by Giovanni Dosi - Originally published in Sbilanciamo l’Europa Made in Italy special, May 9, 2014
For thirty years, up until the crisis of 2008, industrial and technological policies could not be mentioned: they were considered bad words for good people, including the so-called moderate and reformist left, and this was not limited to Italy. The mantra was - and continues to be - "the magic of the market," as described by the great economist Ronald Reagan; a "magic" fueled by "laissez-faire" and "why-should-politics-understand-more-than-companies?'' rhetoric.
It is time, instead, to explain the crucial role played by technology policy in the generation of most of the innovations we enjoy (and suffer through) today, from at least WWII onward; and furthermore, how technological and industrial policies have always played a crucial role in the industrialization process, most of all among countries considered latecomers (lest we forget that just a couple centuries ago the United States and Germany were considered latecomers when compared to England).
First and foremost, what is meant by industrial and technology policies? Broadly, they are the policies that generate and stimulate technological innovation, and also stimulate and encourage learning and productivity by private companies; they create and sustain productive activities in public areas as well as particular locations.
As demonstrated in Mariana Mazzucato’s book, Lo stato innovatore (Yale University Press), without technological innovation, specifically the innovations generated by major public research programs (such as the CERN physics), and military and space programs, we would not have innovations such as the Internet, microprocessors, the web, iPads and so on. Without the large public programs at the National Institute of Health in the U.S. we would not have the (few) new drugs that the large pharmaceutical companies provide us at very high prices. As the late Keith Pavitt quipped, U.S. leadership has been fueled by the paranoia of American Communism and cancer.
It is time, instead, to explain the crucial role played by technology policy in the generation of most of the innovations we enjoy (and suffer through) today, from at least WWII onward; and furthermore, how technological and industrial policies have always played a crucial role in the industrialization process, most of all among countries considered latecomers (lest we forget that just a couple centuries ago the United States and Germany were considered latecomers when compared to England).
First and foremost, what is meant by industrial and technology policies? Broadly, they are the policies that generate and stimulate technological innovation, and also stimulate and encourage learning and productivity by private companies; they create and sustain productive activities in public areas as well as particular locations.
As demonstrated in Mariana Mazzucato’s book, Lo stato innovatore (Yale University Press), without technological innovation, specifically the innovations generated by major public research programs (such as the CERN physics), and military and space programs, we would not have innovations such as the Internet, microprocessors, the web, iPads and so on. Without the large public programs at the National Institute of Health in the U.S. we would not have the (few) new drugs that the large pharmaceutical companies provide us at very high prices. As the late Keith Pavitt quipped, U.S. leadership has been fueled by the paranoia of American Communism and cancer.
Looking to the future, what Europe needs today are massive public programs with a focus, mission-oriented, i.e. aimed at specific technological objectives – such as those that once put a man on the moon and a cluster of inter-continental missiles in the Soviet Union–especially in the field of green technologies and environmental sustainability, medicine and public health in general. Instead, much of the political discourse mythologizes the "garage" of Steve Jobs and Bill Gates without considering the public resources that went into the technology these entrepreneurs put together. And on the other hand, we finance failed "missions" such as the F-35 fighter-bombers which according to a Rand Corporation report a few years ago, "it doesn’t fight, turn, or even fly.''
Why is industrial policy useful? The answer is that in many cases, particularly those of “latecomer” countries – or those which, as is the case in Italy today, have lost ground compared to more advanced countries – private companies do not have the organizational capacity or the profit incentive to operate within potentially promising areas from an innovative or market perspective, but rather only those within which they have a comparative disadvantage and the absolute respect of the global competition. If two economies, one high-tech and one stone-age, begin to interact, the traders in the latter country will certainly have an incentive to produce and trade goods at a "high intensity of stones," but society as a whole would benefit much more if they learned high tech, even if they are less efficient at it than the other country.
Industrial policies include all appropriate measures for the accumulation of knowledge and capacity in the most dynamic and promising technologies. At the end of the 19th century, it was all chemistry and electrical engineering; today it is information technology, bioengineering, environmental technology. In fact, industrial policies have been a key ingredient in the industrialization of the United States, Germany, Japan, Korea, China (we discuss this in detail in the book edited by Cimoli, Dosi and Stiglitz, Industrial Policies and Development, Oxford University Press). Incidentally, the U.S. is the country with the most industrial policies in place today, without ever talking about it.
What should be done in Europe, particularly in Italy? We could say that for a long time, anti-industrial policies were put into place. It is an old story which begins in the early 1960s with the Italian government refusing to sustain the development of Olivetti calculators (almost certainly under pressure by the Americans). It then continues with the senseless politicization and financialization of Montedison, and then with its dissolution, which also led to the liquidation of a small jewel in the pharmaceutical industry known as Farmitalia. There was a crucial instance during the liquidation of state-owned enterprises, to obtain "little money, cursed and fast," in the form of extraordinary income, during the crisis of 1993. What were the consequences? One of the first things private companies did was shut down all research and development (such as Telecom), and even liquidate production (such as Italtel). All of this was accompanied by almost thirty years of the "small is beautiful" mythology which resulted in almost zero Italian participation in the international oligopoly of chemical, steel, pharmaceuticals, electronics, telecommunications, software and so on.
What to do? In Italy, many things are difficult to do because by now the horses have bolted from the stables, but it is still possible to foster the emergence of actors which are technologically strong, Italian, or at least European. The direct intervention of the state is often necessary, for example through Cassa Depositi e Prestiti, which is already doing some of this but without a serious industrial strategy, and with an almost fear of disturbing the "magic" of the market.
So many things can be done at the European level, provided the "market-oriented" frenzy is abandoned. A recent example for all: is there anyone who would believe that the U.S. government would look into whether Alstom and Siemens are getting together and attempting to acquire General Electric, instead of the latter trying to climb Alstom?
And then there are the things that must never be done. Among these, the Trans-Atlantic Free Trade Agreement, which represents a mad transfer of political sovereignty, both national and European, and is the absolutization of the interests of private investors, regardless of the social utility of the investments themselves.
Why is industrial policy useful? The answer is that in many cases, particularly those of “latecomer” countries – or those which, as is the case in Italy today, have lost ground compared to more advanced countries – private companies do not have the organizational capacity or the profit incentive to operate within potentially promising areas from an innovative or market perspective, but rather only those within which they have a comparative disadvantage and the absolute respect of the global competition. If two economies, one high-tech and one stone-age, begin to interact, the traders in the latter country will certainly have an incentive to produce and trade goods at a "high intensity of stones," but society as a whole would benefit much more if they learned high tech, even if they are less efficient at it than the other country.
Industrial policies include all appropriate measures for the accumulation of knowledge and capacity in the most dynamic and promising technologies. At the end of the 19th century, it was all chemistry and electrical engineering; today it is information technology, bioengineering, environmental technology. In fact, industrial policies have been a key ingredient in the industrialization of the United States, Germany, Japan, Korea, China (we discuss this in detail in the book edited by Cimoli, Dosi and Stiglitz, Industrial Policies and Development, Oxford University Press). Incidentally, the U.S. is the country with the most industrial policies in place today, without ever talking about it.
What should be done in Europe, particularly in Italy? We could say that for a long time, anti-industrial policies were put into place. It is an old story which begins in the early 1960s with the Italian government refusing to sustain the development of Olivetti calculators (almost certainly under pressure by the Americans). It then continues with the senseless politicization and financialization of Montedison, and then with its dissolution, which also led to the liquidation of a small jewel in the pharmaceutical industry known as Farmitalia. There was a crucial instance during the liquidation of state-owned enterprises, to obtain "little money, cursed and fast," in the form of extraordinary income, during the crisis of 1993. What were the consequences? One of the first things private companies did was shut down all research and development (such as Telecom), and even liquidate production (such as Italtel). All of this was accompanied by almost thirty years of the "small is beautiful" mythology which resulted in almost zero Italian participation in the international oligopoly of chemical, steel, pharmaceuticals, electronics, telecommunications, software and so on.
What to do? In Italy, many things are difficult to do because by now the horses have bolted from the stables, but it is still possible to foster the emergence of actors which are technologically strong, Italian, or at least European. The direct intervention of the state is often necessary, for example through Cassa Depositi e Prestiti, which is already doing some of this but without a serious industrial strategy, and with an almost fear of disturbing the "magic" of the market.
So many things can be done at the European level, provided the "market-oriented" frenzy is abandoned. A recent example for all: is there anyone who would believe that the U.S. government would look into whether Alstom and Siemens are getting together and attempting to acquire General Electric, instead of the latter trying to climb Alstom?
And then there are the things that must never be done. Among these, the Trans-Atlantic Free Trade Agreement, which represents a mad transfer of political sovereignty, both national and European, and is the absolutization of the interests of private investors, regardless of the social utility of the investments themselves.