The Italians (34 page)

This desire for the preservation of monopolies—or, in the case of Claudia’s disgruntled taxi drivers, a cartel—runs like a semivisible vein through Italian society. And it has a long history. The enduring strength of the Italian craft guilds and the restrictions they enforced were among the reasons the Italian economy went into decline during the seventeenth century. One of the most jealously protected cartels was that of the glassmakers on the Venetian island of Murano: anyone who tried to take their skills elsewhere faced severe penalties, or even death.

The spirit of the guilds lives on today in Italy’s still formidable trade unions and in the
ordini
and
collegi—
professional bodies, membership of which is essential for anyone who seeks to practice. There are more than thirty of these, and they regulate access to a much wider range of professions than in other EU countries. There are
ordini
for notaries and architects, but also for social workers and employment consultants. There is a
collegio
for nurses, but also one for radiological technicians and another for ski instructors.

The professional bodies are part of a vast web of restrictive practices. One of the most ludicrous examples to surface in recent years was that of the Venetian street artists. It turned out that their licenses were inherited. So even if someone had no talent for drawing or painting, he could occupy a spot that would otherwise have gone to someone with real artistic talent.

It is a moot point as to whether the Catholic Church developed its antiliberal attitudes because its outlook is essentially monopolistic or because until very recently it was run largely by Italians. At all events, Pius IX’s
Syllabus of Errors,
issued in 1864, anathematized liberalism along with a long list of other creeds and beliefs. His stance put an even greater distance between the Vatican and the new Italian state in which liberalism became the dominant ideology.
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Early free-market economics, particularly as practiced by the governments of Giovanni Giolitti in the period leading up to the First World War, delivered prosperity. The Italian economy surged ahead as the country industrialized. But the liberals became hopelessly—and quite justifiably—identified with official corruption.

The Fascists brought with them an approach to economic organization that fit more easily with Italian tradition. Whereas Giolitti had wanted wages to be decided by the free interplay of market forces, Mussolini and his associates set about building a corporatist state in which employers and employees were forced to collaborate.

The fall of Mussolini might have given back the initiative to the liberals. But by the end of the Second World War they were not only tainted with the memory of graft; they had allowed themselves to become the party of a narrow layer of society made up of southern landowners, big industrialists and financiers. When it came to electoral appeal, they were no match for the Christian Democrats. The arrival in power of the DC ushered in a period of more than forty years in which power would be shared between the five parties that, to a greater or lesser degree, opposed the Communists. The original idea was to make sure that Western Europe’s biggest Communist Party never acquired a toehold in government. To make it work, Italy’s postwar politicians evolved the system of
lottizzazione
mentioned earlier.
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One of the many bequests of Fascism was a giant public sector. Every part of it was shared out in line with the clout wielded by the parties that made up the so-called
pentapartito,
a generic name conferred on the five anti-Communist groups. With time, even the Communists were brought into this cozy system for sharing out power, influence and the financial sweeteners that often came with them. If, for example, a Christian Democrat was made head of the civil aviation regulatory body, a Socialist would get air traffic control.
Lottizzazione
was practiced way beyond the bounds of public industry and finance. Even regional responsibilities within the foreign ministry were shared out according to party loyalties. The Christian Democrats held sway over Latin America; the Socialists got most of the Middle East and North Africa. The television channels of the state broadcasting network Rai were carved up in the same way. The first went to the Christian Democrats, the second to the Socialists and the third to the Communists. The effects can be seen to this day. If you meet a veteran journalist or even technician who works for, say, Rai 1, it is highly likely that he or she will have had a relative who belonged to the DC. Throughout the years that Silvio Berlusconi was in power, in the 2000s, Rai 3 remained a bastion of critical reporting and analysis (though increasingly cowed by the media tycoon’s influence).

The Liberal Party was one of the five in the
pentapartito,
as was the Republican Party, which also came to favor economic liberalism. And as the years passed the Christian Democrats’ Catholic idealism gave way to an easy cohabitation with the market economy. But, straddling the center, it nevertheless espoused a more collaborative form of capitalism than the one that had evolved in the United States and was to emerge in Britain under Margaret Thatcher in the 1980s.

While Christian Democracy flourished, Social Democracy never succeeded in the way that it did in Germany, where Willy Brandt and Helmut Schmidt dominated politics from the late 1960s until the early 1980s. The Italian Social Democratic Party was included in the
pentapartito,
but it became renowned as the most hopelessly venal of the five. The Socialists under Bettino Craxi finally got to run the government in the mid-1980s. But by then they were already deeply immersed in the patronage and corruption that had infected Italian postwar politics and became even more compromised once they were in office. Craxi was the outstanding victim of the “Clean Hands” investigation.
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In 1993, in an incident that has passed into political legend, he was pelted with coins as he left the hotel where he and his cronies held legendarily extravagant parties. Soon after, he fled to Tunisia, where he died in exile and disgrace seven years later.

For most of the postwar period, then, the key choice for voters was between two fundamentally anticompetitive ideologies: Christian Democracy and Communism. It has left a profound legacy.

The fall of the so-called First Republic in the early 1990s was to be the prelude to Italy’s recent economic decline (even though it was not until the early 2000s that it was recognized as structural rather than cyclical). Italy’s underlying problem is its declining competitiveness. Much brainpower has been expended on attempts to explain and analyze the phenomenon. Yet the point is seldom made that Italy has an exceptionally uncompetitive form of capitalism.

Silvio Berlusconi, who had been Craxi’s protégé, entered politics in 1993 as a paladin of free enterprise (even though, as has been virtually forgotten, his political affiliation until the early 1990s was with the center-left and not the center-right). Several of the politicians, journalists and intellectuals who rallied to his cause—men like the flamboyant and brilliant Giuliano Ferrara, Berlusconi’s first government’s cabinet-ranking spokesman—were genuine ideological liberals. But while Berlusconi himself has long described himself as a liberal, he is really nothing of the kind: his approach, to the extent that he has any discernible ideology, has always been a sort of “national capitalism” that allowed for dyed-in-the-wool protectionism. In 2008, he successfully built an election campaign around saving Alitalia from falling into French hands. But visceral protectionism is certainly not the preserve of the right in Italy. Just the year before, the then center-left prime minister, Romano Prodi, torpedoed the sale of Telecom Italia to the U.S. telecommunications giant AT&T.

To a large extent, Prodi and Berlusconi were merely reflecting the views of the public. The takeover of Italian firms by foreign ones is invariably reported in the media as a defeat. The idea that outside firms might be able to bring in know-how or that foreign direct investment (i.e., investment in companies rather than shares) helps spur growth is seldom, if ever, acknowledged. The results can be seen in the figures for the stock of inward foreign direct investment (FDI) compiled by the OECD. By the end of 2012, the value of FDI in Italy relative to the size of the economy was the lowest of any country in the EU except Greece. For Portugal and Spain, which opened their economies to the outside world long after Italy, the corresponding figures were between two and a half and three times higher. For Sweden and the Netherlands, countries that might be thought to be less in need of foreign know-how than Italy, they were about four times as high.

To encourage investment across national frontiers, the OECD has a “name and shame” table. It is called the FDI Regulatory Restrictiveness Index and it measures the statutory restrictions that countries put in the way of foreign direct investors. The intriguing thing is that Italy scores really quite well—better, in fact, than Sweden, Denmark or the UK. So either Italians are hindering outsiders in less identifiable ways or foreigners are balking at putting their money into a country that has significant drawbacks from the point of view of a prospective investor.

Year after year, Italy has been slipping down the World Bank’s Ease of Doing Business Index. By 2012, it had fallen to seventy-third place in a list of 185 countries—one place behind Romania and six places behind Azerbaijan. It was easier to enforce a contract in Togo than it was in Italy (partly because of the sluggishness of the courts) and harder to get electricity laid on than in India. Then there was widespread corruption and the danger you might cross paths with one of several organized-crime syndicates.

Some years ago, I was sitting in the office of an Italian lawyer and his telephone rang. He answered, a mite irritably, saying he thought he had given instructions that he was not to be disturbed. From the other end of the line, I could hear the sound of an excited female voice. The lawyer’s expression became progressively graver until he said he would take the call in the other room. He returned about five minutes later.

Without giving any clue as to the identity or nationality of the firm, he said that one of his clients was a foreign company that had opened a small plant in the Mezzogiorno. The manager had made it known that if any of his new staff wished to discuss their future with the company they had only to walk through the door of his office. After a short time, one of his employees—an unskilled worker—did just that. He was after promotion, he said. The foreign boss replied he was all for encouraging ambition. But which job did his young employee have in mind?

“Yours,” came the answer. At which point, the young man got up and left the room without another word.

Astonished by what had happened, the manager asked around among his staff and was told that the worker was the son-in-law of the local mafia
capo
. The message was eventually made clear: the young worker would leave the firm if it gave him generous—or rather, exorbitant—severance pay. He left it to the company to imagine what the consequences might be if they failed to agree on a sum. An offer had been made through the lawyer, which after some haggling had been accepted. But now the man had changed his mind and had called to say he wanted half as much again.

For investors who are keen to take a stake in the Italian economy and would rather steer clear of direct investment, there is, of course, the stock market. But if the stake you are after is a big one, then it will mean coming to grips with what the
Financial Times
once described as “almost certainly the strangest and most convoluted business culture of any of the large Western economies.”
¹

At the core of this culture is a uniquely Italian concept: the shareholder pact. Groups of big Italian investors—usually banks or other firms—get together to establish control of a listed company. Rarely do they need a majority stake. A third or even a quarter of the shares will normally suffice—there is not much chance of any group of investors with a bigger proportion of the total equity voting in unison. The merit of the system is that it can deliver the kind of stability that managers need to pursue a long-term strategy. But if there are conflicting interests among the members of the pact, it can also inflict paralysis.

The latter is especially true if the firm in question is linked in to a network of cross-holdings—stakes held by one publicly quoted company in another. These are equally characteristic of Italian capitalism. For many years, the Milan investment bank Mediobanca and its publicity-shy president Enrico Cuccia sat at the heart of a tangled web of such cross-holdings. The influence of the secretive Cuccia reached into every corner of the clubby world of Italian capitalism, which is summed up in an untranslatable phrase:
il salotto buono.
It moots the existence of a refined drawing room where the giants of industry meet the titans of finance to stitch up deals while keeping outsiders kicking their heels in the hallway. In fact, there is no such place, but if the strands of control over Italian industry and finance converged on any one location, it would have been the offices of Mediobanca.

Cuccia died in 2000, but it was not until thirteen years later that his successors decided, in the wake of the euro crisis, that their exposure to corporate Italy was just a bit too broad for comfort. The bank announced that it would be slowly reducing several of its key holdings. That may have signaled the beginning of the end of the culture of cross-holdings in Italian business. But it will take a while for the skein to unravel, and shareholder pacts will doubtless still be around even after it has. The number of firms listed on the Milan bourse controlled in this way is falling, but slowly.

For an example of a “mafia” that remains as tenaciously protective (and protectionist) as ever, you need to turn away from the worlds of finance and industry to that of higher education. Italy’s universities are among the last great bastions in Italian society of patronage (and a fair number of restrictive practices). Take the case of the
lettori
. When I first came to Italy as a correspondent in 1994, it was already an old story. Twenty years later, it has still not been resolved.