Industrial Policy: A Lesson from Italy
I was in Cambridge on Monday, to hear a fascinating presentation on industrial policy by Patrizio Bianchi. Bianchi is that rare combination of an academic (he is professor of economics at the University of Ferrara) and a politician (he serves as a Minister in the regional government of Emilia Romagna). When it comes to industrial policy, then, he practices what he preaches, almost literally.
With his university colleague, Sandrine Labory, Bianchi has published a book entitled ‘Industrial Policy after the Crisis’. An earlier paper, ‘Industrial Policy after the Crisis: the Case of the Emilia Romagna Region in Italy’ preceded the book and can be downloaded here.
In the paper, Bianchi and Labory describe Emilia Romagna as “a model of diffused industrialisation and flexible specialisation, where industrial development is intimately linked to the civil society and social norms and values”. The regional government, according to Bianchi and Labory, has involved interested parties, mainly firms and industry associations, but other stakeholders such as universities, in order to define a shared vision of long-term economic development, constantly ensuring consensus. Industrial policy is described as both holistic and dynamic: policy helps change, providing a context favourable to industrial adaptation, but without substituting for private decision making. Bianchi and Labory describe how globalisation has led to the development of global production processes, where different phases of production are realised in different countries, thereby moving away from more traditional, vertically-integrated companies. The challenge for modern industrial policy is to respond to that.
Bianchi and Labory produce a sundial, with innovation, territory (i.e. geography, the place where industry is situated), entitlements (the ability of individuals to engage in the economy) and provisions (the outputs of industry) as the four points of a compass. Superimposed are: human resources policies, which fall between innovation and entitlements, social policies which fall between entitlements and territories; territorial policies, which come between territory and provisions; and innovation policies, which are between innovation and provisions. This is easier to understand by looking at the sundial in the research paper, but the important point is that while various economies around the world have stressed some areas of policy more than others, depending on social and political choices, a holistic industrial strategy needs to balance the human resources, social, innovation and territorial aspects of policy so that they support and reinforce each other. Bianchi and Labory go on to describe how Emilia Romagna has applied this approach in practice, with impressive results.
As we know, the UK has been dragged, almost kicking and screaming, towards developing an industrial policy, which still goes against the instincts of its more neo-liberal politicians. Nevertheless, among its proponents, including the TUC, there is growing recognition that other areas of policy, such as skills policy (which would fall into human resources) and procurement policy (which would fall into provisions) need to fit into the industrial strategy. Otherwise, it would not be, in Bianchi and Labory’s word, “holistic”.
When Patrizio Bianchi presented his sundial in Cambridge on Monday, what struck me was that, as he says in his paper, there would need to be consensus to make it work. When I was researching the TUC’s ‘German Lessons’ report, I was struck by the fact that in companies such as Volkswagen, whilst there are inevitable differences between management and unions, there is a shared view about the need for the company to be productive, for the welfare of the workforce to be protected and for the government to support the Social Market Economy, which emphasises this balance. In the UK, we have no such consensus: our free market rhetoric stresses, for example, the role of companies in making money and delivering maximum profits, but the corporate contribution to wider society is downplayed, almost dismissed. Literal believers in Adam Smith’s “hidden hand” may expect those wider social benefits to occur naturally, but the last 30 years tells a different story as, for example, profits have increased but wage share has fallen. I raised this problem with Professor Bianchi, who said that Italy’s model is closer to that of Germany than that of the UK. Bianchi argued, however, that building such an industrial strategy is a long term project, not least because of the need for consensus to make it work.
I think Patrizio Bianchi and Sandrine Labory have important lessons for the industrial policy debate in the UK. With all political parties now talking about better capitalism, I think they have insights for that discussion too. Finally, for those of us interested in a better balance between the voices of different stakeholders, including unions, all of whom have an interest in industrial and economic success, I think Bianchi and Labory are required reading.