What is the problem with Italy?

What is the problem with Italy?

It was in 2011, and I was talking to a friend in London who had just returned from Davos. My friend pitied the Italian government officials trying to arrange meetings for their prime minister. Nobody wanted to be seen with Silvio Berlusconi.

Italians have a love/hate relationship with their former prime minister. Nobody really likes him, but he is more or less accepted as family. His flirty manners and scandals put him in the spotlight of the feminists, but I don’t think the majority of Italians really mind when they live in a country with so many beautiful women and such nice weather. Uncle Silvio is a bit weird and he probably owes you money, but in the Mediterranean, family matters. That seems to be part of Berlusconi’s secret, if you ask me. But Italy needs more than a charming uncle these days.

Silvio Berlusconi resigned as prime minister of Italy right after its Parliament passed the austerity package. That was the end of 2011. Everyone was counting the days for Italy to fall apart, but it didn’t happen. And now he is back. His People of Freedom (PDL) party came second in last week’s general elections. Does that mean that the era of austerity is over in Italy? I don’t think so. Italy still needs reforms to improve both its fiscal situation and governance indicators. However, the election results show that at least some of Italians are fed up with the austerity measures and stormy economic forecasts. Who are they? Isn’t it interesting that in places where the percentage of people donating blood is low, the PDL reigns. They are prioritizing private gain over social contributions. So “Tanto PDL,” “poco capitale sociale,” or low levels of social capital are the problem in Italy? It is not, for example, the provision of high quality public services. At least when compared to Turkey, it isn’t. Turkey’s productive activity is concentrated in industrial zones. These are an answer to a severe public service provision problem. As an Italian friend of mine noted, all of Italy is an industrial zone. In addition to that, product and labor market reforms are already moving in the right direction. R&D spending has been increasing to catch up with Germany in recent years. So the problem is not with the human and physical capital formation in Italy. The problem is not the Italian economy itself.

Italy’s problem is its government. Italians are now learning that even if their economy is in order, everything goes wrong if the government budget is wrong. That is what we in Turkey also learned in 2001. The Italian problem however, is deeper. If you look at the Worldwide Governance Indicators of the World Bank, Italy’s scores deteriorated between 2000 and 2010. There are three governance indicators that are important for the economy: the rule of law, the effectiveness of the government, and the control of corruption. In these indicators, Italy now ranks lowest in the eurozone. So, Italians have to fix their government. That will be very difficult with uncle Silvio, if you ask me.

Where does Turkey rank in these governance indicators? We are definitely the worst in the eurozone on all counts, Italy included. We may be doing better fiscally at the moment, but in terms of the quality of governance we’re doing far worse than Italy. Let’s not get too comfy.