Small business woes hamper Italian growth

Stephen Beard Nov 11, 2011

Small business woes hamper Italian growth

Stephen Beard Nov 11, 2011

Kai Ryssdal: The crisis over Italy’s prodigious debt did ease a tad today. The Italian Senate passed a package of austerity measures and economic reforms. Once it gets by the other house of parliament — perhaps tomorrow — Prime Minister Silvio Berlusconi is expected to resign as promised.

Financial markets were cheered by the prospect today. But Italy’s got more than just debt to worry about. It’s one of the slowest growing economies around. Marketplace’s Stephen Beard reports from Rome.

Stephen Beard: In her women’s clothing store in central Rome, Cristina Jadeluca greets a customer, and proudly shows off her wares. Every skirt, sweater, scarf and handbag here was made in Italy, with Italian style and quality. The trouble is, Cristina says, the business of selling these products is coming apart at the seams.

Cristina Jadeluca: Running a small business up to now is quite impossible.

Cristina is buckling under the burden of heavy taxes and regulation.

Jadeluca: First, the human resources — how to get and pay staff if you want to be in the law and pay everything the government wants you to pay.

For her one employee, she has to pay not only $16,000 a year to the worker, but a further $38,000 to the government. Just to break even she must keep her shop open 10 hours a day, seven days a week.

Jadeluca: It’s impossible for me just to rest or take a day off, whatever.

Beard: It sounds like slavery.

Jadeluca: Yeah, yeah. I think I’m the slave of the government at this point, yeah.

In a recent survey, Hong Kong came top as the easiest place for setting up and running a business. The U.S. was 4th. Italy was 70th.

Stefano Cingolani: I think it’s the real key to understanding the difficulties of the Italian economy.

Author Stefano Cingolani says Italy depends heavily on its small businesses, but then strangles them with red tape and hammers them with heavy taxes. This helps explain Italy’s low growth.

Cingolani: All these small entrepreneurs now they are really suffering. They need more freedom to organize their business.

But the government’s belated attempts to free-up the economy and cut public spending have not been met with universal rejoicing. Rome erupted after an anti-austerity rally last month.

Roberto Treu of Italy’s most powerful union says the protests will go on.

Roberto Treu: We’re afraid that economic reform will hurt public workers, pensioners and vulnerable people.

Beard: But you do accept that some reform is necessary?

Treu: Yes, it’s necessary. We agree with this, but not penalize ordinary working people in the country.

In some ways, Italy is a microcosm of the eurozone. It contains both ends of the spectrum. The north resembles German; the south looks more like Greece. And journalist Sheri Jennings says this disparity helps explain some of Italy’s public debt.

Sheri Jennings: You have the industrial north that’s very productive. And then in the south, it’s poor. So in order to keep the country together, the government has been taking money from the north to subsidize the south for many years. And that’s where a lot of this debt comes from.

In her clothing store in Rome, Cristina Jadeluca says small businesses like hers bear the brunt of the eurozone debt crisis. Business is bad. Her customers have money, but they’re afraid to spend it.

Jadeluca: Everybody’s afraid because when you listen at the news in Italy, they do a sort of terrorism, you know: “Oh it’s going to happen this, oh it’s going to happen that. And because Berlusconi, and this and that.” And people are just frightened because they don’t know where the country’s going anymore.

Italy’s expected to have a new government this weekend. But dispelling the fears about the country’s future may take a little longer.

In Rome, I’m Stephen Beard for Marketplace.

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