2020 May 10th

Awareness for post-Covid economic reconstruction

Valeria Termini

 

Due to the suspension of business and transport activities forced on us by the pandemic, pollution of the planet has been reduced and emissions of CO2 diminish. Paradoxically, this came about while thousands of people over the world were dying of pulmonary infection. With the tragic toll of deaths, together with prospects of deep economic crisis, economists consider the pandemic “worse than a war”, since the battle to stop it has blocked all activities from the demand side of consumption to the supply side of production and services.

 

We will have to get moving once again. But nature is now calling to defend the environment and there can obviously be no way ahead by blocking  business nor dreaming of a return to farm life. As an economist, I see in the present disaster a prompt to urge the state, the administration, private industry, citizens and young people to join in the reconstruction; to make a new start with the awareness and the possibility to choose, among the many options, a model for  regrowth in pursuit of a better balance between the organisation of life and respect for what nature continues to lavish on us, despite our history of predatory practices.

 

But how is this to be achieved? With what approach, what tools? The brief considerations offered here refer to the Italian economy, but they can readily be generalised.

 

Our most positive experience came after the Second World War, when coordinated, long term oriented governmental measures set reconstruction on the way to the economic and social boom  that changed the destiny of Italy. Around it the country was rebuilt and continued to grow economically, socially and culturally in the following decades. And the population as a whole took readily to it.

 

To a large extent reconstruction was based on a systemic strategy of complementary interventions with a long-period vision, a major choice being their  targeting  around the automotive sector. The automotive industry  (with Fiat, a longsighted private enterprise) spawned a great range of  allied industries; road transport (state investment in mechanics, steel and motorways) with public money through IRI created a network connecting different areas of the country and, finally, oil (Mattei’s AGIP on the brink of liquidation was transformed into a public power house for recovery, with ENI) together with the first steps of the new petrochemical industry – all this contributed to creating a system. It was then that the rebirth of a crippled country labouring under the rubble of the war found three strong points to advance the economy in a long-period perspective. They are worth recalling today.

 

A new industrial axis was created around which a substantial and extensive constellation of allied industries revolved, generating employment and boosting innovative enterprises; public policies were launched to pursue these objectives with the support of a technical public administration endowed with a scientific background, while foreign policy also played a part in pursuit of these objectives (significantly, largely influenced by ENI). The educational system turned out young technicians.

The Bank of Italy also had a part to play, and this was the second axis – financial support for Italy’s nascent industry by the banking system.

The third axis was support from outside, indispensable to reconstruct a country lacking resources: the Marshall Plan came from an America that shared Italy’s basic economic objectives, launching the oil majors and boosting the automobile, gasoline and newly developing petrochemical industries. Over 10% of the resources given to the country were channelled in the automotive industry and to the infrastructures supporting it.

 

Today, with comparable conditions and different difficulties we again might build on long term prospects.

This time, however,  the option for the necessary growth lies in a new energy model combining digital technology in synergy with renewable sources and gas  contributing  to decarbonize the economy.  

For implementation it needs a system-oriented economic policy, kept well in place in the course of time, as well as simple norms free from complex bureaucratic procedures. Commitment on the part of industry to work these choices into a system is also  essential. This is no easy undertaking for today’s ruling class. However, there is the solid support of the population, favouring decarbonisation and prepared to commit to the new digital solutions provided they have the necessary endowment of  connections, to prevent digital divide, as experienced  during the pandemic.

 

Today, too, growth  can advance along three major axes:

 

1. The value chain of energy generation from renewable sources, perfectly possible in a country where the sun shines and the wind blows, can be the central axis. Large and medium-sized enterprises, in part public and in part private, are already moving in this direction. Electric transport depends on the commitment of the automobile industry and its allied industries, and it needs new infrastructures – from rapid, standardised charging stations to high-capacity batteries. The enterprises will have to converge, entering into  a system with an administration that does not need new reforms but, rather, needs to take on specialised staff who can enter into dialogue with the industry (engineers and technicians, in the first place). Niche innovation in this sector is certainly not lacking, but it calls for  a coordinated strategy  to join in the common effort and provide jobs to young technicians, already available on the labour market but often finding openings on the foreign market. Digital innovation offers support for the  smart grids and the cities are geared up to make room for  platforms fuelled with renewable sources. The public infrastructures require new investments with the promise to reduce pollution and CO2 emissions in the cities. And the population is now ready to enjoy the advantages: in fact, Milan is now on the steering committee of the C 40 worldwide group of sustainable cities.

 

 

2. As for the second axis, the “banks”, today green finance is showing steady growth. Green bonds in support of enterprises engaged in sustainable growth activities offer a welcome alternative to the volatility of investment funds given all the uncertainties the financial world is facing today. The Bank of Italy has set an example, reorienting its portfolio towards sustainable growth assets. The UE is taking some early  steps  with the proposed emission of green bonds.

 

 

3. For the third axis, external support is undeniably needed, and huge resources to approach the future starting from the debt that is weighing Italy down. Today, our “America” is Europe – a crucial aspect of this approach. Growth based on the new energy model is in synergy with the decarbonisation objectives that Europe has set itself with the Green Deal, which has found majority consensus among the member states. The project for regrowth based on renewable sources, gas and digital technology is perfectly in line with the European project and reinforces it with the contribution of the great economy of a Member State. As had been the case with the Marshall Plan and the America of the time, where among various objectives financing went into realising the potential of oil, today the funds made available by Europe are also serving to contribute to European growth through the new sustainable growth model.

 

For Italy this is a point of strength in attracting capital and political support from the EU.

 

All the elements  necessary to get the mechanism running in this direction are available. The need is for an approach that can bring all the long-period lines to function as a system. In conclusion, let us not forget the vital role of the active participation of the population in pursuit of this objective, bringing to bear that extraordinary solidarity that Italy has shown with the terrible trauma of Covid 19.

 

Italian version

 

Credits: tostphoto / Shutterstock.com

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