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Interview with Gary Pisano

Gary Pisano is the Harry E. Figgie Professor of Business Administration at the Harvard Business School. He has been on the Harvard faculty for 23 years. He met Prof. Giancarlo Corò of the Department of Economics of Ca’ Foscari University of Venice and they discussed of economy in Europe and United States.
 
Prof. Pisano, in your latest book, you discuss a very clear thesis: to maintain technological leadership and levels of prosperity, the United States must return to invest on manufacturing development. Does not it seem that this argument contradicts the trend towards a post-industrial economy, increasingly specialized in services?
Yes, my argument very much contradicts the notion that we should be evolving toward a “post-industrial” society. The whole notion that a ‘post-industrial’ economy somehow represents a “higher” level of development and bring prosperity is a theory; it’s not some economic law. In fact, it’s a theory without any basis in economics. And, it’s a theory that’s never been tested. In some way, we are testing that theory now by allowing our industrial base to erode. Of course, if we continue to let this experiment run, and we find in 10-20 years the theory was wrong, it will be too late to do anything about it. So, that’s why I wrote the book. I wanted to take stock of where we are, and to send a cautionary message. 
 
 
Support for manufacturing within the United States borders is not likely, perhaps, to fuel protectionism and to defend even the less competitive industries?
This is something we have to be extremely careful to avoid. It is a danger. Arguments for manufacturing have too often degenerated into arguments for protectionism, and that’s a disaster.  I am very clear in the book: I am 100% for free and open trade, and 100% against protecting or subsidizing losing industries.  One can be for a strong manufacturng base without being for protectionism.
 
 
Do you believe that the risk of a loss of competitiveness in manufacturing industry is there in Europe too, including Germany?
Europe is definitely at risk, and even Germany. Growth in Europe, including Germany, is very slow by global standards, or even compared to the US.  A billion workers entered the global workforce since 1990 thanks largely to the entry of China, Brazil, Russia, and India into the world economic system.  That means everyone—Americans and European alike—face a lot more competition. 
 
 
What impactsfor the european and american industry can have the recent EU-US trade agreement for the reduction of tariffs?
The EU-US trade agreement could be very important if it’s done right.  Together, the EU-US would constitute the largest economic trading zone in the world.  Tariffs are already pretty low between the EU-US but there are a whole set of other barriers to trade that need to come down.  It could open big opportuities for smaller companies that tend to find these non-tariff barriers challenging to navigate.   However, a free trade agreement only creates the opportunity. European companies, and particularly Italian companies, will have to get aggressive about selling in the US. And, by the way, smaller American companies will need to start getting aggressive about selling in Europe.   This will be win-win. I just hope the politics don’t get in the way!
 
 
What’s your opinion on the financial constraint policy held by the EU in the last years? Don’t you believe that the strength of the Euro, favoring imports and offshoring, has weakened the industial developmentin Europe?
The Euro is a complicated currency because it encompasses a very broad range of economies with very different levels of productivity and wages. As a result, it’s too high for some countries (like Italy) and too low for others (like Germany).  The only choice for countries like Italy to thrive in Euro is to improve productivity significantly.  What is driving the move of manufacturing outside of Italy is low productivity relative to wages. 
The answer to Europe’s problems is productivity growth. That will lead to competitiveness and that will lead to economic growth. And economic growth is needed to solve the fiscal problems. It would be much better if the EU focused on policies to improve competititiveness and productivity, like investments in education, research, labor market reforms, opening of services, etc.
 
 
Whyjust Italy are suffering more than the other main European countries, the economic and financial crisis of the last years?
Italy is suffering worse because it has had the worst productivity growth performance in Europe.   All of Italy’s problems are rooted in the country’s failure to increase productivity.  If you compare Italy’s productivity growth relative to wages with just about every other country in Europe, Italy scores at the bottom. This means that Italians are losing their capacity to compete with other Europeans.  And Italy has been extremely slow to embrace reforms needed to boost productivity.  That’s why Italy is suffering. If the country can muster the political will to implement the necessary reforms, the country has a very bright future. If not, things will only get worse and worse.
 
 
There are those whoeven in Italy believes that the industry has its own share of responsibility in a crisis that comes from afar. In particular because to specialization in mature sectors and too small businesses. What’s your opinion about it?
To some extent, I agree.  Yes, government has done a terrible job implementing reforms and making Italy an attractive place to do business, but Italian businesses must also take a big share of the blame.  I am not so much worried about specialization in “mature” sectors (because today, even mature sectors can be very dynamic!).  But, Italian business have often been slow to explore overseas markets. Too many small Italian companies see Italy as their only market, and are missing opportunities. Too few invest in new technologies and new work systems.  Too many family owned companies are too closed to outside management and have poor corporate governance.  Too little invest in serious training.  There are many very successful Italian companies so it goes to show you that Italian companies can be successful, particularly in overseas markets, despite the problems of poor policy. 
 

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