Remarks by Ambassador Spogli

Uil Conference on Unemployment and Welfare Policies

December 12, 2006

Minister Damiano, General Secretary Angeletti, distinguished guests. First, I would like to thank General Secretary Angeletti and UIL for organizing this seminar and giving us an opportunity to discuss labor and welfare policies which are so critical to Italy’s future economic growth.

Ten years ago, the United States enacted a “welfare to work” program designed to reduce welfare costs and boost employment. It combined sanctions—a defined limit on the number of years you could receive welfare payments—with incentives—increased tax benefits and higher spending on child care programs. Horrified critics, especially in Europe, were certain that “welfare to work” would translate into increased poverty and despair, especially for single mothers. The program was used as an example of how the U.S. was willing to jeopardize people’s lives merely to cut costs.

The critics were wrong; the program was a stunning success. Welfare rolls dropped from 12.2 million in 1996 to 4.5 million today. Welfare caseloads dropped by 54 percent. Sixty percent of welfare mothers found work, and 20,000 businesses hired 1.1 million former welfare recipients who were re-trained. We also increased job training programs, raised tax credits for both businesses and the working poor, increased the minimum wage, and doubled federal financing for child care services and early education programs. Child poverty dropped to its lowest levels since 1979, and more people moved out of poverty and into the middle class. Since our success, the UK, Netherlands, Denmark adopted their own policies to impose conditions on welfare benefits and provide incentives to work. I understand even France and Germany are considering similar moves.

I began with this example because I believe it highlights some important lessons that apply to Italy as it considers major labor market, pension and education reform. One is that bold institutional reform can succeed, especially if it is supported by a broad political consensus. It took a Democratic president, Bill Clinton, to propose changes to a welfare system that was considered a “sacred cow” in his own party, and he had to accept significant modifications from a Republican Congress to get it enacted.

Second, it showed that people can and do respond positively when challenged to take charge of their own lives.

Third, it showed that reform has to include both sticks and carrots in more than one sector. In today’s world, reforming just one part of the puzzle—raising the retirement age or lowering business taxes on business—isn’t enough. To stimulate employment, we have to also look at pension policy, education and job training programs, productivity rates, and child care benefits in a combined package of incentives for business and workers alike.

Fourth, although the program did reduce costs, its real success was to place the importance of people before the importance of maintaining an institution. It was about creating and fulfilling hopes that welfare recipients could climb out of unemployment to become proud, self-supporting members of the community.

The 2004 Biagi Law changes to labor market flexibility are credited with cutting Italy’s unemployment rate from 8.7 in 2004 to 7% in 2006, but still less than half of Italian women are working, only 42% of youth are working, and only 31% of older workers have jobs. Overall, 14.5 million Italians between the ages of 15-64 are not active, tax-paying participants in the workforce, and 49% of your unemployed have been without a job for over a year. You have the highest percentage of elderly and one of the lowest birth rates in Europe. According to the OECD, Italy also has the highest rate of industry regulation and one of the lowest increases in productivity rates in Europe. Only 8.9% of Italians have a university degree. You can view these statistics as presenting an impossible challenge or an enormous opportunity to expand, educate and train your workforce to increase productivity and create more jobs. But it will require flexibility to meet the challenges of an increasingly global economy where knowledge, innovation and creativity are the key.

The U.S. is at the forefront of this global creative economy. Creative sector jobs employ more than 40 million Americans and account for $2 trillion—almost half—of all wages and salaries paid in the U.S. According to our Bureau of Labor Statistics, over the next decade we will add 10 million more creative sector jobs. I don’t just mean jobs in engineering and technology but also in education, health care, arts, music, and entertainment. We will also create another 5 million jobs in the service industry. As these sectors overtake traditional manufacturing jobs, America is faced with the challenge of again making low-skilled work as attractive as high-skilled, high-paying jobs. We, too, face the need to re-invent ourselves to meet global economic changes. But what binds these sectors together is talent—the value of creation and the job satisfaction that comes from the freedom to innovate. This of course applies to high-tech IT, science and engineering positions, but also in traditionally low-skilled jobs like retailing.

Richard Florida cites Best Buy as the perfect example of this new trend in employment. Best Buy employs 90,000 people and is the world’s largest specialty retailer of consumer electronics, with sales of $25 billion. Best Buy’s CEO has made it his company’s mission to provide an “inclusive, innovative work environment designed to unleash the power of all our peoples as they have fun while being the best.” It has paid off—small ideas, like a teenage employee’s suggestion to change a floor display or an immigrant worker’s proposal to reach out to non-English speaking consumers, were applied nationwide and generated hundreds of millions of dollars in increase revenues. Companies like Starbucks, Whole Foods, Target and the Container Store also are rewarding employees with increased pay and benefits for creative ideas that improve customer service. Other companies, like Ben & Jerry’s are providing both environmentally-friendly manufacturing and worker-friendly benefits for production.

It is true that Americans have less job stability in the traditional sense than Europeans. On average, Americans change jobs many times during their careers, job tenure with any one company is declining and, according to one survey, 94% of Americans questioned believed that job security was up to them, not to their employers. Many Americans prefer it that way and view the idea of being tied to one company for life as more of a nightmare than a dream. They have increasingly less loyalty to one company and consider themselves part of a valued meritocracy with a choice about where they want to work.

In Italy, "precarieta" is an often discussed issue when speaking about the labor market and job opportunities in Italy. The "antidote" to such a condition of uncertainty is often referred to as "contratto di lavoro a tempo indeterminato." But the REAL job security people seek is not available by means of a piece of paper, but through a set of economic conditions which promotes intelligent risk taking and rewards those who achieve successes. JOBS are created by such a process and uncertainties are reduced. Therefore, the way to ensure less "precarieta" is to encourage risk takers and create a more favorable environment for risk taking.

Daniel Pink, the former chief speechwriter for Al Gore, is now one of a growing number of what we call “free agents” working on their own by consulting. He has written a book called “Free Agent Nation: How America’s New Independent Workers are Transforming the Way We Live,” and in his book he claims that now “talented people need organizations less than organizations need talented people.” One reason for this change is technology, which Mr. Pink calls “Karl Marx’s revenge” because the means of production—computers—are now easily accessible in the hands of the workers.

But, as Martin Feldstein has pointed out the acceleration of American productivity that began in the mid-1990s reflects more than just the availability of new information technology. Without strong incentives and appropriate institutional structures, the developments in information technology would not have been transformed into faster productivity growth. We are aware that innovation is disruptive and costly. It can also be risky and frightening to the people who have to learn new systems. Nevertheless productivity in the United States is growing faster than in Europe because there have been strong incentives for workers at all levels to make changes.

Naturally, labor market reform is only one part of what is needed to encourage economic growth. As you may know, I have launched an initiative we call the Partnership for Growth, which is designed to enhance economic dynamism in Italy through four major initiatives. The Partnership seeks, first, to encourage increased university-private sector collaboration in Italy to commercialize technology transfer and to create new companies. Second, the Partnership seeks to broaden and deepen capital markets; we especially want to broaden access to risk investment, such as venture capital and private equity. The third objective of the initiative is to promote stronger intellectual property rights regimes to encourage innovation. Finally, in order to begin to address cultural elements which work against intelligent risk taking, we are establishing a new exchange program to send young Italian scientists, engineers, and managers to the United States to study entrepreneurship and complete internships in high-growth U.S. enterprises.

I am not suggesting that our system is the answer for Italy; you have to find your own way forward. I know that, for you, “precarieta” carries with it negative connotations for workers. In fact, the topic of labor market flexibility suffers from the same sort of problems initially faced by the sponsors of our welfare to work program. Increasing flexibility will require bold action to amend one of the “sacred cows” of the Italian labor market. It challenges workers and businesses to adapt to the changing demands of globalization, technological change and international competition. As in welfare to work, there certainly are strongly opposing views on the issue. Labor market flexibility must be considered as part of a much larger macroeconomic framework that includes educational reform, job training, increased investment in research and development, reduced taxes for workers and businesses, and wage benefits designed to increase production. And, like welfare to work, increasing labor market flexibility is ultimately about protecting people, not just protecting jobs.

Here I would like to share my personal experience in helping companies and their employees grow. Prior to becoming Ambassador to Italy, I spent over thirty years working in the world of finance and co-founded in 1983 Freeman-Spogli, a private equity firm based in Los Angeles and New York. As an investor, I provided funding for, and strategic direction to, over one hundred businesses, and I sat on the boards of over twenty companies. I witnessed first-hand how the management structure and equity position of top management helped companies take their operations to the next level, benefiting the company, its employees and their communities.

As someone interested in building businesses to be industry leaders, nothing that I ever did, no strategy, no manufacturing methodology, no organizational scheme was ever as effective in achieving powerful results as attracting the best people and providing them with benefits that allowed them to reap great rewards.

I believe that Italy has a wealth of untapped talent and creative genius, but you need to give your students and your workers the education and training they deserve to meet the changing demands of the digital age. You need to give your unemployed and underemployed a chance to work and contribute to society, a chance to excel. And you need to give employers incentives to create the kind of flexible workplace that rewards creativity and increased production. As we discovered in implementing our welfare to work program, in the end, all of society can benefit from bold reform.

Thank you.