Italy: lurching to the right

Italy goes to the polls this Sunday 27 September.  This is a snap election forced on Italy’s president because the ‘technocratic’ government under former ECB chief Mario Draghi fell after he lost majority support in parliament.  That support was lost, partly because Draghi vigorously backed NATO support for Ukraine against the Russian invasion – something that both the leading right-wing parties and the leftist Five Star were less keen on – and partly because the Draghi government was determined to keep to the fiscal strictures of the EU Commission in return for the huge EU regeneration package that Italy would receive to revive the economy after the COVID slump.

If the polls are correct, Italy will emerge from its general election on Sunday with a new far-right government led by arch-conservative Giorgia Meloni, president of the Brothers of Italy, a party that has rocketed to prominence from nowhere since the last inconclusive election in 2018 (see my report here). Meloni and her populist ally Matteo Salvini, leader of the League (which has lost huge support to the Brothers), together appear poised for a decisive victory over a deeply divided centre-left. 

This would mark Italy’s first experiment with far-right rule since fascist dictator Benito Mussolini, after a total of 69 ideologically diverse governments since the second world war.  Both Meloni, a conservative firebrand whose political career began as a teenage activist in the youth wing of the neo-fascist Italian Social Movement, and Salvini, who was an ardent admirer of Russian president Vladimir Putin, are Eurosceptics.

However, there are differences that will be revealed after the new government is formed. While Meloni has pledged to continue Draghi’s policies of military support for Ukraine and would take a tough line on sanctions on Russia, Salvini on the campaign trail has publicly complained of the toll sanctions are taking on Italy’s economy.

The two right-wing leaders are united in fierce opposition to immigration and support for conservative “family values”. But while Meloni is a staunch Atlanticist (pro-US) who advocates repressive national security policies, Salvini’s support base includes companies that had close business relations with Russia until the invasion.

The new right-wing government faces two immediate issues.  The first is the energy-driven cost of living crisis that is hitting all of Europe.  The cost of electricity in Italy is second only to the UK in price.  And gas from Russia constituted over 40% of all energy supply.

Italy’s immediate economic future is dependent on getting the €200bn EU package to help reboot its chronically underperforming economy, and so avoid a debt crisis.  Italy has a huge public debt at 150% of GDP and the cost of the servicing this debt is rising as global interest rates rise.  That could lead to foreign investors selling Italian bonds and provoking a debt servicing spiral.  The ECB is standing by with special bailout measures for such an event.  But the hope remains that a new government will sustain fiscal probity and balance the books in order to receive the EU largesse planned over the next few years.

That means any ‘radical’ right-wing government is faced with a dilemma: will Meloni break with the EU and adopt spending and economic policies similar to that proposed by the Brexit UK government under the new PM Liz Truss or Orban in Hungary; or will Meloni stick to EU strictures?  It looks like the latter.  Meloni has vowed to respect fiscal rules and has been urging prudence and caution.  This has been greeted with approval by Italy’s finance class.  “They want to be perceived as a party that you can do business with and can govern the country,” Lorenzo Codogno, a former director-general of the Italian Treasury, says of the Brothers of Italy.  But we should not be surprised at that.  Mussolini’s government always backed business and finance during his fascist rule.  It will be no different with Meloni, or even Salvini. 

But then successive Italian governments of both left and right have generally kept to fiscal rules.  Indeed, Italy’s governments have run primary budget surpluses (surplus before paying interest on debt) for year after year.  Indeed, Italy has so far also been a net contributor to the EU budget. In effect, Italy has been in permanent austerity to cover its debt costs.

The problem for Italy is not profligate government spending, but the shocking failure of Italian capitalism to grow and boost the productivity of the workforce to compete with the likes of Germany, France (the other G7 economies in the Eurozone) or even with Spain.

Italy is still the second most important EU location, behind Germany, for industrial production, mainly due to the economic structures in the northern regions. And it ranks third in exports of goods, just behind France, leading on mechanical engineering, vehicle construction and pharmaceutical products. 

But Italy has become the ‘sick man’ of Europe if real GDP and productivity growth is the measure. After the early post-war recovery boom, Italian capital was exposed as particularly corrupt and oligarchical.  Inequality between rich and poor and between industrial northern Italy, close to Germany and France, and rural southern Italy has remained very wide.

The oil-price-crisis of the 1970s exposed that even more, leading to political turmoil and economic decline. Italian productivity growth began a steady decline from the 1970s, turning negative in the years after Italy joined the euro area.  The average annual rate of growth per head in Italy since the adoption of the Euro (1999-2016) has been zero. For comparison purposes, that of Spain has been 1.08, that of France 0.84 and that of Germany 1.25 per cent. The other three countries that adopted the Euro at the same time as Italy grew, on average, by about 1 per cent every year since the introduction of the Euro, while the Italian economy has stagnated.

Average annual real growth per head in Italy, Spain, Germany and France. (1999-2016). 

FranceGermanyItalySpain
0.84%1.25%0.00%1.08%

Italy’s demographics are particularly bad; with a rising share of older people. That means employment growth is low.  This is coupled with a high rate of youth unemployment (around 25%), which means value-creation from the potentially most productive part of the human labour force is neglected.  The share of long-term unemployment among these unemployed young people is as high as 40%, according to Eurostat, mainly because of limited education and living largely in the Italian South.  Less than 20% of the Italian labor force has had some tertiary education.  As a result, over the decades, the more highly-skilled Italians have left the country, worsening domestic economic performance.  Combine low employment growth with low productivity growth and no wonder the Italian economy has a low long-term potential growth rate of no more than 1% a year.

Productivity growth has stagnated because Italian capital is not investing productively enough.  Investment levels are still well below that reached before the Great Recession.

And the reason for that is clear.  The profitability of productive capital in Italy has fallen sharply over decades, but particularly after joining the euro area and after the global financial crash. 

Based on World Penn Tables

While the profitability of Italian capital after WW2 was much higher than in Germany and France, because of hugely cheap labour and the use of American credit to redevelop Italy’s inter-war industry, the profitability crisis of the 1970s hit Italy’s weaker economy harder than in Germany and France.  The neo-liberal recovery period from the 1980s helped Italian capital somewhat as the EU region expanded.  But entry into the Euro area soon put Italy at a competitive disadvantage to Germany, where profitability rose up to the Great Recession. 

None of Italian capital’s failures will be dealt with by the new right-wing government.  They will do no better than previous centre-left, centre-right or ‘technocratic’ Italian governments.  Indeed, they are likely to make things even worse, alongside adopting reactionary and anti-labour policies to sustain their coalition.

14 thoughts on “Italy: lurching to the right

  1. A far-right Italian government will probably have the same fate as the present-day far-right government in Brazil: without the escape valve of imperial expansion (Lebensraum; reconstruction of the Roman Empire), far-rightism usually degenerates and rots from within thanks to accelerated and continued economic decline. That’s why, historically, far-right governments don’t waste too much time before declaring and waging a major total war – that’s how far-rightism (fascism and its variants) solves the inner contradictions of capitalism (they invariably arise in moments of deep structural crises of capitalism, never when it is at its apex or at least doing ok). The Brazilian far-right government tried to declare war against Venezuela in 2019 – it just didn’t happen because a) it was made clear the Brazilian Army would lose a war against the FANB and b) the USA opted to use the Colombian front to try to topple Maduro during the Guaidó affair.

    Since there is no prospect for an expansionist war for Italy, as it is now essentially a German province, and, as a NATO member, it cannot ever wage a war alone, it is patent this new far-right Italian government will have to be either a “neo” version of fascism, much more watered down, neoliberal-oriented; or it will have to adopt a “fight against the internal enemy” narrative, i.e. the extermination and purge of the Arab and African (i.e. Libyan) immigrants – just like the far-right Brazilian government is trying to build an “extermination of the communists” narrative. However this kind of route is not sustainable for fascism, as the “internal enemy” is a chunk of your demographics and, as such, it represents a portion of your nation’s GDP. To exterminate the internal enemy means an even more accelerated and sharp economic decline; territorial expansion is the only way out for any form and variation of fascism; this is its ultimate contradiction.

    In order for a far-right Italian government to be “genuine”, it would have to have the geopolitical strength to 1) get out of the EU, 2) get out of NATO and 3) have the economic and military strength to, even after doing #1 and #2, invade at least some other country successfully, in order to dislocate its inner capitalist contradictions. These are all utopian; in fact, Mussolini (in an era where the EU and NATO didn’t even exist) couldn’t even conquer Ethiopia and, during WWII, wasn’t even able to conquer Greece. For that failure to expand, he was promptly discarded, finally executed by the Italian communists in 1945.

  2. Headline from the Foreign Affairs Magazine today:

    “Why America and the EU Should Root for a Far-Right Populist”, by Elettra Ardissino and Erik Jones

    On the side of the same homepage from today, there’s this headline:

    “All Democracy Is Global — Why America Can’t Shrink From the Fight for Freedom”, by Larry Diamond

    Deep down, the American people know they’re the ultimate guardians of capitalism, therefore the ultimate anti-communist force. They know, even if only at a subconscious level. Truth is: there is no “election paradox”: fascism (therefore also nazism) is a form of liberalism; this is a scientifically demonstrable fact, not an opinion.

    Marx stated that a communist revolution was most likely to happen in the imperial nations. However, he never stated it could “only” happen there. Also, he made that analysis when the non-capitalist world was still significantly vast (hence his late assertion that there could be a “direct jump” to socialism by pre-capitalist societies).

    Lenin updated Marx’s analysis, stating that the international division of labor created the “working class aristocracy” in the imperial nations, thus creating a rift in the international working class (whose most symbolic moment was the collapse of the Second International). The observations of the rise of Nazism in Germany during the end of the 1920s and beginning of the 1930s developed this analysis even further, with the diagnosis of the rise of the phenomenon of “social-fascism”, i.e. the ideology which stated that social-democracy was a privilege and not a right, i.e. a privilege of the working classes from the imperialist nations.

    The thesis of “social-fascism” explain why Western Europe and the USA are, in a moment of structural crisis of capitalism, choosing a form of fascism instead of a form of socialism. Indeed, this is not just my perception: president of the Russian Federation Vladimir V. Putin has already coined and used the term “the golden billion” (i.e. as the circa 1 billion people that populate what is roughly the totality of the First World countries) more than once – the last time just some days ago, during the SCO summit. The neoclassical economists frequently use the term “consumers” to designate what essentially is the populations of the First World countries (in opposition to the “exporters”, which are, roughly speaking, the populations of the Third World); indeed, this ideological separation may be the reason why most bourgeois economists still, astonishingly, say China is an exporter or export-dependent nation, when, in reality, it is barely an exporter in net terms. The neoliberal concept of “global chains of production” may well serve as the modern-day version of social-fascism.

  3. The profitability chart leads to an interesting question: If profitability is greater in Italy than in Germany and France, why hasn’t capital migrated there and increased the rate of fixed capital formation and the output per person? Or has it?

    1. Well, to answer my own question: a) capital has migrated to Italy and its gross fixed capital formation as percentage of GDP post pandemic grew at the fastest rate since 2008. However, in line with Germany, France, and other European countries, GFCF as % GDP has been on a downhill trend since 1972-1973– the same year that US wages peaked, rate of profit dipped, and OPEC rode in to rearrange the flow of capital with the US banks and economy surfing on a wave of petrodollars,. An another recovery in GFCF%, although much lower than the 1972 mark was reached in 1980-1981, just in time for Volcker to crash the party and push GCF back onto its downward path.

      I think Italy is still struggling with each of those previous upticks in GCF. It’s not too little investment that bedevils Italy, and capital in general, but too much investment accumulated in the fixed assets that constrains profitability and GDP growth.

      I’m not certain but the lurch to the right, merging in Italy the money of Berlusconi with the thugs of the League and Brothers will be targeting the labor unions and find its inspiration in that icon of free markets, the late Margaret Thatcher, known colloquially as Attila the Hen.

      1. I agree on the capital flow into Italy mainly from Germany and France to take advantage of italy’s relative profitability. Th egap in profitability has narrowed significantly especially since 2008.

  4. First chart shows that France has the lowest household electricity cost of the major countries; Germany is about twice as high. It looks like nuclear power works.

      1. EDF was state-owned outright from 1946, but almost twenty years ago the government made it a stock corporation, owning 84% of shares until this year, no? So if EDF made a profit or broke even, that would still speak in favor of nuclear power.

  5. To call the Five Star movement “leftist” just shows how ill equipped the right/left dichotomy is to describe Italian politics.

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