ROME Sergio Marchionne performed a near-miracle in turning around the fortunes of Italy's flagship industrial company Fiat. Now business leaders and economists hope he can do the same for its hidebound and ailing economy.
With Prime Minister Silvio Berlusconi embroiled in yet another sex scandal and bent more on political survival than policy initiatives, economic reform in Italy seems to have been commandeered by the charismatic Italian-Canadian businessman.
For almost a year Marchionne has been facing down Italy's largest engineering union in a battle that could eventually change labor relations in the euro zone's third largest economy more than any government has done for decades.
He announced the closure of one unproductive car plant in Sicily. He has threatened to stop investing in the others and move output abroad unless factories accept tougher rules on working hours, sick pay and strikes. And he has formed new companies at the local factory level which operate outside employers' confederation Confindustria, so they are not bound by the collective labor rules negotiated between the confederation and the trade unions.
"What is happening at Fiat marks an important turning point in Italy's system of industrial relations," says labor law expert Pietro Ichino. "It is greatly increasing the scope to set factory level deals in contrast to national contracts."
The current system, based largely on blanket, industry-wide agreements, fails to adequately recognize different conditions from company to company and has been one reason for the dramatic loss of competitiveness of Italian industry. In the last 10 years production costs have risen 25 percent more than in Germany.
There is no doubt Italy is in dire need of reform.
Its economic growth consistently lags its euro zone partners and, according to International Monetary Fund data, it was the world's fourth most sluggish economy between 2000 and 2010, ahead of Zimbabwe, Eritrea and Haiti. Real disposable income has been stagnant since 1990 and the average hourly wage, adjusted for the cost of living, is 30-40 percent below that of its three main European peers, Germany, France and Britain. It is the only euro zone country where per capita output is lower now than it was in 2000.
Of course there are many reasons for this state of affairs, but analysts agree that one factor is the rigid and centralised system of industrial relations and an inability to increase productivity in line with its competitors.
This is where Marchionne comes in. Under a best case but far from automatic scenario, his shock therapy for Fiat, which dominates a domestic car industry worth 11 percent of GDP, could pave the way to similar changes in Italy's broader economy.
Tito Boeri, economics professor at Milan's Bocconi University, says Marchionne has provided "a healthy shock" to worker-union relations, and the Fiat chief is being egged on from the sidelines by his peers in Italian big business.
"We have to reform the collective bargaining system and the Fiat example is a good one to follow," says Confindustria president Emma Marcegaglia.
She has no concerns about Fiat's "opting out" of Confindustria's labor accords with unions which she says should now be superseded by a more flexible approach.
Last June Marchionne won a first workers' referendum in favor of his proposals at the southern plant of Pomigliano, near Naples, and in December the second victory came, narrowly, at the Mirafiori plant in Fiat's historic base of Turin.
Both times he faced down the opposition of Italy's largest engineering union, the hard-line FIOM, and won the backing of more moderate workers' bodies. Referendums are due next in the plants of Cassino, in central Italy, and Melfi in the south.
FIOM has held a string of strikes and negotiations have long ago given way to intense mutual acrimony with management. "Union entrenchment needs to be defeated, destroyed, wiped out," a senior Fiat source told Reuters, asking not to be named so he could speak freely on a sensitive subject.
Unions have historically dominated Italy's labor relations and are widely blamed for rules that over-protect those with permanent jobs in traditional sectors, while excluding women, the young and the growing numbers on temporary contracts.
Italy's employment rate, at just 57 percent, is seven points below the euro zone average and the gap is 12 points among women. In the decade to 2009 productivity per hour worked rose just 3 percent versus a euro zone average of 14 percent.
The jury is out on how far Marchionne's crusade at Fiat can change all this.
"What happens next depends on many different factors," said Boeri, "but I do think it is unavoidable that Italy will move toward a system with more emphasis on plant level accords."
However other economists say Marchionne's hard line is no panacea for Italy's ills and doubt his example will be followed.
"Italy's productivity problems don't have much to do with coffee breaks and sick leave," said a top Bank of Italy official who asked not to be named. "They are more about inadequate investment in research, education and infrastructures."
Labor law expert Ichino said he doubted many Italian companies would have the strength to follow in Fiat's footsteps. "I think it is more probable the Marchionne model will be followed by big multinationals that invest in Italy than by Italian companies already operating here."
That is, assuming foreign firms even come to Italy. A study by the German-Italian chamber of commerce last month showed German companies present in Italy find it a less attractive place to do business than France, Spain and Portugal. Italy ranked bottom in nine of 13 key business factors and second last in three, highlighting a progressive decline in areas such as tax conditions and reliability of payments.
Despite his vital victories in the factory ballots at the Turin and Naples plants, Marchionne still faces an uphill struggle to convince Italian workers that the future will be better if they follow him.
A study of the poll at Turin's Mirafiori plant conducted by researchers at the European Commission and Cambridge and London universities showed most of those who voted in favor only did so because they feared losing their jobs. The FIOM union says it is not bound by the referendum results and plans more strikes.
"You don't boost competitiveness by slashing workers' rights, that doesn't help the company or Italy," said Angela Montuori, one of hundreds of Fiat workers protesting outside the gates of the Pomigliano plant near Naples.
Marchionne says if he can increase the efficiency of his factories in Italy he will also raise salaries, which are notoriously low by European Union standards, to the levels enjoyed by factory workers in France and Germany. An average factory worker in Italy takes home some 1,300 euros per month, compared with around 2,000 euros in Germany.
Marchionne, who grew up in Canada where his father moved for work, has polarised public opinion almost as much as Berlusconi.
Supporters say his determination and blunt, plain-speaking style, which is strikingly unusual in Italy, is exactly what the country needs. They see parallels with Margaret Thatcher, the former premier who broke British trade union power in the 1980s and opened the way to years of buoyant economic growth.
Critics say he is an arrogant reactionary who is capitalising on recession to roll back basic workers' rights.
Even within the trade union movement, the Fiat boss elicits sharply diverging views.
"The path taken by Marchionne might help him increase his stock options but it's not what this country needs," says FIOM leader Maurizio Landini.
Yet some moderate unionists see him almost as a saviour. "I believe in this man, so far he has kept his promises," says Vincenzo Aragona, a representative of the Fismic union at Mirafiori, where he has worked for over 40 years.
"When he joined Fiat, production had come to a halt, the market was bad, he was the right person at the right time."
His dour approach is worlds away from that of Berlusconi, an extrovert charmer who for 17 years has been espousing the need for a revolution of Italy's economy, but consistently failed to deliver.
"We can't wait any longer, the country needs a government that can govern," says Marcegaglia of Confindustria.
Ichino was equally scathing of government inertia. "It is wasting the chance offered by the Fiat affair to promote a sweeping reform of industrial relations that could make the system less cumbersome and inconclusive," he says.
Germany, the strongest economy in Europe and the world's second biggest exporter after China, shows the possible macro-economic effects of reforms agreed at the company level. Its current success, with impressive productivity gains and GDP growth, is often attributed to the welfare reforms passed by Gerhard Schroeder's socialist government after German unification, but economists say changes adopted by employers were equally important.
Companies in Eastern Germany said they could not afford the minimum wage decided at the national level and, like Marchionne, walked out of their employers' associations and regional labor accords.
Claus Schnabel, a labor expert and economics professor at Nuremberg's Friedrich-Alexander University, says Fiat's initiatives are similar to those followed in the past by German auto giant Volkswagen and its smaller rival Daimler.
Bocconi University's Boeri said there were parallels between Marchionne's drive and what employers did in Eastern Germany in the 1990s.
"In Germany it was a catalyst for important changes to the collective bargaining system and it is only to be hoped that Marchionne's actions will have the same effect here," he said.
(Additional reporting by Laura Viggiano in Pomigliano; Editing by Claudia Parsons and Sara Ledwith)