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Italian election reflects voters unhappiness with current economy

On 4 March Italians surprised pollsters and observers. They awarded most votes to the centre-right coalition, as predicted, but within it they preferred the conservative League, which quadrupled its votes, to Silvio Berlusconi’s party and its post-fascist allies. Voters punished the Democratic Party (PD), which dominated the past parliament, more harshly than expected. And they rewarded the anti-establishment Five Star Movement (5SM) far more than expected.

These results reflect both contingent causes, such as Berlusconi’s old age or the PD’s mistakes. Other causes include, phenomena common to the whole Western world, such as globalization, inequality, migration, dissatisfaction with the contemporary forms of democracy, and, especially in continental Western Europe, the decline of social democracy. It is the factors that stand between these two extremes that explains this shift in power that I shall focus on.

Italy is ailing. Its 2008 to 2014 near-uninterrupted recession was the worst in Italy’s peace-time history and the longest in the Eurozone, and recovery was belated and comparatively slow. Real Gross Domestic Product (GDP) is still 5% below its 2007 level, unemployment exceeds 11%, and between 2014 and 2016 poverty and inequality continued rising. Not even the growth acceleration in 2017 of 1.5%, almost double the 2015–16 average, lifted citizens’ morale.

Underlying this data is the performance of productivity, which effectively ceased growing more than two decades ago. The financial crisis struck an economy already enfeebled by a illness of its own, which magnified its effects. The average real disposable income is at about the same level as it was in 1995, for instance, whereas in Italy’s closest Eurozone peers—France, Germany, and Spain are about 25% higher. The causes of this malaise lie in the country’s politico-economic equilibrium, which is characterized by comparatively low political accountability and economic competition, entrenched collusion between political and economic elites, a long-sedimented system for the particularistic inclusion of the middle classes, and widespread clientelism, tax evasion, illegal construction, corruption, and organized crime.

With the possible exception of the latter, none of these phenomena is unique to Italy among its peers. What is unique is their gravity and combination, which may explain also some peculiar characteristics of the country’s politics, such as the early rise and success of populism and the strength of anti-establishment sentiment.

For the equilibrium I just sketched is harmful to the vast majority of society. Such an equilibrium can be beneficial for the less innovative segments of the political and economic elites, which draw from it rents and protection from Schumpeterian creative destruction, but is typically damaging for ordinary citizens and firms. They resort to corruption and clientelism—to quote two clear examples—chiefly to obtain, as private goods, those public goods that the inefficiency of the state of denies to them: in other words, unless a critical mass of citizens and firms can coordinate its actions—voting, rejecting corruption, etc.—in such a way as to change the extant equilibrium, the cost-benefit calculus can suggest opportunistic over public-spirited behaviour. Such an equilibrium can be modelled as an assurance game, in which reciprocated public-spirited behaviour and reciprocated opportunistic behaviour are both stable equilibria, and the latter yields a higher payoff: in this setting opportunism is a defensive strategy, therefore, which becomes rational when opportunism is expected from one’s peers. And this logic will prevail until the credible prospect of an equilibrium shift emerges, changing society’s expectations: credible enough, that is, to lead citizens to behave as if public-spiritedness was individually rational and thereby make it individually rational to eschew opportunism.

Italy’s centre-right—the League included—is both offspring and guarantor of that equilibrium. The centre-left generally proclaimed an aspiration to change it, but failed to either offer proposals credible enough to change citizens’ expectations—including, remarkably, after the mighty shocks of 1992 to 1994 and 2011 to 2012—or to make deeds follow words. They acted within, not against, that logic; between 2013 and 2018 they did not just fail to decisively improve economic performance but also to appear as sharply alternative to the centre-right on most matters concerning the rule of law, political accountability, and public ethics.

These matters further project the common prediction that Berlusconi would have won the elections. Voters shattered that prediction, by also punishing Berlusconi, which emphasizes that at least at the margins, voters might have revised their perception of their own interests.

My conjecture moves from the observation that since 1992 the system of particularistic inclusion I mentioned earlier—which buttressed Italy’s equilibrium by granting to several categories of non-elites selective privileges that brought their interests closer to the elites’—was progressively eroded, as a result, primarily, of tighter budget policies and pension and regulatory reforms. The payoff of reciprocated opportunism fell, therefore. Coupled with the weight of Italy’s recession, this may have led part of the most vulnerable segments of the electorate to reject the exchange between particularistic inclusion and tolerance for political and economic efficiency. Hence the rise of the League, whose radical rhetoric was often sufficient to capture the discontented of the richer regions, and 5SM’s success among younger, poorer, and Southern voters.

On the fairly plausible assumption that the 5SM’s foundational promise to restore public integrity and political accountability carried, in the eyes of those voters, greater weight than its recent vague proposal for a form of universal basic income, we may have just witnessed the opening of a deep crack in the equilibrium on which Italy stands. Although serious questions exist about the 5SM’s capacity to take it, a fresh opportunity for shifting the country onto a fairer and more efficient equilibrium does seem to exist. It will probably be missed if the battle of ideas on what kind of society Italy is, and what kind it wants to be, will again be cast aside.

Featured image: Italian flag by juliacascado1. CC0 via Pixabay.

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