A good book to read, from South African author Alan Paton , about South Africa.
This post is actually not about South Africa but rather contemporary Italy 2013.
Current numbers (mid 2013):
- Tax evasion 160 billion Euro
- 36 quarters of continuous negative GDP
- Corruption 60 billion Euro
- GDP mid 2013 -1,5 %. GDP consistently reducing for past 36 quarters
- Debt 130% of GDP, Euro 2.053.222.067.508
- Spread 300 points
- Difference of interest rates charged for private debt between Germany and Italy (EU member country) 58% more due to differentiation of spread rate
- Average tax rate 44%
- Government inefficiencies: un-measurable: Average cost per km for free-way development 4 times versus average in France. Syringe cost can vary up to 6 times cost in different regions. iPAD contract for Euro 1800, cost at supermarket Euro 600.
- Number of people in politics 142 000
- Levels of government 5. EU parliament, Central Government, Regional, Provincial and Municipal
- Salary of police head Euro 500 000, double FBI equivalent.
- Stenographer salary at Senate Euro 250 000, more than President Obama
- 72 000 ministerial cars with drivers available for politicians
- Jobless 18-30 year old range 38,5% , overall 12,2 %
- Criminal Organization: Mafia, ndrangheta, Camorra : estimated turnover 90 billion Euro tax free
- Untouchables, government employees cannot be fired even for serious cases of theft, laziness, inefficiency
- Catholic Church : no comment
- No jail time for corruption of judge
- 100 political parties
- Not one Italian university in top 100
Italy is currently ninth economic power but soon will be quickly overtaken due to continuous decline. The numbers above speak volume of a country in serious decline.
Why is this relevant for System Thinking ?
Government actions over past 20 years can be tied up to many of Senge 11 laws of Systems. ‘Today’s problems come from yesterday’s solutions’
If one considers major archetypes of the Italian economic system we have:
- Business and consumer credit
Banks drastically reduced private lending due to poor economic climate, prefer purchasing government bonds rather than private lending.
Interest paid by Italians can be 40% more than Germans lenders
- Consumer confidence
Consumer confidence impacting private spending is low due to poor perception of politicians highly involved with organized crime and private interest, primarily focused in organizing parties with ladies
Due to poor credibility and high level of pessimists, consumer hesitant to spend due to expected tax increases
- Stock prices (housing)
Housing have been artificially inflated: in the past major economic leverage in housing market fuelled by tax evaders re-cycling funds into housing. Current tax controls have had serious impact in housing market in that tax evaders are hesitant to invest evaded funds.
- Purchasing power
Purchasing power has been continuously eroded due to increasing tax and increasing cost due to poor management by Government controlling authorities (high insurance , bank costs…). The petrol cost includes for percentage cost recovery of the Second World War.
Italian consumer pay the highest motor vehicle insurance in Europe due high level of fraud in certain regions.
High end expenditure on expensive motor-cars, boats ect.. has basically ceased, not because of lack of funds, but because of tax authorities controls. In past tax evaders were recycling back into the economy purchasing high end items.
Current delinquency covering tax evasion , corruption , fraud , organised crime has a weight around 25% of GDP
Morality and ethics is a serious problem considering the linkage to delinquency. High number of convicted politician present in parliament. Politicians do not resign from parliament if convicted of crime. Italy requires a law due to lack of morality and ethics amongst politicians
Delinquency has high impact on efficient government spending in turn I impacting negatively economic leverage.
Many private companies have gone under due to delinquency: classical example is Parmalat. This has a negative cost on the economy.
- Tax rate
Taxes increased progressively through the years due to high tax evasion and government spending demand. Current leader of right wing convicted a tax evasion equivalent to 300 million Euro. No jail time.
- Government investment
Management inefficiencies and lack of control , plus high level of delinquency limits effectiveness of government spending. No centralized IT system to control the administration of the state
- Private industry
Major source for sustaining economic growth has limited effect due to number of problems. Low level of productivity, low level of investment, high level of delinquency amongst private industry destroying value and job. Excessive credence on the ‘made in Italy’ slogan, they seem to forget that there are also smart people in other countries.
- Economic leverage
Limited economic leverage due to excessive system inefficiencies and delinquency causing limited sustainable growth
Shifting the burden
The problem is handled by a simple solution with immediate effect, thereby “healing the symptoms”. The primary source of the problem is overlooked, because its remedy is demanding and has no immediate outcome.
This can be applied to poor legal and justice system. Symptomatic solution on justice reform has created side effects resulting in high level of delinquency. Corruption of judge results in zero jail time.
System thinking can result in major leverage to carry-out reforms that can result in meaningful and sustainable economic growth. Some can be short term with high leverage:
- Zero tolerance regarding tax evasion, fraud, corruption. This implies serious jail term, big fines (example 1000 times the value)
- Zero tolerance for politicians involved with organized crime or any other crime activity
- Make government employee directly accountable and allow to fired
- Government risk management fund to support banks to increase lending.
These short term activities not only will reduce delinquency which impact all facets of life but will allow important tax reduction increasing purchasing power, increase spending. Furthermore it starts forcing Government employee to be more efficient in usage of tax revenue.
Will they do this? Sadly no: Cry the beloved country