Italian News Through February Will Be Dominated By A Surprise Election

Comments

Austerity by the Govt is not really a good idea. Moderate austerity by the family may be not bad an idea.

I know, I know. Governments tell us that reduced spending by them will also reduce waste. But alas, that rarely happens. Best way is to involve more people in the system to monitor and regulate and try (yes, only thing that often can be effectively done is to try your luck) to reduce waste.

Education is my favourite. Employ more teachers but also watch their performance! Make them deliver. Not really difficult if you put 1% of your heart in the matter. It creates lots of useful infrastructure and your investment will pay off sooner.

A mild austerity at the consumer end may be not so bad idea. Yes, the big fashion houses in Milan will cry, but their major customers are in middle east! What I am trying to say that every customer must learn to prioritize. Impulse shopping is not really good.

I always thought (of course I do not know Italian) that Monti is doing Ok. Apparently he is not so good in “politicking” - buying and selling support. Berlusconi does it with style.

Many students of politics must be focused hard on Italy. An interesting kitchen.

Hi Chami.

Always interesting to read you. Obviously we dont knee-jerk demonize governments here at TJMk as many of us have actual experience of working within them and most others dont have minds addled by vast conspiracies. 

The IMF reversal on growth is astonishing. Although they are central now and grab all the headlines they were a backwater agency compared to say the World Bank just a few years ago. I was in and out of the IMF HQ in Washington DC a few times and senior staff all seemed like very mild very polite milquetoast characters. Other than figures they didnt seem to know much and were eager to learn.

Up to the mid 1990s the infamous hard line Washington Consensus (very similar to extreme national austerity) was the mantra of the Washington based UN agencies (World Bank and IMF) but development managers like myself in other arms of the UN (of which there are many,  including FAO and WFP in Rome) thought it resembled the archaic medicine of treatment by leeches.

In the 90s as you know the Little Dragon countries of east Asian burst free followed by China and India and the rest of south Asia and since then both the World Bank and IMF have been real backwaters.

The good thing about the Asian model and that of the more left wing countries is that they see vital roles for government especially in education as you stress and investment in infrastructure on a grand scale.

The US really was lurching too far to the right (it is way to the right of Germany, Sweden and the Netherlands which have terrific social safety nets and grow just fine) but the mass of the population here instinctively seemed to sense this and with the Romneys sent on their way at this past election is hopefully headed back toward being more integrative again.

In today’s New York Times Paul Krugman has a column specifically on the US where all fruits of growth have gone to the top few percent for 20 years. He ascribes some of this to “robotization” but also some to a false model that vastly over-credits the roles and talents of the plutocratic big investors and corporate titans.

http://www.nytimes.com/2012/12/10/opinion/krugman-robots-and-robber-barons.html?adxnnl=1&ref=opinion&adxnnlx=1355166118-eY3MVdrNJUmsXDF9COR72Q

This has led to slashing of staffs, salaries, pensions and healthcare (in effect spending power) while investors and corporations sit on over $2 trillion in cash and huge stagnant investments because - guess what? - the purchasing majority of the population doesnt have much money and credit to actually purchase. As Paul Krugman says the realization of this has hardly begun but the outcome of the election was helpful

In Italy (which is largely dominated by family owned businesses and the stock market is very small) the problems are rather different. Like you I would put heavy stress on knowhow. Soon to be Ex PM Monti was okay as an ex business school professor but he didnt know all the latest and best concepts at national and corporate levels.

For better or worse the best are still almost exclusively shared in English and an average Italian can not buy them translated into Italian. Travel in India and Singapore and even Japan and China and you will find up to half of the population speak some English. Same in northern Europe.

Less-so in south Europe - though recently an Italian university announced it was moving exclusively to English. Its not that English as such is “better” than Italian, its that its the language in which the latest and best concepts move most freely.

Not sure what the “Asian mixed model” is but I presume that has something to do with purchasing US Treasuries to keep the local currency from appreciating too rapidly and destroying the balance of trade.

Austerity still has a lot of traction in the boardrooms of the nation—likely in Italy too—yet currency stability and open commerce (including, not limited to, positive trade balance and volume) are just as important in driving employment and investment.

The US is a centrist system and always has been because the legislative branches and the executive are only rarely run by the same team.  I’ve always had trouble with that centre/right/left characterisation because it’s not entirely descriptive.  It’s more important to note that few, if any, American politicians from any party are arguing for more trade restrictions or crippling investment penalties.  (Interestingly, a VAT in the US is also opposed by all parties although it was the single biggest contributor to Canada’s rebound in the 1990s—widely reviled but never repealed!)

Regardless, increasing debt-to-GDP ratios without having any means tests in place is a recipe for disaster.  That has been typically the issue in Greece and one has to hope that Italy doesn’t try the same thing.

The Asian mixed model is neither pure unfettered capitalism nor unfettered statism. It includes big puclic roles in research, training, physical and institutional infrastructure, and trade promotion, but not necessarily a safety net.

The Tigers imported it from the Japan of the 70s and 80s and the Japanese imported it from the US of the 50s and 60s! The US slowly moved away from it, with the insidious growth of corporate welfare, and simultaneously growth dropped and peaked again only once with the internet bubble.

Boards - top people - are not the right level to introduce complex new thinking. Some top investors “get it” from the get-go like Warren Buffet and the owners of Whole Foods and Costco. But most are stodgy and they’ve made their pile so their mindset is almost invariably: why rock the boat? 

Middle levels with disparate skills are far more effective and there will be many people and groups and institutions willing to dip their toes in the water. Once anything “takes” with evident sucess it can be spread both upward and downward and across to other industries.

The US “red” states which vote predominantly right-wing also get the biggest revenue transfers from the much more successful “blue states” which like New York and Seattle vote predominantly left wing. Much better for blue states to teach them how to fish than to keep giving them free fish as handouts.

I hope Mr Bersani can encourage evolution of a “middle-up” national vision for 7 years out and introduce capital budgeting in the government and the sharing of advanced corporate principles as mentioned above. At federal level the US doesnt have any of these, and so we have, well, gridlock as usual.

And plutocrats thinking they are, as the Brits say, the bee’s knees. Gimme a break!

@Peter,

I read the Krugman’s article. If he had written the same article 50 years back, he would have been called a communist or a soviet spy! I could not go through all the comments but went through the NYT picks. Yes, the people’s attitude too has changed. NYT too!

My memory is faint, but I think it was Shakarov who said that no country represents the US as closely as the USSR. We can see the meaning bit clearly today.

I have often joked (I do not think it is a joke anymore) that Italy and France are the two most successful communist countries in the world. They have blended well the best of the two. Need I say more? The balancing is tricky, but not impossible.

If the people in boardroom think that the welfare of the people in the street is not their problem, there is certainly something seriously wrong with the system. Remember Steinbeck’s Grapes of Wrath? Or the Winter of our Discontent? It is not possible to partition a country into disjoint parts: the rich and the poor are joined at the hips.

Sometime back I was talking to a student about thermodynamics applied to modern economics. Bot are about flow (in one case it is heat and money in the other case). If we have too large gap (temperature or income), the insulation breaks down and the result is chaos. Perhaps all the financial guys should read a bit of thermodynamics.

Italy is not in the pink of health but it is not in the ICU. I cannot say the same about the US. But the US has its own way of getting things done. Well,...

Yeah, agreed, there seems no insuperable problem for Italy - it has some of the most commercially creative people in the world. Actually, we profiled one, from Perugia too!

http://truejustice.org/ee/index.php?/tjmk/comments/brunello_cucinelli_perhaps_the_most_globally_prominent_of_perugias_hig/

And of course Italy (Fiat) now owns Chrysler/Dodge/Jeep, a good turnaround story here in the US. 

Once (if) Italy gets a new vision and a new model in place, the need for this or that from the government will fall into place. It could use extensive checking-out of its value equations and systems, and wider sharing of knowhow in optimising those.

There is a debate in the US which is hard to track down because it doesnt have a name, but it is about national politicians being benign to business as a whole v national politicians being benign to specific corporations.

It’s specific corporations and industries which have captured the government (mostly but not entirely the right wing), in effect making themselves monopolists and creating scorched earth for any real competition. Very bad for the rest of business. 

This also existed back in the early 20th century and it was Henry Ford who broke out of the loop. He set about making a buck in a contrarian way. From Wikipedia:

*********************

Ford was a pioneer of “welfare capitalism”, designed to improve the lot of his workers and especially to reduce the heavy turnover that had many departments hiring 300 men per year to fill 100 slots. Efficiency meant hiring and keeping the best workers.

Ford astonished the world in 1914 by offering a $5 per day wage ($120 today), which more than doubled the rate of most of his workers. A Cleveland, Ohio newspaper editorialized that the announcement “shot like a blinding rocket through the dark clouds of the present industrial depression.” The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, bringing their human capital and expertise, raising productivity, and lowering training costs.

Ford announced his $5-per-day program on January 5, 1914, raising the minimum daily pay from $2.34 to $5 for qualifying workers. It also set a new, reduced workweek, although the details vary in different accounts. Ford and Crowther in 1922 described it as six 8-hour days, giving a 48-hour week, while in 1926 they described it as five 8-hour days, giving a 40-hour week. (Apparently the program started with Saturdays as workdays and sometime later it was changed to a day off.)

Detroit was already a high-wage city, but competitors were forced to raise wages or lose their best workers. Ford’s policy proved, however, that paying people more would enable Ford workers to afford the cars they were producing and be good for the economy. Ford explained the policy as profit-sharing rather than wages. It may have been Couzens who convinced Ford to adopt the $5 day.

Nothing succeeds like success! Oh, the sweet smell of success.

People around Ford predicted his failure. But Ford took it as a challenge and prestige and, well, we all know now, succeeded.

Some reader on the comments on the Krugman’s opinion piece also suggested the same: double the minimum wage and watch the economy prosper!

US is run today by Bankers and not by pragmatic businesses. Somehow personally I do not like the banks: they do not value-add to any item except money. And that is too abstract for me. They live in a different world.

I can say the same thing about Ford in a simple way: he had his foot planted on the ground. That is the reason he dared to go against the conventional wisdom of the day.

Today some of the US companies are so big that the top boss does not know what his company makes. Or does. Or sells. But he is glued to the balance sheet. And I think that is the problem. The lack of touch.

I have learnt a new word today: welfare capitalism. Kind of oxymoron, eh? Sounds nice, though!

Paul Krugman speaks up (again) on European austerity and how even Monti went too far.

http://krugman.blogs.nytimes.com/2012/12/11/bleeding-europe/

He is also amused at the idea that Top People actually know how to cause growth.

http://krugman.blogs.nytimes.com/2012/12/11/delusions-of-wisdom/

Speaking for myself, there are some good people up there, but not yet any who know all about growth.

The various “sciences” have been a long time evolving. Italy has a good chance to put them into effect.

It’d be a “first” that the world could really use.

Where next:

Or to next entry Simon & Schuster Seem To Be Seriously Rattled Over Lack Of Due Diligence On Sollecito’s Book

Or to previous entry Knox Defense Utters A Rather Hypocritical Whine About Lifetime TV Movie Airing In Italy Monday