A European banker redefines the approach to economics.

Extracts from Salvatore Rossi's must read Speech : Knowledge, innovation and relaunching the economy[1] (emphasis in bold is by us) .

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·         The distinctive trait of modern times is constant innovation.  

·         Consumers want to be continually surprised by something they didn't know existed.

·         Producer goods too must change in order to accommodate or power innovation in final consumer goods.

·         The very distinction between manufacturing and services is becoming blurred.

·         More and more commonly a manufacture is just a container for services, without which it would be valueless.

·         It is the services that determine development in the quality of the good.

·         Smartphones are the most obvious example.

·         Today's manufactures/services are produced in ways that are themselves new.

·         The digital revolution has broken down vertically integrated production systems into single tasks - logistics, accounting, component production, maintenance, marketing and so on - that can be outsourced anywhere in the world.

^·          Long supply chains have been formed, or global value chains, under the direction of a lead firm but involving dozens of subcontractors, often located in emerging countries where low labour costs more than offset the costs of coordination and transportation. ⁷ 

·         World trade has been revolutionized, both in geographical extent and in its very nature. 

·         Finally, robotics is advancing by leaps and bounds. Existing technologies still leave enormous untapped potential for innovation in production methods;  we are on the eve of an era of practically total robotization of manufacturing, with far-reaching repercussions for the labour market in both the emerging and the advanced countries. 

·         Global value chains themselves could shorten and relocate as the cost advantage of emerging countries is eroded.

·         Yet counterforces are also at play. Manufactures - or "robofactures" - will continue to be central to our life as containers of services.

·         Above all, what is decisive is the quality of the work force."

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[1] Speech (lectio magistralis) by Mr Salvatore Rossi, Senior Deputy Governor of the Bank of Italy, at the Almo Collegio Borromeo, Pavia, 17 March 2015.