East west north south
East west north south
Germany and Italy are two countries with a strong geographical imbalance within them. This is represented by the East-West divide in Germany and the North-South contrast in Italy. What can Italy learn from German unification? And to what extent can the experience of southern Italy be relevant for cohesive policy in Germany?
buongiorno hello to everyone welcome to this session here we will talk the next 90 minutes about imbalances and inequality scene from a regional perspective and you can put questions in the end of this session interestingly italy and germany faces the same problems in germany we have a prosperous western part and a not so wealthy eastern part as you know and 2 million out of 14.5 million inhabitants have left the eastern region though that's quite a problem it's an underdeveloped region in italy there is a certain uh north south conflict i think the growth rate between 2000 and 2013 for south italy was about 13 compared to the growth rate of eurozone by 37 that's uh just a little achievement so we have two experts who can explain the the situation and give us some hints how to make progress i hope so and that we will have a lively discussion in the end of this session each professor has 15 to 20 minutes after then there will be a cut so that we can just talk to each other to my right there is professor michael border he was born in new orleans i think so and graduated and made his phd at harvard university he has been teaching at the business school at fountain blue and was lured to berlin in 1993 where he's still working as a professor for macroeconomics welcome mr border give him a blouse and to my left professor john franco viesti he's a professor for applied economics in barrie appogia he was born there and before he's been a professor at several universities i think milan firenze and so on he has worked as a counselor for many politicians for example for romano brodie he's a member of several councils and associations and he's very skilled in all questions about regional development please make the start professor fiesta give him our hand please thank you thank you very much thank you very much for coming i would like to welcome professor border he's an international expert it's a great pleasure to be here i'd like to thank the organizers of the festival of economics as you see the title of my presentation is some thoughts on the past present and future in italy the history of north and south in italy is a long one and indeed uh it's false to say that nothing has changed this is not the case in 150 years there were many different stages with different types of relationships the gap comes about with industrialization and the growth of the industrial sector in the north west and then they go up after the war they go down with a economic boom and investments in the 70s till mid of that decade and then there is a slow down of the two areas in the country and they start growing again with austerity the causes of this are varied what's important are the economic factors of the community the dispersion factors industrial policies uh at the time of uh fascism and altercation were very important general economic policies are also important in particular the development of public services in the 50s and the 70s in the south so don't concentrate on specific policies only sorry you can see that that was a chart called relating the two performances this is a key a point in red the accumulation investments over gdp and what's important is that these investments have gone down dramatically in recent years why are these two areas so different and there is not a single explanation for that and there is not a single cause it's very difficult also to use ethnic or anthropological explanations there are uh very relevant points which have an impact on the development of the economy first of all geography the south of italy is really remote peripheral uh very difficult to have access to if you just have a look to europe as a whole the economy of the north has always been able to resist whereas in the south there was no economy as such because the economic relationship among the southern regions are very limited because there are barriers to access indeed it's also an issue of uh infrastructures which are key for having competitive companies then the quality of government or governance which is going down in the south uh maybe all over the country and there is also another important issue that is education and this is one of the possible indicators as you can see university degrees in percentage in the south is half the european average and a note germany which has a very strong education system what are the dynamics the mechanisms over the years they have been very complex there is a key point first of all the development of economic activities starting from the west to the east to the center not so much to the south so manufacturing and advanced tertiary industries are missing in the south these are the so-called free localization services north and south of italy are part of the same country so we need to approach them as a part of an integrated economic system that integration has been very positive for the whole country but that generated uh pros and cons for the south the great advantage is to have a national tax system and a national expenditure so that they can get more money than if they were alone at the same time the fact that we have a a very strong north that means that the north is more attractive so free radicalization industries tend to concentrate in the center and in the north the public sector is very important this is the size of a redistribution of resources among citizens in the different european countries that happens in all countries you know taxes are progressive so the more you earn the more taxes you pay but the expenses for services depend on the number of persons in a country so uh indeed there are countries uh where the expenditure is higher than the tax revenues this reallocation happens everywhere just have a look at italy and they are a bit less than germany there is another important element if you invest 100 euro in the south 40 euros go back to the north this is so because in investments in the south trigger production in the north this is good and bad at the same time because that shows that we are an integrator system so if we want to develop the south that supports redevelopment of the north the bad news is that we need to spend more money in the south because as the south is part of a two-region economic system the benefits of these investments are dispersed at community level that is good in theory but that makes making investments in the south much more difficult the south is still key for the economy of the north the transfer of resources from the north to the south because of the work of the government well that corresponds to a shifting of the similar amount of resources from the south to the north in terms of goods and services which are then re-exported or resent to the south italy is no longer a closed economy so these regional differences should be interpreted in the international framework and they are influenced by the european integration in the past 20 years there has been a strong intervene in integration towards the east towards emerging economies so the whole italy and the south in particular are in what i call the trap of uh average income so the cost of production and labor in the south are higher than slovakia but the productivity is much less for example as compared with germany it's like eastern germany it's a position in which one can be competitive but still we have to do that intelligently striking a balance between being competitive in costs and being competitive with a higher productivity higher productivity depends on the number of factors in particular by the investments in rd these data are very clear they show that italy as a whole and the south in particular indeed accumulate knowledge in a very limited way the investments for research and development private and public sector is one third as compared with eastern german lenders i mean that should be interpreted indeed so um research and development is not the magic wand anyway being competitive with an average income without making significant investments for research and development is making things much more difficult at the beginning i told you that the history of italian regional development um is characterized by a result which is different from that of the past decades in the past decade alright in the past five years the gap between the north and the south have uh increased what happened well the whole italian economy was affected by the crisis and hence nine is a minus nine points of gdp between 07 and 14 but the impact of the crisis on the south was worse with a remarkable drop in the gdp in investments and uh even more so for employment that shows uh our history the red the south vis-a-vis europe it goes down till 2008 9 italy as a whole is losing ground visibly the european average the blue line shows the performance of the south compared with the north until 0809 the south had a slight recovery as compared with the italian average that means it was losing in the european scenario but not so much as for italy look at the last five years the two curves are going down in particular the one indicating differences between north and south this is even more uh evident we see the same uh thing uh with a longer time span concerning employment what happens starting from 2010 in the south is a real drop in employment look at the beginning 1977 the trend for the north is more regular and so on but the two parts of the country were going more or less at the same pace and this is a very interesting point this is the performance of a per capita wage in the lenders of eastern germany blue with a remarkable recovery after the unification then um it goes on with the growth of the weight the orange line the south has this a similar slope with that of eastern germany look uh 2009 eastern germany improves slightly but as the uh worsens with a major gap a widening gap between these two areas why is it so considering that there are active policies for the development of the south but indeed my interpretation is very clear the development uh regional the regional development policies in italy are no longer there we have additional policies which are uh often mentioned but they generally simply replace current expenditure and the amount spent is less last line on the total amount invested in the public sector the number has held since the beginning of the century this is per capita and you see the amount is limited this is the public expenditure something happened but i hope you can understand the chart this is the capital um capital account part of the expenditure with the per capita expenditure blue the north red the south so from this chart uh i uh deduce that there is no special policy implemented for the south if the education levels are important it's also very important to have a look at this table showing the investment efforts in the public sector for uh university education in italy and in the south in particular know the relationship with germany or the russia sorry one two three in favor of germany well at the end of my presentation i would like to speak about concerns what's going on uh well in this picture of austerity in public policies there is a strong drop in investment in the whole country blue line but that is much more remarkable green line in the south so we are doing just the opposite of what would be needed we are not strengthening the companies and in particular in the south that translates into integration into international economy which is higher which is growing in eastern germany than in the south of italy i'm sure the professional border will tell us how in the last decade has been a strengthening of a certain type of eastern germany industry that indeed supports international integration my final comment is that austerity is not neutral it is as symmetrical austerity is the effect of public policies in italy started in 2010. austerity is affecting more the south of italy than the north but as in other periods of recession the public uh the government was opposing the crisis in a way in this stage the government is in a way supporting the crisis how are they doing that first of all increasing the pressure locally and decreasing current and a capital account expenditure these charts come from the bank of italy in red the south and the public expenditure is going down more than italian average and at the same time taxes are growing up much more than italian average this happens for current expenditure left south in red and for capital account extended in italy uh the public actions are redrawn i mean education healthcare welfare and so on and that is going on without caring for the phenomena i described a good example of that is what's going on for expenditure and the type of expenses i mean welfare and healthcare you know is continuing but the country in the north the expenses are much higher because many people had a long uh employment and so they can derive benefits from the welfare much weaker is public expenditure for fighting poverty for supporting families and so on and that has a territorial impact there are very complex changes within the different sectors and nearly over but concern education or health care all in all the gist is that public actions and policies are changing in public investments are changing in italy this is in the negative that means that public investments are no longer able to compensate for the drop in the uh production capital invested but in the north uh things are not perfect but anyway um acceptable and the things are going bad in the south this is another important indicator which shows that investment in university education in the south is like at the beginning of the 90s has gone back about 25 years education is a key element to fight economic difficulties and we are not doing that to conclude you know uncertainty is very high but it's as if the year 2011 was a watershed and we might be uh confronted with a long period of history where regional differences increase something which have not been seen since the end of the second world war many of the trends which i illustrated though cautiously tend not to be a once and for all adjustment they simply become they accumulate and they say concern because economics interacts with population the birth rate goes down there are no migrant workers in the south and they contribute to the development of the north uh the um there is a brain drain and so there is uh uh strengthening of these negative dynamics so uh let's think uh over what happened in the past in the recent years and let's try to think what we can do for the good of this country and for the whole italian economy thank you very much for me as a senior editor of the german business paper handles that it's quite astonishing to hear that the deutsche bundeslander in the eastern part of germany are so much better off than the south i thought that we both share the experience of meds or journal but i don't know what you are thinking about that professor brother it's your turn thank you thank you very much thank you very much for the invitation it's a wonderful pleasure to be here again this is my third time i will try to speak slowly if for the sake of my translators i have a lot to talk about this is a very interesting conference a very interesting set of ideas and a very interesting question for today's session eastern germany is certainly an interesting place to look at and being in berlin i'm in the middle of east germany but not quite because berlin is still strongly influenced by the west for those of you who forgot your history many of you are very young you don't even know what this picture is this is way that germany looked after world war ii the red part was dominated by a central planning system for 40 years and the western part was not that is like an experiment an economist can't do experiments for us this was a wonderful opportunity and we're still trying to get our minds around what happened when the wall came down because we could see immediately that east germany was much poorer than west germany many drew the mezzo giorno comparison immediately weeks after the wall came down weeks after unification germans talked about the possibility of a mezzo journal of course many germans said no this will never happen because we can't do that but in fact uh some discussion has been come up coming up 25 years later that indeed part of the east german miracle is not a miracle at all so what you were saying is relative everything is relative okay you always look to the to the best performer and east germany is not the best performer okay so background unification is an experiment productivity of east germany was much lower than the cia predicted the cia put your east germany to be the 10th most powerful economy in the world that was complete nonsense if you price the output at market prices it already had only 30 percent of the productivity of west germany in 1991. before that it was even less because they were locked into the planned economy system eastern german wages were 10 of those in the west huge incentives to leave many germans did leave one million plus people migrated from west to east germany you do not see these migrations in mezzo giorno okay never so this is a radical experiment upon which wages rose in the east consumption rose in the east productivity increased much more slowly and different rates which tell us something about economic theory i'm going to argue you cannot compare this to the mezzo journal yet the correct comparison would be to take northern italy and cut northern italy in half and freeze northern italy in an ice box for 40 years that is the appropriate experiment okay so keep that in mind we can learn about the forces of integration and these forces of integration are weak between southern and northern italy they're becoming weaker between northern between eastern and western germany we are seeing in east germany northern eastern germany and southern eastern germany as a new dividing line just as we have in west germany the northern parts very poor much poorer than bavaria and baden-wurttembeck so regional differences is what makes europe interesting and that's what i'd like to talk to you about today after unification this is a table of how quickly east germans became like west germans within 20 years east german consumption was almost identical very small subtle differences in some places east germans had more durable goods on average than west german families in terms of consumption because of the transfer system east germans became very very wealthy and very happy how do i know that they began to live the same lifetime that west germans could women caught up in the year 2003 and men are about to catch up men drink too much they live poor poorly they eat too much but in general we have a convergence of life expectancy which is the ultimate measure of well-being if you look at the happiness index measured by the pew institute you see that of all the transforming economies eastern germany has done incredibly well statistically insignificantly different from what you observe in western germany what is happiness i don't know but we know we have to maximize it if you look at the macro story it looks different so consumption now in east germany is very close to west germany wages much less so germans in the east earn less money and they're much less productive they work longer hours east germans often say they work harder than west germans okay unemployment still remains higher although it's falling in fact berlin unemployment in berlin unified berlin fell under 10 for the first time since 1990. yeah okay that's a big deal 10 for a big city is incredible the unemployment rate in milano even in the worst of times is not 10 compared to europe east german regions look like european regions same types of differences so i'm going to argue that in summary happiness consumption have converged the interesting thing is why hasn't productivity converged why is east germany consistently less productive i'm going to tell you why in my view in a second and it's lower in ways that are systematic and you talked about history mattering of it is certainly true that history matters it's like when you apply a magnet to a piece of metal and you take the magnet away there's still a magnetic field around the metal it's the same thing with east germany so i'm going to try to explain this using ideas from economic geography trade theory integration theory tends to ignore space but actually space is important and when you took the east german west german border away it became very evident that some east german companies would die and others would survive people would move and if their fixed costs uh to establishing business and running them uh agglomeration will become important so it is not correct to say east germany is uniformly worse than west germany this one makes it different from maybe the mezzo giorno alfred marshall told us that cities are places where people are specialized in skills firms offer specialized products markets are very large young people can get exposure to lots of different ideas and other people can have lots of variety this is something you can have on a green field and this is very interesting we see this in germany in eastern germany the dark spots are where the people are moving to these are places where population increased by 20 percent the the black to brown parts and the white parts are the places where population disappeared so over the past 20 years berlin has actually lost population but brandenburg the suburbs have increased dramatically as well as leipzig dresden yena and a bunch of other cities that no one knows about these are actually the small wonders the small miracles in the east this is still going on and i know a lot of italians like to go to berlin do so it's still cheap it's getting more expensive over time so berlin is starting to catch up now it's starting to draw people in this is the last year of the development so that dark area in the middle of the doughnut is berlin city limits value-added moves with the people so here's the beginning in 2000 this is 10 years after unification uh doesn't look so great red is very much below average over time you see the points of light in east germany are becoming more and more light there's some green areas which mean they're actually at the median or just above the median in terms of the income and wealth distribution east germany in places is becoming like west germany it's a fractile picture okay everyone talks about wages i think we have to talk about them it's not clear to me the wages of the entire story but it may have actually helped east germany converge to west germany this is the development of wages in germany since the 1990s you see that after 1994 wages stopped growing in germany so italians look at this and say wow how did that happen well it was a collusive action between unions and management saving their companies from extinction in the west partially because they feared competition from the east but also from china and i think you see that this may have made a difference this is the distribution of wages and this is what i would like to talk about this is the growth of wages at different points in the distribution of wages so the top line is the real wage growth at the 85th percentile of the wage distribution these are the people who are earning lots of money these are workers who have lots of skill lots of training the middle line is the median so you see there's not much happening since 2000 and the really disturbing part is the lowest end okay so this is what italians and french and spanish colleagues get all upset about this is the increase in wage inequality in germany these are people who never would have worked for these wages many jobs part-time employment temporary help agencies and you can say well that's terrible but it's also a job many of these people were teenagers working for their family with their family with employment so the question is what kind of growth is that this is the oecd answer this is inequality in pay in comparing france germany and sweden you see that nothing really happened in germany until 2003 that was the year that the famous hearts reforms were implemented these were very painful labor market reforms that led to the fall of chancellor schroeder he was voted out of office in 2005 and you can see that german inequality in wages increased a lot that does not mean that inequality in families increased a lot because many families had more people working this also occurs in the east but not as much as in the west the west had more inequality increasing than the wheats in the east these four diagrams respectively are full-time west full-time east full-time part-time west part-time east this is some research that i've done with a doctoral student we found that actually the decrease in low pay in the west is higher so the convergence from east to west is actually coming partially from the west as well as from the east this is really two countries coming back together again the west is also sacrificing for the east so i'm not sure this is the solution for you people but this has happened no question about it unions have been agreeing to to more flexible wage setting the hearts reforms came unemployment benefits uh were curtailed and the german worker accepted the emergence of precarious forms of employment the so-called precariat has increased now recently the germans just raised the minimum wage they just instituted a minimum wage so it's not that germany is becoming manchester capitalism it's actually obvious that there's some need to change to go back to the mean so there is a minimum wage in germany that has ruled out some very low paid jobs and the unions of course were desperate because they were losing members i know this is also a problem in this country so the employment growth in germany in the east and the west that have brought these two regions together has come in the low pay segment this is a very important point to remember because a lot of people you know look only at the bad part which is that some people are earning less but if you're in a family with two workers or three workers and the government pays you extra money for taking that job instead of being on unemployment benefit then you can see the growth is coming in the lowest segments this could actually make average inequality less dramatic i'll spend the last few minutes talking about productivity because i think this is important productivity is not converged professor barrow the famous economist who is also here probably at some point predicted that it would take 35 years for half of the gap between east and west germany to close he was looking at mezzo giorno i mean his his evidence on southern italy and other european regions predicted a very slow convergence rate well it turns out that there has been a lot of investment as my previous speaker actually pointed out there's been a lot of investment in eastern germany but it hasn't really raised productivity as much so this is the average hourly productivity in 2014 in the regions of eastern germany look at the first column top is baden-wurttemberg southern germany lots of productivity very high wages extremely successful firms 53 of euros an hour bavaria just behind also 53 hardly different now go down to the southern eastern german states saxony 38 8 euros an hour or even where from elka comes from mecklenburg footballman 37 euros an hour these are huge differences and these are very durable differences and if you look at agricultural services and industry you see that although the east germans are more productive in agriculture they have very big farms the old communist collective farms are very productive and they're still there uh every in every other sector they're actually fall far behind so why is that this is research with batista severnini this is my one of my graduate students who actually i met at this conference many years ago so we basically looked at the we're also looking at other other aspects of productivity growth in germany but we're looking basically at this picture this is the the initial jump of east germany at the beginning and then it gets it hits the ceiling around 2000 and it hasn't improved much since so this is a mystery to economist why would that be the case well we know that there are three reasons a country can be productive basically they can produce more because they have more people that's not really productivity because you put more people in you're just increasing output you can have more capital okay that may help or you can have more technology total factor productivity so this includes education so mr vs talked about education very important or skills or just um rule of law not having the mafia to tax your activities we're not having a government to take your money away from you these sort of things are also important well we tried this batista and i tried to look at this um with respect to east germany how can we explain these productivity differences these very very very stubborn productivity differences well we you do it for the entire east germany and you see that about 15 of the productivity difference in the east is based on total factor productivity it's not capital it's not investment so how do we how do we figure this out so we we we twisted and turned the data we looked at this way in that way we found that actually the capital is more intensive in east germany there's more capital per worker in east germany compared to the west and i take my students to factories and we look at these factories they're extremely modern they're very few workers and the difference the flip side of this is the total factor productivity in the east is actually very low okay and that's the durable strange thing so the the last part of my talk i want to tell you what batista and i tried to do we tried to find out what is behind this what makes east germany different okay and i tell you it's not easy we looked at education we looked at infrastructure we looked at the density of firms we looked at the small middlestand big companies we used econometrics to do this and it was very difficult we found a few things that can explain one is the distance to the frontier so the most backward regions grow the fastest we also found that if a country is very backward if they invest in research and development it does help it's a small effect the most important thing we found was this boxed region this boxed numbers the density of managers the number of high-skilled managers that are actually surplus in east germany working in the factories okay so this is kind of interesting right the more managers you have the more efficient your companies are now is that causal it's hard to say i mean can we improve messaging by sending lots of managers to pennsylvania maybe not there must be some common factor that makes those managers more effective there or there's some reason for the firms to be doing that and of course lots of capital means you have lots of you have you need to have possibly less managers in place this is an extremely robust result we tried very hard to under overturn this result no luck okay so if you want to understand what's going on in the east i think it really does have to do with with r d it has to do with the highest paid individuals managing and increasing the productivity of the the work bank okay ironically the more you invest in this world the less you may need of those managers and that's the thing that i think is kind of interesting to look at so concluding it's a first we have this fractile picture of convergence so the little cities in east germany are doing well the countryside is becoming less and less populated they're parts of brandenburg that are now national parks there's nobody there except a bunch of birds and frogs so they make it into a park uh on the other hand you have places that are growing quite well i think unions helped uh to get people into jobs in in the east and that may have had an effect on productivity but not exactly the way you'd think decentralization was important we'll talk about that in the discussion there are large differences across regions in the united states if you go from massachusetts to maine to rhode island gdp per capita changes quite radically so it's not unusual to see those kind of differences even in the united states and i think the concentration of managers is something we need to look at because there is evidence in the united states a recent paper that actually looks at this in a causal sense so they find a good clever argument that says this is a treatment and by treating businesses with more supervisory manageable managerial talent you can actually get more productivity and some firms may choose not to do that if that's the case we need to think about that more carefully okay well thank you for your attention thank you very much for these interesting conclusions the constitution of germany requires equal living conditions of living for everyone what do you think is this still the case in in the eastern part of germany or will that uh remain an illusion the data are pretty pretty clear that if if you look at the numbers i showed before the table um east germans on average have the same number of telephones the same number of cars they have a few fewer cars because they tend to live in berlin which is very has a very good transit system but um i think i think it's it's it's an illusion to take the constitution seriously um southern south southern germany and northern germany in the in the west have different standards of living i mean if you go from schleswig-holstein which is a farm farming state and you go to to munich these are huge differences in standards of living you can't guarantee this in the constitution you can guarantee access to it and i think the german unification process has done a lot to guarantee access and if east germans don't like it they can get up and leave they can leave and move to the they can even get money for that so i think that's uh i think they've done very well in that score you mentioned the transfer system i think we have transferred fiscally we have transferred 1 billion euro from the western part to the eastern part 1 trillion sorry 1 trillion trillion 1 trillion euro that's a lot of money and we are talking about special attacks the germans are paying for the recovery of the eastern part what do you think what will be could be a solution for the politicians i think this is also relevant for the mezzo journal you you know it's a little bit like a drug addict you give them to you know you get people on on on the addiction and they can't stop so the the the correct way to to be honest with you i think people talk about this a lot i actually get i i calculated 2 trillion if you include all the private transfers it's 2 trillion euros but over 25 years it's a pretty good investment i think otherwise you have all these people coming over so i mean there are people like my my friend hans venezin who says that they should have kept the wages low in the east i think that's a no starter if you had done that you would have had east germany in west germany just as if you if you you know people people eventually have to have they get they starve they have to leave and they don't get a job so i i the correct way to deal with this is to have a time consistent path a commitment to reducing these transfers over time and i think at some point these germans have to accept that i have just a comment on that i have just a comment on that in italy well this is a pretty bizarre discussion we speak of fascistentialism meta welfare at all costs so what about current account expenditure current account expenditure a head in the south is less than the italian average why is it so because the pensions are lower health care expenditure is lower education expenditure is more or less the same that means that the southerners in terms of public service expenditure do not receive more than the italian average public jobs well the number is more or less the same that's very much different from autonomous regions in italy like this one but there is no major difference between the north and the south last but not least the so-called assistance assistant policies uh support policies are not very well developed there are indeed some sectors for example disability pensions which are much more paid in the south and generally they are given without uh being admissible to that but as a matter of fact they are a small share of the income so when we speak of transfers we should be able to understand what we mean i mean does it refer to personal income does it refer to access to public services which is also guaranteed by the italian constitution on an equal shooting then another thing is that of investments investments in the do do accumulate capital the availability of public capital is very varied in italy there are many differences on the contrary i think that uh that is uh more or less the same in germany i mean if you go to the uh leipzig uh train station and to bari train station just to appreciate what's the difference between eastern germany and southern italy this is not a transfer that is an investment that could be done well or bad but still is justified because a public capital has accumulated which indeed offers more opportunities for the development of private companies also so that comparison is very useful because we have to be clear when we speak of transfers but on top of that something that we both said i.e both eastern germany and southern italy in terms of public services they can offer better public services vis-a-vis the amount of money collected through taxes but that depends uh not on the special policies how could you explain that the european and the italian government provided between 2007 and 2013 about 91 billion euro for investments and that only uh 49.4 billion have been triggered have been triggered that there was only a demand for 49 billion just just half of it is there a problem with the administration perhaps in the south in south italy well i don't think so as a matter of fact we are speaking of cohesion policies of the european union implemented in southern italy and the time period is seven years that was uh 2007 uh 2013 at the end of the seven years um the all the resources have been used about 97 so all the whole amount has been absorbed he says so it's not an issue of absorption of resources maybe it's an issue of quality of policies in particular in terms of time what you said uh refers to intermediate points in time when there might be something negative there that mean having resources available but with a very slow ability to spend them that depends on the low quality of the administration both centrally and regionally in italy because a large amount of that money is dispensed by central ministries and a very slow ability to implement projects in terms of infrastructures italy is like berlin airport berlin airport is just the exception i mean they know that so 2019 but in italy uh with exception of a few examples unfortunately the time of implementing infrastructures is very slow you don't see a problem with something like crony capitalism in southern part of italy with nepotism and even capitalism as a matter of fact a part of the economy lives on the public sector the demand for services and infrastructure that part of the economy per se is not bigger in the north i mean hospital suppliers school suppliers those who work infrastructures they are not more than in the south but as compared with the total economy of the south that share is larger because the companies who do not the path through the government is smaller so it's an issue of composition in the south there is a big problem in terms of corruption and mingling between the public decision makers and the private companies so in some markets there might be rules which are different from that of fair competition and that's a major problem unfortunately when the economy is not performing the bargaining power in these markets gets even stronger that means that i mean if the uh an area grows less that does not mean that there is what i call a purification or rather the the bargaining power of apart is stronger how do you perceive the infrastructure policy for us in italy and what would be your recommendations regarding the recovery program which was announced by premier renzi like like the martial recovery program it's very it's very complicated i thought i was trying to make the point and maybe i didn't make it clearly uh merely merely throwing capital uh at a region does not necessarily make it more productive it will make it look more productive and it will be productive in some sense but not in the sense of achieving any quality of outcomes with the other region and this is because of this missing factor and and i think if you apply my analysis to italy in the south you see the same thing you see a lack of total factor productivity in the level and also in the growth rate and now we have to ask honestly why is that the case okay so that's my first answer i think throwing another 100 billion of euros at southern italy will not make a big difference because a lot of it will just disappear for whatever reasons it will not reach the place it was intended to reach and i think we have to be very honest this has already happened there are many factories in southern southern italy that were built and shiny and new and they never actually produced anything so you know let's get let's get real more generally italy is a very prosperous place i looked at the data again recently but you haven't had any growth in the past 15 years this is a fact so why and it's not the euro it goes beyond it goes before the euro the slowdown in italian northern italian tfp growth started in the early 1990s and the question is why did you not adopt internet quickly enough did you not did you lose terms of trade to china because they're starting to produce imitation products that i mean italy is the center of style and design maybe the world is coming catching up with italy and italy needs to get get ahead again something happened in the mid 1990s it's not the euro the euro made it worse it's not the americans in the financial crisis it made it worse but fundamentally something else is going on and when it goes badly in the north the southerners have to pay the price too because they're getting the money anyway so the the question for us now is is to ask what can we do to get italy back on a growth track after 10 or 15 years of slow growth and that's not going to be helped by throwing more investment a marshall planet southern italy unless you solve the underlying question right and maybe the current policy reforms will move us in the right direction but we need to we need to think more about that what are you thinking about that it's a question of competitivity there are two lines of reasoning on the one hand it's a question of endowment availability of basic services trains for example and good quality of public services healthcare for example in hospitals i do believe that actions should be implemented regardless of the immediate outcome that they can have on economic growth i do expect that improving education improving public transports and so on that could support economic development and professor buddha is perfectly right the issue stands in the total productivity of factors and not only in accumulating capitals so in italy and in the south in particular making services available and implementing quality actions on part of the government is indeed a prerequisite but the development policies are other public resources are more scanty than in the past we have to improve schools education hospitals healthcare by doing that better so it's an issue of a public development and an issue of well-being uh the citizens what is the best policy to increase productivity well i do agree with professor border there is no magic solution contrary to the past in the 50s in the 60s we used to think that if the capital labor ratio was increased that would have brought about a major growth is that germany is a clear example to that more capitals but the effect was low productivity so we can say that the quality and levels of education is very important research and development and innovation activities well these are important points because the south is lagging behind there there are also material factors which are important for example the attitude of people all the quality the good quality of local government in the end these are not permanent factors i mean what we can call social capital is not a permanent feature of our population it's something that changes over time and interacts with economic development so that's also a very important factor how comes that naples is not one of the most strong and productive cities jolly good question so in naples there are some industries and services of top quality but on average all in all it's a weak city so we should think uh again over these things without magic one thank you very much some months ago no i'd rather say no but i'm really worried thinks of my slides professor porter rightly appointed to the fact that italian and southern italy problems date back to the 90s the south was going at the same pace the north is not um i mean supported because they were both going very slowly what i tried to demonstrate is that in the past five years north uh the north continues to go bad but the south is going very very bad much worse than italy as a whole and this is a source of concern that could trigger cumulative phenomena so young that would be a brain drain of young persons so the the number of managers will go down productivity would not increase the ruling classes would become weaker and so the trap of underdevelopment mechanisms so the best to do the exit and not the voice so that is one of the reasons why i'm concerned but i would never say that the future has already been decided i would like to do something to influence it okay i'm not a historian but it's very interesting to think of east germany the great historical context and i i looked a little bit of the data before world war ii eastern germany was much more prosperous southern eastern germany was the industrial powerhouse of germany big chemicals big cars all the the czech the czech republic czechoslovakia was also part of that core of industry which is after the war moved in different directions and it's starting to come back because of economic geography but more importantly is the northern part of eastern germany was always very poor i mean apart from the hanseatic cities it was not very impressive and these are things you cannot change like you say there's certain things that are just the climate is bad or the climate is good the people are not so industrious or maybe there's corruption or maybe there's something else going on these things are very difficult to change so you have this that's a given and in this in a in a country where you have transfers in agreement democratic agreement you will always transfer funds to the south because it's hot down there air conditioning is incredibly expensive people can't work very hard um and maybe they don't want to and then the other things as long as people agree then it's okay and this is this is why europe is different from the united states of america it's just a different different set of initial conditions and opportunities i will very briefly comment on this as i said and as professor borda also said nobody holds the truth there are mysteries so the same productivity too there are things we do not understand but we should also look at simple things including looking at a geographical map so uh actually the south of italy has a totally different geographic position when compared to eastern germany because eastern germany is in a part that has been part of a broader region of industrialization which was part of a system in that way so you have one circle and that is eastern germany and then there is a second circle with poland and the czech republic and so on and so forth and there are also horizontal exchanges there for the new europe and that goes from east to west so in the geography of the south of italy is much worse from that viewpoint and this is a space issue because if there is a flow it is not to the south in italy but it is to the east here we are in trento but you know it is much faster to get to hungary from here or to the czech republic than to the south of italy and beyond the south there is a sea a sea of problems and territories which are highly problematic so eastern germany is much more central in europe than the south of italy and perhaps that does not explain everything but it does explain something it is important because it is a geography that especially became such in the past 20 years and not before then with two exceptions perhaps you don't find headquarters in the eastern part of germany isn't that the real problem it's it's only a region for distribution for selling products well you know when the wall came down the western german managers that had talks to they actually said east germany is no problem we just have a third shift we produce for all those guys no problem and the attitude was we could we can ignore the entire eastern germany all these historical tradition and thank goodness the trojan actually went in there and tried to integrate these production structures but history does matter there's no question about it there's time dependency and if you wipe out a company it will it need not necessarily come back i mean hamburg was bombed and it came back but fire um you know shielding these companies that used to be in you know deutsche bank they used to be in berlin they're not going to come back to berlin i mean maybe they'll have a little representative so they can do their lobbying with the bundestag but you know once you've moved the corporate headquarters the people the smart people the productive managers the r d departments once you've got them in a place it's very hard to move them and the the one exception that mr jacobs was referring to is is sais yena or it's now called yanoptic this company was the was a foundation that actually produced optical instruments in the 19th century was a world leader in lenses microscopes after world war ii the americans kidnapped all the top scientists and took them to west germany and yet gina came back and after unification they moved the headquarters back to eastern germany so there's some things that are historically important and some companies will never come back but some companies did i'm more optimistic i think there is something you know we just have to be hopeful and who knows maybe southern southern italy will have some comparative advantage we haven't dreamed of yet um but you have to create the right conditions for it well definitely we are talking about aggregate entities here but i don't want us to give the picture that there is a void in terms of economy south of rome it is an economy which is not sufficient to give a job to everybody but it is there there is an economy it is strong one-sixth of italian industries are located south of rome and they are competitive industries south of rome we have so many car industries for instance the majority actually and that goes also for aerospace industries food industries there is a good agricultural system too agri food is good probably in the south of italy more than in eastern germany there are several local small industries and this is competitive at international level so your question becomes even more complicated and even more interesting because we must consider the fact that in these regions there is part of the economy which is up to the standard at international level but the rest is not so there is a difference in productivity the productivity of the well-performing industries is good in melfi we have industries and people go from melfi to the united states teaching americans how to make cars so they do have and enjoy product good productivity but there are these islands of high productivity and the rest is not productive that has to be born in mind and we also have to look back at history and we have to be honest it's not so that everything has been a mistake it would be wrong to say that in the south of italy for a long period we had positive examples of development possibly they were not so long lasting in all cases but we have to consider that positive picture and we have to bear it in mind when looking at the future and when asking how we can create the conditions so that these good industries expand rather than shrink hence my concern and the graph that i showed about the fall and the collapse in investments which is a major one and i talk about private investment and that is the contrary of what should happen questions who dares to make start is there any question yeah mr lawrence we got a microbe here this is a question to professor vyesti what is the influence of the mafias in the south and i think especially of the andrangata because saviano wrote that the indrangata for instance controls the hub of joya tower and the traffic the port traffic there and what about the influence of corruption and uh crime is there an influence or not and to what extent i'm not an expert of this but i would tend to answer that certainly the mafias do have an impact and do have an influence especially in terms of distorting of causing a distortion of local markets think of trade think of the building sector and this is detrimental for the good companies and yet i also must say that i don't think that there are huge differences between areas in the south where the mafia is stronger and areas of the south where the mafias are less strong so i would i'm not underestimating this phenomenon at all but i would say that it is not so that the mafias explain everything otherwise eastern sicily should be much more developed than western sicily the north of calabria more than the south of calabria and puglia more than campagna while differences are minimal corruption is very strong unfortunately in addition to that especially based on recent studies i wonder to what extent this phenomenon remained exclusively linked to the areas of settlement and is not present also in the north of italy and in foreign countries due to internationalization but i was talking about corruption and that is unfortunately very present all over italy i would say and this is a very severe problem i'm afraid it is on the increase and yet also in this case i'm not i do not think that that is the factor explaining everything because i do not see an italy which is cut into two play pieces so to say a white italy with no corruption and the black italy which is full of corruption i would say that corruption is present at all latitudes criminality corruption are certainly two fundamental topics for the entire country and i would say more intensely so for the south of italy and this certainly is a factor that accompanies all the things that we have said likely they increase their power especially at moments when jobs are not created by the legal economy and that is again one of the cumulative factors i'm worried about for the future michael there is some evidence that i won't say mafia i won't say corruption the rule of law and there are international experts that judge each country on the basis of how contracts can be enforced don't get shaken down by your neighbors having a successful business robert barrow has a very famous paper where he looks at how this can explain growth across countries and has a very very high explanatory power so in addition to all the other things we talked about investment education investments infrastructure rule of law is very important in determining where you're going and if you have a if you have poor rule of law and you look more like an african dictatorship as opposed to a northern european country then you will have a lower steady state level of standards of living and people will not invest in you and i think that it is truly you say you can divide parts of italy in different parts that are less corrupt but if you're a foreign investor you don't know this and you're going to be deterred by the fact that you could go there maybe maybe i got the wrong part and i'm i'm in the corrupt part of italy and i have to pay all these people so i think it has a chilling effect on investment from abroad and this country like every other country including germany needs foreign direct investment it integrates the economy and the rest all right further questions perhaps from behind there have been some uh i have a question to professor vesti do you think that title five of the constitution has been reviewed and that entailed a weakening of the power of intervention in industrial policies on the part of regions because there are regions and provinces with which enjoy a special autonomy as is the case here with the province of trento and there there were possibilities to intervene and to support for these for startups for instance and for businesses by women so local intervention was very beneficial i think that a continuation of that situation would have been beneficial what do you think about it decentralization in italy in the past 15 years has been extensive i think that data evidence that in general in a development policies the weight of sub-national governments is similar to the european average now we are more decentralized than we were in the past we were highly does we were highly centralized in the past in italy we have not reached the levels of germany but we are getting closer there have been positive and negative aspects of this together with a bitterness we are working on a study on that and we put forward the hypothesis the decentralization actually was excessive perhaps meaning that we should have more balance in the overall picture especially with reference to industrial policies and yet unfortunately while our german friends are more balanced in their decision making we in italy in a way follow what is trendy and we moved from a 2001 reform which entailed a high degree of decentralization which everybody supported at the time to the current opinion whereby we have to centralize again as much as possible so i would say that we should look at the german case and learn something from germany because in germany the centralization is very serious is nicely organized of course it took time to to be made concrete in terms of the the powers of the lender and so on and so forth but i think really that we should look at the german example and in a way implement things more slowly i'm afraid perhaps in the future again we will go back to decentralization i think we should not be as hasty as we have been until now we should look at the german example because it takes time to make reforms we're running out of time unfortunately sorry last question well there are many issues but i will go straight to the point michael said that the increase in the inequality of wages in germany did not necessarily translate into increase over overall income inequality household income inequality but that was not the case because germany has experienced one of the highest increase in income inequality in the two first 10 years of 2000 in most european countries now my question is to both do you think that it matters something that has always struck me with the fact that south of europe south of italy is much more unequally unequal than the north of italy i'm talking about house of income distribution whereas eastern germany is just the opposite it was before the fall of the world but it still is the eastern part of germany much more equal in terms of income distribution you see trade as it is just a product of this to the problems of the two areas so is there some kind of interaction well i still can i can test your your point uh that there's there's been an increase in household inequality but it hasn't it hasn't been as strong as in sweden there's a difference between a level effect and a change so sweden has a very low level of inequality but they since the since 2005 it's jumped quite a bit the oecd is pretty clear on that the germans had a higher level of inequality it jumped by less it's better to have a job than not to have a job right that's one thing you increase i don't know but i can show you the studies i mean and christoph schmidt the chairman of the german council economic advisors has it in has a household study with equivalent scales much more serious than um than just taking a look at the you know you have to be very careful you have to wait people differently and if in the same family um i don't think the the inequality is increased everywhere but and you know the most outstanding case where it has an increase is france but look what the france is right now i mean so the question is is that is that good or bad on east germany east germany was very equal before the wall came down obviously so they've had a huge increase in inequality and yet it's mostly at the top end the people who would earn more money in the west earned a lot more money in the east and until the social system was reformed they didn't notice anything at the bottom so what we're observing now is that you're getting a fanning out at the bottom as well as the top i can show you the studies later michael is there anything you've learned in that discussion out of the remarks of john franco um in terms of in terms of the new ideas a new view on italy i don't know it's confirmed a lot love what i already expected so i i i to me north south of the league cannot be compared with eastern west germany east east and west germany is like you had your hand cut your arm cut off and they sewed it back on it took many years for it to sort of grow together and in southern italy it's almost like a different country you have the same culture and and traditions and language and therefore you're supporting each other the united states has the same problem there are parts of the united states that are very poor you know and they get transfers from the federal government they get they pay lower taxes so the redistribution is in place and i think that's what defines a nation the willingness to do that and i think it's good that you have this i mean i don't i think there's certain things you just can't overcome maybe you need to have some some more you know free enterprise in the south but otherwise i i understand everything you're saying same question to you what have you learned from michael malto grazier well i've learned so much from michael thank you so much i would like to make three final comments first of all we should not be too negative about our own situation we it is correct look at the german example uh but not for all aspects as a professor buddha explained there have been positive improvements but there are still structural aspects which have not been solved so the problem of regional dynamics is something that has not been solved overnight by the germans and we have never solved so there are issues open in both cases and that is the first thing the second thing i really appreciated was the fact of always making reference to the national dynamics of which influence the local situations or the original situations again in italy we tend to exaggerate when saying that the south depends on policies for the south of italy but it is not so there are very important national policies which can have an influence on these developments and somebody from the audience asked about disparity in income and in the south of italy and that is due to the fact that there are many who are unemployed or have precarious jobs but that is also related to the type of welfare that we have in italy that protects pensions more than unemployed people so we have always to look both original specificities and national ones and finally i would like to thank wholeheartedly professor berda for his comment because he as i do explained the importance of interpreting regional dynamics and we should be open to all factors when examining them there are several factors we have to investigate them all there are differences also within weak areas and this means that we should examine them closer and then discuss about things and we should not simply rest satisfied with the overall picture as is unfortunately the case in italy when talking about the south of italy often thank you very much talking to each other thank you for listening thank you for discussing have a nice day have fun thank you