Industrial policy and competition: The Italian experience

1. Industrial policy and competition: The Italian experience Alberto Heimler

2. Industrial policy in Italy A chronology 1933: IRI, the Institute for industrial reconstruction, is created (after the 1929-31 crisis) 1936: IRI controls 100% of the 3 major Italian commercial banks and 21% of the capital of all Italian corporate entities. IRI is strongly separated from political power and managers are supposed to maximize shareholders values 1945: IRI controls 216 companies and has 135000 employees. Industrial sectors to be developed: steel, the chemical industry, highway construction, car manufacturing, telecommunications, air transport 1957: a Ministry in charge of State owned companies is created. State owned companies are meant to pursue strategic industrialization objectives and political objectives which may lead to returns below market values (social returns higher than private returns).

3. Industrial policy in Italy A chronology 1953: ENI, the State owned oil company, is created. In a few years ENI builds a thorough network of refineries and gasoline distribution system. 1962: the Italian electricity industry is nationalized. In the following years ENEL, the electricity monopoly, electrifies the country. 1970: IRI and ENI have over 500000 employees, around 15% of total domestic employment. 1992: a plan to privatize State owned companies is adopted by the Government. 1993: the ministry of State owned companies is abolished Today all banks are private. IRI is a foundation and only the military industry is State owned. Alitalia is in the process of being privatized. ENI and ENEL continue to be controlled by the State

4. The recent liberalization drive in Italy A chronology 1957: Italy is among the funding members of the EC. The Treaty is neutral with respect of ownership (indifference between private and State ownership) 1990: Italy adopts an EC inspired domestic competition law. The law requires the Authority to draft three advocacy reports on public procurement, on retail trade and on concessions. These reports have been very important for influencing subsequent reform

5. The recent liberalization drive in Italy A chronology • 1992: The antitrust authority starts delivering its annual report in Parliament. Press/TV coverage on the importance of competition • 1997: In its annual report G Amato links growth to product market regulation, arguing that if access to the market is blocked entrepreneurs are frustrated, innovation is weakened, consumers suffer and the economy stagnates. The report lists a number of private service activities , where access is unjustifiably limited.

6. The recent liberalization drive in ItalyA chronology 1998: The Minister of Industry, Pierluigi Bersani, inspired by the 1993 advocacy report by the Competition Authority, liberalizes retail trade (fully liberalizing the opening of small shops up to 250 m2, subjecting to a regional plan the opening of medium and large surfaces). The law was criticized by incumbent retail traders. In the process of approval, the Parliament introduces the prohibition of sales below costs. The Authority argues against it, but is not followed.

7. The recent liberalization drive in ItalyA chronology • 1998: The Italian Parliament approves a law which reduces the freedom of contracting for manufacturers when they outsource some of their activities. There is a provision prohibiting the abuse of economic dependence. The Authority argues against it but is not followed. • 1999: Italy joins the Monetary Union • 2001: Oecd examines Italy on regulatory reform. Concern over high degree of regulatory restrictions

8. The recent liberalization drive in ItalyA chronology • 2001: The center right coalition wins the elections. The Italian economy stagnates. Competition oriented regulatory reform is not on the agenda • 1990-2006: the Authority issues 387 advocacy reports. Most of them are ignored. They are followed when they back a European initiative where compliance is mandated or when the powers of the Authority are at stake

9. The recent liberalization drive in ItalyA chronology January 16 2006: antitrust enforcement in banking is transferred to the competition authority. The Authority opens a sector inquiry on closing charges in checking accounts. April 2006: The center-left coalition wins the election. Pierluigi Bersani is the Minister for economic development. May 2006: the Authority issues an advocacy report on the lack of transparency in depositor-bank relationship

10. The recent liberalization drive in ItalyA chronology • June 2006: Minister Bersani issues a decree with the objective of liberalizing a number of activities, improving consumer protection, strengthening the enforcement powers of the Authority. A lot of categories are affected. • January 2007: the Minister issues a second liberalization decree

11. The recent liberalization drive in ItalyThe 1st Bersani decree Increased powers to the competition authority: leniency programs, interim measures, commitment decisions Professions: minimum tariffs abolished; informative advertisement, interdisciplinary partnerships and result pricing (contingency fees) allowed. Legal monopoly of pharmacies on OTC drugs abolished.

12. The recent liberalization drive in ItalyThe 1st Bersani decree • Access to bread making fully liberalized and entry no longer subject to the opinion of a commission nor to market analysis. • Commissions by peers responsible for authorizing access abolished in a number of activities • In retail trade and food/drink all sorts of limitations to entry/expansion based on minimum distances, on market shares, on the portfolio of products to be carried abolished.

13. The recent liberalization drive in ItalyThe 1st Bersani decree Car insurance: Exclusive dealing requirements abolished Banking: depositors have to be informed about changes in the conditions of supply and closing charges abolished Region/municipality owned corporations cannot operate freely on the market but only for the benefit of the controlling body

14. The recent liberalization drive in ItalyThe 1st Bersani decree • Taxi service: requirement that taxi licenses be granted only to individuals abolished; doubling the number of licenses in the country • The press release of the Ministry contains specific reference to the advocacy reports of the Authority

15. The recent liberalization drive in ItalyThe 1st Bersani decree Strong reaction by professionals and by banks based on general interest considerations (TRUST, UNIVERSAL SERVICE; STABILITY) Strong reaction by taxi drivers protesting for income losses (strikes in major cities) Taxi service II: greater flexibility in shifts management and increase in the number of licenses to be decided by municipalities Decree approved in August with no other change

16. The recent liberalization drive in ItalyThe 2nd Bersani decree The access to the activity of barbers, hair dressers, tourist guides, driving schools is liberalized Highways should make sure drivers are fully informed about gasoline prices The prohibition of exclusive dealing is extended to all insurance products

17. The recent liberalization drive in ItalyThe 2nd Bersani decree • Prices for air services should be publicized gross of all costs and taxes • Mortgages are transferable without costs • Prepaid purchases of telecommunication services should not be priced with a two part tariff and should not contain a deadline.

18. The recent liberalization drive in ItalySome conclusions • According to recent polls 70% Italians are in favor of liberalization efforts. For all other Government actions consensus seldom reaches 50% • Liberalizations create the pre-conditions for greater competition • The feared destructions do not come about. Also benefits in terms of growth or innovation are slow to appear.

19. The recent liberalization drive in ItalySome conclusions • Liberalizing pays off politically. It has to be all over the board. Protests cancel each other out. Same conclusion as Hilmer (1992) • Once competition is on the political agenda, the suggestions of the Authority become an essential “facility”. The Authority can also help in bringing competition in the political agenda. International organizations (OECD, ICN, World Bank, Unctad) have a very important role to play in promoting reform