I’ve been wanting this for a while. What happened to the powerhouse Italian SMBs of the 1980s? We’ve known for quite a while that it was productivity, not wages, not hours, not savings that gapped-out between northern and southern Europe in the 2000s. I made the point back in 2011 and again that this is the responsibility of management, and perhaps of government.

Here is a great VoxEU post on productivity in Italy from Fadi Hassan and Gianmarco Ottaviano.

It is productivity that’s the problem.

It’s not the labour market. This chart shows a measure of “Strictness of overall employment protection”.

It might be the banks, or if not banks, finance. This chart compares the change in investment and the change in productivity in detailed sectors of manufacturing, between Italy and Germany.

It may also be to do with computers. This chart shows the percentage of non-residential investment made up by information and telecommunications technologies.

Hassan and Ottaviano think Italian human resources managers are at fault.

The basis of this scoring is as follows:

• Italian firms promote workers primarily on tenure, rather than actively identifying and promoting top performers;
• Managers tend to reward people equally, irrespective of performance level, rather than providing targets with performance-related accountability and rewards;
• Poor performers are more rarely removed from their positions;
• Senior managers, rather than being evaluated on the strength of talent pool they actively build, are more likely to not see attracting and developing talents as a priority

The first seems to conflict with the second chart, as does the third, and the second is arguable. The fourth, though, reminds me of Diego Gambetta on Italian professors and incompetence as a costly-signalling mechanism. I wrote about him here and here.