Investment in youth vital to recovery
ROME - An IMF report on the Italian economy given at LUISS University on Wednesday has reiterated that profound reforms are needed quickly to stimulate growth.
As Prime Minister Matteo Renzi’s Jobs Act was debated in the Senate, Kenneth Kang, mission chief for Italy of the International Monetary Fund, expressed his support for the proposed reforms.
“Labour market reforms,” he said, “are essential,” going on to describe the problems that Italy has faced in stabilising unemployment since the beginning of the financial crisis. Currently unemployment levels are still on the increase, especially amongst the young.
Temporary contracts in the labour market are a huge concern; the IMF report shows that 70 per cent of new contracts signed in recent years are temporary ones. Companies have little incentive to invest in on-the-job training for temporary staff.
Renzi’s proposal to create one single contract with progressively higher job-protection over time would be, according to Kang, a huge step forward in encouraging firms to hire and promoting growth in the job market. This would also help to eliminate the gulf between regular and non-regular workers.
Filippo Taddei, Economic policy maker for the Democratic Party (PD), also spoke of the Jobs Act, expounding the need to invest in people and skills to help take Italy out of recession.
As well as the labour market, the IMF report called into question the skew in Italian public spending which favours the elderly. Italy has one of the most expensive pension plans (at 30 per cent of government spending) and one of the lowest investments in education in the EU. At some estimates, Italy spends as much as seven times more on an elderly person as it does on an average citizen.
Another area of concern is the notoriously slow Italian bureaucracy, especially in the judiciary system, which the report shows is hindering foreign investment and personal lending. These structural problems pre-date the economic crisis and could provide an explanation as to why Italy has failed to recover with the same speed as other European countries.
Small and Medium Enterprises (SMEs) have particularly struggled to expand in recent years. In Italy SMEs, especially so-called “micro firms” of only 10-15 staff, form an unusually large proportion of the economy – attributed largely to the amount of single-family firms which still operate. SMEs have led the decline in investment since 2009, whereas larger enterprises have begun to recover.
Mr Kang identified stagnant lending as a contributing factor to the decline in small businesses, highlighting the proposed reform of introducing third party “fiduciary” loans as a simpler and quicker alternative to traditional routes. These loans have already been successful in France.
Deep, structural reform of the judiciary system is indispensable to the financial recovery, explained Mr Kang, to incentivise foreign and local investment.
If Italy acts on reform plans swiftly, the IMF predicts a return to growth in 2015. Beniamino Quintieri, President of the Manilo Masi foundation which co-hosted Wednesday’s event with LUISS, said that there is the political will in Italy for reform, and that the important thing now is to move forward quickly.
Professor Massimo Egidi, Dean of LUISS, chose to emphasise the importance of economic recovery to the success of Italy’s universities. Funding, he said, is essential to attracting foreign lecturers and students, which give our education system a global influence.