Produttivita Morning Future
Guiding Trend 25 August Aug 2020 1819 25 August 2020

How to increase Italy’s (low) productivity levels

In the experts’ opinion, four things need to de done: digitalise the country, update education, support the more innovative SMEs and reform the justice system These will be crucial steps in the post-Covid recovery.

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Productivity, a dark evil of the Italian economy. The UE documented it in its Country Report released in early February and the Reform Plan issued by the Italian government at the beginning of July has confirmed it, setting it as one of the priorities for the next few years.

Because, as the numbers show, productivity in Italy has not increased since 1995: a turnaround in this trend would provide a remedy for the country’s economy, which could then grow by 1.5% per year. “What is needed is a clear change of pace.” This is the thinking of Professor Gloria Bartoli, general secretary of the Observatory on Productivity and Prosperity at the Fondazione Economia Tor Vergata. “The political classes need to realise the importance of factor productivity by acting on the causes of it having slowed down for far too long, instead of focusing on electoral topics.”

But first of all, clarification is needed: “We should not confuse factor productivity or the efficiency of the economy with that of capital and work. For years, the UE has been asking us to improve the former, which would allow us to increase wages and decent work for the next generation, even though we still tend to refer to hours worked and tax wedges.”

These topics appear frequently on the front pages of Italy’s dailies, even though they have little or no impact on factor productivity. “Germany is often taken as a standard, but if we compare the best German and Italian manufacturing firms, we notice that their productivity figures are very similar. So, it is all the other companies that are making the difference and they have to keep up with the best,” explains Professor Augusto Ninni, lecturer in Applied Economics at the University of Parma.

Nothing would impact productivity more than investing in schools and education because we need to encourage the younger generations to take degrees in the sciences, which is what the market needs

Augusto Ninni, lecturer in Applied Economics at the University of Parma

There are many causes for this weak productivity growth: the low level of digital innovation is among the main ones. This can be attributed mainly to the over-abundance of small enterprises, which in Italy account for the vast majority of entrepreneurial activity - 95% of the total and 29% of GDP. “Italy’s traditional ability to innovate, measured by investment in R&D, is lower than in other countries and this is often due to the small size of companies, which often focus on other issues,” Ninni points out. “Unfortunately, in Italy the government continues to support small companies, but they are slowing down the innovation process because they are not able or willing to keep up with the standards of their international competitors. This seriously holds them back and for this reason, the government should only incentivise the small companies that are growing, or alternatively support the medium and large-sized ones, which are really efficient,” Bartoli stresses.

Other significant causes are “the inefficiency of both public administration and the justice system (both penal and civil) and the lack of digital skills among students, workers and management.” Ninni also highlights the education aspect: “Nothing would impact productivity more than investing in schools and education because we need to encourage the younger generations to take degrees in the sciences, which is what the market needs.” The employment figures for STEM graduates - which in the Almalaurea Report 2019 reached almost 90% - prove this point.

It is no coincidence then that in the Forbes list of best countries for business 2019, Italy ranks 30th while the other European countries made the top of the list with eleven of them in the top twenty.

So how can Italy solve the problem? “Four things need to be done. First the country needs to be digitalised, by completing digital infrastructures and making it easier to access public administration documents online. Then update education: the plan already exists and it is called ‘Digital Schools’, but it hasn’t produced the results expected due to money not being well spent, as the EU-financed monitoring report pointed out. A change of pace needs to also involve “the government which should commit to helping those small companies who plan to grow and invest, and carry forward a real reform of the justice system as France has already done.” The way forward has been mapped out.

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