Democracy and growth in the twenty first century the diverging cases of china and italy

It should also be an opportunity for the East to better engage, void of reciprocal prejudices, with the West in the reflection on democracy of the future and its relationship with innova

DEMOCRACY AND GROWTH IN THE TWENTY-FIRST

CENTURY

Th e Diverging Cases

of China and Italy

Francesco Grillo and

Raffaella Y Nanetti

“All social and political systems need to evolve so as to survive and thrive, adapting to changing times and technologies Francesco Grillo and Raffaella Nanetti pose the right questions about our overly-rigid liberal democracies, while illuminating the challenge through a powerful comparison between their own sclerotic Italy and the currently more adaptive authoritarian China”.

—Bill Emmott, former Editor of The Economist

and author of The Fate of the West

“By now the literature on China is huge, yet this book stands out in terms

of originality and quality China’s economic and technological advancement is systematically linked to its political system The comparison with Italy is useful

to understand what Western democracies may learn from China’s case”.

—Romano Prodi, former Prime Minister of Italy

and President of the European Commission

“This book compares China and Italy, providing a novel perspective The Chinese people need to find the future direction to maintain sustainable inno- vation and growth after 40 years of economic success China may draw some lessons from Italy on how to keep the balance between democratic governance and innovation Can we have Democracy promoting innovation and innova- tion promoting democratic governance at the same time?”

—Liu Jianxiong, Institute of Economics, Chinese Academy of Social Sciences

“When considering matters of innovation and growth, great value comes from comparing case studies that differ significantly from one another Patterns that may be invisible in one single context can pop into view when carefully con- trasted and compared This book occupies valuable terrain between long-term structural features, and medium-to-short-term adjustments subject to politics and policy manipulation It confirms Francesco Grillo’s and his coauthor’s unique capability to master different academic approaches to make sense of

a problem which is going to be fundamental Their four-sided approach to explaining innovation is eminently applicable in these and other settings where stakeholders seek to advance innovation”.

—Ernest Wilson, Dean of the Annenberg School of Communication,

Los Angeles, USA and visiting fellow at Stanford University, USA

in the Twenty-first Century

“This book offers an interesting view on how societies manage or age innovation strategies in practice and how the wider political and institu- tional context acts as the intermediary in converting the stated policy goals into actual outcomes Francesco Grillo and Raffaella Nanetti show how liberal democracies could learn from other regimes in this conversion process without

misman-at the same time compromising their core principles Solutions to such damental problems are never simple, but the comparison of the Chinese and Italian case outlined in this book makes it apparent where one could start”.

fun-—Mihkel Solvak, Institute of Political Studies, University of Tartu, Estonia

“How can democracy can still benefit from a knowledge-based society? How and to what extent are our social systems increasing their ability to transform information into knowledge and wisdom as we need to face the big global challenges? This book addresses in a very original and provocative way some of the basic issues we need to face nowadays at the global level I strongly suggest this reading as one of the most interesting contributions to the international debate you can currently find”.

—Stefania Giannini, Assistant Director General for Education at UNESCO,

Former Italy’s Minister of Education Universities and Research

Democracy and Growth in the

Twenty-first Century

The Diverging Cases

of China and Italy

Francesco Grillo

Sant’Anna School of Advanced Studies

Pisa, Italy

Raffaella Y Nanetti University of Illinois at Chicago Chicago, USA

ISBN 978-3-030-02013-2 ISBN 978-3-030-02014-9 (eBook)

https://doi.org/10.1007/978-3-030-02014-9

Library of Congress Control Number: 2018961426

© The Editor(s) (if applicable) and The Author(s) 2018

This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse

of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed.

The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.

The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein

or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

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Switzerland AG

The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To take part in a severe contest between intelligence, which presses forward,

and unworthy, timid ignorance obstructing our progress.

—James Wilson, Businessman and founder of The Economist

As Xi Jinping repeatedly reminds, China has still to “solve major ficulties” in order to transform an economic miracle that lasted four decades into a “moderately prosperous society in all respects” And yet

dif-it is extremely interesting to look at China when we are in search of solutions for a crisis of the West which is serious and deserves the best intellectual resources we are capable of In a nutshell, this is the rea-son which has made the authors invest energy and dive with enthusi-asm into this book and has been the motivator for so many people who helped us in China, Italy and elsewhere with this research undertaking.The age is gone when Western intellectuals used to come back from visiting a country supposed to be on the verge of developing what would have ultimately been ‘the perfect society’, saying that in Moscow even the snow was whiter Today there are no longer models to be exported and the Chinese leadership knows this better than many of his admirers

China is a country governed by one of the best trained and selected political leaderships which has experimented innovative methods to develop policies and which is using technologies to solve problems in original and interesting ways We will argue that the Chinese approach

x Preface

to progress is one of the interesting methods to tackle the “innovation paradox” which is, as we will try to explain, one of the greatest chal-lenges that define the twenty-first century And yet it is a leadership confronted by some major intellectual and political puzzles This work

is an attempt to describe both the nature of China’s success and to ter understand how it can continue to grow avoiding middle-income traps and solving those puzzles

bet-As a matter of fact, a key difference between today’s China and the Soviet Empire that fell in 1991 is the unique Chinese capacity to com-bine pragmatism and vision, humbleness and ambition They have the advantage of a framework they call “ideology” but this ideology is con-stantly tested and adapted through “practice”

The other difference is that today the West is weaker than it used to

be when it was challenged by the Soviet Union during the “cold war” or even by Japan at the start of the 1990s In terms of today’s challenges, China is strong relative to the West And yet in our work, we will argue that a stronger West suits China well

The West is weaker not as much in terms of its economy; even though our research shows that our capacity to create prosperity from technological progress has declined We are weaker politically because

we hold on to a mode of experiencing democracy which became lete in its participatory structures, while we are still a long way from providing an alternative theory on how complex societies should be governed

obso-Italy provides an interesting case as one of the core countries of the liberal democracy order which has been a pioneer of a wider European decline We offer an interpretation of the crisis which goes beyond anal-yses which seem to be short-sighted and recommend a framework for a

“renaissance” which is still possible After all, Italy is the country where the idea of the West itself was arguably born through the vision of its artists and it is not a case that Italy has anticipated an economic, cul-tural and symbolic decline which is now shared by the countries par-taking of the post war world order: France, Spain, Germany, the United Kingdom and the USA

Above all, the West is weak in terms of its current collective ogy, which is betraying the yearning to explore, that combination of

psychol-enthusiasm and curiosity which was powerful enough to define what the West is about The West used to make history; it is now waiting for history to happen sitting in front of the screen of a TV set.

This is why an intellectual travel to China is still what it must have been for Marco Polo at the sunset of the Middle Ages: one of the most effective ways to recover the memory of what we are about It should also be an opportunity for the East to better engage, void of reciprocal prejudices, with the West in the reflection on democracy of the future and its relationship with innovation and prosperity in the twenty-first century: a discussion which is going to be central in London, Rome and Brussels as well as in Beijing

However challenging, it will be the debate of the next decade Essential for its consequences on the policies to be chosen and imple-mented, the relationships between people and institutions, the indus-trial and environmental strategies to be envisioned and pursued, the business ventures to be encouraged It will be crucial to learn from each other to navigate more wisely unchartered waters and to develop the intellectual instruments needed to make sense of a mutation that we still have to fully understand

The objective of this book is to start a debate relevant for policy ers, public opinions and intellectuals and to offer fresh ideas—like the ones we offer at the end of sections on China and Italy, as well as in the concluding chapter—needed to move knowledge forward

mak-Pisa, Italy

Acknowledgements

The undertaking of this book and the work which will take off from it would have not been possible without the support of many friends and colleagues to whom we express our gratitude

Francesco thanks his co-author Raffaella: her extraordinary patience, capacity to work, academic coherence and speed have been vital to complete this undertaking In part, this book leverages research con-ducted during his Ph.D years at the London School of Economics

by Francesco with Prof Robert Leonardi (Bob) who is also Raffaella’s lifetime partner For his insights while she was working on this book, Raffaella acknowledges her husband Bob, the critical mind and the lov-ing care she has relied upon for fifty years

We thank Romano Prodi, former Italy’s Prime Minister and President

of the European Commission and Stefania Giannini, Deputy Director

at UNESCO and former Italy’s Minister for Educations, Universities and Research for their advise and comments

Francesco wants to thank his colleagues at the University of Oxford who provided support, insights, feedbacks and useful critiques Roger Goodman and Margaret McMilan, current and former warden of St Antony’s College; Rana Mitter, Director and Anna Lora-Wainwright

of the University China Centre; Kalypso Nikolaidis, Director of the Center for International Studies and the Department of Politics and International Relations; Hartmut Mayer and Paul Betts, current and former Director of the European Studies Centre Conversations on democracy with Cristina Blanco Sio-Lopez and on free trade with Yuraki Areda were inspiring and Yuraki helped to liaise with Japan It was also useful to talk about possible explanations of innovation and

“innovation paradox” with Ian Goldin and Pantelis Koutroumpis of the Oxford Martin School and Peter Tufano, Dean of the Said Business School Many thanks to Jan Zielonka who reminds that intellectuals ought to be ready to acknowledge mistakes

He acknowledges with gratitude Nicola Bellini at Sant’Anna in Pisa whose constant intellectual and moral support has been critical to many

of Francesco’s projects The same applies to Bill Emmott, former editor

of The Economist, who to Francesco is another comrade in arms Their

opinions maybe have been critical at times, which makes their friendship even more valuable A third comrade to Francesco is Ernest Wilson III, Dean of the Annenberg School of Communication and now teaching at Stanford

Francesco is particularly grateful to the many friends who made sible three extraordinary periods of fieldwork in China in 2018 Wang Gangy, the President of the China International Publishing Group with whom he shared very inspiring conversations and whose organization set up most of the meetings in Beijing in the first field work; Chen Jian of the China Radio International with whom Francesco travelled through the Sichuan province and Chengdu (discovering how delicious

pos-is the Chinese cupos-isine); Prof Shouji Sun and Prof Sun Jie, Dean of University of International Business Economics who invited Francesco

to teach at the summer school in July where Francesco gave lectures to a class of sixty one very passionate and smart students Amongst the stu-dents at UIBE, Francesco needs to remind Gao Yu Xuan William, Zhu Hong Judy, Cheiry Yang and Cong Yu Carrie and their support and great contribution of ideas

Amongst the people met during the field works, we thank Xu Xiujun, Executive Director, and Chengyi Peng, Researcher, Institute of World Economics and Politics; Ma Tian, Secretary of the Communist

We are particularly indebted with Francesco’s very good friends Mick Dunford former Professor at Sussex University and now at the Institute

of Geographical Sciences and Natural Resources Research within the Chinese Academy of Sciences and Liu Jianxiong, Associate Professor, Institute of Economics, Chinese Academy of Social Sciences It was a privilege to talk with Prof Wang Yiwei, Deputy Director of Institute

of Xi Jinping Thought on Socialism with Chinese Characteristics for

a New Era, Prof Li Shigang, Director of the Institute of Economic Research of the National Development and Reform Commission and Prof Zhang Yansheng, Principal Researcher of China Center for International Economic Exchanges Conversation with Prof Li Li about the debate in the Communist Party of China while visiting the National Museum at Tiananmen: it was essential to reflect on how Marxism is still worthwhile to be studied

We got some interesting insights from Rogier Creemers from Leiden Institute Our friend Siim Espenberg introduced us the Estonian prac-tice on electronic voting; Prof John Keane and Prof Kelly Burns helped

us from Australia

It was useful to compare China with Japan with Sato Shunsuke and Soshei Nishumura, Director and Deputy Director at the METI in Tokyo

Important feedback and support came from The Economist bureau in

Beijing and especially from David Rennie, John Parker and Ted Plafker Michael Pettis of the Carnegie Endowment for International Peace gave

an original insight of Beijing artistic life and creativity

It was interesting to meet Anna Facchinetti and Alessandro Zadro

at the Galileo Galilei Italian Institute established by Sant’Anna at Chongqing University, Serena Rovai Founder and Director of the Europe-Asia Centre for Management and Innovation at Grenoble Ecole de Management and Luca Dell’Anese, Vice Dean of the School

of Economics and Business Administration at Chongqing University Discussions on how to trigger and manage innovation with Roberto Barontini and Alberto Diminin at Sant’Anna were, as always, encourag-ing and important

Special gratitude goes to Italy’s ambassador in Beijing Ettore Francesco Sequi and his deputy Giuseppe Fedele Zhang Aishan of China’s Embassy in Italy and Davide Antonio Ambroselli, Director of the Italian Institute of Chinese culture, were essential for the organiza-tion of part of the meetings and we hope that this has been the start of a long, fruitful partnership

Francesco is also deeply thankful to his colleagues at Vision who helped him as a sounding board on his writing and sometimes as patient editors Amongst them Gianfilippo Emma, Giovanni Esposito and Filomena Berardi

Francesco’s greatest gratitude goes to his mother and father who gave him the enthusiasm to pursue knowledge, to his nephew Matteo who followed Francesco in Beijing, to his daughter Chiara of the younger generation which nourishes the curiosity which makes the world go round and to Antonella because love is about to share a challenging and fascinating voyage

Contents

1 Introduction: Democracy, Innovation and Growth 1

1.3 Innovation, Democracy and Efficiency: The Theoretical

1.3.1 Disintermediation of Knowledge Holders,

Loss of Trust in Institutions of Democracy

1.3.2 Technology’s Unfulfilled Promises, Exclusion

1.3.3 Stagnation, Intergenerational Conflict

and Loss of Efficacy of Traditional Instruments

1.6 Democracy: Looking for a Policy-Tuned Definition

1.6.3 Diffused Knowledge into Knowledge-Based

2.3 Innovation as Technology-Enabled Societal

2.4 Linking Technological Innovation, Civic Engagement

2.5 Democracy of the Future in Action: The Research

3 China: Advantages and Risks of the Entrepreneurial State 83

3.3.1 The Battle for “Clear Water and Green

Contents xix

3.3.3 Will China Be the Centre of the Next Global

3.3.5 The Cost of “Letting Some People Get Rich

3.4 Internet, Socialism and the Six Characteristics

3.4.3 Local Experimentalism Within a Centrally

3.4.6 Internet as a Political Space and Industrial Policy 1453.5 The Argument Expanded China and Its

4 Italy: Simultaneous Crisis of Democracy, Innovation

and Economic Efficiency 165

4.2.1 Weak Capability to Maintain, Attract

4.3 Italy’s Innovation Paradox and Obsolescent Democracy 192

4.4 Cycle and Counter Cycle: A Strategy for a

4.5 The Argument Expanded: Europe at a Crossroad

4.5.4 The European Union: Transformation

5.2 Laboratories of the Democracy of the Future:

5.3 Ten Ideas for Developing Knowledge Democracy

5.4 Limits of Our Investigation and Areas for Further

List of Figures

Fig 1.1 Productivity growth rates, G7, average of yearly increase

Fig 1.2 Income per habitant; yearly growth rates; 1970–2017

(Source Authors on OECD data Accessed 28 August 2018) 19 Fig 1.3 The framework of the previous research on “democracy,

innovation and efficiency” (Source The authors) 33 Fig 1.4 A policy-tuned redefinition of democracy in an Internet-

based society and its participatory channels: an information

Fig 2.1 The relationship between democracy, innovation

Fig 2.2 GDP growth rates (1996–2016; horizontal axis)

and The Economist ’s democracy index 2015 (vertical axis)

Differences versus global averages (Source Authors,

using data from the World Bank and The Economist ) 74 Fig 2.3 The thesis on a global level (Source Authors) 77 Fig 3.1 Evolution of life expectancy in selected countries,

from 1960 to 2015 (Source Authors based on WHO data) 93 Fig 3.2 Number of people living in absolute poverty; millions;

1990–2015 (Source Authors on UN data) 95

Fig 3.3 Percentage distribution of worldwide kilometres

of operating subways in cities (left) and high-speed trains

(right) in 2018 (100% 16,339 km subway; 41,820 km

high-speed train) (Source Authors, using data from UIC

[Union International des Chemins Fer] and International

Association of Public Transport) 100 Fig 3.4 Evolution of air quality in selected global cities—annual

mean, PM 10 and PM 2.5 concentration (Source WHO) 106

Fig 3.5 Evolution of share of renewable energy (left) and electric

(BEV and PHEV) cars (right); % of world total in 2016

(Source Authors based on BP’s [Statistical Review

of World Energy] and Global EV Outlook) 108 Fig 3.6 Percentage evolution of debt over GDP in China

(2012–2017) (Source Authors based on IMF data) 112 Fig 3.7 Percentage exports over GDP for selected countries

and the world (1960–2017) (Source Authors using

Fig 3.8 Share of total national income for different segments

of the Chinese population by income levels (1978–2015)

(Source Authors based on the World Inequality Database) 119

Fig 3.9 Percentage share of total population of working age in

selected countries (1960–2016) (Source Authors based

Fig 3.10 Percentage investments over GDP for selected BRIC

and G7 countries (1990–2017) (Source Authors based

Fig 4.1 Comparison of Italy’s GDP with other countries’

(1996–2015) (Source Authors on World Bank Data) 177 Fig 4.2 Italian emigration of young people (15–34 years)

Fig 4.3 NEET (neither in education, nor in employment, nor

in training) % of total population within the age

segment (15–34 years), 2016 (Source Eurostat) 180 Fig 4.4 NEET (neither in education, nor in employment,

nor in training) % of total population within the segment;

by geographical area, First Trimester 2018 (15–29 years)

Fig 4.5 Employment rates by age; 2000–2017 (Source ISTAT) 182

List of Figures xxiii

Fig 4.6 Public expenditure on retirement benefit and public

expenditure on education and research as a percentage

of GDP (%; 2015; 6 major European economies)

(Source Elaboration of the authors on Eurostat

Fig 4.7 Distribution of civil servants working for the cabinets

of ministries by highest educational achievement

(%; 2015; selected G7 countries) (Source Elaboration

of the authors on National Open Data) 198 Fig 4.8 The virtuous cycles of social capital induced community

Table 3.1 Comparison amongst East Asia, Southeast Asia

and Selected Western Countries 149 Table 4.1 Case study operational framework of community

generated innovations in Italy 202

“We are what we know” It sounds obvious in a society that should

be based on the ability to access, process and transmit information and, more importantly, to transform information into knowledge that can be used to solve problems It seems natural to think that our strength as a society is dependent on how much we know about the nature of obsta-cles that prevent us from increasing our prosperity in a way that is sus-tainable for generations

Knowledge should be, after all, the principle according to which individuals live, and local communities, states and civilizations should

be organized Yet, paradoxically, today the prevailing sensation is that just when the need for knowledge has become greater, we have trapped ourselves into a formidable cognitive problem that makes us less trust-ing of our own power to solve collective problems through collective intelligence

1

Introduction: Democracy, Innovation and Growth

© The Author(s) 2018

F Grillo and R Y Nanetti, Democracy and Growth in the Twenty-first Century,

https://doi.org/10.1007/978-3-030-02014-9_1

At the end of the second decade of the twenty-first century, it should

be clearer than ever that the success or failure of countries depends ther on natural resources—sparking appetites that may well have nasty consequences for the local population, as the permanent wars in the Middle East have taught us dramatically over many years—nor on sin-gle economic or financial decisions, such as those we expect from cen-tral bankers, whom we beg for solutions to problems of stagnation that

nei-go way beyond their responsibilities

There is a growing consensus that the “wealth of nations”, more than ever before in human history, depends instead on the presence of mech-anisms through which social systems develop knowledge from within themselves that is instrumental to the pursuit of general goals Processes through which social systems can systematically learn from mistakes and through which they gather citizen preferences and use them to develop policies; systems through which intelligence that is dispersed across civil society is aggregated so that intelligent collective choices can

be made

This book calls such enabling mechanisms “democracy” (we will later define it as “knowledge democracy” to differentiate it from other notions of democracy) meant as the “information system”—an infor-mation system made of rational and emotional interactions amongst human beings that technologies are changing—whose purpose it is to transform individual preferences into collective choices Democracy, thus, is not about just elections as the ultimate or only way for politi-cians to be accountable to citizens, but it is about collecting—through

a continuous, multidirectional consultation—dispersed intelligence

so that more informed, effective policies can be designed and mented Such collective problem-solving is, in our interpretation, also what makes a group of people feel that they are part of a community, that they are citizens who are responsible for their decisions and com-mitted to making contributions to others

imple-From this perspective, the book argues that it is the crisis of enabling mechanisms—and therefore the crisis of democracy—that has trapped much of the West, comprising the European Union (EU) and the United States of America (USA), in a stagnation of ideas and economic growth It is the failure of our collective learning processes that explains

1 Introduction: Democracy, Innovation and Growth 3

the “productivity paradox” that is preventing Europe and the USA from using our enormous technological potential to its fullest for diffused societal benefits

The relative decline of the West has been paralleled by the rise of the East, which, surprisingly, seem to possess mechanisms for collective problem-solving that, while falling way short of the Western definition

of “liberal democracy”, nonetheless appear to be better able to modate the social mutations and expectations that are triggered by an ongoing and upcoming technological revolution

accom-Defining the essence of democracy as problem-solving—and more precisely as a complex system that goes beyond mere electoral pro-cedures to tap into citizens’ preferences and by which information is transformed into knowledge for the benefit of society—may appear to

be new but it is not

It is certainly a concept born out of the dissatisfaction with a “power

by the people” notion that while it has never been realized and it

dominant in mainstream debate We believe that this produces an hypocrisy which has hindered serious debate on what democracy could and should be and caused an enormous waste of political energy on institutional reforms which are born, as we will see in Italy’s case, with

no reference to the challenges posed by the twenty-first century

Democracy as a problem-solving process is a classical idea that dates back to ancient Greece, and more recently it has been highlighted in the literature by the link between the performance of democratic insti-tutions and civil society’s social capital (from Tocqueville to Putnam) Democracy as a collective problem-solving, community-building exer-cise may even be seen as coinciding with the very notion that defines what the West is about

Therefore, this book also argues that the crisis of the West that many lament is mostly an identity crisis of the most developed area of the

world that unconsciously betrayed its own spirit (Geist as in Hegel) of

systematically seeking to improve its citizens’ life conditions and piness through civil debate and engagement Paradoxically, it is a cri-sis that is the result of the fast-advancing technologies that have created

hap-an explosion of information They have rendered obsolete—relative to people’s expectations and the complexity of problems to be solved—the processes that liberal democracies have used to formulate policies and have caught democratic institutions unprepared for this challenge.

After all, liberal democracy is itself the time-specific, conceptual and institutional product of a revolutionary evolution over the last few cen-turies that was fired up by an invention that, in its consequences, is very similar to the recent appearance of the Internet

At the end of the fifteenth century the printing machine that Gutenberg developed to reproduce the Bible, created the techni-cal conditions for reducing by a hundredfold the cost of transmitting data Consequently, the multiplication of books set in motion a process resulting in the disintermediation of the institution (the Church) that retained the monopoly for reproducing information and, therefore, in the radical reorganization of the power over society that is attached to the holding of information and of the structures through which power

is allocated and exercised This is also the argument that Ian Goldin at the Oxford Martin School develops in his recent book describing the

In our times, the Internet is having a transformative effect on etal power relations similar to the introduction of the printing machine Therefore, it is logical to expect that the mechanisms of democracy that the West devised and used for a long time also ought to be revisited

soci-in their configurations, calibrated soci-in their targets and perhaps even foundly changed in their institutional forms In this regard, this book suggests that we should turn on its head the exclusive direction of an

pro-1 Yet, Goldin advises that that change may still end “in tears” like when during the years of the Inquisition and the Counter Reformation “extremists, pointing to growing inequalities and the corruption of the elite, called for a return to spiritual values”, and “in Italy, thousands of artworks and books were burned, branded as irreverent” while “across Europe, rising intolerance of scien- tists, intellectuals, foreigners and ethnic minorities became the norm” This is the thesis, antithesis and synthesis argument to which we will go back in the last chapter Preliminarily, we point out

a striking difference between today’s dynamics of establishment versus populism and the one vailing five centuries ago: in these last three years in Italy, the Internet (the innovation) appears to have become the ally of populism; whereas in the sixteenth century, the books (the innovation) were their enemy.

pre-1 Introduction: Democracy, Innovation and Growth 5

East looking to the West that ideas have followed for years and instead have the West look Eastward for growth-performing inspiration

However, while it may well be true that technological innovation is creating a mismatch between citizens’ expectations and policy responses, which in turn is creating an issue of the obsolescence of liberal democ-racy, conversely it is also true that an inefficient “politics” is preventing technological progress from unfolding its potential

This mutual relationship between technological innovation and icy inefficiency is one of the most fascinating problems that economists and political scientists should address to overcome the obsolescence of their own scholarly theories vis-à-vis a revolutionary transformation not yet supported by anything close to a convincing theory This work wants to understand the nature of a problem of decline that is funda-mental to the future of the West and to do so by promoting a debate on solutions that the West is currently lacking

pol-Our research focused on two case studies, of China and Italy, to ine the thesis of the current opposite growth performance of West and East The two countries are extreme cases because they are important in both contemporary economy and in history, and they can be seen as the star and the laggard of globalization over the last three decades What makes the comparison even more interesting is that China is one of the few remaining centrally planned economies and a state that is not con-templating a move to universal and competitive political elections, while Italy is one of the founding members of the post-World War II liberal democracy order and yet it appears to be a laboratory for a creeping political meltdown now shared by other major Western economies.The in-depth case studies underline how differences in growth rates between the two nations cannot be explained away by the difference in their starting levels of development and by the argument about an una-voidable “catch up” that makes poorer countries necessarily grow more than richer ones This unavoidability does not historically exist—in most of the last century gaps between countries became larger—and is contradicted by the theories of growth which are still prevailing, that is the “endogenous” growth theories whose forecast is that rich countries with higher knowledge embedded into their systems tend to become even richer

exam-In addition, China is also doing consistently better than other oping and similarly complex countries, such as India, while Italy has regularly managed to underperform vis-à-vis its European peers Thus, the convergence argument is far from being a necessary evolution and viewing the two countries as belonging to two different worlds can reveal much about how the West and the East comparative advantages are evolving.

devel-These two nations have opposite development trajectories that engage directly with the question of the fundamentals of growth performance and, therefore, for the West with what kind of innovation-supported, policy-making mechanisms democracy needs to consider adopting in order to adapt to the reality of an industrial revolution that will be even more encompassing than previous transformations

1.1 The Innovation Paradox and the Puzzle

of Democracy

The line of inquiry guiding this book is the exploration of two doxes that better define—according to the authors—the nature of the crisis that has trapped the West in a limbo of what some even call sec-ular stagnation in regard to both its market-driven economy (Summers

The first paradox is the innovation paradox in which the impact of

the Internet revolution, which is supposed to change everything, has still to unfold most of its potential Indeed, the paradox sounds like the denial of much of the hype that has surrounded a belief in unstoppa-ble societal advancement linked to the digital revolution that the world has witnessed since the protocol of communication, known as Internet,

2 The technologies which are the technical foundations of the Internet were, in fact, experimented

20 years before by the Advanced Research Projects Agency Network (ARPANET) initially funded

by the United States Department of Defence.

1 Introduction: Democracy, Innovation and Growth 7

The authors of this book have no doubt about the revolutionary nature of the transformation we are witnessing In fact, we are amongst those who believe that the impact of the new technologies on society will be even more radical than is currently thought Information com-munication technologies (ICTs) have already dramatically increased the quantity of data produced and stored in memories that can be accessed from remote places and whenever people need and want them The Internet is changing the ways in which people interact and make friends, how they produce and access content, express their ideas on policies and react to news, as well as the modes through which knowl-edge is created and transmitted

Even more profound changes will be produced by the convergence between information technologies and biology and physics This ongo-ing convergence promises to generate not just the “fourth Industrial Revolution” (as the World Economic Forum has labelled it), but an industrial revolution “squared” because it multiplies the characteristics of the first industrial revolution (dating from the eighteenth century, with its new and efficient modes of production) by the impact produced by the invention of the printing machine (at the end of the fifteenth cen-tury, with its new modes of diffusing knowledge amongst the masses).And yet the future is still not happening with the intensity futurol-ogists might have forecast Notwithstanding spectacular advancements

in research and technology, we still move from place to place, heal our bodies, educate our children and, no less importantly, vote, in ways that are not much different from those we used in the early 1990s No less worrisome is the possibility that the future is indeed happening but that

it is going in the wrong direction The collapse of the old monopolists who controlled information flows may have given way to the birth of

robots are eroding the value of human labour and imposing on people and countries a hard choice between unemployment and lower sala-

Ultimately, economics and technology appear to be two parallel and unconnected universes

It was the Economics Nobel Prize winner Robert Solow who famously wrote in the New York Times as early as 1987 that “you can

see the computers everywhere but in productivity statistics” The same argument was later expanded and researched by others, including Brynjolffsson in 1993, Robert Gordon in 2000 and, more recently, Acemoglu in 2014 If anything, since Solow’s article appeared the para-dox has become even more acute in its glaring contradiction.

Since 1986, and thanks to the Internet, the data accumulated in ital objects in the year 2005 for the first time surpassed the quantity

dig-of data stored in all written texts, videos and audios ever produced in the history of mankind (accounting for 130 exabytes); by 2020, that

However, against this information deluge, the long trend of

Paradoxically, the period under consideration starts the year after the first message was sent from the University of California in Los Angeles

on the ARPANET, the network infrastructure funded and operated

by the United States Department of Defense, which much later oped into the Internet: While this may well be a coincidence and many

Fig 1.1 Productivity growth rates, G7, average of yearly increase (Source

Authors on OECD data)

1 Introduction: Democracy, Innovation and Growth 9

factors may have produced such a trend of decline, a fact is that even

if productivity increases had been constant such a result may have sounded as a disappointing “falsification” of the mainstream theory that today explains economic growth

Indeed, according to the “endogenous growth theory” in a world where capital and labour become scarce, the only way to accelerate economic growth is by speeding up a country’s technological progress, which determines the value of the “total productivity factor”, which in turn ultimately determines that country’s economic growth (Krugman

to be the case Or at least it does not appear to be the case in developed countries and even more so in the Western European countries

The contradiction has actually grown after the 2007 financial crisis Since then GDP growth rates in the most developed countries have averaged about 1.7%, which is three times more than the increase in productivity The recovery seems to have happened only by increasing jobs—unemployment rates are around 4% in the USA and the UK, a number close to the “frictional”, minimum level—at the expense of the average economic value that each job generates Hardly what we would expect from an economy where robots and artificial intelligence should progressively leave only most qualified, not routine, better-paid jobs.The contradiction is not only about productivity and macroeconomic indicators

In the period from the 1950s to the 1980s, the diffusion of ators, vaccines, electricity, televisions and telephones from less than 10 per cent to nearly all households in the USA and in Europe paralleled the very significant improvements made in income per inhabitant, pro-ductivity and even life expectancy All these advancements produced changes that are significantly higher when measured in physical, mate-rially detectable and monetarily measurable ways against those we have witnessed in the last three decades

refriger-We have the Internet, and yet we still move, heal our body, heat our houses, educate our children and, no less importantly for this book, elect our representatives in a way which is not as dramatically different from the way our parents used to do in the eighties, whereas the change was much more drastic between the eighties and thirty years before

According to some, this may be, again, as natural as it is the argument

of poorer countries catching up To us it says about a contradiction between expectations and results which may backfire and about a more profound problem of the West to deal with the impact of a technologi-cal progress that the West itself triggered

Of no less importance is the slowdown in the capacity to physically transform the places where people live in Europe and the USA, with the exception of the audacity of new eye-catching iconic landmarks in London, Paris or other world-class cities The discussion on “smart cit-ies” has become an editorial industry in itself, and yet nowhere in the West do we see architectural and urban developments as audacious and original as New York in the 1960s when the Manhattan skyline was completed with the Twin Towers, or Chicago in the 1920s at the time

of the inauguration of the Chicago Board of Trade Building

The 2001 attack against the World Trade Centre may indeed have been the event that symbolically signposted the start of the new century, and it may have been a psychological blow to the very idea of the West being the centre of global flows, a blow from which the West has not

More generally speaking, Western cities are still organized around the needs of a technology for mobility—the fossil-fuelled, privately owned car—that, during the previous industrial revolution had reshaped the

today new, flexible spatial and mobility modes should produce a ical transformation of urban spaces and life that we still do not see

The possible future has not yet materialized At the same time, zens share fears that when the future happens it may do so by moving

citi-in the wrong direction, with negative societal results for their quality

of life, or their children’s behaviour, or the fairness of their democratic processes An explosion of information vis-à-vis decreasing productiv-ity growth rates is, indeed, a challenge to the most important economic theories of our times

On the other hand, developing and, more specifically, Asian ing giants show the opposite pattern and appear to confirm that tech-nology is still the driving force upon which economic advancements

emerg-1 Introduction: Democracy, Innovation and Growth 11

are made We will see that the social (and not only economic) progress made by China has been similar—probably even faster and more dif-fused—than the one that transformed the West in the twentieth cen-tury Chinese cities are transforming at a pace which seems hard to believe to Western observers who have happened to have visited Beijing four or five times every four or five years

China is not only about to level with the West, but also to surpass

it, for instance in mobile banking, where China is creating what

China’s exploit is, however, unprecedented for a more subtle, esting reason Unlike Japan which also appeared to be on the point of gaining leadership in many key technological areas at the start of the eighties, today the challenge to the USA is coming from a society which

inter-is still way less rich and with some basic needs to be satinter-isfied

In a sense, China today provides a clearer response to the research question that our friend Ernest Wilson—former Dean at Annenberg School of Communication, founder of the Center for Third Space Thinking and now at Stanford University—has been asking himself about the particular shape that “the information revolution” may get in

even in Africa and Central Asia

The second paradox of interest to our exploration is the democracy

countries What had been for many decades the purposive policy intent

of the pursuit of diffused prosperity and the common good by ocratic institutions, on a path supported by citizens who shared their underlying values, has been questioned as an increasing number of cit-izens feel that they have been, and are being, excluded from the pursuit and its rewards

dem-3 It is the WECHAT and ALIPAY application which is being spread from cities to villages.

4 According to Deloitte, China added more sites and towers for 5G in the last three months to July 2018 than the USA did in the last three years.

The thesis that this book engages with is that this second, democracy, paradox is at the very root of the first, innovation, paradox.

Empirical evidence indicates that in over the last three decades ocratic countries have become less capable of improving people’s liv-ing conditions We will see in the next chapter, numbers that show that since 1989 there has been a strongly negative correlation between mainstream (however debatable) measures of democracy and growth Moreover, the negative association remains when countries are divided into the two groups of developing and developed, although the evidence for the developed ones is statistically less significant Conversely, coun-tries following governance models that are rather far from the standards

dem-of liberal democracy appear capable dem-of growing faster than countries whose institutions are accountable to their citizens through free and fair elections

At the centre of the democratic question, there is again a gy-enabled revolution that we still have to make full sense of

technolo-Today, a formidable challenge for Western democracies is to leverage

the power of the Internet, which has become people’s modus operandi, to

steer the free individual behavioural choices of citizens towards shared social objectives and policy outcomes The need to learn how to use, and experiment with, this new mechanism for societal accomplishments

is imperative and urgent The Internet, together with the traditional modalities of citizen participation, could become the channel for sys-tematically identifying creative ideas and talents across civil society that make collective problem-solving possible to ensure prosperity through innovation This will require a coordinated effort of institutional rede-sign, an investment in education and the development of technological solutions that can guarantee a “net neutrality”, which is very far from

In essence, the aim for democracy in the twenty-first century is, once again, to be an enabling grass-roots information system, transforming intelligence which is dispersed across civil society into knowledge, and then to leverage knowledge into purposeful collective choices The argu-ment that is made in this book is that this capacity has been the secret

of a democracy that, for many decades, worked as a governance system

to translate technological progress into prosperity for most citizens

1 Introduction: Democracy, Innovation and Growth 13

A problem-solving-based democracy can even become, as we will see

the only realistic, acceptable way for liberal democracies to work It is a notion that, if incorporated in institutional forms, may even give sub-

emerging at a European level, which is also affected by the crisis, as we

As stated, we have undertaken our inquiry because relevant, common knowledge is what democracies today appear to not be able to deliver effectively while, at the same time, they do incorporate elements to reverse the trend and succeed That is why, ultimately, we argue that the solution to both the innovation paradox and the democracy paradox is

found in radically innovating the mechanisms through which diffused

intelligence and individual preferences within civil society are identified,

leveraged and processed into collective choices and policies to be

formu-lated and implemented

We refer to such a governance system as knowledge democracy and

to such innovative mechanisms as smart participation Together, they

signal a departure from the traditional implementation of the concept

of democracy, which appears as no longer adequate in this new century.China and Italy are two extremes that are telling cases of the two par-adoxes These two countries provide an interesting comparison of, and insights into, how and why the tri-polar and longitudinal relationship between democracy, innovation and prosperity has changed Through our inquiry, we see that the two paradoxes are interconnected and that the challenge is the reversal of the negative growth and participatory trends in the West that has to be found in the rebuilding of the tri-polar relationship

The China and Italy comparison sheds a light and teaches lessons on this challenge, while sparse additional evidence (from Australia, Canada, Switzerland and Estonia) confirms that the delivery of the combination

of democracy and progress in the twenty-first century can be ensured by radically adjusting to the opportunities of the technological revolution through new participatory means by delving into people’s capacity and extracting the knowledge diffused across civil society

The book is organized into five chapters In this first chapter, the discussion centres on the performance trap that the model of liberal democracy is caught in today due to the challenges brought about by

an innovation revolution that requires new participatory modalities in decision-making In the second chapter, a conceptual framework is laid out, which profiles how liberal democracy can be made to work effi-ciently to sustain innovation and deliver prosperity, by updating its modalities of civic engagement

The third and fourth chapters elaborate on the case studies of China and Italy The former is an example of a successful blend of centrally planned, transformative economic strategies and local participatory means, while the latter is an example of the performance trap that char-acterizes the West when institutions do not show a capacity for adopt-ing participatory modalities that garner diffused knowledge from across civil society, a process that embodies our concept of smart participation

validate the thesis that smart participation sustains a performing racy and that this path of change requires a combination of Western and Eastern models The chapter also draws briefly on liberal democ-racies that have started their voyage towards the paradigm of a knowl-edge-based democracy

democ-1.2 The Sunset of an Idea

Liberalism is a time-specific human construct

It is a vision of the world which—just like socialism—has been oped by great thinkers (from Adam Smith to Amartya Sen) to make sense of three industrial revolutions that have transformed the world and created the “most powerful political idea of all time”, which Bill

Yet, when liberals today discuss the risks of liberalism becoming obsolete, they may be making the same fatal mistake that they rightly

almost seem to have started to think that liberalism has evolved into an immanent vision of how human activities should be organized This

1 Introduction: Democracy, Innovation and Growth 15

would mean to forget that liberalism, unlike Marxism at the time of the Soviet Union, is a theory and not an ideology and that, as such, it can be falsified by facts Liberalism is time specific and, therefore, when times change it should change its operational characteristics in order to survive

This, indeed, happened at the time of the Great Depression, when Keynes proposed a radical reinterpretation of a world driven by mar-kets and capital, while President Franklin D Roosevelt applied it with his New Deal policies Therefore, it is perfectly possible that unless

we change its nature (as liberalism should still be able to do if it firms its adaptive nature), one day we may conclude that liberalism was bypassed by the same history that Fukuyama thought had come to an end in 1989

con-This book is connected to the current crisis of liberal democracy and liberalism in its profound concern and the intellectual challenge that it perceives Thus, it looks into the possibility that this new industrial rev-olution—greater and more dangerous in terms of its unforeseen impacts than the three previous ones—is becoming the historical process that exposes the need for a radical rethinking of liberal democracy

Is there still a need to associate democracy—as defined in the West

in the last 200 years—with the notion of the wealth of nations? Is eral democracy still the “worst regime only if” all other forms of gov-ernment are excluded, as Winston Churchill argued? Is the gradual unfolding of the new industrial revolution, which is altering the func-tions that link production factors and outputs, the one that will change for the better the relationship between democracy and growth via inno-vation? What kind of institutional architecture of governance will the twenty-first century require?

lib-Looking into these questions constitutes the core of our work since the book focuses on the complex tri-polar relationship between democ-racy and innovation-led growth in the twenty-first century Unlike works that dwell on any one of the three dimensions, ours is distinctive

in the inquiry it undertakes into the nature of the tri-polar relationship,

an inquiry that requires a multidisciplinary approach Our inquiry gles out the challenge that the model of liberal democracy governance

sin-is currently facing to its legitimacy and its capacity to perform in order

to maintain citizens’ trust and increase their prosperity (Cassese 2017;

Underscoring that democracy is not lost, but it has to profoundly reshape mechanisms that were designed to govern and formulate pol-icies in the last century Western democracies will gain by looking towards both the East and their own classical past Both views enrich Western societies’ rethinking of the meaning of democratic participa-tion and of the pursuit of diffused prosperity

The comparison between China and Italy looks particularly ing, given the stark contrast in the performance and governance systems

rank-ing of countries’ GDP growth rate in the last 27 years (1989–2016), China is second, while Italy is 198th And yet China is one of the four remaining Communist countries in the world, one of the very few that

do not bother with a general election Italy is a member of the elite group of founders of the liberal democracy order immediately after the end of World War II and one that has experienced a record high num-

The parallel between China and Italy is interesting also for another reason which the twice former Italy’s Prime Minister and former

5 As we mentioned and we will elaborate further, the comparability of the two countries is not impaired by a catch up phaenomenon that some assume to be unavoidable and that would neces- sarily lead poorer countries to grow more than richer ones The mainstream endogenous growth theory envisages that the opposite may, in fact, happen with more developed regions possess- ing the critical masses of knowledge to progress further and the less ones being trapped into an equilibrium of underdevelopment, whereas most of twentieth century saw an increase of gaps amongst States.

6 Italy was not only one of the six founding members in 1957 of the European Economic Community, which then became the European Union in 1993, but it was also a founding mem- ber of the Council of Europe and OECD in the 1940s; it is the seventh largest shareholder in the International Monetary Fund (IMF), one of the top five contributors to the budget of institu- tions such as UNESCO, WHO, FAO, NATO and the World Bank and is one of the members of the so-called group of most developed economies (G7).

1 Introduction: Democracy, Innovation and Growth 17

President of the European Commission and long time China’s observer,

We are looking at two countries that follow different development patterns and yet have in common the fact that they are amongst the two that contributed the most to world history Respectively, they have been amongst the centres of the East and of the West parts of the world for the longest period time, a history reflected in the fact that China and

diverged on one important issue: how power and society relate to each other

Prodi also offered a paraphrase of the famous Italian novel Il Gattopardo “In Italy everything changes so that everything stays the same; whereas in China everything stays the same so that everything can change” The first “everything” in both sentences is the formal, media underlined representation of power, whereby the second “everything”

is the actual distribution of power and society’s rate of transformation

In China, and more generally speaking in Asia, political stability at the top seems to be what assures great dynamism; in Italy, and to an extent

in Europe, political turmoil accompanies shrinking economic growth and the capacity to accompany the transformations that impact on civil society It is a paradox explaining significantly the diverging trajectories that the East and the West are following as it will be elaborated in the concluding chapter

China’s evolution is proceeding decisively in an upward growth trend,

in contrast to Italy’s decline, which points to an urgency that the West

is alert to and realizes that this transformative revolution is underway

7 Romano Prodi is Professor of Economics and Industrial Policy at the University of Bologna He was twice Italy’s Prime Minister (from 1994 to 1996 and from 2006 to 2008) and President of the European Commission from 1999 to 2004 (under his presidency, the EU achieved two suc- cesses—the introduction of the EURO and the enlargement to the Eastern European countries formerly controlled by the USSR) He has extensively visited and written about China We dis- cussed with him the book in the last month of writing and editing.

8 Italy is the number one with 54 sites and China comes second with 53 (UNESCO, accessed June 2018)

While it may not be a revolution as in the past, with scores of people on the streets protesting conditions of poverty and brutality, it is certainly a revolution in people’s anger, resentment and sense of disconnect because

of unmet expectations and a growing frustration at what is happening

to them that they cannot understand The disappointment of many is

an all-encompassing phenomenon in the West that is the consequence

of innovation-induced, transformative societal changes across the world, changes that have produced images of a better future that are not real-ized and challenges that the West has yet to accommodate

For the West, the first four decades after World War II are now the symbol of a golden period in danger of being lost Indeed, the last three decades have witnessed a sea change, with a break on the uninterrupted progression of growth and the universal delivery of prosperity that Western populations had come to expect after the end of World War II The booming economies of after war reconstruction provided employ-ment, while the building of a welfare state policy model delivered on citizen’s rights to education, health care, housing, social security and unemployment protection, in addition to expanded constitutional guar-antees incorporating the right of universal participation in the electoral process by women and men

Instead, history, which was even purported to have come to an end

in 1989 with the definitive triumph of the Western liberal democracy model of governance and its capacity to perform for the well-being of

in a direction that is the opposite to what many had expected at the iconic time of the fall of the Berlin Wall

government regimes that are authoritarian in nature have formed liberal democracies in terms of their capacity to produce eco-nomic growth and also, based on such results, to significantly transform the traditional make-up of their societies In 2016, only three (USA, Germany and Japan) of what used to be the group of the seven most industrialized countries (G7) were amongst the seven largest economies According to the projections of IMF data, in 2050 only the USA will still be in the group, with Italy—at current growth rates—in position

outper-21, immediately followed by Canada