Why has Italy fallen so low?

TL;DR

A.The political class has been used to gain consensus through huge, erratic and irrational public spending and by giving out privileges to certain classes of citizens at the expense of the whole nation.
B.As a consequence, in the last 30 years the national debt ballooned (currently well above 120% of GDP and still growing) but still the older generations (at all levels and social classes) have a strong sentiment of entitlement and do not want to give up their absurd privileges: the Italians mentality remains strongly bureaucratic and prone to corruption, tax avoidance, shortcuts & privileges. At the same time, Italians only advocate for competition, free markets and innovation as long as their privileges are not touched.
C.The younger generations are the least protected/most damaged and are thus flying out of the Country in droves (0.5m people last year alone) looking for jobs abroad, and causing a huge brain drain at home.


The long answer

1. The Early Years: from the Economic Miracle to the Terrorism

Italy has fallen so low for a series of reasons dating back to the 60s, 70s and 80s.
After WWII Italy was a country in ruin.
Unexpectedly it was able to achieve a great comeback in the 50s and 60s (the so called “miracolo economico“).
In the late 60s the “civil rights” revolution started and in the 70s the decade of red/black terrorism opened, basically dead-locking the Country for a decade (politicians, judges & journalists were kidnapped, shot and often killed, bombs exploded killing hundreds of civilians in order to cause a permanent status of terror, Sicilian-Neapolitan-Calabrian Mafia-style organisations started to infiltrate the political apparatus at all levels).

2. The “Pax Italica“: buying peace through public spending

The political class was unable to deal with the changing times and totally lacked a modern vision to guide its people forward (especially in the south, where economy was/is impressively lagging behind) in any way other than “buying” consensus like:

a.widespread generous pension-welfare concessions especially for public sector employees (for many years, they could go to pension with just14 years of work, so called “baby pensioners”);

b.thousands of jobs were created in the public sector every year out of thin air for no purpose other than just to “manufacture” consensus across the country, particularly close to the Municipal/Parliamentary elections (e.g. (i)18 thousands “cleaners” were hired by the School System in just 1 year, allegedly “by mistake” – (ii)to date, the Municipality of Naples still has approximately 20k employees, many of them are not even required to show up for work and go working at a second “undeclared” job elsewhere);

c.gigantic expenses for improbable and never-ending infrastructures – e.g. the Salerno-Reggio Calabria highway: to date, still unfinished after more than 40 years of uninterrupted works.

d. tax evasion of entrepreneurs, professionals, small business owners was tolerated (and oftentimes promoted) for decades.

e. corruption among the public officers was/is widespread, blandly punished and socially accepted as a way to obtain public procurement contracts, shortcuts from bureaucracy and achieve privileges at the expense of the rest of us (60bn € of cost for the community in 2013 alone).

f.thousands of companies (so called: “enti inutili” – “useless entities”) were created by the State/Region/Municipalities with no employees whatsoever, but with a board of directors appointed for the sole purpose of giving a well-paid office job to friends & families of politicians.

It was commonly accepted by the political class that in order for the economy to keep going they had to get into more debt and everybody would be happy.

3. Who pays? In the 80s the national debt started increasing 20% yoy

The situation started to become critical from the beginning of the 80s when the national debt kept increasing 20% yoy. The country was obviously poised for a disaster and the whole political system dominated by the Democrazia Cristiana, the Socialists and the Communist Party (with the exception of a few lonely politicians regarded as “crazy” at the time) turned the blind eye and kept foraging this kind of expenses to obtain the consensus of a large slice of the population (especially in the South of Italy where unemployment, mafia, organized crime, lack of entrepreneurs & infrastructures made the situation particularly difficult for the vast majority of honest people living there).

In the 80s Italy was a perpetual lavish party: politicians at all levels (from secretaries to MP and Ministries) were all having the best time of their life. Italy was now the 7th world power: a complete house of cards made only of public debt.

Basically all Italians were supporting this system where everybody was stealing something at the expense of someone else (or the future generations).

Corruption of public officers was rampant and unashamed: even low level politicians or Municipal councillors were unashamed of their exorbitant Hollywood-style life.

4. The wiping out of the old political class: Berlusconi enters the scene

The situation collapsed in 1992 when Italy was on the brink of bankruptcy and the Government was forced to devalue the Italian lira by 15% in one night just to pay the salaries in the public sector.

At that (dramatic) stage the political class instead of waking up, tell the truth to the taxpayers and do something, decided to bury its “collective” head under the sand, until a widespread investigation by the Magistrates of Milan exposed a rotten system of corruption at all levels (North/Center/South) in the political systems (with a huge scandal and disenchantment which lasts until today).

Then Berlusconi all of a sudden came to power in 1994 luring the middle class by promising a (well overdue) libertarian reform of our aging Country: lower taxes, more jobs, leaner bureaucracy, reduction of the State’s footprint on the market, more freedom in the economy, etc.

Obviously, no reform whatsoever was passed in more than 20 years of Berlusconi reign, but quite the opposite: all classes who had gained any privileges in the past 50 years (the most glaring examples being pharmacists, magistrates, notaries, lawyers, taxi drivers, doctors, untouchable public sector employees, journalists, Alitalia pilots, etc. – the list could be endless) lobbied very hard (and successfully) to strengthen their privileges against any possible reform of the Country: the Parliament confirmed again and again its complete inability to do what was the “right thing to do” regardless of the loud crying of each lobby unwilling to give up its privileges.

For almost 20 years the left/right political debate was focused exclusively on Berlusconi (and his unashamed attempts to pass countless “personal laws” to solve his own problems and to favour his companies and his acolytes) instead than reforming the Country.

To exacerbate the problem, the Vatican (still with a strong voting influence on the older generations) unashamedly sided with Berlusconi in exchange for the introduction of a body of medieval-style legislation allowing them to extend their influence on the population, increase their already massive fortunes and deny any liberal civil rights to the common people (e.g. prohibiting IVF, limiting abortion in public hospital because of “conscience” of doctors, limiting the availability of the latest anti-conceptional pills in pharmacies, thousands of “catholic religion” teachers (i.e. priests) hired by the public school system, real-estate tax exemption on the Vatican-owned properties used for commercial purposes (20% of real estate in Italy is owned by the Vatican), prohibition of same-sex marriages, lengthy and expensive procedures to obtain a divorce, etc.).

Now Berlusconi is almost 80 years old, he is not Prime Minister anymore and the Country has been in continuous recession for almost 10 years in a row.

Still, nothing has changed insofar as the political class (Left/Center/Right) still lacks both the vision and the guts to tell its people (the voters) that a large slice of the population has been living way above their means for decades and it is time to completely overhaul the core rules and mentality deeply rooted within our Country and waive the now unsustainable bureaucratic attitude & byzantine privileges which have been dragging us all so low.

Our current politicians prefer to blame the immigrants, the ISIS, Mrs. Merkel, the globalization or China for all the problems that Italy is facing.

5. Mr. Monti delusion

Most probably, if we look back at the past 5-10 years, Italy had the biggest chance to get some reforms being passed when Mr Monti was appointed as Prime Minister during the 2011 Euro Crisis and the Parliament was ready to pass anything in order to save face, as long as he took the blame in front of the people: very importantly, Mr Monti came to that seat after a strong academic career spent advocating for decades the liberalization of the economy both in Italy and in Europe, the reduction of privileges, etc. — also, he enjoyed the support of the vast majority of the over-taxed, over-working middle class (an ultra rare commodity in Italy).

Mr Monti was (or, better, appeared to be) the right man, in the right place, at the right time.

Nevertheless… rarely a man failed so much the hopes of his countrymen as Mr Monti did. He and his Ministries (some of them even more appalling than him, like Mrs Fornero) proved themselves completely detached from reality (typical academics living in a cloud, not knowing that devil is in the details), unaware of what the real issues were, and unable to achieve anything whatsoever except raising the taxes (he did not liberalize anything, failed to attack either the bureaucracy or the privileges of the many lobbies mentioned above, made a huge mess with an amateurish reform of the labour market, screwed the pension system, etc.).

6. What remains: an aging Country in ruins

We are now in 2015 and the youth unemployment is above 43%.
Almost half a million of (young, extremely well educated, specialized) Italians leave the Country every year to look for a job abroad.
Italy’s debt is above 136% of its GDP and still increasing.
The judiciary system is rotten to the core (according to OCSE, Italy ranks between Congo and Rwanda for the efficiency of its judicial system).

Most importantly, as many commentators in Italy and abroad have said, we are now witnessing a deepening breach of the social contract between younger and older generations: the younger Italians have no rights, no jobs, high taxes and no welfare. Older Italians have good pensions, free services, untouchable jobs, plenty of rights & welfare and feel entitled not to give up anything in favor of the younger generations.

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