Italian politics, ‘il muro di gomma’, and the challenge for research-evidence to influence policy

Clay and Schaeffer’s book Room for Manoeuvre describes the policy and policy making as ‘as a chaos of purposes and accidents’.  During the workshop facilitated by RAPID we often describe policy making as complex, multifactorial and non linear. The complexity of policy processes described in these two definition has two consequences for the influencing potential of research – evidence: 1) it is difficult for research evidence to be heard by policy makers; 2) research-evidence is only one of the many ingredients of policy making.  In this blog I refer to the recent development in Italian politics to highlight the challenges that research-evidence faces in informing, never mind influencing, policy making.

Prime Minister Berlusconi has resigned under the weight of the Italian public debt, the unsustainable pressure from the financial markets, and the irremediable decline of trust by Italian citizens and foreign politicians.  This has been his third term as Prime Minister during the 17 years he has been in politics (which he will not leave).

The reactions have been mixed in Italy.  A spontaneous flash mob turned into a party in front of Palazzo Chigi, the home of the Italian Parliament on Thursday evening.   Others, more cynically, have argued that Berlusconi is simply the expression of an Italian problem, not the problem. He simply represents what Italy and Italians are today, the relative majority of whom voted him into office. Politicians in the centre-right ruling coalition as well as the centre-left opposition seem to be lost trying to understand what the next steps.

My personal reaction is of relief, like breathing new air. Hopefully a sense of proportions and normality has returned to Italian politics.  Our President, Giorgio Napolitano, has now endorsed with the task of establishing a new cabinet Prof. Mario Monti, a respected economist, president of Università Bocconi in Milan, and who served twice as anti-trust commissioner at the European Commission in Bruxelles. He has a good reputation of being an effective bureaucrat and the financial markets as well as the EU have responded positively to his appointment.  So we all hope for the best.

The purpose of this blog is not to make an assessment of Berlusconi as Prime Minister. All major newspapers in the world carry opinion pieces and long articles that do that. Instead, I want to use the case of the Government Berlusconi as an extreme example of the challenges that research-evidence faces when it confronts the muro di gomma (rubber wall) of strong corporate and personal interests.

Il muro di gomma is expression coined by an investigative journalist, Andrea Purgatori, following the air crash of a DC9 of the airline Itavia near the island of Ustica, north of the coast of Sicily, on 27. June 1980. The investigations to identify the causes and the responsibilities of the air crash that caused the death of all 81 passengers and crew, very early on bounced against a muro di gomma made of false leads, false statements, lies which have resulted in four air force generals to be accused of high treason for withholding information about air traffic at the time of the disaster over Ustica. Thirty-one years later, it has not been possible to find the truth about what happened to the Itavia flight. Major sources in the Italian media have alleged over the years that the aircraft was shot down during a dog fight involving Libyan, U.S., French and Italian fighters in an assassination attempt by NATO members on an important Libyan politician.

Terrorism and state secrets such as the one of the Itavia flight hopefully belong to the past of Italy. However, the expression muro di gomma has come back to me while observing the fall of Berlusconi and while reading a very well researched book by Nunzia Penelope titled Soldi Rubati (Stolen Money). Penelope’s investigation is about corruption, crime, fraud, tax evasion all of which deprive the Italian citizens of hundreds of billions of Euros every year and the possibility to live in a better country.  In the introduction she writes:

‘Every year in Italy we have 120bl of tax evasion, 60bl of corruption, 350bl of informal economy including organized crime all of which equals almost 20% of GDP.’ (p.1)

This is a thoroughly researched book which refers to official government data (e.g. Ministry of Economics and Finance, National Statistics Office, etc.) as well as data collected and presented by various civil society organizations such as trade unions, and consumers’ associations.  Penelope presents her results in a non-technical and accessible language. Penelope’s research is an example of good policy research which presents evidence not only of the magnitude of the problem but allows as well an assessment of the policies taken by the Italian government to address those problems. In other words, the extent of influence that research-evidence has had on specific policies.

Let’s take one area of Penelope investigation: tax evasion and avoidance. Tax evasion is estimated to be between 100 – 125bl Euros per year in Italy. Against this loss for the State finances, only 10bl Euros have been recovered in 2010. The Italian citizens who pay taxes, due to the huge level of tax evasion, every year have to pay 3.000 Euro more in taxes. Moreover, according to a conservative estimate by the Italian Central Bank, there are 500bl Euros hidden offshore to avoid paying taxes in Italy (300bl Euros in Switzerland alone vs. to Swiss GDP in 2007 of 423bl USD).

According to the data of the Ministry of Economy and Finance there are about 41ml tax payers: half of them declares a yearly income of 15.000 Euros, two third no more than 20.000 Euros and only one percent (or 77000 individuals) more than 100.000 Euros. When a tax evasion is discovered the civil court suits drag on for an average of 8 years and 7 months.  There are about 4.000 tax justice judges against a need of at least 6.700.  The number of tax inspectors is also insufficient for the number of control that would be required on individuals and companies.

The evidence presented by Penelope show that there is a clear need to act decisively against tax evasion, considering that the austerity package requested by the EU foresees 59,8bl euros in savings from a mixture of speeding cuts and tax rises with the aim to balance the budget by 2014.  The solutions are relatively straight forward: increase the number of tax judges, increase the number of tax inspectors, increase budget available to the various agencies responsible to spot tax evasion, increase the imprisonment for tax evasion, increase the percentage of taxes to be paid when returning funds that were parked offshore.

If we look at the record of the government led by Mr. Berlusconi, we can see how this research-evidence and linked policy recommendations to curb tax evasion and avoidance, have bounced back against the muro di gomma of the personal and corporate interests of Mr. Berlusconi himself, the richest man of Italy and 118th in the world, with economic interests and ownership of three private TV channels, two news paper, insurances, etc.

  • The cabinet passed a bill to allow the return of capital deposited overseas to avoid Italian tax regime. In exchange for the return of the capital one will remain anonymous and would pay to the state a tax of 5% (compared to the 43%s/he would have paid with the funds staying in Italy). In other countries there is the obligatory full disclosure of all undeclared liabilities and higher repatriation taxes: 49% in the US, 44% in the UK, 20% in France.
  • A law has been discussed for shortening the maximum period of a court suit. The trial for the accused criminal record may not last more than six years (two years for of the three level of jurisdiction which would make it very difficult to in most case to bring to an end tax evasion trials.
  • Decriminalization of false accounting (L. 61/2002) that contributed to Berlusconi being acquitted in two trials (All Iberian 2 e Sme-Ariosto 2) because the fact is no longer regarded by law as a crime
  • The introduction of the ban on the submission to trial of the five highest state offices including the Prime Minister in office (Law 140/2003). The ban was declared unconstitutional after a few months, with a ruling of the Constitutional Court No 13 of 2004.
  • New attempt to reintroduce the ban on the submission to trial of the five highest state offices now reduced to four including the Prime Minister in office (L. 124/2008). Again declared unconstitutional after a few months, with a ruling of the Constitutional Court n. 262 del 2009.
  • It was approved the so-called legitimate impediment: the Prime Minister and Ministers under investigation can present as legitimate to evade the summons in court also all those activities which are essential functions their institutional duties. The Prime Minister office certifies the existence of an impediment.
  • L. 383/2001 on the abolition of the tax on inheritances and donations for large estates, which was previously applied to 350 millions Euros.
  • The Finance Act of 2003 introduced a tax amnesty for previously unpaid taxes.

Few of these laws were subsequently declared unconstitutional by the Constitutional Court. Nevertheless they have polarized the attention of politicians, media and public opinion for months thus making it even more difficult for research-evidence such as the one presented by Penelope to inform and influence the political and policy discussion

Former centre-left Minister of Economy and Finance, Vicenzo Visco, and his team managed decent results in 2007 when Italy recorded a record low in tax evasion which ahs then climbed back. So reducing tax evasion is possible, even in Italy. The law listed above show that Berlusconi and his governments have not only virtually ignored the research-evidence and policy recommendations to reduce tax evasion, but they have actually sent a strong signal that tax evasion after all is acceptable (+ it brings many votes give that Penelope estimates that almost 3ml people in Italy are unknown to tax the tax authorities).

Former-minister Vicenzo Visco argues in Penelope’s book that the problem is cultural and Berlsuconi is a result o this cultural gap: \’In Italy tax evasion is a form of resistance, a life insurance, or simply an expression of anger. We are not Germany, we lack the Calvinist ethics, and therefore the disapproval towards tax evaders. In Italy we have generalized disregard for the public good which, combined with an uncompromising individualism makes the Italians to keep the money rather than giving it to the to the State. \’

In 1949 Orson Wells wrote, directed and acted in a movie called ‘The Third Man’. It is the story of a novelist, Holly Martins, who travels to shadowy, postwar Vienna, only to find himself investigating the mysterious death of an old friend, black-market opportunist Harry Lime. At one point the two meet under the Reisenrad at the Prater. Holly asks his friend why is he trading in the black market.  Harry replies: ‘Free of income tax, old man. Free of income tax – the only way you can save money nowadays’ and then continues ‘Don\’t be so gloomy. After all it\’s not that awful. Like the fella says, in Italy for 30 years under the Borgias they had warfare, terror, murder, and bloodshed, but they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love – they had 500 years of democracy and peace, and what did that produce? The cuckoo clock. So long Holly.

Well, maybe Italy should have also made more cuckoos clocks in the past. While this would have meant less art and culture in the world, it would have allowed a less individualistic society the expression of which are our parties and elected representatives.  Less individualism would result in more transparent (and why not, more evidence-based) policy making, more taxes paid by the citizens accruing to their means, more resources for services, less debt, more growth …. mmmh, wait a minute,  sounds like a theory of change. Are we still on time?

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