From the USA, where President-elect Joe Biden prepares to take office, to China and Europe, 2020 was the year of massive state investment in the economy. After twenty years of globalisation and ultra-liberalism successively whittling away the powers and authority of nation states, the pendulum of history seems to be swinging back the other way. “The State Strikes Back” could be the headline for the year just ended.
This new era of state investment will lead to epochal changes in society and the world. Nowhere will this impact be more visible than in the increasingly modern and sustainable infrastructure sector. Webuildvalue spoke about these changes with Paolo Taticchi, Professor for Strategy and Sustainability and Vice Dean of the MBA course at UCL, the University College of London. Taticchi was included among the top “40 Under 40 Best Business Professors” in 2018 by Poets and Quants.
Professor Taticchi, the “new normal” that will emerge from the rubble of Covid will also depend on investments in large infrastructures. Can we expect to see a new season of ambitious investments?
“I think so, and I think it’s a good idea. The road was already marked out before the pandemic and we must continue to follow it. Investing in large-scale infrastructure is fundamental for sustainable development and for tackling many of the future challenges we face: climate change, energy transition, digitalisation. Major works are key to jumpstarting the economy. The IMF estimated in October that public investments in developed and developing countries equal to 1% of GDP could grow their economies by up to 2.7% of GDP in two years, leading to the creation of over 20 million jobs.
My suggestion to people in government is to prioritise “Smart Cities” projects and the ones that are a driving force for local economies — in essence strategic infrastructure.
Europe has placing all its bets on the Recovery Fund, the first truly joint effort since the EU was founded. What is your view?
“I think that the Recovery Fund should be a commitment to infrastructure: €1,800 billion over the next seven years will allow Europe to repair the economic and social damage created by the pandemic. There is a need to build modern, resilient and sustainable infrastructure across countries. Investing this capital correctly will guarantee the competitiveness of European countries in the coming decades.
The planned instruments are a mix of grants and guarantees, allowing countries to mobilise private capital as well. The decarbonisation of the economy, with the transition to electricity from fossil fuels, and the digitalisation of society are the two areas that will absorb the bulk of resources. I find it very interesting and strategic that there is almost €2 billion in grants going to civil defense, so countries can respond to crisis situations. One thing we realized from the pandemic is that we weren’t ready to handle it, and we need to be ready in the future.”
How important is sustainability to large multinational companies, especially builders of complex infrastructure?
“It’s crucial, but as always, strategies vary from company to company. Some groups have fully understood the great opportunities related to sustainability, and really invested in developing their skills and planning. Other groups, on the other hand, have adopted a more reactive rather than pro-active approach. Today, the pressure on large companies to be sustainable comes from all stakeholders: customers, governments, suppliers. The primary stakeholders are investor-shareholders, especially in the case of publicly traded companies: they have realised that the most sustainable companies are also the ones that perform best on the stock market.
In construction, then, projects will increasingly be awarded according to sustainability criteria more than by price. The winner will not be the bidder offering the lowest cost for the client, but the one who can do the job while polluting less, using ecological materials, etc. I am convinced that in the next ten years we will see large companies lose significant competitiveness, or even fail, because they will not be able to reinvent themselves by becoming sustainable. When it comes to sustainability, the trend is exponential, not linear – I hope Italian companies understand the scope of this revolution.”
Will the Covid crisis change the playing field for large multinational companies?
“The competitiveness of companies is an ever-evolving factor, because it changes as the external world changes. In this sector today I see three main areas of change, not particularly related to Covid: globalisation as we knew it no longer exists, and many countries that represent important markets now favor local companies or those from “friendly” countries. Secondly, the need to grow and acquire new skills leads large companies to favor mergers and acquisitions rather than organic growth strategies. Thirdly, companies need to gain new skills related to sustainability, data, technology and new business models“.
In addition to this big wave of public funding, are private investors interested in targeting large European projects?
“Increasingly, large projects are being financed through public-private partnerships (PPPs). These forms are extremely complex, because the public and private sectors have different investment goals. But the two need to work together. In the last 15 years in Europe more than 1,000 projects have been financed through PPPs, and this type of financing is growing strongly. To date in Italy, the Pedemontana Veneta highway has been the largest project financed through this mechanism.”
You live and work in London, a city that has undergone profound changes in recent years thanks also to considerable investments. Can big cities, such as London and Paris, pursue sustainable models of living and qualitative levels of well-being while remaining megacities?
“I hope so, because the trend is clear: people are moving to large cities, and this is why we must have “smart cities,” with a limited impact on the environment and that use technology and data in real time to understand what residents need. The ultimate goal of a “smart city” transformation is to raise the quality of life for its citizens with as little impact on the environment as possible. For developing cities, this change is difficult because of their tumultuous growth. For European cities this change is part of their lived experience. London is at the top of the charts of global “smart cities,” but also Milan is increasingly making its mark with modern and ambitious projects.”
We often talk about talent and giving space to young people. What do you think are the most vital markets for young talent in Europe and what are the most interesting experiences?
“In Europe, London will continue to attract a lot of young people even after Brexit. The start-up ecosystem is unique in Europe (although Berlin and Paris are growing), and so is the concentration of banks, fintech and academic institutions of global excellence. Suffice it to say that four of the world’s top universities are in or near London: Cambridge, Imperial College of London, Oxford, and University College of London, my own university. Amsterdam, thanks to tax breaks, is attracting many corporations and there is a lively job market there today. The Nordic countries attract for the quality of life.
Yet, on paper, Italy is the country with the best quality of life: the Italian lifestyle is envied everywhere…
“I am very concerned that Italy does not attract young talent from other countries: everyone dreams of a vacation in Italy, and everyone loves Italy — but very few try to come here to work. This should make those who govern us reflect: for years I’ve been arguing that our country’s real problem is not the brain drain, but the failure to attract new talent.”
Professor (Education) in Strategy and Sustainability and Deputy Director (MBA and International) at UCL School of Management. In 2010, he was the youngest MBA director in the world. In 2018, the American business education website “Poets & Quants” listed him as one of the “40 Under 40” most influential business professors in the world. He is a leading expert on sustainability as applied to large companies.