There is no shortage of explanations for Italy’s slump in productivity. Thanks to punitive regulation of labour and product markets, it is one of the most expensive places in the rich world to start a new business. Taxes and red tape strongly discourage productive firms from growing very large. Nearly 70% of Italian workers labour in firms with fewer than 50 employees, compared with about a third in America. The government taxes income from labour far more heavily than consumption, discouraging work (and encouraging evasion). Perhaps most worrying, the share of young Italian workers with a university degree is among the lowest in the rich world. At just under 10%, the share of highly educated Italians living abroad is also among the highest in the rich world.Yes, the rules and regs are killers of small biz worldwide, but that 70% working is businesses smaller than 50 people is wonderful. You see the Italian version of the IRS, armed and in uniform, driving around to bust tax-evaders. Tax noncompliance is what keeps the Italian economy going, plus not makes work for 68,000 Italians busy pretending to force compliance.
The slowdown in productivity occurred just as Italy joined the single currency. Some economists see this as coincidental. The euro was born just as the global economy was undergoing a rapid bout of globalisation. Italy’s small firms did not scale up to capitalise on emerging-market demand, as Germany’s did. By the same token, its under-skilled population could not take advantage of the rising return to trade in professional services, as firms in America and Britain did.
There is no mere coincidence Italy "slowed down" as it joined the Euro. The acceleration of "globalization" was one of the reasons for the EU project. Yes, Germany's companies "capitalized" and scaled up for "emerging market demand" but for what? Germany simply lent mal-credit to people who could not pay it back to buy German products. Now Germany is in a terrible bind. Italy might simply do what Iceland did, and say "sorry, you lent too much, we default" and then move back to the Lira, and proceed to a recovering economy (and roll back those goofy rules and regs.)
Germany goes down in flames again, but they took the risks, and they bear the burden.
As to Italians being "under-skilled" regarding financial services, ahem… they invented financial services (FIRE finance, investment, real estate.) Been there, done that… Italians know where that ends up. No hurry to go there again. But their crown jewel banks got caught up in it, and they now need more bailouts, so maintain the Hegemon's system. With 70% of Italian biz under 50 people, it lay is poised for a renaissance when the hegemony goes bankrupt for massive cascading cross-defaults of the globalization house of cards.
USA and the UK will pay heavily for their specialization in FIRE when all that financial engineering construct comes tumbling down.
USA needs 70% of its businesses less than 50 people, and a massive rollback of rules and regs. it won't happen until the Hegemon fails, but starting your own business is to part of the solution.
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