Italy: The Leaning Tower of Statism

Political rhetoric is changing fast in Italy. Twenty-five years ago the country was moving away from the "center" government, which had presided over the economic miracle of the 1950s with a largely laissez-faire policy, toward a "center-left" coalition government, based on an alliance with the Socialist Party and the exclusion of the classical liberals. The slogans declared that liberalism, with its emphasis on the free market, was not enough. The economic miracle had to be replaced with a social miracle, and for that purpose "modern economic policy" had to supplant the traditional reliance on market forces.

The leader of the Italian Socialist Party, Francesco De Martino, declared on TV that if his party won an absolute majority it would nationalize all economic activities, with the possible exclusion of barber shops. Statism, in other words, was the consensus of the overwhelming majority of politicians of almost all political parties. Those of us who dared to challenge the prevailing wisdom—which relied on deficit spending, national economic planning, nationalization, and direct government intervention—were labeled reactionaries and ignored by the new mandarins.

Statists of all parties have had a go at it: from 1960 to 1987, government spending increased 68 times in nominal terms—almost 6 times in real terms—climbing from one-third of gross domestic product to 52 percent. Despite a huge increase in revenue during the same period, the deficit exploded: from nearly 2 percent to 12 percent of GDP. In real terms (1987 prices), total public debt outstanding went from $82.3 billion in 1960 to over $700 billion in 1987. Regardless of how it is measured, government in Italy has grown very rapidly in the past quarter century.

The results of this spectacular growth seem to have disappointed its promoters, however. On July 12, 1987, the leftist weekly L'Espresso published a debate between Claudio Martelli, deputy leader of the Italian Socialist Party, and Achille Occhetto, then deputy leader (now leader) of the Italian Communist Party. In the course of the debate, Martelli said: "It's simple: both in the East and in the West we see the crisis of a philosophy that's been common to both social democrats and communists: statism." To which Occhetto replied: "I agree with you more than you do!…Statism, as you say, is the true burden which both social democrats and communists must avoid."

This is not an isolated episode. In his concluding speech at the Communist Party annual festival, Occhetto stressed that the party has "severely criticized the traditional statism of the working class." The productive energies of the country, he said, must be allowed to operate in the private sector, as well as in the public and cooperative sectors. Occhetto is clearly eager to distance himself from his party's traditional statist policies.

The new philosophy is also beginning to show in actual policy proposals. In presenting his plans for a new budget, Giuliano Amato, Socialist minister of the Treasury, advocated extensive privatization of government-controlled corporations, health care and other social services, communications facilities, and even postal services. Not surprisingly, some Liberal Party members suggested that Amato should be given honorary membership in their ranks.

It is too soon, however, for free-market advocates to celebrate. While the rhetoric has changed dramatically, policies have not changed much. No one seems to believe in socialism wholesale, but when it comes to socialism at the retail level, so to speak, the organized action of pressure groups inevitably results in yet more government intervention. For example, while there is general agreement that the National Health System has failed miserably (it is "the scandal of the century," says L'Espresso), the bureaucrats and their unions will make sure no one dismantles it anytime soon.

The real hope for the future of freedom in Italy rests more on arithmetic than on rhetoric: statism is financially bankrupt. Interest payments on government debt amount to 15 percent of total public-sector spending. Taxation on labor income has reached 45 percent, and organized business and labor interests are beginning to protest high taxes. At the same time, government's failure is underscored by the tremendous success of private enterprises that compete with it.

Even government agencies resort to private carriers for reliable mail service. And according to CENSIS, an independent research institute, more than half of the people entitled to "free" public health care instead purchase it from private suppliers. Private health insurance is a growth industry and private schools are booming.

As Italy's financial problems get worse, the prospects for a free economy improve. The call for reform will be too strong to resist, and the new rhetoric of limited government will translate into policy.

Foreign Correspondent Antonio Martino is an economics professor at the University of Rome.