Friday

24th Feb 2017

Opinion

Italy's 'trust no one' culture holding back growth

  • Rome: How can Italy break free of its pervasive culture of distrust? (Photo: Giampaolo Macorig)

For visitors this spring, a trip to Bella Italia’s countryside and picturesque towns will feel like taking a trip back in time. Because it is.

I found this out several years ago as a “cittadino” of the northern city of Bologna, when trying to buy a bicycle.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

The local bike shop’s proprietor, a rather cantankerous old man, greeted me with a suspicious eye and deafening silence. After I made clear my intention to purchase a bike, he snapped that he had only one to sell me, and I could take it or leave it.

“You run over a nail, I am not responsible,” he proclaimed. “You ride the main cobblestone streets and damage the wheel, I am not responsible. You break the chain, I am not responsible.” He went on and on.

Then I realised what had just happened. He wasn’t trying to shoo me away. Rather, he was vetting me as a customer. He didn’t know me, which meant he couldn’t immediately assess the riskiness of entering into a simple transaction for a used bike.

Just like things have always been.

Underlying Italy’s old-timey feel is a dearth of one of the most basic building blocks of contemporary market economies: impersonal trust.

This is in stark contrast to the rest of the developed world, and explains in large part Italian businesses’ problems in obtaining access to capital. Italian banks have long been stingy in their business lending, especially so now, in the current rough economic climate.

Tight access to capital plays a part in keeping businesses in Italy small. In fact, Italy has the highest proportion of employment in firms with fewer than 10 employees in Europe. Many prefer to stay small, keeping their customer and supplier bases within a close network of friends, family, and regular customers.

At its core, this lack of societal trust is a symptom of Italy’s lack of an efficient mechanism for enforcing contracts. In fact, it ranks last among developed countries in that regard, according to the World Bank. And that leads to some major problems.

Let’s say you manufacture farm equipment and sign a contract to deliver several new tractors. You gin up production to meet the delivery date.

But then the customer backs out of the sale, leaving you stuck with a bunch of new tractors and no buyer. In most countries, a business in such a situation would go to court to seek redress. But not in Italy, where resolving these kinds of disputes takes years and umpteen procedural hurdles.

So, firms pull back. They carefully vet their suppliers and customers because they don’t want to be stuck with a multi-year lawsuit and a bunch of costly goods. Those outside established networks have a hard time getting in.

The genius of the market is that it obviates the need for building rapport in everyday transactions.

Security of contract allows individuals to implicitly trust others, with the understanding that any violation can be resolved legally in a swift manner. Impersonal trust frees businesses to grow by reducing the transaction costs in taking on new clientele.

How can Italy break free of its pervasive culture of distrust?

Prime Minister Matteo Renzi has made lots of noise about judicial reform since taking office, but he has his work cut out. Raising court fees - presently among Europe’s lowest - could help discourage Italy’s disproportionately large number of frivolous lawsuits.

Reducing the number of procedural steps to resolve a suit (Italy has the most in all of Europe) would lessen the possibility of additional smaller suits at each step.

But taking on Italy’s entrenched special interests, of which lawyers are among the most powerful, is easier said than done. The past four prime ministers tried, and failed.

Lawyers benefit greatly from low-cost lawsuits and the judicial system’s complexity, so it’s no wonder that Italy has more lawyers per capita than most European countries. And they will fight tooth and nail to preserve the status quo.

Renzi entered office with more political capital than recent prime ministers. He ought to use it in shaking Italy out of its low-trust rut. And that begins with reform of Italy’s courts.

The writer is is an adjunct fellow at the Competitive Enterprise Institute in Washington DC

Focus

European 'United Left' searches for unity

Among the newly-elected leftist MEPs, one person in particular is attracting attention, Italy’s Barbara Spinelli, the daughter of Altiero Spinelli.

The crisis we face in the Lake Chad Basin

With no end in sight to this crisis, humanitarian actors must call for concerted engagement of political, developmental and security actors to help stabilise the region, writes the head of the UN migration agency.

News in Brief

  1. Spanish court jails former IMF chief Rato
  2. Macron proposes Nordic-style economic model for France
  3. Germany posts record high budget surplus
  4. Labour ousts Ukip in Brexit homeland
  5. Dutch lower house approves EU-Ukraine treaty
  6. WTO says Russian pork ban was illegal
  7. Belgian nuclear plant made 'significant progress' on safety
  8. Report: Commission gauging EU support for Poland sanctions

Stakeholders' Highlights

  1. EURORDISJoin the Rare Disease Day and Help to Advocate for More Research on Rare Diseases
  2. European Healthy Lifestyle AllianceStudents Who Are Considered Fit Get Better Grades in School
  3. QS World MBA TourMeet with Leading International Business Schools in Paris on March 4th
  4. Malta EU 2017Economic Governance: Agreement Reached on Structural Reform Support Programme for Member States
  5. Socialists & DemocratsWomen Have to Work Ten Years Longer to Match Lifetime Earnings of Men
  6. Counter BalanceTrans-Adriatic Pipeline Is a Major Risk for Banks, Warns New Analysis
  7. Martens CentreEU and US Migration Policies Compared: Join the Debate on February 28th
  8. Swedish EnterprisesTechnology and Data Flows - Shaping the Society of Tomorrow
  9. UNICEFNearly 1.4 Million Children at Risk of Death as Famine Looms Across Africa and Yemen
  10. Malta EU 2017End of Roaming Fees: Council Reaches Agreement on Wholesale Caps
  11. Nordic Council of MinistersNordic Innovation House Opens in New York to Help Startups Access US Market
  12. Centre Maurits CoppietersMinorities and Migrations