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In March 2005, the Italian government approved an action plan on competitiveness and development, which contains various measures aimed at relaunching the country’s competitiveness. These include a streamlining of bureaucratic procedures, support for companies, investments in infrastructure, action against counterfeit goods, and improved measures to help workers affected by restructuring. Trade unions and employers’ organisations take a negative view of the plan.
Data on industrial production recently released by the Central Statistics Office (Istituto centrale di statistica, Istat), along with the March 2005 twice-yearly economic bulletin from the Bank of Italy (Banca d’Italia), highlight the current difficulties of the Italian economy: falling industrial production, low economic growth, persistent economic uncertainty and an erosion of the Italian position in international trade.
The Italian economy began 2004 in line with expectations, with GDP growing by 0.4% in the first quarter, but had come to a halt by the last quarter of the year, when GDP fell by 0.3%, suffering from a downward trend in industrial production (down 2.1% in January 2005 compared with January 2004). A decrease in exports, limited domestic demand and low investment contributed to weakening economic performance in the second half of 2004. Forecasts for 2005 are for reduced growth and possible non- fulfilment of the official objective of a public deficit of 2.7% of GDP, or of the 3% ceiling on the deficit. The final data for 2004, issued by Istat in March 2005, indicate a deficit of 3.0% of GDP, compared with a forecast 2.9%. Insufficient reductions in public expenditure and income tax cuts promoted by the government leave little room for optimistic forecasts for 2005.
Particularly concerning are data issued by the Bank of Italy on the loss of competitiveness of Italian products on the international market, which it attributes mainly to a low level of productive development. In 2004, despite a very favourable external context which saw a 10% increase in foreign commerce, the share of the international market of Italian goods decreased from 3.1% to 2.9% and sales of of Italian goods abroad increased by half of the EU average. The Bank underlines 'that labour costs per employed worker increased above the European average and that in 2000 the erosion of competitiveness for Italian products measured on the basis of unitary labour costs exceeded 25% (against 10% for German and French products) while the overall cost of labour unit per product was about 15% due to low productivity'.
In late 2004, the social partners started placing pressure on the government to obtain a policy aimed at boosting competitiveness and drafted a common document to be used as a basis for negotiation. (IT0412306F and IT0411107F). Both the trade unions and the employers’ associations are very concerned about the latest figures and lament the lack of competitiveness of Italian industry, calling for: policies aimed at relaunching investment in research, development and innovation; measures to support the internationalisation of Italian companies; support for sectors in crisis; and the strengthening of the 'social shock absorbers'- the measures that support employees during restructuring (IT0311306T).
The action plan
On 11 March 2005, after six months of debates, the cabinet approved an action plan for the economic, social and local development of the country and the relaunch of Italy’s competitiveness. The plan is composed of a decree-law, which contains urgent measures for the relaunch of economy, and a bill that will be presented to parliament. The decree-law is composed of 16 articles and includes economic incentives and administrative simplification measures. The main points of action plan are as follows.
- Fight against counterfeit products and incentive for 'de-relocation'. The plan provides for: administrative fines of up to EUR 10,000 for those who knowingly purchase counterfeit goods; tax incentives for those Italian companies that have transferred activities abroad but now intend to reinvest in Italy; and the abolition of incentives and tax reductions for all companies that have invested or invest abroad and do not keep in Italy their research and development activities, their commercial management and a substantial part of their productive activity.
- Bankruptcy law and reform of registration of professionals. The decree modifies bankruptcy law, anticipating a reform of the whole system, and modifies the rules about enrolment on 'professional rolls'- ie registers of those authorised to carry out various professions. An association of professionals who carry on activities that are not regulated and enrolled in professional registers will be now recognised.
- Administrative simplification. There will be an extension of self-certification among those setting up businesses. It will be possible to start a productive activity if the public administration concerned does not deny its permission within 30 days of a request (the 'silent-consent' rule). It will also, for example, be possible to transfer ownership of a motor vehicle without needing the signature of a notary.
- Infrastructure. A sum of EUR 750 million, which remains from the application of law 488/1992 on industrial investments, is allocated for 14 major infrastructure works in the South of Italy. These were identified by the Committee for Interministerial Planning (Comitato Interministeriale per la Programmazione Economica, Cipe) in 2004.
- Support to companies. The government has strengthened the fund set up to support companies in crisis (with an extra EUR 100 million) and introduced a 30% tax credit for the merger of small and medium-size enterprises (SMEs) and tax reductions in respect of newly-hired workers in Southern regions. Moreover, in order to support agriculture, the decree provides for an increase of excise duties on alcoholic products such as beer and spirits, to foster the stabilisation of value added tax in agriculture - this measure should bring about EUR 220 million of a total of EUR 224 million needed for this purpose.
- Welfare. This article of the decree includes various measures, including modernisation of the social protection system, strengthening of the social shock absorbers, re-employment incentives and unemployment allowances. In particular, the decree extends the social shock absorbers system to SMEs not covered by it and allocates EUR 460 million for a special wages guarantee fund for these firms. Furthermore, the 2005 state budget allocates EUR 310 million to support SMEs in the textiles sector (IT0411101N) and all the suppliers and subsuppliers of the Fiat group (IT0411305F). Moreover, the decree allocates EUR 20 million in 2005, EUR 200 million in 2006 and EUR 530 million on 2007 to those companies that will no longer have access to the sums represented by the end-of-service allowance (trattamento di fine rapporto, tfr) - a portion of pay that employers save on behalf of their employees and pay to them at the end of their employment relationship - of those workers who take up a new option of paying this money into a supplementary pension fund (IT0409101F). The decree also envisages the possibility of using for this purpose funds previously allocated for the launch of supplementary pension funds in the public administration. The decree increases the period of payment of unemployment allowances to seven months for workers aged up to 50 years and 10 months for older workers - the amount of the allowance will fall from 50% of previous pay for the first six months to 40% for the following three months and 30% for the remaining months. Finally, the decree confirms the creation of a bonus - one month's pay for workers on fixed-term contracts and three months' pay for those on open-ended contracts - for unemployed workers who take up jobs 100 kilometres or more from where they live.
Reactions
The approval of the action plan was long and difficult and saw animated discussions and divisions within the centre-right government parties. The first article of the decree-law, containing measures against counterfeit goods, and the possible inclusion of anti-dumping duties caused much controversy, dividing the cabinet. The Northern League (Lega Nord), one of the coalition parties. strongly supported the introduction of anti-dumping duties to safeguards Italian products against Chinese competition. Despite the League's opposition, the article was approved as it stood and the issue of anti-dumping duties was referred to EU level. According to the Prime Minister, Silvio Berlusconi, 'the action plan for the country’s development was approved, overcoming the different sensibilities of the political parties of the governmental majority and guaranteeing, at the same time, to the Northern League a commitment for the solution of the anti-dumping issue at European level'.
The trade union confederations have voiced many criticisms over the plan approved by the government and lamented the lack of a 'radical change in Italy’s economic policy'. They are also opposed to the method used to develop and approve the plan. Moreover, according to the trade unions the plan contains neither the economic resources nor the correct choices to launch in a successful way targeted policies to promote investments in innovation and research.
According to Savino Pezzotta, general secretary of the Italian Confederation of Workers’ Unions (Confederazione Italiana Sindacato Lavoratori, Cisl), 'it is essential to leave apart the tax reduction strategy that does not relaunch consumption and count more on development policies able to influence and strengthen the supply of Italian goods.' Guglielmo Epifani, general secretary of the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro, Cgil), shares this view and believes that the plan, rather than containing 'actions aimed at streamlining bureaucratic procedures or relaunching demand, should be aimed at boosting Italy’s supply.' Luigi Angeletti, their counterpart at the Union of Italian Workers (Unione Italiana del Lavoro, Uil), underlined a lack of an action aimed at safeguarding and promoting the productivity and competitiveness of Italian industry and the fundamental importance of the latter for the Italian economy. Mr Angeletti is convinced 'that we did not realise or realised too late that if we managed to survive it is because 30% of the industry workforce manages to produce the necessary wealth.' Cgil, Cisl and Uil intend to analyse the plan in detail and have asked the government to resume talks on the country’s development as soon as possible.
Employers' organisations are sceptical and cautious. According to the Confindustria confederation, the measures approved by the government on competitiveness are just a start and not the final solution. It believes that the speed with which parliament examines the bill will deeply influence the efficacy of the measures. It also regretted the lack of funds and tax incentives to improve the collaboration between companies and universities, with a view to technological improvement. Andrea Pininfarina, the vice-president of Confindustria, stated that the action plan 'is the first signal of attention towards enterprises, and this should be followed by structural interventions on liberalisation, research, innovation, simplification, infrastructures, the South and energy costs.'
Commentary
It seems that the principal merit of the action plan lies in the fact that it exists. The government, partly because of pressure from the social partners, has decided to face the industrial crisis and loss of international competitiveness that are currently affecting the country. However, the measures adopted will not be able to have a significant impact in the short run and the resources allocated by the government are not seen as appropriate to the country’s needs.
Some issues that have long been at the centre of the debate among the social partners have been omitted from the plan, such as research policies, support for innovation, strengthening of 'human capital', and reform of the school and university system. The plan approved by the government will be presented at European level as a contribution to the EU's Lisbon strategy, even if it does not contain any of the issues proposed at European level.
In order to assess the plan, beyond its contents, it must be borne in mind that Italy is currently undergoing an electoral campaign, with regional elections in April 2005 and a general election due in the first half of 2006. The government is thus bound by its electoral promises and is committed to reducing income tax, a move considered essential for its success in the elections, more so than the relaunch of industrial production, development and employment.
Italy’s industrial crisis has not so far had a severe impact on employment, thanks partly to the possibilities for companies to have recourse to flexible employment contracts. The crisis is, nevertheless, destined to worsen, especially in the textiles, metalworking and auto sectors, and there will be a consequent loss of a significant number of jobs. The Cisl trade union confederation forecasts that there are at least 500,000 jobs currently at risk. The measures aimed at extending the social shock absorbers are just a palliative aimed at reducing the social costs of the crisis, rather than at tackling its causes.
The increasing social tension is being exacerbated by the fact that the national sectoral collective agreements for many workers in the public sector and in the metalworking industry (IT0412205F) have not been renewed yet. The negotiations are characterised by urgent trade union pay demands, as a consequence of the increased cost of living that has hit workers and retired people. However, the requested pay rises would have a negative impact on competitiveness - but the government cannot appeal to the trade unions’ sense of responsibility to contain wage demands, having decided some time ago to abandon income policy.
The international economic situation and the increasing price of crude oil will continue to harm the Italian economy, accentuating the other problems.
Taken together, these factors contribute to an increasingly conflictual attitude from trade unions, and to disillusionment among employers’ associations with the government's policy, which has so far benefited only the real estate and financial intermediation sectors rather than the productive sectors. The forthcoming regional elections will constitute a severe examination of the governing majority and will probably lead to a policy more attentive to the future of Italy’s economy and to the problems of competitiveness and employment. (Domenico Paparella, Cesos)