Talking Economic Reforms with Filippo Taddei

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Professor and practitioner Filippo Taddei shared his professional story with students in a brown bag lunch seminar on Jan. 28 at the SAIS Europe campus. Besides being a member of the department of economics at SAIS, teaching Macroeconomics and International Monetary Theory, Taddei has served as the chief economic consultant to the Partito Democratico since 2013. In this position, Taddei advises Italian Prime Minister Matteo Renzi on economic matters. Some of Taddei’s more controversial advice to Renzi to date concerns the liberalization of the Italian labor market. Prior to the Renzi government’s efforts, the Italian labor market entailed employment protection, making it difficult to fire ineffective employees. Taddei seeks to rectify this problem, but knows the political realities of reform.

Taddei describes his role as economic consultant as different from an adviser who puts forward a long-term vision independent of political concerns. Instead, he acts as a consultant providing practical economic advice that fits the political problems du jour. His consultancy advice is comprised of four pillars: have clarity about challenges and political context, fully understand and balance your objectives with those of politicians, align proposals with challenges, and acknowledge victories as well as defeats in politics. In explaining his agenda, Professor Taddei offered insightful examples from contemporary European politics.

Over the last decade, deepening disparities across European countries in terms of unemployment and growth rates have raised serious questions about European convergence. There are two schools of thought with respect to the disparity between European periphery and core economies.  

Political economy analysts have been busy picturing the European dilemma as oscillating between counter-cyclical policies – short-term fiscal and monetary reactive policies – and full-fledged structural reforms. According to Taddei, policymakers must invest political capital in a reform plan and bear the political costs. “In [European] politics, what is important is the distinction between Greece and Ireland,” says Taddei.

Both countries have undertaken almost equally extensive measures to reverse the impacts of the sovereign debt crisis. So why is Greece still in trouble while Ireland has been dropped off of the emergency list? Professor Taddei’s answer is simple: political ownership of a reform determines the success of the reform itself. A controversial reform with high political ownership potentially lasts longer than uncontroversial reforms with no political ownership, according to Taddei.

Politicians must invest their political capital wisely and timely. Here Taddei’s distinction between a policymaker and a politician becomes significant: the former makes things happen whereas the latter makes things happen at the right time. Having invested political capital in undertaking reforms deemed necessary at the right time with the ultimate objective of survival in politics, a politician has to bear in mind that he or she will lose, sooner or later, says Taddei. In the end, politics is not what you wish for but what you are willing to give up. A wise politician is the one who accepts defeats and leverages them for future successes, he concludes.

The fate of widely-debated labor market reforms in Italy thus far seems to depend upon their political ownership by Italian politicians. Notwithstanding this, Italian politicians’ trust in their chief consultants has the potential to change the “bad fate” of European convergence.

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