Italy Has a Once-in-a-Lifetime Opportunity to Change
Rome's 200 billion euros of EU funds are a potential game
changer. To have any chance of success, Mario Draghi must modernize a
dysfunctional state.
By Rachel Sanderson
March 30, 2021, 6:00 AM GMT+1
Teaching bureaucrats to spend money.
Italy is in line to receive the biggest handout from the
European Union’s pandemic recovery funds. Anyone who’s followed the country’s
fortunes in recent years will be forgiven for shrugging: The euro zone’s
third-largest economy has a history of failing to spend far smaller
disbursements because of its hopeless state bureaucracy.
But there’s real cause for optimism this time. While Mario
Draghi is an unelected prime minister, the former European Central Bank
president has a technocrat’s grasp of his country’s failings, and he’s free
from the shackles of day-to-day party politicking and the punitive austerity of
previous EU regimes. He represents Italy’s best chance in decades to fix its
public administration and thereby unleash the spending spree Italy needs to
survive in the post-pandemic global economy.
Draghi himself has run the numbers on the problem. He says
that of 47.3 billion euros ($55.7 billion) of EU funds earmarked for Italy from
2014 to 2020, little more than 3 billion euros, or 6.7 per cent, was used. In
2017 Italy had 647 infrastructure projects in progress but to date two-thirds
of these aren’t even half finished.
Frugal northern EU states worry about Rome wasting the
recovery money. The bigger challenge is whether it will invest it at all.
Draghi’s “primary objective” is to become capable of spending more than 200
billion euros in pandemic-related EU grants and funds, and then spending it
well.
That he needs to teach Italy’s bureaucrats how to do their
jobs shows the uphill battle in reforming the euro zone’s weakest big economy.
Italy, like other EU countries, has until 30 April to submit plans for how it
will use the pandemic funds.
To have any chance of success Draghi’s government must
modernize Italy’s dysfunctional state. The country’s vast public administration
has been the bane of successive prime ministers. Employing 3 million people,
its tentacles extend from schools to state-owned companies and all points in
between.
Cutting the red tape and cronyism that plagues the civil
service is essential for Draghi’s reform goals aimed at boosting Italy’s woeful
productivity and growth: namely, fixing the country’s tax regime, its byzantine
bureaucracy and its sluggish courts. The sclerotic state carries much of the
blame for Italy ranking 58th out of 190 countries in the World Bank’s “Doing
Business” survey. It comes a dismal 97th on securing building permits, 98th for
starting businesses, 122nd at enforcing contracts and 128th on tax rules.
It’s a herculean task, but maybe not impossible. First,
Draghi enjoys strong support in Italy. This is due to his personal standing but
also because Italy’s party politicians understand they need to back him to get
a slice of the EU pandemic windfall. This gives him a better chance of winning
support for tough reforms than another Italian technocrat prime minister, Mario
Monti, who in 2011 had only EU austerity to offer citizens. Three of Italy’s
largest national union federations have signed a pact with Draghi’s government
agreeing public-administration reform would be a “catalyst of the recovery.”
Second, Draghi’s choice of Renato Brunetta as minister of
public administration is shrewd. Brunetta, one of Italy’s political old guard,
held the role before under Silvio Berlusconi. In one of the few bright spots of
that failed government, he pushed through a first phase of reform and called
out state-administration “slackers.”
The main thing in Draghi’s favor is a fluke of timing.
Because of austerity measures and a generation of state employees reaching
retirement age, the public administration has 300,000 jobs to fill. This offers
the rare chance to refresh moribund ranks. In public administration, the average
age of staff is 50.7 years, 17 per cent are older than 60, and only 3 per cent
are younger than 30. On average it takes four years to fill jobs. An opaque
hiring process has often favored insiders over those with appropriate skills.
Draghi is determined to break these taboos. It’s the right
priority. With Italy needing to use the pandemic funds to hit EU targets for
digitalization and the green transition, Draghi needs people with the right
attributes. He’s concerned — correctly — about Italy’s small and midsized
firms, the backbone of the nation’s economy, being shut out of global supply
chains chain because most are digital laggards.
Draghi wants to hire more international graduates with
advanced degrees into the civil service, and he wants to get universities,
professional services and the private sector to help an economy that has never
recovered from the 2008 crisis.
He will face opposition. The toughest fight is tackling the
“fuga dalla firma,” the public administration’s famous habit of staff avoiding
taking responsibility for decisions. That’s a huge drag on productivity that
affects, for example, a sole trader from Milan who wastes days trying to get
approval for a new tax code or a global multinational that gives up opening a
new warehouse outside Naples because it cannot get a local administrator to
sign it off.
Draghi knows the size of the job. He also understands the
benefits. A genuine public-administration reform would appease those “frugal”
partners in northern Europe. What’s more, Italians have low trust in the state.
Spending the tens of billions on offer prudently may help change that.
“Spending well would be a step toward a rebuilding of trust
in institutions and legality,” Draghi said this month. Higher public trust
correlates with greater wealth, less crime and other metrics of wellbeing.
After a year of yet more trauma, Italy needs all of those.
This column does not necessarily reflect the opinion of the
editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Rachel Sanderson at comment@rachel-sanderson.com
To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net
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