EMILY SKARBEK: All
right, welcome.
Let's see, that's nice.
Good afternoon.
Thank you all for joining
in my name is Emily Skarbek,
I'm an assistant professor
here at the Political Theory
Project.
For those of you
who are not aware--
the Political Theory Project is
kind of dedicated to this idea
that ideas and institutions
are incredibly important.
And we want to
understand and look
at those ideas and institutions,
which make societies
free, prosperous and fair.
Part of this involves an
interdisciplinary approach,
an approach about
bringing together
questions in political science
with some answers in economics.
And basically, looking
at the question
of how it is that markets,
market and market economies
interact with democratic
governance institutions,
democratic ideals.
And this is all central to what
the PTP is interested in here
at Brown.
So with this in mind,
it's my great pleasure
to introduce our speaker
for this afternoon--
Luigi Zingales.
Luigi Zingales is the
Robert C McCormick
distinguished professor of
entrepreneurship and finance
at the University of Chicago's
Booth School of Business.
In 2015, he also became the
director of the Stigler Center
at the University of Chicago,
where he facilitates research
on questions of regulatory
capture and distortions
that are caused by interest
groups that are participatory
in the capitalist system.
So Professor Zingales'
research spans a great number
of very interesting aspects
of economics and finance
looking at corporate governance.
He's investigated issues of
trust and the role of culture
in the financial system.
In addition to his long list
of publications in top tier
economics and finance
journals, his books
include Saving Capitalism
From The Capitalists,
and more recently, A
Capitalism For The People,
Recapturing The Lost Genius
of American Prosperity.
So this afternoon,
Professor Zingales
is going to be speaking with us
on some of the topics related
to Italy's role in
Europe and touching
on questions of
populism and some
of the political
economy associated
with the European project.
Without further ado,
Professor Zingales
will talk for roughly
about 45 minutes
and then we will open it up
for questions from the floor.
And let's welcome
Professor Zingales.
LUIGI ZINGALES: So thank
you very much, Emily.
And thank you for the long
list, the long presentation.
I want to add one thing that
probably is not on my website
is I just started a podcast
called, Capitol Isn't--
What Is Walking In
Capitalism and What Isn't.
And the last episode that
came out I think yesterday
discusses some of the
issues about Italy.
And so I thought that when I
was asked to come here, first
of all, I was very
pleased, because what
I'm trying to do at Chicago is
a bit what you're doing here,
try to connect economics
and political science.
And not with much success
at Chicago, hopefully
here you'll have more success.
And I think there is
hardly any topic that
is more connected between
economics and political science
that the current economic and
political situation in Europe
and in particular, in Italy.
And I think that many
non-Italians don't
get that sense of urgency when I
told my cohorts in the podcast,
I said, look, the vote in
the last election in Italy
was worse than Brexit.
And she was shocked.
And I said, yeah, because
actually, the British
never really liked Europe.
If you look at the survey, they
were always like, 50-40, 50-50.
And Italy loved Europe.
In the 1980s, 1990s, even
early 2000, 80% of the people
were in favor of
the European Union
and in favor also of the Euro.
And today, actually, the latest
numbers are more like 35%.
And the majority of the
new members of parliaments
are from parties that are
openly Euro skeptic, let alone
the one that allegedly
are not Euro skeptic,
but campaign to some extent
against Europe anyway.
So I think the world has
changed dramatically.
And I don't know
your background,
I don't know exactly how much
you know, how much you don't.
And please feel free to
interrupt here any time
if I go too fast.
But I want to do an analogy.
By the way, besides that
books I've written in English,
I have a book that I
wrote in Italian trying
to discuss the issue of Europe
with my fellow Italians called,
Europe or Not.
And I have a translation in
English that is in a PDF.
So if you are interested
in this topic,
I'm happy to share with you.
And I will share with Emily
and then Emily can share it.
Because I think that the issue
of is, where Europe is going
and where it is
going within Europe
I think is absolutely crucial.
And this was crucial before
Brexit when I wrote the book
and it's even more
crucial after Brexit
and after the centrifugal forces
that are in Eastern Europe.
So let me give a analogy that
I make in this book that is not
really enjoyed by anybody,
but I think is right
and I keep insisting,
because eventually somebody
will realize.
And there's a very
strong analogy
between the process
of Italian unification
that took place bit
more than 150 years ago
and the process of
European unification.
So for those of you that are not
very strong in Italian history,
let me give you
like a one minute
version of what happened.
There was a small elite
that felt Italian.
Most people did
not feel Italians.
They spoke languages that they
did not relate to each other.
They couldn't
understand each other.
So it was really a
small intellectual elite
that felt that Italy
should be unified.
And in a couple of years,
between 1858 and 1860,
seven countries
turned into 1 and 1/2.
And that half was the leftover
of Pope country and Pope state.
And basically, Italy got unified
against every expectation.
And actually recently, I've seen
a very interesting paper that
looks at the spread of the
Italian government bonds
and trying to figure out how the
financial markets at the time
was anticipating the
possibility of a breakup.
Because this strike
of luck was not saw,
at least in
principle, saw stable.
And people were doubting that
Italy will actually make it.
And it did, but it was not easy.
But the country was
taken so much by surprise
that basically, there
was a problem of, how
do you create a legislation
for a country that was very
different, very heterogeneous?
And they solve it in
a very simple way.
They took all the legislation
of the king of Sardinia,
basically, Piedmont,
that was the aggregator
of this unification.
And they pulled it
overnight to everybody else.
And to a historian or
any political scientists,
et cetera, if you look with
an historical perspective,
there's no doubt that that
legislation was probably
more progressive than most
in most other countries,
in most other states in Italy.
However, it was not necessarily
the right legislation
given the conditions
of those countries.
And just let me
give you one example
that I find very illuminating.
The example, is electoral law.
The electoral law
actually in Piedmont
was pretty progressive, because
you could qualify either
based on income--
it was still a
restricted franchise,
but that's not surprising
even in the states
where it was due to franchise,
or based on your education.
So you could qualify based
on some literacy test.
And as a result, the number
of voters in Piedmont
were decent, because literacy
among males at the time
was fairly high.
Then they apply the same
law to Campania, Sicily,
place like this, where
literacy was abysmally low,
literacy was abysmally low.
And the result is that,
and this is something
that actually I start to realize
only when it came to the United
States, because say, when you
have restrictive suffrage, how
do you allocate
member of parliaments,
how do you allocate seats?
Do you allocate based
on voters, or do you
allocate based on people.
And reading the US
constitution, I realize,
you tend to allocate
on people, not voters.
And then I check, and in Italy,
it was true there as well.
So the south had plenty
of people, nobody voted.
So a few families
were controlling
a member of parliament.
The seats were controlled by a
few families and most of them
were basically, local bad ones.
And later I realized
that there was actually
a famous book that was
saying, electoral trip that
was describing exactly
that feeling that was not
a campaign, was a visit
of a few relatives
in an area of which
relatives that were deciding
the member of parliament?
And what was the result is,
after unification, there
was a clear alliance between the
northern more progressive part
and basically, these member of
parliaments in the south that
wanted to protect
their privilege.
And they were very effective
in making a coalition
in parliament and they got their
privilege sort of maintained.
And if the south had been
an independent country
would never have
survived long term
with that situation, because
was unsustainable politically.
Unfortunately,
the Italian armies
was used to repress
that revolt. And so you
add the southern
[? barons ?] helped
by the northern bourgeoisie
maintain the south
under develop.
And the result was dramatic.
Most people know today
that the south is
less developed than the north.
Few people know that, at
unification, Emilia-Romagna,
which is the town
around Bologna,
this is the countryside
around Bologna,
if you don't know Italy so well,
had the same per capita income
as Sicily.
And 100 years later, the
gap was almost two to one.
And of course, it's not only--
this might be that the
Industrial Revolution was
favoring places
with all the water,
there are all these
different theories
that this is not
just the fault of.
But the point is that
I subscribe very much
to actually a
political scientist,
probably not very famous
outside of any Italian circle--
Vincenzo Cuoco, who wrote a book
about the history of their 1799
Napoleon's revolution.
This was the revolution
that was trying
to help the French come to
Naples and change the country.
And being part of
that revolution,
it was really a
bourgeois revolution
that was suppressed in blood
by the local elite helped
by the British.
Admiral Nelson was crucial
in that counter-revolt.
And after actually
be convicted to death
and then be able to go
to exile, et cetera,
Vincenzo Cuoco reflected on
the mistake of this Jacobin
revolution in Naples and
came to the conclusion
that, it's stupid to
export political models
to other countries.
And he has this
passage that say,
constitutions are like clothes.
And you want to have
the right clothes
for the right temperature
for the people.
And I always wonder if the
neocon in the United States
had read Vincenzo
Cuoco, we never
had the Iraq war and a
lot of other disasters.
Because this idea of
exporting institution imposing
is, in my view, a wrong idea.
So long story
short, what happened
is that even for
good reasons, you
had the north trying
to improve the south.
And by improving,
of course, according
to that definition
of improvement,
led to a desertification
that led to immigration.
Basically, all the
Italian Americans
you find in the United States
who came here before 1980
come from the south.
There are few
exceptions, but very few.
And the want after that
to immigrate to the north.
But we have a gigantic
depolarization
of human capital, because
the one leaving are generally
the more educated and the
more entrepreneurial--
they have better sort of spirit.
And so you tend to leave
behind the ones who
don't have the strength to
revolt, to change, to do.
And I think that
that is a big legacy
that unification led to Italy.
Now why did I
spend so much time?
Because, in a sense, the
European Union is a similar
construct.
The European Union was a
dream of the few intellectuals
at the end of World War II
that said, never, ever again.
And you can understand, after
two World War that basically
destroy the continent twice
in the space of 30 years,
you are really trying to
build a different model,
different system and et cetera.
And the idea was that by having
some form of unification,
then you will have no war.
And what is
interesting is this is
an article of faith in Europe.
So when you actually question
the article of faith,
say, wait a minute,
last time I check,
United States and Canada
are not a country.
And in the last 200
years, there was no war.
So being separate does
not mean to be at war.
And actually, when you mention
the bloodiest war in all the
United States was a civil war.
So being a country does not
prevent, or being united
does not prevent wars, being
separated does not mean wars,
OK?
And if I had to bet
what really kept Europe
in peace for so many
years, was a combination
of a Soviet threat and the NATO.
Those are the two things
that kept things altogether.
And ironically,
the biggest war we
had in Europe since
World War II was the war
of a union that
broke up Yugoslavia
in the bloodiest possible way.
And the same union now is
applying piece by piece
to be reunified inside
the European Union.
So all these things
are quite paradoxical.
But in Europe, they
are now discussing--
is an article of faith.
Number one, you have to
unify to prevent war.
And when the alternative is
war, then anything is bearable.
If you are saying,
if you don't do that,
you're going to have
a World War III.
It's basically saying,
you have to do that.
So that's the first step.
The second step is
that a inevitable step
in that direction is to
have a common currency even
without a political union.
And the idea and when you
talk to people in Europe,
if they are honest or very clear
about this, they say, look,
the Europe project,
the common currency
is not an economic project,
it is a political project.
And this political
project based on the idea
that the final goal is
complete political unification,
is by making a step
in that direction,
you are actually
doing a great service
to the entire continent.
Now even this is not
a foregone conclusion.
In fact, if you read
Milton Friedman--
Milton Friedman has a
piece in the late 90s,
it was already
pretty old by then,
but it was still very sharp.
And he wrote this piece
against the Euro saying
what, at the time,
looked like blasphemy.
But it turned out to be so
right that it's almost scary.
Because he said,
look, the fear is
that pushing a monetary
union when they are not
in economic condition to
do, rather than creating
a better and closer union
will create so much tension
that things will fall apart.
And when you see the Greeks
calling the Germans, Nazi,
and the Germans calling
the Greeks, lazy--
and by the way, until
the recent election,
the funny thing
is that they were
more lazy people in Germany.
If you look at the number
of hours they work per week,
the Greeks work much
more than the Germans.
They're less productive,
but they work more.
And then if you look at the
people voting for extreme right
wing party until
the last election,
the more Nazi percentage wise
in Greece than in Germany.
So those labels are clearly
wrong, they are stereotype.
But those labels will not
have been used 20 years ago.
That would be inconceivable
for a Greek to call
the German, Nazi, and for a
German to call the Greek, lazy.
And by the way, with all
the political tension
that we have in the United
States and all the decay
in political discourse
and political language,
particularly, I
don't think that we
had any elected representative
anywhere that made
fun of a part of the country.
They made fun of the
Mexican or people outside
of the border of
the United States,
but nobody said, oh, in
Louisiana, they are lazy,
or something like that.
And in Europe, that's standard.
In fact, we had
[INAUDIBLE],, the former,
I think, Economic Commissioner
in the EU, a Dutch guy who
said that, we don't
want to relax the budget
rule for countries that spend
their money in women and wine.
And that was clearly referring
to the southern European
country, so Greece and Italy.
So that's kind of condescending.
It would be an acceptable
even in today Trump's America,
let alone before.
But that's standard.
So the guy said it, he did
not even have to resign.
That's part of the
common language
that takes place in Europe.
And in this context, I
think that Europe started
as a economic project,
in particular, as a way
to enlarge a common market
and was extremely successful
in that, it was extremely
successful [INAUDIBLE]
in creating a common market.
And also, it created a strong
incentive for new democracies
to basically improve
their institutions
and join the European Union.
Over time, for those of you
who don't know the history,
the first treaty of what was
then, the European community,
was signed in Rome, speaking
of how Italy feels strongly
about Europe--
[INAUDIBLE] in Rome in 1957.
And then, in 1973,
Ireland and the UK join.
And then later,
all the countries
start to become democratic--
was Greece, was
Spain, was Portugal.
The first step
they were doing is
were trying to qualify
the European Union
and become part of
the European Union,
and then became sort of the
Eastern European country.
And this was very important.
And actually, I see with
my eyes how powerful
that incentive was, because
I went to Turkey in 2002.
And in Istanbul, you could
breathe the scents of Europe.
First of all, everything
they were saying,
this is the biggest
thing of Europe.
And I'm a bit picky,
but I said, look,
you have a teeny tiny piece in
Europe, because most of Turkey
is in Asia, at least,
when I studied geography,
that was the division.
But they felt part of
Europe, because they
were trying to actually qualify
for the European-- entering
the European Union.
It was so powerful
that they even
started to treat the Kurds like
human beings, which for a Turk,
it takes a lot.
And this was 2002, at the time,
which there was still hope
that Turkey will join
the European Union.
And then a combination of
sort of Germany and France
said, no more.
And I went back in 2012.
The country was
completely different.
And of course, [INAUDIBLE]
play a role in this,
but you go to Istanbul
and you see all the women
with a veil, when
before, the veil was
sort of out of the question.
You see a completely
different attitude
and you see politically
how Turkey is now
becoming a leader
of the Islamic world
rather than a part of Europe.
And I think that that's
just to be remember.
So in a sense, the
European Union,
the European community
did a fantastic job
in creating a larger market
and in qualifying or moving
early democracy into
a stable democracy.
I think that that was great.
However, there was a big
problem in the European, what
was then, community, is
that, because you had
to keep basically
the French happy,
there was a big strong
agricultural policy that
was extremely difficult to do
with flexible exchange rates.
Because again, do you have
to have the same currency
to trade?
And the answer is no,
because Mexico and Canada
are very integrated
with the United States
with different currency.
So you don't need to have
the same currency to trade.
And I think that
it was a good idea
to maintain some flexibility.
But managing a
policy of subsidies
to agriculture based on exchange
rate, the challenge every day
sends all the bureaucrats nuts.
And so there was a
very strong pressure
to have a common currency.
And first, they added
a monetary system
that was trying to
stabilize the parity.
And [INAUDIBLE] the system
wasn't working very well.
Why?
Because the most important
country was always
Germany and Germany was
setting monetary policy.
And when Germany was
setting monetary policy,
everybody else had to
either sort of jump
to the German tune,
or be completely
at risk of a devaluation,
[INAUDIBLE],, and all
these terrible things.
And so, we saw this very clearly
in '92, shortly after German
unification.
Germany had to
increase interest rates
to control some of
the booming that
was coming from
unification that was not
appropriate for the
rest of the country.
And we had the UK get out
of the monetary system,
you had Italy getting out
of the monetary system,
you had a lot of disruption.
And so at that time, there
was a famous agreement
between Mitterrand and Kohl.
And Kohl wanted the German
unification and Mitterrand
said, yes, we let you have the
German unification in exchange
for a common currency.
And Kohl said, yes.
The Germans did not want to
come currency-- said, yes, we
are going to get
the common currency,
but at our conditions.
And so, they set the
rules very precisely.
And this is, in a
piece that I think
is one of the worst example
of political misleading,
when Mitterrand talked
to the French voters,
he said that they
are going to have
a more progressive monetary
policy, because now,
the French will shape
the monetary policy,
because they have [INAUDIBLE]
in the central bank
and so on and so forth.
Not recognizing that the rules
of the ECB are such that,
there's no room for
progressive monetary policy.
Just for those of you who
are not economists or not
monetary economists,
in the United States,
the Fed has a dual mandate
of price stability and also
full employment.
In Europe, there is
only one mandate,
which is price stability.
And actually, price stability
is defined in a very tricky way
to say, average
inflation below 2%.
So it's not even obvious that
if you have major deflation,
you have violated your mandate.
So you basically was enshrined
in the treaty these rules.
And these laws are less
modifiable than the US
constitution.
And I know today it is not easy
to modify the US constitution,
but there is a process and
historically, this is done.
And you can even call a
national convention if you want.
But in Europe, you had to
have 17 different countries
to agree to that.
And you had to have unanimity
between 17 countries.
This is impossible.
And so, this is
enshrined in the law.
And so this was-- the
idea now in doing that,
they set some
goals for countries
to join the European Union.
And one of these
rules was the fact
that you had to have a
debt that was not too big.
And definitional of too big--
below 60% of GDP.
And when this rule
was set in '92,
it was clear that two
countries, Belgium and Italy,
would not qualify, because
at the time they both had
a debt to GDP of over
100% and it's not
easy to cut down
this in a hurry.
But Belgium had all the
other conditions to qualify,
Italy basically, pretty
close to the event, had none.
And in a famous
meeting, Prodi went
to talk to the then
leader of Spain, Aznar,
and he was trying to say, look,
we sovereign countries should
be joining the Euro later.
And Aznar said, no, no,
we Spain, we're ready.
If you Italians are not able
to do it, that's your problem.
And that is considered
like a slap in the face,
at least that was described
as such in the Italian press.
So Italy did everything possible
and even impossible to qualify
for this cut off.
And the accounting
was not as perfect,
but basically, every
country cheated.
And now the question is to
what extent you cheated.
There are some
people cheated a bit,
some people did with gusto,
Greece is an example,
and Italy somewhere
in the between,
between Germany and Greece.
And then you pick where in
this continuum Italy is.
But clearly, it's much
more difficult to say, no,
because you cheat
when everybody dies,
and then there's a
question of degree.
But joining the EU
at the time was not
unreasonable for
Italy for two reasons.
One is, Italy had survived
in the '70s and '80s
by doing a lot of
competitive devaluations.
And this competitive
devaluation was so timely
that entrepreneurs
expected that.
So they have very
little incentives
to actually innovate
and go up in the product
ladder, because every
second year there
was a major devaluation
that will give them
new competitiveness
and they would
keep supporting the same stuff.
And so the idea of saying
we need to maintain a more
rigid exchange rate so
that actually entrepreneurs
are forced to go up in the
product ladder was a good idea.
The second is that Italy,
between the early '80s
and the end of the '80s, had
accumulated a gigantic debt.
And because of the
history of inflation,
was paying very
large interest rate.
In spite of the
low inflation, was
paying basically a huge
premium on that debt
that made it very difficult for
that debt to be sustainable.
And so the idea was, we tie
ourselves to the German mast,
like Ulysses did many
centuries before.
And by doing that, we
have a credible commitment
not to inflate.
So we can pay less for our debt
and that will make things work.
Now unfortunately, two things
in my view went the wrong way.
The first one is that
immediately after we
enter the euro, Berlusconi got
elected and squander the euro
dividend with gusto.
So I did a back of the
envelope calculation,
it was very simple,
you can reproduce
and you kept the
fiscal discipline
of '97, the year we
qualify for the euro.
Between '97 and 2007,
we would have entered.
So if you got all the
savings and interest
and used to pay down
the debt, by 2007,
Italy would have
had a debt to GDP
of 60%, which was the level
Germany had at the time.
Instead, we arrive 107.
So that difference
is the dividend
squandering by Berlusconi
during that period.
So more expenses, more
stuff, et cetera, et cetera.
The second problem and this
is really nobody's fault,
except that maybe somebody
could have forecast
that is, Italy will
specialize in manufacturing
and got hit particularly hard by
the entry of China in the WTO.
We know now how much this entry
has cost the United States.
Imagine a country that is much
more exposed to manufacturing
than the United States and also
in lower level manufacturing
vis-á-vis the United States.
So the hit was huge.
And so we gave up the exchange
rate flexibility precisely
at the time where we need it.
And in my analogy, when I
talk to broader audiences,
I say, look, devaluation
is like a drug.
If you keep doing
it, you get addicted,
and it's not good for you.
However, if you have
to do a root canal,
doing without anesthesia
is not pleasant.
It's not pleasant
even with anesthesia,
but let alone,
without anesthesia,
it is not pleasant at all.
And Italy is doing a root
canal without anesthesia.
So that's problem number one.
Problem number two
is, and this is, I
think we economists have to take
a huge amount of responsibility
collectively, because
while you can say,
we didn't predict the factor, we
could take responsibility also
for the entry of China, but
certainly not for Berlusconi.
But the third part that we
should take your responsibility
for is, the way the
euro was designed.
So all the macro economies
are so obsessed with inflation
that they design the
entire central bank
to protect against inflation.
It's basically, they build
a gigantic marginal line
against the enemy
of the previous war.
And the new enemy was different.
And the new enemy was
called, financial instability
and deflation.
And the euro era
was not in any way
prepared for those two things.
And in particular, if you ran
a large debt to GDP ratio,
you might be subject to doubt
whether you can roll over
the debt.
And these doubts, we
know in economics,
can be easily self-fulfilling,
even when you are not--
if you are clearly insolvent,
there is nothing you can do.
If you are clearly solvent,
the doubts will never arise.
But when you are
borderline, it's
not that impossible
to have these doubts.
And those doubts
are self-fulfilling.
Why?
Because if I start to doubt
that Italy will repay me,
I will demand a
premium on the interest
that the Italian
government pays.
That premium is going to
increase the deficit of Italy,
unless you increase
taxes, but that
will have a negative
effect on the economy.
And if that makes
it less likely this
increase the
probability of the Ford
which means requiring
higher premium.
And so this is a vicious circle
that we have seen in action
taking place in 2011.
So Italy had a very
large debt to GDP
and was not going particularly
fast, that's the problem.
And in addition to that,
was hit by the doubt
that will ever repay.
And that doubt was
actually triggered
by a meeting between
Sarkozy and Angela Merkel,
where they discuss the so-called
private sector involvement
in a debt restructuring.
And that created the panic
that Italy will be next.
And that created a spiraling
of the interest rate,
a huge fiscal adjustment
measure as Italy
was slowly resurrecting
from the 2008 crisis.
So Italy depends
very much on export.
And in 2008 and 9 got a
20% reduction on exports.
That was a dramatic shock that
led to a 5.6% drop in GDP.
So everybody thinks
about the United States,
the financial crisis
in the United States
did not lead to such
a huge drop of GDP.
So the drop in GDP of
Italy was much bigger.
And as Italy was slowly trying
to get out of that ditch,
got hit a second time
by a second recession
caused by these high spread
and high interest rates.
And that leads to two
year of recession.
And at the end of this
process, 35% of businesses
went into default,
35% of businesses.
And GDP real time went down
to 10% from 2007 to 2014.
And the peak in
unemployment was 12%.
The peak in youth
unemployment was 37%.
And this is pretty dramatic.
And let me, I didn't
want to sort of kill you
with too many slides,
but I want to show you
a couple of slides that
give you the sense of how
bad the Italian situation
is, because from outside,
you don't really get
the full picture.
So this is the per capita
income of Italy vis-á-vis US
and Germany.
And as you can see,
Italy basically, in 2016
had roughly the same per
capita income of 1996.
So 20 years without any
growth in per capita income.
That's pretty dramatic.
Now this is even a
more dramatic picture,
because this shows the per
capita income of values
Italian provinces relative
to their EU average
in the last 15 years.
So as you can see, there
is not one province
in the entire Italy that
gain over their EU average.
So was literally
downhill, and now, Milan,
which is considered the cream of
the crop was a bit slow at this
[? peak. ?] [? Faenza ?]
was dramatic.
And the south is
even more dramatic,
because [? stats ?]
were such a low level.
There were only 3 region
in the entire Europe
where the majority of people
are below the poverty line,
those are three regions
in the Italian south.
This you see how the things--
this is productivity.
But this is productivity--
you see that [INAUDIBLE]
the northeast did OK.
Northwest and the
center, not much.
And the south was
a dramatic loss.
So Italy did poorly.
The south it even worse.
And then to finish with
the last piece in this
is the famous
immigration crisis,
where Italian governments
made a lot of mistakes,
but Europe did worse.
So first of all, let me
tell you the good news.
The good news is that probably
the immigration crisis
from Libya is the first refugee
crisis not caused by the United
States, 'cause generally,
the United States
are always involved in
some way or another.
That crisis is entirely the
product of Sarkozy decision
to invade Libya.
That initially was broad
casted as an attempt
to gain influence at the
expense of Italians, by the way.
Now, there seem to be a darker
motivation, because according
to recent news, Sarkozy had
received illegal campaign
financing from Qaddafi and
wanted to cover the traces--
so wanted to destroy
Gaddafi before Gaddafi
reveal of that illegal
campaign financing.
So whatever it is,
basically, Sarkozy problems
created an instability in Libya,
create a failed state in Libya
that became the launching pad
for immigration in Europe.
Now what most Americans
don't appreciate
is that most immigrants in
Italy don't want to go to Italy.
So why do they arrive in Italy?
Because it's the closest place.
I don't know how well
you know your geography,
but there are a couple of
little islands south of Sicily
that are pretty close to Libya.
And so it's fairly easy
from Libya in a good day
to go to Italy.
And why do they go to Italy?
Because it's part of the
EU, and eventually, you
want to go to Germany, the
UK before Brexit, or France.
However, there is a treaty
called Dublin Treaty that
says that all responsibility
of the people at the border
are with the country
involved in that.
So it's as if all the
immigration from Mexico
was coming through New Mexico.
And New Mexico on
the state budget
will have to take care of it.
And that's not enough, because
the treaty says that unlike
the European citizen that can
move freely across the various
countries, the immigrants that
ask asylum cannot move from
the country receiving them.
And so the last few weeks,
there was a tragic case
of a Nigerian woman who was
pregnant and die of cancer.
She was trying to go to France
to reach her sister in order
to entrust her kid to
be born to her sister.
She was pushed back
by the French police
at the French border and
died in a Turin hospital.
So this is the level of
cooperation of Europe vis-á-vis
Italy.
So I don't want to
sound too negative,
but when you see the result
of the last election,
you see all this populous,
or so are called.
I think you should
actually thank god
that we don't have wars.
The Italian situation
is in my view
comparable to the one
of Germany in the 1930s
where Italy took power.
And with all the
defects that you
might attribute to the Five-Star
Movement, it's no [INAUDIBLE]..
There's no doubt.
Now maybe you can discuss
whether the league [INAUDIBLE]
more like neo-fascist
sympathies.
Certainly, the connection
with the Le Pen movement
is not a badge of honor.
But I think to Five-Star
Movement is not.
And while it's
resisting immigration,
is also very progressive,
for example, on environment
and very insistent on being in a
cleaner government to the point
that they did something
in my view unprecedented.
They ask all the
members of parliament
to give back, I think,
a third of their salary
not to the party,
to the government--
or to the community.
So they use that
money to finance
small and medium enterprises.
And the funny thing is,
just before the election,
all the mainstream
media that of course,
see the Five Star Movement
as the barbarian at the gate
started to mount a gigantic
campaign about the fact
that, out of the, whatever, 250
member of parliament they had,
10% did not pay the full amount.
And what is
surprising is 90% did.
And particularly, it
seems that they are not
particularly good
at keeping track,
with the possibility
of getting away,
because 10% did, 90% of
did, which is remarkable.
And that led to a victory.
And the interesting
thing of the system
is that you have the Five-Star
Movement winning by a landslide
in the south of Italy.
In Sicily, they got so many
members of parliament that they
cannot fill the seats, because
they have not put enough
candidates to actually
elect everybody,
because every single member
of parliament of Sicily is
for the Five-Star Movement.
So anything below Naples
is basically yellow,
because that's a part of
the Five-Star Movement.
Everybody above Florence is
controlled by the center right
coalition, of which their
[? league ?] is the main party.
And the center is
basically a center
in every dimension with
a little bit of leftover
of the Democratic Party
and some district going
one direction, another
district going the other.
Now of course, the very,
very complicated situation
which we are in right now
is, what kind of government
we can have in this contingency,
which is very complicated.
But we should remind ourselves,
it's very complicated,
because the previous
government was basically
a coalition of the Democratic
Party and Berlusconi changed
the electoral law at the last
minute to make the country--
to make impossible to
anybody to win the election.
So if we had
instability, it's not
because the Italians
don't know how to vote,
it's not because
we're a bad luck.
It's because of a
concerted effort
that was in some sense
endorsed by the president who
had to sign the new law to
create a law that will make it
impossible for anybody
to win in part,
because everybody was terrified
that the Five Star Movement
could win an outright majority.
And so now we are
in a funny situation
in which the
Democratic Party that
used to be led by Renzi, who
now resigned, did like the kids
when they lose at
the soccer match--
it took the ball and
left the game and said,
I'm not going to participate
in any alliance with anybody.
And we'll see whether
the party will
survive for a long
time in that position,
but that's it's position.
Now given this, actually, to
me, the most natural alliance
was to the Five-Star Movement
and Democratic Party,
but Renzi had made
this impossible.
So technically, there
is a possibility
of a government for
this Five-Star Movement
and their league together.
The problem is, the
league in the election
was allied with Berlusconi and
the Five-Star Movement said,
never will [INAUDIBLE]
Berlusconi.
And I think that
this is credible,
because all their voters will
stop voting for them if they
renege on that promised.
The party was basically started
as an anti-Berlusconi party
and if you are to
renege on this,
it would be the
end of the world.
And so, we're basically
in a stall mate
that we don't know
how to fix it.
And a stalemate in
Italy and a stalemate
in Europe, because I
think that at this point,
may be exiting
the euro for Italy
could not be the worst
thing in the face of earth
if this could be done
without too much disruption.
However, even in the
most organized country,
exiting a currency
union is disruptive,
in Italy, in my view,
will be devastating,
because the best way
to do this things
is do it fast and
do it by surprise.
In Italy, nothing
is by surprise,
because if you more
than two people
involved into any action,
everybody knows about it.
And so, I think that
the disruption created
is a major problem.
My biggest hope was
always that at some point,
Germany will exit the
euro from the top.
They realize that
Germany and the satellite
countries around Germany
are in optimal currency era.
They can leave the
euro from the top.
It's much easier to leave the
currency union from the top
than from the bottom.
I even found a nice name--
northern euro,
also called neuro.
And so, Germany
would be under neuro.
And the so-called Club Med--
Italy and the other countries--
will be on the existing euro.
The big problem
in this plan and I
think what makes it infeasible
is, where does France fall?
So economically, France belongs
more to the southern part
than to the northern part.
However, number one,
it's not politically
feasible for any
French president
to be part of what
they call the Club Med.
So is a way to lose
the election for sure.
And number two is, Germany
cannot be in an union without
France, because the European
Union was born in this forced
marriage between France and
Germany to prevent another
World War.
So breaking that
will really break
all the assumption of the
foreign policy of the last 70
years.
And so, what is the option?
I think that if we had a strong
government, maybe a coalition--
Five-Star or league, or
a coalition Five-Star PD,
this strong government could
try to lever the power of Macron
and his activists in trying
to reform some characteristic
of the European Union.
And what is the threat?
The threat is, look, imagine
that you have a PD Five-Star
Movement coalition, the
threat is, if we fail,
the next are going
to be the league that
is even more radical than us.
So the next one is
going to exit the euro.
And honestly, this
is the nightmare
of every French president,
but particularly, Macron.
If Macron has to witness
an Italy leaving the euro,
this is the biggest gift they
could give to Marine Le Pen.
So I think that Italy
has some culpability.
The problem, in my
view, is first of all,
you need a government
to try to do that.
And that's hurdle number one.
Problem number two,
the new government
does not have a lot
of middle people
that actually carry its policies
in an effective way, especially
the Five-Star Movement.
But even the league,
they tend to be
like anti-establishment party
with very dedicated supporters,
but not much of
the intelligentsia.
In fact, if you
want to be shunned
by any meeting in Italy, you
express some vague sympathy
for the Five-Star Movement
and you are completely
consider persona non grata.
This is the level of
political outcast.
So this makes it difficult
for them to have people that
negotiate this stuff in Europe.
That would not be
an easy [? stuff. ?]
And last but not least,
and then I stop here
and then I will
open for question.
I think there is a
problem inside of Italy.
Part of the
establishment in Italy
sees Europe in a
orthopedic function.
What does it mean an
orthopedic function?
Basically, they think that we
are unable to govern ourself,
we need some rigid
rules to force
the people to behave
properly and the Germans
provide us these rules.
In fact, the CEO, at the time,
the CEO of a large bank once
admitted to me, he
said, we Italians
are better off being
run by Angela Merkel.
I think that somebody
who say that should
be on trial for treason.
But this represent actually,
most of the Italian elite.
And so, there is really sort of
a fifth column of any attempt
to reform Europe, because
the Italian elite does not
want to do that.
So
And the reason why we
are a populist party--
my favorite line is, the
problem is not populist.
It's elitism.
Problems arise, because on the
other side, there is elitism.
And I think that the
Italian elite has behave
and misbehave in a major way.
And that is what generated
this protest vote.
Can this protest
vote fix the problem?
I'm not that optimistic.
What I do know for sure, if
they don't, the situation
will only get worse and the
rage can take even worse forms.
So I think that this is really a
very important moment for Italy
and for you Europe at large.
Thank you.
EMILY SKARBEK: So a lot
of very interesting issues
to take up in the Q and A.
We'll go ahead and open it up
to the floor.
Do you want to field questions?
LUIGI ZINGALES: Yeah, I'm
happy to field questions.
EMILY SKARBEK: Anyone
interested can come down
to one of the two mics
we have in the room,
or if your voice is loud enough,
you can just project strongly.
Yes?
AUDIENCE: First of all,
thank you for that.
That was really
intriguing, [INAUDIBLE]..
I guess I wanted to talk about
how the larger [? items ?]
sort of fit into some of the
details that you [INAUDIBLE]..
So the larger
argument, I very much
liked the parallel between
the unification of Italy
and of Europe.
LUIGI ZINGALES: [INAUDIBLE].
AUDIENCE: And so if I
understood the argument is
that it's a political project.
So in Italy-- [INAUDIBLE].
Europe, never again.
And that led to a whole
strange bed-fellows
had to get together.
And as a result of that
political coalition,
there were a set of economic
policies that maybe weren't
the right policies for
the right time given
that either regions
were different
or countries were
different [INAUDIBLE]..
And I think that's a very
coherent and good argument.
And so, I guess what
I'm trying to understand
is how much did the bad economic
policies or practices actually
follow from the
political project?
If I think about the first
analogy of unification,
it wasn't just that Sicily
had the same GP as [INAUDIBLE]
but that Naples had been an
incredibly well-known city.
And then what happened as a
result of the unification,
you had transfer of wealth
from the south to the north.
Until later on, there
had to be a transfer
of people out of Italy
[INAUDIBLE] to the north.
And it seemed to me
like, how much of that
was a political thing?
Or how much of
that was just sort
of idiosyncratic
dead policies that
added up to-- that transferred
likewise for the EU?
As I listening to your
narrative, which was much more
detailed, [INAUDIBLE] yeah,
that was really stupid
economic policy that
was maybe informed
by [INAUDIBLE] the right
thing was, as opposed to,
it was emanating from
a political project.
So for example, the
periodic currency
evaluations that Italy
did in the '70s and '80s
and stuff like that.
And it's true that it
made it, on the one hand,
an incentive for them
not to invest in R&D
and stuff like that
and Italy would always
be very low in that.
But at the same time in certain
parts of Italy [INAUDIBLE],,
stuff like that, you
actually did see upgrading.
[INAUDIBLE] went from
making straw hats
to exporting [INAUDIBLE]
or something like that.
[INAUDIBLE] came and all
these other [INAUDIBLE]
the [INAUDIBLE] industry around
Verona and stuff like that.
It actually were
serious upgrading.
It wasn't just based on
like, buy Italian things
because it's cheaper
than a German product.
And so, I try to understand
how much-- so somehow there
was some upgrading and
innovation going on even
in the Italian
south in the '80s.
Remember in the Italian south
[INAUDIBLE] saw some exporting.
And then it seemed like
this double recession just
killed everything.
So I guess I wanted to
understand from you how much it
was really the emanation
of a not well thought
of political project as opposed
to bad luck, bad policy,
a combination of these things,
because based on that, what
the lesson we'll
learn from the past
is going to help us figure
out what [INAUDIBLE]..
LUIGI ZINGALES: I think
it's, as often is the case,
a combination of the two, in
a sense, was their bad luck?
Absolutely.
In addition to the
WTO shock, there
is another shock that
did not play well
with Italy, which is the ICT
shock-- that is the information
and communication technology.
And I have a paper
actually documenting
how Italy does
very poorly in ICT,
because there is
a complementarity
between managerial
skills and ICT.
And Italy tend to have, let's
say, old fashioned management,
more family oriented, loyalty
oriented, non-meritocratic,
and so on, so forth, and
stands out in that dimension.
So this exacerbating
more of the problem.
But there are some
things that are specific,
I think as a combination
of some rules.
As the electoral
law for Piedmont,
those rules are not bad per say.
But they don't combine
well with the rest.
So take for example, the budget
rule of not having more than 3%
of deficit to GDP--
budget deficit to GDP.
I think that is not necessarily
a bad rule, and particularly
for Italy that as a huge
amount of debt is a good rule.
However, these strong limit
imposed from the outside,
so not owed from the bottom,
but imposed from the outside,
leads to war.
OK, so we need to qualify.
So how do you qualify?
First, you play tricks,
which is never a good thing.
And actually, we
now have $40 billion
of debt due to derivatives
that we sort of are underwrote.
My interpretation of that--
in order to play tricks.
$40 billion is real
money, even for a country.
And I think that that's
a pretty dramatic thing.
So that's number one.
Number two, when you cannot
do it with budgetary trick,
a bit like the managers,
when they cannot manipulate
accounting, they manipulate
the real valuables,
that is even worse.
So what Italy did is they stop
doing any capital investment.
And why?
Because if you have to
cut, it's much easier
to cut capital investment than
to cut current expenditure.
So in the last 10 years, we
saw capital investment drop
tremendously.
And this of course has
long term consequences--
the productivity of the
country, and so on, so forth.
So again, a good rule
or a reasonable rule
turned out to be
the worst thing.
Then another example-- this
would be more technical,
because its from the
banking sector, but let me
try to translate it
for a general audience.
There are basically two
approaches to bank regulation.
When you see that the banks
start to go in trouble,
either you try to intervene
early and force equity
[INAUDIBLE] recapitalization,
and so the bank
is more resilient.
Or you close your eyes and
hope that with time, things
will solve themselves.
And not surprisingly
Americans tend
to do more of the first
type and Italians,
more of the second type.
And Germans tend to be more the
first time and Italians more
on the second type.
So when the euro
crisis hit Italy,
there was the second
crisis in a row.
The Italian banking
authorities started
to basically ignore the
problem, hoping that this
will eventually go away.
And probably, once you
start to ignore it,
it's very costly to
discover along the way.
And if you discover
at two of the cycle,
you're doing the
worst possible thing.
But what happened is that
the German rules arrive.
When?
At the worst moment
in the cycle.
So we did not
recapitalize early,
and we are forced
to recapitalize
in the worst possible moment
with devastating effect
in the banking sector.
And these effects are long
lasting in the future.
So in my region, Veneto,
two of the three main banks
were bought by the other.
So there is a major
consolidation.
And this is dramatic
for small firms.
The secret of-- there's
more firms in Italy,
and of the Mittelstand,
there's more firms in Germany,
is at the banking sector.
In Germany, there are a lot
of small cooperative banks
that finance the small firms.
And the same is
true with Veneto.
You consolidate dramatically
the banking sector,
and those firms cannot operate,
because they are basically
taken advantage by
the banking sector.
And I could keep going.
So I'm not saying that in
any way that Europe is evil.
And most of the time,
Europe had the right rules,
especially for more
developed countries.
And Italy benefited by and large
to have more progressive rules,
which is good.
But the combination of a
country that is struggling
and rules that are not made with
a country that is struggling
is a very difficult combination.
I think that in Italy,
soccer analogies always
[? sell ?] very well, so I
pick a small team of a place
in the market, [INAUDIBLE].
There's this team called
Sambenedettese, which basically
a third division team.
And I say, if you
have Sambenedettese,
you cannot play
in first division.
And maybe if you're
really sort of strong,
you can play second division.
If you play first division,
it's not even fun.
You're beaten up every
day morning to evening,
and you're not
learning anything.
And the idea, in a very
sort of optimistic way,
when we join the
euro, et cetera,
we said, we're going
to do it and then
the country will follow.
The expression, it actually
is a fascist expression,
but it's still quite
popular in Italy,
you throw your heart on the
other side of the obstacle.
And the idea is a beautiful
metaphoric expression,
because when you
throw the heart,
you hope that the rest of
the body will jump as well.
And Italy did throw the heart,
and the rest of the body
is still on this
side, and that's
another pleasant situation.
EMILY SKARBEK: [INAUDIBLE].
AUDIENCE: So I have
question about the analogy
of European, Italian [INAUDIBLE]
and the unification of Europe.
So you began the story
with a story about
[INAUDIBLE],, for
example, and the origins
of the common
agricultural policy.
I was wondering if you
could talk a little bit
about if that analogy
holds for Italy,
for example, if my understanding
is correct, in Sicily,
roughly 2/3 of the
agricultural land
was held by [INAUDIBLE]
by large land owners.
To what extent did
that interest group
capture, facilitate and
re-enforce the unification
project in order to
prevent the breaking up
of these [INAUDIBLE]
elite, which was
attempted during unification?
LUIGI ZINGALES: There is a
very rich literature in Italy
about exactly that pact
between the industrial north
and the barons in the south.
And in particularly,
after unification,
they did introduce
protectionist policies
that will a favor the baron in
the south, because the price
of wheat was higher.
But they will compensate by
adding a lot of protectionist
on the industrial products,
so that maybe they
are expensive for
the south to catch up
or to buy industrial
[INAUDIBLE]..
So that condition took
place all the time.
And even Gramsci
wrote about this
in a various standard fashion.
So I'm not saying
anything new here.
It's well-established.
I study in high school
and that was ages ago.
So I think that is a very
well-established debt
coalition.
The thing that I--
this is maybe my
stupidity, but I do not
appreciate in high
school and I only
appreciated, because I started
to think about the difference
between voters and people--
is that this policy was
based on electoral law that
was giving a huge amount
of power to the barons.
And if you had started a
system with more literacy,
the world would be
dramatically different.
But of course, and that
was self re-enforcing,
because in the south, the
barons did not do anything
to improve literacy.
And so actually, the south
arrived at the end of World War
II in disastrous situation.
And probably most
people don't know,
but the idea of
the Marshall Plan
came to Americans when they
saw the Sassi in Matera.
Because in Matera,
you have this--
now there are beautiful
places you go.
There's five-star
hotels, et cetera.
But in Matera, there were caves.
And people were living in caves.
So the Americans land in
Italy and they basically
find cave man.
They said, what is happening?
And that is one of the
motivating factor of it.
And even the redistribution of
land, I think one of the policy
was done after World War II was
to break up this [INAUDIBLE]
and it was one of the
progressive things done.
And also, it push for more
effective education throughout.
But the thing that
is pretty scary--
if you look at the statistics,
now, mine is a few years old,
so it may be, I don't
know, but I expect
to have changed dramatically.
The majority of the
workforce in southern Italy
had no more than eighth
grade in term of education.
That's pretty scary.
How can you compete in a
global war with computers,
et cetera, with a, at most, an
eighth grade sort of degree.
And I'm sorry to say, in eighth
grade, most of the time, which
in schools that are not at
the front of the [INAUDIBLE]
because many of my
Italian colleagues
abroad have this phenomenal
exceptional Italian school,
which in part is
true, because they all
come from the
center of rich towns
and they went to the public
school in [INAUDIBLE]
were fantastic.
The greatest deal I
had in my entire life
is high school, because I
think for the five years,
I probably spent $20,
my father spent $20
for five years of education.
And I had phenomenal professors.
If you were living in the
periphery in the south,
it was not the same.
And so I think that that--
and the PIZA statistics by
the OECD demonstrate that.
If you go to Taranto, in
Taranto, the Italian schools
are competitive with Finland.
Unfortunately, in
Sicily, I don't
want to [INAUDIBLE]
which country they
are competitive with.
Yeah?
AUDIENCE: Can you
comment further
on this dynamic between
elitism and populism,
particularly as [INAUDIBLE]
playing out here
in the United States and whether
not the experience in Italy,
or [INAUDIBLE] Europe is
going to serve as analogy,
or it's going to be
something very different.
LUIGI ZINGALES: So I think that
there are a lot of analogies.
The thing that is different
is that, until recently,
Italy did not have
a race problem.
In fact, all the races was
between north and south
was not--
with black, because
they weren't there.
Now, they start to
become, but they're not
enough to become really a
issue, a political issue
in the way this plays in the
United States, for example.
But keeping this aside,
the rest is very similar
and I actually were able to
have insights about Trump,
for example, by my
experience with Berlusconi,
having seen us going in Italy.
And I strongly recommended,
last September,
the Stigler Center co-organized
a conference with Harvard Law
School from the title--
Populist Plutocrats,
A Lesson From Abroad,
in which, we're not
talking about Trump,
we're talking about
Berlusconi, Taksim in Thailand.
In the Philippines,
there are even two--
Duterte and before
that, Estrada.
And then in Peru, Fujimori.
And what is fascinating when
you look one after the other,
and you can go to
the studio website,
and we tape
everything so you can
enjoy this panels, with
people from each country,
so it was quite interesting.
And once you put them
one after the other,
you can see very clearly
some common trends.
So why does populist
plutocrats succeed?
It's because the existing elite
has failed in a major way.
So in the case of the
Philippines was terrorist.
In the case of
Peru was inflation.
In the case of Italy, there
was Operation Clean Hands
and there was an entire
corruption scandal.
So all this gives the sense that
the normal situation has failed
and of course, in the United
States was the financial crisis
and the economic consequence
of the financial crisis.
Once this is established,
then the more
you are hated by the mainstream
media, the more votes you get.
So Estrada in the Philippines
was a actor in soap opera
or stuff like that, so
was really a flimsy guy,
not particularly serious,
that nobody took seriously,
he was considered a buffoon.
And the other side,
there was the Aquino,
the widow of the famous leader.
But she represented
the establishment.
This guy, everybody start
to make fun of them.
The more the would make fun
of him, the more votes they
we're getting.
And if that reminds
you of Trump,
that's exactly what it is.
Every article the New
York Times against Trump
is one more vote, or maybe
10,000 more votes for Trump.
And they don't understand it.
I wrote an editorial more
than a year ago saying
exactly this point.
And what Trump has
learned from Berlusconi,
or maybe it's a
natural feeling is
how to trigger the Pavlovian
reaction in the opponent.
Berlusconi was a master.
Let me tell you this--
in 2001, there is a campaign and
he announces to his entourage
that the slogan will
be and now maybe you
have to translate,
because I always
find it difficult to
translate in English,
doesn't give the same meaning.
The saying in Italian is--
[SPEAKING ITALIAN]
Blue collar work-- how you say?
A blue collar president.
Now, at the time, Berlusconi
was the richest man in Italy.
So it takes some guts
to actually go out
with a slogan like this.
When he presented to his
entourage, they look at him
and said, no, no,
this is too much.
He completely ignored them,
again, exactly like Trump,
completely ignored them,
went and won by a landslide.
Why?
Because the entire campaign
was about this slogan and how
ridiculous this slogan was.
So there was no issue
about economic policy,
about industrial policy, about
immigration, about anything.
It was all about the slogan.
And he ends up winning.
The guy is a master.
As of yesterday, he has
basically lost this election,
because there was this--
in the center-right coalition,
there was this agreement
that the party who
got the most vote
would appoint the
leader of the coalition.
And the league got
more vote than him,
so now the alleged leader
of the center-right
is this guy, Salvini.
And they go to talk to the
president of the republic.
They come out.
And the leader of the coalition
gave his press conference.
As he gives the
press conference,
there was agree with
Berlusconi before,
because it's a coalition.
Berlusconi mimics him on
the side making fun of him.
At the end, he
takes the microphone
and basically adds
stuff to what he said.
This guy's 82 now.
He's a magician in
acting, because the sense
that everybody in Italy
got is that he is in power
and the other guy is a buffoon.
And he did it in
30 seconds on TV.
But he has a sense of the act
that I think is unprecedented.
Yet you have to
give it to the guy,
because he's really
talented in this.
Unfortunately, it's not
a skill useful to govern,
it's useful to collect votes.
But he has this sense.
And so I think that all the
stuff is coming to [INAUDIBLE]..
So the thing that
to me is fascinating
and we are firm that what we've
seen in the Brexit campaign,
actually, less than
the Brexit campaign,
but certainly in
the Trump campaign,
is in the Five-Star
Movement and basically,
every newspaper and
every TV against.
Now how can you get
32% of the popular vote
without having a lot of money
and having all the media
against?
I think that until
recently, this was
inconceivable, inconceivable.
And why this happened?
Because the media
are so disqualified
that people actually find
it attractive to vote.
The more you pile up, the
more they vote for this guy.
Now again, not so sure that
these are the right people
to change the world, but
this is the sense of revenge
that people have.
And I think that all this
stuff applies clearly also
to the United States and
to Europe in general.
Now I think what is different
is the situation in Italy is
much worse than in
the United States
or in the rest of Europe, and
so the resentment is bigger.
And what I find it
hard and actually,
last night, I was
talking with a guy
who works at the
[INAUDIBLE] who is Polish.
And I was asking about
Poland, because in Poland, you
have now a populist movement.
And Poland economically
is doing pretty well.
So how can you explain
such a big thing?
And again, he was able to give
me a economic interpretation.
The fact that the
conservative government before
made two big mistakes--
one, raided the private
pension to pay for the budget
and everybody still hates that.
It's one of those things
that people don't forget.
And the other is during
the 2008, 2009 crisis,
they thought to concede
to the entrepreneurs
or the industrialist
as a temporary measure
to allow new workers
to be hired basically
with no protection,
no social contribution
as a temporary measure.
That was not a type of
measure except that, in Italy,
we say there is nothing as
permanent as a temporary.
This was introduced as a
temporary measure in 2009.
It's still there.
And of course, that created
a lot of resentment.
One graph that I should
have brought here
that I saw the other
day was stunning,
is the wealth of the Italians
was conditioned by generation.
And basically, if you are below
45, you got screwed big time.
And if you look
at the statistic,
the votes for Five-Star Movement
is all in the younger people.
Older people vote
the Democratic Party.
And ironically, they present
themselves as a Leftist Party.
They are voted in
the center of town.
The center of Rome
is the only place
where they won by a landslide
and the center of Milan.
This is the so-called
party of the left.
Yep?
AUDIENCE: I just wanted to
say that I might dispute
whether America's place or
the catalyst for America's
place in electing Trump was
really the banking crisis.
I viewed it more as the
Gordian knot that precedes that
by 20 or 30 years.
But one thing that you
raised that could take this
off perhaps the political
analogy to which we're
sensitive is the loss
of human capital.
In that point, you were
going back many, many years
to [INAUDIBLE]
the United States.
While you pose some
possible solutions that
are difficult that you saw
from an economic perspective,
I didn't hear whether
you see any possibility
for bringing back in
the way that people now
look at that as [INAUDIBLE]
perhaps in Africa,
or perhaps comparably
in Ireland.
Is there a sense that, in the
way you are here in America
communicating this that
Italian-Americans, or Italians
abroad might return
that human capital
or participate in
improving the situation?
LUIGI ZINGALES: It's
a very good point.
And I should have answered
earlier to your question.
And also, one of the factors
is in the recent years,
there's been a
lot of immigration
of educated Italians--
100,000 a year.
And those tend to be the
high human capital people.
So I think the idea of a grand
return of these people, first
of all, is difficult.
Take my case now,
I'm married with American
woman, sort of my kids are here,
it's hard to--
and even I sometimes dream of
going back, but I'm saying,
it's not easy in this situation.
But interestingly,
there is not much sense
that in Italy,
they want you back.
And the former
minister of labor,
actually he's still
minister of labor,
but the government is
a take care government,
or care tear-- whatever,
said that, if they've gone,
we're happier that they left.
So the fact that people
have immigrated, saying,
one less competitor here.
I'm happy to let them go.
And very often now, with
the kind of nationalism is,
you have that sense that--
I'm paraphrasing, but I'm
not fully mentally Italian,
because I actually study abroad
and I speak English and I deal
with people who are not.
Now, I'm paraphrasing,
because this
is what happened to my colleague
Raghuram Rajan, when he became
governor of the
Central Bank of India,
he got some internal
opposition in India.
And in spite of the fact, he
never took US citizenship,
he remained an Indian citizen.
Because of the fact
he had a green card,
he was accused of not being
fully mentally Indian.
And it's funny,
because is you see him,
he's real India, in
fact, he's a Brahmin.
So more like a pure breed Indian
that cannot be [INAUDIBLE]..
And I know him well, I think
his mentality is really
very dedicated to the country.
But the fact you
have some view abroad
is seen as disloyalty and a
sign that you are not one of us.
EMILY SKARBEK: We're
getting close time.
If there are any further
questions or anyone
who'd like to follow up
with Professor Zingales,
we will have some
refreshments in the back.
Otherwise, join me in thanking--
