AMBASSADOR RONALD P. SPOGLI
REMARKS TO THE COUNCIL FOR THE UNITED STATES AND ITALY
New York, November 14, 2006
Thank you, Jeff [Schafer], for that kind introduction. I’d like to thank the Council for the United States and Italy for inviting me to be here this morning to speak about the relationship between our two countries and about a unique initiative called the Partnership for Growth.
As some of you know from hearing me comment briefly on this subject at the Council’s June meeting in Venice, the relationship between the United States and Italy continues to be one of the most important that we have in Europe. Looking ahead, it is clear that our close ties will continue to be one of the cornerstones of the broader relationship between the United States and the European Union.
This is because we share fundamental values that transcend day-to-day politics. From their first meeting in Washington in June, Secretary Rice and Foreign Minister D’Alema have established an excellent working relationship to support a shared agenda of fighting terrorism and spreading democratic values - especially in the Middle East. Prime Minister Prodi and Foreign Minister D’Alema deserve particular praise for their leadership this year to sponsor the International Conference on Lebanon, to provide approximately 3,000 land and naval forces to support an enhanced UNIFIL deployment, and to fund reconstruction in Lebanon. Italy’s leadership in this effort played an important role in strengthening the legitimacy of the Lebanese government and deterring future terrorist attacks against Israel. While Italian forces are completing a withdrawal from Iraq, Italy continues to support coalition efforts by funding important economic reconstruction programs. In Afghanistan, Italy continues to provide troops to ISAF, support for justice reform, and economic assistance. In the Balkans, Italy continues to provide critical military and political support to the stability of the countries of the region. We are working together to prevent Iran from acquiring nuclear armaments and look forward to Italy taking its seat next year on the UN Security Council. Italy also hosts approximately 17,000 U.S. servicemen and women and their families. In other words, the U.S. and Italy cooperate on almost every important foreign policy challenge we face today, and we appreciate that continued partnership.
One of my goals as Ambassador to Italy is to enhance the relationship between our two countries, allowing it to approach its full potential, both politically and economically. Notwithstanding our very positive cooperation on international issues, I do not believe the economic interaction between the United States and Italy is anywhere near to reaching its full potential. Relative to our existing political relationship or relative to our economic relationships with other EU countries, there is much more we need to do and can do economically together.
To this end, in an April speech to Confindustria’s Giunta, I launched an initiative called the “Partnership for Growth.” The Partnership for Growth 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.
We hope our activities in these areas will begin to assist the formation of a virtuous cycle, such as the one created between Stanford University, Berkeley, and the start-ups of Silicon Valley, which has been repeated many times in universities around the United States, and which has driven tremendous growth in the American economy in recent decades..
You may be asking: Why is the U.S. Ambassador to Italy working to enhance Italian economic growth — what is in it for the United States? As I just noted above, Italy increasingly is supporting U.S. global objectives to promote democracy and fight terrorism. But Italy’s economy is not in balance with its important world role: the economy suffers from chronic marginal real growth, burdensome debt, high labor and welfare costs, a lack of investment in R&D, and “traditional” business practices ill-suited for today’s global challenges. If Italy is to continue to afford outward looking foreign policy goals, in support of common political and security aims, it needs a strong economy.
Enhanced cooperation on investment, IPR protection, entrepreneurship, and shared commercialization of research benefits us both. I would like to briefly discuss the four pillars of the Partnership for Growth, beginning with University Research and Development.
Coming as I do from a background as a graduate of Stanford, I was able to see first-hand in the Silicon Valley how U.S. economic growth and job creation over the last two decades have been driven by technology. The Partnership for Growth seeks to showcase the U.S. model of collaboration between universities and the private sector. Our goal is to encourage Italian universities to replicate the success we have had in America. It is not our intention to suggest that the U.S. economic model in toto can or should be exported to Italy. However, we do believe that important principles which have led to the U.S.'s success in R&D commercialization can and should be understood and adapted for use in Italy. Throughout my travels in Italy, I have had very appreciative audiences for the idea of closer relations between universities and the private sector and have been struck by how many of the conditions that underpin our own dynamism already exist in Italy, yet remain unexploited.
As you know, Italians are doing world-class science in many areas (including medicine, biotech, and nanotechnology), something necessary, a fundamental enabler for a knowledge-based economy. There are many good universities and specialized centers of excellence all around the country. Numerous Italian scientists are achieving breakthroughs abroad, too. For example, the National Institute of Health hosts around 150 Italian doctors and post-doctoral researchers, the second largest foreign contingent at NIH. But the barrier between researchers and the market place is still too high. My message to Italian policymakers is that in this world of the Internet and international science, where great discoveries can come from any corner of the globe, Italians need to forge stronger ties between universities and enterprises, supported by more flexible and effective financing, to create even more high-tech products to complement Italy’s traditional market niches, like textiles, footwear, and leather goods. I am spreading this message in several ways.
During the last summer, I met with Fabio Mussi, the Minister of Universities and Research, and this fall I met with Luigi Nicolais, the Minister of Innovation and Public Administration, and Pierluigi Bersani, the Minister of Economic Development, to discuss the role the Italian government can play in encouraging a closer relationship between Italian universities and the private sector. Just days ago, I met with Padoa-Schioppa, Minister of the Treasury, and with Prime Minister Prodi’s advisor, Under-Secretary Enrico Letta, to discuss healthcare and pharmaceutical policies that American firms in Italy feel discourage investment in just the sort of innovation-based technologies that we are promoting. I have made a special point of acquainting regional and provincial leaders with Partnership goals. And I haven't expected them just to take my word for it. I have sponsored speakers and visitors, who relate their experiences first-hand and offer expert advice. Indeed, while the Partnership for Growth has an important policy advocacy element, its primary focus is practical and concrete. We seek to organize seminars, workshops, and encounters which will lead to tangible new relationships and hopefully commercially productive enterprises.
In May, for instance, the Consulate General in Florence, along with Italy’s state-of-the-art Center for Magnetic Resonance (a spin-off of the University of Florence), hosted a meeting to explore partnerships between Italian biotech companies and U.S. affiliates of the Pittsburgh Life Sciences Greenhouse. The Pittsburgh speakers explained how biotech industry clusters are formed in the U.S. The two-day series of meetings generated interest in pursuing relationships, and several new partnerships are developing because of this opportunity for bilateral interaction. In late October, we sponsored a speaking tour in Italy by Dr. Robert Taber, head of the Duke University Technology Transfer Office. During his weeklong road show, Dr. Taber delivered the Partnership's message about “Universities and the Commercial World” to audiences of academics, businessmen and local political figures from Northern Italy to Naples. We are hoping that Duke’s impressive commercialization record -- over 11,000 licenses and 4,000 new companies founded -- will inspire Dr. Taber’s Italian audience to enthusiastically support the establishment of tech transfer offices in more Italian universities.
I believe that the public is also now beginning to discuss in earnest the issue of the importance of commercialization of research. Recently, an article stemming from an October speech I delivered at Confindustria’s fourth conference entitled “Day of Research” came out in La Repubblica’s glossy weekly women’s supplement. The article took off from my description of “business angel” financing of start-ups in the U.S, complete with tongue-in-cheek photos of angels of a more traditional variety – financiers in pin-striped suits and wings. The point of the article was that, supported by start-up – or angel financing, which I will discuss in a moment, the number of business incubators is growing in Italy, including greater activity in southern Italy.
As we move forward with the Commercialization of Research focus of the Partnership, I would like for Partnership efforts to work also with political leaders at both the national and regional levels to look carefully at what concrete administrative steps need to be taken to encourage closer university-business ties. We understand that the Ministry of Economic Development is interested in the U.S. Bayh-Dole Act, which allows U.S. universities and university researchers to patent their research, as a way to encourage its commercialization. The subject of university reform is always close to the surface in Italy, and we may find ways to influence policies aimed at starting to break down the Italian universities’ prejudice against applied research, as well as at creating more competition among institutions. We also plan to take advantage of a major international partnering meeting on biotechnology - “Bio Europe 2007” - taking place in Milan on March 5-7 next year, to help create a network between researchers and business -- and show the economic and societal benefits of successful university-business collaboration.
Another element in the formula that has made research centers like the Route 128 Corridor in Massachusetts, the North Carolina “Research Triangle” and California’s Silicon Valley successful is that there has been capital available to fund companies trying to take the results of university-private sector collaboration to market. I’m referring, of course, to the panoply of angel investors, venture capitalists, and private equity companies that have underwritten thousands of enterprises, including world-class businesses such as Amazon.com, Google, Federal Express, and countless others. Without these sources of finance, and the strategic business contributions of investors, some of the brilliant ideas coming out of America’s universities never would have reached their full potential.
Prior to becoming Ambassador to Italy, I spent over thirty years working in the world of finance and co-founded Freeman-Spogli, a private equity firm based in Los Angeles and here in New York. I saw first hand the benefits of a business culture that is tolerant of risk and willing to take a chance on entrepreneurs and small businesses. After a year in Italy, it is clear to me that the same risk-taking business culture does not exist there. I often ask my staff and Italian audiences, “If the Italian equivalent of Steve Jobs or Michael Dell sought financing of a great idea, would he receive the necessary funding? Are there seed capitalists or Angel networks ready to regularly fund great ideas?” Clearly there are not. And this is a tremendous loss to the Italian economy. Venture capital investment in Italy as a percentage of GDP is the lowest of any country in Western Europe, except Portugal. And Italy’s investment in private equity as a percentage of GDP was 0.01 percent in 2005, far lower than Germany’s 0.07 percent or the UK’s 0.03 percent. By comparison, in 2005, investment in private equity in the United States was 0.43 percent of GDP, 40 times that of Italy as a % of GDP.
These numbers are especially low when you consider that 58 percent of Italian companies are family-owned, and 80 percent of family-owned companies are headed by entrepreneurs over the age of 50. Italian market capitalization as a percentage of GDP, at 49 percent, lags behind other European countries such as Spain (94.3 percent) and the UK (137 percent). In other words, there are a large number of privately-held corporations on the cusp of a generational change in ownership, generating a large amount of economic activity, which do not have ready access to the capital and expertise necessary to help them grow in a global economy or ensure their survival through significant changes in management.
Since the launch of the Partnership for Growth, we have sponsored several events focusing on the role private equity and other forms of risk capital can play in taking small- and medium-sized Italian companies to the next level. In one event, held in cooperation with the National Italian American Federation, we brought together Italian and American private equity investors to discuss barriers to investment and the potential of the Italian market.
The event generated a great deal of interest among the American investors, and we are currently working with NIAF and the Italian Private Equity and Venture Capital Association to arrange a series of follow-up events. Our goal is to bring private equity investors and entrepreneurs together as potential “partners” to continue the dialogue that we started earlier this year between potential American investors and Italians. We plan on an event in Milan before year-end and to use the event as a model for others elsewhere in Italy. And the day before Thanksgiving, we are sponsoring a private equity seminar in Rome and the guest speaker will be Blackstone President Tony James, a long-time friend and HBS section mate. He will speak on how private equity has transformed the U.S. economy and continues to enhance the competitiveness of U.S. companies for the benefit of all stakeholders, employers, shareholders, managers, and local communities.
We are finding that by explaining private equity investing, and differentiating it from “slash and burn” corporate raids or financial bailouts for preferred bank customers, Italian business owners become more receptive to the idea and gain appreciation of how the management expertise that comes with an infusion of private equity can benefit in the long run their heirs, companies, and employees.
Of course, investors are hesitant to invest in high-tech, knowledge-based companies in a country where they cannot be sure their intellectual property will be protected. Sadly, Italy’s enforcement of intellectual property rights laws is woefully inadequate. Italy has one of the highest rates of intellectual property rights piracy in Western Europe and is a perennial member of the U.S. government’s “Special 301 Watch List” of countries whose protection of intellectual property rights is substandard. One estimate is that roughly half of the software running on Italian computers is pirated. In a recent survey, twenty percent of the respondents admitted to purchasing counterfeit goods, which are openly sold in Italian cities, most often with the involvement of powerful criminal elements. Economic studies indicate that Italian companies lose more than five billion euros annually to piracy, and that Italy could generate 15,000 jobs in the information technology sector alone if it reduced its software piracy rates even modestly from the current 50 to 40 percent.
The Embassy in Rome has been engaged on the issue of protecting intellectual property rights for over a decade. Initially, Italy suffered from antiquated laws and lackluster enforcement. We have worked with Italian governments and Parliament to pass tougher laws penalizing violations of Italy’s patent and copyright laws, and have been engaged in an effort, working with our Italian colleagues, to educate law enforcement officials and the judiciary about the seriousness of IPR violations and the need to enforce the laws already on the books.
One of our key activities is an annual seminar to sensitize top Italian judges and law enforcement officials to the need for improved intellectual property rights protection. An invitation has become sought-after among leaders in Italian law-enforcement and judicial circles. Our efforts are gradually bearing fruit.
We see changing attitudes towards violations of patent and copyright laws among the officials that have attended the annual seminar. The result: law enforcement agencies have significantly scaled-up their efforts to fight piracy, and judges understand that software piracy and other intellectual property rights crimes have serious implications, and are not simply petty offences.
Another program we have initiated is an interactive roundtable, which brings together stakeholders in intellectual property rights such as private industry, government agencies, law enforcement, academia, and NGOs. During the roundtable, these stakeholders discuss projects designed to educate key sectors of Italian society on the importance of intellectual property right protection. This program aims to instill a society-wide respect for IPR. Our hope is that as Italy develops a culture of respect for intellectual property rights; the resulting cultural change will enhance the legislative and enforcement efforts we have already begun.
The Partnership for Growth plans, starting in early 2007, to launch several new and powerful initiatives to combat the chronic IP problem in Italy. While there is still a lot of work left to be done in this area to protect the genius of both U.S. and Italian innovators and designers – and to reap the commercial rewards of that brilliance, we are on the right track. And we look forward to continued collaboration with our Italian partners.
The entire Partnership for Growth initiative is premised on the idea of making a contribution toward changing Italian business culture, its attitudes towards risk and most of all its perceptions of change as something to be feared. We also want to encourage development of a climate of entrepreneurship because we know its power to drive economic growth. Changing culture is a long-term process; we do not expect it to happen overnight. But we have found some interlocutors who “get it,” and we want to develop more of those allies, particularly in the younger generation. So we created a new kind of exchange program – based on the idea of the Fulbright Program – but one designed to promote entrepreneurship through study and practical experience.
We are beginning with a pilot program in early 2007 to send to the U.S. five very talented young Italian scientists, engineers and architects we recently selected to participate in a combined study/work program, which includes an internship in a high-growth U.S. firm. In my experience, studying entrepreneurship is good, but experiencing it first-hand is even better. We hope these students will return to Italy to contribute to the formation of new start-up companies that bring their product or service ideas to the Italian market. More than that, however, we expect these students to share their experience of American-style entrepreneurship with their colleagues.
In the next phases of the program, we also want to bring Italian regional and city officials to the U.S. to learn how Atlanta, Boston, North Carolina or Silicon Valley officials created the government incentives required to attract and retain critical university-business-government partnerships. We also want to expand the exchange program to include young business managers, especially from all those Italian family-owned companies, seeking to expand operations to meet global competitive challenges. We are in the process of building a database of companies and mentors interested in participating in this exchange program, so if you would like to join this effort, please let us know.
We’re thrilled about the results we’ve seen so far in the Partnership for Growth. Indeed, momentum is gaining. In fact, e conomic growth is one of Prime Minister Prodi’s top priorities. He was quoted last week in the Financial Times as prioritizing economic reforms like liberalizing public utilities and the energy market, using tax incentives to encourage mergers and acquisitions, and boosting industrial research and development.
It is no small task, however, to change business attitudes in the world’s sixth-largest market economy. But the relationship between Italy and the United States is too important, both politically and economically, for us to stand by as the Italian economy flounders.
Clearly, the Partnership for Growth does not have all of the answers to the problems that plague the Italian economy. However, by helping Italian entrepreneurs realize their full potential by commercializing their brilliant ideas, the Partnership will, we hope, perform a vital service for Italy, and by extension, for Italy’s close ally, the United States. I hope that I can call on all of you to help us ensure that the Partnership reaches its full potential.
Thank you.
