Acton Institute Powerblog

The Burden of Italian Red Tape

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In yesterday’s Wall Street Journal Europe, Alberto Mingardi of Istituto Bruno Leoni (and long-time Acton friend) lists some of the reforms Italy needs to boost economic growth, which is forecast at a measly 0.6 – 0.8 percent for 2008.

Mingardi advocates a number of tax cuts and a more determined privatization of state assets. Some of these issues are being discussed – timidly – in the current election campaign; Mingardi also focuses on de-regulation and de-bureaucratization, issues heretofore neglected by Italian politicians.

Current labor regulations are “so numerous that no one can even give their precise number. No one can comply with rules they don’t even know about.” Mingardi adds that “it’s safe to say at least half the statutes currently in force should be repealed, as their only effect is to create confusion.”

A recent study shows that it takes on average 696 days to dismiss a worker in Italy compared to only 19 in the Netherlands. Critics of de-regulation would argue that Italian workers are therefore better protected. Wrong. Unemployment is 5 per cent in Holland compared to 6 per cent in Italy.

This may seem counter-intuitive but makes economic sense. If I know it will be impossible to fire an unproductive worker, I will be much less likely to take a chance on hiring any worker I don’t personally know. Hence, the Italian model of “family capitalism” and higher levels of unemployment.

Italian bureaucracy also exacts high costs on business creation. According to the World Bank, the cost of opening a business is 18.7 per cent of per capita income compared to only 0.8 per cent in the United Kingdom and 0.3 per cent in the Republic of Ireland. Moreover, an Italian business spends an average of 360 hours per year filing taxes whereas in neighboring Switzerland 63 hours suffice. (Not surprisingly, Switzerland is the economic envy of Europe.)

Workers also pay for onerous regulations. Everyone in Italy nowadays complains about stagnant wages, these are clearly the result of decreasing productivity caused by bureaucratic disincentives for businesses to invest and grow.

An overwhelming bureaucracy undermines both individual liberty and the public interest. It punishes the creative spirit of the entrepreneur by obstructing investment and innovation, and harms society by killing the potential for growth and employment. The irony is that regulation and bureaucracy are often enacted in the name of social values.

Bernd Bergmann

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