Here in Italy, what they have is an endemic productivity crisis, one that has gone on so long and reaches so deep into the economy that it poses a challenge to the fabric of Italian life. Much the same could be said of Greece, Portugal and even France.
In truth, there are two Italian economies, explains Francesco Giavazzi, an economist at Bocconi University in Milan, the leading business and economics faculty in Italy where Prime Minister Mario Monti was once rector.
There’s the one that is composed of several thousand large and medium-size firms, mostly in the northern half of the country, that are innovative, efficient, internationally competitive exporters that generate wealth and high wages and whose productivity and employment have been steadily growing.
And then there is the part, much of it in the south, composed of government, small family companies, government-owned enterprises, utilities, banks and lumbering corporate giants that largely operate in protected or uncompetitive domestic markets. Their productivity has fallen every year for decades.
Add the two together and, on average, what you get is a no-growth Italian economy that cannot support an aging population or generate good jobs or even a good education for young people, let alone maintain the current standard of living for its vast middle class.
Worse still, the trend lines are going in the wrong direction: The unproductive parts are growing while the productive parts — the people and the companies — are moving elsewhere. Since adoption of the euro, Italy’s inflation-adjusted productivity has fallen behind that of Germany’s by about 30 percent. Since the 2008 recession, industrial production in Italy is down by nearly 25 percent.
It was this productivity crisis — not the euro crisis — that Monti was brought in to solve late last year when the Italian political class, in a rare moment of unity and acknowledgment of its dysfunction, ousted Prime Minister Silvio Berlusconi and installed the non-political Monti to finally do something about it.
A successful, if somewhat buffoonish, media entrepreneur, Berlusconi first came to power promising reform of the Italian economy. Aided by a brilliant finance minister, Giulio Tremonti, Berlusconi was even able to make inroads in terms of cutting some taxes, reforming the pension system and, eventually, even reining in budget deficits. But in the end, Berlusconi managed to maintain his hold on power only by buying off the special interests whose primary purpose was to protect the status quo, forcing an increasingly cynical country to finally abandon all parties and politicians in favor of Monti, an honest and largely unknown economist who had won respect as Europe’s top antitrust regulator.