SPECIAL REPORT I TA LY June 11th 2011

Oh for a new risorgimento

SRitaly.indd 1 31/05/2011 14:42 S PECIAL REPORT I TALY

O h for a new risorgimento

Italy needs to stop blaming the dead for its troubles and get on with life, says John Prideaux ON A WARM spring morning in Treviso, a town in Italy’s north•east, sev• eral hundred people have gathered in the main square, in the shadow of a13th•century bell tower, to listen to speeches. The crowd is so uniformly dressed, in casually smart clothes and expensive sunglasses, that an out• sider might assume invitations to this event had been sent out weeks ago. Most people are clutching plastic ‡ags on white sticks. Some of them car• ry children wearing rosettes in red, white and green. On a temporary stage a succession of speakers talk about the country’s glori• ous history. Italy has taken the day o to celebrate its 150th anniversary as a nation. Treviso’s mayor, Gian Paolo Gobbo, is not celebrating. The desk in his oˆce faces a large painting of Venice in the style of Canaletto. This has some signi†cance for Mr Gobbo, who has spent his political career †ghting to resus• citate the Republic of Venice, which †nally expired in 1797 after a long illness. Below the painting stands a ‡uorescent• green bear. ŒIt’s just like me! exclaims the mayor, a portly man in his 60s. Green is the colour of the Northern League, C ONTENTS a party which has sometimes toyed with the idea of break• 3 The economy ing up Italy and allowing the northern part of the country For ever espresso to go it alone. This particular bear wears a sword, a gift from a champion fencer who is one of the town’s famous sons. 6 Business Mr Gobbo’s opponents might claim that the bear resembles Renaissance men him in another way: last year the mayor was charged with 8 Globalisation and having been part of an armed gang in the 1990s, a low•grade immigration militia intended to protect Treviso. He denies the charges. Benvenuto, up to Italy’s uni†cation is contentious because many peo• a point ple trace the country’s current troubles back to the birth of a nation that, they say, was misconceived. In the run•up to the 9 Education anniversary an eˆgy of Giuseppe Garibaldi, the great hero The ins and outs of uni†cation (pictured), a sort of 19th•century Che Guevara 11 Institutions but with better politics, was burned in the Veneto region. Tangled webs The Northern League, which governs in coalition with Sil• vio Berlusconi’s People of Freedom party in Rome, objected 13 Berlusconi’s legacy to having a public holiday dedicated to an event that it re• The cavaliere and gards as a catastrophe. Uni†cation, the party argues, yoked the cavallo the poor, corrupt, lazy south to the go•ahead north to the detriment of both. Garibaldi did not unite Italy, the North• ern League is fond of saying; he divided Africa. A CKNOWLEDGMENTS From the other end of the peninsula the anniversary can look equally bleak. In the 18th century Naples was the third•largest city in Eu• In addition to those quoted, the author would like to thank the rope after London and Paris. Before being incorporated into Italy it was following people for their help in the the capital city of a great monarchy; now it is ruled by a clique of inept preparation of this report: Roger politicians. These days the city is almost as famous for its stinking Abravanel, Claudio Aspesi, Alberto de mounds of uncollected rubbish as for the bay and the volcano that de• Benedictis, Andrea Bonomi, Melisa Calaresu, Maurizio Caprara, Paolo lighted Goethe and many other visitors before and since. Though the Colonnello, Pietro Como, Annamaria south of Italy bene†ts from transfers from central government, it does not de Crescenzio, Stephen Di Biasio, show much gratitude towards the wealthier northerners, nor enthusi• Tomaso Eridani, Benjamin Fowler, asm for commemorating uni†cation. ŒTerroni, a bestselling book by Daniele Franco, Massimo Franco, Richard Gadeselli, Robert Gordon, Pino Aprile published last year, compared the northern troops who sup• Charles Grant, Richard Holloway, posedly liberated the south in the 1860s to the Nazis. A list of sources is at Massimo Livi Bacci, Emma Marce• All countries argue about their history. America’s recent commem• Economist.com/specialreports gaglia, Mario Monti, Giacomo Oberto, oration of the 150th anniversary of its civil war saw plenty of con‡ict be• Paul O’Brien, Thomas Pietschmann, An audio interview with John Purtell, Giovanni Sanfelice, tween nostalgics for the old South, with all its carbuncles, and fans of the author is at Barbara Serra, David Stürken and Abraham Lincoln. But it is hard to †nd anybody in America who thinks Economist.com/audiovideo/ others who prefer not to be named. that the states should never have been united. Italy is di erent. Plenty of 1 specialreports

The Economist June 11th 2011 1 S PECIAL REPORT I TALY

2 peo le feel that the regions making up the country were too dis• tinct to be squeezed into a single nation and that, as a result, Italy In brief has shallow roots. According to this line of thinking, the lack of Key figures consent to the national project has resulted in weak institutions and dysfunctional government. Manlio Graziano’s ŒThe Failure GDP 2010: ¤1.5 trn Government spending of Italian Nationhood and David Gilmour’s ŒThe Pursuit of Ita• Per person, 2010: ¤25,600 As share of GDP, 2010: 50.5% Average annual % change, Exchange rates, May 30th 2011 ly, the two most serious attempts to grapple with Italy’s †rst 150 2001-10: 0.25% 1¤ = $1.43 ¥115 £0.87 years, both take this view. In political terms, the rise and rise of the separatist Northern League over the past 15 years, to a point where it now occupies key ministries in Rome, underlines the ALTO GDP per person ADIGE 0.5 3.1 FRIULI- power of this idea. VENEZIA 2008, ¤’000 One reason why the past seems to have an unusu• TRENTO GIULIA >30 ally strong hold over the present in Italy is that the VALLE D’AOSTA 9.7 5.4 1.2 4.7 25.0-30.0 country’s long•term problems seem impervious to 0.5 4.8 Treviso changes of party, government or constitution. The 0.1 5.0 Milan VENETO 20.0-24.9 <20 most striking of these is the north•south divide. PIEDMONT LOMBARDY 4.9 5.2 Venice Most countries have richer regions and poorer Turin 4.4 6.9 ones. What is unusual about Italy is the south’s fail• Parma EMILIA- 0.0 Population ure in recent years to catch up with the north in any Genoa 2009, m 4.3 4.7 ROMAGNA way at all. Data from the Bank of Italy show that GDP LIGURIA Bologna per person is over 40% lower in the south than in the Unemployment 1.6 5.7 Prato 0.0 centre and north, and has been for the past 30 years 2009, % Florence 1.6 8.5 (though there was some catching up before then). A third of Pisa 3.7 6.6 Italy’s population lives in the south, making it Œthe largest and MARCHE most populated underdeveloped region in the euro area, accord• TUSCANY 0.9 6.6 ing to Mario Draghi, the bank’s governor. UMBRIA 1.3 8.0 The wonders of commune•ism L’Aquila LAZIO If this problem were only 30 years old it might be easier to ABRUZZI Rome †x, but the gap between the north and centre of the country and 0.3 9.0 4.1 12.6 the south goes back much longer. If you know how any place in 5.6 7.2 MOLISE APULIA Italy was governed in the 14th century‹as a self•governing com• CAMPANIA Bari mune, as part of the Papal states or by a monarchy in the south‹ Naples you can predict with reasonable certainty what proportion of 5.8 13.0 0.6 11.1 people there would come out to vote in a referendum tomorrow SARDINIA Capri BASILICATA or donate blood. That is an awful lot of history to push against. NATIONAL TOTAL: And if you plot indicators of a successful society‹from the ease 1.7 12.5 of doing business to turnout in elections to educational attain• 60.1 7.8 2.0 11.4 ment‹on a map of Italy’s boot today, you get the same di eren• Cagliari tiation between north and south. 6th-highest 17th-highest Catanzaro What has caused this strange predictability? Since the pub• in Europe in Europe CALABRIA lication of Robert Putnam’s book ŒMaking Democracy Work in 1993, the main explanation put forward has been that the self•go• Palermo verning communes and city states that sprang up in the north of the country during the late Middle Ages built up reserves of so• 250 km 5.0 13.9 cial capital (or trust in fellow citizens) that have proved remark• ably enduring. The south of the country, ruled by a monarchy SICILY Regional GDP per person and characterised by large landholdings worked by peasants, Lampedusa lacked this crucial resource. Three economists who studied this 2008, ¤’000 subject recently, Luigi Guiso of the European University Institute, Centre-north 30.8 Paola Sapienza of Northwestern University and Luigi Zingales of South & islands 17.7 the University of Chicago, found that at least half of the gap in social capital between the north and south is due to the absence of free city•states in the south. Net migration This argument quickly becomes defeatist. If Italy’s pro• ’000‡ blems really date back to the political vacuum created by the col• lapse of the Roman Empire and the emergence of the three main types of government, then perhaps it is time to give up and sip Campari with orange on the Amal† coast instead. Fortunately It• aly’s complex history can explain only so much. To begin with, the monarchy supposedly responsible for the south’s current troubles was not unlike the governments that for centuries ruled France, Spain, Britain and what was to be• come Germany. It is not obvious that these countries were held back. True, Italy was created by a small elite at a time when more 1 1872 80 85 90 95 1900 05 10 15 20 25 30 35 40 45

2 The Economist June 11th 2011 3 1 k of 5% a g for ratio g the t dis• s that ), and e sug• g those lic duty es. Italy er’s oˆ• lier out• y slight• y’s aver• ed Euro• t 0.2 deed, na• y with it. y with s absence ak Italian. s back. GDP es. Metter• d business. s jus y Mr Berlus• d Zimbabwe s driving large s driving t awa s ambassador of s ambassador s i g educat hot of that delec• hot of that y’s current lac y’s current ion of pub o stop blamin o stop d not spe s debt•to• om debilitating con• om debilitating y t d against the young. d against o mourn it e a s t Ital s myths and traditions and s myths y Haiti an y Haiti d then splintered into d then splintered T ty to ge ty to an those of most other of most an those d. In addition, Italy has Italy d. In addition, ereign debt issued by issued debt ereign s fr ed it more successfully more ed it ALY I t prices, wa t prices, s di ion, wa , the media an , the media ar; t s gros s th or Ital tries su ered horror tries su ered t the cause of Italy’s present of Italy’s t the cause tion amon gi, the prime minist gi, the prime d, onl PECIAL REPORTPECIAL o these gloomy †gur o these gloomy . It S s abroa een 2000 and 2010 Ital 2010 een 2000 and e t d su er se in the world, scared of global• scared se in the world, an bunds soared, handin soared, an bunds o Chi t constan th spuriou h credibili o avoid in favour of his own resi• own of his in favour o avoid e not been helped b , politics s time f a o meritocracy, thi o meritocracy, e up and hav e up and al express t ea s an an coun s poor economic performanc s poor economic t in line t. Betw g Italian . Some manag en be argued tha en be argued ion t GDP d it our of the old an our of the old ula’s inhabitant ula’s er Germ y O yields on sov O yields t is ill a t is ame an empire an ame an empire , to wak , to 7 an ev , he tends t , he tends t up enoug ed b h, in a characteristic confus h, in a characteristic s a popular recrea s a popular eport will argue tha eport will argue e tha e between sovereign default and accepting a accepting and default sovereign e between t bec s institution y’s supposedly pernicious historical inheritance historical pernicious y’s supposedly an bond traders. As spreads on Irish, Portuguese on Irish, spreads As traders. an bond , wa al r 9th century th an avers d buil w it y seemed nex g nations, along wi along g nations, al pride is the mark of a civilised place. Ear place. of a civilised the mark is al pride e Ital lic †nances deteriorated les deteriorated lic †nances try tha e pleasure tries in the euro zone suddenly became interestin became suddenly zone tries in the euro s diˆculties t ha y pieces within 60 years of his death. And in the 20th And death. of his 60 years within y pieces tury many Europe tury many s of jingoistic nationalism led to ill•starred adventures ill•starred led to nationalism s of jingoistic s a Œmere geographic s a Œmere O YEARS AG y Ital s speci e heavily in fav e heavily e problems that concern the nation as a whole, not one a whole, as the nation concern that e problems ak s of talented youn s of talented t i , Ital or ev e or another. They hav They e or another. an eem mild. It c It eem mild. ome a plac en h eh to Metternich ation o rene u hi W m HE ECONOMY s c t surplus (before taking debt servicing into account into servicing debt taking (before t surplus ined wi one countries, thanks to big reductions in the budget def• in the budget reductions big to thanks one countries, oun y a n m s perverse. B M T coun le other th er espresso W c growing y isnot T F T tries a choic s in the 1 s in the se is much more recen more much se is reak e nearby, one of many). It i It one of many). e nearby, . Of all the countries in the worl all the countries . Of hed 119% in 2010, an in 2010, 119% hed s are constantly making and unmaking themselv unmaking and making constantly s are ed it might †nd it hard to pay all those bondholder all those pay to hard it †nd might ed it s of interest in the judiciary s of interest d for it d for b a le co ee it makes. makes. it le co ee y’s pub h, the 19th•century Austrian statesman who famousl who statesman Austrian 19th•century h, the tion and immigration. It has chosen a set of policies tha a set chosen has It immigration. tion and t inventin d Greek treasuries ov treasuries d Greek d privat s bec e growth, measur e growth, an 90% of the penins an 90% of an others, but Italy’s experience was not atypical. In not atypical. was experience Italy’s but an others, d worse. Many things contribut things Many d worse. om 1992 until the crisis hit, the government had run a primary had the government hit, the crisis until 1992 om al residence (whic al residence omb ic eop ean nea umber a u enc ea i udge rovinc ail•out ict hese ar ear n n g r uro•z d Ital est i riminat oun eem oni’s incumbency in the Palazz oni’s incumbency eac h h ion o anchor them o anchor tal n Abyssinia and the second world w world the second and n Abyssinia ab ailed t sa p b B t a c r t p I e ‡ g F b t t C n f T p a c c n e c d i h d y a d t i s u 2

7.8-9 Sources: Bank of Italy; OECD; UN; “International Historical Statistics” by Brian Mitchell; national statistics;The Economist ; Thomson Reuters; Calderoni, Global Crime 2011 9

9-11. 0 00 00 90 130 12 110 100 4 4 + 800 0 – 600 600 200 200 100+ 75 50 25 0

11.9-18.6 Forecast Japan † 3 Germany 005 05 10

Black-market labour region total, % of by As 2 >18.6 m of crimes, 2002-05, per 2002-05, crimes, m of Estimated 1877-1920 Estimated ‡ 10,000 inhabitants, Italy=100 10,000 Britain *Su 2 United States United 50-75 2000 Italy

75-100 5 1 France 00-12 1

125-150 0 y region, 2002-05 region, y

Crime associations* and criminal Extortion B >150 MEN WOMEN

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Comm June 11th 2011

Ex-commun 2

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Papal 60 65 70 75 80 85 90 95

2040 2010 1980 2000 01 02 03 04 05 06 07 08 09 10 he Economist T 3 On today’s borders On today’s Getting old 14th century Form of government in Form of government Labour productivity, 2000=100 By age, m North v south Kingdom of S Not really trying 50 55

40 45

nt 11.4 CALABRIA S PECIAL REPORT I TALY

debt or simply parked in bank accounts, insulates the economy The great laggard 1 from trouble. Italy is sometimes thought of as an outlier within GDP per person, average annual % change, 2001-10 the euro zone‹a kind of European Japan‹where only a small part of the public debt is in the hands of jumpy foreigners. In fact 1 – 0 + 1 2 3 the IMF reckons that 47% of Italian government debt is currently Greece 93 held abroad‹less than in most European countries but hardly Sweden 111 negligible. The †gure for Japan is 6.9%. OECD average na A better argument for Italy’s robustness is that its public debt is so vast that investors cannot a ord to abandon it: Italian Germany 131 treasuries make up the third•biggest bond market in the world. Britain 133 For investors who want exposure to bonds denominated in eu• ros there are not enough other places to go. This apparent United States 143 strength comes with its own hazards, however, namely vulnera• Spain 146 bility to a sustained rise in interest rates. Each percentage•point France 153 rise in interest rates costs Italy an additional 1% of GDP in debt servicing, a scary prospect for a country that does not grow. Portugal 158 World ranking, Italy out of 179 167 An economy in a small cup of co ee Source: IMF World Economic Outlook, The Economist Italy’s lack of growth over the past 20 years‹a period that until recently has been notably benign‹has been its most persis• tent economic failing. Put simply, Italian †rms have a problem 2 icit. Eventually Ireland swapped places with Italy to provide the with productivity and competitiveness. To understand this bet• vowel in the un‡attering acronym originally drawn up for Portu• ter, picture the Italian economy as a café, one of those places sell• gal, Italy, Greece and Spain. No Italian banks went bust, and rath• ing cappuccinos, espressos, sandwiches and freshly squeezed er than having to prostrate itself before the IMF or the EU, Italy orange juice that are a cornerstone of contemporary Italian civi• became one of the biggest contributors to rescue funds for trou• lisation. Many Italians believe their economy to be powered by bled European economies. All of which, says the Italian govern• manufacturing and industry. But since 70% of the labour force ment, demonstrates the robustness of its economic model. actually works in the service sector, this café is more representa• This picture is a little too comforting. ŒIt is a bit like saying tive of Italy’s economy than †rms like Fiat or Zanussi. that in a storm you are better o in a big heavy ‡at•bottomed The making and drinking of delicious co ee took a leap for• boat, like a barge, than in a racing yacht, says Bill Emmott, a for• ward in the period after the second world war when Italy rebuilt mer editor of this newspaper and author of ŒForza, Italia: Come itself. Through the 1950s and 1960s Italy grew like a developing Ripartire Dopo Berlusconi (ŒCourage, Italy: How to Start Again country rather than a rich•world one. Among countries now After Berlusconi; currently available only in Italian). ŒThis still considered developed, only Japan and South Korea performed doesn’t make you win races when there isn’t a storm, which better. Growth just shy of 10% a year became the norm. thankfully is the normal economic weather. Italy did indeed One reason for this startling pace was the application of avoid disaster during the recent storm. But its economy also con• new technologies to the workplace‹something that was as no• tinued along the path of underperformance that it has trodden ticeable in cafés as in the factories of Milan and Turin. Before the for the past few decades. In 2008, the year of Lehman Brothers’ war espressos had often been ruined by machines that squirted failure, Italy’s growth rate fell farther and faster than the steam through the ground co ee, burning it on the way and pro• euro•zone average. In 2010, when the euro zone ducing a dark, bitter liquid. In the late 1940s a company founded began to recover, Italy grew more slowly. ŒIn by Achille Gaggia produced an espresso•maker that used a lever bad times we usually avoid collapse, says to force boiling water through the co ee at high pressure. The Domenico Siniscalco, a former †nance result was a shot of co ee with a sweet, tan•coloured froth minister who now works for Morgan on top that came out perfect every time. There were many Stanley. ŒUnfortunately in good times we thousands of such innovations, and they made Italy hum. do not grow. A second source of growth was large•scale internal A rosy view of Italy’s economy re• migration, mainly from south to north. This increased lies on two assumptions that are only half the productive labour force, since many people moved right. The †rst of these is that Italy is an ex• port•led economy like Germany. There are indeed lots of successful Italian ex• ITALY’S LACK OF GROWTH OVER THE PAST 20 YEARS‹A PERIOD porters. Some of them have famous names such as Benetton, Prada and Fer• THAT UNTIL RECENTLY HAS BEEN NOTABLY BENIGN‹HAS BEEN rari. Others are less well known even if, ITS MOST PERSISTENT ECONOMIC FAILING like Luxottica, they make products that sit on many people’s noses, such as Ray•Ban and Oakley sunglasses. Yet that does not make Italy a champion from something close to subsistence agriculture into making exporter. Unlike Germany, it has run a current•account de†cit ev• things that others wanted to buy. Statistics on this are hard to ery year since 1999 and a trade de†cit since 2005. Italy may still come by, but the best guess is that between 1955 and 1971 some have the world’s sixth•largest industrial base, but Britain, often 9m Italians migrated within their own country.Though many of portrayed as an industrial weakling, makes and exports more them put up with great hardship to establish a toehold in this cars than Italy does. new Italy, eventually they earned enough to join a new consum• The second assumption is that a high level of domestic sav• er society. ings, which tend to be conservatively invested in government Fast•forward 40 years and our café with its zinc bar top, 1

4 The Economist June 11th 2011 S PECIAL REPORT I TALY

ership, which is still widespread, tends to push against giving up control. The coun• try has lots of †ne family•owned compa• nies run by dynamic managers, but on av• erage family †rms perform worse than others: a study of successions in 229 †rms by the Bank of Italy found that returns di• minished in companies where the own• er’s heir took charge and increased under new bosses unrelated to the founder. Like too many other businesses, the café operates largely in cash. UniCredit, a bank, says it spends about three times as much per customer handling cash in its Italian branches as it does in its German ones because Italians have a preference for avoiding electronic payment systems. These two features of business in Italy‹ small †rms and cash in hand‹make tax evasion easier. The boss of one Italian bank who is currently renovating a house in the north of the country says that 48 out of the 50 small contractors he has used have been reluctant to provide a re• ceipt. Istat, the national statistics oˆce, es• timates that underground economic ac• tivity amounts to 16% of GDP. This in turn places an extra load on the companies and individuals who do obey the law. At 45.6% of GDP Italy has a high tax burden, but the number understates the costs shouldered by those who actually pay. Made in Italy Italy does have its share of world• class companies, but too many Italians work in places that resemble ageing cafés and have been slow to adapt to changes in the world around them. Gaggia, the company that made the brilliant espresso machines, failed to take advantage of its position to dominate the growing market for co ee•makers in homes and is now 2 food laid out under glass and white paper napkins is looking dis• majority•owned by Philips, a Dutch electronics company. tinctly tired. The basic formula may not be so di erent from a Tax avoidance, low productivity, family ownership, shal• Starbucks or one of its imitators, but customers usually have to low capital markets, a lack of competitiveness: these problems wait twice: once to buy a ticket and then again to order a co ee‹a are well documented for anyone who cares to take a look. But the system that has long been out of favour in most rich countries. government has been quick to †nd other culprits: China for hol• The inputs and outputs of the café business have hardly lowing out Italian manufacturing; the European Union for heap• changed, and the productivity gains of the post•war period are ing meddlesome regulations on Italian companies and farmers; now a distant memory. Between 2001 and 2005 labour produc• the south of Italy for dragging the rest of the country down. tivity grew at a measly 0.1% a year, and between 2006 and 2009 it These monsters are not as terrifying as they seem. Chinese shrank by 0.8% a year. Oˆcial statisticians think that the reality manufacturing may have taken its toll on some Italian manufac• may have been slightly better than these numbers suggest, but turers in the early part of this decade, but this special report will not so much as to alter the overall picture signi†cantly. The argue that the worst of this is now over. As for the European Un• drinks for sale are substantially the same as they have been for ion, plenty of successful economies have learned to live with its half a century (no frappuccinos here). And the sta , who have single•market directives, and Italy bene†ts greatly from the ab• worked in this café for decades, are getting on a bit. Italy has aged sence of tari s on exports to its biggest market. Nor is the south, faster than most other rich countries. Current projections suggest Italy’s customary punchbag, entirely at fault. If anything, over that by 2030 there will be only about two Italians aged 20•64 for the past few years it has been dragged down by the north: in the every pensioner. recent crisis the south’s economy, which is dominated by the Like many businesses still owned by the founder, this café public sector, shrank by less than the rest of Italy. Ultimately the has never expanded: about half of all Italians work in businesses country’s economic failings express the preferences of a plural• with fewer than 20 employees. Indeed, even in Italy’s large com• ity of Italians. And like so many other things in this very old new panies mergers and acquisitions are relatively rare. Family own• country, these have deep roots. 7

The Economist June 11th 2011 5 S PECIAL REPORT I TALY

B USINESS Renaissance men

Ctar els that make life cushy for insiders exact a heavy toll on everyone else VISITORS TO FLORENCE sometimes get so absorbed by the famous cathedral and its dome that they overlook one of the great wonders of the Renaissance right opposite the Du• omo. Lorenzo Ghiberti’s baptistery doors, decorated with panels telling Bible stories, were so admired by Dostoyevsky that he had a full•size picture of them stuck to the door of his study in St Petersburg. The bronze doors were paid for by the local guild of cloth importers, who could a ord such grand gestures because they extracted handsome rents by preventing competition from other importers. This was a marvellously pro†table arrange• ment for the guild’s members. It was not so good for their cus• tomers or for anyone who wanted to set up in business on their own terms. Something similar still happens in many areas of business in Italy today. Italy is a wild forest of little privileges, rents and closures. Each has its own lobby group; together they conspire to make re• forms close to impossible. This is particularly evident in the ser• vice sector. The government is reinstating minimum charges for lawyers, a group not normally considered to need protection from unscrupulous employers. At the other end of the labour market, barriers to entry in jobs that might attract immigrants are high. In Britain pharmacies are often sta ed by bright young Asians. In Italy until recently the law set minimum distances be• would undermine Milan’s taxi guild. Drivers there look on the tween pharmacies, handing a huge advantage to incumbents permits as a pension pot, selling them on when they retire, so and blocking new entrants. If the owner of one of these shops there is great pressure not to devalue them by issuing more. died, his heirs had the right to run the business for ten years even The principle of granting a few people comfortable privi• if they were not quali†ed pharmacists. These laws were leges at the expense of the rest is not con†ned to the workplace. tweaked in 2006, but three years later the Italy lacks a system of universal unemployment bene†ts, so that desired competition had still not materi• people working next to each other on a production line but per• alised and only 64 pharmacists in Italy forming di erent tasks may be paid at di erent rates and for dif• had more than one shop. ferent periods if they lose their jobs. This may be unfair, but chal• Taxi driving, a job in which immi• lenging it is politically awkward and no party has shown much grants often predominate, is another appetite for doing so. Besides, privileged cliques have long been closed shop. In New York it is rare to †nd a a feature of Italian politics too, from the left•wing cabal that has taxi driver born in America. In Milan, Ita• ruled Naples for the best part of the past two decades to the ly’s most dynamic city, it is rare to †nd a stranglehold on the governorship of Lombardy for the past 15 taxi. A recent unscienti†c survey conduct• years by Communion and Liberation, a Catholic movement ed over a week spent in the city suggests with a political wing, which has been much criticised for hand• that all of its taxi drivers are native Ital• ing out jobs to supporters. ians who have paid a vast amount of The losers in these closed systems show up in the unem• ployment statistics, where the young are disproportionately strongly represented. IN NEW YORK IT IS RARE TO FIND A TAXI DRIVER BORN IN More than a †fth of 15•to•29•year•olds nei• ther work nor study. Young people who AMERICA. IN MILAN, ITALY’S BIGGEST AND MOST DYNAMIC do have a job in the formal economy of• CITY, IT IS RARE TO FIND A TAXI ten have to accept unfavourable terms, as set out in a 2003 reform. In order to liber• alise the labour market without running money to join a guild that boosts their wages by holding down the political risk of confronting vested interests, the government the number of taxis. A more scienti†c study revealed that in introduced a new kind of temporary contract under what be• 2003 the cost of a taxi licence in Milan was ¤200,000 ($226,000), came known as the Biagi law. Marco Biagi, the government ad• and in Florence in 2006 such licences changed hands for viser who devised the legislation, was assassinated in 2002 by ¤300,000. In New York taxi badges also fetch amazing amounts far•left terrorists who keep an eye on labour•law reform (a relat• of money: one reportedly sold in 2007 for $600,000. But there ed group killed another government adviser in this †eld, Mas• they tend to be shared among lots of people, a practice that simo D’Antona, in 1999). Workers on these contracts are easier to 1

6 The Economist June 11th 2011 S PECIAL REPORT I TALY

Italia, owned by News Corporation, in 2003. The company bought up two struggling pay•TV out†ts and built a huge head• quarters outside Milan, complete with the vast studios required to †lm shows with live audiences that Italian viewers are partic• ularly keen on. This made News Corp one of the largest foreign investors in the country. The company grew fast, reaching almost 5m subscribers last year. But its success has brought unwelcome attention. As part of a package of legislation in response to the †nancial crisis, the sales tax on pay•TV was doubled, and Sky Italia has been hit by a law that reduces the number of advertisements that pay•TV channels can run and increases the quota for free•to•air TV chan• nels, where Mediaset makes its money. If a new proposal now in the works gets through, it will regulate the number of †lms that can be shown during the day and kill o a handful of Sky Italia’s †lm channels. One unusual feature of Italy’s economy is the small amount of inward foreign direct investment it gets: as a proportion of GDP, this has been well below the EU average for each of the past 20 years. Sky Italia’s experience suggests this is no coincidence. Red ‡ags and rosaries Italy has a smattering of liberals, in the British rather than the American sense of the word, who bemoan these habits, but they are not numerous enough to have political clout. Their scar• city is explained by a hostile environment. For 50 years after the second world war most Italian voters had a choice between LIFE ON THE INSIDE Christian Democrats, who borrowed their aversion to money• LANE changers from the Catholic church; and the Communist Party, which emerged from the war so strengthened by the role of com• munists in confronting Mussolini that, with its allies, it won 31% of the vote in the general election of 1948, making it the most suc• 2 †re and do not qualify for the unemployment bene†ts enjoyed cessful communist party in the West during the cold war. by their older colleagues. As a result, a small group of young peo• When this old order was swept away by the fall of the Ber• ple †nd themselves at the receiving end of most of the volatility lin Wall and the Œclean hands trials in the early 1990s, which re• in the labour market. And as Tito Boeri of Bocconi University vealed a system of kickbacks from companies to †nance the notes, Italian workers have a strong preference for jobs that are mainstream parties, it was replaced by something almost as hard to get and hard to lose, so the arrangement stays in place. strange. On the right the two main parties‹Mr Berlusconi’s Peo• There is also a considerable hidden cost to these cartels. Ita• ple of Freedom and the Northern League‹often take an anti• ly’s criminal ma†as like small, localised markets such as earth• competitive stance. A paper by Fabiano Schivardi of the Centre moving and construction which they can enter, dominate and for North•South Economic Research and Eliana Viviano of the then choke o competition. Ma†a groups from the south of Italy Bank of Italy found a positive correlation between right•wing typically †nd it hard to establish a presence in the centre•north. control of local authorities (which have had powers to regulate But where they have succeeded, it has been in these kinds of retailers since 1998) and weak competition. The League in partic• markets, says Federico Varese of Oxford University, author of a ular talks nostalgically of a world of small artisans and farmers recent book, ŒMa†as on the Move. In some cases ma†a groups in need of protection. were able to control town councils with the votes of a few hun• The left has a better record on prising open markets in re• dred southerners who moved north and were awarded public• cent years. Pier Luigi Bersani, a former communist who now works contracts for their trouble. Or the process can work the heads the Democratic Party, the biggest party on the centre•left, other way round, with cartels seeking the assistance of ma†a pushed through a number of reforms when the left was in power groups to keep out competition. from 2006 to 2008. But, unusually in Europe, Italy still has a large An antipathy to competition is not limited to small busi• number of unreconstructed Marxists whose support any left• nesses. When Air France•KLM tried to buy the bankrupt Alitalia wing government needs to gain a majority. Sergio Marchionne, in 2008, the Italian prime minister described their o er as Œo en• the Italian•Canadian boss of Fiat and Chrysler, describes a visit sive. Instead, the government took ¤1.2 billion of Alitalia’s debt to Mira†ori, a factory in Turin, to speak to the workers about onto its balance•sheet (in addition to the ¤3 billion Italian tax• changes in their contracts. At the time about one in three employ• payers had already pumped into the company), sold it to a group ees in the company’s Italian plants was absent every day for one of Italian investors and gave Alitalia a monopoly on the route be• reason or another. He was met by thousands of red ‡ags, there tween Rome and Milan’s most convenient airport (Linate) for was talk about class struggle and analogies were being drawn three years. If this fails to make the airline pro†table, then no with the †ght against fascism in the late 1940s. doubt more of the same will be forthcoming. European single•market directives have nudged Italy to• Undoing such cosy arrangements is not easy. Ever since the wards more competition in some areas. But as Fiat’s example triumph of Silvio Berlusconi’s company Mediaset in commercial shows, even the largest companies sometimes seem to consist of television, Italian TV has been a duopoly between Mediaset and lots of little guilds. This has made the upheavals of the past de• RAI, the state broadcaster. This was disturbed by the entry of Sky cade harder to deal with. 7

The Economist June 11th 2011 7 S PECIAL REPORT I TALY

G LOBALISATION AND IMMIGRATION Bven enuto, up to a point

The world comes to Italy ŒWE TEND TO assume that Italy is a boring country where nothing changes, says Giacomo Vaciago of Università Cat• tolica in Milan. ŒThe economy doesn’t grow, the government doesn’t function, the south is criminal and useless. But in fact radical changes have occurred in the past ten years. The past two decades may not have been quite as dramatic as the post• war miracle years (Œwhen something in Italy works, it is always called a miracle, quips Mr Vaciago), but they may be bringing about a transformation that is just as profound. In this period the world has come to Italy‹indirectly through globalisation, and di• rectly through immigration. People from all over the world want• ed to make a life in a country long used to exporting people rath• er than receiving them. These changes have caused more alarm than delight. ŒCompared with a few years ago, compared with the world before globalisation, we have for sure more material goods, but we are losing something fundamental. We are losing hope. We have our mobile phones, but we have no children. The writer is not some left•wing cultural critic but Giulio Tremonti, Italy’s †• nance minister, in a book called ŒFear and Hope, published in 2007.Since entering into Œthe Mephistophelian pact with the god Market, writes the man in charge of Italy’s economy, the coun• try is †nding that the Faust story is turning out the way it always does, with the economy damaged by cut•price competition from Asia and cherished traditions discarded. Some parts of the economy were indeed hit hard by foreign competition in the early 1990s and the †rst half of the past de• cade. The textile industry, along with other low•technology manufacturing, proved particularly vulnerable. Italy’s many in• dustrial clusters, once held up by Michael Porter of Harvard Busi• ness School as a big competitive advantage, have had their logic RUSH HOUR IN LAMPEDUSA tested by lengthening supply chains. Yet this picture is already out of date. Even before the †nan• Foreign expansion is often viewed as coming at the ex• cial crisis took hold, about half of all †rms with at least 20 em• pense of jobs at home. Three•quarters of Brevini’s 2,000 workers ployees had restructured and the manufacturing sector had re• are outside Italy.Manuli’s boss, Dardanio Manuli, says that run• gained competitiveness lost earlier in the decade, according to a ning a business in Italy is so hellish that he dreams of shifting all study by the Bank of Italy. An impressive number of mid•sized of the company’s production abroad. But †rms that expand in• companies have turned themselves into what Italians now call ternationally often seem to create jobs at home too. A recent pa• pocket multinationals. In 2008 Italy had 21,000 such companies per using data from 2000•06 found that Italian multinational operating in 150 countries. Two•†fths of them expect their busi• manufacturers who expanded abroad did not cut back on em• ness abroad to grow more than at home this year, compared with ployment at home; if anything, domestic and foreign activity ex• one•†fth who expect the opposite. ŒItalians grow faster than Italy panded together. does, says the quotable Mr Vaciago. Italy’s competitive †rms have done well out of globalisa• The tempest tion. The new rich of the emerging world are as keen on luxury The second way in which the world has disturbed Italy goods made in Italy as are wealthy Europeans, Japanese and over the past two decades has been more direct. The summer Americans. Ferrari sold 256 cars in China last year. Italy’s famous months usually bring boatloads of African migrants to Lampe• fashion houses may now outsource everything bar the design dusa, a rocky outcrop between Sicily and Tunisia. This year has and †nishing of their products, but the size of their new markets brought more than ever, with the usual number of economic mi• makes up for that. Purveyors of less glamorous items such as Ma• grants swollen by those unsettled by unrest in Tunisia and Libya. nuli, which makes hydraulic hoses, or Brevini, which makes Italy’s foreign minister, Franco Frattini, warned of Œan exodus of gearboxes, have bene†ted from the opening of markets. Expan• Biblical proportions emanating from north Africa. Italy re• sion abroad has transformed Finmeccanica from one of many sponded by issuing these unwelcome guests with temporary stodgy state•run conglomerates into the world’s eighth•largest documents, in the hope that they would go to France. A junior maker of weapons. minister from the Northern League recommended opening †re 1

8 The Economist June 11th 2011 S PECIAL REPORT I TALY

2 o n boats carrying migrants. Fate seemed to be on his side: one E DUCATION boat carrying 200 migrants capsized, killing all but about 50. All this drama has diverted attention from another big The ins and outs change in recent years: the largely peaceful absorption of a huge number of migrants, both legal and illegal. The proportion of for• eign•born residents in Italy grew from 0.8% in 1990 to 7% in 2010, a huge turnaround for a country that had been exporting large numbers of Italians for a hundred years, starting in the third quarter of the 19th century. On arrival, most migrants have head• Italians are deeply anti•meritocratic ed for the centre•north, though plenty of newcomers are also working in agriculture in the south. EACH WEDNESDAY NIGHT in west London a group of To some degree this ‡ow has replaced the traditional migra• Italian expatriates gathers to play †ve•a•side football on an tion of young Italians from south to north. The results are often astroturf pitch under a ‡yover. The group’s organiser, a native of striking. Take Prato, a beautiful town in Tuscany that grew rich on Milan in his 30s, works for a multinational company that may foreign trade in textiles during the Middle Ages and has the post him to the Middle East next. He says he will never go back to churches and paintings to show for it. The province of Prato has Italy, a sentiment shared by many Italian exiles. His sister, a doc• 10,900 resident Chinese nationals, many of them working in the tor, is still in Italy, where she works for lowish pay despite her de• textile industry. Only Milan, more than ten times Prato’s size, has gree from a famous American university; a large chunk of her more. In total, 13% of Prato’s population was born outside Italy, earnings goes to a senior consultant. Her husband, a lawyer, was according to Italy’s national statistics oˆce. Allowing for the Chi• recently told by his †rm that he is too young to be promoted. nese that live in Prato illegally, the real number may be far higher. Italy is indulgent towards its children in some ways‹it is Migrants come to Italy from all over the world, but around not unusual for them to live at home until they are in their 30s‹ half the foreigners now legally resident there were born in east• but hard on them in others. ŒA typical Italian family these days, ern Europe. There are 890,000 people from Romania alone. Inte• says Enrico Letta of the Democratic Party, Œhas some great•grand• grating migrants into what, for all Italy’s divisions, was previous• parents, four grandparents, two parents and one child. This poor ly an ethnically uniform society has not been easy, but it has child has so many people planning its life, there is no possibility gone better than expected. Some of the credit for that goes to the of it ever taking a risk. Catholic church, which has played a role in helping migrants to The government transfers money from young to old by settle even if they have arrived in the country illegally. An am• spending 14% of GDP on pensions, a higher proportion than any nesty system that allows for domestic workers to become legal other OECD country. Italy’s demography ought to hand a big ad• migrants after †ve years in the country produced an apparent vantage to the young who, thanks to a fertility rate of just 1.4 per jump in the number of Peruvians living in Italy, from 78,000 to woman (well below the rate required to hold the population 88,000, and of Filipinos, from 114,000 to 124,000, in the year to steady), are becoming scarce. But instead of gaining extra bar• January 2010. Many of them will have found jobs as maids or gaining power, they are blocked by gerontocracies everywhere. carers through church networks. Politics is the most visible one. The average age on taking of• Catholic eastern Europeans can blend into Italian society †ce of Italy’s 11prime ministers since 1990 was 62. Mr Berlusconi, fairly easily, but the same is not true for all migrants. Prato’s in• the current incumbent, is 74. Cesare Geronzi, one of the great ‡ux of Chinese has caused tensions there, though they have power•brokers in Italian business, was 76 when he was forced been of the economic rather than the racial sort. But there have out as chairman of Generali, Italy’s biggest insurer, in April. His been signs of racial resentment elsewhere. Mario Balotelli, a bril• predecessor, Antoine Bernheim, left at 85. Journalism is little bet• liant but petulant Italian footballer of Ghanaian descent, has ter: the same ageing columnists keep †lling the op•ed pages in Ita• been booed by fans while playing for his country. In one match a ly’s main newspapers. Even Italy’s ma†as are run by old men: banner that read ŒNo to a multi•ethnic national team was un• Bernardo Provenzano, the boss of the Corleone ma†a family, furled. Fortunately that kind of hard racism is no more common was 73 when he was arrested in 2006. The prize catch in a big op• than anywhere else in western Europe. And mass migration is eration last year against the ‘Ndrangheta, a particularly nasty 1 too recent a phenomenon to be able to tell whether Italy is prac• tising the softer kind, such as discrimination against job appli• cants with darker skin. As it happens, Italy cannot a ord to be too choosy about Voting with their feet 2 the colour of its future workforce. Without immigration, its pop• Net graduate migrant populations 2005, m ulation would have declined by 75,000 in 2009, the most recent year for which †gures are available. With it, the population grew 0.2 – 0 + 0.2 0.4 0.60.8 1.0 1.2 1.4 1.6 by a modest 295,000. Migrants are all the more needed because Canada so few women are in the labour force. In other European coun• Australia tries many mothers drop out of formal work for a few years after childbirth but then return. In Italy women’s participation in the Germany labour market continues to decline as the child gets older. A pa• France per by the Bank of Italy found that those most likely to go back to Spain work were female entrepreneurs and public•sector workers. For all the hostility to foreign in‡uence, Italy is creeping to• Britain wards an unplanned compromise with the world in which com• Japan panies’ international expansion bene†ts those who stay at Italy home and foreign workers †ll a hole created by the shrinking of the native population. It may look messy but it works, and it is Ireland steadily transforming the place. 7 Source: OECD

The Economist June 11th 2011 9 S PECIAL REPORT I TALY

2 group from Calabria, was the man thought to be its boss, 80• Programme for International Student Assessment (PISA), it be• year•old Domenico Oppedisano. came clear that there was a huge divide between weak second• Ageing societies need to get better at †nding work for older ary schools, predominantly in the south, and strong ones in the workers, but giving them all the corner oˆces is not the way to centre•north. Last year Mrs Gelmini introduced a uniform test, to do it. One former employee of Telecom Italia describes how, on be taken by students in their third year of secondary school. En• his †rst day at the company, he was told that if he wanted to couragingly, the †rst such tests were criticised for being too speak to someone at the same level in the organisation he tough. The next stage will be to link teachers’ performance to the should get his secretary to call the other person’s secretary; but to improvement in their schools. The education ministry is run• speak to someone more senior he should call that person’s secre• ning two pilot projects to measure this which will inform new tary direct. Some senior managers did not use e•mail; their secre• contracts for teachers from 2013. These reforms have been op• taries would print out any important ones for them. posed by teachers’ unions, in part because they entail overall Faced with having to wait until they are the age of their cuts in education spending. ŒThere is a misconception that more grandparents to become senior, many of Italy’s best and bright• resources will improve things, says Mrs Gelmini. est leave. Universities in America and Britain are full of Italian academics too ambitious to sit around for decades to get tenure Scratch my back in Italy. International bureaucracies such as the World Bank, IMF The problems of secondary education look mild by com• and OECD are replete with Italians wielding PhDs. Brussels is an• parison with those of Italy’s public universities. Raccomanda• other escape hatch: Italy is a great provider of dedicated Euro• zioni are everywhere. Roberto Perotti of Bocconi University, crats. Perhaps the single most damning indicator of Italy’s cur• which is private, has been studying this phenomenon and has so rent economic health is that it is the only net exporter of far identi†ed 33 cases where the rectors and presidents of public graduates among rich European countries, something more universities have installed their children, children•in•law and commonly associated with developing countries than with de• spouses as professors in their universities. The market for aca• veloped ones (see chart 1, previous page). demic jobs in public universities is deeply corrupt. Plenty of de• Many of Italy’s graduates leave to escape the system of rac• gree courses have sprung up that seem designed merely to create comandazioni, or connections (often through families), that rules tenured positions; the ministry of education cites courses on the the labour market. Examples of such practices can be found in well•being of dogs and cats and on packaging as examples. Ap• every country, but Italy is di erent for two reasons: raccomanda• plicants for professorships take part in public competitions for zioni are ubiquitous and rarely questioned. jobs that are neither public nor competitive but designed to lend It might be tempting to ascribe this preference for connec• credibility to decisions that have already been made. Mr Perotti tions over quali†cations to what Edward Ban†eld, an American studied 40 such national competitions and found that 70% of the sociologist, called Œamoral familism. In a book on poverty in jobs were †lled by people who were at southern Italy, ŒThe Moral Basis of a Backward Society, pub• least associate professors at the universi• lished in 1958 but still controversial today, Ban†eld argued that ty advertising the job. When outsiders do Italian family bonds are so tight that they prevent people from get jobs, it is often because a deal has been coming together to create outcomes that bene†t a larger number. done with another university, on the un• The thesis was intended as an analysis of a single village but has derstanding that the favour will be re• often been read as a condemnation of an entire nation. Happily turned in the future. there is no reason to put 60m Italians on an analyst’s couch and One way of improving matters examine their deep•seated ‡aws because a much simpler expla• would be to privatise some of the public nation for the prevalence of raccomandazioni is available. universities‹but that does not seem to be By comparison with other rich countries Italy has good feasible in a country where even modest primary schools, average (if very variable) secondary schools reform proposals have brought protesters and poor universities (with a handful of shining exceptions). onto the streets. This is a shame, as Italy Taking the education system as a whole, the most surprising has some excellent private universities, thing is the absence of standard tests in secondary schools. Ital• Bocconi and Università Cattolica in Milan being notable examples. Another option would be to get the public universities to T HE PROBLEMS OF SECONDARY EDUCATION LOOK MILD BY compete more vigorously, which is what COMPARISON WITH THOSE OF ITALY’S PUBLIC UNIVERSITIES. recent reforms have aimed to do. In the• ory, a tenth of their funding should now RACCOMANDAZIONE ARE EVERYWHERE be tied to their performance in producing peer•reviewed research. The government would like to push this share up to 30%, ian children sit exams after †ve years of secondary schooling, though that may be wishful thinking. For the moment, not one but these are not the same across the country, making it impos• of Italy’s universities makes it into the top 100 in the two main in• sible to compare the results of a student in Bari with one in Bolo• ternational rankings of higher education. gna. They then go on to universities which are generally not al• Changing universities will take time. The current system of lowed to select the pupils they admit, and spend most of their nationwide competitions for academic jobs was introduced be• time learning vast amounts of material by rote. Once they have cause the previous system, which con†ned the circle of appli• graduated, their degrees must by law be treated as of equal value cants to those from nearby universities, was thought too easy to no matter which university conferred them, so potential em• †ddle. A government initiative to encourage public universities ployers have to guess which students are any good. to hire faculty from abroad (by o ering extra funding) has had no Italy’s education minister, Mariastella Gelmini (pictured on discernible e ect. As so often in Italy, it seems that when the rules poster), is aware of the system’s defects and is trying to remedy change, behaviour changes only just enough to allow everyone them. When Italy submitted itself for the †rst time to the OECD’s to continue as before. 7

10 The Economist June 11th 2011 S PECIAL REPORT I TALY

I NSTITUTIONS television network is merely the biggest of them. Back in the 1990s it seemed to some that Italy was on the Tangled webs threshold of an institutional transformation. Membership of the euro would prevent Italy from devaluing its currency whenever exports became uncompetitive, forcing the country to undertake reforms to boost productivity. The breaking up of the Christian Democrats’ monopoly on power achieved by the Œclean hands Con‡icts of interest pervading public life conspire corruption trials would allow Italy to become a more normal de• mocracy in which power alternates between two main parties, against change providing strong government. OANY NE LOOKING FOR entertaining television in Italy at This has not happened. The problems of the Italian econ• the end of the day would do well to ‡ick past the Milan omy are still substantially the same as they were 15 years ago, football derby and ŒItaly’s Next Top Model and pick a political though the government’s direct involvement in industry has di• talk show instead. These combative, insult•laden programmes minished. Italy has not developed a two•party system: the left is are hard to watch and harder to turn o . ŒOpponents are pre• made up of squabbling coalitions of interests that can some• sented not so much as wrong but as losers or, better, sexually in• times be glued together for the sake of winning power but then adequate losers, wrote Tim Parks in the New Yorker recently. tend to disintegrate. People of Freedom (PdL), the main party on Americans might shrug at this, but in Italy things are di er• the right, governs in coalition with another with which it dis• ent‹and not just because there is more sex. In America conserva• agrees on fundamental issues, such as how much regional devo• tives may rage against Supreme Court rulings like Roe v Wade, lution there should be. Moreover, part of the PdL is not so much a but only a far•‡ung fringe questions the right of the court to make party as a group of Berlusconi fans and ex•employees. Giulio Tre• such decisions. In Italy that fringe is in government. monti, the †nance minister, was Mr Berlusconi’s tax lawyer; The lines that run between political parties, the civil ser• Mara Carfagna, the minister for equal opportunities, used to jig• vice, the media, business and the judiciary are more like ribbons gle in a bikini on one of his television channels. that can be bent to any shape under slight pressure. Italy lacks The parties’ credibility has also been damaged by frequent referees who can intervene when this process goes too far, ar• tinkering with the rules for electing deputies and senators in gues Ferdinando Giugliano of Oxford University. Institutions are Rome. After the clean hands trials Italy pursued piecemeal elec• further weakened by the con‡icts of interest that pop up every• toral reform, which did produce strong governments with more where. The prime minister’s ownership of the country’s largest stable majorities. But a Berlusconi•led government in 2005 1

AS SEEN ON TV

The Economist June 11th 2011 11 S PECIAL REPORT I TALY

2 brought in a closed•list system, in the hope that it would make owned just 8% of its equity. Minority the left even more fragmented than it was already. That did not shareholders can expect to be frozen out happen, but it increased the control of party managers and broke unless they make pacts with other share• the direct link between voters and constituents. holders. One such pact, led by Capitalia Keeping the political circus going is also strikingly expen• and UniCredit, two large banks, governs sive. Parties receive generous subsidies to fund their election ex• the ownership of Mediobanca, which penses: according to the Court of Auditors, between 1994 and has proved expert at using small stakes in 2008 they received ¤2.2 billion ($3.1 billion) from general tax• companies to get its way. The government ation to cover their election expenses, but only ¤579m of this ex• still owns large stakes in big public com• penditure could be veri†ed. A cynical reading of this would sug• panies like Eni, an oil and gas company that is 30% owned by the Ministry of Economy and Finance, and Enel, which L IKE OTHER ASPECTS OF ITALIAN LIFE, CORPORATE CULTURE generates and distributes electricity and HAS A WAY OF REMAINING ESSENTIALLY UNCHANGED NO is 31% owned by the same ministry. One result is that retail investors stay MATTER WHAT THE LAW MAY SAY away. Combined with the widespread family ownership of medium•sized com• panies (which restricts the number of list• gest Italy’s political parties made a pro†t of ¤1.67 billion at ed †rms), this means Italian capitalism does a poor job of con• taxpayers’ expense over this period. necting the country’s ample private savings with companies in Con‡icts of interest a ect journalism and business too. The need of capital. Two recent changes‹a European directive largest shareholder of the company that owns the country’s known as Record Date and an edict from Italy’s stockmarket reg• most famous newspaper, Corriere della Sera, is Mediobanca, an ulator giving independent directors a veto over some manoeu• octopus•like investment bank which holds large stakes in many vres‹may help the minnows. But like other aspects of Italian life, of Italy’s biggest companies. The paper’s reporters are indepen• corporate culture has a way of remaining essentially unchanged dent, but that does not stop Italians indulging in dietrologia, the no matter what the law may say. study of whose interest lies behind the stories. Italy’s second•big• gest newspaper, La Repubblica, is owned by Carlo De Benedetti, a Justice deferred veteran industrialist, and managed by his son, Rodolfo. Fiat To understand how these con‡icts block change, consider (whose controlling shareholder, the Agnelli family, has a small the government’s current proposal to reform the judiciary. Italy’s shareholding in The Economist) owns La Stampa and also has a courts follow the principle that appeals should be allowed at large holding in Corriere. Silvio Berlusconi’s brother owns Il each stage of the process so as to minimise the chance of an in• Giornale, and the prime minister provided the capital to start an• justice. This praiseworthy ambition produces nightmarish re• other friendly newspaper, Il Foglio. But it is hard to argue that sults. A study by the European Council found that in 2005 it took newspaper proprietors in Italy are vastly more powerful than an average of 1,210 days for a contractual dispute to be resolved in elsewhere, and there are enough voices to ensure competition. Italy, compared with 229 in Britain and 331 in France. Turin’s The same cannot be said of television, which is where most courts have managed to cut the delays by giving priority to older Italians get their news. Mr Berlusconi owns the biggest commer• cases and publishing the rate at which judges clear them. Unfor• cial broadcaster, but his government also has in‡uence over ap• tunately these innovations have not been copied elsewhere, so pointments at RAI, the public broadcaster. That twin grip gives the foot•dragging continues. him formidable power over how his government is seen on tele• Hence the government’s reform proposal. It mixes some vision. Freedom House, an American NGO, reckons that in his things that might help a bit‹such as separating the career paths 2001•06 government Mr Berlusconi had control over 90% of the of prosecutors and judges‹with some things that would be broadcast media. That assessment has yet to be updated, but not disastrous, such as making it possible to bring civil lawsuits a lot has changed. against magistrates and judges and giving elected politicians a Even without the country’s dominant media owner in the say in which cases should be prioritised. But this reform ought to Chigi Palace, RAI would be rife with political in‡uence. Seven go nowhere anyway because of the con‡icts of interest that out of nine members of the body that supervises the broadcaster come with it. On the government’s side the prime minister has are elected by parliamentary committee. They spend their time been engaged in a †ght with Œcommunist prosecutors since he haggling over the share of airtime allocated to their political par• entered oˆce, and now dedicates a day a week to doing battle ties instead of allowing RAI’s journalists to keep balance. with them. There is no way that his government can propose a disinterested reform. As for the magistrates, some of them seem Board games to be politically motivated. Antonio di Pietro, one of the princi• Italian capitalism di ers from other varieties in three re• pal judges in the clean hands trials, now has his own political spects: the use of cross•shareholdings, whereby company A party. But judges, even if they have fought political corruption, owns shares in company B and vice versa; cascading ownership should not become elected politicians. So reforming the courts is structures, which allow holders of a relatively small number of impossible because everybody’s motives are questionable. shares in a large company to control it via a series of shell compa• ŒItaly would be relatively normal if it were not for all the lit• nies; and shallow equity markets, which are partly a result of the tle Berlusconis, says James Walston, a political scientist at the other two oddities. American University of Rome. Con‡icts of interest and blurred In theory the rules for the governance of publicly listed boundaries between institutions seem to be the norm, and pow• companies are exemplary. In practice they do not deliver the ers are amalgamated rather than separated. But all these tangles goods: witness Pirelli’s value•destroying shopping spree ten seem modest by comparison with the prime minister’s own. years ago which lost it more than ¤3 billion ($4.1 billion) on its One reason for his remarkable success may be sympathy from stake in Telecom Italia, at the instigation of a shareholder who people who see something of themselves in him. 7

12 The Economist June 11th 2011 S PECIAL REPORT I TALY

B ERLUSCONI’S LEGACY from nowhere to achieve great success and is now determined to give something back to his country. The cavaliere and the Despite all his trials for bribery and fraud, as well as the one currently in progress for paying an underage prostitute for sex, about 30% of Italy’s electorate still support him. They are dispro• cavallo portionately old and female and live in small towns, according to Nando Pagnoncelli of Ipsos MORI, a polling company. They watch a lot of television but do not read newspapers. Many of What Silvio Berlusconi promised‹and what he has them do not believe there is any truth in the accusations against delivered the prime minister. WHAT DO THE following countries have in common: In government Mr Berlusconi’s achievements have been Madagascar, Bahamas, Kiribati, Togo, Brunei, Saint Kitts unimpressive, given the power he has enjoyed. One reason for and Nevis, Central African Republic, Haiti, Côte d’Ivoire, Liberia, this is that business interests and legal troubles have absorbed Eritrea and Zimbabwe? Their economies all performed worse his energies and distracted the government. In local polls in Mi• than Italy’s over the past decade in terms of growth per person. lan and Naples last month Mr Berlusconi’s party performed This is not the sort of company that Italy is accustomed to keep• abysmally. The decline is his ratings re‡ects a widespread view ing, but unless it can shake o its torpor it may have to get used to that a politician who once claimed to be able to cut through bu• such un‡attering comparisons. reaucracy and get things done is now bogged down in a personal Silvio Berlusconi been the dominant †gure in Italian poli• battle with the courts which has turned into an obsession for tics for 17 years, more than a tenth of Italy’s life as a nation. To at• him. His approval ratings rose after an earthquake in L’Aquila tribute too much praise or blame to him for the state of Italy to• two years ago which he was seen to have handled well, but then day is to exaggerate the power of one man, even a billionaire tumbled when the promised action did not materialise. The who has used his money to create his own political party, town centre there is still barred to property owners and resi• reached the country’s highest elected oˆce and then used it to dents. Contracts for making the buildings safe are, not surpris• preserve his interests. If Italy is a patient with some peculiar ingly, being handed out without competition. Mr Berlusconi’s complaints, Mr Berlusconi is more symptom than cause. Still, to generous personal gift of cash to L’Aquila’s rugby club has not some extent he has shaped the country in his image. Though he atoned for this. jokes about living until well past 100, at 74 he is now in the twi• It was, though, characteristic of Mr Berlusconi’s style of light of his political career. He recently hinted that he will stand government. On a recent visit to Lampedusa, the island over• down in 2013. What will he leave behind? whelmed by the arrival of North African refugees, he declared When he †rst became prime minister in 1994 his pitch was that the parched outcrop would become a new Capri and an• simple. He would use his entrepreneurial skills to get Italy mov• nounced he would buy a villa there. ŒBerlusconi is pathological• ing again, and he would inspire by his own example: the hard• ly inclined to please other people; he needs their a ection, says working boy who excelled at his legal studies and built a com• Giuliano Ferrara, editor of Il Foglio (funded by Mr Berlusconi), 1 mercial empire, proving that the Ameri• can dream could come true in Italy. ŒWhen my morale is low, I put my hands in my pockets and go for a walk in Milano 2 [one of his property developments], Mr Ber• lusconi once told an interviewer. ŒI re• member how many people were against meðTheirs was a political and bureau• cratic machine perfectly designed to im• pede, to prohibit, to delay and to hinder. Italy’s poor economic performance is suˆcient evidence of his failure to sweep away that machine. With hindsight it is clear that he never intended to do so. On the way up, Mr Berlusconi was too big a bene†ciary of political and bureaucratic cronyism to regard it as his enemy: the key change to the law that allowed his televi• sion network to broadcast nationwide was made by Bettino Craxi, a former prime minister who was also godfather to one of Mr Berlusconi’s children. The prime minister has proved repeatedly that he is not an economic liberal. He has, however, been assiduous in carrying out the second part of his pro• mise: inspiration by example. In 2001 ŒAn Italian Story, a short hagiography of Mr Berlusconi, was distributed to 15m homes. The hero of this tale is a brilliant business• THE SYMPTOM, NOT THE CAUSE man and good family man who came

The Economist June 11th 2011 13 S PECIAL REPORT I TALY

2 presenter of a talk•show on RAI and brie‡y a cabinet minister of pension reforms introduced O er to readers under Mr Berlusconi. ŒHe needs to come to terms with this with by governments of various R eprints of this special report are available. his analyst. This streak a ects the way decisions are made. ŒBer• stripes between 1992 and 2009. A minimum order of †ve copies is required. Please contact: Jill Kaletha at Foster Printing lusconi says yes to everything and then Tremonti [the †nance They are considered a model for Tel +00(1) 219 879 9144 minister] says no, says another former cabinet minister, who the rest of Europe, raising the re• e•mail: [email protected] thinks Mr Berlusconi has damaged Italy but nevertheless de• tirement age and indexing it to scribes him as Œcharming, magnetic, one of the most intelligent life expectancy. Italy’s expendi• Corporate o er people I have met. ture on pensions will soon start C orporate orders of 100 copies or more are available. We also o er a customisation The fundamental defect of Mr Berlusconi’s governing style to shrink from its current high. service. Please contact us to discuss your is that he often confuses private interests with public ones. This The European Commission ex• requirements. is most obvious when using the power of his oˆce to protect pects the country’s pensions Tel +44 (0)20 7576 8148 himself from foreign competitors to his business or from prose• spending as a proportion of e•mail: [email protected] cutors (some years ago he took this newspaper to court for pub• GDP to fall by 0.4% between For more information on how to order special lishing an investigation into some of his business dealings). But it 2009 and 2060, whereas expen• reports, reprints or any copyright queries has also de†ned Italy’s recent foreign policy. As the leading west• diture in the euro area as a you may have, please contact: ern European provider of blue helmets to UN peacekeeping op• whole will rise by 2.7% of GDP. The Rights and Syndication Department 26 Red Lion Square erations, Italy has a good story to tell, but Italy’s two most distinc• Likewise, by driving so London WC1R 4HQ tive positions in recent years have been determined by Mr many of its brightest and best Tel +44 (0)20 7576 8148 Berlusconi’s friendships. Italy long o ered unquestioning sup• abroad, Italy has created a pre• Fax +44 (0)20 7576 8492 port for Muammar Qadda† in Libya. It has now changed tack, cious resource of émigrés with e•mail: [email protected] but Mr Berlusconi has said in private that he is Œmourning for useful experience who could www.economist.com/rights Colonel Qadda†. Italy has also taken an odd stance towards Rus• have a huge e ect on national Future special reports sia, taking every opportunity to stand up for Mr Berlusconi’s life if they returned. A small China June 25th friend and fellow prime minister, Vladimir Putin. ŒEven the for• town called Catanzaro in Cala• The news July 9th eign minister admits to wielding no in‡uence on Berlusconi on bria, Italy’s most benighted The future of jobs September 10th Russia, wrote the author of the cables sent from America’s em• province, recently witnessed a The world economy September 24th bassy in Rome and published on WikiLeaks last year. fascinating mayoral campaign Previous special reports and a list of forthcoming ones can be found online: In all, Mr Berlusconi’s legacy will be the further weakening that pitted a 27•year•old called economist.com/specialreports of institutions that were not strong to begin with, and an even Salvatore Scalzo, returned to Ita• greater tolerance for damaging con‡icts of interest. Fifteen years ly after studying international of verbal assaults on Italy’s courts have left many people believ• relations in the Netherlands and ing that the legal system is a conspiracy of diehard leftists trying brie‡y working at the European Commission in Brussels, against to undermine the government. Mr Berlusconi and his supporters 64•year•old Michele Traversa of the PdL. Though he lost by a have buttressed these attacks by falsely claiming that he has nev• wide margin, Mr Scalzo (whose surname means Œbarefoot, er been convicted of anything and that he was never in any trou• prompting headlines about Œthe barefoot candidate) shook up ble with the courts before he went into politics. In 1990 Mr Ber• a place not renowned for its competitive politics by relentlessly lusconi was convicted of lying in court but avoided jail on a campaigning on Twitter and Facebook and fund•raising online. technicality. On several occasions since then he has been saved If the barefoot e ect were multiplied a few thousand times, it by time limits on prosecutions. Meanwhile the diˆcult reforms would test Italy’s resistance to change. required to make Italy grow have been put aside. For all its quirks, though, there is much that is admi• There is a positive side to all these omissions: Ita• rable about Italy. It is a rich, peaceful, civilised coun• ly’s recent underperformance leaves room for a vast try that does not feel like a place in crisis. Its improvement with a relatively small amount of president, Giorgio Napolitano, manages e ort. Most of the reforms that the country to ‡oat serenely above the political tur• needs to introduce in order to get going again are moil and use his largely honorary oˆce tweaks to microeconomic policy that would not to rein in some of the more outrageous cost much. Reforming the labour laws would be antics of elected politicians. Its consti• tution has stood up surprisingly well un• der bombardment. The Bank of Italy is a THERE IS A POSITIVE SIDE TO ALL THESE OMISSIONS: ITALY’S great institution in a country with few of them. Its boss, Mario Draghi, should RECENT UNDERPERFORMANCE LEAVES ROOM FOR A VAST make a †ne leader of the European Cen• IMPROVEMENT WITH A RELATIVELY SMALL AMOUNT OF EFFORT tral Bank. Italy has many brave anti•ma†a campaigners who have risked their lives to keep an old Italian tradition of civic ac• a good place to start. In their book ŒA New Contract for All, Tito tivism alive. And as 42m foreign tourists a year can attest, it is a Boeri and Pietro Garibaldi have outlined how this might be lovely place to visit. done: by creating a single contract for all workers, with privileges In its short life as a nation Italy has already rebuilt itself sev• increasing in stages. The European Commission and its single• eral times. For the past few decades, though, it has been living on market directives provide plenty of political cover for Italy to the afterglow of an economic miracle that came to an end in the push towards greater liberalisation. Politicians should make the 1970s. It could continue like this more or less inde†nitely, steadily most of it. Who knows, one day voters might even reward them growing poorer and older but still managing quite comfortably. for being brave. For the moment this seems the most likely thing to happen. But Such reforms would be resisted by the little guilds of work• the country is overdue another reawakening like the one that led ers, but change is not impossible, as has been shown by a series to uni†cation 150 years ago. 7

14 The Economist June 11th 2011