Searching for Reform in Italy

Bill Emmott’s Good Italy, Bad Italy is a superb portrait of Italy as a country. Emmott offers to readers unfamiliar with Italian contemporary history a fascinating tour de force into the many ambiguities that made Italy at the same time a cradle of creative entrepreneurship and voluptuous joie de vivre, and a political basket-case. Mr Emmott was the editor of The Economist when that publication ran a famous cover, declaring Silvio Berlusconi “unfit” to lead Italy. That cover made Emmott the bête noire of the Italian right, and the hero of the Italian left. Coming to enjoy the status of a public figure in the Belpaese allowed Emmott to explore it better, and to develop a profound knowledge of its strengths and weaknesses. The very title of the book suggests that the author is of two minds about Italy. On one hand, he marvels at Italian creativity and ingenuity—and at how it often spectacularly succeeds, in spite of overwhelming bureaucratic intrusions and high taxation. On the other hand, he can’t make sense of Italy’s bad governance.

In a way, Emmott’s attitude was best and most authoritatively expressed by Mrs Thatcher, who upon visiting Florence remarked that “Italy is the most beautiful country in the world, with the most rotten government.” Mrs Thatcher’s experience of Italian governments went back to well before Mr Berlusconi’s times.

Mr Emmott’s book has several highlights.

The author aptly surveys the burdens that hamper Italian economic development. He provides the reader with an excellent narrative of the growth of Italian public debt, that “began to be accumulated” in the Seventies. He rightly emphasizes how labor market regulations hampered growth and disincentivized businesses’ dimensional growth. He points out how too much of the Italian economy is still unduly “protected” from competitive pressure, and how self-consolatory but ultimately dangerous the idea was “that the 2008 financial crisis had exposed the fragility and even recklessness of economic models which Italians considered anathema (…) ones that had substantially liberalized their economies and removed regulatory barriers to risk-taking.” This reassuring vision, that helped in delaying reform, was part of the rhetorical arsenal of Giulio Tremonti, Mr Berlusconi’s Treasury Minister. Emmott, moreover, provides an effective description of the Italian judicial system, that needs to be deeply reformed as “it is a system that is designed to be just to the accused but ends up being unjust to virtually anybody.”

The author also gives the readers a vivid snapshot of the Italian economy. Emmott concedes that “Italy is not, and cannot soon be, on the technological or innovative frontier. (…) But that does not mean that Italy does not or cannot contain innovators.” He presents in fact a series of vignettes of Italian innovators: cashmere king Brunello Cucinelli, Technogym’s Nerio Alessandri, Michele Ferrero of Ferrero, Riccardo Donadon of H-Farm, a business incubator near Venice, among others, Luxottica. Some are household names to the Italian reader, but not so much for the international one. Some embody the very idea of the creative entrepreneur to the fullest. Michele Ferrero, now 88, has turned the creamy chocolate spread created by his father into Nutella, a treat for kids—and not just kids—all over the world. Even today, in his own family business, which ranks fourth in the world for confectionery sales standing next to giants such as Kraft Foods, Mars and Nestlé, all the recipes for new products are “written with a pencil,” until they reach his desk. Mr Ferrero has invented sweets that happily conquered the palate of millions, plus deeply innovated their distribution chain.

While I tend to share Mr Emmott’s judgment on the Italian economy, I have a few reservations on some of his judgments on Italian politics.

The first chapter describes Italy as passing through its second major crisis in twenty years, after the country reached the hedge of bankruptcy in 1992-1994. Back then, as in 2011, “a discredited, paralysed government collapsed, and alongside that collapse there occurred a financial crisis, brought about by the fact that Italy’s government debts had risen to the then-colossal level of 120 per cent of the country’s annual economic output.” In 1993 as in 2011, “the response was to throw out, albeit temporarily, the politicians from government and instead to install a technocrat, a non-politician, as prime minister.” Mr Emmott thus compares the experience of Carlo Azeglio Ciampi (1993) with the one of Mario Monti (2011). The book was published in 2012, therefore Mr Emmott could not have known how much of a failure Mr Monti’s government was, in dealing with the ambitious agenda he thought he should undertake, that is:

budget cuts to start the job of repairing the public finances; reforms to labour law to make hiring conditions more equal but also flexible enough to encourage investment; the removal of barriers to competition and new entry into a wide variety of markets and professions, especially in services; reform of the justice system to speed up trials, both civil and criminal; cut to the cost of politics.

On none of the above mentioned points was Monti able to claim success: he did not cut public spending in any substantive measure, he promoted new labor regulations that in fact did not ease hiring and firing, he failed in making the Italian economy more free, and he did not reform the judiciary. An argument can be made that a well meaning government was made powerless by the interplay of interest groups. But this point should prompt a wider reflection on the institutional problems of Italy, rather than focusing on the fabric of its ruling class.

Also, Emmott seems to believe that (a) Italy did not achieve any substantial reform in the last twenty years and (b) the few genuine reforms were advanced by technocratic governments. For one, again, this would point in the direction on a reflection of what institutional mechanisms create such a powerless political class—besides the wicked influence of Mr Berlusconi. I do not think Emmott’s reconstruction, here, is accurate.

Italy did not pursue reforms with the necessary zeal—that is indisputable and, as Emmott writes, is the main reason behind the current crisis. The Eurocrisis, Emmott argues, is only exacerbating older, exclusively Italian, problems. However, in the Nineties Italy did accomplish an impressive wave of privatizations (bank, highways, energy, telecom) and a few liberalizations, a partial labor market reform included. It is in the 2000s rather than in the 1990s that the reform process stopped—to the discredit of Mr Berlusconi, who governed in 2001-2006 and again in 2008-2011.

And yet, the narrative of Italy having good technocrats (besides Mr Monti, Emmott praises ECB President Mario Draghi) and bad politicians is also an oversimplification. In 1992, the country was on the edge of abyss, but achieved some desperate but significant institutional changes. Those were pursued by a government led by Giuliano Amato—indeed a university professor, but also a career politician—and fully backed by a political majority composed by those very parties that the “Mani Pulite” judges in Milan were about to eradicate in those very years.

Moreover, the propensity to resort to technocratic governments in a situation of crisis is not a strength, but rather a weakness, of Italian democracy. Good Italy, Bad Italy reminds the reader that Italy was until 1989 a “blocked democracy,” in which a powerful Communist Party could not nurture any credible ambition to lead the national government. This polluted the political process, leading to all sorts of backroom power-sharing deals and to the virtual demise of political accountability. A fair reading of the Italian Constitution, a double-faced document written before it was decided if the country was to stay within NATO or with the Soviet bloc, may provide some hints. Powerful vested interests, starting with the trade unions, are shielded by the Constitution, whereas government action is made difficult by the fact Italy adheres to an extreme version of parliamentarism.

The failure of politicians to prescribe the bitter medicine of reforms should be explained, then, with reference to the institutional settings. Reforms, if they are not a simple make-believe exercise, call for a strong political commitment. Opening markets by lowering barriers to entry, for example, has distributive implications that need to be politically backed, to be considered as an opportunity, and not a punishment, for the country. Mrs Thatcher was no technocrat.

Likewise, I think Emmott’s reading of Silvio Berlusconi is deficient on several grounds. Emmott has a very perceptive comment on Berlusconi. He writes that when he entered politics, “many observers (…) concluded that this successful businessman might prove to be good at governing (…) but would probably lack skills in the political arts” after twenty years “the general conclusion is the exact opposite: that he has been pretty cack-handed at governing but is a genius at the political arts.”

This is a fit (pardon the pun) comment. Mr Berlusconi has been a failure as a reformer—possibly he never seriously tried to be a reformer. However, Emmott does not explain why the man has won three elections of the five in which he ran. He alludes to “media dominance” and, more discretely, to the fact Mr Berlusconi may appeal to “bad Italy.”

Emmott has a sophisticated reading of Berlusconi as a master of consensus, as for example when he points out how he succeeded in collecting votes in the North and in the South, from constituencies with a seemingly opposite agendas (the same trick preserved the Christian Democrats in power for over 40 years). But he does not consider the hypothesis that the secret of Mr Berlusconi’s success may lie in his rhetoric: a homo novo, he promised to unleash the Italian potential by freeing the economy and lowering the tax burden. Certainly Mr Berlusconi hasn’t delivered. However, at this point one should at least confront the possibility that Italians kept voting for him because someone who pledges to lower taxes and then fails in lowering them looks anyhow better than those that openly promise to raise taxes.

Last but not least, the title of the book suggests that “Italy’s most important division (…) might not be geographical but moral or philosophical”. Emmott believes that there is a difference between a “good” (productive, forward-looking, honest) and a “bad” (inward-looking, parasitical, dishonest) that is more cogent than the North-South divide. For one thing, this may be true of all communities: I suppose there is a honest Omaha and a dishonest one, a productive Indianapolis and a parasitical one. There is too much arbitrariness in picking one against the other, to make of this distinction a viable tool for a serious analysis. It is good enough for pictures at an exhibition.

On the other hand, the North/South divide is not an accident of contemporary Italy: but a fact, that emerges from a variety of metrics. Emmott makes the point that that the North and the South are heterogeneous (there is certainly “a good South” and “a bad South”). He derides the perspective of the Northern secession movement because “a genuine region called Padania that could demand secession on some plausible historical or ethnic ground” is “missing.” Fair enough, but Italy itself has been called a “geographical expression.” Et pour cause: Naples and Turin do not look like they belong to the same country, as any tourist would tell you.

Yet, though it does not share a unitary past, the North has a greater homogeneity in its productive structure, in its tradition of communal liberties, and in those values (hard work, productiveness, creativity) often associated in the world with Italian small businesses. Plus, and it is no small detail, there are good reasons for the Northerners to perceive themselves as tax payers, and to consider Southerners by and large as tax consumers. The secessionists of the Northern League may have made political use of this fact, though they have been as unsuccessful as Berlusconi in challenging the status quo.

However, the North/South divide remains there, and epitomizes the problems that lie at the root of the Italian crisis. It might be the subject of further investigation by a clear thinking observer such as Bill Emmott.