Last Friday Italy’s government decreed an amnesty for illegal construction. Parliament is expected to ratify the decree, which could affect millions of buildings and homes, and even to extend it to cover 150 legally dubious restructuring projects in Milan. The amnesty exemplifies Italy’s enduring leniency towards mass lawbreaking. This attitude now threatens to hurt Italy’s post-pandemic recovery plan, funded mostly by the EU, and the effort to reverse the country’s decades-long economic decline.
Productivity has stagnated since the 1990s chiefly because Italian firms are on average too small and too slow to grow. The few firms that employ more than 50 workers are comparatively productive, the myriad smaller ones far less so. One explanation is that domestic competitive pressures are relatively low, especially in services. Stronger competition would help innovative Italian firms and push weaker ones out of the market. Another explanation is the weakness of the rule of law, which hinders innovation, the growth of firms and efficient allocation of resources. Tax evasion, for example, can save underperforming firms from failure.
The structure of Italy’s recovery plan — conceived by Mario Draghi’s technocratic cabinet in 2021, and revised by Prime Minister Giorgia Meloni’s government last year — reflects this analysis. Its key reforms, presented as critical for productivity growth and efficient investment of the funds, concern competition policy and three sectors that directly affect the quality of the rule of law: the justice system, public administration and business regulations.