Prudent Italy needs reform?

http://www.economist.com/node/18805327

… Low average unemployment disguises some sharp variations. A quarter of young people—far more in parts of the depressed south—are jobless. The female-participation rate in the workforce is 46%, the lowest in western Europe. A mix of low productivity and high wages is eroding competitiveness: whereas productivity rose by a fifth in America and a tenth in Britain in the decade to 2010, in Italy it fell by 5%. Italy comes 80th in the World Bank’s “Doing Business” index, below Belarus and Mongolia, and 48th in the World Economic Forum’s competitiveness rankings, behind Indonesia and Barbados.

The quote above comes from the recent and infamous Economist article – The man who screwed an entire country. At first glance this would have most quaking in their plush Italian loafers but not us in Italy!

Why is that?

In earnest one has to look at just how the stats are compiled and what agenda is at work. For example on paper being so far down the tack in World Bank’s “Doing Business” index seems chronic and yet looking more closely, the inherent Italian resistance to reckless new product development and trade expansion is one of the factors that has protected the Italian economy more so than many.

World Bank’s “Doing Business” index: Economies are ranked on their ease of doing business, from 1 – 183. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country’s percentile rankings on 9 topics, made up of a variety of indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to June 2010. Read about Doing Business’s new five-year measure of how business regulations have changed.

Yet in mid sized populated nations China ranks 79 and Italy 80.

At number 1 slot we have Singapore a nation heavily dependent on impex for it’s day to day survival.

The 10 economies that made the largest strides in making their regulatory environment more favorable to business are Georgia, Rwanda, Belarus, Burkina Faso, Saudi Arabia, Mali, the Kyrgyz Republic, Ghana, Croatia and Kazakhstan. All implemented more than a dozen Doing Business reforms over the 5 years. Several—including Georgia, Rwanda, Belarus, Burkina Faso, the Kyrgyz Republic, Croatia and Kazakhstan—have also been recognized as top 10 Doing Business reformers in previous years.

According to the Index Methodology notes:

The ease of doing business index is limited in scope. It does not account for an economy’s proximity to large markets, the quality of its infrastructure services (other than services related to trading across borders), the strength of its financial system, the security of property from theft and looting, its macroeconomic conditions or the strength of underlying institutions. There remains a large unfinished agenda for research into what regulation constitutes binding constraints, what package of reforms is most effective and how these issues are shaped by the context in an economy. The Doing Business indicators provide a new empirical data set that may improve understanding of these issues.

http://www.doingbusiness.org/methodology/

methodology-note#Ease of DB

This stubborn national Italian trait on the surface has a positive upside when one views it with more integrity.  Speculative business and start ups are well untrusted, tried and tested in Italy and traders or manufacturers here don’t jump in with both feet like many … and bear the scars as a consequence.  Can the same be said for Ghana, Croatia and Kazakhstan who according to the same index appear to be the most strident economies in the world?

The index is misleading at first glance.  Certainly there may be 170 other countries easier to do business with but frankly most of those are banana republics and vie for business by lowering restrictions, fast tracking, tax voidance and loosened regulations – be it on your own head and read the index with insight!

The crowds from the world over fawn the Italian slow food culture yet some continue to deride and continually fail to recognise the safeguards that characterise the imperfect but steadfast slow business model.  Both arise from the same seed however; tradition and integrity.

The final word: Italy certainly needs reform but in core economics it remains robust and relatively stable compared to many neighbours in including UK, Ireland, Greece and Spain.  No measures will waiver the deficit overnight, it will take the slow but steady passage of time but at least this is an economic based on terra firma and not for example the recurring gassing of property markets and private sector over leverage.

There is an underswell of change building across the nation and this will surface over the next 12-24 months.

In the meantime steer clear of misplaced stereotyping, seek out the stats and watch this space.

http://www.doingbusiness.org/rankings

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