Economy / Opinion

The Paid Cost of Manufacturing – Marco Fortis

italy-wages-in-manufacturingThe drama of Italian manufacturing, which doesn’t seem to worry the parliamentarians who met today for the opening of the new legislature, is all in the gap that opened between foreign sales and domestic industry.

To which, moreover, is owed the collapse of construction (whether it be in the public sector or private), which in turn gave a tremendous shock to the satellite manufacturing connected to construction, which is gigantic in Italy, given that we are important producers (and also world leaders) of all things that go into a house: cement, tile, shingles, faucets, valves, furniture, window treatments, heating systems, lighting engineering, doors, windows, knobs.

Finally, “a crisis was added to the crisis” because all retailers of these goods also entered into a tunnel from which they cannot see the end.

If on international markets in manufacturing we are able to keep up with the Germans and we do the best of the French, domestic sales of the Italian industry have literally collapsed since mid-2011, while after 2009 in Germany and France businesses did not have to collide—at least until the middle of 2012—with any kind of decline in domestic demand. Result: with respect to the maximum affected in February 2008 (moving an average of three months of the seasonally adjusted Eurostat data), Italian manufacturing for all of November 2012 lost more than 20 percent of its internal sales volume, while the French in their national market returned to precrisis highs and Germans, although it was pressing on the brakes, had prematurely returned to just under 2 percent since the levels of 2008.

We previously wrote that from 2008 to 2012, 50 billion euros went up in smoke in Italy. That had the added value of the industry in a strict sense with concatenated prices in 2005, a loss entirely ascribable to the fall of the internal question, given that exports returned to precrisis levels, pushed by authentic phenomena of competitiveness like Bolognese producers of automatic cars, Fermano shoes or record Ferrari sales. But the export market is not enough if the internal market sinks.

Since, in the industrial sector (Mediobanca data) the added value vacillates, on average, around 20 percent of sales, it can be estimated that the crisis of consumption and of internal investment in Italy led to a loss of industrial sales in the last four years of 200 billion to 250 billion euros. These are thrilling figures that we believe do not reflect the new “cricket” forces that saw today for the first time in Parliament that ideal “decrease” (consisting of restricted consumption and “green economy”) that they long for. In fact, what we find in front of us is not a decrease; it is an authentic economic disaster compressed in time as a result of a mix of European and Italian errors, to which our political policy, also for the uncertain party situation originating from the elections, now seems incapable of giving a response.

However, a response is not only necessary but possible, and also soon. Confindustria already presented an economic plan for Italy in January, an “impact therapy,” on which all the parties should reflect together, without prejudices of any sort. There is always an interest in stopping the course of the unemployment rate, which for young people could soon exceed even 40 percent. Hopefully, political forces will at least listen to the president of Istat, Enrico Giovannini, who has deftly summarized the situation, saying this is the most serious recession in Italy since its birth, more grave even than that of 1929.

It is somewhat irrelevant, to this point, that in debates the search has continued for the causes that have brought us here. We all know that we have not “monetized” much the advantages of the entry into the euro under the profile of containment of public accounts. If, with respect to Belgium (which had like us a problem of high public debt from 1995 to 2000), we were equal if not more diligent in generating a conspicuous primary state surplus, from 2001 to 2006 we were not as diligent: it was really a lost opportunity to finally lower our public debt. But from 2007 on, first with Prodi-Padoa Schioppa, then with Tremonti and finally with Mario Monti, we returned “ants” and we produced in the arc of 2007–13 (in the height of a world crisis) a primary cumulative surplus equal to 12.3 percent of GDP, which is not only almost three times higher than that generated by Belgium in the same period, but also an absolute record among the advanced countries.

That would have calmed the markets (which didn’t “understand” us anymore because of the loss of political credibility, which was due to the real state of public accounts) and Europe being led by Germany (which, instead of defending a founding “pillar” like Italy, has imposed on us the Greek treatment, provoking the same recession in the whole euro zone). So the government of “technicals” has given us back international credibility—and that is a great merit of Monti’s—but he was not capable of bringing to life the results asking the EU for more space to maneuver for growth, without which austerity becomes poison, not medication.

Today the crisis is what we have in front of our eyes. The loss of purchasing power has crashed the consumption of less wealthy classes, while the fall of the same stock of financial richness and real estate has rendered the middle-upper classes also cautious in spending. It is pointless that political forces, also the new ones, continue to bring up past guilt, while businesses, workers and young people lose faith in the future every day that passes. The “porcellum” has delivered us an ungovernable country that will sketch out with difficulty a robust plan of development restart. But in the immediate future, the payment of at least one part of government debts to businesses (which in the Confindustria plan is a “key” passage”) needs go to the top of the daily agenda in the Houses of Parliament and make them “digest” Europe. Because our biggest problem today is not the public accounts but the agony of the real economy.

Original article by Marco Fortis – Il Sole 24 Ore


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