Monday, June 29, 2015

For many decades, Italy has been doing the things that American progressives would recommend, pouring lots of fiscal stimulus into the south, to build up the economy. But nothing seems to work.

See Europe's soft underbelly by Scott Sumner of EconLog.
"When Americans think about inequality, it is often linked to ethnic differences. Sometimes that's also true in Europe (as with the Roma), but more often the inequality is regional. Perhaps the starkest example lies in Italy, where even in 2007 the south lagged far behind the north. Since then, things have only gotten worse:
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According to the Economist, in some respects the mezzogiorno is doing worse than Greece:
The country is, in effect, made up of two economies. Take that 2001-13 stagnation. In that period northern and central Italy grew by a slightly less miserable 2%. The economy of the south, meanwhile, atrophied by 7%. 
This is partly because the south grew more slowly than the north before the financial crisis. But the main source of the divergence has been the south's disastrous performance since then: its economy contracted almost twice as fast as the north's in 2008-13--by 13% compared with 7%. The mezzogiorno--eight southern regions including the islands of Sardinia and Sicily--has suffered sustained economic contraction for the past seven years. Unicredit, Italy's biggest bank, expects it to continue this year. The Italian economy is both weaker and stronger than it appears, depending on the part of the country in question.
Of the 943,000 Italians who became unemployed between 2007 and 2014, 70% were southerners. Italy's aggregate workforce contracted by 4% over that time; the south's, by 10.7%. Employment in the south is lower than in any country in the European Union, at 40%; in the north, it is 64%. Female employment in southern Italy is just 33%, compared with 50% nationally; that makes Greece, at 43%, look good. Unemployment last year was 21.7% in the south, compared with 13.6% nationally. The share of northern and southern families living in absolute poverty grew from 3.3% and 5.8% respectively in 2007, to 5.8% and 12.6% in 2013.
Downward pressure on demand is exacerbated by the south's lower birth rate and emigration northward and abroad. The average southern woman has 1.4 children, down from 2.2 in 1980. In the north, fertility has actually increased, from 1.4 in 1980 to 1.5 now. Net migration from south to north between 2001 and 2013 was more than 700,000 people, 70% of whom were aged between 15 and 34; more than a quarter were graduates. Marco Zigon of Getra, a Neapolitan manufacturer of electric transformers, says finding engineers in Naples, or ones willing to move there, is becoming ever harder. According to Istat, Italy's statistical body, over the next 50 years the south could lose 4.2m residents, a fifth of its population, to the north or abroad.
In one important respect southern Italy is different from Greece. Like eastern Germany, southern Italy is part of a larger and more prosperous fiscal union. For many decades, Italy has been doing the things that American progressives would recommend, pouring lots of fiscal stimulus into the south, to build up the economy. But nothing seems to work. Indeed from Greece to Italy to southern Iberia, the entire southern tier of Europe is doing quite poorly. But why? And what can America learn from the failure of Italian policies aimed at boosting the mezzogiorno?
American progressives will sometimes argue that we have much to learn from the successful welfare states in northern Europe. Perhaps that's true. But I'd have a bit more confidence in that claim if they could explain what we have to learn from the failed welfare states in southern Europe. Indeed I'd have more confidence in progressive ideas if they even had an explanation for the failed welfare states of southern Europe. But I don't ever recall reading a progressive explanation. Indeed the only explanations I've ever read are conservative explanations, tied to cultural differences.

PS. The mezzogiorno has roughly 1/3 of Italy's 60 million people, making it almost twice as populous as Greece. In absolute terms, incomes there (17,200 euros GDP per person in 2014) are far lower than among American blacks or Hispanics. In contrast, GDP per person in northern Italy was about 31,500 euros in 2014. And while the gap between eastern and western Germany is narrowing, the gap in Italy is widening. Why?"

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