Posted on April 18, 2022, 10:00 AM
“Globalization as we’ve known it for the past three decades is dead,” BlackRock boss Larry Fink said recently. The Russian guns in Ukraine thus finished what the financial crisis in 2008 and the health crisis in 2020 had caused. To succumb to the certainty of economic well-being and the hope of peace, guaranteed by an ever closer interdependence of the world’s economies. The West has become particularly dependent on Asia, which supplies 80% of its semiconductors, or even on Russia from where it imports a significant portion of its gas and oil.
In this context, Italy should be one of the most affected countries as the second production country in Europe and the second export power behind Germany. However, last year’s formidable recovery of 6.7% of GDP is mainly due to exports, which broke an all-time high with EUR 516 billion. Excluding energy, Italy is the fifth largest exporter in the world with a current account surplus to make all its partners green with envy. If Mario Draghi admits that the transalpine industry is too vulnerable in terms of gas and raw material supply, we must recognize the resilience and robustness of “Made in Italy”.
How to explain such a paradox? Its strength lies without its apparent weakness. The peninsula does not have large international groups or mass production in series, but a multitude of SME’s/SMI’s, often leaders in niche sectors and organized in a network within nearly 160 industrial districts. These are the famous “pocket multinationals”, whose production moved to the higher market in the face of Chinese competition in the early 2000s. They are active in traditional activities (clothing, footwear, leather goods, jewelry, agri-food, furniture) or more modern (small mechanics, electrical engineering, machine tools, spare parts, etc.). Sectors highly valued by foreign investors. These companies are therefore the main subcontractors of the French luxury groups LVMH and Kering, as well as of German industry, in particular the car industry.
“The Italian system is essentially based on closer supply networks and shorter channels, making it less vulnerable to upheavals on global networks,” explains Marco Fortis, director of the Edison Foundation, a specialist in industrial economics. Italian companies have moved far less than their foreign rivals, and those that have started a process of industrial relocation earlier, which ensures better quality control, smoother relationships between R&D activities and production, as well as easier delivery and customer support. †
Diversity of exported products
But the main strength of Italian production, in the face of the turbulence affecting globalization, lies in the very wide variety of both its exports and its customers. Italy is therefore the world leader in the diversity of exported products and the number of countries to which they are destined. The top 100 “Made in Italy” products account for 40.1% of exports, compared to 50.5% for France and 67.6% for South Korea.
Despite its strengths in international competition, some Italian politicians have not failed to criticize globalization, which nevertheless benefited them even before the outbreak of the pandemic. The spirit of conquering foreign markets has given way to the sense of “Chinese invasion via competition from the East causing disproportionate income disparities and real disasters,” said Giancarlo Giorgetti, Matteo Salvini’s former right-hand man. The man who has since become one of the closest associates of Mario Draghi and his economic development minister is now arguing for strengthening the technological and industrial sovereignty of the European Union. Under the Italian recovery plan, investments are planned to support development projects for a European electric battery sector with the Franco-Italian automotive group Stellantis, or even photovoltaic panels or the promotion of green hydrogen involving the national groups ENEL, ENI and SNAM.
The “golden power” standard
The word ‘sovereignism’, which the populists in power in Italy misused in 2018 and 2019, has resurfaced in political discourse. Defending the “Italianness” of the industry is once again becoming a priority to strengthen national sectors and ensure a reliable supply of raw materials. The scope of the “golden power” standard has been further expanded. Any acquisition of more than 5% of the capital of an Italian company by a foreign investor is subject to prior approval, with the veto right of the government in sectors considered to be strategic. A veto that Giancarlo Giorgetti wanted to extend to the export of products considered essential to the national industry.
Faced with the risks of incompatibility with European directives, the option of preventive notification for the export of essential raw materials was ultimately preferred. The “thirty glorious days” of globalization are coming to an end with the three financial, health and warlike shocks of the past fifteen years. Recovering Italy feels a legitimate desire for protection, but may succumb to a new strain of protectionism, which would then hinder what has made its exports a success.