BLOG: Italy, G7 member and third world country

Italy is the second market for automation in Europe with a trade surplus in the industrial machinery sector of €38,4bn.

Italy is the EU laggard in terms of productivity, but at the same time it retains a strong performance in manufacturing, registering the third best trade surplus in Europe. How can this paradox be explained? What are the roots of these problems and where is the potency of the country concentrated? Italian journalist Maria Maggiore of Investigate Europe gives her vision of the Bel Paese.

 After 20 years spent abroad, the first thing that shocked me on returning to Italy was the extreme bureaucracy that crept into everyday life.

We spent five months to get an identity card. I had to go back to the office three times to receive a national ID number for our kids, as each their first names contained some mistake. Plus, for every document, we had to fill in and sign dozens of forms. At school, it’s the same: papers over papers. I thought: how is it possible that such a wealthy state – we are the eighth in the league of the leading economies – behaves like a third world country?

Now, I read the latest World Economic Forum’s Global Competitiveness Report 2017-2018  and my doubts are even bigger.

The famous Geneva think tank, which organises the well-known Davos days yearly, studied the economic situation of 137 economies worldwide. It didn’t focus on the richest countries, but only those where data were available.

The conclusions for Italy are terrifying.

In terms of productivity – which scores on 114 indicators that includes infrastructure, education, politics, macroeconomics figures, public services, and innovation – we are at the 43th position, the last of all “old” Europe states, right after Portugal, and overtaken by countries such as Chili, Azerbaijan, Thailand, Poland or Malaysia.

Why? Well, for a catalogue of reasons. For starters, Italy ranks 134th for government regulation, 126th for transparency in policy making and efficiency of the public expenditure.

Italians occupy the 126th position for the highest taxation in the world. This is the most tax payers in Italy can do, while tax evasion hits 100 billion euros a year, according to Istat. All the while, the country ranks 120th for credit access and third from the bottom for capacity to attract foreign investments.

Add to that the country’s enormous public debt – 133,1% of GDP – and its ranking in the World Economic Forum report on banks stability, namely the 116th, and that the picture is painfully clear.

Reforming the State should be the priority number one of all politicians in Italy, one would think. Policy-makers could very well try to lighten a pachyderm of laws and bureaucratic constraints.

But instead, the current government spent all summer talking about immigration, namely how to discourage NGOs from rescuing people in the Mediterranean; striking (if confirmed ) agreements with Libyan militias to keep migrants in Libya, no matter what future will hold for these people; and approving a very strict law on vaccines that now forces all citizens to get at least ten vaccines. The latter policy threatens to turn away unvaccinated children at school gates. In Europe, the obligation exists only in former ex-Soviet Union countries.

The third best trade surplus in Europe

This chaotic, political and bureaucratic behaviour clashes with the general economic health of a country.

Italy has the third highest trade surplus: €51.5 billion, after having paid the country’s energy bill, which takes it down from 78 billion. The country ranks behind Germany (€257 bln) and the Netherlands (€59 bln), according to Eurostat data.

In 2016, Italy has seen a record in exports, especially to China and Japan, the state’s best result since 1991. Top activity sectors are always the four “A”, as they are called in Italian, furnishings, automation, agribusiness and clothing (arredamento, automazione, agroalimentare, abbigliamento).

But the peninsula is now known for trading in the spatial, pharmaceutical and chemistry industries, as well as for the green economy’s fast-paced development.

So, are they all wrong in Geneva when they write the annual Global Competitiveness Report?

 “Yes”, says Luca Paolacci, Director of the Study Center of Confindustria, the Italian Business Association. “These reports are made on surveys, which very often repeat stereotypes. They also compare countries with very different institutions and history. It’s not possible to generalize based on one single ranking”.

Mr. Paolacci explained that Italy is paying a high price for having lost 10% of its GDP during the economic crisis, but that there are regions and districts in the country that are performing well and are competitive.

A Film on the Competitive Italy

This is what experts from the Italian Foundation Edison think. This Milan-based organisation, part of the Energy group Edf, asked German filmmaker Alexander Kockerbeck to make a movie on the Belpaese, (‘The beautiful country’). The result: “Uniqueness and excellence”, will premiere on October 18 in Rome.

Kockerbeck, a former Moody’s economic analyst told Investigate Europe that “Germans, European countries, even international organisations like the International Monetary Fund (IMF) or the world Bank, don’t know Italy, or undervalue the dynamism as part of the country”.

“For example, Friday evenings: while Germans go to the supermarket to buy their frozen pizza, they ignore that almost all refrigerated counters come from the Italian company Costan in the city of Belluno, an absolute leader in this field”, the film maker said.

Kockerbeck took last summer to travel far and wide across Italy, picking its ‘best’: the Prosecco wine production in Valdobbiadene; the “taps district” on the small and marvellous Orta lake near Milan, with an annual revenue of €1 billion. He visited places such as the Cambiago producer of the Eddy Merckx record bicycle; or the headquarters of Herno, a long-standing fashion company now growing at the rhythm of 13% per year.

His conclusions tease: “some regions of Italy are very competitive, even more than the rich Baden-Wurttemberg area in southwest Germany, but they don’t appear in statistics”. “What makes the uniqueness of Italy” are regions linked to a particular industry, the filmmaker believes. “There is a network of SMEs [small and medium enterprises]. Most of them are familial, and have developed a high level of knowledge. This network is extremely strong, more so than a German multinational company, and it’s not bothered by Chinese competition because the quality of its product is much higher”.

We need time to change

Flattering words aside, 175.000 people, almost all young, leave abroad every year because 40% of them can’t find a job. How do we explain that against the glamorous aura of the movie praising the country’s business networks?

In Italy there are 4.4 million poor people and over 17 million working poor. One of Italy’s dramas is an underdeveloped South. Where youth unemployment can reach 60% in some areas.

“This country is complex,” explains Luca Paolazzi from Confindustria. “We had a civil war, terrorism years, a public service misused by politicians for electoral purposes and that doesn’t work well in areas it should.”

“But we also have a difficult geography. [We have] a long country which creates an unfair competition between regions, with a South where is much more difficult to create networks because of the mountains and the sea. And [there’s] the flat Po Valley in the North, where transports are easier. In the South we would need a state that creates infrastructures, supports health, develops electricity networks and brings water to all”, Paolazzi says.

“We would need also advantageous taxation, just for the South of Italy, but Brussels has always opposed this idea. It takes time to change a country. As Mario Draghi, European Central Bank President, keeps repeating, “we need patience and persistence. It could take one generation”.