Commentary. Potential GDP does not depend only on technology and labor flexibility, but also on income distribution and the ability of the state to guide the market in the long term. Low growth is consistent with the economic policies that have been pursued.

Draghi and the neoliberal bubble

What can Italy look forward to? Although there is some consensus about the country’s lower growth compared to the average of European countries, a thorough analysis of the macroeconomic data and statistics on this matter can help us put it into context.

The techno-economic nature of this lower growth has brought forth a conflicting tangle of ideas and analyses, in which it is difficult to orient oneself. The inertia of ideas, the hegemony of neoliberal economic and social theories, combined with special interests and a certain amount of intellectual laziness, are preventing a self-critical analysis of the constraints that are hindering not only growth, but also a decent level of labor quality, capital efficiency and respect for nature.

In addition to the difficulties just mentioned, the laziness or self-satisfaction of a number of intellectuals leads to an attempt to paint a picture of a country that has grown less than it could have, only because it has never put enough trust in the harsh but invigorating virtues of the free market.

Prime Minister Draghi himself, in his commencement address at the end of the academic year at the Accademia Nazionale dei Lincei (July 1, 2021), stressed this as the mechanism for how the country has grown less than its potential.

The dominant narrative attributes this almost exclusively to the “fetters and strings attached” that discourage and hinder private initiative. Therefore, they say, there is a potential for growth that the country could actualize with so-called structural reforms.

The definition of this “potential” remains a mystery to most, but it is worth remembering that “potential” in the neoclassical (neoliberal) sense is a technical term, not a common perspective for the future. It is a theoretical condition defined by technology, reachable only if social behaviors are subject to market rules; it is not the project for a society to be shaped and organized around human needs.

Basically, neoclassical thought envisions a curve of full employment of production factors, beyond which it would be technically impossible to go without generating inflation and imbalances. Only the objective fact of technical progress can push this curve forward, and it can be approached only by allowing wages to be aligned to labor productivity and limiting the state to the role of making the conditions in which entrepreneurship can freely operate as fluid as possible.

If one were to step out of the neoclassical ideological bubble and start listening to other schools of economic thought, one would discover that potential GDP does not depend only on technology and labor flexibility, but also, and most importantly, on factors such as income distribution and the ability of the state to guide the market in the long term.

However, the economic policy of the Draghi government is still the perfect representation of a neoliberal vision of “potential” as the only constraint.

Basically, the NRP and the structural reforms it is almost exclusively counting on for the future of the country (in public administration, procurement, digitalization, justice, etc.) fit the default framework of modernity, i.e., the need to free the country’s unexpressed “potential” for growth, remedying deviations from the “optimal” path, without even asking the question of whether “that” particular way of growing is compatible with social equity and environmental sustainability.

Draghi’s NRP has no ambition to reorient the development model, but is only an attempt to make it work better as it is.

We should not be misled by the suspension of the Stability Pact and the generosity of the public interventions that have been implemented. The pandemic has widened the negative gap between the potential and real GDP, temporarily justifying indebtedness and public support for demand.

But the intervention of the state has been invoked only to buffer the effects of an unexpected and exogenous shock, and, in the intentions of the government, one should quickly return to normal operation as soon as the emergency is over.

The Economic and Financial Document issued by the Draghi government in April already announced a budget readjustment of gargantuan proportions, including in its non-cyclical component (the structural deficit is expected to be reduced by 5.5 GDP points in just three years).

How many people today are willing to face the fact that Italy’s potential GDP has been, and still remains, lower than the European average, despite thirty years of liberalization, reforms and austerity? It’s not a question that has an easy solution, but at the very least, it should lead to a certain amount of disillusionment with some particular theories.

If we’re able to escape the self-consolatory rhetoric of the great “potential” for growth which is limited by too many “fetters and strings attached,” we might perhaps discover that the low growth, high unemployment and low incomes we’re seeing nowadays are, unfortunately, consistent with the economic structure that is the result of the economic policies pursued up to now. And we might recognize that the country will not be able to follow a different path unless it replaces the engine that is carrying it on the current one.

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