Berlusconi flaps his wing

Which wing is Berlusconi flapping? Left or right?

The labeling of political preferences in crude terms such as a "left" and "right" can be useful as a shorthand with a high information density to characterize somebody's broad outlook on life. However, it's a lossy compression algorithm, meaning that when you decompress the "right" or the "left," you will end up with less information than with which you started. Such lossy linguistic compression is often used to avoid excessive verbiage. And by turning down the level of compression you can achieve a better correspondence between your original material and the output from the compression cycle. Liberal, conservative, christian-democrat or social-democrat all have a better-defined meaning than the "left" and "right" labels. Another problem with the "left" and "right" labels is that they imply a one-dimensional spectrum along which people can position themselves politically; when's the last time someone described himself as "top-left" politican or a "front-middle-right" one? Generalized vector spaces of political preferences? Applications of linear algebra to political taxonomy? Perhaps some other time. There's also the minor issue of different labels meaning different things to different people. The canonical example is "liberal," which has many different meanings, both in Europe as well as the US.

Having said all that, there's been a shift to the "right" in many European countries over the last years, with victories in France and Italy as well in some smaller countries. One of the exponents of this new wave of right-wing governments can be found in Italy, where Silvio Berlusconi heads is prime minister. In the run-up to the election, he cited various right-wing luminaries such as Margaret Thatcher as examples for him to follow. So he's made all the right noises too. Now that the pudding has been served, the nibbling at it has commenced. The taste thus far is, well, not-very-right-at-all, at least by American standards. By European standards, Berlusconi's government is part of the "right-wing" mainstream.

The latest ingredient that has gone into the Berlusconi Pudding is the crisis at Italian car manufacturer FIAT. This is a company that has the status of a hallowed institution in Italy, as it provided Italians with a taste of motorized freedom in the 1950s. As a consequence of doing that, it also became Italy's industrial powerhouse, employing tens of thousands of people. FIAT is more than just a company for Italians; for many years, FIAT was synonymous with Business and Industry in the country. At its peak, FIAT's share of the Italian car market was far above 50%.

Now the company has fallen on hard times. The old, cozy and protected domestic market has had to be opened to foreign competitors. Management of FIAT had become part of the ruling elite in Italy, running the company more for prestige than for profit. The labor unions representing FIAT's work force were (and still are) dominated by the communists. Management happily played along with the labor unions' pro-Soviet leanings, which led to the bizarre spectacle of Gianni Agnelli, the patriarch of the family that owned a majority stake in FIAT, embracing the Soviet minister of culture at an exhibition of Soviet Communist Art at FIAT headquarters in Turin. While the red flags were flying at Lingotto, the FIAT HQ, the people of Eastern and Central Europe were busily tearing them down. Agnelli himself also had an iconic status in Italy similar to that of his company. There's also a link to Italy's formerly inbred and incestuous investment banking community, which used to be dominated by Mediobanca. The salotto buono where Italy's industrial fate used to be decided in cigar smoke and behind closed doors is no more. Neither Agnelli, nor FIAT, nor Mediobanca have much of their influence left. The main reason is FIAT's disastrous performance and the realities of a modern market economy.

FIAT is in desperate straits after producing many poorly-received cars. Its only hope for survival is a bailout by minority shareholder GM. Just ten years ago the mere thought would have been unthinkable in Italy, but it now looks as though FIAT will end up as a piece in the global GM puzzle. Even so, FIAT needs to stem the tide of red ink that is flowing. In a bid to restructure, FIAT is trying to fire 20% of its domestic work force. This has led to massive protests by the labor unions, who demand that the government Do Something. In talks between the government and FIAT management, Berlusconi blamed management at FIAT for its problems and grandly said that he "save" the company.

Speaking on Italian television tonight, Silvio Berlusconi made some further telling comments. Apart from sniping at the unions and the opposition, he obviously tried to put the results he'd gotten into the best light. What do they consist of? FIAT has agreed not to close any plants, as originally intended. The plants will be idled instead without the workers getting fired. The government will pay them 80% of their salaries in the interim and the government will also give a sweetheart deal for early retirement for 2,400 employees. In the first year the taxpayer will give them their normal salary in return for them sitting at home doing nothing, in the second it'll be 80% and normal pensions after that (which are pretty generous anyway). For all the talk about not interfering in the economy, this is a pretty hefty non-intervention, and it's going to cost the taxpayer a nice bit of money. It's an indirect subsidy to FIAT, which will be able to reduce its costs in a byzantine way (at least temporarily). Not closing the unviable plants still means that chunks of FIAT's capital will remain tied up in unproductive assets.

Probably the most remarkable comment that Berlusconi made is about the semi-laid-off workers. He said:

he most determined and the luckiest among them will definitely find a second job, maybe not an official one, that will bring the family some extra income.

It's all but encouraging workers to go find a job in the underground economy, which is a strange thing to do for a Prime Minister. The unofficial jobs he refers to are the ones that don't suffer from the enormous tax burden that the Italian state places on normal jobs, such as those at FIAT. And those taxes are then used to fund bail-outs of companies who've been made unviable (in part) by the huge tax burden placed on them. Reducing taxation and regulation in the official job market would help solve both problems: fewer companies would need bailouts, and fewer jobs would unofficial.

Berlusconi's casual acceptance that the underground economy can play a role in finding the semi-laid-off workers new jobs shows that the role of the underground economy is well known and that it fills a substantial gap in the Italian labor market. Taking the next step to fix what's wrong with the official economy by looking at why people need to take refuge in extralegal employment is still something that the Italian government can't bring itself to do.

So the "right-wing" government in Italy has announced a massive subsidy for a struggling industrial giant. It has intervened in FIAT management's responsbilities in running the company and it's using more of the taxpayers' money to try to buy off the unions (who have come out against the deal). It's all perfectly normal for a European "right-wing" government. Who needs socialists with friends like this?