SCENARI

Feltrinelli Camp

“For a New Globalization”

With contributions by

Massimo Amato, Alessandro Bonetti, Andrea Capussela,

Nadia Garbellini, Mattia Marasti

© 2022 Fondazione Giangiacomo Feltrinelli

Viale Pasubio 5, 20154 Milano (MI)

www.fondazionefeltrinelli.it

ISBN 978-88-6835-444-2

Director: Massimiliano Tarantino

Research activities coordination: Francesco Grandi

Editorial coordination: Caterina Croce

First digital edition: febbraio 2022

All rights are reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of Giangiacomo Feltrinelli Foundation.

The Steering Committee of the Observatory on New Economies is composed of: Enrica Chiappero, Università degli studi di Pavia; Giovanni Carrosio, Università degli studi di Trieste; Laura Iacovone, Università Statale di Milano; Edoardo Zanchini, Vicepresidente Legambiente.

The For a New Globalization Camp was organized as part of the activities of the Observatory on New Economies coordinated by: Andrea Zucca with the support of Alessandro Bonetti.

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The text

The Feltrinelli Camp “For a New Globalization” (30 November – 1 December 2021) was the concluding event of the research path of the Observatory on New Economies. Scholars, activists, journalists and practitioners met to discuss practical actions and scenarios for building a just society and a sustainable economy.

The Feltrinelli Camp explored the challenges and priorities for a new path of shared development, to address the most urgent problems of our globalised world along three thematic areas: the relationship between State, market and community; the transformation of businesses; the role of the public actor.

Summary

Preface

The return of the State between opportunities and risks

by Mattia Marasti

Part 1. Economic democracy between the State and local communities

Economic democracy and the relevance of planning

by Nadia Garbellini

Working group “Economic democracy”

Working group “Multinationals, communities, and local development”

Part 2. Industrial policy and State-owned enterprises

Italy’s decline and industrial policy

by Andrea Capussela

What cultural transformation does the State need for a green transition?

by Rowan Conway

Working group A dynamic industrial policy

Working group “Role of State Owned enterprise”

Part 3. Role of State and investments for a just transition

New rules for a new Europe: the case for a European Debt Agency

by Massimo Amato

Working group “State transformations”

Working group “Finance and investment for a just transition”

Conclusion. What State and what market?

by Alessandro Bonetti and Mattia Marasti

Preface

Sarabanda 2021 was designed during the second lockdown as an agenda of scientific activities and public initiatives, that we conceived in reliance on the fact that the autumn would restore us to a social life no longer threatened by the pandemic.

This is why the working groups of the three Feltrinelli Camps – the first, Broken Cities; the second, Next Generation Labour; and this one, For a New Globalization – set the pace for this last part of our agenda: after the months focused on research and after the summer festival of art’s languages, we dedicated the months from September to November 2021 to the practices, the comparison, and the hybridization of the analyses, the perspectives, and the experiences of those involved in the institutions, in companies, in politics, and in the service sector.

The title of this Camp takes the perspective value of a commitment we should take without hesitation: For a new globalization. An urgency that deals with the deeply rooted ethical belief that we need to fill the gaps that break up the planet and that globalized financial capitalism made even broader. But this emergency is dramatically represented today by the new omicron variant, first identified in Botswana and then in several infected patients in South Africa.

The so-called South-African variant has already struck the markets, with a subsequent crash of stock exchanges that, according to analysts, could change the trend of recovery and has already brought along new restrictions and border closing. But the broad debate and the prompt response to this new emergency should deal with vaccines, with the need to ensure that all the people in the African continent may access vaccines to the same extent as those that live in Europe or in the United States.

It is a priority not to let rich countries buy up doses, to promptly deliver the ordered and promised ones, to release licences on vaccines.

News these days are about a system that needs to be reformed, about a global scenario that makes our interconnection even more obvious and can no longer accept such an imbalance. To do this, collective awareness is mandatory, but it is also useful for the States and supranational institutions to resume their role facing the overflowing power of markets.

Since the 1970s, the nature of capitalism has changed from “socially-integrated capitalism” to “neo-liberism,” “deregulation,” and “financialization”. The State-market balance has shifted to the detriment of the democratic institutions. The growing “denationalisation” of the economy and of the political decision-making process has developed in parallel with the supremacy of the financial markets over politics.

The democratic state has lost its power vis-à-vis the economic players.

However, facing the pandemic and the climate crisis, the intervention of the State is back to the heart of our economic, social, and political life. The annus horribilis 2020 triggered an important reinstatement of the European social State. In March 2021, exactly one year after the coronavirus epidemic was declared a pandemic, an article in The Economist described the fiscal stimulus approved in response to the Covid emergency as the greatest expansion of the welfare state “in living memory”.

The first reaction to the pandemic and to its associated economic impacts across Europe was much stronger, both at EU and at member-state level, than at the time of the great recession and of the European subprime crisis. It is still unclear whether this is a temporary phase (like the aftermath of the 2008 crisis) or a stable and active return of the State to the economic stage.

The return of the State – if it proves capable of starting a serious reform process aimed at rebuilding its operational capacity to direct public policies – could surely open up new opportunities for action towards renewed innovation, a more democratic economy, and the revival of industrial policy. But this can only happen if the players involved, including public, private, and not-for-profit ones, are willing to change and to interact in view of agreeing and converging. Such an alliance between the public and private sector could help us manage – in a fair and inclusive manner – the major processes of our time, from global warming to pandemics, from sustainable development to the struggle against inequalities, from the digital divide to the attainment of equal opportunities.

We have partly tried to deal with these issues in our latest Annal, curated by Enrica Chiappero-Martinetti, available in bookstores since the 30th of November with the title Social Justice in a Global Society. The stake is high - social justice in a global world - but this is a challenge we cannot avoid. As Salvatore Veca wrote in the introduction to these Annals: it is about combining the idea of justice as equity with the idea of democratic equality. These are the principles that can help us find our way in these uncertain times, fraught with ordeals and opportunities.

The return of the State between opportunities and risks

Mattia Marasti (Kritica Economica)

To cope with the spread of Covid, most Western states implemented strict social distancing measures in spring 2020. Without ambitious and far-reaching measures, as Mario Draghi argued at the time, we would have seen the collapse of the production system. At the same time, those same necessary measures have brought the inequalities within our society into sharp focus.

For many it was not a time of reconciliation with their private side. While the more affluent have been able to indulge in culinary experimentation or yoga, the weaker sections of the population have spent the lockdown in economic uncertainty, in their cramped homes, with poor internet connections and often lacking the means to access distance learning.

It will not be a palingenesis that will arise in the post-Covid future: the result of the pandemic, although not yet determined, will be to catalyse processes that were already in place.

One of these is the paradigm shift we are witnessing after the 2008 crisis, which has to some extent exposed the cracks in the dogmas that have characterised Western economies for the last forty years.

Indeed, it would be wrong to consider what is called neo-liberalism - but which we will refer to here as market fetishism - as an anti-State ideology. There is no such thing as a pure free market outside the thinking of a few. By its very nature, the market is always governed by rules. The dogma of market fetishism was instead the idea that the market - with all that goes with it - was superior to the State. Therefore, the State had to reduce its perimeter, think like a business, adopt and impose market methods where necessary.

We have therefore seen a liberalisation of the financial markets, accompanied by greater complexity in the products of those markets. We have seen the abandonment of a more dirigiste industrial policy. We have heard time and time again that the welfare state should not distort market mechanisms, but could, in some cases, be replaced by the private sector.

This has led not only to a series of financial crises (we have not yet fully recovered from the 2008 crisis), but also to greater inequality and weaker growth. Not surprisingly, as Piketty, Saez and others have pointed out, this growth has mostly benefited the richest.

But the pandemic has changed the game, sweeping away the idea that the State should simply facilitate market dynamics and stem market failures. The vaccine race, for example, has highlighted the importance of the public sector playing an active role in relation to the private sector. Without public capital and decades of research into mRNA vaccines, funded by the US federal agency NIH, we would not have arrived at a vaccine so quickly.

Added to this is the mammoth effort that will have to be made by states to combat the climate crisis. Market-based policies do not suffice: the climate crisis is a complex phenomenon that must be managed with command and control policies and a return to the scene of industrial policy, as Dani Rodrik states.

On the other hand, the experiences of recent years show that the potential of public action has been underestimated. In fact, those countries that had opted for a more interventionist industrial policy were less affected by the 2008 crisis. This was also the case during the pandemic. The example of South Korea, which lived through decades of ambitious public policies and epidemic plans developed after SARS, is encouraging. So much so that John Van Reenen of MIT has cited China and South Korea as interesting case studies for so-called mission-oriented projects.

As Paolo Gerbaudo has rightly observed, however, the return of the State can lead to different outcomes. We should not necessarily expect a hegemony of the left and social issues in the ‘neo-statist’ phase that is opening up.

In particular, there are two aspects to which attention should be paid.

The first is the evaluation and conception of the State that we have. The dominant one at present is the theory of market failure, whereby the State must intervene when the market fails. As Mariana Mazzucato has pointed out, however, this is a static theory. On the contrary, modern capitalism is a dynamic process driven by creative destruction, as Schumpeter said.

Another point that market failures theory does not consider is that the market, as an institutional output, arises from the interaction between various agents: States, banks, companies, third sector organisations, citizens, universities, schools, hospitals. The focus must therefore be on the ecosystem formed by these agents, in a dynamic context often at disequilibrium and characterised by uncertainty.

The second aspect to be considered concerns the more strictly institutional dimension. What are the rules of the game, set by the state, that can guarantee inclusive and sustainable growth? In recent years we have witnessed a deregulation of the world of work that has led to a shortage of good jobs. How can the State intervene and ensure that this does not happen? A similar argument applies to taxation, which in recent years has decreased almost exclusively for the better-off. And what about welfare? During the pandemic we saw the limits of the new public management and of a market approach to public affairs.

The return of the State also brings with it risks. Some interests could exploit the increased role of the State for factional gain. In addition, a distorted relationship between politics and public management could develop again, as has already happened in Italy in the past.

We do not know whether the paradigm shift will last or whether it will run up against the difficulties of the coming years - first and foremost inflation. But history is not a determined course. It is the political, and therefore human, engine that counts.

Considerations of this kind inspired and spurred the works of the Camp, which was carried out along three thematic axes, as already mentioned: economic democracy between the State and local communities; industrial policy and State-owned enterprises; finance and the State.

In the following, each macro-theme is addressed through an introductory essay by an expert followed by the reports of the working tables. The works of the groups were conducted along three phases.

In the first session, the working groups worked around the definition and proposal of new scenarios capable of outlining the nature and contours of a desirable reality. Afterwards, participants focused their attention on defining the elements to be abandoned in the present in order to achieve the desired scenario, what we have defined as obstacles to change. Finally, in the third phase, once the obstacles to change were defined, the tables identified the elements on which to invest to facilitate the pursuit of the scenario along with the identification of projects and case studies that already show signs of a viable course.

The first thematic area (economic democracy between the State and local communities) is opened by a contribution of Nadia Garbellini (University of Modena and Reggio Emilia), which focuses on how to reconfigure the relationship between public actors, private actors and territories. The contribution is followed by the reports of the working groups on “economic democracy” and “multinationals, communities, and local development”.

The second thematic area (industrial policy and State-owned enterprises) starts with an essay by Andrea Capussela (author of ‘The Political Economy of Italy’s Decline’), which analyses the decline of Italy’s economy and the potential role of industrial policy. This contribution is followed by the reports of the working groups on “a dynamic industrial policy” and the “role of State-owned enterprises”.

The third thematic area (finance and the State) is opened by an essay of Massimo Amato (Bocconi University) on the case for a European Debt Agency. Amato highlights the problems with the current European institutional model, the transformation of which is closely linked to macrofinancial issues. This essay is followed by the reports of the working groups on “State transformation” and “finance and investment for a just transition”.

Below the reader will find the results of each of the Camp’s research strands.

Part 1

Economic democracy between the State and local communities

Economic democracy and the relevance of planning

Nadia Garbellini, Università degli Studi di Modena e Reggio Emilia

The state is pachydermic, inefficient, and crowds out private investments: the mainstream point of view is now largely hegemonic, even – and especially – in left-wing circles. According to this view, the role of the state should be limited to removing obstacles to free competition, allowing the market to achieve equilibrium.

Economic democracy is often equated with the development of bottom-up initiatives by groups of citizens or, even better, consumers.

Although very useful in certain contexts and for certain purposes, the bottom-up approach cannot address all challenges. Certainly, it cannot address the epochal challenge of the ecological, social and technological transition.

Extremely complex and interconnected systems such as global value chains (GVCs) cannot be expected to spontaneously coordinate. The system, by its very nature, becomes more and more unstable as complexity increases.

We can think back to March 2020, when even finding simple masks was a hard task. The government appointed a commissioner to deal with procurement through a public agency, ensuring the coordination of supply and demand. Unfortunately, this cannot be arranged in a few hours by building a system of incentives and waiting for its uncertain effects to unfold. A central decision-maker is needed, which must be able to issue directives to production units and control their supply chains.

Only a planned system is capable of achieving such a result.

Speaking of planning means evoking the spectre of the Soviet Union – unwelcome to many, even and especially in left-wing circles. Whatever our attitude towards the USSR, would it not be more useful to ask ourselves whether, and eventually how, we can take the positive features of that model and do better?

From a technological point of view, the answer is undoubtedly yes, we can do better.

This is well known by OEMs leading transnational value chains or important segments thereof: any bottlenecks can jeopardise the functioning of the supply chain. It is of utmost importance, therefore, to carefully monitor the flow of intermediate inputs from abroad – and to identify alternative supply channels. Suppliers are often forced to use the same management software to allow full (i.e. end-to-end) visibility of the supply chain to ensure – and this is now a very fashionable word – its resilience.

The real challenge is the political one: is there a way to design a democratic system? Who would make the decisions, who would exercise control, with what instruments?

The decision on the general objectives to pursue – what, how, and where to produce – has to be taken collectively at the central (in our case national, but it might also be – and indeed it would be even better if it were – supranational) level, through the instruments of representation and democratic participation.

An attempt in this direction was made during the phase of the Boards of Management (Consigli di Gestione, CdG[1]) by Rodolfo Morandi – a member of the Constituent Assembly for PSIUP[2] and Minister of Industry and Trade for the Socialist Party from 1946 to 1947.

Morandi presented a law bill whose objective was that of assigning to the Boards of Management extra-factory tasks, precisely as a fundamental element of worker participation in the State economic planning. It was 1946, and the task was that of giving the working class a leading role in the reconstruction of the country. A role which would not be limited to a mere consultative function subordinate to employers’ decisions, but also implying a general involvement in the major economic objectives such as full employment, economic and social welfare, structural reforms. The working class was also to be given a sort of compensation for the serious losses it had suffered in previous years.

Morandi’s project was born in a very specific, historically determined context, and as such reflected the needs and power relations of the society of the time. However, the idea of using the CdG not only as a consultative or decision-making body within the individual company, but also and above all as part of a structure organised at sectoral and geographical level – up to and including what was then called the Ministry of Industry – is extremely up-to-date and relevant.

As stated above, the plan in its general objectives must necessarily be defined at national level. However, its implementation can only be left to the individual production units. Moreover, the plan is a living organism, defined on the basis of estimates that rely on partial information and hence are by nature imperfect, and must therefore be continually adjusted and corrected on the basis of concrete experience and new information available.

In this view, CdG should also play a role in monitoring the achievement of the overall objectives. In their sectoral (by production chain) and geographical articulation, they should discuss the intermediate targets and any changes that need to be made, and then share the conclusions with the central level.

Of course, the primary objective of planning must be full and good employment. Workers’ control over working conditions, times and rhythms is therefore a necessary condition for this goal to be achieved. If a public company is run according to the same criteria and standards as a private one, in fact, the only difference between the two is that in the former it is the state, not the employer, that exploits the workers.

Under the present political conditions, clearly, something similar to Morandi’s project is far from being realised – just as it was not realised at the time of Morandi, who also had to deal with a political situation that was not particularly favourable.

And yet, some elements of that attempt can still be appropriated today, in the field of political and Trade Union demands.

For example, NRRPs (National Recovery and Resilience Plans) are now reality and, whether we like them or not, they will give generous public aid to private companies and especially to large multinationals. Why not ask for this aid to become conditional on the establishment of workers’ representative bodies in the manner of the CdG? With, among other things, the authority to monitor the behaviour of the company and possibly initiate an infringement procedure.

These bodies could also coordinate with each other at both the sectoral and the territorial level, to monitor the macroeconomic, structural and social impacts of the investment plans implemented, and report to the Ministry of Economic Development (Ministero dello Sviluppo Economico).

In all this, what would the role of the Trade Union be?

Of course, these bodies must be elective – i.e. they should be elected by the workers in each workplace. The Trade Union could take on the role of taking care of the democratic nature of the elective procedures. It should also provide adequate training to workers delegated by their colleagues to be members of such bodies. Finally, it could contribute to the definition of general orientations and guidelines to support the activities of the CdG.

A mechanism of this kind would make it possible to require companies to comply with certain rules and to consult workers when taking important decisions in terms of working conditions, employment levels and quality of life – including investment decisions, relocations, outsourcing, and so on. Coordination at local, regional and national level would make it possible to ensure that the objective of local development and territorial cohesion, among other things, is pursued.

References

Gaddi M. & Vinci L., eds (2019), Il Dibattito sul Controllo Operaio. Edizioni Punto Rosso.

Morandi R. (1960), Democrazia diretta e ricostruzione capitalistica. Giulio Einaudi Editore.

Morelli U. (1977), I Consigli di Gestione. Dalla Liberazione ai primi anni cinquanta. Edizioni della Fondazione Giovanni Agnelli.

Pasinetti L.L. (1973), The notion of vertical integration in economic analysis. Metroeconomica, 25, 1–29.

Pasinetti L.L. (1981), Structural Change and Economic Growth. Cambridge University Press, Cambridge.

Pasinetti L.L. (1988), Growing subsystems, vertically hyper-integrated sectors and the labour theory of value. Cambridge Journal of Economics.

Sraffa P. (1960), Production of Commodities by Means of Commodities. Cambridge University Press, Cambridge.

1    See e.g. Morelli (1977).

2    Partito Socialista Italiano di Unità Proletaria (Italian Socialist Party of Proletarian Unity).

Working group “Economic democracy”

President Ludovica Taurisano, Scuola Superiore Meridionale

Rapporteur Federico Magrin, Fondazione Giangiacomo Feltrinelli

Participants

- Daniela Freddi, IRES Emilia-Romagna

- Anna Sofia Lippolis, CNR

- Hana Abid, UK Womens Budget Group

- Davide Maria De Luca, Domani

- Anna Fini, Univesitò di Trento

- Kolawole Talabi, Bologna Business School

- Michal Plsek, Universita Milano Bicocca

Scenario 2030

In the time we are living, the entanglement between institutions and human life is coming again to the edge of a conceptual rethinking. The rift between nomos and bios has clearly become too artificial to be advanced any further, and the very question at the core of politics, economy and law is how and whether institutions can adapt themselves to the new waves of mobilizations (Esposito, 2021). An answer to those challenges can be found in the advocacy of “economic democracy”: a goal which the civil society and the entrepreneurial community can achieve together (Bouin e Fleurbaey 2021).

There is no clear-cut definition of “economic democracy”, nor of its space of application; instead, scholars are struggling to provide broader definitions of the concept and more adequate measures of the democratic health of the economies (Cumbers, 2020). Nevertheless, a minimalist definition of economic democracy ought to meet some basic criteria according to which practices and models of behavior can be designed: those are participation and cooperation as instrumental values towards a more equitable and sustainable economy.

By analogy with existing definitions of political democracy, the participants have acknowledged the need to establish a system of checks and balances for advocating individual and collective rights. Yet, we have gone beyond the classical theoretical framework provided by Robert Dahl and, although we agree that the labor force is entitled to democratic voice as a matter of right (Mayer, 2001), we suggested that legitimate entitlements should be recognized to a broader range of stakeholders (Joshi & Moore 2004).

The working group has firstly considered that the economic agents, that is those who may be involved in the establishment of assets that follow the principles of economic democracy, should go beyond the ones addressed by the mainstream industrial paradigm that confines the democratic relation in the economy to the workplace (Albrecht, 1983) . Secondly, we have engaged in a spatial turn to tune the places and the modes of interaction between agents that we have envisioned.  As our focus are the interactions between agents, we believe that a smaller scale of application does not undermine the emphasis on the global interdependence of cultural, social and economic systems: rather, those interactions are the way through which the local meets the global and actively responds to the structural, transnational constraints (Di Fiore, Meriggi 2020).

According to these premises, we sought to outline a plausible scenario which takes into account all the economic actors, and the obstacles that should be overthrown for a proactive realization of economic democracy patterns.

Firstly, current trends of innovation and digital capitalism may enhance problems of mismatch and inequalities in the labor market distribution of wealth (Franzini, 2021). Indeed, according to the McKinsey Global Institute, by 2030 as much as the 14 percent of the global workforce may need to switch occupational categories, with implications for the reskilling paths that the individuals will likely need to pursue by themselves (McKinsey Global Institute Report, Jobs lost, jobs gains: Workforce transitions in a time of automation, 2018).

Secondly, more can be done with respect to the definition of European cohesion policies from 2027 onwards, to challenge the subordination of economic resources to the control of a few economic actors who benefit from economies of scale and administrative capacities (Warner, Cozzolino, Fiorillo et al.,  2019). It is a truism that the funds coherently (and predominantly) address green and digital innovation, which represent only one among the several strategies that have to be deployed in order to navigate the 2030 scenario without the conditioning of overarching standards.

Lastly, to provide a comprehensive view of the interested stakeholders, we paid attention to buyers and the way they affect societal affairs as economic agents. Due to the increasing disintermediation of the relation between the political institutions and the citizens (Eldridge II, Garcia-Carretero, Broersma 2019), individuals are experiencing difficulties in building bonds of solidarity and cooperation which are fundamental in the construction of collective action. We fear that by 2030 the individualized structure of contemporary society may discourage even more coordinated actions of reforms.

3 elements to be dropped

1) The trends following the pandemic crisis push towards remote working practices, which potentially decrease the involvement of workers in the definition of the company culture and thus the immaterial gains that arise from interaction (Balzano, 2021). Furthermore, the recruitment of hyper-specialized workers may cause the lack of management skills that they need to actively contribute to modeling the enterprise choices. Economic democracy has been for long associated with experiments of so-called “Nordic functionalist socialism” (Borioni, 2020), which wish to empower workers through the co-determination of the investment assets and a considerable increase in the company portfolio shared by workers, to overturn relationship between labor and capital (Quirico, 2020). We advise that smart-working is not necessarily at odds with attempts to involve workers in transparent decision making processes. Yet, new demands of flexible work regimes are likely to increase those practices that exchange the commitment of workers with specific patterns of occupational welfare (Senatori, 2017), despite the fact that those benefits do not always state the degree of attachment of the enterprise to internal collective bargaining (Righi, 2020). The real challenge to active involvement of workers is posed by the lack of diversity in the skills required for recruitment, causing a specialization trap wherein echo-chambers and path-dependency are most likely to occur. Instead, as shown by the McKinsey Report Diversity wins (2020), organizations with significant ethnic, gender and racial diversity are more likely to outperform their competitors; similarly, diversity in required skills, despite the productive sector, could foster the inclusion of workers specifically dedicated to the task of co-management, who would not be overloaded with extra-amount of work.

2) Although we acknowledge the rationale for competition in a free market paradigm, we believe that economic democracy is a matter of providing possibilities and the opportunity granted to new potential economic actors for generating new ideas, starting new businesses and contributing to the local economic contexts. Indeed, we are observing an increase of opportunity in terms of funds and resources which are specifically dedicated to economic activities focused on tech economy or supported by new technologies. Is innovation really so technocentric that it discounts other sources of new ideas? (Kenward, 2006). These opportunities are closely related to the international and national plans, including the Italian PNRR (Piano Nazionale di Ripresa e Resilienza) for coping with the big challenges of sustainable development. Also, at the private level, credit institutions and venture capital funds are more attracted to tech economy ideas and proposals, considering technologies the most attractive aspect of innovation. Despite the acknowledgement of the value of new technologies both in terms of innovation and growth, especially for sustainable development, it would be important to ensuring the same opportunity and support for all the new economic initiatives, including the ones more related to social economy. Social economy activities do not always include innovation elements linked to technologies, but still they contribute to create more inclusive, creative and sustainable societies and economies (OECD, 2016)

3) The interest toward community participation in the delivery of public services has already proved to increase efficiency and accountability (Ostrom 1996; Watson 2014), but there is still a wide misconception about the scale at which institutions and community networks can put in place a constructive dialogue and interaction.

Literature has been mostly addressing the topic of political consumerism within the consumer society, as a useful tool to thicken the concept of “economic democracy” and overcomes the separation between consumers and citizens and between economy and politics (Warde, 2015), but it proves to be too narrow as long as it is defined solely as a market-oriented engagement emerging from societal concerns associated with negative, global externalities (Stolle, Hooghe, Micheletti, 2005).

Thus, being such a complex and multifaceted phenomenon, with a repertoire of action (Boström, Micheletti, Osterveer, 2019) there is a wide misconception about political consumerism as functioning only on a global projection. We suggest to drop this paradigm, so that we can encourage critical assessment of the globalized cycle of production to occur at a municipal level, as well as with the engagement of local institutions.

3 elements on which to invest and related case studies

1) Examples of functioning intermediate bodies can be found in Italy (Di Nuoscio, Felice 2020), notwithstanding the severe weakening of the bargaining process at national level  and the fact that the new era of consultation at corporate level introduced by the Ciampi Protocol in 1993 has instead brought greater centralization (Baccaro and Howell, 2017). In a global scenario of industrial relations and multinational companies, a different reality emerged. Lamborghini, situated in Sant’Agata Bolognese, benefits from high concentration of manufacturing districts and services; also, a specific trait is the presence of an active and established trade union which contributed to the creation of a strong and shared identity among workers. The Lamborghini case is the example of a pluralistic-competitive model, inspired by the principles of German co-management (Mitbestimmung), which stands out the general panorama of limited involvement of workers in the companies and the low level of social dialogue depicted at the European level (Eurofound, 2013, 2018). As suggested by Russo, Pavone and Cetrulo (2019), it would be interesting to analyze to what extent and in what way union relations were influenced by the economic fluctuations of the company, or, on the contrary, whether the degree of conflict and participation affected the economic dynamics of the company. Empirical literature should be provided and divulgated within other companies, to show the key elements characterizing the virtuous circle of company development and quality of industrial relations. Accordingly, diverse individual profiles and expertise should be attracted, where humanistic, technical and managerial skills contaminate one another (Percoco, 2016) with the enterprise and the institutions bearing the cost of re-skilling workers. As shown by Allas, Fairbairn and Foote, (McKinsey Report 2020), employers can indeed thrive by boosting and updating their workers’ skills. Engaging employers in the roll-out of lifelong training programmes and updating the delivery of existing programmes is crucial to meet also the labour market needs (ILO, 2021)

2) Sustainability and innovation for sustainability require different approaches and practices in order to face and cope the different challenges of a transition economy. Albeit a fleeting concept, social sustainability goes hand in hand with economic democracy, and targets the individual inputs rather than the economic outputs (Giovannini, 2018). What appears important is to promote accessibility to financing for new businesses that do not see technological issues as a binding criterion. In the same way, it is important to make innovative projects not connected to the tech economy attractive to investors, so as to enable private financial instruments capable of supporting new business ideas and practices. For this reason it’s important to spread a culture of innovation that looks to innovation as “what creates social value” (Phillis et al., 2008) as reported. An example is provided by the pre-existing work of promotion carried on by the RESINDEX pilot research, which evaluates innovation initiative in the Basque Country according to social impact parameters. This tool allowed Public Administrations to evaluate innovative projects, and their financing, according to their capacity to generate social impact. Of course, given the very recent crisis and transformation our society has been going through, an integration between the Social Impact Measurement Approach (that is the adoption of various metrics to measure the degree of value creation in social enterprises, according to the EC – OECD guidelines set in 2015) and the requirements to access the funds set by Recovery Plan would be much needed, especially in the light of the Sustainable Goals designed by the UN.

3) As previously suggested, the paradigm of non-institutionalized political consumerism ((Gundelach, 2020) should be integrated with local, coordinated forms of participation. For instance,  Sustainable Community Movement Organizations (SCMO’s), as suggested by Forno and Graziano (2014) are a good example of collective action on the basis of the shared intent to provide benefits for the community.

The Italian tradition of cooperatives should be developed more intensely, to encourage more tightened forms of social bonds and action in the light of SCMO’s example. In addition to that, we consider that policy-makers may better coordinate larger forms of participation which are inspired by desires of co-production and mutual solidarity (as it is Camilla - Emporio di Comunità in Bologna). Institutions can be useful to provide spaces of dialogue to project the cooperatives outwards, and allow them to reach out to wider range of actors.

So, we think that investments should be encouraged to connect the dots between spontaneous grassroots movement and local institutions, to support well-arranged partnerships as well as diffused knowledge on the topic (Cooperatives Europe, 2015). A more sustained dialogue (Saunders, 1999) is a basic requirement of procedural forms of justice (Waldron, 1999; Lafont, 2003); also, the local dimension is one which better suits patterns of interactive justice (Ceva, 2017), wherein all the actors are given a chance to raise their voice and turn up-side down the trends of surveillance capitalism (Zuboff, 2018).

In the long run, this attitude could turn into more consistent, transregional consultation processes with regard to meaningful political and economic decisions at the national and supra-national level (which has not been the case for the RFF, as shown in preliminary evidence by Vanhercke and Vardun).

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Working group “Multinationals, communities, and local development”

President: Nadia Garbellini, Università degli Studi di Modena e Reggio Emilia

Rapporteur: Maria Giovanna Sessa, Fondazione Giangiacomo Feltrinelli

Participants:

- Inês Azevedo, European University Institute

- Selale Balambar, Università degli Studi Milano-Bicocca

- Samuel Boscarello, Scuola Normale Superiore

- Maria Estefania Gioia, Politecnico di Milano

- Alessandro Guerriero, Università di Roma Tre

- Leonardo Pasqui, Università degli Studi di Bologna

Scenario 2030

The working group identified a set of characteristics that are likely to define the future scenario. These are the result of a combination between feasible actions within the timeframe of the next few decades and an aspiration toward the best possible scenario for society. Moreover, these areas of transformation go hand-in-hand with the actors that need to be involved: individuals (workers and citizens), multinational companies, and the state in a multi-level setting.

#WORKERS. The first characteristic entails greater participation of workers and citizens in decision-making processes, with special attention to representing vulnerable categories and migrants. A suggestion is to foster cooperative models within enterprises, giving representation to employees in boards of directors (Gold & Waddington, 2019). Employee participation in the management of private companies reproduces the model of a small democratic arena, where workers act as the link between companies and territories. These changes in corporate governance gave been shown to boost good relations between labour and management, and thus have a positive effect on employment. Too often, decision-making in multinationals is taken at the top-down level, which lacks the perspective of the individuals (employees and citizens) who are directly affected by them. In the current capitalist system, the employer-employee relationship tends to be conflictual. Therefore, a solution to democratise decision-making is the internalisation of such a conflict through broad participation.

#MULTINATIONALS. A second characteristic of the future scenario implies higher levels of regulation for multinationals to limit the negative impact of delocalisation processes on local development (e.g. Labrianidis, 2008). One of the main problems of globalisation highlighted during the discussion is that capitals enjoy superior freedom of movement than workers, who have more constraints. Hence, the future scenario envisioned needs to promote more sustainable and humane alternatives to the business models of multinationals (for more: Hoffmann, 2002; European Commission, 2005; Schömann et al., 2008; 2012; Telljohann et al., 2009). This transformation should impact also the environment, with choices that reduce pollution and environmental damage: from industries to the transportation sector, so that communities, businesses, and territories can coexist in harmony.

#STATE. A third element hopes for a more pervasive role of the state to oversee the affirmation of a beneficial future scenario (Crouch, 2011). Public investments are fundamental in areas such as education and research. Education is key teach newer generations about diversity and inclusion, and the education system should be training conscious citizens with adaptable skills to the changing environment (Marcone, 2021). A belief shared by the working group is that a new people-oriented model based on a social capital approach is possible and should be state-led. The state is the only neutral agent oriented toward improving the life quality of communities, territories, and society as a whole (Brancaccio & Pagano, 2020). Accordingly, investment in research and development on services and infrastructures, which also includes the transportation system, should be achieved through public-private partnership, with attention toward redistribution – and overcoming structural inequalities between centre and periphery (including the North-South divide). The goal should be to mitigate what had been defined as the “collectivisation of costs and the privatisation of benefits”.

#MULTI-LEVEL COORDINATION. Last but not least, a transversal feature that would characterise our Scenario 2050 calls for greater coordination between levels, whether local, national, or supranational. Local power can play a crucial role in tailoring solutions on the specific needs of communities, for example enhancing the relationship between centres and peripheries in terms of employment, but also access to services and infrastructures. Most importantly, levels should speak to each other: the broader picture should be managed at the national and supranational level, also understanding that solutions need to be European in a globalised world (Hooghe & Marks, 2021).

Three elements to be dropped

The working group identified three priority elements of obsolescence that need to be dropped in order to achieve an improved future scenario that protect communities, counter the negative effects of multinationals, and launch local development.

1. THE UNSUSTAINABILITY OF THE MOBILITY MODEL

#MOBILITY. The first urgency identified is to rethink the current mobility model, which is unsustainable for communities and the environment. It was extensively discussed that in the long run, a goal should be to reduce the use of fossil fuels, which should be replaced by renewable energies. The obsolescence of nuclear fission (uranium) should be acknowledged in favour of nuclear fusion (green hydrogen that is made from renewable energies). Furthermore, the creation of disseminated forms of energy production as local energetic communities should be incentivised, not only ensure self-provision of energy but also provide essential system services and engage local communities (Koirala et al. 2016). The energetic transition would positively impact communities, counter the pollution brought by industries, and incentivise local development and thus employment through renewable energy production.

However, a more achievable goal in the near future is changing the mobility model from private to public transportation and hybrid public-private mobility services, such as vehicle-sharing or on-demand transports (e.g. KPMG, 2019; Griffiths et al. 2021). Progressively transforming the mobility model combines aspects of the digital as well as environmental revolution. This would bring huge environmental benefits, overcoming problems like excessive pollution and traffic. Further investment in mobility services has also a positive effect on local development and the life of communities, including newly emergency professions in food and products delivering. In fact, building new infrastructures would create additional employment and improve the life quality of employees. A more developed transportation system would allow to overcome asymmetries as the distance between centres and peripheries (and the North-South divide). As a result, an alternative mobility model improves the quality of life of communities, benefits the economy, and favours local development.

2. THE PRECARISATION OF WORK

#WORK. It is vital to overcome the current precarious work model in a way that protests vulnerable groups, dedication special attention to women and younger generations. At present, job insecurity is the primary element that reduces workers’ bargaining power when demanding better conditions and treatment (Kalleberg & Vallas, 2018). Phenomena as the de-unionisation, globalisation, delocalisation, and digitalisation have all contributed to making the job market risky and unstable. The consequences are not restricted to the workplace, but affect many domains as physical and mental well-being, decision-making in the area of family formation, and social life in general (leading to community disintegration and declining social cohesion) (e.g. Allan et al., 2021). This situation is common to many types of workers, starting from the new proletariat, disposable and without rights employed in delivery services or call centres. However, also freelance workers – some of whom are young and highly educated professions – suffer from the same situation. The pandemic has shown the lack of vision for freelancers, are left without safety nets or protection, and to whom for example the Italian government provided a una tantum bonus (Amorelli, 2021). Another unacceptable element that we need to eliminate as soon as possible is unpaid internships work should always be fairly compensated (Brzozowski, 2020).

In order to counteract the sense of uncertainty and inequality that may trigger anxiety, anger, or alienation, state intervention has an irreplaceable role. States need to reverse the process of precarisation of the labour market that, in Italy, began with the 1997 “Treu reform” and culminated in the “Jobs Act”, by rethinking labour policies in a way that prevents companies from exploiting workers and stimulates employment. A law is needed to establish that the minimum wage is that deriving from the application of the national collective labour agreements (“CCNL: Contratto Collettivo Nazionale di Lavoro”) signed by the most representative organisations – together with a revision of the minimum wage scales (“minimi tabellari”). Workers are currently accepting poor conditions because of rising unemployment, while it is widely recognised that reducing labour protection brings no improvement to the GDP (Brancaccio et al., 2018). Financial stability deriving from good work conditions is the basis on which citizens can decide to commit, engage, and participate to achieve a better future. Moreover, it would benefit local communities, allowing individuals to reinforce their sense of belonging, identity, and bond with the territory.

3. THE OBSOLESCENCE OF THE WELFARE SYSTEM

#WELFARE. The welfare model calls for serious rethinking to provide adequate support to citizens, so to favour the inclusion of local communities and territorial development, especially after the pandemic (Bernardoni, 2020). An area of improvement is the access to welfare services for different vulnerable groups, from migrants to women (Barberis & Martelli, 2021). Reflections were made on the condition of women, who are especially affected by employment and financial instability. Women are still discriminated against opportunity-wise and faced with the (often mutually exclusive) choice between motherhood and a career. Moreover, they generally share the more significant burden of unpaid domestic labour and caretaking. Therefore, the welfare system needs to adapt to the demographic changes in today’s society, as current labour and welfare policies are often still based on single-income family/male breadwinner model. In this regard, concrete measures were suggested: i.e. actively reducing the gender pay gap, expanding the paternity leave for new parents, ensuring access to kindergartens and other services where at present demand is greater than supply. Besides urgent actions taken by the states, it is crucial to fostered within enterprises in order to lighten the burden on public services, but also to integrate the financial offer made to employees with welfare benefits. It is fundamental to relaunch mutualism, that is to say organising social services at the local (neighbourhood, town, community) level. For example, providing caretaking facilities for the vulnerable categories of our communities as children and the elderly, would benefit employment twice: allowing families (especially women) to stay in the labour market and creating new jobs in the sector.

Three elements on which to invest and related case studies

Each participant presented a case study, substantiating the impact of three critical success factors capable of promoting the achievement of the best possible future scenario. The overarching keyword that sums this path is participation.

1. INTEGRATION OF MIGRANT WORKERS

#INTEGRATION. The group raised attention on the importance of investigating specific migrant communities to understand what favoured their integration. This area of investment can be seen in continuity with previous considerations on the obsolescence of the current welfare model, given the need to focus on vulnerable groups. On this front, participants highlighted the importance of involving mediation services that understand the peculiarities of minorities and can help them fit into the hosting society (understanding the culture or the legal framework). Moreover, sub-groups as migrant women are to be given special attention as they can experience multiple forms of discrimination. Another element emphasised is the importance of an early response integration program, as it is crucial to act within the first two years of arrival in a new country (e.g. getting acquainted with the area, the language, the customs, etc.). Overall, greater integration means greater social and political participation.

The case study looks at the Chinese community in Prato (Italy), working in the textile industry (e.g. Tessieri & Mori, 2021). This was a successful model that combined sustainability and integration, and it was only possible thanks to the great involvement of the local municipality. A conscious choice was made to downsize production, to invest in research and development, to test new technologies (e.g. closed loops water cycles), to ensure flexible regulation that let companies try new models. The Prato case shows that this type of development needs close collaboration between the public and private sectors.

2. JOB GUARANTEE MECHANISMS

#EMPLOYMENT. The next case study highlights the importance of job guarantee mechanisms, where public institutions (at the national and supranational levels) commit to fixing systemic fragilities. Other virtuous aspects are the importance of job creation in the public section, the continuous training of workers, and the relationship with the local territory. More bargaining power in the job market means more participation. It seems natural to interpret this are of investment as the correction of the downsides of the precariousness of work discussed earlier.

The case study tackles the European Globalization Adjustment Fund for Displaced Workers (EGF). The mechanism may be used when there is a shutdown of an enterprise with 500+ unemployed people or a complex of connected enterprises in the same field (Claeys & Sapir, 2018). The EGF was employed in the motorway sector in Emilia Romagna, closing for unfair competition with Chinese companies (European Parliament, 2012). Interestingly, the instrument does not replace national layoff systems (e.g. the Italian “cassa integrazione”), but integrates them. Former workers are reskilled, with specific courses that are focused on the territory where they are set. Relevant structures are also involved, such as trade unions in Italy, since they are relevant actors. Since the EGF showed very good results, it will be enlarged to help the digital and environmental transition, it is included in the NextGenerationEU budget plan, and there is a proposal to reduce its threshold to 250 workers (European Commission, 2020).

3. CO-CREATION OF STRATEGIES AND SOLUTIONS

#SYNERGIES. Participants reflected on the co-creation of strategies that also consider cross-level synergies, either public and private or local-national/supranational to elaborate collective solutions that guarantee more involvement among actors, and thus more participation. For instance, this type of cooperation and synergy reflects what has been said on the urgency to rethink the mobility model, maximising the advantages of the digital and ecological transformation, for communities, economies, and development.

The final case study tackles the topic of cooperative platforms, focusing on digital platforms that are co-owned by the workers using them (Scholz, 2016). Cooperative platforms promote alternative model to the multinational giants of the sharing economy, in mass tourism and deliveries (Foramitti et al., 2020). This occurs in the area of rents in Florence (Italy), with the ethical home-sharing initiative of Fairbnb (Petruzzi et al., 2019). Another example is the food delivery in Bologna (Italy) called “Consegne Etiche” (ethical deliveries), a platform that is owned by riders, guaranteeing more sustainability, democratic involvement and fair profit redistribution (Fondazione Innovazione Urbana, 2021).

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Part 2

Industrial policy and State-owned enterprises

Italy’s decline and industrial policy

Andrea Capussela, author of Declino Italia (Einaudi 2021) and of The Political Economy of Italy’s Decline (Oxford University Press 2018; Italian edition Declino. Una storia italiana, Luiss University Press 2019)

Italy’s decline is a singular phenomenon, in the context of the malaise of Western democracies. Unlike any of them, the country has lost almost three decades: on the eve of the pandemic, per capita GDP was at the level observed in the mid 1990s. The main proximate cause is the stagnation of productivity, which, in turn, is chiefly due to the lamentable dynamic of that component of productivity – total factor productivity (TFP) – that roughly reflects technological and organisational progress. The relevant data are cited at the outset of the national recovery plan: ‘[b]etween 1999 and 2019, in Italy GDP per hour worked grew by 4.2 per cent, while in France and Germany it increased respectively by 21.2 and 21.3 per cent. Total factor productivity…dropped by 6.2 per cent between 2001 and 2019, whereas in Europe it generally increased.’

To explain Italy’s productivity problem it is useful to take a step back. This figure shows the convergence of Italy and its peers towards the TFP levels of the US economy, which during these decades can be taken to coincide with the global technological frontier.

Growth theory tells us that the further from the frontier an economy is, the faster it can grow by importing and adapting technology from advanced economies. This is what we see during the first decades after the war. In this period Italy’s performance is admirable.

But growth theory also predicts that as relatively backward economies approach the frontier, and their ‘advantage of backwardness’ shrinks, their growth rate tends to slow down: to sustain it, they must gradually adjust their growth model so as to depend less on importing innovation and more on generating it endogenously. It is at this point that Italy faltered. While its peers kept growing, since the early 1980s Italy lagged behind.

Remarkably, moreover, Italy’s decline began, and continued, despite a healthy investment rate. As this figure shows, in fact, capital growth was relatively strong during the past four decades, but did little to either sustain innovation or stem the fall in GDP growth.

In one word, Italy stopped growing because it stopped innovating. The question is why. Growth theory, and especially its Schumpeterian version, points to the institutional preconditions for innovation, and to the conflict between innovators and elites.

Innovation-led growth is a dialectical, conflictual process, in fact: a process of creative destruction, in which new innovations continuously displace old ones, and, in parallel, new innovators displace the established elites (who typically are innovators of the past). Especially in close-to-frontier economies, this conflict plays out differently depending on the intensity of competition and on the quality of the rule of law. For new innovations to find space, in fact, markets must be open to competition, and the rule of law creates the level playing field in which innovators can challenge incumbents. So if competition and the rule of law are weak, innovation will typically be stifled.

This is exactly what happens in Italy. Competition is relatively weak, especially in the services sector, and on the rule of law this figure speaks for itself.

Now, an equilibrium characterized by weak rule of law, feeble competition, low innovation, and stagnant growth is plainly bad for most of society. So the real question is why it could persist for so long.

The answer, in my view, lies in four other traits of that equilibrium. One is that also political accountability seems to be relatively weak. Another is collusion between economic and political elites, which tend to protect each other. A third element is distributional coalitions, or special interest groups, which in Italy are many and influential, and typically are as opposed to creative destruction as elites, and equally capable of interfering with the political process to defend their own rents. The fourth element is a highly fragmented social protection system, which has the effect of dividing those social forces that could press for change.

Joined together, these elements compose an internally coherent politico-economic equilibrium, which is as inefficient as it is persistent. This, I think, is the deeper cause of decline: in two recent books (one longer, one shorter) I sought to argue that the roots of the main intermediate causes of the stagnation of productivity – the small average size of firms, primarily, and their low propensity to grow, as well as low investment in research and development and human capital – can largely be traced back to that equilibrium (which contributes also to other social ills, such as low social mobility).

This equilibrium is reversible, naturally, because its logic, in essence, is that of the collective action problem. So one doesn’t have to be too pessimistic about Italy: as that equilibrium is bad for society, and collective action can succeed if citizens are coordinated, the shift to a higher equilibrium is always possible.

On this background, I turn to industrial policy. I begin with a snapshot of the economy that this equilibrium has produced.

The manufacturing sector is large, second only to Germany’s, and includes some excellent firms. But the services sector is remarkably inefficient. Overall, firms tend to specialise in low or medium technology sectors, their average size is very small, and they generally compete on costs rather on quality.

The main problem seems to be firm size, chiefly because small firms are particularly unsuited to the technologies of the digital revolution and the challenges and opportunities of globalization. Data recently cited by the Governor of the Bank of Italy may suffice to justify this assessment: in the industrial and non-financial service sector almost one half of value added is produced by Italy’s 25,000 larger firms (those with more than 50 employees), which jointly employ almost 6 million workers; the other half is produced by almost twice as many people, namely 4.8 million self-employed workers and the 6 million employees of Italy’s 4.3 million small and micro firms. On average, therefore, the productivity of larger firms is about double that of smaller ones (such that one may easily speculate that, were Italy to shift to a firm-size structure similar to Germany’s, its productivity gap would disappear).

In turn, an important explanation of this gap, and a major effect of that firm-size structure, is that the digital revolution has spread significantly less than in comparable economies: the European Commission’s synthetic digitalisation index (DESI) places Italy in the bottom third of the ranking, just below Croatia.

Market forces alone seem unlikely to change this state of affairs. One good example of why this is so is human capital. Italy produces very few university graduates, much less than anywhere else in Western Europe, and the wage premium they get is much smaller. The main reason is that Italy’s firms generate comparatively little demand for high skills, which leads to a vicious circle (a ‘low-skills trap’, the OECD recently wrote): if demand of high skills is low, supply will hardly be high; and if they are lacking, reallocation from lower to higher technology will be hard.

If this analysis is correct, industrial policy could do a lot of good in Italy. The country certainly needs to work on the basics of development – institutions, skills, also infrastructure. But if we understand industrial policy as policies that promote structural change, or structural upgrading, and aim at innovation and higher productivity, then few advanced countries would benefit more than Italy could.

I am not an expert in industrial policy, so I won’t discuss how to approach it. I shall limit myself to three points that can be drawn directly from the analysis I just sketched.

The first is that Italy needs more, not less, competition. And here the problem is that traditional industrial policies did often raise barriers to entry, limiting competition. The literature has suggested ways of avoiding that, which should be borne in mind: one, for example, would be to give support not just to incumbents but also to potential entrants.

The second point is that one classical objection against industrial policy – its vulnerability to capture by vested interest – is particularly strong in Italy. If the rule of law is weak, political accountability is low, there is collusion between economic and political elites, and special interest groups are strong, then any interventionist policy is at risk of being captured. There are ways of reducing this risk, and the solutions I have read in the literature seem convincing. But the risk will not disappear. So public scrutiny, on the conception and implementation of industrial policy, will be very important.

The last point is the reverse of what I just said, for while industrial policy does risk being captured by vested interests, it can also reduce their power. The reason is that structural change, which is the aim of industrial policy, has effects also on the balance of power among the actors concerned (innovators and incumbents, new firms and elites, labour and capital). Thanks to this indirect effect, industrial policy can be complementary to work on the basics I mentioned earlier, and especially to institutional reform.

In this connection, to conclude, one observation can also be made about one possible instrument for industrial policy: state-owned enterprises. They strongly supported Italy’s development, during the the first decades after the war, but subsequently their performance declined steeply, chiefly because the institutional arrangements governing them were inadequate. Also from this perspective, therefore, industrial policy ought to be seen in conjunction with institutional reforms.

A mission-oriented approach for the economy of the future

Rowan Conway is Policy Fellow and Head of IIPP’s Mission Oriented Innovation Network, PhD Candidate at IIPP and Faculty lead on Transformation By Design Module, Master of Public Administration (MPA). She studies, among other things, how the mission-oriented approach can transform our economy.

According to the neoliberal narrative, the State is inefficient and incapable of steering the economy. But the mission-oriented approach challenges this view and the framework according to which State intervention is justified only by so-called market failures.

According to this view, the market arises precisely from institutional interaction, in an evolutionary context. The task of the State, therefore, is not to fix market failures, but to create markets themselves, along the lines of what Karl Polanyi wrote in The Great Transformation.

Innovation, in fact, is an uncertain and collective process. In the first phase of innovation, private funds are insufficient, so the State intervenes with a system of both funds and decentralised agencies, such as DARPA in the United States, which allow the innovation process to move forward.

If we look at a paradigmatic case, that of Silicon Valley, we can see how the interaction between the American federal government, Stanford University and private individuals was the trigger for the technological revolution we are currently experiencing.

What cultural transformation does the State need for a green transition?

by Rowan Conway,

UCL Institute for Innovation and Public Purpose.

Click image to display video.

Working group A dynamic industrial policy

President: Beatrice Re, Università degli Studi di Pavia

Rapporteur: Jacopo Sala, Università Cattolica del Sacro Cuore

Participants

- Andrea Adelmo Asci, Eni

- Sara Lorenzini, Università degli Studi di Milano

- Luis Ignacio Silva Neira, Business School of Economics

- Roberta Terranova, EIEE

Scenario 2030

Over the last decades, policies of numerous countries have mostly relied on the “magic of the market”, thus downsizing the role of the State as a strategist in the establishment of long-term industrial policies (Dosi, 2016). States are no longer leading the industrial development, but they have rather assumed the role of “incentives providers”. However, the incentives mechanisms set by governments have proved to be unsuccessful, thereby making this strategy ineffective (ibid). This situation has been particularly harmful to Italy since it has caused a strong weakening of the country’s industrial framework, which was already suffering from a lack of innovation and competitiveness. To overcome this critical scenario, long-term and ambitious industrial policies relying on public intervention need to be developed (ibid).

We started our discussion by trying to foresee the future of industrial policies in Europe and Italy, with the aim to answer the given research question: “how will the industrial policy be in 2030?”. Firstly, we have acknowledged that up to now industrial policies have been too weak in tackling the grand societal challenges such as the green transition, social equality, job security, and the creation of a high-skilled labour force. For this reason, we believe that in the next decade the industrial policies will be focused on some key issues we hereby discuss.

We argue that the role of the European Commission should be fostered in order to restore the power of the central government in defining long-term industrial plans aimed at recovering the European industrial base while concurrently tackling the above-mentioned grand societal challenges. Among the first objectives of industrial policies in 2030, there could be the transformation of global value chains (GVCs) into regional (RVCs) and even domestic ones (DVCs) by encouraging the reshoring - especially of specialised sectors such as solar energy, semiconductors and pharmaceuticals - within the European borders while concurrently investing on the digitalization and technologies 4.0. The latter are core elements to be considered, as they do not only increase the efficiency but also support the back and near-shoring practises (Fratocchi & Di Stefano, 2020). We expect the promotion of local value chains to be also accompanied by investments in the circular economy, in order to foster the firms’ use of secondary raw materials instead of relying on soil extractions of raw materials. This will in turn favour the establishment of localised value chains within Europe.

Investments regarding the circular economy are also part of the plans to cope with the climate change crisis and the environmental impact caused by the current economic system, which is no longer sustainable. Climate change is one of the most urgent issues of our time, and its importance grows every year. Therefore, in 2030 addressing climate change will continue to be a major industrial policy objective. At the European level, there are a number of targets for 2030 to achieve a low-carbon transition and to achieve these targets it is necessary to phase out high-carbon production plants, which involves transition risks (financial instability, stranded assets) and bears negative consequences on certain economic actors (Semieniuk et al., 2021). Such transition risks and economic interests behind high-carbon production are slowing down the low-carbon transition and causing the economy to be partially locked-in in high-carbon technologies. We imagine this will still be the case in 2030, but hopefully, a strong and coherent industrial policy can address such challenges and also significantly reduce fossil fuels employment by 2050.

Moreover, we believe policies in 2030 will be more concerned about the social dimension of businesses firstly in terms of labour conditions and impact upon the local communities. The COVID-19 pandemic has exposed and amplified several weaknesses in Europe’s social and economic landscape, such as job insecurity, low wages, gender imbalances in working conditions, poverty and rising inequality. Such conditions have been partly caused and worsened by a long period of a largely neoliberal dominance in EU policy. Recently, however, there seems to be a political momentum for a stronger social orientation of EU policy, also driven by the Covid pandemic’s induced economic crisis. In terms of working conditions, for example, a “social commitment” to the implementation of the European Pillar of Social Rights was signed at the EU Social Summit in May 2021. However, the effective implementation of a more social Europe is far from being guaranteed, because of those strong social forces potentially blocking social progress and the actual implementation of these commitments depend on the individual Member States (Schulten & Müller, 2021).

3 elements to be dropped

1. Deregulation

Since the early 1980s, several OECD countries have tried to implement structural reform programs to improve overall economic efficiency and flexibility. These new organisational measures were largely based on the assessment that previous regulatory mechanisms had a negative impact on the ability of economies to adapt to future shocks and changes. The key elements of these policies were both deregulation and massive privatisation which implied a more restricted role for government intervention (Pera, 1989).

The obvious side effect produced by these new measures was a decisive increase in monopoly power which consequently led to a rise in economic and social inequality. Empirical evidence has indeed shown that market power may contribute to economic inequality by augmenting the wealth of the richest and depressing the income of the poorest (Ennis et al., 2017).

The lack of an efficient regulatory framework can also affect the labour market: without proper regulation, the job market may display undesired outcomes such as low wages, poor working conditions and precarious employment. In addition, an unregulated market might not have the incentive to achieve the designated objectives of sustainable development because of non-profitability.

For all these reasons, government actions and policies are required to reduce illegitimate market power, to ensure a higher level of equality and to support the ecological transition.

2. Market-oriented perspective

The market is a central institution in defining the basic economic questions: What to produce? How to produce? As expressed by Bresser-Pereira (1991) “Markets do not function in a vacuum”, the definitions of economic policy in assigning the institutional role of the market determine the way in which production is organized and the economic outcomes. With the end of the Bretton Woods System, Western economies left protectionist policies and instead, the Washington Consensus established a new definition of economic policy in most of the western countries: market-oriented perspective (Helleiner, 1996).

These above-mentioned economic questions are answered on the basis of market dynamics and profits maximization, which raises important issues about economic outputs. Companies determine the productive specialization of countries according to short-term profitability, which can often be in contradiction with environmental sustainability, which requires long-term planning to ensure the sustainability of economic processes.

Productive decisions must incorporate all participants in society in order to build an inclusive and sustainable economy, for which it is essential to abandon the current market-oriented perspective. As experience has shown, markets cannot solve their own failures, with overproduction and environmental damage being a clear example of this fact. Furthermore, given the new international organization of production in global value chains, integrated planning of the process must be a priority in order to generate a new perspective on sustainable production definitions.

3. Decision-making processes (top-down approach)

Policy-makers at all levels should change the way decisions are made. The top-down approach does not take into account local specificities and therefore it is likely to lead to undesired results, especially when stakeholders are not included in the decision-making processes. The top-down logic should be replaced with the bottom-up one, which requires engaging stakeholders and understanding their needs.

The lack of transparency in the way the decisions are communicated is another key issue to be tackled since it may be the cause of misleading interpretations. We should also drop the compartmentalised and sectorial thinking in the way decisions are made, and substitute it with a more inclusive and cross-sectoral perspective.

3 elements on which to invest and related case studies

1. Regulation and active role of public institutions

Government should ensure genuine competition across agents within the market and at the same time, it should cope with market failures through regulatory mechanisms (e.g. bans, penalties, conditionalities, obligations, etc.). These measures should be aimed at promoting a just and ecological transition, taking into account the needs of all relevant stakeholders.

An example is the EU Commission long-awaited proposal for a law to combat deforestation, which was presented in November 2017. The Commission’s proposal constitutes a ban on the sale of agricultural products made in deforested and degraded land. The initial list of targeted foodstuffs covers soy, beef, palm oil, cocoa and coffee, as well as wood. The proposal would target not just illegal but all deforestation, apply to “all steps of the supply chain” and be “non-discriminatory” by treating equally EU exports and imports. Businesses of all sizes, from multinationals to SMEs, that trade in the six selected products will be compelled to collect detailed information, including geographical coordinates, about the farm or plantation where their goods are produced in order to prove they comply with the regulation’s requirements. If a company fails to show its output is legal and deforestation-free, it will be charged a penalty and it won’t be able to place its products in the European single market. Regulators are also entitled to carry on-site inspections if they suspect wrongdoing.

While this proposal follows the aim of protecting forests and is not a direct industrial policy, its impact on industries - inside and outside Europe - is clear. The Confederation of European Paper Industries (CEPI) on its part has commented on the new European proposal stating its strategic interest in keeping global forest growing and healthy but it also considered that to make real changes when tackling commodity-induced deforestation, efforts must target the real drivers of the problem, that is agricultural expansion and poverty.

2. Innovation

Innovation plays a crucial role in the current green transition. This doesn’t include only technological progress, but it also involves both the economic and social systems. Indeed, an ecological transformation is only possible through the development and diffusion of new technological, economic and social innovations. These may regard numerous fields such as energy production, natural resource exploitation, mass production, distribution, global value chains, transportation and buildings (OECD G20 Paper - Innovation and the Green Transition, 2019).

One of the most recent policy interventions carried out by the European Commission to promote innovation and the upcoming ecological transition is the Innovation Fund, a key instrument for delivering the EU’s commitment under the Paris Agreement and supporting the EU’s strategic vision of a climate neutral Europe by 2050. The Innovation Fund is a programme launched by the Commission in 2020 and is one of the world’s largest funding plan for demonstration of innovative clean-energy technologies. Its aim is to find diverse industrial solutions in order to decarbonise Europe and support its transition to climate neutrality. The project contributes to greenhouse reduction by investing on new low-carbon technologies and processes in energy intensive industries (e.g. steel, glass, chemicals). The programme is devised in such a way to promote carbon capture and utilisation (CCU) and construction of carbon capture and storage (CCS), and concurrently it encourages the utilisation of renewable energy and energy storage. The Fund will provide around a total of € 10 billion to finance innovation, thereby allowing to develop new innovative technologies and big flagship projects which can generate significant emission reductions.

3. Public consultation

Nowadays, it is crucial to involve heterogeneous stakeholders in the decision-making process behind a policy design and also in its formulation, implementation and impact evaluation. Stakeholder engagement allows to better understand the needs of the whole community and also to rely on stakeholder commitment when implementing policies. From this perspective, different stakeholders become active players both in the political discussion and in the subsequent policy implementation. An example of how stakeholders could be involved in the shaping of a national industrial plan can be found both in the UK’s “Net Zero Strategy: Build Back Greener” and in the overall relationship between the UK Department of Business, Energy, and Industrial Safety (BEIS) and the non-governmental actors.

UK Net Zero Strategy highlights the importance of public engagement in designing policies to help the UK transition to a zero-carbon economy. The UK government will deliver public consultation on net-zero to communicate a vision of a net-zero 2050, build a sense of collective action, ensure trusted advice and support for people and businesses to make green choices.

In the first nine months of 2021, the UK Department for BEIS has already held more than twenty public consultations on topics related to net-zero industrial development, ranging from phasing out of coal for power production to the establishment of a national regulatory framework for a UK Emission Trading Scheme (ETS).

Bibliography

Dosi, G. Beyond the ‘magic of the market’. The slow return of industrial policy (but not yet in Italy). Economia e Politica Industriale, 43, 261–264 (2016). https://doi.org/10.1007/s40812-016-0041-x.

Helleiner, E. (1996) International political economy and the greens, New Political Economy, 1(1), 59-77. Doi: 10.1080/13563469608406238.

Ennis, S., Gonzaga, P., Pike, C. (2017). Inequality: a hidden cost of market power www.oecd.org/daf/competition/inequality-a-hidden-cost-of-market-power.htm

Fratocchi, L., & Di Stefano, C. (2020).  Industry 4.0 technologies and manufacturing back-shoring: a European perspective. Acta IMEKO, 9(4), 13-20.  ISSN: 2221-870X.

OECD, 2019. Innovation and Business/Market Opportunities associated with Energy Transitions and a Cleaner Global Environment. Issue Paper. (Prepared by the OECD as input for the 2019 G20 Ministerial Meeting on Energy Transitions and Global Environment for Sustainable Growth).

Pera, A (1989). Deregulation and privatisation in an economy-wide context. OECD Economic Studies, 12, 150-204.

Bresser-Pereira, L. C. (1991) “La crisis de América Latina. ¿Consenso de Washington o crisis fiscal?”, Pensamiento Latinoamericano, 19, 13-35.

Schulten, T. ., & Müller, T. . (2021). A paradigm shift towards Social Europe? The proposed Directive on adequate minimum wages in the European Union. Italian Labour Law E-Journal, 14(1), 1–19. https://doi.org/10.6092/issn.1561-8048/13368.

Semieniuk, G., E. Campiglio, J.-F. Mercure, U. Volz, and N. Edwards (2021). Low-Carbon Transition Risks for Finance. WIREs Climate Change. https://doi.org/10.1002/wcc.678.

Working group “Role of State Owned enterprise”

President: Giacomo Centanaro, Pandora Rivista

Rapporteur: Andrea Muratore, Kritica Economica/Inside Over

Participants

- Giacomo Centanaro, Pandora Rivista

- Niccolò Donati, Fondazione Giangiacomo Feltrinelli

- Saeed Dordvar, Università degli Studi di Padova

- Francesco Laureti, Kritica Economica

- Andrea Muratore, Kritica Economica/Inside Over

Scenario 2030

The crucial acceleration in the two leading transitions of modern-day economy - the digital transition and the green transition - is set to create a scenario in which those processes will strongly interact, radically changing our systems. Those transitions will be closely linked one to each other, due to the fact that there will be reciprocity. On one hand the green transition and the changes in energy supply will be, at first, lead by technological changes and innovations that would make energy efficiency (defined as the ratio between Useful output of a process and Energy input into a process) [Bhattacharyya, 2012] the key for development [Codazzi, 2021] and the energy industry will be strongly shaped by the evolutions of cybersecurity [Jean, Savona, 2010] and enabling technologies like 5G and Artificial Intelligence. On the other hand, technology may be developed looking at its crucial implications for society: just like the energy transition, further technological developments should consider a human-centric approach [Ratzinger, 2009; Benanti, 2020] together with enabling efficiency and sustainability as a key driver and a target for its products.

Those issues lead us to think of the need for a comprehensive, strategic framework on which the two transitions interact and play a role in shaping the evolution of the other. In this regard, the role played by the State and State Owned Enterprises (SOEs) appear as the key driver to make those developments possible. The pandemic [Tooze, 2021] has contributed to the evidence of a more marked presence of public economic statecraft by Western States as a major actor both in the governance and in the dynamics of international economy. With few surprises, one may note that SOEs are - once again - at the center of many industrial policy strategies. With reference to the end of the last decade , we may think of SOE as a crucial actor to develop innovative technologies and energy sectors with a close regard to the objectives of sustainability in a phase in which the State is becoming, year after year, a more crucial actor [Aresu, 2020; Mazzucato, 2007].

In the coming decades in Western Countries the role of the traditional policy framework in meeting the requirements of the two transitions will not be completely feasible anymore due to many factors First, the need for focused long-term investments protected from short-term market shocks (markets are volatile and exposed to shocks). Second, the fact that transformation will create returns in the long-term rather than in the short-run leads the State to play a strict surveillance role. Third, SOEs will be prominent actors in these processes because usually they are firms playing a leading role in sectors exposed to the two transitions, both as investors and innovators. The role played by leading SOEs in enabling European Next Generation EU programs is clearly showing this fact. Furthermore, SOE can scale-up investments in frontier sectors and they are prime contractors of a wide galaxy of national Small and Medium Enterprises whose activities could be organized into a common value chain.

3 elements to be dropped

Describe in 4,000 characters the 3 elements of obsolescence to be dropped in the present day. (1500 characters for each element)

- Short-termism: SOEs are supposed not to focus only on market-led decisions while they are experiencing the development of frontier sectors and technologies. We may develop a paradigm in which State will play neither the role of a mere shareowner in a strategic firm nor a regulator role, but on which it will be working as a strategist using SOEs to boost investment. Environmental and social responsibility may be taken into account in a market-centred dynamic, so we may avoid that national interests and strategies linked to transition are downgraded in the policy mix

- Management self-interest: SOEs are supposed to avoid the “capture” of public funding by corporate managements, like happened in the cases of Alitalia in the Italian SOE framework. The idea is that SOEs may avoid being conditioned in their own strategy by management procedures linked to the opportunity of diverting money used officially for public purposes in order to build up a personal sphere of influence. Money in the public sphere of SOEs must not be considered as a private ownership of the temporary management.

- Fiscal constraints SOEs and State’s investments in frontier sectors shaped by transitions should not be counted inside national deficits according to EU fiscal rules provided by the 1998-1999 Stability Growth Pact and by the European Fiscal Compact (2013). The process of change in European economies has made clear the need for fiscal reforms in terms of boosting strategic investments [Draghi, 2020] in order to build up a different, stronger, more equal Europe [Savona, 2018]. Eliminating investments that are creating value in the two transitions from national deficits could help Europe to commit itself to the idea of playing a role in frontier sectors and avoiding the risks of cutting positive stimulus to innovation and development due to deflationary ideas [Sapelli, 2020]. Unbundling investments to speed up the two transitions could also help Europe to regain a role as a key actor of globalisation [Tremonti, 2016].

3 elements on which to invest and related case studies

Co-Projecting: in order to offset the risks of capture by big public managers and top-down decision making in fields where market-based mechanisms cannot work we need to rely on bottom-up diffused information which we can gather from the civil society. To implement this principle we propose to create civil society “watchdogs” based on participatory approach within SOEs. They could work as internal colleges made of people exposed in sectors that are linked to the surveillance of social consequences of investments (i.e. in infrastructures, grid, plants and so on), such as trade unions, universities, civil society organizations, and they could play a consultancy and advocacy roles in order to help SOE to co-project with the local actors crucial to make consensus for a given work to work the perfect and most fitting schedule. Actually, we have found no active examples of policies like this in a structured way that goes beyond the existing consulting procedure between firms and civil society organizations.

Deep Tech: costs of regulations in frontier economics can be unpredictable (i.e. AI); we are proposing to create public-private joint ventures with a “sandbox” SEO that can absorb the potential cost of regulations for the other actors. In software testing and development a sandbox is “an isolated testing environment that enables users to run programs or open files without affecting the application, system or platform on which they run”[3]. The development and cost analysis and evaluating phase could be followed by the mastering of new solutions and innovations to be diffused to a selected group of national enterprises. The examples of Italy’s Cassa Depositi e Prestiti venture capital fund CDP Equity and French Bpifrance in working as an accelerator for PMIs, startups and prominent junior companies could be extended also to university spin-offs, innovative actors and deep-tech exploring companies in order to scale up investments in those fields. Bpifrance has grown since 2016 816 startups and SMEs in its portfolio and has made 284 rounds of money seeding for start-ups and scale-ups enterprises. CDP Equity is the company that has been set up to boost the Italian economy by investing venture capital on young firms and helping other firms’ growth. It has played a role in developing some important firm in strategic sector, such as Tlc’s public player Open Fiber.

Decentralized production of common goods: in the context of the Green Transition one of the challenges, and of the opportunities as well, is the decentralized production of electricity based on green sources. Economic and sustainability literature, as well as European Union normatives introduced by the EU Clean Energy Package (see e.g. directives about renewables and energy market governance 2018/2001/UE and 2019/944/UE) have, in the last years, underlined the role of local “self-governed” and not profit-oriented initiatives by groups of citizens. Even though there might be some differences in considering different, single projects [CEER, 2019] these projects are defined “energy communities”: an alternative model of promotion, production and final-consumer use of renewable energies, that gives citizens and small communities the chance to directly participate to the green transition running small renewable energy facilities [De Vidovich, Tricarico, Zulianello, 2021].

This type of production can be spurred by the adoption of feed-in tariffs but this possibility, along with other aspects linked to the management of such communities may require an important governance role, that could be played by SOEs in managing the delocalized production of such common goods. Companies like ENEL are playing this strategy in context where they are developing electricity generation and power distribution from a tabula rasa context, such as Sub-Saharan Africa, with the project RES4Africa. ENEL in Africa scales up renewable energy solutions deployment across Africa through decentralized and off-grid solutions; it is an objective of ENEL’s plans to meet a surging demand in a growing population’s continent. Mutatis mutandis, using decentralized production [Codazzi, 2021] instead of huge, complex plants in the field of power generations enabling consumers to play a role inside the grid as both a receiver and a giver of energy could help matching the needs of balancing demand and offer, lowering costs for taxpayers and users, creating a social connection between SOEs and public actors.

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Sapelli, G. (2020), Pandemia e resurrezione, Milano, Guerini e Associati.

Savona P. (2018), Come un incubo e come un sogno, Soveria Mannelli, Rubbettino.

Toninelli P.A. (2006), Storia d’impresa, il Mulino.

Tremonti G. (2016), Mundus furiosus, Milano, Mondadori

Lorenzo De Vidovich, Luca Tricarico e Matteo Zulianello, COMMUNITY ENERGY MAP. Una ricognizione delle prime esperienze di comunità energetiche rinnovabili, Franco Angeli, 2021.

Web references

https://www.enelgreenpower.com/it/media/press/2021/01/enel-e-qatar-investment-authority-insieme-per-lo-sviluppo-delle-energie-rinnovabili-in-africa-subsahariana. Viewed 9.01.2022.

CEER Report, Regulatory Aspects of Self Consumption and Energy Communities: https://www.ceer.eu/documents/104400/-/-/8ee38e61-a802-bd6f-db27-4fb61aa6eb6a. Viewed 8.01.2022.

ENEL, https://www.enelgreenpower.com/it/media/news/2019/07/accordo-res4africa-irena-sviluppo-energie-rinnovabili. Viewed 11.01.2022.

3    See “What is a Sandbox? Definition from SearchSecurity (techtarget.com)”, consulted 18.12.2021.

Part 3

Role of State and investments for a just transition

New rules for a new Europe: the case for a European Debt Agency

by Massimo Amato, Università Bocconi

Important decisions are about to be made in Europe. After the suspension of the Stability and Growth Pact, the question of how to establish new common fiscal rules will certainly be the main political issue in the coming months. With a newly established coalition in Germany and the French elections between the problem and a possible solution, 2022 will be crucial.

To get prepared for the debate, the question we have to ask ourselves is simple: can we afford to go back to the “old normal”, i.e. to the austeritarian “market-discipline” framework, which not only paved the way to the sovereign debt crisis, but also contributed to its continuation until the Covid-19 emergency?

Olivier Blanchard says no: “The European Union’s fiscal rules have been suspended […] When they are reinstated, they will need to be modified, if only because of the high levels of debt”[1].

But also Commissioner Gentiloni says no, at least for 2022: “For 2022, it is clear that fiscal support will still be necessary: better to err towards doing too much rather than too little”[2].

The way the rules will be modified is then crucial for a sound and resilient recovery. On what basis should we now modify them?

First of all, fiscal expansion cannot be excluded by the new rules. Not only has debt risen, but it will have to keep rising, at least if we really want to promote infrastructure investment projects both at EU and national level: Green Deal first and foremost, but not only that, as is evident with respect to the NGEU, whose global vision implies a deep restructuring of the European economy.

If the goal is clear, and ostensibly widely shared, the fact remains that the main obstacle to the fiscal expansion required by a wide-ranging recovery is its financing. Therefore, it is necessary to tackle the issue of how to finance (and refinance) the debt both of Member States and of the Commission, since for the NGEU the latter directly issues its own debt.

To put it plainly: any proposal for new fiscal rules that doesn’t take debt financing into account would be a half-way proposal. Or, to put it in positive terms: new fiscal rules and new forms of debt management ought to be established jointly.

This is why Olivier Blanchard is right when he says, with Leandro and Zettelmeyer, that it is far better to think in terms of fiscal standards than in terms of fiscal rules: what is crucial for the debt implied by fiscal expansion is not its absolute level, but its sustainability. And when we speak of sustainability, what matters is both the growth to which fiscal expansion gives way and the cost of its financing. The issue is then a dynamic one, with a very important implication: should government debts appear to be credibly sustainable, markets would be very keen to consider government bonds as safe assets, i.e. assets capable of stabilising portfolios (for insurances and pension funds, first of all), as well as acting as credible collaterals for risky private financial operations.

Safe assets are key for the stability of modern financial markets. If we agree on this, a question immediately follows: does Europe already dispose of an adequate amount of safe assets? The answer is clear-cut: certainly not. The other question is then: does Europe need Eurobonds? And the answer is equally clear: she certainly does.

We thus come to a first point of conclusion: to make its overall debt sustainable, Europe should equip itself with a safe Eurobond. She should do it for internal economic and financial reasons: more fiscal space, less financial volatility, i.e. a new way of coupling stability and growth; but also for external political reasons: a safe Eurobond will strengthen the geopolitical positioning of Europe.

But, it could be argued, the Eurobond presupposes a federal Europe. In reality it does not: of course, a safe Eurobond implies a certain degree of collaboration, but not necessarily federalism. This is good news, since federalism cannot be built within a few months and not even within a few years. Nevertheless, in the absence of a fully federal Europe, with a federal Treasury able to issue bonds guaranteed by a federal central bank, the only way forward for ensuring both stability and growth, is to organize a structural collaborative strategy for the Member States’ access to the financial markets.

This strategy cannot be pursued by the ECB alone. Since 2015 (with a delay that has cost the member states dearly), ECB has relatively stabilised the markets for government bonds, but were the ECB to reduce its purchase programs, there would be a risk of severe setbacks in the markets, for southern countries but not only (France is now at 115% of the debt/GDP ratio, with a negative outlook on her AA rating).

But here we hit the problem: a robust financing strategy seems to require a certain degree of mutualisation, but at the same time the fear of mutualisation is what has so far prevented any move towards cooperation on fiscal policies. Europe would need a federal Treasury, but at the same time, given her political situation, this hypothesis does not appear to be realistic.

What should be done then? A viable solution to this conundrum is a European Debt Agency, conceived as a collaborative, non-federalist and non-mutualising solution. This is the meaning of the proposal I made with my co-authors in a 2021 scientific paper[3].

A European Debt Agency can issue a true European safe asset, i.e. a Eurobond, without involving mutualisation but having the same desired effect of a collaborative management of public debts, as if we already had a federal treasury, and furthermore possibly paving the way for federalist and mutualist institutions.

How would this European Debt Agency (EDA) work? To summarize the proposal in a simple formula: the EDA finances itself on the markets with its own bonds, with finite maturity, and uses the money raised to make perpetual loans to Member States, setting the cost of the loan as the instalment of an irredeemable amortization scheme, based on the ‘fundamental risk’ of each individual Member State. Each Member State therefore pays a differentiated repayment instalment which is proportional to its fundamental risk (hence in line with its specific creditworthiness).

Simply by substituting cooperation to competition in the access to financial markets, this pricing strategy makes the EDA capable of implementing a collaboration without mutualisation: the EDA avoids moral hazard, but at the same time it preserves Member States from the refinancing risk and from spreads fuelled by self-fulfilling expectations.

The advantage deriving from the Agency is evident for those Members States whose government debt, like that of Italy and Spain, has been hit by waves of panic selling, which resulted in exorbitant and unjustified financing costs; but there are advantages also for the states which, like Germany, now “enjoy” negative yields on their debt. Negative yields are in fact a time-bomb for private savings, pension systems and the insurance sector (which is well known in Germany, although it seems that the interested parties prefer not to talk about it…).

We started talking about rules, then about politics, and now we talk about an institution charged with a rather technical mission. How do political issues and the technical solution fit together? The answer is simple: with an optimisation of the cost of funding, the EDA allows for more expansive but at the same time sustainable, fiscal rules. This is what Europe ought to do, if she really wanted to make its much-needed policy mix structurally sustainable, both economically and politically.

1    O. Blanchard, A. Leandro, J. Zettelmeyer, Redesigning EU Fiscal Rules: From Rules to Standards. PIIE WP 2-21, February 2021

2    https://ec.europa.eu/commission/presscorner/detail/en/ip_21_884.

3    Amato M., Belloni E., Falbo P. and L. Gobbi, “Europe, public debts, and safe assets: the scope for a European Debt Agency”. Econ Polit (2021). https://doi.org/10.1007/s40888-021-00236-6

Working group “State transformations”

President: Adriano Cozzolino, Researcher (Università della Campania “L. Vanvitelli”) and Director of the Center for European Futures Rapporteur: Alessandro Bonetti, Fondazione Giangiacomo Feltrinelli

Participants

- Andrea Capussela, author of “The Political Economy of Italy’s Decline”

- Ilaria Degradi, Universidad de Jaén

- Lorenzo Scalzitti, Rethinking Economics

- Pietro Cesaro, European Roundtable on Climate Change and Sustainable Transition (ERCST)

Scenario 2030

In order to identify several critical factors concerning the current state of affairs of State institutions, and especially imagining viable routes to improve the quality of democracy, we started by working with two main scenarios. The exercise of drawing alternative scenarios is important because – according to the specific nature of the scenario – it allows providing for a number of options that can be put on the table in order to move towards the most desirable one. Actually, we imagined especially two “futures”. One is realistic but not desirable, the other is a more positive one. This second is functional to elaborate several instruments to re-democratise State institutions and foster a new wave of social justice.

1. Scenario one. The first scenario is realistic but not desirable. It is realistic because it draws upon structural and actually existing trends in State transformations. It is not desirable because such trends are negative to democracy and democratic processes (Mair, 2013). Thus, this scenario “sees” a State in which the centralisation of decision-making power is now fully consolidated (Cozzolino, 2021). Executive power is central to this, and the role of experts and technocrats in political affairs and within State institutions is dominant, while politics as a human and social activity is delegitimised (Norris and Inglehart, 2019). In turn, this process leads to an authoritarian/illiberal framework whereby all forms of political alternatives, conflicts and protests are marginalised and kept out of the institutional framework (Tansel, 2017; Bruff and Tansel, 2020). One of the main factors of this scenario – a counterpart of what we have already sketched – is the full-blown crisis of political representation, this rendered actually impossible due to the concentration of political power, and consequently making it unattainable to represent, in the State, different social groups and classes. At the same time, political parties are substantially (i) detached from the majority of citizens and social groups, (ii) politically delegitimised, (iii) centres of reproduction of political elites with no real social grassroots – therefore, they fail to be a link between society and State institutions in the era of neoliberal globalization (Jessop, 2017).

As a consequence, in this scenario State powers and interventions are imagined as characterised by a little political legitimation and always prone to legitimation crises that eventually are resolved with the use of coercive power/force. In other words, it is a strong but not legitimised State – thus, authoritarian rather than authoritative.

2. Scenario two. This second scenario is more desirable but less realistic, given the structural trends and conditions that we analyse in this report and have drawn in the previous scenario – trends that, ceteris paribus, are difficult to reverse.

Thus, in this one we imagine that the State is part of a broader process of democratic rejuvenation. Let us begin, also in this case, with the fundamental element of the crisis of representative democracy. On the opposite side, we imagine a substantial improvement of the quality and quantity of political representation. Consequently, more social groups – especially subaltern ones – find in political parties and broadly within State institutions adequate representation and voice. This, in turn, leads to a redistribution of political power among social and institutional actors, with two main consequences: (i) strengthening of mediation, negotiation and political bargain within representative institutions such as the Parliament; (ii) equalisation of “economic power”. If marginalised and subaltern groups are adequately represented on political grounds, this can favour a more just and equal economic and fiscal policy.

On the other hand, we consider also that in this scenario, given the possibility for all social groups to participate (albeit indirectly and through the mediation of political forces) to the decision-making process, civil society comprises engaged, active forces, also capable to exert a through control on political elites through a virtuous use of social media. Finally, while in the previous scenario we imagined a strong State in terms of use of force, here we imagine an alternative image of a differently strong State which is overall more legitimised in terms of interventions and power. Here, there is more consensus and more trust rather than resorting to force and coercion vis-à-vis political dissent (Van der Meer, 2017).

3 elements to be dropped

The State is the fundamental institutional framework of our economies and societies. Its shortcomings and negative processes over the last forty years have made it increasingly impervious to democratic will.

Centralisation and concentration of power

The first element we need to overcome is the centralisation and concentration of decision-making power, especially in the form of the strengthening of Executive power and “technocratic institutions”. Such processes manifest themselves especially in the long crisis of negotiation and political mediation, which is clearly evident in the marginalisation of Parliaments (Gamble, 1994). In many countries, the parliamentary assembly has lost power especially to the Executive, in some cases leading to authoritarian drifts and putting at risk the core of democratic processes. All this occurring also – in not especially – after the global financial crisis of 2008, when neoliberal and austerity policies continued to be implemented in the face of growing social discontent (Crouch, 2011).

Overall, the centralisation and concentration of power mirrors broader transformations occurring in the societal sphere at large (Cerny, 1997; Jessop, 2012). In other words, power is also increasingly unevenly distributed among social groups. In this respect, social and political elites benefited from the changes that occurred in the era of neoliberal globalisation (late 1970s to present), while general inequalities did not stop to grow, with further political consequences in Europe and beyond (Beramendi, Häusermann, Kitschelt, Kriesi, 2015; Streeck, 2014). In relation to this last element, especially here emerges the fundamental role of rules and rules enforcement. More specially, while generally rules must aim to improve a fairer distribution of power, concretely some rules need an upgrade, some others a thorough rethinking, and some of a better implementation.

Poor public participation is often linked to another element of obsolescence: the excessively top-down approach of State institutions (and political elites alike). A balance should be struck with a more bottom-up and participatory approach. This would make it easier for citizens to take care of their own spaces and common goods. In this regard, it should be noted that the State has little capacity to finance bottom-up experiences, as the system of calls for proposals continues to present a number of criticalities and blind-spots.

Disconnection between institutions and society

The second element that should be set aside is the disconnection between the institutional framework and civil society. This disconnect is clearly evident from certain phenomena, such as the increasing pre-eminence of “experts” and technocrats in the public sphere and the crisis of political parties (Parsi, 2021). The populist reaction to this state of affairs has taken shape with the personalisation of politics and the top-down use of social media platforms (Fuchs, 2018). The result is that communication between social actors is increasingly difficult. If there is a problem with the functioning of the State and a problem with collective action, we should ask how citizens can put pressure on the public sector and make their voices heard. The State must become more vulnerable to citizen pressure, and generally more reactive to civil society actors.

Influence of vested interests

Finally, there is an excessive influence of vested interests on public institutions, partly as a result of the processes mentioned under point 1. Concretely, this stems from several specific factors. Among these, first of all there is the poor regulation of the financial markets, which have become hypertrophic and are mainly driven by speculation. Also, this fosters the concentration of wealth into a few centres, in turn leading to a concentration of power that is regularly exerted towards the institutional and political sphere (Bieler and Morton, 2018). In addition, monopolies and oligopolies influence the political process too, often generating disregard for ecological constraints. Finally, another element to be considered is the distorted functioning and concentrated ownership of social media. Such concentrations – in few powerful groups – hamper democratic debate and the fairness of information, often silencing the voices of marginalised groups and alternative thinking.

3 elements on which to invest and related case studies

In order to address the critical issues highlighted above and promote a path of renewal of the public actor, it is necessary to act along three fundamental axes. In considering the three of them, we tried to focus on the strict intersection between the State, political processes and the socio-economic dimension. That is to say, for example, that a new wave of institutional democratisation is a critical factor to improve social equality and remove extreme inequalities. Specifically, the three axes are: (I) re-democratisation of State institutions; (ii) improvement of the quality and quantity of social and political participation; (iii) reconsidering the role of the public sector in the economy.

Thus, the first point to consider is the re-democratisation of State institutions. This involves especially a thorough reconsideration of the role of Parliaments at both national and European level (Hutter, Grande and Kriesi, 2015). Importantly, a critical factor we started with is the crisis of representative democracy; in this respect, only the strengthening of representative institutions, as Parliaments are, can stop the long crisis of democratic processes (for example exemplified by the empowerment of Executive powers).

Another important factor is the empowerment of democratic instruments such as direct, indirect and deliberative ones. An interesting case study is the Convention Citoyenne pour le Climat (France), where between 2019 and 2020 150 citizens discussed possible public interventions against the climate crisis. About half of their proposals were converted into law by the government. Another case study is the transformation of the referendum process through online voting with SPID in Italy, an example of the use of direct democracy tools. Both of these cases present innovative factors in that they allow for the insertion of citizens into decision-making mechanisms through an ad-hoc panel and collective law-making (Convention Citoyenne pour le Climat), and at the same time they constitute a remarkable facilitation for citizens to express their voice and participate (SPID voting).

Finally, we should bear in mind also that a favourable environment must be built for these changes. Possible innovations are a pluralistic reform of electoral law and the use of tools such as the ballot box to make decisions. Actually, democratising institutions is a way of channelling conflict into viable alternatives and preventing forms of anti-democratic backlash.

The second aspect to focus on is improving the quality and quantity of social and political participation. First of all, by strengthening the role of civil society actors. In addition, local communities must be empowered through grassroots institutions, while “use value” must be put at the centre of economic and social relations at local level (e.g. in arts and culture) through a new dialogue between the State and local communities. The State can evolve towards a form of “enabling State”, fostering forms of guaranteed funding to strengthen the possibility of intervention by local communities.

Relevant case studies for dynamic community participation are the Prinzessinen Garten (Berlin, Germany), L’Asilo (Naples, Italy) and the Camden Renewal Commission (CRC, London, UK). Zooming in on the cases of L’Asilo (Naples) and CRC (London), these are important especially in the light the joint effort of public institutions and local communities. Indeed, the firsts act as “facilitator” – through funding and expertise – of the involvement of civil society into the management of commons and/or the renewal of local neighborough. In specific relation to CRC, for instance, it comprises Camden community activists, business owners, academics and organisational leaders that gathered together to re-imagining the neighborough via a bottom-up approach.

In addition, there is a need for institutionalised cooperation between civil society and the public sector. How to make it really effective? Metaphorically, you have to give civil society teeth so that it can bite, i.e. give civil society a chance to sanction political decisions. Obviously, it is also up to civil society to make itself heard through new social forms and to reopen the question of “public affairs” at the various administrative levels.

The third point to invest on is a renewed role for the public sector in the economy. The State can deal with the fundamental uncertainty that characterises economic and social dynamics. For example, it can invest and innovate where the private sector cannot. Yet, care must be taken to ensure that profits from publicly driven innovations do not end up entirely in private hands. Along with strong public research, a new social pact is therefore needed. A mission-oriented approach that creates public-private ecosystems for development and collective well-being is particularly important to get the actors talking. This would bring benefits such as, for example, a more legitimate policy-making process, more just and at the same time more attentive.

In addition to innovating, the State should expand the provision of public goods and regulate finance more strictly. Public goods such as free schooling and education (all levels), public health system, public transportation, housing, environmental protection, welfare state. This can happen especially through a bold financial programme financed through the taxation of multinational corporations and wealthy elites. On the long run, this would finally re-balanced the “social roots” of the State towards a more just and globally sustainable direction. Clearly, such a programme can only happen also if a tight regulation of finance is pursued, with the fight against all forms of speculation and concentration of financial capitals.

Thus, these interventions would aim to strengthen the welfare state and build a new social contract that improves collective participation.

Examples of this kind of intervention are the InvestEU programme in the EU and the social guarantee proposal in the UK. This latter is a way to ensure that everyone has access to commons and public goods (the already mentioned housing, education, public health, but also internet access, clear water and so on). In other words, it creates a set of policy provisions through which citizens are entitled to have access to universal services, regardless to their ability to pay (Button and Coote, 2021).

This final remark helps us to stress one final point of our report: our effort is directed to stress the strict relation between society and the State. A legitimate and democratic State necessarily has, as counterpart, a fair and just society in which every human being has equal opportunities and access to basic and universal services. Also, a legitimate and democratic State is such when citizens have many possible routes to express their (informed) voice and concur to the definition of policy.

References

Beramendi, Pablo, Häusermann, Silja, Kitschelt, Herbert, and Kriesi, Hanspeter, eds. The politics of advanced capitalism. Cambridge University Press, 2015.

Bieler, Andreas, and Morton, Adam David. Global capitalism, global war, global crisis. Cambridge University Press, 2018.

Bruff, Ian, and Tansel, Cemal Burak, eds. Authoritarian neoliberalism: Philosophies, practices, contestations. Routledge, 2020.

Button, David, and Coote, Anna, A SOCIAL GUARANTEE. The case for universal services, New Economics Foundation, 28 SEPTEMBER 2021. Available at: https://neweconomics.org/2021/09/a-social-guarantee.

Cerny, Philip G. “Paradoxes of the competition state: The dynamics of political globalization.” Government and opposition 32, no. 2 (1997): 251-274.

Cozzolino, Adriano. Neoliberal Transformations of the Italian State: Understanding the Roots of the Crises. Rowman & Littlefield Publishers, 2021.

Crouch, Colin. The strange non-death of neo-liberalism. Polity, 2011.

Gamble, Andrew. The free economy and the strong state: The politics of Thatcherism. Macmillan International Higher Education, 1994.

Fuchs, Christian. Digital demagogue: Authoritarian capitalism in the age of Trump and Twitter. Pluto Press, 2018.

Jessop, Bob. “The state.” In The Elgar Companion to Marxist Economics. Edward Elgar Publishing, 2012.

Jessop, Bob. “The Future of the State in an Era of Globalization.” In Challenges of Globalization (2017): 13-26.

Hutter, Swen, Edgar Grande, and Hanspeter Kriesi, eds. Politicising Europe. Cambridge University Press, 2016.

Mair, Peter. Ruling the void: The hollowing of Western democracy. Verso Trade, 2013.

Norris, Pippa, and Inglehart, Ronald. Cultural backlash: Trump, Brexit, and authoritarian populism. Cambridge University Press, 2019.

Parsi, Vittorio Emanuele. The Wrecking of the Liberal World Order, Palgrave Macmillan, 2021.

Streeck, Wolfgang. Buying time: The delayed crisis of democratic capitalism. Verso Books, 2014.

Tansel, Cemal Burak, ed. States of discipline: Authoritarian neoliberalism and the contested reproduction of capitalist order. Rowman & Littlefield, 2017.

Van der Meer, Tom WG. “Political trust and the “crisis of democracy”.” In Oxford Research Encyclopedia of Politics. 2017.

Working group “Finance and investment for a just transition”

President: Luca Bellardini, Università Bocconi

Rapporteur: Dario Luciani, Università Bocconi

Participants

- Stefano Grassini, Senato della Repubblica

- Murad Harasheh, Università di Bologna

- Isabel Hernandez Pepe, LUISS Guido Carli

- Francesco Lamperti, Sant’Anna di Pisa

- Dominik Leusder, Dezernat Zukunft

- Gabriele Morelli, Università di Milano Bicocca

- Natalia Pushkareva, Università di Urbino

Scenario 2030

The 2030 scenario that we envisage in respect of the financial ecosystem rests on three main pillars:

- a financial system that may channel private savings into sustainable investments. Household savings in Italy and Europe skyrocketed over the last two years as a consequence of the pandemic. In Italy, the household savings rate did increase from 9,97% in 2019 to 17,40% in 2020 (source: Eurostat, available at this link). It is likely that private savings will remain at high levels for the next years, as the uncertainty about the future depresses consumptions and investments. A financial system that be able to channel this huge amount of funds into the economy would both boost the transition to a more sustainable economy – possibly centred around a “circular” paradigm, as opposed to the current “linear” one – and, thus, help the economies recovering from the output losses inflicted by the COVID-19 pandemic.

- a strong but supportive (i.e., non-invasive) role played by the public sector. The financial tools potentially able to channel private savings have to find the right investments to target. There is broad consensus among economists on the idea that the private sector alone might not secure the right volume of investments needed for the green transition. This is mainly due to the following reasons: (i) the private sector might be unwilling to invest in projects that are perceived as too risky – despite growing empirical evidence that the adoption circular business models may trigger de-risking (e.g., Zara, Iannuzzi, Ramkumar, 2020; Bocconi University GREEN Research Centre, Intesa Sanpaolo, Ellen MacArthur Foundation, 2021) or endowed with a too long-term horizon; (ii) companies might be unwilling to upheave their production processes before they have amortized the investments made in the past; or subject to undertaking additional heavy expenditure. Hence, public investments should lead the transition and, in turn, attract private capital as well.

An effective coordination of these public investments both within and between countries, particularly at EU level. In fact, sustainability issues are inherently supranational, if not global: hence, they cannot be addressed without a common and shared project. Every policy that lacked such a common ground might not achieve its goals, thereby hindering the sustainable transition as a whole.

In our scenario, the objectives underpinned by these pillars can be pursued through a set of ad-hoc policies.

First of all, we need to revise the current EU fiscal rules: in practical terms, the new framework should allow Member States to mobilise better financial resources (even more of them, if the case) for supporting the transition. One advisable reform is the spin-off of green investments from the computation of deficits pursuant to currently-enforced stability parameters. Such reform – which the economists label as the “golden rule” of EU public finance – would be justified not only from the perspective of protecting the environment (which is valuable per se) or minimising the expenditure for recovering from natural disasters but, also, with a view to enacting a sound economic policy too. In fact, it has been estimated that renewable energy investments exhibit, on average, a higher output multiplier than spending on projects based on fossil fuels (Batini et. al., 2021). Another important tool in this direction is constituted by the so-called “green bonds”, which might be issued not only by private companies but EU institutions, too, for the purpose of financing EU-wide projects to reduce emissions and reconvert the production processes, thereby addressing the need for both public investments and supra-national coordination. Moreover, this should occur at the local level as well. In particular, local governments should be allowed to issue bonds whose proceeds were destined to sustainability-oriented projects, something that Italian Regions and Municipalities cannot do in the current regulatory framework.

This does not imply that the private sector cannot play an important role: conversely, a synergy between the public and the private sectors is fundamental. For instance, the public sector could (and should) wisely fund private projects in the green economy, instead of directly engaging into them. Another example is constituted by local banks. From 2015 onwards, in Italy, the vast majority of them have progressively transformed from co-operative enterprises into joint stock companies. However, this change – though enhancing at least profitability and transparency, if not systemic stability – might have resulted in a weaker connection with territories and their needs. In this sense, it is necessary to rethink the structure of local banks to mingle a more “modern” structure with the preservation of the goals they have historically pursued, thereby enabling them to play a pivotal role in financing sustainable investments.

Public and private finance have to be directed into the right direction. With a view thereto, it is crucial to construct a full taxonomy of sustainable investments (not only environmental, but social ones as well), complemented with precise and scientifically-grounded measurement tools, and akin to be featured in clear and effective non-financial disclosure. An appreciable step in this direction is the recent development of “social stock exchanges”, i.e., trading venues wherein investors can trade bonds and stocks of socially-oriented enterprises, which in turn have to provide a complete and truthful representation of their activities.

Finally, we should acknowledge that the path toward a more sustainable future, though clearly beneficial in overall terms and the longer term, is inevitably bound to determine winners and losers; therefore, at least in the short run, it entails a socio-economic dimension that must be addressed. In particular, the losers – who often are the humblest members of society – should be compensated for their losses (e.g., those associated with rising energy prices). If not properly addressed, this aspect would impair the political feasibility of the transition and ultimately derail the latter.

3 elements to be dropped

We have identified three elements that hinder the realization of the scenario we have outlined in the previous paragraph.

A first element is unilateralism. The policies adopted to accelerate the green transition should be thought, designed and implemented at a supranational level (ideally, a global one), as the sustainable transition is a global issue and should be addressed at least by the EU as a whole, lessening national sovereignty to strengthen cross-country policy cooperation. EU Member States have already delegated many powers onto Brussels, yet they still retain full autonomy in the decisions over spending allocation. Such autonomy, however, is highly problematic when applied to sustainability issues, particularly environmental ones. The main reason lies in what economists call ‘externalities’. In general terms, an externality is defined as the situation wherein an economic agent’s action does affect the well-being of another agent directly, that is, without the mediation of market prices (Mas-Colell, Whinston and Green, 1995). The presence of externalities is one of the reasons underlying the so-called ‘market failures’, i.e., the inability of decentralised market solutions to achieve an efficient resource allocation. One solution to externalities is to “internalize” them, that is, to adopt the decisions at a level high enough to incorporate the interests of all the agents that were directly affected by those decisions. Pollution is the classic, textbook example of a negative externality: in fact, firms do not usually pay all the costs – in terms of environmental impact – of their production. The effects of pollution may clearly be resented far beyond the national frontiers; hence, they should be faced at a supranational level.

Another reason why unilateralism undermines the sustainable transition is the room for regulatory arbitrage between countries. For instance, if one country adopts a strict regulatory policy in respect of polluting emissions, and another a more permissive one, firms – particularly the most polluting ones – will tend to shift production toward the most permissive place. This mechanism produces a regulatory competition between countries that goes in the opposite direction vis-à-vis the sustainable transition.

One relevant example of the current lack of coordination between European countries is relative to the choice about the energy technology wherein to invest to compose the “energy mix”, i.e., the range of energy sources available. In 2019, the energy mix in the EU was mainly made up of five different sources: petroleum products (including crude oil) (36%), natural gas (22%), renewable energy (15%), nuclear energy and solid fossil fuels (both 13%). This mix, however, varies considerably across Member States.[4]

A second element is short-termism: we should abandon investment and policy decisions focusing on short-term horizons, which fail to seize long-term risks and opportunities. The logic of short termism has very negative consequences for the financing of projects aiming at enhancing the sustainable transition. Indeed, since they exhibit a long-term perspective and a multidimensional nature, these projects do rarely survive an investment screening made by a conventional return-based approach. Hence, the latter should be dropped as the main criterion underlying the provision of funds.

A final element is constituted by the current regulatory framework for the financial system. First of all, a deep reform of the European fiscal rules is needed, as advocated by the large majority of experts in the field (see, e.g., Blanchard, Leandro and Zettelmeyer, 2020). The current rules – rooted in the Maastricht Treaty (1992) and the Stability and Growth Pact (1997) – are quite rigid in imposing limits to the annual public deficits and debt. In particular, the threshold of a 60% debt-to-GDP ratio – originally introduced by the Maastricht Treaty – is still the ultimate objective to be reached. The reforms enacted in 2005, 2011, 2013 and 2015 have introduced some elements of flexibility; yet, in spite of this, the whole architecture remains quite rigid. The current framework – which has undergone a precautionary suspension upon the COVID-19 outbreak – should be replaced by a different one, allowing EU Member States (i) to finance the necessary public investments and (ii) to do so in a more flexible way. This is particularly relevant in the post-pandemic world, where public debts have reached levels that would imply, in the current regulatory framework, unsustainable adjustments in the following years to converge towards the objective of 60%.

Another element of the regulatory framework that should be dropped is the separation between the 3 ESG pillars, as it implies that they do not provide the right guidance to achieve sustainability. The ESG pillars should therefore be treated in a more holistic way: i.e., an approach that is more scientifically accurate.

Finally, the Basel framework for banks is still coping to incorporate sustainability-related issues, the only real step forward having been undertaken in respect of the third pillar (i.e., market control, with transparency enhanced thanks to the so-called Green Asset Ratio in credit institutions’ balance sheet). Despite an insightful debate on whether to let banks benefit from lower capital absorption when financing the transition (EBF, 2021), mainly by curbing the risk weights attached to sustainable investments; that is, multiplying existing risk weights by a so-called ‘green supporting factor’, clearly less than 1), the current regulatory setting is still unable to provide the right incentives for credit institutions to fund the most sustainable projects. Following on the pledge that the European Banking Authority made upon the Glasgow COP26 (link), a comprehensive review of the framework is needed more than ever.

3 elements on which to invest and related case studies

Having outlined the three main factors that undermine the transition to the 2030 scenario, we are now discussing the major elements that would foster that scenario and, thus, are worth investing in. For each of them, we provide a brief reference to examples, case studies or best practices that practically show its beneficial impact.

Since – in our opinion – the first element to abandon is unilateral decision making, the first point that we want to stress is the need for an international coordination on sustainable issues. Ideally, this coordination should occur at global level. More specifically, what is needed is an international institution that be in charge of promoting a global transition toward a sustainable economy. A model we might envisage is the environmental counterpart of the Financial Stability Board, which has been established to oversee the international financial market conditions and has proven to be an important tool to enhance financial stability across the globe.

A second element is constituted by value-oriented financial solutions. As we argued above, an approach that were solely oriented at reaping an expected return in assessing investments would be inadequate to address the challenge of the green transition. This framework should be revised at both private and public level.

In the private sector, a remarkable example is constituted by Intesa Sanpaolo’s Circular Economy Plafond: i.e., a EUR 6-billion facility targeted at funding those companies that are committed to developing circular business models. As of 2020, 145 projects had already been financed, with funds being cumulatively utilized for a total amount of 2.2 billion euros (a more detailed report is available here). Moreover, funded ventures may benefit from the ‘Green Guarantee’ provided by SACE, i.e., the Italian government-sponsored company specialized in financially supporting development projects. To our knowledge, such mobilisation of resources has no comparable in the Italian banking industry. Also, a rapid search on the Internet would soon return several “success stories”, acknowledged by the major news outlets, in terms of undertakings — including many SMEs — that have used the proceeds for decisively transitioning toward a sustainable business.

In the public sector, a noteworthy case study is constituted by the Brazilian public bank BNDES, which has shifted its investment decisions criteria from a conventional return-based approach to a mission-oriented one. In other words, that institution funds all the projects that are aimed at reaching a specific, predetermined goal and are deemed to do so in an effective manner (that is, from an ‘impact’ standpoint), regardless of their expected profitability. This solution constitutes a very powerful incentive for the private sector to engage in sustainable projects; also, it is a very good example of how the public and the private sector could work together. The bank concentrates the majority of its funding in projects aimed at fostering regional development, innovation and environmental sustainability. It has been empirically proven that BNDES had an impact in enhancing sustainable economic development (Ferraz and Coutinho, 2019). At aggregate level, the projects backed by BNDES were responsible for around 20% of Brazil’s total investments between 2009 and 2015 (BNDES, 2016); moreover, they played a crucial countercyclical role over these years, limiting the fall in total investments after the financial crisis 0f 2007-2008. In this respect, Oliveira (2014) found that financially constrained firms having access to BNDES facilities did resent a smaller decrease in their investments (as opposed to non-financially constrained firms) vis-à-vis financially constrained firms not having access to the development bank’s programmes. BNDES (2016) estimated that the financed projects generated or preserved 3 million jobs, or 6.1% of total Brazilian workforce, in 2014. Focusing on sustainability, the funding of sustainable projects increased from R$ 12.5 billion in 2007 to R$ 31.3 billion in 2015. For instance, the total installed capacity in sewages and solid waste management systems increased respectively by 70% and 34% from 2007 to 2014 (BNDES, 2016).

Finally, the third element that we want to stress relates to subsidiarity and social engagement. As we argued above, the sustainable transition entails a social dimension, too, which has to be taken into account for the transition to be politically feasible. Besides, the active involvement of local communities is essential to the very successful implementation of projects. One example is constituted by the Initiative for the Integration of the Regional Infrastructure of South America (IIRSA) project in South America. Launched in 2000, it is aimed at connecting the continent’s economies through new transportation, energy and telecommunications networks. However, the development of the project is harmed by the lack of citizen participation. In particular, IIRSA’s development projects overlap with the need of preserving the Amazon ecosystem and its indigenous communities, whose well-being has not been taken into account.[5] Conversely, the systems of local complementary currencies are a good example of active participation of local communities. These systems have been developed to overcome the structurally lacking availability of credit in certain areas, as well as to support production. In Italy, the most important and successful example is Sardex, a local currency introduced in Sardinia after the financial crisis of 2007-2008 and the subsequent credit crunch. Importantly, these systems can be delimited not only geographically but also functionally: for instance, addressing only specific goods and markets, thereby obviating to the lack of liquidity in specific sectors of the green economy. Sardex is an example of active participation and has been successful not only in stimulating Sardinia’s economy but, also, creating positive social spillovers (Dini, Motta and Sartori, 2016).

References

“Amazon Rainforest at risk from initiative to connect South American economies”, Environmental News Network, 02/10/2007, available at https://www.enn.com/articles/23555-amazon-rainforest-at-risk-from-initiative-to-connect-south-american-economies.

Batini, N., di Serio, M., Fragetta, M., Melina, G., Waldron, A. (2021): “Building Back Better: How Big Are Green Spending Multipliers?”, IMF Working Paper.

Blanchard, O., Leandro, A., Zettelmeyer, J. (2020): “Redesigning the EU Fiscal Rules: From Rules to Standards”, 72nd Economic Policy Panel Meeting, Economic Policy

BNDES (2016): “Effectiveness Report 2007-2014: The Contribution of the BNDES to National Development”

Bocconi University GREEN Research Centre, Ellen MacArthur Foundation, Intesa Sanpaolo Innovation Center (2021): “The circular economy as a de-risking strategy and driver of superior risk-adjusted returns”. Ellen MacArthur Foundation.

Colell, M. C., Whinston, M., Green, J.R. (1995): “Microeconomic Theory”, Oxford University Press

Dini P., Motta W., Sartori L. (2016): “Self-funded social impact investment: an interdisciplinary analysis of the Sardex mutual credit system”, in: ISIRC: 8th International Social Innovation Research Conference, 05-07 Sep 2016, Glasgow, UK.

European Banking Authority (2021): “EBA statement in the context of COP26”, available at https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Other%20publications/2021/1023331/EBA%20statement%20COP26.pdf.

European Banking Federation (2021): “Towards a green finance framework”, available at https://www.ebf.eu/wp-content/uploads/2017/09/Geen-finance-complete.pdf.

Ferraz, J. C., Coutinho, L. (2019): “Investment policies, development finance and economic transformation: Lessons from BNDES”, Structural Change and Economic Dynamics, 48, pp. 86-102

Oliveira, F. N. (2014): “Investment of Firms in Brazil: do financial restrictions, unexpected monetary shocks and BNDES play important roles?”, Working Papers 366, Banco Central do Brasil

Zara, C., Iannuzzi, M., & Ramkumar, S. (2020): “The impact of circular economy on public equity in Europe. Understanding de-risking effect and risk-adjusted performance”: Research Paper. Department of Finance and GREEN Research Centre, Università Bocconi.

4    Source: Eurostat (https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-2a.html).

5    “Amazon Rainforest at risk from initiative to connect South American economies”, Environmental News Network

Conclusion

What State and what market?

Alessandro Bonetti and Mattia Marasti from Kritica Economica

For a long time our country has been experiencing economic stagnation, low wages and growing inequality. These problems are not separate, but connected: the growth needed after the pandemic will have to be inclusive and sustainable, if we are not to fall back into a situation worse than the one that preceded it.

There is no doubt that this must involve a revolution in the way we think of the public actor and how it can operate in practice. Reduced to a mere ‘merchant in the market’, the State has gradually reduced its dynamic capacity, although it remains firmly at the centre of our economy, given the nature of Italian capitalism.

Let us then quickly set out some theoretical background to this narrow view of the State.

One of the fiercest opponents of public intervention in the economy was the Austrian economist and political scientist Friedrich von Hayek. In one of his most important works, The Use of Knowledge in Society, he argued that, given the decentralised nature of information in a market, the action of individuals is superior to the action of a central planner.

State planning action is also likely to be harmful because the economic system is characterised not only by risk (quantifiable), but also by uncertainty (unquantifiable), as the Chicago economist Frank Knight observed almost a hundred years ago. Finally, as Joseph Schumpeter argued, there is no tendency towards equilibrium: all economic development is driven by the thrust of creative destruction.

Often cited as arguments in favour of the free market (with some adjustment at the margin by the State), these considerations also lend themselves to a different interpretation. The dynamic, uncertain and complex nature of the economy can be seen as a justification for a new kind of state intervention. An intervention that aims to address the fundamental uncertainty of economic interactions and to stabilise an unstable and complex economy. The points of reference in this regard are John Maynard Keynes (with his proposal of “socialisation of investment”) and Hyman Minsky (with his “financial instability hypothesis”).

As Dani Rodrik and Charles Sabel also argue, this awareness must lead us to rethink the instruments with which we intervene in the economic system. Successful models include Darpa and ARPA-e, two US federal agencies. Examples of the mission-oriented projects Mariana Mazzucato talks about, they have fostered technological innovation in an innovative public-private ecosystem.

It is no coincidence that, in his 1987 paper Does Technology Policies Matter?, Henry Ergas singles out the United States as a virtuous example for mission-oriented projects. It is precisely a pragmatic approach that we need now. The same approach animates some recent initiatives, such as the document signed by Patrizia Nanz and other German intellectuals calling for a renewal of public institutions and greater involvement of civil society.

It is no longer a question of how much state and market we want. And maybe that was never the question. The real issue is which state and which market we want as a society.