Alternative Economic Policies in Europe Pavia Conference 24th – 25th April 2015

Alternative Economic Policies in Europe: an introduction Gioacchino Garofoli Insubria University

A long term economic analysis: structural issues (2) A long term transformation analysis clariefies even better some contradictions in European economic policies Some trends in crucial variables: the Italian case Share of labour income on total GDP Rate of investment on GDP

The income distribution to dependent workers (corrected quota) in Italy (i.n.)

Investiments/GDP in Italy ( )

Structural changes Reduction of labour income and negative effects on the level and dynamics of consumption (and aggregate demand) Weak accumulation process: reduction on firms’ orientation to investment Is it a typical behaviour of Italian economy in the last years? Now we can pass to an international comparison (in EU and with USA and J)

Share of labour income: internationl comparison

Investment on GDP: international comparison

The European economic crisis The economic crisis in Europe depends from world overproduction and lack of overall demand (and especially domestic demand) since ’90s Other weak European structural economic features: a) low employment rates (10 points below Japan and USA); b) low investments; c) demographic structure: old region

The interpretations of the crisis: the indicators issue The choice of the indicators The excessive attention to economic fundamentals and the paranoia of the mainstream economists Some European countries showed good performances with fundamentals before the crisis (e.g. Spain and Ireland – the “celtic tiger”) but after the crisis they have been transformed into “pigs” The debt is just an indicator … with a lot of methodological problems

The Debt Public debt vs. total debt (public, private firms, financial organisations, families) Public debt vs. external debt Public Debt/GDP in Japan and Usa is greatly higher than in Europe (and was very low in Spain and Ireland before vthe crisis) External debt is more important than internal debt

External debt and Eurozone External debt is a crucial indicator because it shows a great structural problem: the lack of exports to cover imports in the long run But Eurozone doesn’t show a great external debt (the public debt of Eurozone countries is mainly held by Eurozone organizations/creditors) (this make the economic situation in Eurozone much more feasible)

3. Some critical observations Macroeconomics doesn’t matter enough for sustainability and durability (e.g. long term economic and social endurance) Economic policies divide: Monetary and financial objectives vs. real economic objectives (employment, production, productivity) Some structural features are more important Self reliance of economic systems: international comparisons to understand more about what to do

Long term sustainability (1) Capabilities to produce goods and services to cover internal demand (for a sufficient level of quality of life) and capacity to export to cover absolutely necessary imports International competitiveness: capability to sell national products (and labour) on the international market at prices which guarantee the improvement of population well being This will help the selection of economic policies …

Long term sustainability (2) Excessive emphasis in Europe in the last years on the concept of competitiveness If we take into account only extra-EU export and imports the European openess is not very high: roughly 10% of GDP (similar to the USA one) (before the crisis 9.8% against 8.4% in Usa) This means it is more important to take into account the potential internal demand (more than 500 millions European citizens)

Focus on industrial policy Is it possible to manage European economy and society without an industrial policy and development policies? Economic dynamics and increase of European domestic demand Public expenditure and investment to change the shares of demand composition Investment, research and education/training to create competences for innovation What we can learn from the extraEuropean experiences? The crucial role of European Investment Bank (EIB)

What to do? Not only to introduce alternative European and national economic policies for a New Deal But even to pay attention to the lack of capability to launch and manage investment and development projects This mean create (or recreate) the culture of thinking and managing projects, that means involve different people and professional skills and resources into common projects (mesoeconomic approach)

Economic coherence and organisation The relationships between finance and industry The relationships among economic and social actors The needs for a “mesoeconomic” approach

The relationships between finance and industry The relationships between the production of surplus (and savings) and investment The role of proximity capital The social responsability of financial and credit organizations

The needs for a “mesoeconomic” approach Mobilisation of actors towards a common objective Production of new ideas which give opportunities to solve problems for existing firms and for the local community. These processes will give opportunities for the entering of new firms and the creation of new jobs Coordination among actors to introduce new products, new strategies, neeads for new professional competences, better control of external markets, and so on. Coordination towards a common objective, diffused awareness and participative strategy