Social partners make proposals on fostering economic growth

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The social partners have been expressing concern over the development of the Italian economy over the early months of 1999. For Confindustria, the main employers' organisation, it is important to reduce the tax burden and to increase labour market flexibility. For the trade union confederations, Italian firms are loosing competitiveness because of low investment in product and process innovation. Criticisms have been made of the government for the delayed implementation of the "social pact" of December 1998.

In the first months of 1999 the Italian economy showed a tendency to grow more slowly than those of the other countries in the European Union.

In the first quarter of 1999, the industrial production index was 1.5% lower than in the first quarter of 1998 (according to figures from the Istat national statistical institute). However, this index has followed a rather erratic pattern. After recording a fall of 3% in February 1999 compared with February 1998, it showed a slight upturn in March 1999 ( 1.2% compared with March 1998 and 1.4% compared with February 1999).

The turnover index, which measures the trend of sales by firms in the industrial sector, fell by 6% in January 1999, compared with January 1998 (Istat figures). The drop concerned both the domestic market (-5.5%) and the foreign market (-7.7%).

Finally, employment in large firms continues to decline. In January 1999 it fell by 32,000 units (-3.7%) compared with January 1998 (Istat figures). Job losses are particularly evident in manufacturing industry (except in certain sectors, such as food) but much less so in services.

In the light of these developments, the government and a number of research institutes are revising estimates for the growth of Italian GDP in 1999 downwards.

Social partners' views on the slowdown

A number of conjunctural factors which have affected all the industrialised countries are seen as being responsible for the slowdown of the Italian economy, most notably the consequences on international aggregate demand of the crisis that hit the countries of south-east Asia and Russia in 1998. The military conflict in progress in ex-Yugoslavia during recent months has also increased uncertainty and is predicted to have negative effects on consumption and demand.

However, a number of specifically Italian features are also important, and it is on these that the government and the social partners are now focusing their attention.

According to the government, the Italian economy can be expected to revive in the second half of 1999 as a result of reduced interest rates and the tax benefits introduced by the government for firms undertaking investments. Moreover, the revival of growth will also be fostered by the forthcoming complete implementation of the tripartite "social pact for development and employment" ([Patto sociale per lo sviluppo e l'occupazione](http://www.cgil.it/ufficiostampa/patto sociale/pattosociale.htm)) signed in December 1998 (IT9901335F). This, however, is a controversial issue. The social partners' criticisms of the government on occasion of the verification talks on the pact held on 22 April 1999 concentrated precisely on its delayed application.

According to Prime Minister Massimo D'Alema, it is also important to continue vigorously with reform of the public administration. The slowness of administrative procedures causes notable delays in the implementation of the measures and schemes provided for by the government and hampers the activities of businesses.

The Confindustria employers' confederation is rather pessimistic. Its chair, Giorgio Fossa, believes that the Italian economy is suffering from serious stagnation and that some sectors are poised to go into recession. According to the employers, Italy's difficult economic situation is also due to state intervention in the economy. In particular, high levels of taxation have a negative impact either on income distribution and consumption or on the competitiveness of Italian firms, given the high cost of labour. The role of the state in the economy should therefore be redefined, which requires reduced public spending and taxation, as well as deregulation of the labour market in order to increase flexibility.

The main trade union confederations - Cgil, Cisl and Uil - have also declared themselves worried by the trends in the Italian economy. Their analysis is rather different from Confindustria. According to Sergio D'Antoni, general secretary of Cisl, the government should provide greater support for the economy by restarting public investments (for example, those envisaged by territorial pacts- IT9904339F) and fully implementing the provisions of the December 1998 social pact, in particular as regards reducing the tax burden on households.

In the opinion of Sergio Cofferati, general secretary of Cgil, the economic figures show that Italy's production system is losing competitiveness at the international level. This, it is claimed, is due to the fact that in recent years numerous firms have given priority to short-term rather than long-term profits, thereby restricting investments in product and process innovation.

Commentary

There is no doubt that the Italian economy has been more profoundly affected than those of the other EU countries by the international crisis, given Italy's high level of exports to countries which do not belong to the Union. Added to this are the consequences of the restrictive economic policy pursued in recent years in order for Italy to be part of EU Economic and Monetary Union. Finally, it is precisely monetary unification that has removed one of the instruments that gave Italian firms their competitive edge in the past: namely devaluation.

The social partners have suggested different remedies for the slowdown of the Italian economy. The employers' organisations have focused on the way in which the Italian economy is regulated, calling for supply-side policies and labour market deregulation, while the trade unions argue that action should also be taken on aggregate demand through public investments. Moreover, Italy's loss of competitiveness is seen as one consequence of the limited innovative capacity of Italian firms.

Despite their conflicting views, the social partners will be called upon to play a crucial role in economic recovery: this is confirmed, for example, by the importance acquired by social concertation and dialogue in recent years in Italy. It is important that there should be consensus on the measures required to restore Italian competitiveness. At a time when the international market is characterised by greater integration, it is vital to strike an appropriate balance between production costs and product quality - which implies not only deregulation but also investment, innovation and training. (Marco Trentini, Ires Lombardia)