When it comes to explaining to a foreign friend why it is so difficult to run a business in Italy, I struggle to find the words to describe this matter properly. There are some irrational situations that are incomprehensible to the people who have never lived here, especially if they come from a country with a Protestant culture.

The matter is quite complex and the reasons that led to the current state of things are rooted in the age-old history of this tormented land. Simply put, in my country the people of working age can be divided into two opposing social groups.

The first one works for companies which compete in a real market, often on a global scale. As such, they have to continuously innovate their products and processes to stay competitive in the market.

The people and the organizations belonging to the other group, instead, do not have such concerns because, thanks to the state’s intervention, they are somehow insulated from the risks associated with a competitive market. In other words, the purchasing power of the workers is–directly or indirectly–assured by the state.

 

murray320500
source: https://mises.org/sites/default/files/styles/full_width/public/murray3%20500.png

 

As shown by the previous image, this group is very large in Italy. What’s worse, there are people in this group who literally live on the other groups’s shoulders, although they could contribute to the wealth of the national community.

The workers that are part of the second group are very diverse and the group itself is wide and embraces companies of both the public and private sectors, in addition to those that are self-employed and unreported employees.

The creation and the maintenance of this group are necessary to achieve a very specific goal: allowing the politicians to buy the consensus of large sections of the population. [1] However, all this leads to detrimental effects that are there for all to see. To mention a few:

  • A suffocating bureaucracy that, to justify its very existence, produces tons of procedures and rules which make private citizens’ and companies’ lives impossible
  • A huge public debt and, what’s even worse, a very poor quality of the public spending
  • A very rigid economic system which struggles to adapt to the changeable market conditions characterizing these times.

A foreign reader might wonder how the first group can tolerate such a situation. The answer is relatively easy: even though the state claims it seriously fights the underground economy, it turns a blind eye on the tax evasion. Consequently, a significant proportion of people within the first group takes advantage of this, knowing that it is a sort of compensation for the  frustrating and humiliating injustice they have to suffer on a daily basis. To put it simply, this is the social contract that has been sustaining Italy for decades.

Supposedly, this system worked pretty well in the postwar period when Italy became one of the first economic powers in the world, even though it has almost no energetic and natural resources. However, the economic conditions at this time were different and it is legitimate to ask if we should still rely on such a model, besides the clear social injustice it causes.

What happened in the past reminds me one statement said by Shaquille O’Neal, one of the most famous basketball players of recent decades. Although I can’t find the exact quote, he stated something like this: “Winning is the best deodorant”. He meant to say that, when the team is not playing well, the problems can be hidden and forgotten temporarily anyway, if it still wins the majority of the games. Sooner or later, however, the team will start losing the games frequently and the unresolved issues will then come up suddenly and abruptly. What Italy is experiencing nowadays is a wake-up call of this kind. For decades, we pretended not to see the structural problems of our economy and our financial systems. Now, we have to solve them very quickly, otherwise we’ll keep losing ground on the  competition in the global market, as proven by the fall of our GDP depicted in the following chart.

italy-gdp-comparison

I have no doubt about the fact that this country would have the resources to overcome this situation. At the end of the day, the strength of any human organization–beign it a team, a company or a nation–is determined by the people it is composed of. I am sure there are a lot of compatriots who have outstanding qualities and who would be able to create wealth for themselves and for our country. But they are not allowed to express all their potential for the reasons I mentioned above.

The fact that Italy is a country where there is no shortage of valuable entrepreneurs, highly-qualified professionals, and able managers is confirmed by a study that was published recently. It shows how the medium-sized Italian companies outperform the German ones in terms of productivity, as shown in the following table.

barbero

Germany is known to be a well-organized country where almost everything in the public realm works fine: the transportations, the education system, the bureaucracy, etc. In the light of how bad these things are in Italy, the aforementioned result is astonishing and indicates precisely the section of the society that is able to create so much value to sustain the entire system, but who knows how long for? This is the true backbone of our economy.

The performance of these companies is just incredible, taking into account the fact that they compete with a ball and chain for each leg. I really wonder what we [2] would be able to do if we operated in a “normal” country …

 

 

[1] This explains why traditional parties, even though they change the name every few years, still get the majority of the votes.

[2] I said “we” because I am part of this section, as my company is medium-sized as well.