Italy's Formula

The European debt crisis rages, with the waters (temporarily?) calmed due to a successful strategy by the European Central Bank, with other banks, to keep liquidity flowing and bond issues subscribed.  The governments of Greece, Ireland, Spain, Portugal, and above all Italy (too big to fail?) need to bring debt and deficits down to sustainable levels.  That comes through austerity measures: after decades of loose spending, costs must be reigned in and bills paid. Yet austerity compromises economic growth, the most important ingredient for sustaining interest payments and paying back debt. Noone really has answers as to how European governments can stimulate growth at the same time as administering austerity. The solution is good management. Business schools abound with case studies on how companies on the verge of bankruptcy have been turned around and made successful, in the face of seemingly impossible challenges. Italy's new management has just put forward a bill designed to remove various systems and structures inhibiting growth, unleashing the hidden potential in the economy. The government claims, citing independent studies, that such unleashing of potential could boost annual GDP by more than 10%. The tricky part will be convincing interest groups (taxi drivers, lawyers, pharmacists and so on) to let go of acquired, beloved protectionist mechanisms, to not go on strike, to not take to the streets, to yes roll up their sleeves and get down to work for the good of the nation. The beauty of the government's bill lies in the detail. Lawyers will be required, for the first time, to issue an estimate of their fees in advance. Local governments have been commanded to remove any rules that "condition, impede, or delay the launch of new businesses or the entry of new economic players", by the end of this calendar year. There are many other parts to the package, mainly liberalizing the economy but also pumping money into infrastructure projects that will create jobs and move the economy. Little things like lawyers offering estimates can go a long way. Healthy competition will be created. Consumers will get in the habit of shopping around more. Lawyers will have an incentive not only to charge less, but to offer better quality services. Hard work and talent will mean getting ahead. Young people will have an incentive to work hard, because in a free market hard work pays off (in Italy you tend to have to "know someone" to get ahead; talent doesn't necessarily get you anywhere). The government's bill also takes a stab at improving Italy's judicial system by carving out a section of the courts, to be specifically devoted to company disputes. It aims to get such disputes settled quickly and effectively. There is a great story about how in the land of random justice and never-ending trials, the court in Turin decided to introduce an efficient "first in, first out" policy to push cases through quickly. This had huge repercussions: companies started paying their suppliers because they knew if they didn't they'd be forced to in court. Once laws became enforceable, people started abiding by them. The rule of law is the most basic foundation for a functioning economy. (This, by the way, is the best way to combat the mafia, or corruption: introduce a functioning, clear, effective judicial system.) In the end, freedom to express potential in a fair, meritocratic system should be the key to the conundrum of how we can have austerity and stimulate growth at the same time.