The Sunday Essay: The state of Italy
Tim Hedges 12:24pm
Many thanks - and congratulations - to Tim Hedges for providing the first Sunday Essay. Thanks also to every other CoffeeHouser who sent in a submission. If the various authors don't mind, we'll consider some of those submissions for future Sundays. If any other CoffeeHousers would like to submit an essay, please click here for further information - Pete Hoskin
Berlusconi identified two urgent problems for his first months in government: Alitalia and Naples. The reason for these, as opposed to other pressing problems is that they are visible: they are part of Italy’s shop window on the world and Berlusconi needs Italy to feel good about itself, to present a bella figura. Alitalia is grossly overmanned, too much the child of the trade unions, heavily in debt and with outdated planes and support equipment. It is a throwback to the 1960s when a flag carrier was considered important and it was normal for major industries to be in public ownership. By rights it ought simply to be closed down and sold for the value of its landing slots, but now is not the time for such a gesture. A plan emerged at the end of last month which will involve 5,000 redundancies and some new money. It is not enough but it will close out the problem for a while.
Naples is the capital of the South, one of Italy’s great cities, and the streets were filled with garbage. Tourism had dropped to zero, and the foreign papers and TV news were filled with dreadful pictures of rotting garbage, rats and filth. Again, a problem which was too visible. The cause had been organised crime selling space in the landfill sites to companies in the north and indeed from abroad. There was no room for the people’s garbage. The streets have now largely been cleaned, with the aid of the military. The underlying malaise, Italy’s tolerance of the excesses of the mafia (Sicily), n’drangheta (Calabria) the Camorra (Naples) and their offshoots and imitators, has not.
But a wide range of problems threaten Italy which are perhaps less visible.
Industrial
The power of the unions is as great, and as malevolent, as it was in Britain in the 1970s. Job protection legislation, introduced to appease them, has led to a stagnant labour market. It is almost impossible to fire someone, so no one is taken on. Foreign firms operating in Italy have found that it is cheaper in the long run to import workers from their home country and put them up in hotels than employ Italians. Labour competitiveness has declined 15% against Germany since the introduction of the euro, due to the unions forcing through pay rises without productivity increases. Foreign direct investment into Italy is virtually zero.
The Italian public sector is one of the worst examples imaginable of failed enterprise. Hundreds of thousands of people, probably millions, moonlight to another job, simply by clocking in and leaving their jacket on the chair. This entry and exit through the turnpike is visible, but Italians’ strong sense of omertà prevents anything from being done about it. No one criticises the gross inefficiency and gross overmanning because it could be your cousin threatened with redundancy. 70% of jobs in all Italy, not just the public sector, are on ‘raccomandazione’ – recommendation from a friend or relative.
Social
Immigration is a new problem for Italy, unlike in Britain with its Commonwealth and the entry of workers and their families since the 1960s. There was, until last year or so, effectively no immigration policy – traditionally Italy has suffered a net exodus. But with easy access from North Africa and the Balkans, and a long unguardable coastline, the peninsula has suddenly found itself with a massive increase in immigrant population (from, by UK standards, a fairly low base). And the Italians have begun to realise that these immigrants are culturally different. The rise in petty and occasionally violent crime has shocked the nation and, worse, threatened organised crime with competition on its very doorstep. The camps are being emptied by a bizarre alliance of the Camorra and the Carabinieri while the world looks on and whispers about the 1930s. This will eventually sort itself out, as it has in Britain (Commonwealth immigration) and Germany (Italians and Turks) but will take time.
Governmental
Italy is still in the throws of shaking off the post war settlement which has served it so badly. Established parties were (and are) subsidised by the state. Television channels, with heavy subsidies, were shared between political parties (it is a myth that Berlusconi controls the State broadcaster: realising it could never be impartial the Italians made it multi-partial). Newspapers are subsidised by the State. From his morning paper to his evening game show, the State is in the Italian’s face, although he often doesn’t see it. Politics is everywhere. His local Comune may be communist, lavishly spending money levied by a centre-right government (local taxes are very low) and begging for more. Above the Comune are the 110 Provinces, and above those the 20 regions, each with its own layers of government, police force etc. It is crying out for reform.
Economics
The problems above largely tell the story of Italy’s economic position. The huge, sluggard public sector costs a fortune to maintain; almost farcical over-regulation strangles competitiveness; productive industry in the north subsidises the unproductive south, these subsidies are creamed off by organised crime which keeps the people of the south quiet, loyal and poor. Growth is the lowest in the eurozone. Italy’s debt costs €70bn a year in interest and despite being in the euro it has to pay more than half a percent above what the Germans pay. This spread is widening.
Berlusconi has recently announced a package of expenditure cuts, as an alternative to tax increases while the economy suffers in the difficult worldwide trading climate. This is a welcome development but it makes, as far as one can tell, no inroads into the pre-existing problem. In the previous election both parties were bribing the voter with expenditure, and the Italians have not yet acquired the taste for hair shirts.
So what can be done, if massive Thatcher-style reforms are not politically possible? One suggestion has been for Italy to withdraw, perhaps temporarily, from the euro. It could allow the New Lira to decline against the euro (it would be hard to stop it), giving a boost to Italian business and devaluing the debt.
Against this are three points:
-- First, the nature of the goods Italy produces tends more to the quality/fashion end of the spectrum than the basics – Ferrari rather than FIAT, and these goods are less price elastic(you don’t sell many more Ferraris by dropping the price 20%)
-- Second, there would be an inflation rush as the currency devalued
-- Third, it is a one-off measure. What happens next?
However, proponents of the strategy point to the boost given to the UK economy by Britain’s exit from the exchange rate mechanism in 1992, with sterling’s accompanying 20% decline. The difference of course is that post-Thatcher Britain had deregulated and reformed its Labour market. A boost to business via a more competitive exchange rate went straight to employment and growth.
Should Italy leave the euro? Only with a series of strict reforms to make sure it wasn’t just another devaluation. Will it? Berlusconi is the only person who could take such a step and, in the face of a worldwide downturn, he just might. An S precedes the number on Italian euro notes. The German ones begin with X.
Unlike most commentators I am cautiously optimistic about Berlusconi. He has the mandate for change, the capacity for blue skies thinking and, perhaps most important, the desire to cement his legacy. If his last government was spent keeping him out of prison, this one might have the time to do something for Italy.
Previous
Nick
August 10th, 2008 1:50pm Report this commentWould it be possible to have a short biography on Tim Hedges. Does he have any professional connection with Italy for instance ?
Sky Blue Peter
August 10th, 2008 1:55pm Report this commentWell that has set the bar pretty high! I found that really interesting and informative - thank you.
Whilst hardly a representative sample, I have been struck this year by two or three lengthy cahats in Italy with small businessmen close to despair - the mood in the North is very reminiscent of southern England in 1979 - I do hope they seize the opportunity this time.
The Naples situation in particular seems the source of a national sense of shame - they are aware of how this plays abroad.
Frank Pulley
August 10th, 2008 4:04pm Report this commentI wonder why Tim Hedges just didn't do a short history of the City of Ancona; it would have been at least a more honest explication of toadying to the Editor. And I speak as one who did not enter an essay for this blatant garnering of filler copy for zilch.
Btw what's the latest on the Tessa Jowell connection through her ex-?-hubby with Berlusconi? The essay may have been interesting if you had included a more detailed analysis of the 'honourable society' and how it sorts out its political 'problems'. Eh, gumbah?
Dave B
August 10th, 2008 4:38pm Report this commentI was surprised to learn today that Italy imports 80% of it's electricity.
http://www.standpointmag.co.uk/node/265/full
That can't be good, surely?
Dave B
August 10th, 2008 4:55pm Report this commentWhile Italy could leave the Euro, what about the government debt? If Italy re-adopts the Lira, or itali-euro, would they face a sudden 10 or 20% increase in (EUR) debt?
Teledu
August 10th, 2008 6:53pm Report this commentWell I found it informative and worth reading. Nice one.
Ronald Combo
August 10th, 2008 9:30pm Report this commentGood piece. Can I just add my own anecdotal evidence? I am British and have lived and 'worked' in Italy for nearly ten years. As a typical wine-soaked, broke expat I do anything/everything to earn some money: teach, translate, interpret, tour guide, and try and help a couple of Italian companies flog their stuff in Blighty. I am 54 and effectively earn sod all. I can live with that, it was my choice to move here. Last year I invoiced out about 15,000. Which is clearly sod all. In terms of my black income, there are a few private lessons, but not enough to keep me in petrol. A month ago, I got an urgent message from my accountant to tell me that the Italian equivalent of the Inland Revenue considered me "non congruo" (not consistent) in my declared income. It was impossible, the authorities said, that I only earned 15,000. A 'professional' of my standing with a degree and a VAT number must have earned at least 24,000. All this is based on a law passed by Prodi in the last government. On the extra 9,000 that the tax authorities are saying I earned, I have to pay a remarkable 6,000 tax (more or less). This, of course, is complete bollocks. My accountant told me that I am not to reply and if I am very lucky by the time they get around to setting the dogs on me, I will almost certainly be dead. If I am not very lucky I will have to cough up. My advice to Brits wanting to come to Italy is this: make sure you have enough money to come here and enjoy this wonderful, maddening country so you don't have to work. Ever.
Dr Charles Tannock MEP
August 11th, 2008 6:12am Report this commentAs someone who partly grew up in Italy this is an excellent summary of Italy´s predicament under Berlusconi, though I doubt exiting the Euro and devaluing will solve the problem and only painful reforms will. Dave B should realise that Berlusconi is planning nuclear power stations to decrease electricty importation dependency and the one thing missing in the piece is the demographic crisis of low natality which will deplete Italy of Italians unless Italian families can be convinced to have more children.
cuffleyburgers
August 11th, 2008 9:06am Report this commentI am touched by Mr Hedge's faith in Silvio Berlusconi as a potential reformer.
I too am a resident of Italy and have been here for the best part of 12 years.
I am lucky enough not to live in a big city and the quality of life where I am is fantastic. I have friends who live in Milan and I must say I don't envy them.
The problems faced by Italy are as Mr Hedges describes; however I don't find his analysis particularly perceptive, nothing in there you couldn't pick up from reading the Economist week in week out.
I would make a few observations of my own:
Raccommandazione in the private sector is not necessarily a bad thing. If you want to find a reliable individual and you know that you can't take any chances because of the labour laws, then it makes perfect sense to sound out your network of friends and relations. After all the risk is your own money. Of course in the public sector it is unacceptable.
Why are the Italians so complacent about the shortcomings of their massive, ineffectual and unreformable public sector? My view is that it is a cultural issue related to the catholic church. Why are there so many beautiful churches in Lucca (or any other respectable italian town)? why because there have lived there over the centuries hundreds of rich men with guilty consciences and deep pockets, and they could afford, after a lifetime of corruption, extortion, thievery and murder to engage the best architect of the moment and put a shrine to back up the prayers of repentance and thereby seek to avoid the eternal hellfires.
Mr B is doing much the same only in a rather 21st century way by providing a diet of telvisual pap and washed down talk about reform but without any intention of doing anything as difficult or unpopular as actually taking on the Unions.
In the mean while the Italian people, blessed with sunshine, fantastic food, a deeply homgeneous society with very good bonds between the generations (something the British have lost) are able to get on with life because it's just not that bad. For two thousand years they have been run by more or less corrupt, more or less incompetent more or less cynical bureaucracies - pass the valpolicella.
I don't see the Italians looking at the great reformed British economy and thinking gosh yes how much better life must be there. They sometimes look at Germany and compare their manufacturing industry with them and say rightly that the quality of what they produce can compare favourably but the government is simply not up to the job of explaining why certain reforms are necessary to achieve German leels of competitiveness, and to expect that from Mr B - well...
There is not a strong tradition of independence or independent thought as in the US or to a lesser extent in the UK - more of a gentle belief in the benevolent state, and an unwillingness to see that certain changes are necessary.
Simone Casciaroli
August 11th, 2008 4:19pm Report this commentThe main point of the article is wrong: exit from the euro would be unsustainable because Italy would have his debt in a currency as heavy as lead (the euro) and an internal currency as light as air (the lira).
No one is seriously thinking that Italy will leave the euro except Ambrose Evans-Pritchard:)
The essay alternates correct analysys (e.g. the one about the Alitalia and Naples problems or the one about the reasons for a government reform) with folklorist's assertion (for example the reference to the omerta' as widespread problem in the Italian's workplace); moreover it lack of references to the source of information and part of the information are wrong (e.g. "70% of jobs in all Italy, not just the public sector, are on ‘raccomandazione’ – recommendation from a friend or relative").
Finally I think it's hard for anyone to analyse the situation of a nation, the main problem is that it's very easy to mix consequenses with causes. For that reason I can't blame the author for the analysis mistakes on the essay, but I think that double check statistics and the sources of information and put the references to this sources should be mandatory to write an essay on a economical topic.
Frank Pulley
August 11th, 2008 5:27pm Report this commentJust a point of procedure regarding sumbissions of 'essays' I see that Tim Hedges posted this essay on his own blog on 3rd August. So this this is a Delia Smith 'one I made earlier' dish. Hmmnn! Isn't that a bit of a cheat as as well as arse-licking the editor (see above)?
Mind you - his blogfest has a rather tasty and varied menu, even though it's somewhat awash with Chianti. He's not a bad writer, I have to say, even if he did (or was allowed to) pull a stroke here.
Tim Hedges
August 12th, 2008 8:47am Report this commentVery nice of people to comment. I didn’t reply yesterday since it was my birthday and I was awash with Chianti. I have worked in banking and private equity but now live in Italy, rather like Ronald Combo scratch around for a living, while writing a book. I write about Italy a lot, having made some business and political contacts. I find it difficult in this economic climate to get published and often send off stuff ‘on spec’ which is sometimes rejected and sometimes published under someone else’s name. I started writing this piece with that in mind then sent it to the Speccie, then, inured to failure and not expecting it to be published even free of charge, put it on my blog, http://timhedges.blogspot.com
.
I believe the low birth rate in Italy will be compensated for by immigrants, as it has been in the UK, and I have read that more than 70% of jobs go by ‘raccomandazione’, as far as they know.
Frank Pulley
August 12th, 2008 7:16pm Report this commentFair do's Tim. Good luck wih your scribbling
...and for those who haven't yet dipped into the antipasto of Tim's blog, give it a try. I'd give the tongue salad a miss though. :-)
Paul Maglione
September 18th, 2008 2:59pm Report this commentTim missed three important points which are accelerating Italy's decline:
I) An aging, shrinking population. Italy's birth rate is the lowest in the West, while life expectancy is high. So public finances can only be kept at an acceptable level of disaster through net immigration, most often from developing countries, thus weakening the homogeneity of the population which in turn is creating social tension and a perceived decline in security and the quality of life.
II) Brain drain. For multiple reasons, not least the disastrous state of Italian universities and the politicization of research and science, the best Italian researchers, engineers, doctors and other ambitious professionals are increasingly emigrating to more meritocratic societies. Thus the competitiveness of Italian companies, and of the country writ large, will continue to decline as as result (how many Italian companies in the Forbes International 500 compared to French, British and German companies?).
III) The marginalisation of the judiciary. For the past decade, parties of both the left and the right have worked together to undermine the only real threat to their hegemony -- the courts and magistrates -- by transferring inconvenient investigating judges to distant postings and passing sentencing and amnesty laws which guarantee that all but the most violent criminals will never spend a day in jail. Italian society feels more lawless, less fair, and totally manipulated as a result.
Italians, not least for the three reasons above, feel today not only the usual disgust with the political class, but despair at the realisation that this class (or, as they are now known in Italy, this "caste,") has by now successfully commandeered all the levers of power.
Lorenzo Valamsoni
October 4th, 2008 11:24am Report this commentI'm Italian and I live in Italy.I read this essays. I think, it speaks JUST about the problems of south Italy and it generalize them for the whole country,I suggest to the author to come in Veneto or in other regions of the north of Italy (the biggest part of Italy) ,he'd see that there the situation is much different as he wrote. Then I'd like to know what the essay's author know about the last Berlusconi's government: "If his last government was spent keeping him out of prison", he wrote, well maybe the author doesn't know that that government wrote a new law for the employment and now we can see that Italy has one of the lowest unemployment rate of Europe.
Hanni
October 6th, 2008 7:12pm Report this commentIs it possible to get any references as to from where you acquired the data and figures used in this article Tim?
Hanni
October 6th, 2008 7:19pm Report this commentIs it possible to get any references as to from where you acquired the data and figures used in this article Tim?
Back to top