Why Italy Fails and Swedish Economists are Smug

Our friends at Bruegel posted a nice piece called “Why does Italy not grow?” which I missed when it was first published (until a chronically sleep-deprived friend posted it on her Facebook). The post compares how France and Italy underperform in terms of GDP compared to Sweden – and Swedish economists love to gloat, and talk about our model that rest of the world would embrace – if they knew what’s good for them.

Well, my very Swedish persona digresses – in any case, the authors correctly point to three factors why Italy fails – the huge gap on innovation measured in number of international patents (the poor returns of R&D in  France and Italy is something I’ve pointed out in some of my sector studies); low levels of education in the workforce, and inflexible labour markets that created a huge youth unemployment that pushed its bright young things to move abroad (some of them works in our office; and no, Italy – you can’t have them back).

However, the authors fail to mention an important point: Italy did not deregulate its markets (especially on services), which had tremendous downstream effects, creating inefficiencies across the whole economy. Here’s a graph on services restrictiveness from the OECD that says a thousand words.

(in case you’re looking for Italy somewhere in the middle, try on the far-far-far right)

The problem with Italy however, is that country is so simply so divine that you will forgive it for all its flaws – or to quote my favourite line in Where Angels Fear to Tread: There is something majestic even in the bad taste of Italy.