How Europeans Frame Discussions about the Future
The manufacturing sector has barely scratched the surface of unfolding digital upheavals (often dubbed ‘industry 4.0’), but others are already far along in their journeys to grow into the future. This future was very much the focus of a brief conference held by Aspen Institute Italy in early November devoted to “digital disruption and the post-4.0 economy”. To make sure you don’t miss out on the future, your faithful correspondent was there to take notes. Here are the key takeaways.
Right up front, a panel reassured the nervous that robots do not pose an existential threat to the world of labor. Jobs will still be there, even in manufacturing, when the post-4.0 era finally arrives. The stumper is not the technology itself but inadequate education to master it. And since many of the attendees hailed from the Old World, Europe was of particular attention. Of course, the same dilemma persists in the U.S.: jobs that demand STEM-related skills linger unfilled while students pile into coursework that rewards with few high-paying positions.
Size matters. Economists have documented convincingly by now why scaling up is important. Small companies may be beautiful (particularly in Italy) but big is productive, innovative, and usually pays higher wages. If so, Europe lags in the big leagues for labor. Continental economies lack large companies with the investment heft to discover new technologies. Italy, in particular, is a powerhouse in custom-made, specialized services and applications but lacks an efficient manufacturing base of standardized products.
Italy recently rolled out a program specifically geared toward investments that bulk up size. While this plan was mentioned only in passing during the conference, it is worth taking a closer look. Often called the “Calenda Plan” – after Carlo Calenda who drafted it while running the federal department of economic development – the program does not resemble other European efforts to spur application of the industrial internet. Rather, it offers tax incentives for investment in intangible assets (software and IT) generally. Additional measures include hyper- and super-depreciation (2.5 times and 1.4 times notional values), various incentives for capitalization of start-ups and SMEs, a guarantee fund for same, and a few other targeted measures. Early returns look promising although only time will show how successful it has been.
Attendees broadly agreed that blockchain holds great promise for business, particularly in supply chain and logistics. Two precepts emerged during the discussion. First, blockchain is a great innovation for any traditional business and technology. In this sense, its hour is slowly arriving. Second, this great innovation holds even greater promise in technologies of the future. Yet these technologies need to talk to one another, and we are not there yet.
On competition, a consensus emerged (including from those legally minded) that rivalry is fluid in the digital age. The old economic hat about static competition rules needs to give ground to dynamic scoring that does not harm development of new technologies. This message seems to run counter to conventional wisdom in the European Commission.
Another discussion took off in the perennial direction of short- versus long-termism of corporate horizons. Experts rolled out compelling evidence documenting the virtues of patience. Long-term oriented companies booked faster growth rates than those wedded to short-term metrics. In addition, companies with long-term orientation gained more in capitalization over time and tended to add high-paying staff – appealing arguments in an Italy distressed by high unemployment.
The final topic sparkled with ideas about innovation hubs. These are much more about cities than regions, let alone countries. The hubs boast an extremely high share of start-ups per capita. They boast young populations and an elevated share of high-tech workers in total populations. These innovation centers typically link up to universities nearby. Even though U.S. Manufacturing Institutes did not surface during the deliberations, you may want to know that Manufacturing USA is a federally co-funded effort to support innovation where the marketplace by itself may underfund it. All 14 of these institutes are located near renowned universities in cities sprinkled throughout the United States. In the discussion at the conference, some participants pointed to skills shortages even in innovative cities. Immigration is the obvious solution but city governments incorporate few if any policies to mitigate this shortage.
The short meeting packed many original ideas, signaling that it is not too early to start thinking about the post-4.0 economy.