Automotive analyst and publisher Jay Nagley has recently relocated from the UK to Italy. As the Italian economy and automotive sector reels under the impact of the eurozone’s economic crisis, he offers some observations…
“The past is a foreign country; they do things differently there” said L.P. Hartley. So what should we make of Italy, which is a foreign country with uncanny echoes of 1970s Britain? Take industrial relations as an example. Fiat makes its new 500L in Serbia because some Italian unions objected to the package offered to Italian workers by Marchionne, when the original plan was to make it at the historic Mirafiori plant in Turin. Militants took the company to court claiming workers’ traditional rights were being infringed by the planned new working practices. Marchionne responded by taking away the jobs and giving them to Serbians instead. Like in 1970s British Leyland, the average worker was a hapless bystander as posturing hardliners destroyed their jobs in the name of “workers solidarity”.
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A few years ago, I interviewed an Italian industrialist who runs a very successful Tier 2 supplier. He was debating whether to open his next factory in northern Italy (the supposedly competitive bit of the country) or China. Most of his production was used in Europe, and his sums showed that the extra costs of shipping, logistics and remote management meant that China was not much cheaper than Italy overall. But he still went to China. Why? “Because the bureaucracy is easier” That reminded me of a conversation with a small businesswoman in Italy in 1993. It was the year after the political establishment fell in a scandal called Tangentopoli (“bribesville”) – the scandal that ironically led to the rise of Berlusconi. I naively asked if things were better now that an attempt was being made to stamp out corruption. “It is far worse,” she said, “bureaucracy makes things impossible here, but you used to be able to go through the back door. Now they have bolted the back door, so nothing gets done at all.” Subsequently, of course, the back door was turned into a series of toll booths – almost anything could be arranged for the right price.
There is a wonderful Anglo-Italian documentary called Girlfriend in a Coma, with the girlfriend being a metaphor for the country. It includes a horrifying litany of Italian economic statistics: of 179 countries measured by the World Bank, Italy was 169th for economic growth since 2000, and 160th for effectiveness of the legal system (the average civil case takes over three years). That latter statistic is of more than academic interest. If companies don’t feel they can enforce contracts in a country, they won’t invest in it – they might take the risk in China, because the market is so huge, but Italy is hardly in that category. It is no coincidence that Italy is the only major European country with no foreign-owned mass-production car factory – even supposedly protectionist France has Toyota and smart.
Talking of China, no country has been hit harder by the rise of the new Asian superpower. Simplifying somewhat, Germany has got rich selling machine tools to China, so Chinese factories can make the things Italy used to be good at. Industries where Italy was very strong only 10 years ago, such as domestic appliances (Indesit, Candy, Zanussi et al),are ones which China has targeted. Whereas the German mittelstand (medium sized) companies have become ever more technologically advanced to stay ahead, Italian family companies have often been less well-capitalised and have been easier meat for Asian competitors. Driving from Turin airport, one still sees the factories of famous suppliers such as Graziano gearboxes and Sparco racing equipment, but they are bravely swimming against the tide. .
The strange thing is that Italy does not have the feel of a country facing possible economic meltdown – hence the coma analogy of the documentary. Its inhabitants broadly split into three groups when questioned about the crisis. The first takes the view that Italy has always been chaotic, but it has always muddled through in the end. It is no surprise that this view is most common in the vast, bloated public sector. This is so large that it is almost unreformable – there are just too many voters with a vested interest in the status quo. The second, cynical, group accepts there is a crisis, but thinks Italy is so big, and its debt is so huge, that Italy cannot be allowed to go bankrupt – “The Italian crisis is actually a crisis for Germany” is their view. And the third group? Pop down to your high street and ask them. They have voted with their feet and left – one million young Italians are reckoned to have left the country in the last decade. Italy was the only western country with net emigration of university graduates even before the crisis hit. That is also a massive threat to one of Italy’s biggest advantages – its famous creativity in every area of business, from clothing to cars. It is hard to stay creative when your best young minds have left the country.
Of course, decline is never pre-ordained. Italy could escape – after all a country that can produce the Fiat 500 at one end of the market and LaFerrari at the other, is hardly short of skills. However it would have to stop being a nation of insiders and outsiders. The insiders include middle class professionals in closed positions, like notaries, a kind of lawyer, whose fathers were nearly all notaries too, and who successfully keep most non-offspring out of the club. However, there are also plenty of working-class insiders – workers who tend to be in either the public sector, or old industries with legacy rights: thus the best protected workers are often the least productive ones. The outsiders are everyone else, especially young people without the right family connections. The problem is that the insiders will howl the second their undeserved privileges are taken away, but the outsiders will only see the benefits years later as the economy slowly becomes more competitive.
The next time you see a product with “Made in Italy” on the label, spare a thought for its maker. Assuming it did more than stitch the label on (Italian fashion companies sometimes have the goods made elsewhere and then have the minimal finishing done locally so they can claim Italian origin), it has had to deal with a level of bureaucracy, regulation and taxation that would make a British manager go weak at the knees.
Jay Nagley
