Duty, A big misconception

dazio-trump-cina
Loris Nadotti
18 Oct 2019
Loris Nadotti is an Ordinary Professor of Economics of financial intermediaries at the Perugia University. In the same university is Delegated of the Rector for Patents, Innovation, and Technological Transfer. He is the author of scientific publications regarding his teaching discipline and about the relationship between research, university, and innovation.

R. The duty is the simplest representation of the commercial war between Trump and China and the green light of WTO to the American sanctions against the EU. But protectionism pays?

LN. No, duty has never paid. For a very simple reason: it limits the commercial exchange, sells, and production, so it limits the growth. Protecting without duties means innovation: do new things, improve the goods’ quality, focus on technologies. In today’s American political context, duty is cash for the re-election, and on absurd premises.

R. For example?

LN. According to the estimates of the American Farm Bureau, in 2018 China halved the American agricultural products import to 9,1 billion dollars, compared to 19,5 billion in 2017. In doing so, the duty policy struck the American Midwest, that part of America which expressed the highest support to the president.

Reaganomics...

R. Trump, though, as Bush that in the early 2000s went to war to “defend the American steel”, claims to have a virtuous precedent in the “Reaganomics”.

LN. It is a different story, which reasons were by time certified from the most serious economists. Reagan’s initiative was also accompanied by trade openness politics, like the proposal of a new single market in North America. And, above all, the benefits obtained by the Republican government in the ’80s were determined by the cut in taxes on investments in research and development. I speak about the “Research and Experimentation Tax Credit” that gave a strong push to the innovation and, so, to the competitiveness of the United States.

R. Looking like that, it seems that sooner or later will have to be a redde rationem.

LN. Unfortunately, we are talking about situations in which irrationality is destined to grow over. With a view to the possible extent of the presidential term.

Innovation, the true engine of competition

R. “Rewind”: duty doesn’t pay, the market competition rewards who innovate. Right?

LN. It does. If the competition was powered, for some countries, by the ability to produce with lower costs, in more recent times the change of direction of the same individuals has been evident. South Korea and Thailand, for example, are significantly investing in innovation. Then, if we look at China, it is all clearer. Italy invests in R&D the 1.1%, sometimes the 1.2% of the GDP, that is also decreasing. China instead, invests the 2% of an increasing GDP that is six or seven times higher than the Italian one. And the results are in the public eye.

R. The new Asian powers, of course. But is there a possible model to look at in our west?

LN. The interaction between university, private enterprise, and government, based on common plans and finalized to the economic and social development. The three mentioned subjects are the blades of the “triple helix” theorized by Henry Etzkowitz in the ’90s. The common premise to organizational, institutional and financial structures to promote and support the change.

R. So, this means a very different concept of “public expenditure” compared to the negative perception that we have here in Italy.

LN. Adam Smith’s flaunted recall to liberalism left space to a different reality. As the Italian economist, Mariana Mazzuccato states, the creation of richness is determined by innovations generated by public expenditure: it requires awareness. Just think of how much the consumer market has benefited from the “defense” investments decided by the various American governments. I look at the vacuum cleaner robot that turns on the floor of the house and I think of its “ancestor”, that traced mines and allowed them to be removed.

The italian delay

R. According to ASSIRM estimations, Italy is second to last for innovation in Europe, and without a virtuous connection between public and private, we will always standstill. Is there any way to overcome the delay?

LN. The answer is simple, but it implies strong politics wills: our public research system must find an edge in entrepreneurship. For years we marooned in the myth of “small is beautiful”, but to make serious innovation, we need logic, resources, and common investment plans. With the necessary selectivity, I add, because rain investments are a worse solution than the problem. The interlocutors for the private sector are the known excellence of our system: university, CNR, ENEA.

 

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