is so inefficient. A democracy that cannot decide cannot satisfy one of its own basic prerequisites. Western political systems have been in crisis for years, and are now having to face competition from autocracies. The problem is that the issues they need to confront call for complex and deliberate decision-making processes that necessarily involve public opinion. And since democratic policy-makers often have their sights set on short-term electoral goals they are constantly under pressure from intermediary institutions, public opinion, the media and, increasingly and pervasively, social networks. Autocracies certainly have it much easier, able to make rapid decisions with no one to answer to or to be criticized by – with the concomitant and immanent risk, however, of making wrong choices. Thus, speed cannot be counted on to ensure quality.
Democratic systems began to lose efficiency when political parties started to represent interests without seeking mediation and synthesis, thereby failing to conceal the inefficiency of mechanisms and inconsistency of results from a more discerning public opinion. And it was precisely the Russians and Chinese who were first to spotlight and deride this fragility.
Western liberal/democratic thought is based on the belief that democracy and market should go hand in hand. China seems to have broken its own taboos by creating an economy capable of growth and prosperity even under strict one-party control, i.e., by an invasive power that takes hold of and molds the economy. However, China’s real estate market crash and recent growth slump have –where crisis is structural and not momentary – restored Western dogma to prominence: market can only exist together with democracy and freedom.
Moreover, although not in particularly good health, globalization also has its merits; the 36% of the world population living in extreme poverty in 1990 is down to 13% today. As Adam Smith points out, too wide a gap between rich and poor keeps the economy from working. In a world headed toward increasing disorder, with the globalization crisis and the pandemic, the State has once again become the leader of last resort, thereby changing the terms of the State/market relationship. Up until 2010 the Western world was living the age of the Washington Consensus, where Russian gas and Chinese goods were cheap. In today’s very different framework, international trade is showing some excellent performance, of which the market reaps the benefits; at the same time, however, the pandemic, the Ukraine war, value chain snags, the albeit still-limited practice of reshoring, the energy crisis and spiking inflation are leading to a revised State role. A task to be accomplished, first and foremost, through improved regulation and a more proactive State role in promoting political and social equilibria.
This upgraded State thus becomes a sort of “organism” whose parts function accordingly on behalf of citizens and companies, and that is called upon to intervene where the marked struggles to develop independently – neither should it be forgotten that some development-friendly market norms come free of charge.
The United States enacted its Inflation Reduction Act – a measure that some have deemed an outright protectionist move – with a view to halting inflation and jumpstarting the economy. Europe, on the other hand, continues to argue over State Aid, as demonstrated by the still-unresolved Ita/Lufthansa question. The real point is that inside Europe – which has been called a “negotiation paradise” – some Member States have the fiscal leeway to help businesses while others do not. Going down this road risks distorting the free market and altering the conditions of competitiveness. Furthermore, half of all State Aid in Europe ends up in Germany, with one-quarter going to France.
On a global scale, not only is there competition among companies but also among States, and every State makes choices aimed at attracting foreign enterprises. Those that count most are those with the largest portfolios and greatest organizational capacity. One paradox stands out among many others: the global market must take responsibility for global public assets such as health, climate change and the survival of the planet, keeping in mind that the production of global assets is accomplished through the production of private goods.
It has been said – with some measure of disdain – that capitalism has its “centuries numbered” and will certainly not die too soon. Moreover, Italian capitalism, largely concentrated in manufacturing, calls for medium-long term investments. This not least because it consists essentially of family-run businesses with the ability to focus on the medium-long term since they do not necessitate the immediate returns typical of the world of finance, and are also capable of reinventing themselves through innovation. Also worthy of consideration is the world of micro-enterprises; individual contractors in Italy account for 50% of GDP, surpassing Germany and France; and since stakeholder and customer interests coincide in this model, family banks also show excellent performance.
A full 5500 companies have some percentage of public participation and more than 50% are under complete State control. An excessively high number, according to some, that poses a political problem; since not all are strategic, a clear industrial policy would help cull them. Crucial, on the other hand, are public/private collaboration models involving research, university and institutional spheres. There are players in this field that can make a difference, such as Cassa Depositi e Prestiti, which is actively engaged in supporting innovation and has invested over 2 billion euro in venture capital firms.
It is precisely innovation and technology that are driving the radical transformation of the present and future economic world; the use of Artificial Intelligence (AI) is revolutionizing life and business models today, and will continue to do so into the future. Europeans were the first to adopt AI regulations, but the speed at which technology is developing makes it urgent to keep pace; while the current norms worked for the past, the AI of the present and future calls for continuous updates. The Artificial General Intelligence revolution under way, which is aiming for universal equality with humans over the next ten years, poses significant ethical questions, to which companies’ self-imposed application of codes of conduct and good practices will no longer suffice.
International disorder will be the most probable scenario in the coming years, thus either a deep reform of the old order or a more concerted effort at drafting general accords is going to be necessary. With the end of the Washington Consensus – contested, moreover, even from within – we are going toward a much more fragmented system in which the US and China will be the main axes of a new variable-speed order marked by the emergence of medium-sized powers. Given such a scenario and having lost ten years of competitiveness, Europe is seeking strategic autonomy. An aspiration that, according to some, goes hand in hand with the sectors both of security – where NATO returns to dominate – and technology, where the divide is broad and there is a shortage of the kind of scale economies that China and the US can claim. Then there are those who wisely warn of another risk not to be underestimated: that in some ways the pursuit of strategic autonomy could lure Europe toward autocracy.
What Europe needs is the will to embrace change in every area; hence the reason for the Manifesto for a better political functioning of the EU signed by high level figures such as Giuliano Amato and Romano Prodi, among others. Europe managed to maintain solidarity in its reaction to the pandemic and Ukraine war thanks to the efficiency of a multilevel system with authority delegated to the Commission – as in the case of the purchase of vaccines – but there is still much to be done. Foreign policy and common defense and security need to be assigned more importance, and more work is needed to improve both political governance, in light of future enlargements, and economic governance with a view to completing the internal market and fiscal policy harmonization, to name but a few of the most urgent objectives.