The IT revolution and southern Europe's two lost decades

> Subsidising IT adoption actually lowers southern productivity even further. Likewise, subsidising education has negative effects, as it is effectively becomes a transfer to the north through high-skilled migration. These surprising results are due to the fact that, in our model, low IT adoption and low education are a symptom, rather than the cause, of low productivity growth in southern Europe. Indeed, given management efficiency, southern workers and firms behave optimally. There is no further room for improvement.

As a citizen of a Southern EU country, this feels painfully true. Having worked a year in the Benelux, returning here just heightened that sense: the culture of hiding information, trading influence and promoting mediocrity. And I fear those EU funds for creating startups will just be consumed by the forces, being used by founders who have only known this reality. Working abroad beforehand should be, if not mandatory, at least strongly encouraged.

* At least from the people I know during the summer productivity drops because everyone is on a vacation to the seaside.

* People here seem to much more enjoy live. It is much more common to see young people just hanging around and socializing than doing anything productive.

* Tourism is usually the priority for those counties, not IT. This leads to high number of seasonal workers. Lots of people don't want to work in factories and offices. They just work a few months during the summer in the tourism and during the rest of the time they enjoy life and do nothing.

* EU allows everyone to work everywhere and smart people want to be part of the technological hubs of Europe which just happen not be here. It is the same as in USA. I haven't heard about any startup from Kansas, but plenty from Silicon Valley.

My two cents for the situation. EU has poured lots of money to these regions but very few productive things have come out. People just learned how to manipulate the system to get more funds. They are not thinking how to solve real problems and make people lives better, everyone is just trying to get money, spend them and then asks for more. The funds should be restructured to allow entrepreneurship grow. You cannot make inefficient system better by just giving it more money, you need to change the system.

* Salaries and status of software engineers are low, you'd want to switch to management asap,

* There are very few interesting tech companies,

* Corruption and bureaucracy doesn't help with innovation and starting your own businesses.

1. the way the urbanisation process during Les Trente Glorieuses didn't push people into working for big companies as much as in other European countries, leaving more room for small companies in later years (there are also historical reasons for this unusually stronger weight of small capital, of course, which go long back to the past);

2. how the political cadres didn't have enough, basically, courage, to push for the consolidation of bigger companies, if not in a way that amounted to stitching some smaller low-productivity companies together - pushing for an increased industrial productivity would have meant that many smaller enterprises would have gone out of business, that would have meant the loss of MANY votes from those social groups! Excuse me if I say something controversial, but just read up on the Reggio Calabria riots in 1970, especially the afternath.

The 1980s have been characterised by the widespread diffusion of the SME model (the meme was "piccolo è bello" - small is beautiful), also with remarkable examples like Veneto which saw a real facelift, turning from a somewhat still rural region into the homeland of the "capannone" (the small industrial shed) in little less than 10 years! Personally I think that all of this has been a major mistake, but maybe unavoidable due to the social structure and history of the country.

But in all of this, consider also that northern Italy is basically Europe's second most important industrial zone (we serve as component makers for the larger industries of northern Europe)

So.. it is very complicated.

Seen with a game theoretic lens, and extending beyond Italy, it appears that there are low trust and high trust (or “social capital”) equilibria in societies, and it is especially difficult to go from the low trust to the high trust one. Secondly, these cultural norms and institutions (in a broad sense) are extremely persistent over time.

Of course, this is only one aspect of a multifaceted problem, but I find it particularly enlightening.

[0]: https://www.nytimes.com/2019/01/02/world/europe/turkey-emigr...

In Italy there are lots of very talented people, but very often they work best in a self organised/ad hoc way. "Just following the rules" is mostly thought of as something stupid people do.

It's very difficult to automate processes which were non standardised or haphazard in the first place.

Portugal: Farfetch (unicorn, IPO'd), Talkdesk (unicorn), Unbabel, Apptoide, UTRUST

Spain: Glovo, Typeform, Spotahome, Travelperk

They came late to the game, but now their tech scene is rising.

I don't remeber it exactly, but I spoke recenetly on a party with somebody who lived for a few years in Lisbon and he quite liked it (and didn't spoke negativly on the IT-enviroment there, be it management or other stuff like meetups). Their universities are also not to underestimated (at least what I've heard from barcelona and lisbon. I've heard bad things from the CS at one of the universities around madrid).

For example saying that people in Spain or Portugal love living the good live and not working is a generalization.

Today, when most work is actually done by machines and not humans, you could actually be way more productive not burning yourself out than burning.

In Germany they have more machines, because they have more capital and because they forced the Southern countries to destroy its industries. That happened with Spain and specially Italy for entering the EU. 32-36% of the Spanish economy was industry before joining the UE, now it is 12% and going down.

For example, In Spain they put quotas(limits) in the milk that every milk producer could generate in the north of Spain, that has a wet climate, like France, UK, or Germany. Those countries of course had not quotas.

This way European companies(specially French companies) could enter the Spanish market and have bigger markets, but the Spanish companies could not compete because they had to reduce production.

With bigger markets, they had bigger mass scale productions, more efficiency and could put prices that put out of the market Spanish companies.

On the other hand, the South of Spain was benefited as it produces things that Europe do not.

They also flooded the real state market with easy money coming from European banks that will lend outrageous amount of money to anybody with a pulse.

That made year to year profits of 20-30% in real state in the bubble, further increasing the desinvestment in industry, that could only give moderate 3-4%.

Of course lending to people that could not pay back was a bad idea, and when the bubble burst lots of banks from Germany, UK, or France should have gone down.

But of course the governments of those countries forced the Spanish government to buy the bad debt, making the Spanish Government bankrupt itself.

Reality is complex, but we love simple arguments.

But also Capital accumulation, when you start from a good starting point where you have the capital to invest in IT. The earnings are exponentially greater, so the effects on Germany from the IT revolution should be greater then in Southern Europe.

https://en.wikipedia.org/wiki/Capital_accumulation