Cyclical downturn or structural disease? The decline of the Italian economy in the last twenty years

Italy is experiencing at present the most serious economic recession of the post-war period. Between 2008 and 2013 national income fell by 9 per cent, per capita incomes by 11 per cent, and industrial production by 25 per cent; and unemployment doubled. In this essay we argue that, while this dramatic situation has been made worse by the policies of ‘expansive austerity’, its origins can be traced back to changes that took place in the 1990s (notably globalization, competition for emerging new markets and the diffusion of new technologies – ICT) to which Italy failed to react speedily or effectively by reorganizing its entire productive system. Instead, many of the reforms that have been introduced with respect to the labour market, for example, have reduced costs but in ways that have encouraged firms to stay in traditional sectors where products are poorly differentiated and of low technology content. If the Italian economy is not to become even weaker, new reforms are urgently needed to encourage innovative investment and push through to completion a restructuring of the industrial system that can no longer be deferred.