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Macro Series – Postcard – Italy: more complicated than a tale of two regions

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In statistical terms Italy is country of variances, rather than of averages.

Italy’s economy has scarcely grown since the beginning of the new century, and is yet to re-attain its pre-2008 level. But Italy’s economic problems extend beyond its aggregate performance: it also has its important north-south schism: and indeed matters are more complicated even than that.

The familiar North-South divide

Italy’s well-known North-South divide is scarcely new. One way or another, it has been a feature of the country at least since its unification in 1861. The aggregate story has long been the average of a North that thrives, with people working hard and competing successfully with the rest of the world; and a South that stagnates, with people competing for shares of an ever-smaller pie. It really is striking how, notwithstanding political uncertainty, bureaucracy, and inefficient services, the North is nevertheless full of firms that grow, export, and employ. Indeed, the North is one of the most productive areas in Europe after Baden-Wurttemberg, Rhone-Alpes, and Bavaria. The region boasts many success stories, and companies that are achieving double-digit growth. A seasonal example: TechnoAlpin produces, and last year has installed, more than 100,000 snow cannons that create artificial snow. With a 60% global market share, it is to produce all the snow cannons for the 2022 winter Olympic Games in China. Between 2010 and 2017 the exports of companies such as TechnoAlpin have contributed more than 6pp to the growth of GDP. But for those exports, GDP would have declined. On the other side of the coin, however, are the all too many firms in the South that, while often well managed by entrepreneurs who are successful in their own terms, are inefficient, too small to invest in technologies and human capital, lack a culture of expansion; and are highly-indebted. It does not take statistics to see this: it is exemplified by the plainly visible differences between Milan, with all the characteristics of a great European capital; and Rome, which is in decline.

And now a two-speed South

The Italian problem is however more complicated than a straightforward North-South issue, as the recently-updated ISTAT data on income inequality demonstrate. By way of calibration: at the national level, Italy’s Gini coefficient indicates a degree of inequality comparable to that of Portugal and Spain – significantly higher not only than in the traditionally egalitarian Nordic countries Finland and Norway, but than in the Netherlands and Belgium too. Regionally, and again not surprisingly, the Northern ones typically have Gini index levels similar to the Northern European countries, while the Southern regions and Lazio have levels comparable with Mediterranean countries. But interestingly and importantly, some of the Southern regions on the east coast – Puglia, Abbruzzo, and Molise – have levels below the national average, and similar to wealthy Lombardia, Veneto, and Trentino-Alto Adige in the north (see map below). The country is thus unequal in a rather complicated way, with disparities in the South-East similar to the North, but with a lagging South-West, including Lazio, with much larger income inequalities.

Looking ahead

Italian regional inequalities have so far defied all policy attempts at reduction, whether by the Italian government or the European Commission – much to the frustration of politicians, who know how regional inequalities can lead to seismic consequences. Meanwhile, the Italian political landscape seems to be shifting yet again, with the latest regional elections suggesting a possible return towards a more bipolar political landscape. To the extent that this may herald a better environment for evidence-based, rather than populist, policymaking, it may be worthwhile for the authorities to look carefully at how some of the South-East regions have managed to do better than their Western neighbours. Increasing modern evidence on the importance of clusters and nodes may prove relevant. Maybe judicious placing of investment funds in connection with the EU’s growing push for action on climate change and the so-called green new deal could help, especially perhaps in agriculture, food, and biotech – activities that are bound to remain important in the long term.

Macro Series - Postcard - Italy: more complicated than a tale of two regions 1


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Macro Series – Postcard – Italy: more complicated than a tale of two regions

In statistical terms Italy is country of variances, rather than of averages. Italy’s economy has scarcely grown since the beginning of the new century,