Articles

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Chain bank failures, recession and investment in research

September 16, 2008, Heos

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The report by the Italian Association dates back to six months ago la Ricerca that a possible recession in the American and European economies would have had a more marked effect on Italian data. Still in the spring of 2008, there had been unequivocal indications of a breakdown in the American banking and credit system after the crisis deriving from subprime mortgages, the collapse in real estate prices and the recognition in the balance sheet of losses due to instruments of badly conceived and badly used financial engineering.

Six months after that report, events have sadly confirmed that perspective. In the USA, in addition to the closure of a dozen regional banks, we have seen the liquidation of some giants such as Bear Stearns (with a forced takeover by JPMorgan) or the two government agencies Fannie Mae and Freddie Mac, de facto nationalized by the Federal Reserve to avoid the collapse of the entire economic and financial system.

These days, Lehman Brothers, the fourth largest American bank with more than 150 years of history behind it, is under the spotlight due to the lack of liquidity that is causing another controlled bankruptcy. In general, all the other lenders, investment funds and insurance companies have recorded balance sheets with huge write-downs and are proceeding to drastically cut entire internal divisions and to raise liquidity from new Middle Eastern or Asian fund partners.

All of this has had and will have serious repercussions on the real economy: unemployment has increased, the economy and production are slowing down, sales and consumption have decreased. On the other hand, in Europe, despite not having seen bank failures (with the exception of Northern Rock in Great Britain), the whole sector has communicated a wave of disappointing data and write-downs. The European economy has suffered this severe blow, recording a generalized economic slowdown and Italy has confirmed the trend of the last 10-15 years in scoring worse performances than other European nations. The data on Italian GDP estimated by the OECD are from a few days ago and once again signal this negative record for our country.

In this economic situation, investments in research risk suffering a setback and a reduction both on the public and private sides. In the USA, the rescue of the credit institutes and of the current economic system was done by increasing the American state debt, already high before these events. It is unthinkable that the only solution is a devaluation of the dollar as this would cause an increase in inflation, an erosion of American wages and a greater risk of a contraction in consumption and an economic recession; the federal budget will have to be worked on either by increasing revenue through new taxes or by cutting some items of expenditure. In Europe there are constraints on the economic parameters to be respected; in particular by decreasing the growth of GDP (or even having a decrease in it) the individual States will have to contain the public debt, above all countries in which this debt is at high levels, such as Italy, will have to do so. In this context, there is a very likely risk of widespread cuts in spending, including research, university and schooling.

The Italian Association for la Ricerca expresses a deep concern about the fact that research and investments in technological innovation are treated as budget expenditures that need to be contained. In fact, not only would such cuts bring no benefit other than an ephemeral effect on the quarterly cash flow, but above all they would prevent lasting and real economic growth in the coming years. Furthermore, further budget cuts for universities and funding for research institutions would reduce the percentage of Italian GDP invested in innovation, which is already among the lowest in Europe and very far from the objectives of EU treaties and directives signed by our own country. The resources invested in this sector are then those that guarantee a greater economic, social and technological return for a society increasingly based on knowledge and knowledge; among other things, they are the only ones that can reverse the current outflow of human capital made up of young Italian graduates and doctorates who go abroad for work reasons. For these reasons, the Association hopes that any reductions in expenditure will affect different sectors, going towards eliminating waste, increasing the efficiency of the public administration, decreasing the costs of national and local politics, eliminating the duplication of responsibilities attributable to the various bodies, reforming professional associations and implementing a competition policy in those sectors characterized by lobbies and corporations.

Certainly, to implement an investment policy in the research sector in times of economic crisis, political courage and a vision of society projected towards the future are needed. On the other hand, if it is true, quoting Churchill, that the difference between a politician and a statesman is that the politician thinks about winning the elections, while the statesman thinks about the next generations, now more than ever every nation that thinks to its social and economic future requires congruous and precise choices.

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More Research to Fight the Recession

October 24, 2008, Heos

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The current global financial crisis which is involving credit institutions, private investment funds and business houses is spreading to the real economy, businesses and household consumption, making us forecast an entire year for 2009 of global recession. If, on the one hand, it is legitimate and dutiful for individual nation states and central banks to support financial institutions in difficulty through injections of liquidity and public money, on the other, one cannot fail to notice that the inefficiencies and damages caused by a certain type finances will be repaid through an increase in each nation's public debt.

In the past there have been several solutions adopted to defeat the various phases of recession, from simple tax incentives to companies, to forced nationalizations up to a strong push towards protectionism. Each of these solutions shaped the subsequent phase of economic expansion, leaving a decisive imprint on the society that was forming and also leading to unexpected and unwanted consequences.

The current provisions issued by the continuous international summits and local bailout plans do not seem to have brought tranquility to the world economic system; from many quarters it is emphasized that these positions are not to be considered definitive given the continuous evolution of the crisis and its not yet fully known entity. Furthermore, the voices of those who think that it is not a problem of the amount of funds to be allocated are increasing, but the question could lie in giving new answers instead of solutions elaborated with old-fashioned ideas and in planning this in an economic context different from the current one.

Having, in this period, the possibility of shaping the human society of the future through ambitious long-term projects, it would perhaps not make sense to provide the financial and social instruments to found an economy based on knowledge and on the paradigm shift of consumption on a sustainable level ?

The Italian Association for la Ricerca considers that the primary solution to get away from this recessionary phase is to focus decisively on investments in research, training and the development of knowledge, even at the cost of a momentary increase in the state debt. Indeed, a fiscal deficit due to an allocation of funds for research can be easily absorbed in the following years given the virtuous circle of real widespread economic growth that such an investment brings into play. If this is true worldwide, it is even more so in Italy where the state funds allocated for this financial crisis should be much lower in percentage terms than those of other European countries. Furthermore, with a choice in this direction, the enormous difference that exists between Italy and the rest of Europe in terms of investment in research could be immediately eliminated.

This recession could prove to be an enormous opportunity for our country, perhaps the last train to hook up to the new twenty-first century society based on the knowledge of human capital. However, we must all be convinced of this, from national to local politics, from trade unions to industries, from universities to the mass media, and move accordingly with corresponding actions.

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The wave of change in Italy breaks in the great old men

November 6, 2008, Heos

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Eventually there was a change. Barack Obama, 47, is the new president of the United States of America. The wave of a new generation conquers the politics of the richest and most industrialized country in the world, after the US entrepreneurship and ruling class have already been dominated for years by emerging youth figures (it was Bill Gates in the early 1990s, were Larry Page and Sergey Brin, founders of Google, at the beginning of this century). The novelty of the next president does not lie only in age and family origins, but involves something wider: a new model of communication, a new form of participation, particularly suitable for generation X which is asking the ruling classes for a language modern with tools such as Web 2.0, IT-technological word of mouth and new dreams of a sustainable knowledge-based economy.

Other states, such as the United Kingdom and Spain, have current political leaders of the same generation as Obama, but perhaps only the latter, thanks to the media and representative power of the USA, can really unleash a peaceful change of leadership induced in other European nations, a start from Italy. In fact, in this context, our country clashes strongly in terms of cultural conservatism and scarce propensity for a vision of the future, having in itself three not at all enviable records: the political class, the entrepreneurial class and university professors with a higher average age both among the countries of the European Union and among the most industrialized countries globally.

In this last month, the mobilization on a national scale, even if not coordinated as a unit and with various nuanced positions, on a fundamental and crucial issue such as that of Education, University and Research is however undermining that climate of self-referentiality and is putting the center of attention is a generation that claims the right to build a future of hope. The Associazione Italiana per la Ricerca reiterates that the different instances proposed to promote knowledge are and will be the pillar of society in this century, because the capital decision on Italy's role in the coming decades depends precisely on the quantity and quality of investments in Research economic-cultural level in Europe and in the world.

In this climate of generational change and renewal of production and social systems, Italy cannot afford to lose this youthful driving force and must constructively channel the ideas that arise from the basis of this movement to finally generate a renewal of all the national ruling class.

Are we ready to face the future and the 21st century? Yes, we can believe in someone would say.

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"Seeking efficiency to