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Archive for October 27th, 2014

The world is a laboratory, with lots of experiments to see if a nation can prosper with big government and pervasive intervention.

The results are not encouraging. I’ve written about France being a basket case, over and over again.

And I am equally pessimistic about Greece because the moochers and looters outnumber productive people in that country.

Heck, much of Europe is a mess because of widespread statism.

But the rest of the world is filled with bad examples as well. Japan has attracted my critical attention, and I have very little reason to think that nation has a bright future.

I’ve also dinged bad policy in Mexico and South Africa, so nobody can accuse me of being parsimonious when it comes to criticizing politicians that promote big government.

But the country that may be in the deepest trouble is Italy.

To understand the depth of the problem, you should read a recent article in the U.K.-based Spectator.

Here are some excerpts, starting with an anecdote about the government-funded opera house in Rome.

Financed and managed by the state, and therefore crippled by debt, the opera house — like so much else in Italy — had been a jobs-for-life trade union fiefdom. Its honorary director, Riccardo Muti, became so fed up after dealing with six years of work-to-rule surrealism that he resigned. It’s hard to blame him. The musicians at the opera house — the ‘professori’ — work a 28-hour week (nearly half taken up with ‘study’) and get paid 16 months’ salary a year, plus absurd perks such as double pay for performing in the open air because it is humid and therefore a health risk. Even so, in the summer, Muti was compelled to conduct a performance of La Bohème with only a pianist because the rest of the orchestra had gone on strike.

The story says all the staff eventually were fired.

Is that a sign that policy makers in Italy are sobering up? Or is it too little, too late?

The author of the column, Nicholas Farrell, is not optimistic.

Italy’s irreversible demise is a foregone conclusion. The country is just too much of a basket case even to think about. …The youth unemployment rate here is 43 per cent — the highest on record. That figure doesn’t factor in the black market, which is so big that the Italian government now wants to include certain parts of it — prostitution, drug dealing and assorted smuggling — into its official GDP figures.  …Just 58 per cent of working-age Italians are employed, compared with an average 65 per cent in the developed world. …Italy’s economy has been stagnant since 2000. Indeed, over the past five years it has shrunk by 9.1 per cent. …Italy’s sovereign debt, meanwhile, continues to grow exponentially. It is now €2.2 trillion, which is the equivalent of 135 per cent of GDP — the third highest in the world after Japan and Greece. …In Italy, as in France, a dirigiste philosophy has predominated since the second world war. The government is run like a protection racket… Even newspapers are publicly subsidised, which is why there are so many of them.

But high debt in Italy isn’t because of low taxes.

Anyone who works in the real private sector — the family businesses that have made Italy’s name around the world — is in a bad place. Italy has the heaviest ‘total tax’ burden on businesses in the world at 68 per cent… To start a business in Italy is to enter a Kafkaesque bureaucratic nightmare, and to keep it going is even worse. It also means handing the state at least 50 cents for every euro paid to staff.

So where do all this tax money go?

Not surprisingly, there’s a parasitic public sector that is very well compensated. Starting with the politicians.

Italian MPs are the highest paid in the civilised world, earning almost twice the salary of a British MP. Barbers in the Italian Parliament get up to €136,120 a year gross. All state employees get a fabulous near-final–salary pension. It is not difficult to appreciate the fury of the average Italian private sector worker, whose gross annual pay is €18,000. The phrase ‘you could not make it up’ fits the gold-plated world of the Italian state employee to a tee — especially in the Mezzo-giorno, Italy’s hopeless south. Sicily, for instance, employs 28,000 forestry police — more than Canada — and has 950 ambulance drivers who have no ambulances to drive.

I gather Sicily is like the Illinois of Italy, so those horrifying numbers don’t surprise me.

And don’t forget that Italy’s representative in the Bureaucrat Hall of Fame is from Sicily as well.

So what’s the solution to this mess?

Simple, adopt a policy of small government and free markets.

An Italian government that really meant business would make urgent and drastic cuts not just to the bloated, parasitical and corrupt state sector, but also to taxes, labour costs and red tape.

And the current Prime Minister, to be fair, is proposing baby steps in the right direction. Unfortunately, he’s being far too timid.

To get an idea of the magnitude of the problem, the Wall Street Journal opined on Italian labor markets, explaining that “pro-worker” interventions by government impose very high costs.

Led by the country’s largest union, the Italian General Confederation of Labor, or CGIL, the activists want to preserve Italy’s job guarantees as they are. Call it Italy’s economic suicide movement. …there is the Cassa Integrazione Guadagni. Under this income-assistance scheme, businesses that need to downsize can put some workers on “standby,” and the government will cover a significant share of the normal salary until the company can hire back the worker. The program strains the state’s budget, discourages workers from seeking other jobs, and prevents struggling companies from downsizing to stay competitive. Need to fire a worker for poor job performance? To do so, businesses must persuade a judge that no alternative short of termination was available—a process of administrative hearings and litigation that can take months and drain company resources. The World Economic Forum in its 2014-15 assessment of labor-market efficiency ranked Italy 141 out of 144 countries for hiring and firing practices, just above Zimbabwe.

And the biggest victim of the “pro-worker” interventions are…you guessed it…workers.

Italy has the largest number of small businesses in the European Union not because companies don’t want to grow, but because they fear growth will mean having to negotiate with the militant national unions like CGIL. The unsurprising result of all these barriers to firing and efficiency is that businesses are reluctant to hire. The official unemployment rate stands at 12%, and half of Italy’s young people are unemployed.

If you want more info about Italy’s dysfunctional labor markets, I also shared some good analysis from the WSJ back in 2012.

Let’s now circle back to a question asked above. Can Italy be saved?

Like Mr. Farrell, I’m not optimistic. There’s no pro-market political party in Italy. And the so-called technocrats have demonstrated amazing levels of incompetence, so they’re obviously not the solution.

P.S. There is one tiny bit of semi-good news from Italy. Over the past 8 years, government spending has increased, on average, by just 1.6 percent per year. The bad news, though, is that the private sector has grown at an even slower rate, so the actual burden of government spending has increased.

Between 1996-2000, by contrast, government spending grew by 1.1 percent per year. But since the private sector was growing, the burden of government spending fell as a share of GDP.

In other words, when you satisfy Mitchell’s Golden Rule, good things happen.

P.P.S. Even though Italy is a complete mess (or perhaps because it is a complete mess), you won’t be surprised to learn that a New York Times columnist thinks America should adopt Italian-style government policies.

P.P.P.S. Then again, American statists have been urging European-type statism in the United States for decades. To see where that leads, check out these cartoons from Michael Ramirez, Glenn Foden, Eric Allie and Chip Bok.

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