Why Italy Is So Slow to Reform

Bureaucrats and local officials are slow to implement the changes politicians enact in Rome.

Rome, Italy at dusk, October 17, 2008
Rome, Italy at dusk, October 17, 2008 (Andreas Caranti)

Italian prime minister Matteo Renzi is enacting reform after reform in an effort to revitalize his nation’s sclerotic economy. But that may not be enough to change a culture of bureaucratic obstructionism that has held Italy back for decades.

The news agency Reuters reports that Italy has a history of passing landmark reforms that fail to get much done. The last twenty years have seen at least four overhauls of the labor market, three of the public administration, another three of the education system and innumerable changes to a bloated judiciary.

Yet Italy has seen virtually no growth in the same period. It has the lowest employment rate in the eurozone after Greece, the lowest proportion of graduates in the European Union and its slowest justice system. Liquidating a company still takes eight years. Getting a construction permit can take up to eight months.

The reason is that reforms that look good on paper are seldom implemented in full, if they are implemented at all.

After passing parliament, laws need further approval, known as “actuation decrees,” from ministries, something that can take months or years to arrive — if they arrive at all.

At the start of this year 383 laws passed since 2011 had still not taken effect because they had not been approved by ministries. That includes half the laws passed by former prime minister Enrico Letta, who left office in February 2014, and a quarter of those of his predecessor, Mario Monti, who resigned in 2012.

Even if the actuation is completed, civil servants and local officials routinely ignore changes in the law.

Francesco Giavazzi, an economics professor and former Treasury official, told Reuters that when he was asked in 2012 to streamline state subsidies to companies, virtually all his proposals were batted away by officials.

“The subsidies are managed by bureaucrats in the industry ministry,” he said. “If you reduce the subsidies then you are reducing their power and influence.”

And bureaucrats are almost impossible to fire.

Officials in the south of Italy are especially prone to ignoring decrees from Rome. The American Interest‘s Walter Russell Mead argues that organized crime associations in the region have been defying governments since the Middle Ages. “They are still at it today,” he writes.

The politicians and even the bureaucrats in faraway Rome may have decreed reforms, say, in the trash hauling business but what matters much, much more to the officials on the ground in south Italy is what Tony Soprano thinks about the reforms.

It is no coincidence that the south is Italy’s poorest region. A study by Svimez, an association for the development of the south, revealed last year that just four in ten working-age southerners are in work. Most provinces in what the Italians call the Mezzogiorno are classified under the European Union’s convergence criteria because gross domestic product per capita there is less than 70 percent of the European average and industrial development is lacking. The region has 35 percent of Italy’s population but accounts for less than a quarter of its economy.

In the central and northern provinces, by contrast, incomes are almost twice as high and well above the European average.

But even there, joblessness has spread. Youth unemployment has nearly doubled in the last five years, to 45 percent.

Labor costs, at €27 per hour lower than those in France and Germany, are not in themselves the problem. But social contributions and other nonwage costs make up nearly 28 percent of the average salary, compared to 22 percent in Germany. Italy is also among few countries where labor costs have continued to rise during the European sovereign debt crisis and it costs more than the average annual income to start a business in the country.

Renzi tried to break down the divide between older Italians on secure contracts who are almost impossible to lay off and youngsters can only find temporary jobs without benefits. But he ran into opposition from a bureaucracy that protects “acquired rights,” meaning new measures cannot apply to anyone already in work.

The same principle explains why Italy spends more on pensions than any other European nation. When one of Renzi’s predecessors, Monti, tried to block inflation-linked increases to the most generous retirement schemes, he was stopped by the Constitutional Court.

Mead cautions against pessimism. Italy has changed in the past so it can change again. It ended feudalism. The Catholic Church has lost much of its power. Immigration will shake up Italy even more.

“But the shifts can’t be guided,” he warns, “and they certainly can’t be timed to suit the plans of technocrats. They come in their own time and in their own way.”

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