Italys recent sharp slide down the international competitiveness stakes has prompted a national crisis of confidence. The Italian economy came 47th in the World Economic Forums (WEF) 2004 competitiveness rankings, six places below its previous standing. The WEF, the august body that brings together politicians, economists and financiers each year in Davos, Switzerland, calculates competitiveness according to the ability to produce goods that are cheaper and better quality than market rivals. Finland was judged the worlds most competitive economy with the United States second, the UK 11th, Germany 13th, Spain 23rd and France 27th. Italy is behind mighty commercial powerhouses like Slovakia, Tunisia, Latvia and Botswana.

This dismal performance has prompted fears that Italy is gradually turning into a post-industrial economy which, in the long term, will be dependent on tourism for its survival a sort of glorified art-and-history Disneyland-cum-Butlins, staffed by a nation of university-educated waiters and tour guides. That might be taking it a bit far. But the nations industry is feeling mighty sorry for itself and everyone is wondering where things went wrong. The progressive loss of competitiveness and the weakness of domestic demand jeopardise the development prospects of a growing number of businesses, holding back productivity and employment, Bank of Italy governor Antonio Fazio said in February. In the last decade our industrial system has been impoverished by the disappearance of important areas of manufacturing industry. As a result, Italy has been at the bottom end of the euro-zone growth league for some time.

Perhaps whats most surprising though is not the loss of economic form, but the fact that Italy managed to stay competitive for as long as it did. The WEFs report listed high taxes, red tape, organised crime, labour market inflexibility and lack of investment in research and development as the main problems. Nothing new there. Italy has never provided a particularly friendly environment for business. But the nations entrepreneurs, credit to them, flourished regardless, creating jobs and wealth in the process. Armed with flair and creativity, they did so by staying small and slender in order to slip through the bars of a rigid, overregulated system. For example, its much easier for small firms to hire and fire employees. This is because parts of the labour statute protecting workers from unfair dismissal do not apply to companies with less than 15 staff. So Italian capitalism is principally based on a multitude of small and medium-sized companies.

Recent developments, however, are pushing this system to breaking point. The strong euro has made Italian exports more expensive on the international market and imports cheaper on the domestic one. Naturally, this is a problem for all euro-zone countries. But Italy is feeling the effects more acutely because it exports lots of low-value-added products such as wine, food and clothing where even small exchange-rate variations enable competitors to undercut domestic prices. Chinas and Indias admission to the World Trade Organization (WTO) has made matters worse still, presenting Italy with a pair of lean new competitors. China in particular has exploited lower labour and production costs to make inroads into traditional Italian markets such as machinery, semiconductors and textiles. The Lega Nord, which seeks more independence from central government, has called for import duties to be slapped on Chinese goods by the European Union (EU) to bring a halt to this. However, such duties would probably breach WTO rules and would not help Italian producers win back many of the lost export markets anyway.

So how can Italian firms compete against Asian manufacturers who are able to hire staff willing to work around the clock at a fraction of the going European wage rate? By investing in new technologies and a skilled workforce, the experts say, in order to produce innovative, quality products that the Chinese are unable to churn out. And here we come to the crux. The small size of many Italian companies means few have the resources to invest in the research and development that would keep them at the cutting-edge of the market, ahead of cheaper yet inferior competitors. In short, small isnt beautiful any more.

The government recently released its plans to help reverse the negative trend. The package, which is subject to parliamentary approval, includes tax breaks to encourage mergers between small firms, and incentives worth around e6 billion to promote research and development. Tax breaks will be suspended, meanwhile, for firms that invest abroad without maintaining the core of their production in Italy. Unnecessary regulations and red tape are to be removed. In a measure designed to improve labour mobility, special help will go to workers who accept a job that is over 200 kms away from their homes. There are also measures to boost the southern economy and promote tourism, and a reform of Italys bankruptcy law. The idea here is to make it easier for risk-taking entrepreneurs, who have gone broke, to get back into the business of making money and therefore that of creating jobs. Whats more, the government hopes to give greater protection to Italian producers by introducing fines for anyone who buys pirated CDs or fake brand-name products, like the imitation Gucci bags you can find at market stalls.

Reactions to the package have been mixed. Trade unionists are unhappy that few of their proposals such as the need for more money for investment in research and development, welfare and training, both to raise competitiveness and to stimulate domestic demand, growth and employment have been incorporated. However, the general impression seems to be that the programme is necessary but not sufficient. There are still many issues that need addressing, such as labour laws, the nations civil service and the welfare system, which must be overhauled in order to reduce public spending and taxes. The competitiveness package is positive, the Bank of Italy said, although it is necessary to insert it into a framework of structural reforms aimed at reinforcing business and modernising the productive system.

For students of English.

Below are some idiomatic phrases from the text above to improve your English. Please write (in English or Italian) to if you have any comments, suggestions or difficulties.

Crisis of confidence feeling of insecurity

Will be dependent on (to be dependent on) to rely on

Glorified (to glorify) transformed into something better

Taking it a bit far (to take it a bit far) to exaggerate something

Feeling mighty sorry for itself (to feel sorry for oneself) to pity oneself

Jeopardise (to jeopardise) to endanger / threaten

Credit to them to their praise

A multitude of many / an abundance of

To undercut to sell or work at a lower price or wage

To work around the clock to work all the time

To churn out to produce routinely (especially in large quantities)

Have gone broke (to go broke) to lose all your money