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Europe, Italy, Politics, unemployment

How austerity has widened Italy’s North-South divide

Austerity policies have accentuated a North-South divide grounded in a distribution of public spending and the tax burden that is skewed against the Mezzzogiorno, argues economist Guglielmo Forges Davanzati

“It is well known what kind of ideology has been disseminated in myriad ways among the masses in the North, by the propagandists of the bourgeoisie: the South is the ball and chain which prevents the social development of Italy from progressing more rapidly; the Southerners are biologically inferior beings, semi-barbarians or total barbarians, by natural destiny; if the South is backward, the fault does not lie with the capitalist system or with any other historical cause, but with Nature, which has made the Southerners lazy, incapable, criminal and barbaric—only tempering this harsh fate with the purely individual explosion of a few great geniuses, like isolated palm-trees in an arid and barren desert.”  (Antonio Gramsci, 1926)

The policy position on the South of Italy’s PM Matteo Renzi is enigmatic. To criticism directed against him for failing to even mention the word South in his government’s parliamentary confidence speech, the prime minister flatly replied: “Enough of words about liberty.” As if to say that one cannot speak of the South, or  perhaps that it is just idle talk.

Today it is widely believed that the South is an area of the country where you find the largest intensity of cases of waste, corruption and inefficient management of public resources, and that the southern regions were ( and are ) the subject of public intervention that are merely welfare, being basically unable to create the conditions for home-grown economic development. The stereotypical message is that the welfare-dependent South lives on a North that produces. This conclusion is justified with the hypothesis that in the southern regions there are low levels of “social capital” , meaning capital that complies with the formal and informal rules.

Lazy, lawless southerners?

This is a highly questionable diagnosis, if you consider

1 ) The category of capital is not clearly defined and, even more , it is very difficult (if not impossible ) to quantify. Nor is it clear what is the causal link between social capital and economic growth, or whether the latter is (also) driven by compliance with the standards or if compliance becomes more widespread in a growing economy. Moreover, taking as a variable relevant to the measurement of social capital tax evasion, it appears that this – both in absolute terms and in per capita terms – is greater in the North. In particular, according to Bank of Italy figures, it is estimated that the incidence of tax evasion is approximately 15 % in the North, compared to about 8% in the South

2 ) It seems much more reasonable to believe that the difficulties now faced by the South do not depend on the morality of the citizens who live in these regions, but by mechanisms that arise from macro-economic austerity policies implemented over the last few years. Policies that have significantly contributed to accentuating regional imbalances, both between countries in the Euro area, between regions, and especially – in the latter case – for economies, like Italy, that were already divided geographically-speaking.

A few figures may be sufficient to photograph the present condition of the South. According to SVIMEZ, since 2007 the southern economy has grown more slowly than the Centre-North. In 2012, the growth rate was negative, contracting by 3.2 % (down 2.1 % compared to the rest of the country), with a decline in annual GDP growth of approximately to 2.5 % in 2013 ( compared with a contraction of 1.8 % in the North) . The value added of the south’s manufacturing sector has shrunk from 11.2 % in 2007 to 9.2 % in 2012, underlining the now almost complete process of industrial desertification, to which has been added a significant reduction in the number of bank headquarters – the so-called debancarizzazione.

Jobs haemorrhage 

In just the first quarter of 2013, the South lost about 170,000 jobs over the previous year, with a steadily increasing trend in the unemployment rate and emigration, most of them young people with a high level of education.

It can be reasonably assumed that this “war bulletin’ is a result of the deterioration of social capital in the South? Not so, especially considering the fact that one cannot understand why the propensity to comply with the rules has changed so quickly in recent years, and should this have occurred why should have so significantly impacted on the macroeconomic environment.

As documented by the Court of Auditors, taxation is higher in the South than in the Centre- North. Public spending per capita, too, is lower in the South than in other regions of the country. It should be noted, incidentally, that – contrary to one of the many clichés about the South – the number of people employed in the public sector is higher in the northern regions than in southern ones (in particular, according to the General Accounting Office, it was found that the region with the maximum number of public employees was Lombardy).

EU budgetary limits

This is all down to the austerity policies – imposed by the European Commission and fully implemented by Italian governments – that have taken place in recent years. The imposition of the constraint of the 3% deficit / GDP ratio has produced and continues to produce, in bucketfuls, these outcomes. Government spending has been reduced and taxation raised in a bid to generate primary surpluses large enough to respect this deficit cap. Local authorities, having fewer resources, can do nothing if not increase taxation, imposing, in particular, higher persoanl taxation. The combination of lower spending and higher taxation reduces domestic aggregate demand and, consequently reduces the rate of employment, wages, growth rate and, as amply demonstrated, increasing the public debt / GDP.

But the relevant point here is that these measures have not been implemented in a uniform manner throughout the country. Why this happens (now systematically ) can be only conjecture, since there are no official reasons that explain the rationale of an unequal distribution of public spending and tax across the Italian territory.

But you can start from an observation. The South is not a major export market for companies in the North; the South is, rather, an area from which these derive a skilled workforce and intermediate goods, mainly produced in the shadow economy. According to the official statistics agency ISTAT , it is estimated that the size of the underground economy in the South is estimated at around 44% of GDP, compared with a European average of 22.1 %, with a national average of 27% and only 16.5 % in Lombardy.

Southern backwardness functional 

By locating parts of the production process that require the use of low-skilled labour force in areas where wages are low allows firms located in the central areas of capitalist development achieve increased profits through a dual channel: by compressing costs, and at the same time, through the attraction of a highly qualified labour force. In this sense, we can consider the underdevelopment of the south as fully functional to the growth of the most developed areas of the country.

It is important good to clarify that these policies do not respond to “punitive” efforts or, as it has been argued, the rationale acccording to which they are only making resources scarce in order to encourage local public aministrators in the South to make efficient use of them.

These measures do little more than pander to the mechanisms of “cumulative causation” [1] that a market economy generates spontaneously. These are mechanisms according to which, once an agglomeration of firms is created in a given area, that area enjoys growth rates systematically higher than the “suburbs” in view of the fact that firms operating there can take advantage of economic networks and economies of scale.

And, since their growth also leads to growing economic and political power, it is quite clear that they can influence economic policy choices much more than businesses located in peripheral areas. In addition, it is precisely in conditions of scarcity of resources (resulting from austerity policies) that conflicts around the distribution of these scarce resources are accentuated, and so they almost inevitably accentuate regional disparities.

[1 ] See Gunnar Myrdal ( 1957). Economic Theory and Underdeveloped Regions http://www.amazon.co.uk/Economic-theory-underdeveloped-regions-Torchbooks/dp/B0006VV4I0

Micromega/La Repubblica

Translation by Revolting Europe

About revoltingeurope

Writer on Europe's Left, trade union and social movements @tomgilltweets or @revoltingeurope


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