The Two-Faced Economy

ROME: Italy's economy has two faces. On one side, sectors of the economy demonstrate extraordinary productivity, and have won big shares of international markets. For example, the mechanical industries in the Veneto and in Emilia led by Carararo, and Ducati, as well as the optical industry in the Northeast with Luxottica in the lead. These are firms known across the globe, and which are often the objects of acquisitive interest from foreign competitors or great international investors, such as Piaggio and Stefanel.

On the other hand, Italy's economy as a whole is stagnant: in the last ten years Italy has been growing more slowly than the median in Europe, which is already seeing much lower growth rates than the United States. In the last eight years per capita GDP has increased, on average, by 3.2% per year in America, 2% in Europe, and only 1.2% in Italy.

How are these two economic facts to be reconciled and what does this divided economy tell us about Europe, east and west, as well as other economies where the percentage of people in work may be stagnant or falling? The answer is at the same time simple and rich in consequences for economic policy.

GDP per capita (that is, GDP divided by the total population) depends on two factors: the productivity of those who work (that is, GDP divided by the number of people employed), and the number of people who work as a proportion of the population. In order for an increase in the productivity of those who work to result in a growth of GDP per capita it is necessary that productivity growth not be not nullified by a simultaneous reduction in the number, and thus the proportion, of those who work. Such a reduction happens not only when unemployment goes up, but also when the number of those who do not participate in the labor force grows: students, retired people, the unemployed who are discouraged and stop looking for work and so abandon the labor force.