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The economy of Italy is 7th largest in the world; adjusted for purchasing power parity, 10th. The country is as rich in technology and entrepreneurship as it is in history and culture.
Yet despite its profile of quality and innovation, Italy has grown slowly during the past decade – slower, indeed, than Germany, France or the UK.
And its competitiveness – its unit labor costs – has slipped, as wages rose but productivity stagnated. As a consequence, Italian firms and Italian savers chose attractive opportunities elsewhere, and net direct investment turned outward. Italy’s investment reputation, however, is far worse than the reality.
To mitigate these problems, the government of Italy must make changes in national policy. The regulatory and institutional factors that damage productivity must change. Real wages must stop growing, at least for a time, until productivity accelerates. And fiscal policy – the relationship between spending and revenues – must change, so that deficits decline, eventually along with debt and debt service.
The remainder of this paper examines Italy’s macroeconomic environment and the structural problems that inhibit competitiveness; the microeconomic structure of Italy, together with its strengths in R&D, informational technology, design and engineering; the recent record of inbound foreign investment, and the exports associated with it; and finally, a series of recommendations for the government and a forecast of prospects for growth.
A White Paper by:
Professor Richard H.K. Vietor
Harvard Business School
Professor Alberto Onetti
University of Insubria and the Mind the Bridge Foundation Fernando Napolitano
Why Italy Matters to the World