Giacomo Lev Mannheimer // 03.02.2016

The founder of Public Choice theory, Nobel Laureate James Buchanan, called it “politics without romance”. Buchanan wanted to show that politics is not a different world where all-knowing enlightened politicians make decisions for the greater good. Rather, it was equally exposed to human nature, greed, ignorance and self-interest.

Nowadays, governments across Europe are in a race to take the credit for the incipient economic recovery, highlighting their political action while knowingly ignoring the effects of quantitative easing, the depreciation of the euro, and the collapse of crude oil price. Against this background, it is worth considering to what extent politicians’ claims are true – what were the reform efforts and their results?

That is why Istituto Bruno Leoni (IBL) – Italy’s leading free-market think tank – recently presented its two indexes (the SuperIndex and the Index of Liberalisation) at the European Parliament in collaboration with Epicenter.

The SuperIndex – published this year for the first time – is an in-depth, regularly updated report on traditional bad performers on EU macroeconomic targets, such as Greece, Italy, France, Spain and Portugal. It aims to understand whether and to what extent the reforms implemented by countries under the recommendation of EU institutions have actually affected or are likely to affect their economic performance.

There are, of course, different ways in which the impact of these reforms can be assessed. An interesting gauge is the evolution over time of a set of key macroeconomic variables. Therefore, the SuperIndex looks at the gap in a number of key data (such as public debt, public deficit, unemployment) between the individual countries’ performance and EU recommendations, so as to highlight in a synthetic, measurable, and visible way the outcomes of economic policy.

The Index of Liberalization, on the other hand, was firstly released in 2007, and has since become a reference for Italy’s policymakers. Its aim is to evaluate the degree of competition in each Member State in relation to ten economic sectors (automotive fuel distribution, electricity and natural gas market, labour market, postal services, telecommunications, television, air traffic, rail transportation, and insurance). For each of these sectors, a set of criteria is defined in order to measure the extent to which competition prevails. A score is then assigned in each category to reflect the degree of competition, regulation and state ownership across the EU Member States.

While the role played by competition in boosting economic growth is very widely acknowledged, an important issue is how to adequately measure liberalisation. The Index does not necessarily regard market outcomes as a good indicator of the degree of liberalisation of a country, and its goal is rather to identify the legal, regulatory, and fiscal barriers to competition. In the Index, liberalisation is indeed defined as the ease for new competitors to enter a particular market.

Taken as a whole, the two indexes seek to paint overall comprehensive picture of the EU economy – without the romance. And the picture that emerges is quite transparent. As stated by the editor of the SuperIndex – Professor Nicola Rossi – an effort toward convergence to the EU’s macroeconomic targets has somewhat been made by virtually every country in Europe. Every country, that is, except for Italy. Even Greece is getting closer to the targets set by the European Commission, despite its own travails, not to mention countries such as Ireland, Spain, or Portugal, whose recovery has already given way to steady growth. Not a day goes by without Prime Minister Renzi claiming that Italy has found its way back to sustained growth; his storytelling, however, is often hampered by reality. On current trends, Italy’s progress towards EU convergence will take the country no less than 40 years.

The Index of Liberalization paints a similar picture. Italy is among the middle ranking, basically in the same position as last year. And even if this can be regarded as not a bad outcome, the truth is that – as underlined by the editor, Carlo Stagnaro – the Italian position is in some ways the result of optical illusion: comparing it with the older EU15 member states’ average, its ranking is far more disappointing.
Of course, problems are opportunities, and a committed liberalisation policy could yield enormous benefits, probably greater than in many other comparable countries. In this regard, the annual Law on Competition, currently subject to parliamentary scrutiny, is a chance not to be missed. However, it is already under pressure from the usual, well-established lobbies and guilds, so far. A failure to recognise Uber, setting out clear rules to enable its activity, is a case in point of the short-sightedness that prevents policy-makers from acknowledging the contribution made by innovation to Europe’s employment and economic growth.

Of course, Uber is a drop in the ocean. Yet its struggle is arguably to a country’s extent of liberalization as the Big Mac’s price is to exchange rates. While awaiting a “Uber Index”, we can only hope a turnaround in Italy’s economic policy will occur, but doubts linger. During his speech, Mr. Rossi stressed that the indexes’ chief concern is to force politics to confront the outcomes of its choices and take responsibility so that, when time will come, citizens could freely assess and decide.

“Numbers speak for us” is a recent quote by Mr. Renzi, and we take his word for it; without romance, indeed.

Giacomo Lev Mannheimer is a Fellow at the Istituto Bruno Leoni.