(january 2022)
Nations in Crisis: Italy
Mathieu Kassovitz's film La Haine/ Hate (1996) opens with a man who is falling from a skyscraper and, as he passes one floor after the other, keeps thinking "so far so good".
It reminds me of the endless crises endured by Italy since i was a child.
Possibly no other country in the world is so painfully aware of its own decline as Italy is.
And, still, Italy is one of the top-10 economies of the world, ahead of Russia,
and it remains Europe's second industrial power after Germany
(in 2019 Germany accounted for 28% of the EU's industrial production and Italy of 16%), way ahead of France and Britain.
But Italy once pretended to have passed Britain in GDP, while now its GDP is 800 billion dollars smaller, and for 20 years Italy has only experience stagnations and recessions.
The euro is a popular culprit and scapegoat. After all, Italy's economic decline started the year after the euro was introduced in 1999 (the coins appeared in 2002).
In the year 2000, growth rate was still 3.8% and that was the last time that Italy recorded more than 2%.
Since 1999 the average annual growth rate per capita in Italy has been zero, which is almost a world record.
The theory is that the euro was "cheap" for Germany, the Netherlands and Austria, basically devaluating their strong currency,
whereas it was "expensive" for Italy, basically over-valuating its weak lira.
Those northern countries have benefited greatly from the "cheap" euro whereas Italy has suffered from the "expensive" euro: Italy recorded
the biggest drop in export market share of any developed country.
In 1999 the lira was worth six times less compared to the German mark than it was in 1965 compared to the same currency; in other words, it had devalued constantly, and after 1999 that was no longer possible.
For three decades before the euro, Italy's higher costs and higher inflation had been compensated with a policy of steady currency devaluation, and Italy had been able to maintain competitiveness on the world market.
There is probably some truth in this theory, but it ignores the benefits that came with the euro, benefits that have been felt in all the countries that joined the euro over its 20-year lifespan.
This theory also ignores other seismic events that shook Italy during the years preceding and following the introduction of the euro. Italy went through a
mini-revolution during the 1990s, as the old corrupted political system
was demolished by judges who investigated endemic bribes
(the so-called "Tangentopoli" or "Mani Pulite" movement, roughly 1992-96).
And, not surprisingly, right-wing politicians who own their career to Silvio Berlusconi omit to mention that Berlusconi was prime minister during much of Italy's decline (1994-1995; 2001-2006; 2008-2011).
If the euro had something to do with Italy's decline, maybe Berlusconi too had something to do with it.
The reasons for Italy's decline are multiple and ultimately are due to the country's inability to adapt to the international events of 1999-2002, which happen to coincide with the birth of the euro:
the end of the Cold War in 1989,
the launch of the World-wide Web in 1991,
and
the admission of China in the World Trade Organisation in 2001.
The world of the euro was a wildly different world, and not because of the euro's fault. It was a highly technological world, a world
of telecommunications and computers, and increasingly an online world, a world of ecommerce. Italians had excelled at commerce but failed to adapt to ecommerce.
The world of the 21st century was also a world were suddenly there were dozens of competitors where there used to be a handful.
The world of the Cold War was a relatively easy world for Italy: Western Europe, the USA, Japan and the Asian tigers. Everybody else was either awfully under-developed, devastated by civil wars, or run by mad dictators.
After the end of the Cold War, democracies multiplied and almost everybody became capitalist and globalized.
The number of Italy's competitors increased from 5 or 6 to 50 or 60.
One stood out: China.
Since the end of World War II, Italy had specialized in good-quality low-cost manufacturing goods, from Fiat cars to Olivetti computers.
After 2001 China quickly became the dominant power in that sector, and China,
unlike Italy, quickly adopted ecommerce.
That brings us to another major factor in Italy's decline: the reluctance to adopt new technologies, due to a mix of complacency and lack of leadership.
Italy's manufacturing sector has traditionally been dominated by small family-run firms, which, anywhere in the world, were the most reluctant to automate and move online. It didn't matter for the ones making high-end clothes,
jewelry or pastry, but it did matter for those making ordinary goods sold in
ordinary supermarkets.
Small and medium-size businesses have been reluctant to invest in new information technologies and reluctant to change their business models, with the result that their export strategies floundered, they got stuck in low-growth traditional sectors,
and even domestically they had to face the competition of Chinese-made products.
But one can't only blame the entrepreneurs.
There is a general hostility towards new technology among the Italian population.
Whatever the cause, the result is that it is hard to increase GDP when one sticks to old business models.
Italy has the third largest public debt of the world in absolute terms (a legacy from the 1980s - debt already stood at 120% of GDP in 1995, way before the introduction of the euro) and the one of the top-10 when it is GDP weighted (160% of GDP). But, while much higher than the EU's overall 90% of GDP, that is no longer the oddity that it was: Japan's 266% is way higher, and the USA's 128% and Spain's 120% are not much lower and growing faster. The debt/GDP ration mainly says that Italy's GDP has not increased as much as it should have.
Another result of the reluctance to adopt new technologies is that jobs become boring for young people, and talents leave - not poor, uneducated people but highly educated kids from relatively well-to-do families.
Those who remain are wasted on obsolete jobs and mainly want to retire because their job is boring.
Italy slowly became a country of good food and amazing art which excite tourists but a country where a lack of innovative jobs makes young people chronically depressed.
Studying new technologies in universities is often useless because there are no such jobs in Italy. When one studies biotech, cloud computing or nuclear physics, one is basically committing to emigrating.
Another effect of Italy's reluctance to adopt new technologies is that its
university system has declined together with the rest of the economy: the country of Marconi, Fermi, Segre', Regge, Rubbia, Montalcini and Parisi has fewer teachers who can lectures students on new technologies.
Italy's bureaucracy is frequently cited by Italian entrepreneurs who left (or retired) as well as by foreign entrepreneurs who wouldn't consider investing in Italy. The taxation system and, in general, laws that harass founders rather than encouraging them clearly compound the problem of not enough innovation.
After high-profile judicial errors (like the one that sent to jail TV host Enzo Tortora) have eroded trust in the system and created a general feeling that, if you succeed, Italy's bureaucracy will punish you, not reward you.
The welfare system is based on the protection of jobs rather than on the creation of jobs.
Often, protecting a job means hurting a business and preventing that more jobs will be created.
The criminal justice system is one of the most inefficient in the world: trials can take many years, and many trials never come to conclusion because they reach the time out. The Italian code of law is often bizarre, and ordinary people feel that
it protects the criminals.
For example, the poor are automatically assigned a free lawyer by the court. That sounds fair, except that, in general, it is the thief who is poor and the victim who is not poor. The law assigns a free lawyer to the poor (the thief) but not to the non-poor (the victim) who then has to pay in person for the lawyer.
The reason that trials take forever to come to conclusion is that the law includes many provisions that allow the defense to delay the trial.
And when the trial finally takes place, the number of bizarre regulations is stagging. For example, the judge is not allowed to read the transcript of what a witness said at the time of the crime. The judge can only ask the witness to tell him verbally what s/he remembers. The problem is that in most cases the trial happens many months or even years after the crime was committed, which means that the witness doesn't remember. To be on the safe side, the witness normally asks to read the transcript of his original deposition. The witness reads it aloud and it is transcribed by an officer. This transcription (which is obviously identical to the original transcript) is then accepted as an official document (a document that the court already had). The whole thing is simply a waste of time.
Note that the laws and the various procedures are not created by the judges but by the politicians. It is hard to dispel the suspicion that the politicians whemselves have sabotaged the criminal justice system on purpose to avoid that judges can investigate them, their donors and their friends.
When too many politicians were being investigated (and found guilty) by
the "Mani Pulite" team, the Italian government simply passed laws that de facto
de-criminalized the most frequently investigated crimes:
like the "Decreto Biondi" of 1994 that abolished prison for bribers and bribed
and instantly released from prison 2,764 convicted crooks, following the
1993 "Decreto Conso" which would have decriminalized illicit financing of political parties (it was eventually shelved),
the the 2002 law that almost decriminalized false accounting (just when Berlusconi was defendant in five trials for false accounting of his firms),
the
"Cirielli Law" of 2005, whose goal was widely believed to save Silvio Berlusconi's close ally Cesare Previti from jail (and that killed entire trials),
or the "Comma Fuda" of 2006 which would have de facto legalized accounting fraud (the "comma" was later erased).
Most of these decrees were introduced by right-wing governments to save prime minister Silvio Berlusconi and his allies, but
in 2015 Matteo Renzi's left-wing government tried to legalize some tax fraud.
Thousands of trials involving alleged corruption have never been completed because of Italy's uniquely defendant-friendly statute of limitations.
Judges like Antonio DiPietro and Piercamillo Davigo who led the "crusade" against corruption became the victims of smearing campaigns on the media owned by Berlusconi himself, showing the dangers inherent in any collusion between politics and media (something similar to the association between Trump and Fox News).
This is another of Italy's awful inventions (with the mafia and fascism).
In 1869 national hero Cristiano Lobbia (one of Garibaldi's "mille" who united Italy in 1861) discovered a bribing scandal and presented in parliament. The result was that the government discredited him, even accusing him of simulating an attempt on his own life, until he eventually retired.
The same trick was used 130 years later to discredit
judges like DiPietro and Davigo (and unfortunately exported to the USA where the Republican Party and Fox News used similar tactics to discredit the investigations into Trump's many scandals).
Italy hasn't done much to deter corruption, but has done a lot to deter the investigation of corruption.
Looking at the people who are actually found guilty and sent to jail, one would imagine that there is no corruption in Italy: only 1% of inmates in Italian prisons are there for white collar crimes, compared with 12% in Germany.
The real difference is that it is easy to prosecute white-collar crimes in Germany and difficult in Italy.
Only in 2017 Paolo Gentiloni (a prime minister of the center-left party) succeeded in a modest judicial reform.
Corruption is so endemic and out of control that funny trivia abound.
A notorious problem in New York is that diplomats, who are covered by
diplomatic immunity, don't pay the fines for parking illegally.
In 2016 a statistician named Ben Wellington compiled statistics by country
(see the study):
between 2003 and 2015, Italy was the second worst offender after Indonesia.
Wellington then ran a correlation between the amount owed and countries' corruption scores calculated by Transparency International: countries that ranked high on corruption also ranked high on unpaid parking tickets. Italy topped both lists if limited to the most developed countries (Western Europe, North America and the Asian Tigers).
Corruption is endemic in Italy but somehow it doesn't keep northern Italy from being one of Europe's top commercial, financial and industrial hubs.
There is still a huge divide between northern Italy (one of the most industrial regions in Europe) and southern Italy (still underdeveloped by European standards).
Unemployment in the north is just 6%, but in the southern regions it is 17% (10% nationwide) and almost 50% for young people (27% nationwide).
The south has been plagued for decades by
corruption and organized crime, the various kinds of mafia (the Cosa Nostra in Sicily, the Camorra in Campania, the Ndrangheta in Calabria, the Sacra Corona Unita in Puglia, and so on).
Arguably, the most successful Italian business of the last two decades has been the Ndrangheta, a criminal organization that originated long ago from the region of Calabria, the poorest of Italy and one of the poorest of Europe. An
investigation by the Financial Times detailed how it has become a globalized crime syndicate as skilled in high finance as it is in extortion.
A 2013 study by Demoskopia showed 'Ndrangheta's revenues were greater than Deutsche Bank's and McDonald's combined.
Needless to say, the ubiquitous presence of organized crime does not encourage anyone (not even the locals) to start a business there.
This is a pity because southern Italy is strategically located to take advantage of international trade in the Mediterranean and offers a climate comparable to that of Silicon Valley or at least to that of southern Spain.
While Spain's south is rapidly developing and becoming a top tourist destination, Italy's south remains locked in a vicious loop of underdevelopment.
The southern Spanish region of Andalusia, the Spain's poorest, has passed
Calabria in terms of income per capita (18,000 euros).
Organized crime exists everywhere but Italy is probably unique (at least in Europe) for the way it has become part of politics. In the old days there were countless connections between the Sicilian mafia and the Christian Democratic Party that ruled Italy for decades.
In 2006 Italy's prime minister Romano Prodi named as his justice minister Clemente Mastella who in 2000 had been a wedding witness to a mafia operative (Francesco Campanella). Prodi's excuse was that Mastella was neither indicted nor suspected of any crime. True, but if you had attended the wedding of a criminal in your country (as the witness of the groom), i doubt you'd be appointed justice minister of your country.
Thanks to the political connections, the various mafias of southern Italy has been able to extend their influence to industries in Italy's richer northern regions.
The traditional sector of mafia organizations was the construction sector.
Now they have infiltrated healthcare, waste management and tourism.
After the political revolution caused by the ascent of the M5S (Five-star Movement), Italy's governments have become more serious about fighting organized crime, and more than 2,000 were indicted of mafia association in both 2018 and 2019.
In 2019 a government alliance between the far-right Lega and the anti-corrupation Five-Star Movement introduced the "citizenship income" ("reddito di cittadinanza"), a kind of universal basic income that mainly benefits the southern regions. This subsidy consists in a cash contribution (about 900-1050 euros per family) and a rent contribution (generally 280 euros). The problem, of course, is that many southern Italians were not making that much money with a regular job, so now they are less (not more) motivated to work.
There is a serious risk that this subsidy will destroy the artisan traditions of regions like Sicily now that artisans (from bakers to carpenters) have a harder time finding the cheap labor ("apprentices") that has allowed their business to survive globalization (and no new "apprentices" would mean that nobody will learn the craft and the craft could die within a generation).
But the real alarm in Italy is not the depressed mood of the South but the
depressed mood of the north, where income per capita is higher than Japan's
($45,000). If Lombardy's economy falls, Italy's economy crashes.
Adding to the national depression is the fact that immigration (most of it refugees from poor countries) has changed society in a dramatic way and in a
relatively short period of time. Most grandparents had never seen a black man
in their youth. Now they see them everywhere.
First came the Chinese, hard-working and frugal, who now run all sorts of
businesses. Then came the Eastern Europeans, especially Romanians (who speak a language similar to Italian) and Polish (who are Catholics like the Italians).
Then came the wave of Arabs, then the wave of black Africans, and now also
Indians and Afghans.
White Catholic Italians have surrendered several urban areas to these communities, and older Italians are clearly nostalgic about the days when the Tabaccheria
or the Panetteria were run by fellow white Catholic people.
Perhaps the most depressing aspect of this inverted colonization is that
immigrants and their children seem indifferent to Italy's artistic legacy.
They don't visit the monuments and the museums that represent 3,000 years
of Italian civilization.
The average white Catholic is aware that, given the current demographic trends (shrinking white Catholic population) in 50 or 100 years (depending on
birth rates) Italy might become ethnically Arab-African-Indian (the Chinese are moving back to China), with unknown consequences on Italian civilization.
It is not a compliment to the state of Italy that the vast majority of immigrants are penniless and often illiterate refugees while there are virtually zero
immigrants who are college educated and come from wealthy countries;
and that so many college educated Italians and wealthy Italians aspire, first
and foremost, to move out of Italy.
Some recent man-made disasters have further exacerbated the feeling that Italy is doomed.
In 2012 a coward commander, Francesco Schettino, caused his cruise ship "Costa Concordia" to crash and then was the first to abandon the ship as it was sinking, causing the death of 32 passengers and crew.
In 2018 one of Genova's most trafficked bridges, the "Ponte Morandi", collapsed
during a rainstorm killing 43 people.
And in 2021 an aerial tram of the Stresa-Mottarone cable car near Lake Maggiore crashed because the owner had disabled the emergency brakes, causing the death of 14 passengers.
Perhaps even more disconcerting was the trial in 2012 of well-respected scientists accused of not having predicted the L'Aquila earthquake that killed 300 people in 2009: in a medieval-style trial, scientists were sentenced to jail for not having predicted an earthquake! (The scientists were eventually acquitted a couple of years later by an appeal court).
Meanwhile, in 2011 group of Italian scientists working at the underground Gran Sasso Laboratory announced that they had detected particles traveling faster than the speed of light, something that would have invalidated both quantum mechanics and relativity. The experiment was largely derided in the rest of the world and, sure enough, two years later the team had to admit a mistake in the measurement.
Add the fact that in 2020 Italy was the first country to be devastated by covid.
A chorus of "Poor Italy" could be heard all over Europe.
All in all, the hostility towards technology could be the main factor that
is causing Italy's rapid decline.
Check the European hubs for biotech, cryptocurrency, artificial intelligence,
and so on, and you'll probably never find a single Italian city mentioned.
This anti-tech sentiment is hard to explain. It is the tech that makes countries like the USA and China superpowers. It is the tech that developing countries desperately want. But somehow Italians have been consistently skeptic and critical. One possible explanation is the educational system, which tends to send the best students towards the "liceo classico" where they study Greek philosophy and art history instead of math and engineering, which also means that the smartest students often grow up disliking technology and science in general (they become more skilled in philosophizing about them than in doing them).
In a sense it's the exact opposite of the Chinese system, where the best students are encouraged to study engineering and physics, not philosophy and art.
One technology that Italy proudly rejected was nuclear energy.
That decision has come back to haunt Italian society.
During 2021 Europe witnessed an increase of 300% in the price of natural gas (which is used to generate both electricity and heat), and Italy is the most
vulnerable of all major economies: tens of thousands of Italian families are now at risk of falling into poverty.
Italy's energy resources are scarce. It is dependent on importing fossil fuels. Italy's main source of energy are petroleum and natural gas (about three-quarters of the total), followed by coal and hydro. Only one fifth of the total comes from renewable sources.
Italy's energy dependency amounts to about 80%, mostly natural gas from Russia and petroleum, also mostly from Russia (as well as Azerbaijan, Iraq and Saudi Arabia).
Italy also imports ready-made electricity, about 15% of its electricity consumption: 54% from Switzerland (which has nuclear power), 34% from France (which has nuclear power) and 12% from Slovenia (a tiny country located northeast of Italy which has nuclear power). Italy, which is proud of not having any nuclear power plant, is the biggest importer of electricity in Europe.
Since the financial crisis of 2007 Italian governments have been more technocratic (the current prime minister Mario Draghi is an economist who served from 2011 to 2019 as president of the European Central Bank) but their hands are tied when it comes to energy production: Italians are firmly opposed to nuclear power (94% opposed it in the latest referendum of 2011) and Italy just doesn't have any fossil fuels.
Energy prices are bound to increase for the foreseeable future while Italy's GDP per capita is likely to remain stable. Inevitably, this will cause thousands of households to go without adequate heating. The day when Italian households will have to cook using kerosene like Peruvian mountain villages is not too far into the future.
Italy had a peaceful mini-revolution in the 1990s when the judges dismantled the old corrupt political parties, but this only led to the right-wing Berlusconi regime that was no less corrupt (some say that he simply legalized corruption so that judges couldn't prosecute corruption anymore).
However, corruption was not the main problem because the technocratic governments that came after the fall of Berlusconi have not improved the economic situation at all. This is precisely the cause of today's depression: if in the 1990s and 2000s it was legitimate to assume that corruption caused the ills of the country and therefore the mood was mainly of anger (well represented by the "V" symbol used by comedian Grillo to start a mini-revolution with his Five-star Movement - "V" being the first letter of the vulgar "vaffanculo"), today, in the 2020s, it is clear that the economic malaise is rooted in chronic aspects of Italian society, and, ultimately, in choices made by Italians themselves.
Rather than facing those bad choices and remedying them, many Italians, especially the educated ones (who obviously don't seem to trust the less educated majority), opt for leaving the country (and ironically most Italians, staunch opponents of nuclear energy at home, choose countries like Britain, Germany, France, Switzerland and Spain that have nuclear energy).
There is a general feeling that inevitably Italy will slowly slide into poverty, and nothing can be done to reverse the trend.
Politicians who have bold ideas on how to change the system don't get elected;
those who get elected, by definition, have no ideas.
P.S.
Russia's invasion of Ukraine in 2022 simply exacerbated Italy's economic problems because nuclear-free Italy heavily depends on Russia's natural gas.
Italy, which always was one of NATO's weakest members and has traditionally
had a strong pro-Russian countercurrent (from Stalin's man Togliatti to Putin's best friend Berlusconi), could hardly afford an ideological crisis after the socio-economic crisis caused by the covid pandemic.
In fact, the unity government of Mario Draghi collapsed right after Russia's invasion of Ukraine (five months later, in July 2022) and after Draghi followed
the NATO powers in imposing sanctions on Russia and sending weapons to Ukraine.
Polls showed that the neofascists were poised to make huge gains:
the fascist movement Fratelli d'Italia (led by Giorgia Meloni) polled at 24%,
followed by
Matteo Salvini's xenophobic Lega (13%) and Berlusconi's
Forza Italia at 8% (yes, Berlusconi was still in politics despite all the scandals and trials).
Adding the nationalist/populist ItalExit of Gianluigi Paragone (2%), the
neofascist/xenophobic/nationalist parties were favored by 47% of likely voters.
The left was led by the Partito Democratico of
Letta (22.5%), but then fractured among the
M5S (led by Giuseppe Conte, the man widely considered responsible for the political crisis) with less than 10%,
Calenda's centerleft Azione + Europa at 5%,
Nicola Fratoianni's far-left Sinistra italiana at 4%,
Luigi Di Maio's
Insieme per il Futuro at less than 3%
Matteo renzi's Italia Viva at less than 2%,
and Articolo 1 MDP also at less than 2%, for a total of about 48%.
And with no capable leader in sight after having wasted top economists like
Mario Monti, Paolo Gentiloni and Mario Draghi.
It was telling that in the same week that Draghi resigned, Italy received a record 1,200 migrants in one day (from Afghanistan, Pakistan, Sudan, Ethiopia and Somalia).
The overall problem remained that Italy had fared better under the corrupt Christian Democratic regime of the 1950s-80s, less well during the Berlusconi era (1994-2013), and even less well after Berlusconi, a continuous slide into chaos and stagnation.
No wonder that many Italians were becoming nostalgic of Mussolini who looked like a giant compared with some of the clowns of 2022.
TM, ®, Copyright © 2021 Piero Scaruffi All rights reserved.
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