13.01.18 Publication:

In every national election, there is a choice of emphasis: policies, political parties or personalities. While winner-takes-all electoral systems in the US, Britain or France tend to favour personalities, followed by parties, ones with proportional representation, as in Germany or the Netherlands, favour parties and then policies. The oddity of Italy, in 2018 as in previous elections, is that despite a mainly PR system personalities clearly come first.

At least, that is what is odd from an international perspective, and to this non-Italian observer. Any reader of any Italian newspaper knows already that politics in modern Italy is, and always has been, primarily a game of personalities, with the ebbing force of party loyalties coming a distant second.

Yet what is odd, and unfortunate, about this is that every analyst, economist or journalist also knows that what the country needs in order to end its two decades of economic under-performance compared with its West European neighbours is better policies. What you would hope to see therefore is a competition to build consensus, and thus coalitions, around policies to reform Italy and change it for the better.

To some degree, that is happening. But it seems to me to be obstructed or obscured by three big things: first, all the noise generated by the two dominant personalities, Silvio Berlusconi and Matteo Renzi; second, the association of the most innovative policies with a Eurosceptic confrontational approach to Berlin, Frankfurt and Brussels; and finally, the fact that while individual policies do look radical and innovative, the parties accompany them with an incoherent bundle of other policies which undermine their overall credibility.

Take the two policies that seem to me, as an outsider, to have genuine potential to make a big difference to Italy in the long term. One is the flat income tax, promoted by Lega Nord and now adopted by the whole centre-right. The other is the proposal by the Five Star Movement for a new basic welfare payment directed at people needing retraining and assistance in finding new jobs.

I have for years thought that the idea of a simplified income tax with a single rate paid by everyone who earns above a set amount, known as a flat tax, makes excellent sense for Italy. The country’s unending battle with tax evasion and a huge illegal economy make a solution of this sort quite natural.

The incentive to evade tax needs to be reduced. The fiction of progressive taxation in an environment of high evasion needs to be brought to an end. The current situation, in which an unfair income tax burden falls on those unfortunate people who do not have the ability to evade tax – which means millions of ordinary, salary-earning employees – is unjust and unproductive.

At the same time, the logical and necessary accompaniment to the labour law reforms of Matteo Renzi’s Jobs Act is a system of unemployment insurance capable of helping displaced employees to find new jobs, as proposed by Five Star. Such a combination of new labour laws and job-adjustment assistance is exactly what President Emmanuel Macron promised during his campaign in France last year, and is what Scandinavian countries such as Denmark already use very successfully.

So, on the face of it, it looks to this non-Italian as if the most practical and interesting policies are being proposed by parties that are widely considered to be on the extremes of politics. A victory either for Five Star or for Lega Nord would be considered, especially by international financial markets, as a recipe for instability. The “stable” outcome will be a centrist grand coalition brokered by Berlusconi and Renzi.

Yet such “stability” implies continuing under-performance by Italy: even now, with the country’s fastest rate of economic growth since the 2008 financial crisis, Italy is growing more slowly than any other euro zone nation apart from Greece. Only Greece and Spain have higher unemployment rates than Italy, and with Spanish growth of 3% per year currently twice as rapid as Italian growth, it might not be long before Spain’s unemployment rate of 16.7% drops below Italy’s (11%).

So Italy does need policy innovation and reform. The disappointment of the Renzi government of 2014-16 is that despite so much noise about reform, too little was achieved. Ideas such as the flat tax and the citizen’s welfare income are logical heirs to the limited Renzi achievements of the Jobs Act, help for start-ups, and incentives for investment in advanced technology.

Take it from this resident of Brexit Britain: the worst and most seductive false path is Euroscepticism. Yes, both Five Star and Lega have softened their positions on Italy’s membership of the euro. But both nevertheless still rely on the supposed potential for forcing Germany and the European Commission to relax constraints on Italy’s fiscal policy, which is likely to be unsuccessful but is anyway not a sensible strategy for a country with public debt of over 130% of GDP and a still-vulnerable banking system. Italy needs friends in Brussels, Berlin and Frankfurt, not enemies.

And then there are the pensioners. Berlusconi talks, in a rather Trump-like way, about repealing and replacing the Fornero law of 2012. But that is the opposite of what is needed in a country which spends more taxpayers’ money on public pensions as a share of GDP (16%) than any other big EU nation, so that it spends four times as much on pensions as on education and training. Retirement ages are too early, not too late: 76% of Swedes aged 55-64 are in work compared with just 52% of Italians (and just 51% of French).

To promise such a recklessly generous pension policy is to undermine the credibility of the flat income tax; to promise a clash with Brussels over fiscal policy is to undermine the credibility of Scandinavian-style job-adjustment welfare payments.

All of which leads us back to the personalities. The Rosatellum electoral system gives a strong advantage to anyone able to form coalitions, both before the vote in order to win a big share of the single-member constituencies, and afterwards, unless a miracle brings an absolute majority for a single party or coalition.

Which is why the great coalition-builder, Silvio Berlusconi, is back at centre-stage. Contrary to what his newspapers have written about me, I still consider him as “unfit” to lead Italy as he was in 2001 when we at The Economist published our notorious cover about him. But he will still probably play a crucial role on March 5th– unfortunately.