Italy Is Venal, But It’s Not Greece

Alex Majoli / Magnum Photos

Rome’s balance sheet looks awful. There is, however, a bright side!

Italians are creating a good deal more wealth than the ubiquitous tax police often discover.

Italy, the writer Luigi Barzini once observed, has been chronically unstable ever since Sept. 4 of the year A.D. 476, the day the last Roman emperor, Romulus Augustus, was deposed by the Germanic chieftain Odoacer. Barzini’s cynical but shrewd point was that foreigners shouldn’t fret too much about Italy’s convoluted and corruption-plagued politics or its strangulating bureaucracy: centuries of practice had honed the Italians’ survival instincts, their capacity to thrive by cutting corners and deals.

Foreigners are fretting furiously right now, questioning Italy’s ability to finance its €1.9 trillion burden of accumulated public debt, equivalent to 119 percent of GDP. Recently bond markets abruptly started driving up the country’s borrowing costs to levels that would, if prolonged, make those fears come true, since each extra percentage point of interest adds 1 percent of GDP to Italy’s debt-servicing costs. The panic-inducing shift in sentiment was triggered by the damaging standoff between Germany’s Angela Merkel and the European Central Bank over how to finesse Greece’s evident insolvency without declaring the place bankrupt. This pursuit of the impossible could easily convert a relatively manageable problem into a systemic catastrophe. Italy’s €1.7 trillion economy, the euro zone’s third largest, is definitely too big to fail.

Yet from all except three of the statistics by which markets judge, it is not obvious why Italy, rather than Spain, should be in the frame. However eye-popping the total of Italy’s public debt, it is only marginally higher than it has been for decades, and more than half of it is funded by Italy’s high levels of private savings. The country is currently blessed, in Giulio Tremonti, with a skinflint finance minister who declared flatly in 2008 that Italy had no money for stimulus spending and doggedly kept the primary budget in surplus. Its banks are better capitalized than Spain’s, there is no property bubble, and although there are big regional differences, overall unemployment is 8 percent, as against 21 percent in Spain.

The remaining three big counts against Italy are, first, that its economy has barely grown at all for the past 20 years; second, that in the decade since the euro was launched, its competitiveness has plummeted, with labor unit costs climbing by a staggering 31 percent; and third, the aging Italian population. Without growth, Italy cannot reduce the burden of its public debt, and without improved productivity, growth will elude it.

Yet the first two of these gloomy statistics should—as indeed should all Italian statistics—be treated with the greatest possible skepticism. The glory days of the postwar Italian “miracle,” when growth powered along at up to 10 percent, will not come again because there is no replicating the one-off productivity gains when subsistence farmers from the southern mezzogiorno moved north into industrial jobs. But the country does not “feel” as poor as its miserable growth record makes it sound, and there are good reasons for that.

The first is that Italians are creating a good deal more wealth than they allow the ubiquitous tax police of the Guardia di Finanza to discover. The official estimate of the size of the black economy is 16 percent, but 27 percent is probably nearer the mark because of the big gray area of workers in small family firms, particularly in Italy’s large service sector, who declare only part of their earnings. Just try renovating a house and see who is prepared to take a check rather than cash for more than a modest fraction of the work carried out. The second is that productivity is terrible in much of Italy’s vastly overgrown public sector, and poor in the highly protected unionized segment of the labor market, not least because of rampant absenteeism by workers whom it is all but impossible to fire. While Italy has impressive multinationals—think Benetton, or Finmeccanica—and brilliant businessmen such as Sergio Marchionne, and even though its industrial base is still the world’s sixth largest, Italian exporters are losing market share even in booming Germany, traditionally their major market.

By contrast, if you need an electrician in an emergency, not only will you get one fast, but he will actually fix the problem far more rapidly and reliably than would his French or British counterpart. Impressive private efficiency (and readiness to work long hours, if necessary in two jobs) coexists with structural inefficiencies. Quite simply, in the nonunionized tier of Italy, and above all in the black economy, you have to be efficient to survive.

Even in the economic mainstream the productivity picture is also less bleak than it was earlier this decade. The Bank of Italy reports extensive restructuring in medium-size firms, coupled with a novel willingness to expand into overseas ventures. Finally, while aging is indeed a problem—as is the tenacity with which older workers, particularly in the professions, block the promotion of young talent—it has been offset by a surge in immigration. Foreigners account for 7 percent of the population today, a huge change from the 1 percent of only 20 years ago, and although Italians grumble a good deal about the alien invasion, they have supplied needed labor on southern farms, in northern factories, and in the service sectors. One of the Berlusconi government’s most remarkable reforms, moreover, has been to pensions and the retirement age, now indexed to life expectancy.

That leaves politics, Italy’s Achilles’ heel since time immemorial. To foreigners, that now translates into two words: Silvio Berlusconi. But in truth, postwar Italy has known a lot worse than the government he heads. Deeply mired in financial and sex scandals, the shameless old goat is not only a national embarrassment, but a disappointment. Nearing the end of his third term in office, this time elected with a resounding majority, the tycoon turned politician has culpably little to show for his grand pledges to liberate Italy from the shackles of a profligate, underperforming state. Even so, as the recent breakneck-speed passage of an emergency budget demonstrated, Italy is closer to being governable than it was 17 years ago.

That was when the country’s postwar First Republic collapsed under the weight of institutionalized corruption, valued at some 7 percent of the national wealth, laid bare in the tangentopoli (“bribesville”) investigation, obliterating in its fall the dominant Christian Democrat and Socialist parties and landing countless businessmen and politicians in jail. This was the swamp from which Berlusconi emerged, channeling public disgust into a populist center-right movement that, warts and all, started Italy along the road from the perpetuum mobile of revolving-door coalitions to something like two-party politics that offered voters a choice.

It is still, a lot of Italians retort, a choice between one monstrous array of bloodsuckers and another. “Monstrous” is the word. An estimated 450,000 people are on political-party payrolls, living off Italy’s four layers of elected government—national, regional, provincial, and town hall—and a fine fat living it is, too. At the apex, 630 M.P.s and 315 senators earn an average of €140,000 a year, stacking up pensions for every parliamentary session in which they serve and enjoying some €12 million worth of free health care, dentistry, and even parliamentary barbers. The perks include not just free air and rail travel, but access to a government fleet of 30,000 chauffeur-driven automobiles, naturally with flashing blue lights to cut past traffic, costing €2 billion a year.

The public sector is no less bloated, with wages and salaries alone consuming nearly 14 percent of GDP, and what Italians get in return is mediocre secondary schooling, third-rate universities, a lottery in health care, and a permit-mad bureaucracy apparently designed to impede what it can and delay what it cannot entirely prevent. Italy’s finances could be radically improved by abolishing the entire, and almost entirely pointless, provincial tier of government. Wages in the Umbrian provincial government of Perugia, for example, consume more than 90 percent of its budget.

Sanguisughe (“Bloodsuckers”), an impassioned denunciation by the journalist Mario Giordano of the privileges of politicians and the bosses of Italy’s flyblown public sector and state monopolies, was this summer’s bestseller; this, even before the bond markets forced Tremonti into the emergency budget that, aiming to balance the budget by 2014, raised taxes and cut state pensions, education, and health spending—and conspicuously failed to make politicians share a single centesimo of the public pain. All Italy is outraged, from garbage collectors to the business elite. Emma Marcaglia, president of Confindustria, the employers’ federation, acidly declared, “We cannot have a large part of the country making sacrifices and a small part that does nothing.”

Italy is not Greece. A few basic reforms would get it moving again. The government did pass laws in 2003 to open up labor markets and encourage people to join the formal economy with no questions asked about the past, but more is needed. It is urgent to remove such absurd burdens on simple transactions as the requirement to employ an expensive notary even to sell your old banger to a chum. Italy’s cosseted professional cartels need shaking up. Its taxes need to be both fairer and simpler. State monopolies should be privatized, and reforms imposed on the civil-justice system whose delays are the despair of Italian and foreign entrepreneurs alike. All these, Berlusconi promised—for the third time—in 2008. Just as he promised to curb the privileges of the political caste, which he has instead exploited to protect himself.

The late, great Luigi Barzini, who himself used to joke about his multiple pensions, was too complacent about the self-serving venality of Italian politics. It does matter. It destroys that minimum of respect for authority without which no modern state can function. He was right about the resilience of Italians. But they have marched on Rome before.

Righter is associate editor at the Times of London.

 

 

 

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