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Italy’s eight years of foot dragging on deregulation

by Carmine Fotina

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The protest by taxi drivers has driven home the extenuating circumstances of liberalization Italian-style: promises, stressed and then (almost always) deflated. Eight years after a measure requiring an annual law for competition, and seven years after the first reports sent by the Antitrust to the government and Parliament, it's a good time now ahead of the latest decree to take stock of the situation. And it's not exactly comforting.

Large-scale intervention in the system has given way to small-bore intervention by sector. Some topics have been completely ignored by legislators (auctions and the timeframe of limited concessions for ports, airports and highway; financial ties between board members and administrators).

Others have been addressed only partially (local public services, banking services, postal and telecom, professional classes, energy). And the competition law that is set to resume its march in the Senate at the end of next week won't change things all that much.

The forgotten sectors

Exactly one year ago, a few days before the competition decree was adopted by the Cabinet, in its Italian Economic Study, the OECD estimated that a significant increase in competition “in network, local services, regulated professions and retail sales, would have resulted in a €2.6 billion increase in GDP over five years.” Just so it's clear, that's four times the anticipated impact of the Jobs Act.

Commenting on the taxi drivers' protest, Italy's Economy Minister Pier Carlo Padoan brought the number back down to earth.

“Increasing competition in the service sector boosts growth capacity. It should certainly be undertaken while guaranteeing a smooth, painless transition for the sectors involved.”
And in some way the cautious use of liberalization all these years explains how far we still are from the Antitrust recommendation, which is the only objective parameter available.

Concessions, Board, Postal System

Let's take as a reference point the report by the Authority in 2010.
Seven years have not been enough to clearly set the length of concessions for highway rest stops and airports, in order to favor auctions and overcome the barrier of natural monopoly. No guidelines have been issued to stop the diffusion of «interlocking directorates,» the shared interests of administrators and directors on boards of the different companies. Their intertwined financing and lending relationships were played down.
The Postal system deserves a chapter all its own, where the government was focused mainly on not penalizing the process of privatizing the Post. From that came the decision not to force things with the corporate split of Bancoposta (which already has separate asset structures) nor to agree to the request to review access to the postal network, or on the extent of universal service. The decree currently being reviewed by the Senate, in this area, only calls for a halt, starting June 10, of the exclusive right enjoyed by Poste for the notification of fines and judicial acts.

Public and local services and pharmacies
There are no “prizes” in terms of public resources for regional administrations that open up to alternatives to the FS. And it seems like a total dejavù as all major attemps to reform local public services have led to nothing. The last attempt was doomed by Sentence 251 of the Constitutional Court that ran up against the Madia law.
The same heralded cut in the number of public service companies controlled by local administrations - from 8,000 to 1,000 with the aim to deflate the bubble of local capitalism - will have to be agreed upon with the same administrations and the automatic cut of the board of directors seems to have gone up in smoke

The issue of drugs and pharmacies is almost as ancient as this last one. The pressing request to liberalize C level pharmaceuticals which require prescriptions has led to a discussions among ministers (Guidi and Lanzillotta had a notable feud on this issue) and Parliament, while the competition law aims at erasing the limit of maximum 4 stores to be owned by a same subject and at giving the green light to the possibility for capital companies to control pharmacies with a 20% ceiling on a regional level.

Then there are the various professions, which are an issue of its own. Some progress has been achieved with notaries, albeit with difficulty. A  few rounds have been lost on the ground of trying to allow lawyers to substitute notaries when it comes to buying and selling real estate. The same category of lawyers, according to the Senate research service, was the focus of other proposals that haven't been accepted, like eliminating fixed parameters for professional compensation or publicizing fees charged to clients.

The Antitrust's move to liberalize sales of “non oil” products through the fuel network was partly implemented. But it was progressively bogged down in the fierce competition between the state and the regions, with the latter ending up with Law 133 in 2008 that reintroduced limits to access by new entrants, who were eliminated by the main norm. Gas and electricity are among the sectors where the most has probably been accomplished but the sluggishness of free choice has just forced the Minister of Economic Development—not without controversy—to plan, outside the law, to shut down the protected market starting on July 1, 2018. The same auction for gas distribution risks becoming a torture if it's true that the rules must still be worked out on reimbursements—that the new managers must correspond to the owners of the concessions.

Preventive Vetoes
A document viewed by Il Sole 24 Ore, drawn up by the Development Ministry and called “Themes for the competition decree,” shows that in this and other areas, after an ambitious start, one is often constrained to beat a hasty retreat, especially if opting to have the law pass through Parliament.

That document, ahead of the final drafting of the law, also talks of “forbidding the movement of top executives between banks and foundations.” It promises auctions for airports and highway concessions; seeks to “transform the current maximum number of pharmacies to a minimum; to “force port authorities to sell majority stakes in port-related businesses”; to “abrogate the parameters for compensation” of lawyers; to eliminate cases of “illicit competition” between notaries, making them punishable by disciplinary sanctions. The document also sets out, case by case, the obstacles it faced: protests by pharmacists and other professional classes; technical objections by the Justice Ministry; harmonizing the rules with preceding laws that had been shut in a drawer since time immemorial.