WORLD WORLDWIDE EUROPE ITALY - news journal UPDATE - (en) Italy, FAI - Umanita Nova: Draghi and competitiveness. Profit maximization for the usual suspects. (ca, de, it, pt, tr)[machine translation]

 The report commissioned by Ursula Von Der Leyen to Mario Draghi already

shows the full meaning of its existence from the first description. By
dealing with the "future of European competitiveness", the emphasis on
competitiveness highlights the context in which we find ourselves. This
long series of highly prescriptive "suggestions" do not lead Europe out
of the quagmire of stagnation, nor do they have the ambition to redefine
the architecture of the Union to shake off the ultra-liberal bonds. On
the contrary, by pursuing the path already traced at the time of the
Maastricht Treaty, an attempt is made to maximize existing resources (or
remaining resources, depending on the point of view) to restore revenue
and liquidity to the financial system.

But let's go step by step and try to understand the context in which the
"solutions" proposed by Draghi operate and, above all, how we got to
this point.

The reasons for the progressive loss of income among individuals and
families must be sought in the strategic choice to support the financial
economy rather than the real economy based on production. From the
Keynesian model to the neoliberal model, the gap lies in the production
apparatus. Which is re-functionalized for the purpose of creating
profits not so much and not only through the monetary realization of
production (sales) but through the yield and financial hoarding of
production, which is something else entirely.

This process of structural change in the economic system rests on that
theoretical corpus that is neoliberalism. The neoliberal theory would
like to get the point across that it is enough for there to be someone
within society who has money to then, with his investments, make the
economy go round. That adage so dear to Reagan, the trickle-down.
Following this principle, it was decided to favor dividends over the
formation of local productive spin-offs.

The financialization of the economy therefore refers to the transition
from the productive economy to the growing role of financial markets. In
this transition, institutions such as the ECB, the European Commission,
the IMF and central banks (already privatized in the 1990s) play an
increasingly decisive role. Obviously, the financial transition requires
a clear break with the past, and that everything passes through
financial channels, so that everything can be monetized and invested in.
Obviously, government debts must also and above all be included within
the mechanisms of the stock market (in an intricate mechanism that goes
from the bond market to the securitization of futures).

The financialization of sovereign debt and the consequent imposition of
restrictive fiscal policies have contributed to creating an economic
context in which long-term growth has remained weak. The related debt
solvency control measures have reduced domestic demand in many European
countries, making it difficult to revive economic growth.
Financialization and rigid fiscal policies have accentuated economic
disparities between the countries of northern Europe, which are stronger
and more solid financially, and those of southern Europe, which have
suffered most from the debt crisis. This gap has contributed to the
economic and political fragmentation of the European Union.

Together with this epochal shift in strategic orientation, or rather
precisely to pursue this goal, the strategy of production offshoring has
been implemented, capitalizing on the competitive advantage of producing
below cost elsewhere (Eastern Europe and Asia). In line with the
financial approach, the industry no longer produces wealth to be
distributed through the creation of induced activities and aggregate
demand, but must produce profits and dividends to maintain high share
value. To be clear, reducing costs increases revenue per unit of product
at the same selling price.

Therefore, European economic stagnation and the phenomenon of production
offshoring are closely related, since the transfer of production and
manufacturing activities to countries with low labor costs has had
significant negative impacts on economic growth, productivity and
employment in Europe. This correlation can be analyzed under various
aspects, including the change in the European production structure, the
loss of jobs, the impact on domestic demand and the slowdown in
investments. The beautiful thing is that this phenomenon had already
been observed in the 80s in the United States with the depression of the
so-called rust belt.

The loss of manufacturing jobs has not always been offset by increased
employment in high-tech or advanced services. This has contributed to
structural unemployment in many European countries, as workers laid off
from manufacturing have often not found jobs in other sectors with the
same skills. Offshoring has also contributed to the polarisation of the
labour market, where high-skilled and low-skilled jobs have grown, while
medium-skilled jobs (typical of manufacturing industries) have declined.
This has had a negative effect on the middle class, reducing domestic
demand and increasing inequality. Offshoring has led to Europe losing
part of its manufacturing base, which has historically been a source of
technological innovation and productivity improvements. The
deindustrialisation that has followed offshoring has led to the loss of
strategic sectors in many European countries. Industrial production is
not only a driver of economic growth, but also stimulates innovation and
the diffusion of new technologies. Without a strong manufacturing base,
Europe has seen a slowdown in productivity growth. As manufacturing
activities have moved abroad, investment in industrial infrastructure
and research and development in Europe has declined. This has weakened
the ability of European countries to innovate and maintain long-term
sustainable growth. Offshoring has therefore had a negative impact on
wages, especially for less-skilled workers. Global competition has put
downward pressure on wages in traditional sectors, while rising
unemployment has further reduced workers' bargaining power. Workers have
suffered wage compression, as companies have sought to remain
competitive with low-wage economies. This has reduced domestic demand
for goods and services, contributing to economic stagnation.

Another impactful issue is the very architecture of the European
manufacturing economy based on a geographical Hub (called Blue Banana or
European Megalopolis) of high concentration of investments that goes
from London to Genoa via Brussels, Frankfurt, Zurich and Milan. In this
productive-financial hub, the Franco-German economic assets reign
supreme with an ancillary position of other states. This is the plastic
vision of the European economic structure that reverberates in the
financial, regulatory and monetary structure. With the economic engine
placed in Central Europe and the financial ramifications that reach all
the way to the business centers that matter.

This economic context that was pulling in several directions until the
early 1990s then took a completely different direction, orienting itself
towards a few industrial lines, those considered more profitable and
with higher added value, the main one among these was the automotive
industry. That considered the most advantageous to keep within the
European borders, limiting itself to importing electronic and computer
technology from Asia. Another industry to keep was the aerospace industry.

Now the engine is clogged, in every sense. The automotive industry,
which for years was the European industrial driving force, is struggling
and with it what remains of its related industries not exported
elsewhere. In the meantime, the transition of the economy from
industrial to financial, that is, from the material economy to services,
has pulverized the manufacturing industry, making the socio-economic
structure of the old continent fragile. In addition to this, the
internal agreements of the European treaties, such as the stability pact
and the Maastricht parameters, have prevented public investments that
did not have immediate financial relevance.

All this has translated into what Lawrence "Larry" Summers[1]redefined
as "secular stagnation", that is, a situation in which an economy
experiences weak or non-existent growth for a long period, accompanied
by low aggregate demand, insufficient investments and low interest rates.

Draghi's recipes do not intervene in any way to restore the growth of
aggregate demand, instead focusing on some other driving asset: the war
industry. The only one that can currently free up public resources and
can give oxygen to the stagnant Teutonic industry. The industrial
reconversion experienced during the pandemic has provided encouraging
data on European productive capacity (which is potentially still high)
and public debt for defense reasons appears to be a lesser sin than
public debt for welfare.

In addition to industrial revamping, the suggestions are also directed
towards European governance, and specifically the decision-making
mechanism of the European Council by expanding the type of decisions
that can be made by qualified majority rather than unanimously.

In conclusion of this very brief analysis of the characteristics of the
report on European competitiveness, we can state that there is nothing
truly innovative. On the contrary, we are pursuing the dead-end road of
financial market balances in defiance of the fact that these strategies
from the 1990s to today have in fact impoverished millions of people,
reduced essential services to the bare minimum, commodified natural
resources and handed over savings and pensions to investment companies.

An operation that tends to strengthen central decision-making power (in
this case Brussels and Frankfurt), favor an increase in military
spending, further weaken essential services and privatize what remains.
All seasoned with the inevitable security packages to prevent the
grievances and conflicts that will arise from the social slaughter as a
consequence of these umpteenth unfortunate choices.

JR Notes[1]. Summers, L. H. (2014). "U.S. Economic Prospects: Secular
Stagnation, Hysteresis, and the Zero Lower Bound."Business Economics,
49(2), 65-73.

https://umanitanova.org/draghi-e-la-competitivita-la-massimizzazione-dei-profitti-per-i-soliti-noti/
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