If the European industry cannot start again and increase its level of production, there is no hope of a solution of the present crisis. .
The great problem of the Euro and of some European countries is, at the moment, to pay their debts. This is an important matter that cannot be solved without correcting the malfunctioning of the basic cycle of financing industrial production. We are now in a full blown recession; a situation may last for a long time. The last one was a financial boom connected with house building, which blew up and damaged the industry cycle, and all the rest of economy followed.
The present crisis has created a panic in Europe, and especially in the banks, which do not feel safe and therefore reduce credit to the economy in order to keep enough capital to resist any possible worsening of the situation. The reduction to almost zero of the cost of capital to European banks cannot improve their attitude. Fear dominates, and fear is a bad advisor.
If the European industry cannot start again and increase its level of production, there is no hope of a solution of the present crisis. Today in some “Euro” countries the cycle of industrial production is almost totally stalled. Industrial companies find it difficult to get the money not only for investment, but also to acquire raw material and energy to produce, and money to pay the wages. Production doesn't increase, it actually decreases, and countries loose market and position in the world.
The role of manufacturing industry in the modern economy is often shadowed by the service area and above all, by the financial sector. The latter is an area where money can easily be made, but it is also a place where the loss of the sense of proportion creates every day additional reasons for the present crisis.
Let’s go back to the fundament of the modern economy, which is based on the fact that industry produces value, that is, adds value to raw materials. It creates value where there wasn’t any. Industry promotes innovation by creating new products as well as better and cheaper ways of producing old ones. Everybody talks of the “message society", of the wonder of electronics, but few remembers that this society is based on machines, invented, created and produced by industry .The “service society" was made possible by the development of the electronic machines.
Industry requires capital for investment and capital for operations, that is, to buy raw material, and pay wages. If this “capital cycle” works, the economy develops and the population gets richer, and the civil station of the lower classes of the population improves. A large part of the service sector does not produce any great value, it simply satisfies demand for services, which is a way better to articulate the consumers demand. We might remember what the great economists, Schumpeter, used to say, that the entrepreneur is not a man of finance. Finance comes to him from the banks, and the entrepreneur uses the money to invest in new products and new production processes.
If this simple cycle doesn't work, the economy will stagnate, and the people will have less money, and a negative cycle will start with low wages, low demand, unemployment, and eventually, full depression. Manufacturing industry if of such importance for any country that Governments often adopt an "industrial policy", first of all in the defense sector, which moves new products and processes on to the general industry. Energy supply is another area of primary interest of the States. In this area however, the results are often difficult to obtain, as Joan Fitzgerald wrote in "Losing our future” published on Insight.
If anybody wants a simple definition of the importance of industry, he needs only to look at Germany. whose industry is now the real leader of the European economy. During the discussion on the present crisis, and the attempt to squeeze money from countries already in full misery, nobody talks about industry. People forget that it is the only way to improve the position of any country, and also the only way to produce the money to pay for the debts.
Industry needs in fact a constant flow of investment. First, to buy new equipment, to launch new productions. Second, it must invest to increase productivity in the existing plant and equipment .The main element in day to day productivity is the continuous improving of both machines and production processes. In fact, this is the main element for overall productivity, and it is the only instrument to take some European Countries put of their crisis.
An "Austerity “policy alone cannot take any country out of its difficulties. Such a policy may be considered necessary to reduce the country's debt, but it will not create new sources of income. A strategy of developing manufacturing industry is in fact the only way to increase income, to develop new sources of exports, and eventually to take the country to a higher level of production and income.