In the third event of this series, Tyler and Luigi Zingales discuss Italy, Donald Trump, Antonio Gramsci, Google and conglomeration, Luchino Visconti, Starbucks, and the surprisingly high productivity of Italian cafés.
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TYLER COWEN: Luigi Zingales, my conversant, is one of the best and best-known economists, both in the United States and in Europe. He’s written three best‑selling books, the most recent of which just came out in Italian. It’s called Europa o no.
A Capitalism for the People, from three years ago is, in my view, perhaps the best book on the current American economy, what’s wrong with it, and what should be done. With Raghu Rajan, he has an earlier book, Saving Capitalism from the Capitalists.
Luigi’s contributions are far-ranging. He’s been at the Graduate School of Business of University of Chicago for now, I think, 27 years. He is a major contributor to theory of the firm, politics, culture, governance. This is just a small sliver of the papers he has written, in addition to the three books.
He is now the director of the Stigler Center at the University of Chicago. Most of all, in recent times, Luigi has been known for his biting critique of what we all sometimes call crony capitalism. There’s more I could say, but let’s get to the dialogue.
On Italy and its economy
COWEN: I think of a lot of your work as bringing the ideas of culture and governance into economics. There’re a few major strands in your thought, and I want to explore a few of them. Since you’re Italian, let’s start with the question of Italy.
If you look at the economic performance of Italy, the country is just coming out of a triple‑dip recession. Unemployment is about 12 percent. By some measures I’ve seen, per capita income is not higher than what it was 15 years ago, and they’re over €2 trillion in debt. Some serious problems, and a low birth rate.
How do you see this playing itself out, and what is the endgame? How pessimistic or optimistic are you?
LUIGI ZINGALES: I think that you said correctly. It’s not just the fact we’re coming out from a triple recession. It’s the fact that Italy did not grow for the last 20 years. There are a lot of things that don’t go well in Italy, but when I left it 27 years ago, a lot of things were not working, and Italy was growing.
In fact, in the period 1945 to 1995, Italy grew at a rate that was at least as good, if not better, than Europe and the United States, especially in terms of productivity. Since 1995, Italy stopped growing in terms of productivity. Of course, if you don’t grow in terms of productivity, you don’t grow in terms of income per capita, and so on and so forth.
The question of why, I think, is one of the most important questions, not just for the future of Italy, but for the future of Europe, in general. With a coauthor, I have tried to analyze the various theories. One theory, which is very popular, particularly in Italy, is that it’s all the fault of the euro, because it is true that this sudden stop happened roughly at the time Italy joined the euro.
I don’t think there is any evidence that’s the case, in spite of the fact that it’s a very strong correlation, temporally. I think that the sad reality is that the institutional deficits present in Italy are particularly severe as you approach the technological frontier.
If you have institutions that don’t work and are corrupt, et cetera, you can get by if the only thing you have to do is improve agriculture and produce t‑shirts. We’ve seen in Cambodia, not great institutions, but they produce great t‑shirts, and it works.
Once you try to compete in the first league, when you try to be at the frontier of the technology, you need to have a relatively non‑corrupt government, a system where people pay taxes without too much tax evasion, but not too much taxes, because otherwise they don’t produce. Italy has failed, in my view, to do that. I think that the government by Renzi is trying to do this. The jury is still out whether it will succeed.
COWEN: When I hear other people speak about Italy, there’s a certain tension as to how long these cultural effects last. You read Robert Putnam, things matter from hundreds of years ago. In some of your papers, it matters how many years a region had as an independent city‑state. It matters in the year 1,000 whether you had a medieval bishop in your city.
Those are very durable cultural effects. I think back to being in Italy in the mid‑1980s, when it passed the UK in terms of per capita income, it was, in a sense, then at the European frontier and still growing. Now, it’s not so much later, and what feels like the same culture seems to be giving very different results. How’s the way we make sense of that?
ZINGALES: Two things. First of all, the distinction that Putnam makes and a lot of people make about the North and the South. I think, in some sense, it’s disappearing in Italy, but in the worse direction. All Italy is looking more like the South.
ZINGALES: The Northern people . . . I come from the North, even if my grandfather came from the South, but I came from the North. People in the North, when I go back home, they still feel very proud that they’re much better than people in the South. I say, “You know, when you are in the Titanic, being on the third deck or the first deck doesn’t make a huge difference.”
ZINGALES: “Yeah, you are on the third deck is better than the first, because you just sink a little bit later, but you still sink.” There is this arrogance in the North that I don’t think is fully justified, because many of the bad practices of the South have been imported to the North.
The Mafia used to be only in Sicily, today, is present in Milan, is present in Venice, is present everywhere. When we are questioned, “What has gotten worse?” I think there is this component.
The second is the boom. What people did not fully realize, but the boom of Italy in the 1980s was a boom of a developing country that had a protected currency area. We were playing the catch‑up nation within Europe.
While everybody else in Europe was moving in more advanced production and services, they were leaving behind market space for us to capture the less technological production, and we did it with gusto. It was a boom in the ‘80s, but it was a boom in the wrong direction.
COWEN: Let’s say we go back to 1860. Was Verdi wrong? Say Italy had not become a single nation. There had been a North and a South or even half a dozen or more nations competing against each other or more of a Swiss model. Was the nationalist model for Italy a mistake?
ZINGALES: This is a very hard question, but let me try to say that what I think was wrong is precipitating the unification without really a national culture. There was a small elite that felt Italian, but the rest of the population did not feel Italian.
A number of accidents, including the errors of the only Italian who actually was a military leader, Garibaldi, made unification possible against all odds. I’m sure that if you ask people in 1858, “What are the chances of within three decades Italy gets unified?” they will say, “1 out of 100.” Within two years, it unified — most of it.
It was really a chance, but then, because this happened before there was a national spirit, it turned out it was basically an annexation of the South by North, in which the North imposed its laws to the South, and they were not good for the South.
One of the best Italian thinkers and most unknown, is this guy Vincenzo Cuoco, who was part of the Neapolitan revolution in 1799, and was actually convicted to death to participate in this revolution. This revolution, for people who are not familiar with Italian history, was a Jacobin revolution trying to imitate what they were doing in Paris and in Naples. This revolution initially succeeded, and then a cardinal brought some troops from the South of very simple peasants that massacred the Neapolitan elite and brought back the Ancien Régime. Then it, of course, went back and forth with Murat, et cetera.
The interesting thing about this guy is that after he was convicted to death and then escaped, he wrote a history about that revolution. He’s probably the only person who wrote a history of something that he lived in and gave an interpretation that is valid to this day. His interpretation is you can’t export other models in different contexts.
The Neapolitans who tried to copy France are silly, because they don’t understand the social, cultural, economic context of France at that time was completely different than one of Naples. He has this analogy say, “Every place has its own clothes.” You’re not going to put Finnish clothes to a Greek or Greek clothes to a Finnish, because you’re either going to sweat to death or be freezing.
Why do you want to impose the same rules to everybody? Italy tried to do this, and the result was that in the South, a complete rejection of the Northern model. So much so that there was a revolt that we in history call bandits, but in reality was the liberation front that just lost. When you lose, you’re always on the wrong side, and so these are called bandits.
The North did not need this. The South had this revolt, and then they reached a compromise. There was a compromise not unlike, I think, what happened in the South of the United States. It was for the worst of both sides, in the sense that North side agreed with the big landowners of the South that we’ll leave them in power in exchange for consensus, and they will retain their power in exchange for an army that defends their land against the revolt of the people. That led the South to underdevelopment for years.
Very few people know that when Italy got unified, the income per capita of Sicily and the one of Emilia‑Romagna around Bologna were the same. Today, it is almost double the one of Emilia‑Romagna versus Sicily. It’s a huge sort of gap.
Now, why I insist so much on this, because I think there is an analogy that most people don’t fully appreciate between the Italian unification and the European unification.
Europe got unified roughly in the same way. There was a small elite that felt European. Most people don’t really feel European, but a small elite feel European. They speak the same language, which happens to be English. Pretty soon, England would be out of Europe, but they feel part of the same nation. They talk, they go to the same meetings, et cetera. They’re trying to force unification over the desire of the people. The result, I think, is not working very well.
In the old days, you were sending troops to maintain the South and the order. Now, you use the Central Bank, but it’s not that different. At the end of the day, what I fear is a desertification of the Southern part of Europe similar to what happened in the Southern part of Italy.
COWEN: Like in the Industrialization. One of my favorite papers by you is your paper with Bruno Pellegrino. It’s a great name for coauthoring a paper on Italy. The way I read that paper is you’re saying something like this: Italy, right now, doesn’t have enough firms which could be 5 or 10 times larger than they currently are.
The global economy, over the last 20 years, has put greater emphasis on scaling up. The 1980s were much less about scaling up. You could do better with small- to medium‑sized enterprises in the 1980s. Now everything is about scaling up. You have Apple, you have Google. Kind of mega‑scale.
Italy, more or less, has stayed still. China has scaled up. In the new world where scaling up is really what matters, Italy is left behind. That’s the fundamental productivity reason why even the Italian North hasn’t, in some ways, done that well. Is that the way you think about it?
ZINGALES: Absolutely, but it’s not just the Apple of this world. It’s also the Starbucks. If there is one thing Italy is competitive on and is better than everybody else is food. The fact that the major chain of coffee is not Italian is really hurtful.
ZINGALES: No, I understand that Apple is an American product, but when I arrived in this country 27 years ago, you were not really drinking coffee. You were drinking a dark thing that tastes like I don’t say what because we’re online. The culture of coffee did not exist here.
The culture of coffee and a café where you sit and drink, et cetera, what Starbucks is, is an Italian or at most French culture. Why were you unable to export this? This is my little explanation. By the way, the only country in the world where Starbucks has not arrived is Italy.
If you go to an Italian coffee shop, the productivity of the individual working there is five times the one of Starbucks. They do coffee, cappuccino, one after the other, no questions asked. They understand five orders contemporaneously.