From 1950 to 1990, Italy’s income per capita growth rate was second in the world only to that of South Korea (Dornbusch et al. 1993) and was certainly the fastest growing among the main European countries (Boltho et al. 2001). It put the country’s citizens, at the end of that period, near the income per capita of France and Germany. For a few years, the per capita income of Italians was even higher than that of Britons. Italians thought they had made it back into the fold of the developed world. Their demography had become that of a mature economy, and they looked forward, as members of the Exchange Rate Mechanism of the European Monetary System (EMS), to European monetary unification, which beckoned at only a few years’ distance. Then, things began to go badly. The political system was rocked by the

Mani pulite (‘Clean Hands’) scandals in the early 1990s, and virtually collapsed. The lira was kicked out (or more politely, suspended) from the EMS in 1992 as a by-product of the pound sterling’s own demotion. Italian public debt, which had grown incessantly since the 1970s, reached the

danger level of 100 per cent of GNP and then proceeded to grow above it. The fiscal deficit reached peaks unheard of in peacetime. The lira then fell precipitously vis-a`-vis the German mark and most other important currencies. The country experienced a series of low growth years, which has lasted until the present day, with the solitary exception of 2000 and 2006, when the growth rate of GNP was 3 and 2 per cent respectively. From leading other large European countries it began to lag behind them and has continued to do so. Worse still than sluggish income and industrial production growth figures, Italy began to experience declining total factor productivity growth (i.e. the change in the quantity of output divided by the cost of all inputs), which fell to zero or even negative levels in most recent years. Since the turn of the millennium, the decline seems to have accelerated.

The inception of the single European currency put a stop to what had become a 30-year-long Italian tradition – that is, a continuously falling exchange rate against other main currencies, in particular those of Germany and France, the country’s natural competitors. Labour costs in Italy have risen much more than in the other large European countries. Consumption has slowed down, and so has investment. In 1990, GDP per capita in Italy was 77 per cent of that in the United States, but fell to 72.3 per cent in 2000 and 69.7 per cent in 2004 (Bianchi et al. 2005). Spain, long thought to be our natural follower in this kind of statistic, now stares Italy fully in the face. If we believe the Spanish Prime Minister, within three years Spaniards will have higher per capita income than Italians (and Germans, he added for good measure). Meanwhile, Italy’s public accounts have gone from bad to worse: the fiscal deficit began to grow again after 2001, and public debt rose to 105 per cent of GDP in the same period. Italy’s share of world exports fell, returning to what it used to be before it was bolstered by repeated currency devaluations. Because of a decade of decline in public investment levels, Italy’s most

important infrastructure has become visibly obsolete. The motorways, for a long period Italy’s pride, are now below the standards of those of other European countries which kept investing in their construction and maintenance when Italy stopped. The railways had also been successfully modernised in the post-war period, so much so that Italy was the first country to start an ambitious ‘super-train’ project as early as 1966, linking Milan to Naples, through Rome. To this day, only the portion between Naples and Florence is in operation, with a dedicated track and already obsolete super-trains which were designed 25 years ago, and show it. The rest of the rail network is in a sad state of disorganisation and disrepair. The track is not fast and the rolling stock is generally very old and constantly in need of maintenance. The railway companies’ balance sheets exhibit a huge deficit. The most recent estimate is 5 billion euros. The telecommunications system also leaves much to be desired, if

compared to that of other European countries. It was privatised, and after

that it changed hands twice, at very high cost for the last investor, which ran up even more debt than the previous owners to pay for it and has had to use the still very large cash flow to service that debt, thus postponing strategic investment, which is vital in this technologically fast-moving sector. Compared to those of other large European countries the public health

system is still quite efficient, if we measure it by the amount of services delivered per euro spent and if we take the vital statistics of Italians to be at least partly caused by it. But its users unceasingly complain about what they perceive to be an inferior service, and hospitals, with few exceptions, are not particularly well equipped. There are many more doctors per head of population than in other European countries except Greece, but not enough nurses and technicians, and service delays have reached dangerous levels. Hospitals have been allowed to reintroduce paying patients’ beds, and they charge substantial prices. Clinical tests can be publicly provided, but with long delays, and the availability of their private provision by the same hospitals, at high cost but with no delay, is very dispiriting for those unable to pay for it and even for some doctors and nurses, who feel that public medicine should be provided to rich and poor without difference. Another sad chapter in the chronicle of Italian decline is that of

education. Most public schools are old, badly maintained and lack modern equipment like computers, and even old equipment like gyms and libraries. Italian high school students have fared very badly in the PISA tests conducted by the Organization for Economic Co-operation and Development (OECD) since 19971 (OECD 2004a; 2004b), and if those who attend northern Italian schools are taken separately from those who attend southern schools, the gap in favour of northern pupils becomes seriously worrying. But even they barely reach developed countries’ averages. The teacher/pupil ratio in Italian primary and secondary schools is higher than in the large European countries, but teachers are poorly paid, badly distributed among schools and their average age is very high, a sign that they were all hired at the same time, a few decades ago, when the number of pupils was still growing because of favourable demography, and the state still had money to spend. Universities are in a better state from the point of view of buildings, many

of them being new or recently renovated. But the non-existence of entry selection based on merit for students causes them to operate inefficiently, and the paucity of their current budgetary resources is beginning to tell on the equipment of the science departments. Although full professors at the peak of their careers receive salaries similar to those earned by their colleagues elsewhere in Europe, the salaries of young university teachers are half of what they are in the rest of Europe. Moreover, universities have sprouted up in every provincial capital, the result of local pork barrel politics and of the academic profession’s need to create jobs for its young and not so young members. Research, moreover, being almost exclusively conducted in universities and other public institutions (as private industry is

barely active in this crucial field) is below the levels and even the standards now prevailing in Europe, not to speak of the United States or Korea, Japan or even China. Italy produces fewer patents than other European large (and even small) countries, and Italian research workers and university professors are of a very advanced age, the share of the younger ones being half of what other countries’ experience shows it ought to be. Young Italian researchers, as a result, tend to migrate to other developed countries. There is almost no inward flow of scientists from other countries (Toniolo and Visco 2004). If we take the latest demographic statistics seriously, there is an additional

reason to worry. Not only do Italian mothers now have an average of only 1.33 children per head, but on average they produce their (first) child at age 29. Moreover, in 2006, for the first time since anyone can remember, Italian women’s life expectancy actually declined. It is still at a very satisfactory comparative level, and it was a very small decline, but this could be an ominous foretaste of things to come. Demographic changes are slow but inexorable once they begin to occur.