Italy Annoys Economists

Steve Sailer has a good bit on Italy today via the New York Times.

Italy mystifies economists by refusing to embrace the conventional wisdom

Economists said that Mr. Barbera had a point, but they also said that worrying about this issue was like fretting about the head cold of a patient with Stage 3 cancer. They see a country with a service sector dominated by guilds, which don’t just overcharge but also raise the barriers to entry for the millions in ill-fated manufacturing jobs who might otherwise find work as, for instance, taxi drivers. They see a timid entrepreneur class. They see a political system in the thrall of the older voters who want to keep what they have, even if it dooms the nation to years of stasis.

They see a society whose best and brightest are leaving and not being replaced by immigrants, because Italy has so little upward mobility to offer.

I have often thought of driving a taxi as a step up from working on an assembly line. I am also a little curious who we are going to bring in to replace those top Italian fashion designers, engineers, and craftsmen who leave Italy for better opportunities. More taxi drivers, perhaps?

I liked the NY Times article because I learned about how the Italians do business. There is definitely some justice in the complaint that outsiders tend to group Italy in with the other countries that surround the Mediterranean [the PIIGS], when Italy is really not near so irresponsible as Greece or as economically backwards as Spain.

However, doing business in Italy would be maddening. Workers are nearly impossible to fire, associations keep the prices high for everything from taxis to legal advice, and the Italian bureaucracy is renowned for its ability to prevent productive activity. Yet, nonetheless, life in Italy is not that bad.

Theodore Dalrymple documentes the visible changes in Italy from the time he first visited:

I first went to Italy as a boy in 1960, the year of the Rome Olympics, and it was still recognizably a poor country. The standard of living was not very different from that of Cuba before the overthrow of Batista. In one town in Sicily, the country’s poorest region, 3,404 humans shared 700 rooms with 5,085 animals, among them pigs, goats, and donkeys. Animal dung, still used as fertilizer, was piled up in the Sicilian streets awaiting use. Visitors from Britain to the Italian peninsula had to treat the water supply with suspicion. My first Italian sojourn ended abruptly when, aged ten, I became delirious from fever and had to be moved to Switzerland to recover; despite the many and dire warnings, I had drunk the Italian tap water. I had not liked to ask my parents all the time for acqua minerale.
The infant mortality rate in the year in which I was born was at least three times higher in Italy than in Britain. Now, half a century later, it is lower than in Britain, and Italians in general live longer and healthier lives than Britons. Not only is Italy noticeably richer than Britain, but it is also considerably cleaner. Recently, the newspaper La Repubblica carried an article wondering why the British food supply was so unclean and unsafe

Dalrymple notes that one of the saving graces of Italy is its enduring corruption. Italy has one of the biggest black markets in Europe, and tax evasion is a way of life for all classes.

The need to evade the depredations of the state and to make alternative arrangements for functions (like social security) that the state claimed, but usually failed, to carry out, meant that the Italian population had to fend for itself. With governments that fell like skittles—and quite long periods without any government at all—no Italian could possibly imagine that the politicians or the state they governed held the key to their prosperity. Necessity in Italy was not so much the mother of invention as of economic flexibility, opportunism (in the best sense), and family solidarity.

Italy's unusual business practices are rooted in their history. Distrust of the national government is not particularly surprising given Italy's recent unification by force. Rapid economic change produces rapid economic dislocations. Honest government and widespread social trust are necessary to counteract the creative destruction of unbridled capitalism. When neither government nor society at large can provide this, people must turn to their own resources, which in practice means relying on your family.