The article by Anatole Fuksas about how to become a european social-democratic contains many interesting elements that go beyond the initial provocation of becoming a “bourgeoise party”. The example of the disenchanted, M5S-voting, new-bourgeoise citizen in fact entails at least two basic questions that are a very good departure point from which to construct a coherent social-democratic policy, namely:

1)     What has driven that person to aspire the SUV, construct the garage illegally and become disengaged with public life? In other words, what is the aspirational model and moral compass that is driving the new bourgeoise class of today?

2)    Why cant he/she pay the monthly lease anymore? In aggregate terms this becomes a question of which economic policy can bring back the economy to sustainable growth?

It is on these two pillars of identity and economy that Italy can be reconstructed because it is also here that Italy has been gradually deconstructed through the creation of a moral- and economic value system that promotes people to be “street-smart” (“furbi”), to combine a bit of good citizenship with a bit of illegality (making heavy corruption simply a tolerated extension of the “lighter” version), to be rich in status symbols while increasingly impoverished in substance.

Both questions of identity and economic policy also go to the heart of the problems that have tormented the european left during the last decades and as such can provide impulse and direction to a renewed social-democratic development model that solves real problems and reconnects with “Mr/Mrs SUV” and his/her peers.

1)    REBUILDING A SOCIO-CULTURAL REFERENCE FRAMEWORK

Rebuilding a socio-cultural reference framework which nurtures independent, critical thinking, engagement and initiative, awareness of rights and responsibilities, creativity and innovation and a balance between individual and collective well-being requires rebuilding the foundational building blocks of this socio-cultural framework, namely media, education and culture.

1a) Media:

As has been widely recognised by now, media has a deep influence on our individual frame of mind, value system, and decision making (e.g. Hahneman, McLuhan, Schiller, et al.): “We seldom realise that our most private thoughts and emotions are not actually our own. We think in terms of languages and images which we did not invent, but which were given to us by our society(Alan Watts).

The way in which media shapes the individual and collective mind is difficult to pin down to one single factor. While it is hard to identify the exact mechanism at play, it ultimately is an outcome of both repetition and omission of messages sent to us (or not sent to us) every day through mass media. In Italy, repetition and omission have been acting together forcefully through an exceptionally dominant (compared to european average) television system to create stereotypes and value hierarchies that often preach family values but practice the opposite, praise the external over the internal, conformity over diversity, machoism over equal rights, speaking (or yelling) over listening, and having over doing.

This gradual degradation of stereotypes and aspirational models presented in Italian media have been made possible though a media system that is fundamentally flawed, specifically in the following areas:

–    lack of pluralism; The concentration of italian media, in particular television, is well know. Surprisingly, regarding the key industry drivers that matter (advertising market shares, audience shares, production market shares), little or nothing has been undertaken to revert this situation. Italian cinema sector too has very high entry barriers for independent productions to go to market while printed press has not found a sustainable answer to the increasing availability of online, free press. All in all, pluralism has been and continues to be at risk.

–    lack of pluriformity: Equally alarming is the lack of pluriformity within existing media outlets. A lagging regulatory and self-regulatory system in audiovisual and printed media, cross-ownership, vertical integration (production, aggregation and distribution) and lack of transparency in public service broadcaster purchases have created extremely high entry barriers for small production companies, content producers, and independent journalists to join the italian media stage. The resulting content landscape lags cultural diversity and nurtures  the monolithic culture described previously.

–    flawed media sector supervision: The italian media authority has a poor track record in addressing the exceptional situation in italian media. In part this is due to statutory limitations (formal mandate, ability to fine, process for nominations), in part due to over-politicisation (i.e. lack of independence) and questionable interpretations of its mandate.

–    obsolete legal framework: The italian media law is still regulated by an obsolete legal framework and a patchwork of fixes introduced through non-related Bills. The overall legal system is insufficient in many aspects: licensing & authorisation, ownership and antitrust, technical planning, content supervision, market development, public service broadcasting, protection of cultural diversity and protection of minorities.

–    obsolete Public Service Broadcast system: the Public service broadcasting system requires urgent reform. For years it has been characterised by political influence, excessive costs, lack of pluriformity, an excessively hierarchical organisation, channel fragmentation, dubious content outsourcing practices, unbalanced funding schemes, and poor governance. The upcoming redefinition of the broadcast Charter and renewal of the broadcast license are key opportunities to redefine a modern public service mandate and organisation in favour of a diverse, pluralistic and independent media.

–    obsolete frequency planning system: The italian frequency planning system is in a state of chaos, with interferences into foreign frequencies, questionable spectrum allocation and -usage, poor technical planning and lack of international coordination being just some of the key issues requiring urgent attention.

In view of the important role that media has in creating the education and mindset of european citizens, a coherent social-democratic program should therefore include a structural reform of the media, specifically:

–    Revision and unification of audiovisual/media legislation.

–    Overhaul of the mandate, structure, governance, nomination of and tools available to the media supervisory authority.

–    Definition of a new, plural, independent 2015 Charter for public service broadcaster RAI and definition of a future-proof licensing scheme for the 2016 renewal.

–    Support to the migration of printed to digital press, collaboration in international forums and organisations in support of press independence, self-regulation, and digitalisation.

–    Redefinition of the frequency plans, creation of a digital dividend policy, international coordination (ITU).

–    Revision of public funding schemes for cinema, theatre, independent content production, digital production and content distribution. Revision of bilateral coproduction agreements.

The views related to the other two pillars defining citizen identity, -awareness and -engagement, namely education and culture will be published in a separate post.

 

2) REBUILDING THE ECONOMY

The second question of why Mr/Mrs SUV can suddenly not pay for the monthly lease anymore is illustrative of a deep and widespread crisis affecting families all over Italy.

The dramatic situation of Italy’s families coexist with the inability by the political establishment to put in motion an economy that is by all means sluggish, bureaucratic, corrupt and uncompetitive. By now, we have ended up in a situation in which there is no more space for manoeuvring: austerity deployed during an economic downturn has proven to be the wrong recipe to revitalise the economy while an impactful Keynesian stimulus with public debt levels at 130% risks turning off buyers of italian government bonds, resulting in increased public financing costs that could easily cancel the positive effect of the stimulus. The resulting economic policy making headlines today in Italy is therefore only marginal in terms of re-allocation of funds and is unable to provide the shock therapy that Italy’s economy needs.

What is most striking though about this situation of virtual gridlock is that Italy’s progressive parties, very much like its european counterparts, have not been able to define a coherent economic policy beyond presenting some marginal corrections to an otherwise conservative economic agenda. A true social-democratic economic policy beyond a general direction of replacing austerity with stimulus has had difficulties to emerge.

Any effort to define an effective economic policy and reconnect with european citizens has to start by recognising how the fundamentals of the economy have changed. Furthermore, it should be built bottom up from micro-economic level and stop shying away from market terminology such as profits, markets, ownership and entrepreneurs.

Most of the ideological underpinning of progressive versus conservative economic policy is based on the contraposition of owner-capital and labour. Simply put, right wing policy claims that facilitating profits will, by means of a “trickle down” mechanism, lead to more employment and overall wealth creation due to reinvestment of capital which in turn creates more labour demand or wage increases, both to the benefit of the economy. Traditional progressive policy, on the other hand, has been arguing that the capital-labour relationship is unproportionally favoured towards capital because the value-ad of labour (salaries) is materialised once (as wages), whereas the value ad of capital is materialised both as productive value ad and as accumulated profits, which in turn result in more investments or retained earnings, resulting in more profits, etcetera.

Today, some of above historical assumptions need to be revisited to reflect the reality that is felt on the street:

–    Ownership and labour are not always opposing forces: In today’s economy, workers can become owners or part-owners, employers may involve workers in company ownership through employee stock option programs or part share ownership and former employees may decide to start their own business. Smart business owners recognise that increased labour market mobility should go hand in hand with increased labour involvement. The cases of employers becoming owners or participating in corporate decision making are numerous. These new circumstances have profound consequences for employee-labour relationships and the contracts regulating them.

–    Human capital is gaining importance vis-a-vis owners capital: While in traditional employee-worker relationship the employee contributed with labour to the productive system and capital was accumulated in terms of profits (reinvested as productive capital, kept in the company as retained earnings or paid out as dividends), today employees create human capital that stays with them regardless of their job and, like financial capital, grows in value over time. As the economy is moving from a dominant use of fixed assets and manual work towards intangible assets and knowledge workers, the human capital production factor is increasingly gaining importance in the overall productive system. In order to facilitate this shift in production factor relevance a profound labour market reform is required.

–    Capital requirements to start a new business have come down drastically: In the first phase of the post-industrial era (the move from a manufacturing based to a services based economy), the financial underpinnings of creation of a firm still held: Supplier-client touch points, marketing and distribution were still largely physical (replacing the factory floor with the retail outlet) and therefore closely tied to a territory. During the last few years, a massive system for supporting company supply chains, manufacturing and distribution has been constructed on top of the Internet and made available as operating expense (OPEX) rather than capital expense (CAPEX). Example include infrastructure hosting (“infrastructure as a service” or “IaaS”), back office platforms (“platform as a service”, “PaaS”) and software/application in the cloud (“software as a service”, “SaaS”), all of which allow companies to start a business at a fraction of the costs compared to only a decade ago. Companies today have immediate access to technology know-how, skilled resources and especially global markets.

–    Employee motivation no longer comes from salary and job security alone: While obviously still important, salary and job security are today complemented with participation, ownership and education. As employees become aware that job rotation and re-education have to become indispensable and ongoing, their needs and desires on the job floor have changed accordingly. Collective and individual contracts should take this into account.

–    New phase in globalisation: While globalisation had been growing for the last 30 years, it is during the last decade that globalisation has become truly pervasive thanks to the entering of new emerging markets on the international trade scene and the digitalisation of economies in general. While during the ’90 globalisation was the business of large multinationals, today small shop owners can feel competition from a small digital (but global) retailer 5000 km away. This ultra globalised competition unfortunately is not accompanied by equal labour rights, creating unfair cost advantages for countries where labour rights are left behind. This unlevelled playing field requires urgent attention as it is the driving force behind company dislocations, loss of competitiveness and growing unemployment.

–    Exponential growth of the digital economy: while having been around for almost 20 years, the Internet is coming to a point of explosion due to the fact that the platform for accessing it is moving from the PC to the smartphone and other portable devices. This new phase of personalisation of the Internet is causing two fundamental things for the economy: an unprecedented explosion of information creation (in 2013 more information has been created than in the previous 5000 years altogether) and an explosion of connectivity and network effects. This acceleration is causing extreme shifts in the economy, some of which are positive for employment in Europe (for example new job opportunities derived from the so called sharing economy), some of which are negative (for example the extreme polarisation towards Silicon Valley and unequal wealth distribution due to extreme network effects). Given that digital economy is here to stay, Europe should put major emphasis to leverage the positive sides of the digital economy, specifically in improved market access, access to technological know how and drastic reduction of business set-up costs.

Based on the structural changes described above, the starting point for a social-democratic economic policy should be to fix some basic principles applicable across all areas of economic intervention. Without pretending to be complete, these may include:

–    The new economic reality described previously requires a change in emphasis from the defence of equality to the defence of equal opportunities. While in extreme cases of free market injustices equalising measures are still required (e.g. progressive taxation, taxation of capital gains and financial transactions, etc), in general a system that protects equal opportunities but allows for individual diversity will produce more aggregate diversity and economic growth than a pure equalising system.

–    Social democratic economic policy should not be based on lowering labour rights but increasing human capital and work towards increasing labour rights abroad (i.e. in those countries that gain a competitive advantage by employing with scarse labour rights).

–    Social democratic economic policy should take a less ambiguous position on the issue of regulation versus liberalisation: It should regulate to correct market imperfections and protect rights, not to protect unsustainable industry sectors who’s economic fundamentals have changed (for example hospitality business, taxi services, online retailing, etc), unless of course such industry or business can move to the new business models, in which case the protective measures and regulation should support such change.

–    Social democratic economic policy should use macro economics but base economic decision making on micro-economics, big data and individual company data. The recent “recovery” of the italian economy in macro-economic terms which is not felt by most italian households shows that an over-reliance on macro-economic figures alone risks alienating citizens.

–    Social democratic policy should take a stance on the merits and risks of globalisation: broadly speaking, globalisation and technology have reduced the difference between countries but increased the difference within countries. As such, social democratic policy should embrace globalisation rather than rejecting it, given that national inequalities can be corrected with progressive taxation if grown out of proportion.

–    Social democratic economic policy is not just about whether the economy creates economic growth but also how it creates economic growth.

Starting from above principles and keeping in mind the changes that have affected the economy, economic policy measures should include:

–    Expand the current labour market reform (Jobs Act) in the areas of professional education, on-the-job learning, outplacement and re-allocation of human resources.

–    Intensify international efforts towards financial market regulation, in particular towards curbing speculation (including government bond speculation).

–    Intensify EU efforts towards fiscal harmonisation.

–    Intensify efforts towards international coordination of increasing human & labour rights in emerging markets and levelling the international competitive playing field.

–    Intensify banking sector reform in order to achieve credit flows from banks towards small and medium companies.

–    Define a private & public debt restructuring policy towards long term refinancing, change of common debt to convertible, straight capitalisation of debt if applicable, strengthen legislation and supervision of corporate restructuring in favour of debt reduction (shareholder blocking, capital increases towards debt reduction, etc.).

–    National financial sector regulation towards facilitation of equity capital investments in SMEs, access to capital markets and functioning of capital markets and stock exchanges. Increase public awareness about share ownership.

–    Creation of legislation, economic stimulus and development programs that facilitate start-up of companies; stimulate the creation of Italian venture capital funds through tax credits, private-public funds, satellite offices and peer relations with leading venture capital ecosystem (Silicon Valley, Berlin, London, etc.).

–    Put the digital economy as a top priority across all ministries and industries, not as a separate “digital agenda”. Start with public and public-private interventions on digital infrastructure. Develop a framework for the creation of digital ecosystems on top of the access infrastructure. Strong impulse of the mobile economy and the sharing economy.

–    Define industry development plans for key italian industries that leverage industrial, historical-cultural core competences, for example; speciality manufacturing, culture & tourism, industrial design, user-interaction design, food & beverage, fashion, cinema, theatre & production.

–    Bring the green economy to the top of the priority list and define a coherent national green industrial policy

–    Intensify efforts towards containing corruption

–    Increase export platform support

–    Stimulate investments into R&D through tax exemptions and direct funding.

–    Intensify efforts that leverage Italy’s central position in the Mediterranean area.

–    Continue/intensify efforts in the current economic agenda:

–    Continue labour sector reform

–    domestic demand stimulus

–    reduction of tax evasion

–    fiscal and legal simplification

–    spending review and streamlining of government processes

 GFD, March 2014