Opinion

Italian politics: 1970s stuck on repeat

18.12.12 @ 09:24

  1. By Matthew Melchiorre

BRUSSELS - The inevitable loop of Italian politics repeated again this month when former prime minister Silvio Berlusconi - fresh from a tax fraud conviction - pulled his party's support for the technocrat government of Mario Monti.

  • Rome: taxi scarcity is linked to 1970s-era politicking (Photo: Giampaolo Macorig)

He announced his return to politics as the man who would save Italy from the "abyss".

Later, as Monti was tendering his resignation, Berlusconi back tracked and said he would support a Monti-led centre-right coalition. But the damage is done and whether the coalition will ever materialise is anybody's guess.

For Italians, this drama is just the latest episode in a 40-year-old melodrama which they have been stuck watching since the 1970s heyday of special interests.

Change is anathema to Italian politics, as a broken political culture left over from the Cold War continues to frame debate and hold down the economy.

Before the early 1990s, the Christian Democratic Party had been in government for nearly five decades.

For years, it gave huge concessions to special interests, especially unions and professional guilds, to keep the peace in parliament and to keep Italy's sizeable Communist Party from exploiting partisan disagreement to gain support.

These groups said "jump" and politicians asked "how high?"

The situation is not much different today.

Three institutions in particular, for which unions and guilds successfully lobbied, are as economically disastrous as they are resistant to reform.

First, there is Italy's employment law.

Article 18 of the statute of workers forbids firing an employee for performance reasons. Only cases of negligence can be grounds for dismissal.

The terminated worker can take his employer to court to either become reinstated or receive up to 14 months in severance payments - all the while keeping his employer on the hook for lost wages during the trial.

Firms with fewer than 15 employees have a choice between reinstating the underperforming worker or paying him off. This is a huge drag on hiring, as firms stay below the threshold that requires them to give out jobs for life.

In total, these regulations cover a whopping 87 percent of the private sector workforce, according to numbers from Datagiovani, an Italian statistical firm studying young people in Italy.

Those not covered, mainly the young, have no other option but to jump from job to job under temporary contracts because firms will not take the risk of hiring fully-fledged new employees.

The second problem is national collective bargaining.

Despite the vast difference in cost of living between the north and south, workers make the same base wages. This rigidity not only inhibits gains in workforce efficiency, but also makes it difficult to trim costs in times of recession without resorting to layoffs.

National collective bargaining agreements explicitly cover 70 percent of the Italian workforce, according to government statistics, and implicitly cover even more as they serve as guiding parameters for "fair wages" in sectors not covered by collective bargaining.

The third relic is "la casta" - Italy’s web of 28 service sector guilds.

These groups push government to erect barriers against competition through licensing schemes and industry standards, making Italy's service sector the most regulated in the developed world, according to the OECD club of industrialised countries.

One of the most glaring examples is the scarcity of taxis in Italy's capital.

Rome has less than a third of taxis per resident compared to London or Paris, because the Italian taxi guild lobbies and strikes to keep taxi licenses to a minimum and competition non-existent.

The real tragedy is there is not much hope for change.

Faces in politics come and go, but policies are stuck in a time warp.

The center-left candidate for spring elections, Pierluigi Bersani, has no vision for substantial changes in his platitude-laden platform. He opposed Article 18 reform last spring and is beholden to unions, which comprise a large portion of his party's support.

Berlusconi does not support meaningful reform either, or else he would have done it before the financial markets forced him out of office last autumn.

Comedian Beppe Grillo's populist Five Star Movement - even as it support mushrooms to 19 percent - is a bastion of economic illiteracy.

It wants to ban stock options, among other economically useful activities.

The sad reality is that the only force for liberal reforms and for modernising Italian politics is the anti-politician Monti, whose future in politics is highly uncertain at this point.

Although his record has been lackluster, he at least showed some courage to take on entrenched interests when he pursued service sector liberalisation and Article 18 reform earlier this year.

The Cold War has been over for more than 20 years, but Italian politics is stuck in the past.

Until Italian leaders gain the courage to take on the special interests that have gorged at the public trough for decades, the best thing they can do is stay as far away from government as possible.

Matthew Melchiorre is the Warren T. Brookes journalism fellow at the US-based Competitive Enterprise Institute