ITALY

COUNTRY OVERVIEW

LOCATION AND SIZE.

Located in southern Europe, Italy is a peninsula extending into the Central Mediterranean Sea. It is shaped like a high-heeled boot kicking a "triangle"—the island of Sicily. Italy borders France to the west, Switzerland and Austria to the north, and Slovenia to the east. The country also shares a border with 2 tiny independent states, San Marino and the Vatican, both of which are entirely surrounded by Italian territory. Italy has an area of 301,230 square kilometers (116,304 square miles) and a coastline of 7,600 kilometers (4,722 miles), including the islands of Sicily and Sardinia. Comparatively, Italy is slightly larger than the state of Arizona. Rome, the capital city, is on the country's western coast at the heart of the peninsula. Other major cities include Milan, Naples, Genoa, Florence, Venice, Palermo, Bologna, and Bari.

POPULATION.

In July 2000 the population of Italy was estimated at 57,634,327. In the same year the birth rate stood at 9.13 per 1,000 people while the death rate was 9.99 per 1,000 people. Thanks to the annual arrival of immigrants, the projected growth rate is 0.09 percent. The data clearly show that without the influx of foreign immigrants the Italian population would suffer a steady decline. More restrictive immigration policies are being adopted, and it is expected that by 2010 the population will decrease to 56,484,000.

According to 1996 statistics, just over 67 percent of Italians live in an urban setting; the rest live in the countryside. The regions with the highest density are Campania (with 426 people per square kilometer, or 1,103 per square mile, in 1998) and Lombardy (378 people per square kilometer, or 979 per square mile). The regions with the lowest density are Val d'Aosta (37 people per square kilometer, or 96 per square mile) and Basilicata (61 people per square kilometer, or 158 per square mile). The biggest city is Rome, with 2,646,000 inhabitants, followed by Milan (1,308,000), Naples (1,020,000), Turin (910,000), Palermo (687,000), and Genoa (641,000).

Ethnic Italians form 97 percent of the population, but there are small ethnic minorities such as German-Italian, French-Italian, Slovene-Italian, and Albanian-Italian, while foreign immigrants make up 1.8 percent of the population. The largest immigrant groups are Moroccans, Albanians, Filipinos, Americans, Tunisians, and Chinese. Italy—home to Vatican City, the seat of the Pope—is a predominantly Roman Catholic country, even though church attendance has been progressively falling. There are small Protestant and Jewish communities, but, as a consequence of the growing number of North African, Bosnian, and Albanian immigrants, the second religion of Italy today is Islam. With 18 percent of people over 65 and only 14 percent below the age of 14, there is widespread concern about the rapid rate at which Italy's population is aging. With average life expectancy at 79.03 years, the government is worried about the financial costs, such as health care and pensions, associated with an aging population.

Contrary to popular perception, Italian families are no longer as large as they once were, and it is becoming common for couples to have only 1 child. Economic well-being, a high cost of living, and the entrance of women into the workforce have had a tremendous influence on family structure. In 1961, about 14.4 percent of families had 4 or more children, compared to 1998 when only 1.4 percent of families had 4 or more. Without the arrival of immigrants, the Italian population would have fallen over the last decade. To reverse the negative trend, the government has adopted family-friendly policies. The government encourages families to have more children through tax breaks and direct grants. The policy has not been too successful, however, because people do not consider the financial incentives to be enough.

OVERVIEW OF ECONOMY

Italy's gross domestic product (GDP) of US__BODY__.273 trillion makes it the sixth richest country in the world. In income per capita, it occupies 18th place. The country's economic success is a recent accomplishment. Italy was unified in 1861 after 3 wars of independence fought against various foreign rulers who dominated different parts of the country. The driving force behind Italy's unification was Victor Emmanuel II, the king of Piedmont and Sardinia, who waged wars against foreign rule in the name of Italian independence and territorial unity. Italy had long been carved up by foreign powers, but several self-ruling cities and kingdoms also existed. With the help of committed patriots, such as Giuseppe Mazzini and Giuseppe Garibaldi, Victor Emmanuel accomplished his aim to unify the country under his rule. Despite the enthusiasm of unification, economic conditions were poor. Italy had few industries, and most people lived off agriculture. Furthermore, the difference between the more advanced northern half of the country and the poorer south was evident. The pace of industrialization was slow, and industry could not provide jobs for new generations of workers. Because of the poor standard of living and lack of work, many Italians left the country to find a better life, particularly in the United States. The first wave of mass emigration to the United States took place before the turn of the 20th century, followed by a second wave after World War I (1914-18). During the period of Italy's fascist rule, which lasted from 1922 until 1943, and then following the end of World War II (1939-45), many Italians migrated to European countries such as the United Kingdom, Germany, and Belgium. Before the economic boom in the late 1950s, many Italians also migrated to Australia, South Africa, Switzerland, and Latin America.

The turning point in Italian economic history was the economic prosperity of the 1960s. At the time, private and state-owned enterprises took advantage of foreign assistance from the United States under the Marshall Plan and the launch of the European Economic Community (EEC) to restore the Italian economy. Despite skepticism about the European Common Market, Italy joined and profited from the progressive integration of Western European economies. By developing strong export-related industries, the industrial triangle of Milan-Genoa-Turin led the economic boom. Italian exports became attractive, and the growth of exports led to a strong internal demand for goods and services. Small and medium enterprises began establishing themselves and prospering in Northern Italy. These companies were the force behind economic growth as they exported machinery, engineering products, textiles, and clothing. Large private companies such as FIAT and state-owned companies such as ENI and ENEL also contributed to economic growth. Meanwhile, southern Italy remained impoverished, and its inhabitants migrated north in large numbers until the late 1970s.

In the following decades, Italy was able to consolidate its economic success, even though the economy was never again as strong as it had been in the 1960s. Comparatively, the Italian economy grew faster in the 1960s than any other European country, while around the world only the Japanese economy fared better. The 1970s and 1980s saw much more uneven development. Italy is heavily dependent on Algerian gas and Arab oil supplies, so it was hit hard by the oil crises of the 1970s. Despite this trouble, Italy's economy grew over 3 percent annually during the 1970s, though it began to slow at the end of the decade. The second oil crisis in 1979 and domestic political turmoil created high unemployment and high inflation. Strikes, demonstrations, flight of capital, and confrontations between the trade unions and businesses plagued the country. To steer the country away from this troubled period, political parties formed a Grand Alliance to find a solution that would satisfy most of the people. A national solidarity government was formed and managed to deal with the problem of stagflation (high inflation combined with high unemployment and stagnant consumer demand), reduce civil unrest, and lay the foundations for future growth. The country began to recover about 1983 and moved toward a new period of economic expansion. Strong economic performance allowed successive governments to make improvements in the welfare state that provides health care, education, pensions, infrastructure, and benefits.

Before the 1980s, Italy was a free market economy with a strong element of state control and state ownership. Many state-owned companies had operated efficiently and contributed to economic growth. By the mid-1980s, however, the state sector was beginning to create distortions in the economy. Many Italians employed by the state lived well above their means, accumulating debts and enjoying a free ride at the public expense. By the mid-1980s, appointments to the civil service and to the management of state-owned enterprises were handed out as political favors, leading to widespread corruption. The mismanagement of public resources drained the economy. Furthermore, the high costs of the welfare system put a strain on the country's finances, thanks to widespread corruption and waste in the health care, social security, transport, and education systems. The economic slump of the early 1990s highlighted the burden of the public debt and brought about radical measures to cut costs, privatize, and reduce the role of government in the economy.

The state began to withdraw from its role in the economy after a first round of privatization was carried out at the end of the 1980s. Large state-owned enterprises such as the motor car manufacturing company, Alfa-Romeo, were sold to private investors. The progressive disengagement of the state from the economy created more room for private investors. With the prospect of entrance into the European Monetary Union (EMU), Italy was forced to undertake massive reforms to lower inflation, reduce the deficit, and lower interest rates. By 1992 reforms accelerated as the state disengaged from the economic sphere. The radical changes brought success in tackling the high deficit through cuts to the welfare state and measures to limit waste. Inflation was brought under control by means of restrictive monetary policies, and the tax system was made more efficient. Because of the initiatives, Italy succeeded in qualifying to participate in the EMU.

By 1998 and 1999, Italy experienced sustained growth after many years of high taxes, budget cuts, and high unemployment. The relative importance of the Milan-Genoa-Turin industrial triangle declined, and small and mediumsized private enterprises in the northern part of the country became the chief participants in the new boom. Recovery from the economic recession of the early 1990s and acceptance into the EMU was due, in part, to the social partnership pact brokered by the government. Employers and labor united to put an end to confrontation and to adopt part-time contracts, flexible hours, and lower overtime rates. Even the public sector embraced these changes to improve its efficiency. Investments were made in technological development, salaries were frozen for months, and the workforce increased production in exchange for job security.

The Italian economy is now much more free-market oriented than at any previous time. Several sectors have been liberalized and state monopolies disbanded. Many state-owned enterprises have been privatized over the last 8 years, with 13 percent of these sold to national private investors and another 8 percent to foreign private investors. The remaining 79 percent were sold to the public via stock offerings. Over 500,000 workers were transferred from the public to the private sector between 1992 and 1998. Some of the largest companies to be privatized or already privatized included: AGIP, SNAM, and Italgas (in the energy sector); ILVA, Ansaldo, Nuovo Pignone, Dalmine, and Italimpianti (in the industrial sector); Credito Italiano, Banco di Roma, and Banca Commerciale (financial sector); Telecom Italia (communication sector); and Alitalia, Tirrenia, and SEA (transportation sector).

By 2000, Italy enjoyed a healthy economy characterized by slow growth. In fact, Italy had the slowest growing economy of the 11 founding members of the EMU. With the GDP growth of 1.4 percent in 1999, Italy lagged behind the 2.9 percent annual growth rate of other countries in the EMU. But growth increased in 2000, reaching an annual rate of 2.7 percent and may be expected to continue to improve in the coming years as the country continues to adjust to the new economic scenario created by the withdrawal of the state.

Despite the relatively healthy economy, high unemployment, underdevelopment in large areas of the south, and the large presence of an often criminal, informal economy continue to plague Italy. Most of the unemployed live in the south. Organized crime tries to recruit those people. Unemployment has always been a problem even in times of economic growth. In 2000 unemployment stood at 11.5 percent. Although unemployment is high, it may not be reflective of reality because of the number of people employed in the nation's informal sector. Living conditions in the south of Italy are difficult, the job market is tight, and emigration is still the preferred option of many young people. The government has made a serious attempt to address this problem by granting tax breaks to companies willing to set up business and hire workers in the south. CGIL, the largest Italian trade union, calculated that between October 1997 and April 2000 over 100,000 people found work in small or medium-sized enterprises in the south.

The government has toughened laws against businesses that fail to pay their taxes and who gravitate toward the informal economy. Companies that want to move from the informal economy and legalize receive help. The re-emergence of the companies entitles workers to social benefits and helps generate revenue for the state from taxes. Most of the new enterprises are active in the clothing, footwear, agricultural, and construction sectors. Although these businesses operate on a small scale, many hire a large number of workers. It is difficult to determine precise statistics because of the informal nature of the market.

It is incorrect to treat the whole of southern Italy as a homogenous area because there are substantial differences in economic and social development in different regions. For example, Abruzzo is more prosperous and developed than Calabria. Within the same southern region, production compares favorably with the more affluent north. Although social development and the standard of living is improving, overall indicators still point, however, to a significant gap between the north and the south.

Ironically, factories in the north suffer from a shortage of labor because of recent economic growth. Despite unemployment rates below 4 percent, southerners are reluctant to move to the north. Southern objections include the high cost of living in the north and the long hours accompanied by most of the manual job opportunities. Many people from the south with higher education hold out for better job prospects. Because of job vacancies, smaller companies in the north request more visas for eastern European and African workers.

POLITICS, GOVERNMENT, AND TAXATION

Italy has been a democracy since the end of World War II, and despite its international reputation for political instability, the country has enjoyed largely consistent policies from successive governments. The country became a republic following the abdication of King Victor Emmanuel III in 1946 and the creation of a constitution in 1948. The country's president is elected by an electoral college whose members represent the popular vote. The president in turn selects a prime minister from the ruling coalition in the parliament. In elections held in 1999 Carlo Azeglio Ciampi was elected president. Following legislative elections in 2001, Silvio Berlusconi was selected as prime minister.

Italy has a bicameral legislature consisting of a 315-member Senate and a 630-member Chamber of Deputies. Both houses are directly elected by popular vote, and members serve 5-year terms. The judicial branch is headed by a Constitutional Court whose members are appointed in equal number by the president, the parliament, and the administrative Supreme Courts.

The major parties that have dominated politics since 1946 are: the Christian Democrats (DC), the Communist Party (PCI), and the Socialist Party (PSI). The Christian Democrats have been the dominant force in Italian politics, continuously leading a coalition government from 1946 until the early 1990s. Until 1963, when the Socialist Party entered parliament, the Christian Democrats' coalition partners represented 3 smaller parties, the Republican Party (PRI), the Social Democratic Party (PSDI), and the Liberal Party (PLI). The main objective of all parties was the exclusion of the communists from government, and the resulting continuity of parliamentary representation ensured that there were no major swings of policy. This government coalition presided over a long period of economic growth and a satisfied electorate opposed to any radical change. The harsh recessions of the late 1970s, mid-1980s, and early 1990s, however, undermined the popularity of the DC-PSI axis, but it was not until 1992 that the political system fell apart. In that year, a major anti-corruption investigation that implicated politicians and heads of industry in a cash-for-favors exchange shook the political and economic establishment of the country.

The corruption scandals, combined with the collapse of the USSR that ended the ideological war over communism in Italy, radically altered the political system. In addition, a new economic recession for which mismanagement of the national economy was largely to blame hastened the exit of an already discredited political class. Thus, traditional parties disappeared, and new parties emerged between 1991 and 1994. Electoral laws were reformed, and in a radical move, proportional representation was abolished. It was replaced with the first-pastthe-post system, where the country is divided into constituencies, and the constituency seat goes to the winning candidate. (The congressional elections in the United States follow a comparable system.) The changes stood to give the electorate clear choices and were welcomed by many who believed that, with fewer parties in government, politicians would deal with concrete issues in non-ideological terms. Far from decreasing, however, the number of political parties has increased, and coalition government still prevails. Nevertheless, to a certain extent, expectations have been met, and the Italian electorate does face a clear choice at election time between center-right and center-left coalitions. Both sides have had periods in office since 1994.

The main parties within the center-right coalition are Forza Italia, National Alliance (AN), the Northern League (NL), and the Center Christian Democrats (CCD). The largest party is Forza Italia, led by media tycoon Silvio Berlusconi, who is also the leader of the coalition. This party believes strongly in further reducing the role of the state in the economic sphere and aims to accelerate the pace of privatization. Clearly conservative, Forza Italia also plans to cut the costs of the welfare state and introduce free-market competition in health and education, as well as cutting taxes. The Northern League shares these economic policies but also advocates increased political and fiscal autonomy for all regions by devolving responsibility to the regions for providing several fundamental services, including the provision of education, health care, transport, and law and order. Under this proposal, the regions would be empowered to raise taxes, keeping most of the revenue to spend as they decide, without central government interference. The NL represents, in electoral terms, the majority of northern voters, and its appeals for federal reforms are to be taken seriously. The National Alliance is the most right-wing party of the coalition and is mostly preoccupied with limiting foreign immigration, preserving the integrity of the national territory, and safeguarding the international credibility of Italy. It shares the broad economic approach of its partners but does not support the federal reforms advocated by the NL. The Center Christian Democrats offer a more moderate voice regarding immigration and social policies but argue for increased economic liberalization.

The center-right coalition was in power in 1994 for only 7 months and was unable to carry out their promised reforms because the Northern League withdrew from the alliance. The center-left coalition won the 1996 election. The main parties of the center-left coalition are the Democrats of the Left (DS), the People's Party (PPI), the Greens, the Democrats, and, after years in the wilderness, the Communist Party (PCI). The DS, the largest partner in the coalition, is a social-democratic party. The broad outline of its economic policy, shared by all its partners, favors liberalization, privatization, lower taxes, and job creation by means of financial incentives to employers. The PPI is one of the heirs of the old Christian Democrats (DC) and is the most socialist party of the coalition, supporting recognition of gay rights, subsidized housing for refugees, and abortion. In the economic sphere, the PPI is slightly to the left of the dominant DS and believes that the state should still play a strong role in managing the economy. One distinctive policy of the PPI is the advocacy of state aid to private schools run by the Catholic Church. The Greens subscribe to most of the economic policies advocated by the DS but are mainly concerned with the environmental aspects of those policies. In common with the Greens in the rest of Europe, they are particularly committed to limiting the use of motor cars in favor of a more environmentally friendly public transport system. Many of the economic policies of the right and left parties overlap; the difference is marked in matters of social policy, the environment, and federalism. The center-left coalition is not as keen as its opponents to introduce free-market competition in the provision of health and education, preferring a smaller, more efficient welfare state and, in principle, is not hostile to foreign immigration. Finally, the center-left supports administrative and political decentralization, but is against extensive federal reforms that would widen the already large gap between North and South.

The center-left coalition held power from 1996 to 2001, a period characterized by an economic slump and by Italian support for NATO actions in Kosovo. With the economy slumping in the runup to the 2001 legislative elections, the center-right parties, led by Silvio Berlusconi's right-wing Forza Italia, returned to power in a coalition that included some of the most right-wing parties in Europe. Since his return to power, Berlusconi has been an outspoken proponent of free trade and pro-business policies. He has promised to reduce unemployment, cut taxes, and reform education and the still-bloated state bureaucracy.

An aspect of Italian politics that should not be ignored is the growing disillusionment of the electorate. Many citizens feel that their participation in the political process makes no difference to government, and there has been a sharp decrease in party membership. Voter turnout has steadily decreased since the mid-1980s, and in the 1996 elections, 23.1 percent of voters either stayed away from the polls or spoiled their ballot papers. This is a worrying sign of disaffection, and many political parties are concerned that if this trend continues it will undermine the legitimacy of future governments.

The former leader of the Socialist Party, Giuliano Amato, launched a far-reaching privatization program in 1992, which was continued by both coalition governments. Aside from the sale of state assets, both coalitions agreed that the pension system should be reformed and its apparent generosity curtailed. The reform of the pension system was carried out in full by the center-left coalition in power from 1996 to 2001, which was able to convince the trade unions to accept a deal. Both coalitions are also in favor of increased international free trade, even though they advocate some sort of protectionist measures for so-called "cultural products" such as movies and TV programs, which promote Italian language and culture. Finally, budget cuts across the board (particularly as regards health and defense) have been welcomed by both coalitions. The general convergence of ideas on economic management should not, however, obscure the differences that still exist between left and right. These differences are highly visible when it comes to crucial social issues such as immigration, gay rights, and the environment.

Problems of corruption, including the infiltration of political institutions by organized crime, have long been a feature of Italian life. The present political system was born out of a popular reaction against the spread of corruption and crime, but the problem, though marginally worse in the 1970s and 1980s than it is as of 2001, refuses to go away. The new political structures seem only to have provided a pause in the usual pattern of "doing politics" and "doing business" in Italy.

Taxation in Italy is quite a complicated affair because there are numerous taxes that each citizen has to pay. Moreover taxation is high, representing 43.3 percent of the GDP. However, the number and quality of the public services are some justification for high taxes, and measures to simplify the tax system have been introduced since 1998. Income tax accounts for 34.9 percent of total tax revenues, while value-added tax (VAT) contributes 35.4 percent. In addition, local governments levy other indirect taxes.

The tax system is plagued by tax evasion, however. Many economists point to this problem as one of the main challenges Italy needs to resolve in the near future. The government is improving the situation, but there is still an enormous amount of work to do. Aside from the considerable sums of money that entirely escape the government due to the strength of the informal economy, there is significant income tax evasion. Employees in both the public and private sectors have their tax deducted from their paychecks and do not have to submit tax declaration forms. However, employers, self-employed professionals, and business owners must fill out tax forms and declare their profits. Huge numbers of people in these categories falsely report their earnings, thus lowering their tax bills. The state has as yet not found a method of tackling this situation. For many years tax evasion was ignored, thanks to a commonly accepted theory that it was conducive to economic development: the money would swell either consumption or investment. But tax evasion is clearly putting a strain on public finances, and its effects are particularly negative at a time of increasing cutbacks in public services. The International Monetary Fund (IMF) recognized the problem in 1998 and pointed out that far-reaching reforms had to be undertaken if tax evasion was to be reduced. The government is currently implementing certain reforms that are expected to make the system more coherent and make evasion less common.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Italy has an efficient and modern infrastructure, even though it performs poorly compared to other Western European countries of comparable size. The whole peninsula is well connected through an extensive system of railways, expressways, national roads, airports and seaports. Most of the infrastructure was rebuilt after the ravages of World War II and is subject to constant improvement and upkeep. However, many important projects have failed to materialize, among them the subway system in Naples, and more railways in the south and east to facilitate the movement of goods. At the same time, funds were given to many useless projects, built solely to line the pockets of those whose political or economic support could thus be counted upon.

Italy has a number of important international airports and the national carrier, Alitalia, has a fleet of 166 planes which transport 25 million passengers annually and connect Italy to 60 other countries. Overall, Italy has 136 airports, the most important being Fiumicino (Rome), Malpensa and Linate (both serving Milan), Ronchi dei Legionari (Trieste), Caselle (Turin), and Marco Polo (Venice). Seaports used to be a key element of the Italian transport system; they handle a substantial percentage of cargo until the mid-1970s. Due to the development of alternative means of transportation and competition from neighboring ports, however, their traffic has declined somewhat. The ports of Trieste, Genoa, Naples, Taranto, Augusta, Gioia Tauro, and Livorno are economically important to their respective regions. Italy is a major power in container shipping in the Mediterranean. The Italian merchant fleet consists of over 2,000 ships, 1,331 of which are over 100 tons. The country also has 1,500 miles of waterways that are used for commercial purposes, but this system is relatively undeveloped.

Since most goods in Italy are transported by road, the system is constantly upgraded and improved. It provides a highly developed and efficient network of interconnected highways and lesser roads, particularly in northern regions. The main routes at the hub of the road system are Turin-Milan-Venice-Trieste, Milan-Bologna-Florence-Rome, Milan-Genoa, and Rome-Naples. There are 6,460 kilometers (4,014 miles) of expressway, mostly in the northern and central regions, and the system overall is comprised of 654,676 kilometers (406,815 miles) of paved roads. Links to the rest of Europe are excellent. However, even Italy's extensive and sophisticated road network is now barely able to cope with the steadily increasing traffic.

The country's rail system is also highly developed and traverses a distance of 19,394 kilometers (12,051 miles). Italian passenger trains are generally punctual, comfortable, and cheap compared to the rest of Europe. They are the preferred means of travel for many commuters as well as tourists, who can thus avoid congested roads and urban areas. In order to improve the system, the state-owned rail company, Ferrovie dello Stato (FS), is currently developing a project to introduce high-speed trains like the French TGV.

Infrastructure is not the same quality throughout the country. While the road and rail networks are intricate and plentiful in the north and center of the country, the southern infrastructure is poor. Northern Italy's impressive economic growth and geographical proximity to the heart of Europe made it a key commercial area, and the

infrastructure developed accordingly. By contrast, the geographical isolation and poor economic development of Southern Italy meant that infrastructure was never a priority except for seaports.

Italy has very few natural resources and must import most of them from neighboring countries. Crude oil comes mainly from Libya, Algeria, and countries in the Arab peninsula. Petroleum represents 4.5 percent of all Italian imports. Gas comes from Algeria, Tunisia and Russia through a number of pipelines. Furthermore, unlike Germany and France, Italy has no nuclear power capability and is completely dependent on imported energy. For this reason, Italy is one of the few Western European countries to enjoy very good relations with a number of Arab states. In 1998 and 1999, Italian prime ministers were the first Western leaders to visit countries such as Iran and Libya after many years of diplomatic isolation. In 1998, Italy consumed 266.705 billion kilowatt hours (kWh) of electricity, provided mainly by the formerly state-owned company ENEL, which was privatized in 1999. The generally reliable 220-volt power system covers the whole country.

Until recently, the state-owned company Telecom Italia provided telecommunications services in Italy, but the market recently opened to competition, thanks in part to the privatization of Telecom Italia in 1997, which remains the principal provider. There were 25 million main telephone lines in use in 1999. Like many other Western European countries, Italy is experiencing the Internet revolution, and in 1999 there were 68 Internet hosts per 10,000 people. More recent, but unconfirmed, figures claim that 10 million Italians surf the net. What distinguishes Italians from their neighbors in Western Europe is the quantity of mobile phones in circulation. They have proved particularly popular in Italy, and by 1998 there were 355 mobile phones per 1,000 people. This figure has certainly increased dramatically since then and recent figures record that 48 million cell phones have been sold in Italy since 1995.

ECONOMIC SECTORS

Like all advanced capitalist economies, Italy is quickly moving away from its traditional economic sectors to become predominantly services-oriented, although the economic importance of the industrial sector is higher than the EU average. Agriculture accounted for 2.5 percent of the GDP in 2000, while industry and services accounted, respectively, for 30.4 percent and 67.1 percent of the GDP. Italy has recovered from the economic recession of the early 1990s in part through its efforts to develop the service sector even further. Services both to commercial enterprises and private individuals have grown in importance, while the relevance of the agricultural sector continues to decline. In the south, tourism is seen as one of the principal sectors for development, one that would generate employment in the region.

The manufacture of machinery, motor vehicles, clothing, footwear, and food processing are the main industrial sub-sectors. Many of these enterprises manufacture goods almost exclusively for foreign markets and must, therefore, monitor international economic changes very carefully. These companies are largely concentrated in the northern regions and are often small or medium in size. More often than not, they are also family run, and the business is kept within the family for generations. The large manufacturers include such internationally recognized names as FIAT, Benetton, Parmalat, Mediaset, Pirelli, and Zanussi, multinational companies which produce a wide range of products across several manufacturing sectors.

An interesting aspect of Italian economic development is the increasingly important role that small and medium enterprises have come to play. These companies are often family run and can count on a well-qualified and dedicated workforce. They receive extensive support from local government and are well integrated into their communities. These complex business networks are known as integrated industrial districts, which means that almost every company in the same geographic area makes the same products, or necessary components for those products. This pattern enables all companies in the integrated district to share a common distribution network and to take delivery of energy resources or raw materials in huge amounts in one place. The system cuts costs to business and helps them to compete in the international markets. Thus, for example, the northern area of Friuli is renowned for its furniture making factories, the region of Marche for shoemaking, and so on.

Italy's employment statistics reflect its economic trends. The agricultural labor force is steadily diminishing (down to 5.5 percent of the total workforce in 1999), and industrial employment is also shrinking due to the impact of the new economy (to 32.6 percent in 1999). The service sector employs the largest percentage, 61.9 percent, of the Italian workforce. During the 1993-95 recession, the industrial sector went through a painful period of restructuring and many jobs were lost. Older workers were offered the option of early retirement, while others were enrolled in retraining programs. A substantial number of jobs were saved by the introduction of the social partnership plan.

AGRICULTURE

The agricultural sector employed only 5.5 percent of the working population in 1999 and contributed only 2.5 percent of the GDP in 2000, with an output of over US$36 billion. However, in the southern regions of Basilicata, Calabria, and Molise, agriculture accounts for just over 20 percent of local employment. The decline of this sector in terms of employment and the GDP is, however, compensated for by ever-accelerating productivity. The agricultural profile is in line with all other Western European countries and is due specifically to the effects of the Common Agricultural Policy (CAP) of the European Union (EU). It is impossible to examine Italian agriculture without taking CAP into consideration since CAP is the basis for agricultural support across Western Europe. This EU policy ensures that subsidies and incentives are offered in order to sustain prices and guarantee a certain level of income to farmers. Thus, prices are artificially maintained, and if agriculture were to be liberalized in full, the sector would collapse throughout Europe. CAP was launched in the late 1950s to improve efficiency and as of 2001 accounts for most of EU expenditures, a staggering US$45 billion.

The CAP was not very successful in Italy in its initial stages because subsidies did not cover several traditional Mediterranean products such as olives, tomatoes, oranges, and lemons. When these were finally included, the more positive aspects of the policy emerged. First, it provided the necessary capital for mechanization, and Italy underwent rapid mechanization during the 1980s. Second, it offered an incentive to merge and thus enlarge the average farm. Through CAP, the EU buys up surplus products and, as a consequence, larger farms can be very beneficial to the economy. Finally, CAP ensures that all traditional Italian agricultural products are given some protection against cheap competition, with export traders subsidized to supply cut rates. Unfortunately, CAP seems to have favored northern farmers, but the government is attempting to correct the effects of CAP by offering grants and tax breaks to small farms in the south.

With only 5 percent of the land under cultivation, Italy is not self-sufficient in agricultural products, yet it enjoys an abundance of agricultural resources. Despite a negative balance of trade in agriculture, productivity is high, and the Mediterranean climate ensures that a variety of products are available both for internal consumption and external markets. Italy is a world leader in olive oil production and a major exporter of rice, tomatoes, and wine. Moreover, BSE, or "mad cow" disease, caused a major drop in beef consumption, while an increasing number of consumers turned towards organically grown produce.

The Italian government has always been a staunch defender of its national agricultural sector when it comes to negotiating production quotas with EU partners or seeking grants to defend the sector from decline. Funds to buy machinery, to compensate farmers for over-production, and to pay EU-imposed fines were constantly made available by the government. However, the Italian government was unable to stop the most recent CAP reform of 1997, which caused spending on Mediterranean products to decline in favor of increased spending for northern European dairy farmers.

In addition, Italian agriculture is suffering from changes in the climate and very poor management of the land. Large-scale farmers in the north live reasonably well, particularly in comparison to their counterparts in the south. The regional disparity is due partly to the effects of CAP and partly to organizational differences. In northern and central Italy, co-operatives has dominate. These farming co-operatives provide widespread support, both socially and economically, for their members, and help in rationalizing production and distribution. In the south, farmers have no production and distribution networks on which they can depend, and the smaller scale of their operations, combined with their isolation, curtails their ability to compete in the market.

Meat has never been a major Italian product, and most of the meat consumed in Italy is imported from other European countries, particularly Ireland and Germany. Italy is also quite weak in the dairy farming sector, although it exports a handful of distinctive cheeses such as parmesan, mozzarella, and gorgonzola. Fruit is grown almost exclusively in the south, with most of the oranges and lemons coming from Sicily. Apples grow in Trentino Alto Adige. But the real strength of Italian agriculture is the production of olives, wine, and tomatoes.

OLIVES.

Olives are one of the country's most lucrative exports. In 1999 production reached a record 7.243 million quintals (a quintal is a unit of weight equal to 100 kilograms, or about 220 pounds), confirming Italy as the leading producer in the world. The hot Mediterranean climate makes the southern region of Italy well suited for olive production, with most olives produced in Puglia. The industry changed considerably during the 1990s, moving away from traditional farming methods to more intensive and mechanized production. Thus, half of the olive-producing land excludes other types of cultivation and small producers are being driven out as large companies take over processing and distribution in the olive industry. Italy's main international competitors in olive production are Greece and Spain. In 2000, due to poor weather conditions, Italy's output decreased to 4.929 million quintals and Italian olive production was outstripped by Spain.

WINE.

Grapes are to be found in every Italian region. Winemaking has a very long tradition in the country, and Italy enjoys a positive trade balance in this sector. The vines yield 9,459,000 metric tons of grapes and 62,618,000 hectoliters of wine (a hectoliter is 100 liters). Until the mid-1980s, wine production was not generally of a high standard and, indeed, much table wine was cheap and of very poor quality. The industry then went through a series of reforms that introduced strict quality controls, and standards rose to a level whereby Italian wines can compete at international level with French wines. Italy's best-known wines are Chianti (produced in Tuscany), Barolo (produced in Piedmont), Soave (produced in the Veneto), and the white wines of Collio (produced in Friuli), Marsala (from Sicily), and Brunello (produced in Tuscany).

INDUSTRY

As in all other advanced Western economies, the Italian industrial sector is declining, decreasing the level of employment in industry and affecting the sector's contribution to the GDP. Industry employed 32.6 percent of the workforce in 1999, while contributing 30.4 percent to the GDP in 2000. However, manufacturing was the key to Italy's post-World War II economic boom and remains important. The steel industry in particular allowed the country to become one of the strongest economies in the world. All branches of the industrial sector grew very quickly, and Italian exports soared. Then, in the second half of the 1980s, the industrial sector went though a crisis, while the service sector expanded. With the onset of the second millennium, the loss of jobs in the industrial sector seems to have stabilized, and although facing tough international competition, Italian companies appear ready for the challenge.

MANUFACTURING.

The backbone of the manufacturing sector is a few internationally known multinationals, operating in company with large numbers of small and medium enterprises. The most noteworthy manufactured products include machine tools, textiles and clothing, motorized road vehicles, domestic appliances, arms, fertilizers, and petrochemicals. Most manufacturing firms are located in the north of the country, with very few large factories in southern Italy. When Italy experienced its economic miracle in the 1950s and 1960s, the manufacturing heart of the country was the industrial triangle of Milan, Genoa, and Turin. However, this area has lost its predominant role due to the demise of the steel mills and other heavy industry. The northeast of the country, mainly the regions of Lombardy, the Veneto, and Friuli, is now the engine of the Italian economy. Certain large enterprises have relocated some of their operations to southern Italy to benefit from tax breaks and a more flexible workforce, but the region still has a very poor concentration of factories. Furthermore, large state-owned factories shut down in Taranto, Crotone, Terni, and Naples in the late 1980s, causing the loss of thousands of jobs. This action was part of a rationalization plan that required either the closure or the privatization of state-owned companies, and the public sector workforce was encouraged to seek employment in the growing service sector.

The most important, and probably best known, Italian manufacturing business is FIAT. This multinational company, headquartered in Turin and headed by the Agnelli family, has been a major force in Italian economic life since the beginning of the 20th century. FIAT is mainly involved in the production of Fiat cars and has a number of plants in Italy and abroad. It also owns Alfa-Romeo, Lancia, and Ferrari. FIAT's combined operations produce 3 million cars per year in Italy. While its export market is reasonably healthy, FIAT's large share of the Italian market allows it to compete in the European market. The Italian government is still influenced by the idea that "what is good for FIAT is good for Italy," so it lends its support to the car manufacturing company. In recent years, the government has subsidized the purchase of brand new cars (in most cases, Fiats) from car owners who want to trade in their old model. Thanks to this scheme, FIAT was able to make the Punto, one of the best-selling small cars in the company's history. Many FIAT operations are headquartered abroad, with cars and trucks made in countries such as Poland, Russia, Brazil, and Spain. Finally, the year 2000 alliance with General Motors allowed FIAT to re-discover its U.S. market, which was abandoned when Japanese car manufacturers began exporting to the United States. FIAT is also heavily involved in many other sectors of the manufacturing industry: car components, trucks, motorcycles, industrial vehicles, weapons, and engineering machinery.

TEXTILES AND CLOTHING.

Another very important sub-sector in the manufacturing industry is textiles and clothing, which boasts some of the world's best known fashion designer labels, such as Valentino, Armani, Versace, Gianfranco Ferré, and Krizia. However, the more casual clothing market accounts for the financial success of this sector. The design, quality, and relatively inexpensive prices of its products have made textile manufacturing Italy's third largest business after engineering and construction. Almost 1 million workers are employed by the textile industry, which is a leading exporter of clothes and shoes. There are very few large enterprises in this industry; most producers have small or medium-sized factories. The real strength of the sector lies in the efficiency of its distribution networks, and in the fame they enjoy, particularly in newer markets like the United States and Asia where the top labels are status symbols.

One big name known throughout the world caters to customers of average income: Benetton. In recent years almost as well known for its controversial advertising as for its clothes, Benetton is a family-owned business located in the Veneto. In the 1980s and early 1990s, Benetton's annual sales figures passed the US__BODY__ billion mark, with most of the income derived from export. By addressing the casual market rather than the high fashion market, Benetton was able to combine quality with affordable prices. The strategy paid off and helped other Italian manufacturers by creating a niche market from which they could all profit. However, currently, Benetton is not as strong as it was in the clothing market, and it has diversified into construction and communications. Nevertheless, the industry remains a vibrant cornerstone of Italian export.

While many of the more famous brand names are situated in northern Italy, the textile sector is reasonably strong in southern Italy, where an increasing number of producers have relocated some of their manufacturing. Fashion houses in particular tend to outsource their production to small, family-run businesses in the area of Naples or in Puglia, where workers are more flexible. They specialize in the manufacture of leather, from which clothes, handbags, wallets, and purses are made.

FOOD PROCESSING.

The development of the food processing industry in Italy has been similar to that of textiles. While its contribution to the GDP is far less substantial, it is nevertheless a significant economic sector. Fragmented and small-scale until the 1980s, the sector became more competitive by the 1990s through privatization and rationalization. Very powerful food manufacturing groups such as Barilla (makers of pasta) and Parmalat (dairy products) are dominant in their respective fields, not only in Italy but also abroad. Swiss-owned Nestlé acquired Buitoni pasta and Perugina chocolate in 1987 and thus has an important presence in Italy. As well as these main players, a wide range of small firms produce traditional Italian fare such as mozzarella cheese, Parma ham, and Calabrian sausages, without much recourse to modern technology. Most of the food products are destined for local consumption, but many are also exported. The widespread network of Italian restaurants abroad contributes to the increasing reputation and popularity of Italian foods throughout the world, and processed food exports represent a major element of numerous businesses in the sector.

SERVICES

Services have become the strongest foundation on which Italy builds its economic health. With a 67.1 percent share of GDP in 2000, the sector is the largest contributor to the national economy. The enormous expansion of service industries over the last couple of decades has encouraged the government to regard as a priority further investment in the sector. Since 1991, the number of employees in the service sector of the state bureaucracy, however, has steadily decreased as part of the government's cost-cutting policy and important state-run services are being given over to the private sector.

TOURISM.

Italy competes with the United States, France, and Spain as one of the most popular destinations for international tourists, who flock to it in huge numbers. Approximately 30 million tourists visited the country in 1999 and, thanks to the Catholic Jubileum (a celebration of Catholic heritage) over 40 million visited in 2000. Surprisingly, tourism was not a priority for the country until the late 1980s. Then a coherent promotion program emerged and led to general improvements in transport, hotels and other tourist accommodations, museums, and monuments. The turning point was the 1990 soccer World Cup, when tourists descended on Italy for that event and rediscovered the country's other attractions.

Italy is extraordinarily rich in history, classical art and architecture, ancient cities and villages, glorious landscapes, and a coastline well served by beaches. The vast western historical and artistic heritage draws large numbers of visitors to Rome, Venice, and Florence, while the smaller cities such as Siena, Pisa, Naples, the Isle of Capri, and Taormina in Sicily are increasingly popular. The region of Emilia-Romagna is a favorite spot for those, such as the east Europeans, on a limited budget, while Sardinia and Sicily are more upscale destinations. In 1996, receipts from tourism amounted to over US$28 billion. If those working in the transport sector were to be included in the statistics for the tourist sector, almost half of the working population would be connected with tourism. However, as with so much else in Italy, tourism is highly concentrated in the center-north, where most of the hotels and accommodations are located. In recent years, however, both central government and local administrations have begun to invest heavily in tourist services in the southern regions. Potentially, tourism can bring hard currency and employment to the south, encouraging development in its comparatively neglected regions of the country.

The working conditions in the tourist industry vary considerably from region to region and from business to business. Many hotels, restaurants, and bars are family owned, and extra labor is hired at a low cost during the busy months. Conditions are better for workers in state-owned museums, tourist offices, and transport. An almost unlimited supply of labor from the informal economy is available to the tourist sector, and it is needy foreign immigrants who take the lowest paid and least pleasant jobs.

RETAIL.

Italy has a highly developed retail system. Mass outlets in the form of supermarkets, malls, and multiple stores are becoming increasingly popular, and distribution is very well organized, particularly in the northern regions. The main chains are Standa, COOP, Esselunga, Sigma, and SPAR. Nevertheless, the retail sector is largely made up small, family-owned shops, and these remain the primary sales outlets for goods and services in the south. The shop-owners' association, a very powerful lobbying group, was able to convince government to withhold licenses for supermarkets and malls for 2 years so that small shop owners could claim back some business. Working conditions are decent in family-owned shops, where employers tend to treat outside help as if they belonged to the family. Italian shop assistants, unlike those in many other countries, are professionals who are likely to stay with their jobs for life.

FINANCIAL SERVICES.

Italy is a highly developed economy, and the financial and banking sector is similar to that of all other Western European countries. The Bank of Italy is the central bank, but with EMU now in place, the country's monetary policy is overseen by the European Central Bank. However, the Bank of Italy remains in charge of credit control and functions as the ultimate guarantor of other banks. The number of banks in Italy has always been high, with a wide range of financial institutions operating at different levels. There are national banks, both public and private, popular co-operative banks, savings banks, and chartered banks. Most of the co-operative and savings banks operate within a limited territory (provincial or regional). In general, banks are concentrated in the north. A notable exception to this is Sicily, where a large number of banks and other financial institutions are located for the less than healthy reason that organized crime requires money-laundering institutions under its control.

In recent years, mergers and takeovers have increased in order to strengthen and stabilize the banking system. Privatization has also helped to streamline the sector. Investment institutions, both public and private, are becoming increasingly important, with many people turning to investments to supplement their income. Since 1998, the banking system has been almost fully liberalized and most banks offer a wide range of financial services to their customers. Italian families have been traditionally very keen to save money, and, in 1999, the total deposits held in Italian banks amounted to US$450 billion. According to 1999 data, European banks use 53 percent of their available reserves to service individual loans, such as mortgages, with only 46.3 percent directed towards financing private sector businesses. Italy, however, does not conform to this pattern. Italian banks invest 66.7 percent of their resources in private enterprise, while only 18.3 percent is given to private consumers.

INTERNATIONAL TRADE

Italy recorded a trade deficit for several decades, largely due to the fact that the country lacked energy resources and was entirely dependent on imports for its supply. However, the 1990s brought a change of fortune, beginning with the devaluation of the lira in 1992 which allowed many businesses to compete in overseas export markets, particularly in Asia markets and the United States. The reduction of oil and gas prices in the

mid-1990s gave a further boost to small and medium-size companies, as did their aggressive promotion of their products, which enabled them to penetrate foreign markets. Today, "Made in Italy" is in many countries a well-regarded indication of quality. In 1998, Italy recorded a trade surplus, with imports totaling US$215.887 billion against exports worth US$242.332 billion. That surplus has since been trimmed, with export of US$241.1 billion in 2000 against imports of US$231.4 billion.

Italy benefits from the EU free market, which is not subject to any trade barriers or tariffs, and 56.8 percent of Italian exports went to other EU countries in 1999. Italy's main export destinations within Europe are Germany (16.4 percent), France (12.9 percent), the United Kingdom (7.1 percent), Spain (6.3 percent), and the Netherlands (2.9 percent). The country's biggest commercial partner outside Europe is the United States, which takes 9.5 percent of Italy's export goods. Recently, a number of Asian countries have become important buyers of Italian products, and exports, particularly of clothes and shoes, to Japan, South Korea, and China are increasing. Italy's major exports are transport equipment, electrical machinery, textiles and clothing, chemicals, and food and beverages. The single largest export is transport equipment, with FIAT the main supplier. FIAT not only exports the motor cars (including Ferraris) for which it is known worldwide, but also a number of other vehicles ranging from train carriages and metro cars to trucks and motorcycles.

The products of its EU partners also dominate Italy's imports. In 1990, over 61 percent of total imports came from EU countries: Germany (19.3 percent), France (12.6 percent), the Netherlands (6.3 percent), and Spain (4.4 percent). Outside the EU, the United States contributes 5 percent of imports. The composition of imported goods is evidence of the lack of energy resources and raw materials from which the country suffers. Thus, metal represents 9.9 percent of total imports, and petroleum represents 4.5 percent. Transport equipment also figures prominently, as do chemicals and food. All of the most important multinational businesses, across all sectors, operate in Italy, either directly or through subsidiaries. A number of them invested quite heavily in the country, particularly after the liberalization of the European market in 1987, under the auspices of the EU.

MONEY

The value of the Italian lira has been volatile over the last 30 years and is generally considered a weak currency by comparison with other major currencies. Historically, the weakness of the Italian lira has been both a curse and a blessing for the country. On the one hand, Italy had to pay for energy resources and supplies in hard

currency (U.S. dollars), and imported goods were expensive. On the other hand, a weak currency contributed to making high-quality Italian exports very appealing due to their relatively low prices, and the foreign markets were duly conquered. Moreover, high production costs were offset by relatively cheap labor.

Italy's participation in the European Economic Community (EEC) failed to stem the currency's volatility, and the lira was twice forced to withdraw from the fixed exchange rates that had been established among the member states. Following the last withdrawal in 1992, the government devalued the currency in order to boost exports at the height of the economic recession when the lira was under tremendous speculative pressure. The calculated gamble of devaluation paid off, particularly as regards exports to the United States, where U.S. consumers were ready to enjoy their country's economic boom.

Since the launch of the euro, the lira has found a previously unknown stability. The exchange rate is fixed, and in January 2002, the lira will be replaced by the euro, which will become the currency that competes against the U.S. dollar, and other currencies in the global market. Public opinion in Italy, unlike that of certain other countries such as the United Kingdom, welcomes the introduction of the new currency and does not seem to mind abandoning the traditional lira.

The Italian Stock Exchange (ISE), located in Milan, was founded in 1808, but until the mid-1980s it played a comparatively insignificant role in the national economy. Many businesses were suspicious of the stock exchange and chose to remain unlisted. However, since 1998, the ISE has grown into a dynamic force as a result of privatization, a new generation of progressive managers, and the requirements of the new economy. The public, too, is increasingly interested in stocks and shares and, as in the United States and elsewhere, a greater number of people are playing the market. Consequently, the ISE has expanded, and at the end of 1998 there were 223 listed companies. During 1997 and 1998, the volume of trading increased continuously, achieving and sustaining record levels. Privatization has certainly contributed to enhancing the qualitative level of listed companies and attracted a wider public. While Milan is by no means as important as London or Paris to European share dealing, it is becoming increasingly important to the Italian economy.

POVERTY AND WEALTH

The Italian Institute of Statistics assesses the class system using 6 different categories. The first is the bourgeoisie, which includes entrepreneurs employing a minimum of 6 people, self-employed professionals, and managers, and accounts for 10 percent of the working population. The white collar middle class covers employees engaged in non-manual jobs and makes up 17 percent of the working population. The urban petit bourgeoisie comprise 14 percent of the working population, defined as small entrepreneurs with a maximum of 6 employees, shopkeepers, and self-employed artisans. The rural petit bourgeoisie, at 10 percent, own and operate small enterprises in the primary sectors of agriculture, forestry, hunting, and fishing. The urban working class is the 37 percent of the workforce that is engaged in manual labor. Finally, the rural working class, at 9 percent, are employees of the primary sector. This class breakdown, in identifying 2 categories each of the working and entrepreneurial classes, is considered to be more precise than the more common method of class division and has been used since the mid-1980s.

The situation regarding upward social, or class, mobility in Italy is quite complex. In 1998, the absolute rate of mobility—people who belong to a different social class than their parents—was 60.3 percent for men and 64.9 percent for women, the great majority of the Italian work-force. However, when one breaks down the absolute rate of mobility figures by class and analyzes them in relation to the changes in occupation structure between the current times and the 1960s, the whole picture changes. The highest mobility rate is found within the rural working class (91.1 percent), due mainly to the fact that, in the space of one generation, the occupational weight of this class has been greatly reduced. The lowest rates of mobility are found in the classes that have not been radically

modified by the occupational structure: the urban working class and bourgeoisie. In these cases only half of the people are in a different class than their parents. It is, therefore, quite clear that true social mobility is perceived as being greater than it is. This conclusion is confirmed by data that give the rate of intra-generational mobility for all classes as 30.3 percent. Thus, the opportunities for social mobility still largely depend on an individual's social origins.

Despite being a wealthy country, Italy suffers from serious inequality in the distribution of wealth and resources. These dramatic statistics stand out: in 1998, 2,558,000 families (11.8 percent of the total) lived in poverty, which is equal to 7,423,000 individuals. The figure was even higher at the end of the 1980s, when families living in poverty represented 14 percent of the population. Once again, the contrast between north and south could not be clearer, with over 65 percent of impoverished families living in southern regions. The gap between the rich north and the impoverished south continues to increase, as does the depth of poverty itself. Of those classified as poor, elderly people living on a simple state pension make up 53 percent of households living in poverty. Their numbers, however, are steadily decreasing, to be overtaken by the working poor. This phenomenon, which looks likely to become a permanent feature of Italian society, affects couples with one or more children, where only one parent works, is under 40 years old, and has few qualifications and, thus, low earning power.

As a result of Italy's generous welfare state, the great majority of poor families do not live in extremes of squalor or deprivation. Essential needs provided by the state include basic health care and education, clean water supplies, and housing. Moreover, extensive family networks help those living in poverty to feel less isolated and are sometimes a source of financial help. However, it is extremely difficult for families in poverty to improve their circumstances, and over 70 percent of households classified as poor in 1994 remained poor 2 years later.

Necessity often forces individuals in poverty to take up low-paid and unsafe jobs in the informal economy, where they are subject to threats and blackmail. In urban areas of the south, the younger generation finds it very difficult to obtain work and poverty drives a percentage of them into the arms of organized crime. Migration to the north or leaving Italy altogether still remain ways out for many. While poverty is less visible in the wealthy north, it does exist. In particular, young couples with 2 or more children who struggle to meet the high cost of living on low salaries find themselves caught in the poverty trap.

WORKING CONDITIONS

Official 1998 figures put the Italian workforce at over 23 million, with an unemployment rate of 11.5 percent, but these statistics fail to take the informal economy into account. Unemployment is substantially higher in the south and among the younger generation. Statistically, people from the south, under age 30 and with poor qualifications stand a 50 percent chance of being unable to find employment. Thus, both geography and age are major factors in the Italian labor market.

Italy has a number of trade unions which, although formally independent, are connected to the larger political parties. The strongest union has always been the Confederazione Generale Italiana Lavoratori (CGIL), originally of communist allegiance, but now affiliated with the leftist Democrats. Italian trade unions were very strong in the past, and thanks to their efforts in the 1970s and 1980s many Italian workers currently enjoy a high level of social protection. Some of this protective network is being dismantled, but the foundations remain in place. Following mass strikes and demonstrations in 1968 and 1969, a statute of workers' rights was finally made law in 1970, thus ensuring security of employment in larger firms. Smaller firms were exempted from adopting a number of the statute's measures, but its impact has nevertheless been considerable in promoting the rights of workers. Among other significant victories for the trade union was the wage indexing system, guaranteeing that salaries would rise in line with annual inflation; common job classification, which introduced standardized salaries throughout Italy for specific categories of work; paid maternity leave; and an increase in the number of paid holidays. Despite these measures, Italian workers are among the worst paid in Europe, and higher wages for all workers is a constant demand of the trade unions, since the strong and well-organized employers' associations do not ever award substantial increases. Poor wages, though, are generally offset by a number of other social benefits, and in recent years the working week has been reduced to 37 hours (down 2.5 hours) for the same pay. Furthermore, people who are laid off can count on employment checks for a number of months and are entitled to severance pay, no matter what the grounds for dismissal.

Workers in the informal economy tend to be poorly educated, live in high unemployment areas, and are often foreign immigrants. They are unable to take advantage of the benefits enjoyed by the legally employed, and their working conditions are inadequate. Those who run the informal economy ignore safety regulations, demand working hours that far exceed the legal maximum, make no contributions to pension funds, offer no job security, and give no severance pay. The informal economy has the greatest impact on farm laborers where work is seasonal, and on construction and textile production workers employed by small firms. Wages in the informal sector tend to be at subsistence level, but it is difficult to ascertain the actual figures. Despite the efforts of the EU to curb the informal economy in Italy and enforce safety regulations, over 1,000 workers die in the work place every year.

Trade unionism in Italy has been in decline since the mid-1980s and most paid-up union members are retired workers. The influence of the unions has declined due to the reduction of the workforce in the industrial sector, the skepticism with which the trade union elite is perceived, and government policy aimed at weakening the unions. Much that was achieved by the unions has been abolished or is on the verge of being dismantled. Privatization, liberalization, and budget cuts have reduced the protection network, and businesses have a far freer hand in dealing with the workforce. Consequently, employers' contributions towards pensions are being slashed, and overtime is not as well paid. The pressure of international competition and the necessity to maintain a healthy budget mean that labor costs have to be cut in both the private and public sectors. In order to preserve jobs, the trade unions and employers entered into a pact by which workers moderate their requests and accept cuts in exchange for job security.

Women have been entering the workforce since the early 1960s. They are a significant presence in all sectors of economy and tend to continue working after marriage, and even after having children. Many, however, are still employed in sectors that have been traditionally perceived as suited to women, such as education, health care and social services. The difficulty of coping with a full time job and raising children is a real burden to many women, and they increasingly turn to part-time work, which, though becoming more common, is an underdeveloped sector in Italy.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1861. Italy is unified after decades of struggle against foreign occupation. The king of Piedmont becomes king of Italy.

1870. Radical land reform takes place, intended to benefit the peasant workers, but few profit from the reforms, and living conditions for farmers decline.

1880s. Prime Minister Giolitti embraces protectionism and places high tariffs on a number of agricultural and industrial products to defend the national sectors. The policy backfires, access to foreign markets collapses, and a tariff war with France ensues.

1890s. The tariff war with France ends. The economy begins to develop, but many leave the country in search of a better life. The United States and South America are the preferred destinations.

1899. Giovanni Agnelli founds FIAT in Turin.

1915. Italy joins the Allies and fights against Germany and Austro-Hungary in World War I (1914-18).

1922. In the wake of enormous postwar political and economic problems, Benito Mussolini's fascist movement comes to power. Mussolini is appointed prime minister and radically changes the country.

1925. Mussolini completes his design of transforming Italy into a fascist dictatorship. He reshapes the economy to focus on agricultural self-sufficiency, a strong industrial sector and a rapid military build-up. The economy is mixed: private companies co-exist with many state-owned companies.

1936. Italy enters the colonial race and invades Somalia, which remains an Italian colony until the end of World War II.

1939-45. Italy enters World War II as an ally of Nazi Germany in 1940. With the downfall of Mussolini in 1943, however, Italy switches its allegiance to the Allies.

1946. Following a national referendum, King Victor Emmanuel III abdicates, and Italy becomes a republic. A government of national unity is formed to tackle the country's problems.

1952. Italy becomes a founding member of the European Coal and Steel Community with Germany, France, Belgium, the Netherlands and Luxembourg.

1957. Italy becomes a founding member of the European Economic Community, the predecessor to the European Union. The Italian "economic miracle" begins through a combination of free market principles and heavy government intervention.

1963. The Socialist Party abandons its leftist stance and joins the Christian Democrat government. This coalition holds power until 1994.

1968-69. The country is shaken by a series of strikes and demonstrations. Workers and students demand the improvement of working and living conditions. The government meets many demands, and a more modern welfare state is established.

1973. The first oil crisis slows economic growth but does not stop it.

1977. The economy grinds to a sudden halt. Political crisis and stagflation lead to the formation of a government of national unity, as left-and right-wing terrorism spreads.

1980. Rationalization and privatization commence and continue throughout the decade, with private companies becoming dominant.

1984. The beginning of a new economic miracle. Low oil prices, technological innovations, and cheap labor drive the Italian economy forward. However, only the northern regions benefit from this growth.

1992. The old political class is swept away by corruption scandals. The new government embraces neo-liberal policies based on massive budgetary cuts, privatization, and the promotion of worker flexibility. The lira is de-valued to boost exports. The policy succeeds, and Italy exports more than it imports. Italy signs the Maastricht Treaty, which provides for further European economic integration. Among the measures to which Italy subscribes is participation in the European Monetary Union.

1994. The center-right coalition led by media magnate Silvio Berlusconi wins the elections but remains in power only 7 months. A temporary government led by technocrats replaces it.

1996. The center-left coalition wins the elections and continues with economic liberalization.

1999. Italy qualifies for monetary union with 11 other EU countries and plans for the introduction of a single currency, the euro.

2001. A center-right coalition led by Silvio Berlusconi gains control of the government.

FUTURE TRENDS

The liberalizing efforts of the 1990s laid the foundations for the present growth, and Italy entered the new millennium on a high note, embracing the European Monetary Union and its new currency, the euro. The country's technological revolution is succeeding, the network of small and medium-sized enterprises is solid, international competitiveness is strong, and the balance of trade is positive. The government is consolidating the excellent results obtained by limiting expenditures and is waging a determined battle against tax evasion. Italy's economic outlook is, therefore, a positive one, particularly as the level of education is rising, and population growth is manageable. All indicators point to continued improvements in living standards. The future will see the Italian economy integrated even more into the economy of its European partners, and the European Union will eventually become a fully integrated body in all economic matters, including taxation.

There are, however, still a number of negative aspects that plague the economic and social well-being of Italy. First and foremost is the gap between the north and the south, which has widened over the past couple of decades, with government policies and EU grants proving unable to bring about any substantial improvement. Closing this gap is Italy's biggest challenge in securing a healthy future.

The weight of the informal economy also remains a major problem. While attempts have been made to reduce the impact of this sector, it remains considerable, and in escaping state control, it has a negative effect on working conditions, quality control, and fiscal revenues. While the informal economy may represent a source of income for many poorer families in the short term, in the long run it will undermine the official economy and, therefore, the country as a whole. Finally, there is the problem of persistent unemployment. Even when the economy is doing very well, the number of people out of work is higher than the European average. Unemployment stood at 11.5 percent in 2000. The government needs to address this problem as a matter of urgency.

DEPENDENCIES

Italy has no territories or colonies.

BIBLIOGRAPHY

Banca d'Italia. <http://www.bancaditalia.it>. Accessed October 2001.

Confederazione Generale Italiana Lavoratori. <http://www.cgil.it>. Accessed October 2001.

Diamanti, Ilvo. Il Male del Nord. Rome: Donzelli, 1996.

Economist Intelligence Unit. Country Profile: Italy. London: Economist Intelligence Unit, 2001.

Embassy of Italy in the United States. <http://www.italyemb.org>. Accessed October 2001.

ISTAT. Rapporto sull'Italia. Bologna: Il Mulino, 2000.

Permanent Mission of Italy to the United Nations. <http://www.italyun.org>. Accessed October 2001.

Randlesome, Collin. Business Cultures in Europe. Oxford: Butterworth-Heinemann, 1993.

Sassoon, Don. Contemporary Italy: Economy, Society, and Politics since 1945. London and New York: Longman, 1997.

Sechi, Salvatore, editor. Deconstructing Italy: Italy in the Nineties. Berkeley: University of California Press, 1995.

U.S. Central Intelligence Agency. World Factbook 2001. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed September 2001.

U.S. Department of State. Background Notes: Italy, July 2000. <http://www.state.gov/www/background_notes/italy_0007_bgn.html>. Accessed October 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Italy. <http://www.state.gov/www/about_state/business/com_guides/2001/europe/index.html>. Accessed October 2001.

Welcome to the Italian Trade Commission Web Site. <http://www.italtrade.com/ice/index.html>. Accessed October 2001.

—Francesco Cavatorta

CAPITAL:

Rome.

MONETARY UNIT:

Italian Lira (L). One lira equals 100 centesimi. There are coins of 5, 10, 20, 50, 100, 200, 500, and 1,000 lire. There are notes of 1,000, 2,000, 5,000, 10,000, 50,000, and 100,000 lire. The lira will be replaced in January 2002 by the euro, the new unified currency of the European Union (EU). One euro will be worth 1,936.27 lira at a fixed exchange rate. All lira coins and bills will disappear, and by June 2002 only euros will be in circulation.

CHIEF EXPORTS:

Engineering products, textiles, clothing, production machinery, motor vehicles, transport equipment, chemicals, food, beverages, tobacco, minerals, non-ferrous metals.

CHIEF IMPORTS:

Engineering products, chemicals, transport equipment, energy products, minerals, non-ferrous metals, textiles, clothing, food, beverages, tobacco.

GROSS DOMESTIC PRODUCT:

US__BODY__.273 trillion (purchasing power parity, 2000 est.).

BALANCE OF TRADE:

Exports: US$241.1 billion (f.o.b., 2000). Imports: US$231.4 billion (f.o.b., 2000).