Economy - published on 28 September 2023
An article by Dr Renato Chahinian
In the previous article in this column, “Recovery and resilience (but not yet sustainability)“, published on 2 May, we highlighted Italy’s exceptional economic recovery after the well-known adversities of the last two years, and we attributed this flattering phenomenon mainly to the unusual resilience of our country’s system, which, perhaps for the first time in recent history, had demonstrated a reaction-adaptation superior to the past and to most other European countries (but also excellent worldwide). This unexpected performance, however, did not cover the main sustainable development goals set out in the UN Agenda, and so we had affirmed the need for the same resilience to be applied, even more effectively, in the social and environmental fields as well, and to this end, we had identified Goal 8 of Agenda 2030 (decent work and economic growth) as the most decisive and challenging, in order to achieve the coveted socio-economic development, which, together with environmental development, represents the essential element of sustainable development.
Since we had noted the complex trade-off decent work – economic growth, we had postponed to this article the discussion of the possibilities of overcoming such a contradiction, given that, in any activity, decent work requires more costs, but economic growth derives from greater gains (obviously from all stakeholders).
The problems to be solved to achieve Objective n°8
In order to simplify the problem further, we will limit the analysis to the usual dualism between wage income (sufficient to remunerate decent work) and capital income (sufficient to allow a fair profit for those who contribute the necessary capital to productive activity). In a static economy (without change or innovation) the two factors collide irretrievably (more wages equals less profit and more profit equals less wages). Furthermore, if market prices are low enough for obvious competitive reasons, the stakes are unsatisfactory for both and the conflict becomes even more bitter. On the one hand, the worker does not receive what he is entitled to for a decent living, on the other hand, it may happen that the investor too does not receive a minimum return from the invested capital, unless he has a bargaining power relationship with the counterparty (whereby he gets a satisfactory income to the detriment of others’ incomes).
At this point, apart from cases of activities conducted unlawfully and thus contravening precise rules of law (which are therefore court cases), it is worth pursuing a resolution of the problem in a positive light for both parties involved. On the one hand, there is the worker who is entitled to a decent income for his living needs, and on the other, the investor who must also receive a fair profit (in relation to the capital contributed and the risk of his investment in the business). For both to receive what is due to them, the added value produced by the business (revenues minus the costs of goods and services acquired externally) must be sufficiently large.
Obviously, most companies achieve this objective for the very survival of the business (otherwise, in the long run, business closure or bankruptcy would occur) and indeed many excellent companies are able to more than satisfactorily remunerate both workers and shareholders, but sometimes (again, apart from the borderline case of the investor who wants everything for himself, underpaying the other stakeholders), the added value is not sufficient to adequately remunerate both parties, as well as creating a further margin for reinvesting part of the profits for future growth. Thus, the problem of achieving Objective n°8 under becomes the possibility to achieve sufficient added value in a sustained and systematic manner. Unfortunately, many small and micro enterprises are unable to achieve this and must therefore resort to lower remuneration, when not experimenting with illegal ways (undeclared work and/or tax and social security evasion).
The master solution to the problem does not then consist in facilitative or welfare interventions (which are those generally adopted by governments, but which must be constantly renewed, because the shortage of added value recurs every year indefinitely, without ever abating), but in helping companies to be more productive and competitive. Labour productivity and capital productivity are the only two factors that can increase corporate added value and reach the desired levels, and thus satisfy the needs of both sides. The two productivities, then, can be traced back to the one productivity of labour, since more efficient and effective work at all company levels (including the managerial and executive levels) also identifies and obtains the innovations and technologies necessary for the growth of the aforementioned added value.
The multiple solution to every problem
It is therefore necessary and sufficient to improve the labour productivity of all company components in order to achieve the objective in question. This can be implemented with only two complementary types of intervention:
– identification of a decent minimum wage level for each worker assigned to the simplest tasks, but linked to a minimum level of performance by the latter (ensuring a sufficient degree of productivity);
– promotion of a generalised and widespread use of training at all levels, with particular reference to top management positions, so that they are able to improve company management in order to make all company activity more productive, in relation to the human and financial resources available.
As we know, in everyday reality we often talk about minimum wage and decent wages, but we completely forget the other two related conditions: minimum worker performance and improvement of overall company productivity, which are the decisive factors for obtaining added value that allows a decent wage and adequate growth at the same time. The latter two factors therefore imply a committed and cooperative adherence of the worker to the company’s fortunes and, at the same time, the preparation by the entrepreneur and management bodies of an organisational and managerial set-up such as to obtain maximum productivity from the activities of all employees.
Business demography, which is routinely surveyed and analysed by the chamber system, has long highlighted the fairly short life span of many small and micro-businesses, which often do not exceed five years, and we know that many others manage to survive for longer only by reducing the compensation of workers and entrepreneurs. The Chambers of Commerce themselves, moreover, have always organised training courses on business management precisely to make it easier for the competent bodies to draw up a business plan that demonstrates the achievement of added value that can adequately remunerate all stakeholders. In this last regard, it is important to point out that actions for corporate responsibility and sustainability can also help achieve greater added value with a more competitive business reputation and the avoidance of many future risks and costs.
In conclusion, the proposed manoeuvre would only produce positive impacts on sustainable development, and the costs needed to support smaller companies to achieve satisfactory levels of added value would be largely offset by the savings on all household and business welfare costs, which are currently incurred to mitigate the lack of decent work and the precariousness of the economic balance of many companies.
Translated by Cecilia Flaccavento
Intern at the Chamber of Commerce of Treviso – Belluno|Dolomites
