Invest in Italy

As of 2006, Italy is the fourth major anchor of the European economy and the seventh-largest economy in the world. With 60 million people and a GDP of approximately $2 trillion, Italy remains a potent economic force, despite the apparent determination of Italian institutions to stifle growth in every statist way imaginable.

Serious Problems

Despite the nominal capitalism of Italy’s economy, Italy suffers from several severe problems not shared by other major European economic powers (or at least not to the same degree). The Italian labor market is widely regarded as one of the most sclerotic in Europe. By writ of Italian law, it is virtually impossible for Italian businesses with over 25 employees to fire any of them. Italian energy regulations and tax rates are similarly onerous. As a rational market response, low-margin sectors of the economy tend to be extremely fragmented (small businesses are much less regulated than large ones), and Italy has an enormous underground sector which simply ignores all national laws, taxes and regulations. This sector is estimated to account for approximately 15% of Italian GDP.

Italy also suffers from a significant ethno-cultural and economic bifurcation between north and south. Northern Italy’s highly sophisticated economy, centered on the metropolis of Milan, is one of the wealthier regions of the Continent. On the other hand, the Naples-centered economy of southern Italy is very poor. The chaotic and unpredictable nature of Italian politics fundamentally revolves around the disparity between the Milanese and Neapolitan/Sicilian economies.

Additionally, for all its militantly redistributive laws and fiscal policies, Italy still suffers from endemic economic inequality. Italy does not even gain anything from anti-growth labor and tax laws.

Leisurely, but Private Strengths

For all its efforts at worsening its investment climate, some sectors of the Italian economy are very strong. Italy’s Roman legacy ensures tourism’s strength as an economic linchpin.

Italy is also very well-known for its high-end luxury-goods sector. Italy is home to many legendary brands (e.g., Maserati, Ferrari, Lamborghini), and Milan is a major fashion capital of the world. Northern Italy serves as a magnet for no end of well-heeled international “big spenders.”

Unfortunately, these sectors are dominated by private, not public businesses, and offer little in the way of opportunity for foreign investors. Italy’s foreboding investment climate tends to frighten away foreign investors, especially when Italy is compared to its younger, higher-growth East European neighbors.