August 30, 2015 / 1:09 PM / 2 years ago

Why reforms don't work so well in Italy

ROME (Reuters) - When Italian Public Administration Minister Marianna Madia tried to take advantage of a reform that should have allowed her to change her residency online, the local council said it couldn’t be done.

Instead, Madia had to go three times in person to the council offices to overcome the habitual bureaucratic hurdles.

Her experience will not surprise millions of Italians exasperated by the difference between real life and what politicians claim to have achieved.

Italy has been passing reforms virtually non-stop for two decades. But they have had little impact because they have often been superficial or poorly implemented, without a consistent sense of direction.

The last 20 years have seen at least four landmark reforms of the labor market, three of the public administration, three of the education system and innumerable changes to the justice system. The last eight years alone have seen at least seven packages of legislation to cut red tape.

The results? No economic growth since the launch of the euro and the euro zone’s lowest employment rate after Greece; the lowest proportion of graduates in the EU and its slowest civil justice system, according to Eurostat and the Organisation for Economic Cooperation and Development.

Liquidating a company still takes eight years and it takes eight months to get a construction permit, according to the International Monetary Fund and the World Bank. So what is going wrong?

IMPLEMENTATION

Mauro Pisu, head of the OECD’s Italy desk, says many reforms passed by parliament have not been fully implemented, creating what he calls “a gulf between the ‘de jure’ situation and the ‘de facto’ one”.

This is partly because after passing parliament reforms need further approval, known as “actuation decrees,” which can take months or years to arrive - if they arrive at all.

At the start of this year 383 laws passed since 2011 had still not taken effect because they had not been approved by ministries. That includes half the laws passed by former Prime Minister Enrico Letta, who left office in February 2014, and a quarter of those of his predecessor Mario Monti, who resigned in 2012.

Even when the process is complete, reforms are often simply ignored by civil servants.

“You can pass all the reforms you like but it won’t help if the public administration doesn’t work properly because that’s what puts them into practice,” Pisu said.

Prime Minister Matteo Renzi, who took office 18 months ago, said this month that “no-one has done so many reforms in such a short time,” echoing claims by Monti and Silvio Berlusconi.

Renzi has tackled reforms of the labor market, education and the public administration, among other areas, but few are yet operational and they face the same obstacles as the efforts of previous prime ministers.

Vito Tanzi, an Italian economist who headed the IMF’s public finance department for 20 years, said another obstacle to reform in Italy is its huge regional differences and fragmentation.

Italy has twice as many town councils as the United States. The gulf between the “de jure” and the “de facto” situation is particularly marked in the poor south, where corruption and organized crime are rife and local officials pay even less heed to what is decided in Rome.

The sheer number of laws, invariably written in indecipherable language despite a succession of “ministers for simplification”, also makes them hard to apply.

In 2010 Roberto Calderoli, simplification minister of the time, made a bonfire of 375,000 norms he said had been canceled by the government. Apparently now less keen on simplification, Calderoli has presented half a million amendments to a Renzi government bill to reduce the powers of the Senate.

An article this month in La Stampa newspaper said there were still 10,000 regulations on producing mineral water.

“ACQUIRED RIGHTS”

Bureaucrats in central and local government are widely seen as almost insuperable obstacles to change.

Francesco Giavazzi, an economics professor and former Treasury official, said that in 2012 he was asked to streamline state subsidies to companies. Virtually all his proposals were batted away by officials.

“The subsidies are managed by bureaucrats in the industry ministry. If you reduce the subsidies then you are reducing their power and influence,” he said.

In Tanzi’s words, reforms often “give the impression of change while really changing little.”

This explains why theoretically major reforms often have to be amended after a few years. There have been at least five pension reforms in the last 20 years while Renzi’s signature “Jobs Act” arrives just two years after a supposedly landmark labor reform adopted by Monti.

“Reforms in Italy have tended to be marginal and protect insiders, those who have what Italians call ‘acquired rights’, while penalizing the young” said Pisu.

The principle that “acquired rights” cannot be altered explains why Renzi’s recent easing of firing restrictions does not affect anyone who already has a job.

It also explains why Italy still spends more on pensions than any other EU country. An attempt by Monti to block inflation-linked increases to the most generous state pensions was thrown out by the Constitutional Court.

NO DIRECTION

To arrest such decline needs a change of policy direction, but Italy doesn’t seem to have decided where it wants to go.

Its leaders espouse tax cuts and lower spending, but taxes, spending and government debts continue to rise and pursuing reforms has come to be seen as having merit in itself.

“Save Italy,” “Grow-Italy,” “Simplify Italy,” “Destination Italy,” “Unblock Italy,” “The Action Decree,” “Good Schools,” “Jobs Act,” are the titles of some recent reform packages.

Ministers brandish the list to show Italy deserves a flexible interpretation of EU budget rules, but Tanzi insists substance is much more important than the number of reforms.

“Italy needs a cultural, political and administrative revolution,” he said. “The idea this can be achieved by more budget flexibility and using the same models as used in the past, with some small adaptations, would be a tragic illusion.”

Reporting By Gavin Jones; Editing by Giles Elgood

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