skip to main | skip to sidebar
Global Labour Column Archive
  • HOME
    • ABOUT US
    • GLC ANTHOLOGIES
  • LINKS
    • RECOMMENDED SITES
    • DISCLAIMER
  • AUTHORS
  • GLOBAL BOARD
  • CONTACT
  • GLU
  • ICDD
  • Follow Us on Twitter
  • Tuesday, May 7, 2013

    Italy from Recession to a new Socioeconomic Identity

    Paolo Borioni
    The historical sources of the Italian crisis[1]
    The Italian economic crisis has global as well as domestic roots. As Italy depends on industrial exports, the country has been deeply affected by the global crisis, and even more so by the depressive results of the EU’s austerity measures.[2]  Mario Monti’s technocratic government has also added to depressive austerity: the Italian internal market shows a negative growth, below -2% in 2013, adding to Italy’s need for exports.

    Italy was one the fastest growing industrialised European countries between 1950 and 1990, performing better than Germany.[3]  This was partly due to its newcomer identity characterised by low wages which helped competitiveness at the beginning of this period. The economic landscape was further marked by the presence of a few major enterprises (including Fiat, Pirelli, Olivetti) and big state-owned enterprises (Ansaldo-Breda, Fincantieri, Eni, Enel, etc.). Large companies provided long-term investment and innovation, facilitating the emergence of plenty of successful Small and Medium-Sized Enterprises (SMEs)[4]  in the so-called “third Italy”. The success of SMEs was founded on their embeddedness in a dynamic economy dominated by large firms, whose investment in research and technology also benefited SMEs.


    SMEs provided the Italian system with the much praised “flexible specialisation”. They were a segment of mostly formal, but also “informal”, producers often connected to national or foreign large-scale manufacturing, and were able to adapt to rapidly changing global and national demand. Also, many of these SMEs grew bigger and smarter: 5000 of the most competitive ones eventually developed into something quite similar to the German Mittelstand. They are the reason why, even in the face of current economic hardships, the country manages to achieve a commercial surplus.

    Nevertheless, many other SMEs have suffered the consequences of the past 30 years of economic policies affected by neoliberalism, financialisation, rigid and inflation-obsessed Euro parameters. Financialisation and globalisation convinced large enterprises like Fiat to withdraw long-term and innovative investment from Italy. Neoliberalism added to this process by discrediting the key task of public enterprises as providers of long sighted research and development, despite the evidence that companies such as Finmeccanica and Eni are an unquestionable example of innovation. Moreover, Euro parameters hampered EU internal demand and rendered devaluation impossible. Hence, the historical basic elements of long-term innovation and SMEs virtuous selection was weakened, and the “economic miracle” of 1950-1990 vanished.

    Neoliberalism, financialisation and wrong social incentives

    In the new century Italy remained largely an industrial country, refraining from the financialised short-term outlook and private indebtedness (the real source of the world crisis) popular in Spain and Anglo Saxon countries. But the Italian economy was nonetheless hit particularly badly by the crisis because of its significant weaknesses. On the one hand, it would have needed another couple of decades such as the “glorious” ones after WWII to get rid of its “newcomer” features, such as the excessive size of the informal labour market, low-wage labour, the average small size of firms and the tendency towards tax evasion as a remedy for competition/insufficient credit to investment. On the other hand, the effects of long-term innovation investment, implementation of labour rights plus higher employment rates in the southern regions of Mezzogiorno needed to be more thoroughly implemented.

    If big and especially state owned companies had had the opportunity to play their role in research and development for longer, the results could have trickled down to a large portion of key SMEs, which would have rendered the economy as a whole stronger. This would have been crucial especially for the less developed south: the incentives to a non-newcomer type of competition and investment (strong and more thoroughly protected labour rights, or a less tolerant fiscal system) would have become a ubiquitous and solid reality.

    On the contrary, since about 1990, financialisation and neoliberalism triumphed, industrial policies became unpopular and long-term investment lessened. Hence, far too many SMEs remained small (90% have under 15 employees) and within a family-size horizon, often incapable of long-term planning. Therefore, the only positive outcome of the post-Euro years, i.e. low cost of money borrowing, was insufficiently used strategically.

    Therefore, for the bulk of Italian manufacturing and services, resorting to typical and still present “newcomer” features remained a necessity. A vicious circle started especially in the less developed south: the more these factors are present, the less is the incentive to long-term product and process innovation.

    The roots of the political present

    Although progress had been made in collecting tax revenues, neoliberal hegemony intertwined with the remaining newcomer features of part of the economy made this process difficult, which for a good part explains the resilience of high public debt. Former Italian Prime Minister Silvio Berlusconi’s election can only be explained by millions of SMEs’ need to be reassured from multiple anxieties. The Maastricht parameters seemed to remove any flexibility in the EU internal market: temporary devaluation wasn’t anymore possible, and all EU countries at the same time tended to tighten their budgets, rendering EU internal competition far harder for many Italian SMEs and their above mentioned “hybrid” nature.

    In this context Former Prime Minister Romano Prodi’s centre-left mostly presented the Euro as not debatable, while Berlusconi showed more empathy. Other explanations are simplistic, failing to explain why Berlusconi did not win a second term.

    Anxiety grew in the 2000s: The impressive decrease of German low wages and the comparatively insufficient increase of the high ones deprived the EU (especially manufacturing countries like Italy) of a crucial growth factor, in the context of growing competition from the Brics countries (Brazil, Russia, India, China, South Africa).

    Italy was largely unprepared for the global crisis. The assumption, however, that Italians have lived beyond their means is mostly false. The high public debt in Italy is largely balanced by one of the highest saving capacities of the world. Italy’s diffuse savings are in quantity and percentage larger than most other developed countries, amounting to more than eight times the country’s GDP. Private debt is comparatively small: the sum of Italy’s private and public debt is in total smaller, often much smaller, than in most other developed countries.[5]  This is important as the present crisis was triggered by private, not public debt. Also, most of Italian public debt is owned by Italian savers.

    This is of course not to deny the size of the problems. Italy suffers a huge lack of long-term investment, especially after implementing austerity measures, and a very high rate of unemployment. These features are even more negative considering that in the southern part of the country the rate of employment has always remained low in EU terms, thereby strengthening the informal economy and the power of organised endemic crime. How can Italy come out of the crisis in such a way that a historical change is achieved at the socioeconomic structural level?

    Solutions for a historical socioeconomic change

    Italy needs three kinds of measures:

    1) The resources accumulated in private wealth and partly through disloyal fiscal behaviour must be taxed more (i.e. taxation ought to be fairer). These measures must not be perceived to be punitive, and must be implemented gradually to prevent the sudden death of too many SMEs. The new revenues must fuel demand (by allowing lower taxes on work incomes) and fund better unemployment benefits and active labour market and innovation policies. This will help remove the incentives to low-wage production, enhancing a virtuous circle based on parity between the labour market parties and systematic innovation.

    2) A new “golden rule” as part of a new European compact: part of the state deficit must be allowed and taken out of the Euro parameters to fuel strictly earmarked (monitored at the EU level) investment in infrastructure, greening, innovation, R&D etc.

    3) German low wages must grow significantly. This will only partly cause inflation in Germany: the negative interest rates of the Bund (German bonds) already have inflationary consequences. Since more income equality in Germany can easily push Italy out of recession, confidence in Italian public debt can return to acceptable levels, which can cut the irrational flow of investment in German Bund, and thereby non-wage led inflation. As a result, only controllable and “good” German inflation (connected to higher wages and more income equality) will result from increased German wage-led demand.

    Along with a rational management of the debt crisis, these three pillars can contribute to complete Italy’s development out of its dualism.

    The February 2013 elections seem to confirm populism, instability and the urgency of these measures. The centre-left was able to defeat Berlusconi, whose coalition failed for the third time to win a second term, and for the first time stumbled dramatically, losing about 7 million votes. On the other hand, most likely because of the support given to Mario Monti’s neoliberal government, the centre-left victory was disappointing in terms of popular votes and insufficient in terms of seats in the Senate. A new protest movement (the “5 stars movement”) got an astonishing 25% of the popular vote. There will be no signs of change until reliable parties and coalitions are able to chart a credible road out of the present crisis.


    [1] This text draws on P. Borioni & R. Mazzocchi, Die globale Krise in Italien: Entstehung, Eigenart, Gefahren 
    [2] In 2008 an industrial surplus of more than 70 billion Euro (just considering machinery, mechanical equipment, metal and plastic products) balanced an almost as big trade deficit in energy and petroleum products: Italy has no or very little oil or coal. In 1996 Italy’s European trade surplus was about 1% of GDP; in 2010, this had turned into a trade deficit of 5% of GDP (Rapporto CER, Centro Europa Ricerche, No. 1 2012).
    [3] Italian GDP grew in this period 4.49 times, Germany’s 4.19 times. Only Portugal, Greece and Spain grew more, but remained at much lower levels of GDP per capita by 1990, and failed to achieve a significant industrial profile. S. Bradberry, A. Klein, ‘Aggregate and per capita GDP in Europe, 1870-2000: continental, regional and national data changing boundaries’, Scandinavian Economic History Review, Vol. 60, No. 1, 2012.
    [4] According to Il Sole-24 Ore, the country’s leading economic paper, Italy has the highest number of companies per inhabitant in the developed world.
    [5] See: Banca d’Italia, ‘L’indebitamento delle famiglie italiane’, Bollettino Economico, 52/2008.   

    Download this article as pdf

    Paolo Borioni, Ph.D. is a historian who works for the Fondazione Giacomo Brodolini and collaborates with the Center for Nordic Studies, Helsinki. His main fields of research are the welfare state, Nordic history, and social democracy.

    Posted in: Europe,Financial Crisis,Financialisation,Growth,Neoliberalism
    Email This BlogThis! Share to X Share to Facebook
    Newer Post Older Post Home

    0 Comments:

    Post a Comment

    Share

    Twitter Facebook Stumbleupon Favorites More

    Subscribe to the Mailing List

    If you want to subscribe to the GLC mailing list, please click here or send an empty email to "List-GLColumn-subscribe@global-labour-university.org"

    Contribute to the GLC

    If you want to contribute to the Global Labour Column, please read here the Guidelines for Contributions

    Languages






    Donations

    More Info

    Popular Posts

      T-Shirt Economics: Labour in the Imperialist World Economy
      Chinese Construction Companies in Africa: A Challenge for Trade Unions
      Ruskin, the trade union college, is under siege

    TAGS

    Trade Unions Financial Crisis Workers' rights Globalisation Neoliberalism Labour Market Collective Bargaining Decent Work Inequality Labour Standards Wage Social Movements Europe Development Strategies Struggle Progressive alliances Strike Growth Labour Labour rights Financial Market Tax Financial Regulation Social Security Public Investment Social Democracy South Africa Economic Democracy Fiscal Space Germany Informal Economy Corporate Governance Freedom of Association ILO Minimum Wage United States Competitiveness Human Rights Labour Movements Trade Union Austerity Central Bank Environment Free Trade Free Trade Agreement Greece Labour Movement Social Protection State Funding Transnational Solidarity Unemployment Vietnam Workers’ Rights Crowd Work Domestic Workers Economic Crisis Education Employment Forced Labour France Global Warming Labour Market Flexibility Labour Statistics Migration National Minimum Wage Public Works Programmes Trade Union Divisions Workers' unity Agriculture Brexit Care Work Construction Sector Cooperatives Crisis Economic Alternatives Economic Reform Farmworkers Financialisation Globalization Indonesia Just Transition Labour Process Liberalisation Macroeconomic Policy NUM Nationalism Occupational Health Organising Outsourcing Portugal Privatisation Refugees Regulation Reserve Army of Labour Right to strike Social Dialogue Social Justice Solidarity Tax Evasion Welfare State Workers Rights Workers’ Organisations AMCU Africa Alternative Sources of Power Anti-privatisation Anti-union Violence Automobiles Brazil Business and Human Rights Capital Flight Capitalism Chinese Investment Climate Change Collectivity Colombia Community Monitoring Conference Corporate Transparency Coup Cuba Debt Restructuring Decriminalisation Demand Democracy Developed and Developing Countries Development Digitisation Disciplining of the superfluous labour force Domestic Work Economic Development Egypt Elections Entrepreneurship Eurozone Crisis Executive Compensation Factory Occupations Fair Trade Farm Workers Feminism Finance Financial Crises Financial Innovation Financial crisis. Fiscal Austerity Food Sovereignty G20 Gender Gentrification Global Health Global Multiplier Great Depression Great Recession Hawkers Health Hotel Housekeepers Human Rights due Diligence India Industrial Relations Informal Employment Institutions International Aid Policy International Framework Agreements Investment Partnership (TTIP) Investment Partnerships Iran Korean Shipbuilding Industry Kuznets Labor Labour Broking Labour Income Share Labour Markets Labour Reform Leadership Left Legislation Loi Travail Macroeconomic Performance Management Manufacturing Marshall Plan Metal Workers Migrant Domestic Workers Militarised Capitalism Mineworkers NASVI National Health Service Neolibaralism Networking New Progressive Consensus Online Campaigning Options for the Euro Area Paternalism Patriarchy Pensions Performance Standards Political Alliances Poverty Reduction Precariousness Prison Labour Prisoners Private Plantations Progressive Tax Reform Protectionism Protests Public Policy Quebec Racism Rank-and-File Member Redistribution Regulation of Labour Rent Seeking Rural Development Ruskin SEWA Securitization Sex Work Shadow Banking Shaft Stewards Social Audit Social Development Social Movement Social Transformation Solidarity Economy Spain Sportswear Industry State Stellenbosch Street Trading Street Vendors Strike Ban Strikes Structural Changes Supply Chains Swedish Model Tertiary Education Top Income Shares Tourism Trade Liberalisation Trade Misinvoicing Transatlantic Trade Transformation Transparency Transport Trump Tunsia Turkey Unfree Labour Union 4.0 Union Strategy Unions Universal Health Coverage (UHC) Voluntary Initiatives Wage Employment Wage Inequality Wage Share West Africa Wild Cat Strike Winelands Women Women’s Movement Workers` Organization Youth

    PUBLICATIONS

    Click here to view more

    Blog Archive

    • ►  2020 (1)
      • ►  September (1)
    • ►  2017 (40)
      • ►  December (4)
      • ►  November (2)
      • ►  October (3)
      • ►  September (5)
      • ►  July (4)
      • ►  June (6)
      • ►  May (4)
      • ►  April (3)
      • ►  March (2)
      • ►  February (4)
      • ►  January (3)
    • ►  2016 (34)
      • ►  December (3)
      • ►  November (2)
      • ►  October (2)
      • ►  September (4)
      • ►  August (4)
      • ►  July (2)
      • ►  June (3)
      • ►  May (4)
      • ►  April (1)
      • ►  March (4)
      • ►  February (3)
      • ►  January (2)
    • ►  2015 (32)
      • ►  December (2)
      • ►  November (5)
      • ►  October (4)
      • ►  September (2)
      • ►  August (1)
      • ►  July (2)
      • ►  June (5)
      • ►  May (3)
      • ►  April (2)
      • ►  March (2)
      • ►  February (3)
      • ►  January (1)
    • ►  2014 (32)
      • ►  December (3)
      • ►  November (1)
      • ►  October (4)
      • ►  September (3)
      • ►  August (1)
      • ►  July (3)
      • ►  June (6)
      • ►  May (2)
      • ►  April (3)
      • ►  March (2)
      • ►  February (2)
      • ►  January (2)
    • ▼  2013 (41)
      • ►  December (3)
      • ►  November (2)
      • ►  October (5)
      • ►  September (4)
      • ►  August (1)
      • ►  July (4)
      • ►  June (3)
      • ▼  May (4)
        • The ECB’s Misleading Visualisation of the Euro-Crisis
        • A Marshall Plan for Europe
        • Italy from Recession to a new Socioeconomic Identity
        • Tax for Equity (T4E) - Getting Wages back on Track
      • ►  April (3)
      • ►  March (4)
      • ►  February (4)
      • ►  January (4)
    • ►  2012 (35)
      • ►  December (3)
      • ►  November (4)
      • ►  October (4)
      • ►  September (2)
      • ►  August (2)
      • ►  July (2)
      • ►  June (2)
      • ►  May (4)
      • ►  April (3)
      • ►  March (3)
      • ►  February (4)
      • ►  January (2)
    • ►  2011 (39)
      • ►  December (3)
      • ►  November (4)
      • ►  October (3)
      • ►  September (4)
      • ►  August (3)
      • ►  July (2)
      • ►  June (3)
      • ►  May (3)
      • ►  April (4)
      • ►  March (4)
      • ►  February (4)
      • ►  January (2)
    • ►  2010 (39)
      • ►  December (3)
      • ►  November (5)
      • ►  October (4)
      • ►  September (2)
      • ►  August (2)
      • ►  July (3)
      • ►  June (4)
      • ►  May (1)
      • ►  April (4)
      • ►  March (4)
      • ►  February (4)
      • ►  January (3)
    • ►  2009 (5)
      • ►  December (3)
      • ►  November (2)

     
    Copyright © 2011 Global Labour Column Archive | Powered by Blogger
    Design by Free WordPress Themes | Bloggerized by Lasantha - Premium Blogger Themes | 100 WP Themes