Economic Advisor Filippo Taddei on the Italian Constitutional Referendum: “Politics is about timing”

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BY UTPALA MENON AND SHARAD SHARMA

Italy’s current prime minister, Matteo Renzi, managed to transform the country’s Dec. 4 referendum on constitutional reform into a confidence vote of the people, vowing to step down if people vote against it. While some claim that the proposed reform – which would shrink the Senato della Repubblica’s power in an effort to streamline the legislative process – gives Renzi and his successors too much power, others believe that it allows for easier governance.

Among SAIS Europe’s students, the fear of populism looms large, especially after Trump became president-elect of the United States. Many feel the victory might allow for other movements to gain momentum in Europe. Beppe Grillo, co-founder of the populist Five Star Movement, called Trump’s victory an “incredible” one.

Alternatively, former Italian Prime Minister and democratic politician Enrico Letta told local newspaper La Stampa that traditional politicians are starting to lose ground, alluding to what some might call the Clinton or Italian democratic party model. However, the bigger and more immediate issue is the Italian referendum on constitutional reform. Is it a tool for direct democracy or does it disrupt it?

The SAIS Observer sat down with Professor Filippo Taddei to discuss the aim and scope of the constitutional reform, particularly within the economic climate of today. Taddei’s position as economic advisor to Italian Prime Minister Renzi puts him in a unique position to comment on the aims of the Italian referendum, Renzi and the economy.

The SAIS Observer: There are three main parts of the constitutional reform that Italians are called to vote upon on Dec 4. The first two are related to the legislative process, while the third touches upon the balance of power between the state and national government. Can you explain the former two and the impact they may have?

Filippo Taddei: At the national level, legislative power is equally shared by the two chambers (Camera and Senato). Thus, every bill needs to be approved by both chambers in order to become a law. The first innovation of the constitutional reform is to abandon the existing system and give the lower chamber (Camera) the core legislative power. After the reform, essentially all bills will need to be approved only by the Camera. The Senate remains as a sort of backup, issuing recommendations that the Camera may accept or refuse and contributing to the legislative process on specific issues, ranging from regional policies to E.U. legislative framework.

The second innovation is to change the way in which Italian voters can directly participate in the legislative process. In this respect, the two most important tools are referendum and proposals by popular initiative. Referendum can abrogate a law (or some of its parts) previously approved by Parliament, with some relevant exceptions (e.g. international treaties and laws impact public finances). Within the current system, referendum are considered valid only if 50 percent of the total voters turn out to vote. After the reform, a referendum will be considered valid if 50 percent of the actual voters in the previous national election turn out to vote. Moreover, differently from today, law proposals by popular initiative will need to be vetted by a vote in Parliament. Until today, not a single popular initiative has ever been rejected or approved by a vote of either one of the two chambers.

TSO: Can you explain the role of state and national governments in legislative procedure, and how this may change if the constitutional reform will be implemented?

FT: The possibly most important novelty of the current constitutional reform has to do with clarifying the division of legislative power between state and regional governments. In 2001, we introduced a set of constitutional amendments that extended the fields in which the regional government could produce legislation. The idea behind these amendments was to make the Italian government less centralist and shift the balance of powers towards regional governments. Before the 2001 constitutional amendment, areas such as energy, social policy and labor policy were solely under national control. The regional governments could not produce laws in these areas but only had administrative powers. After the 2001 constitutional amendments, these areas became areas of “shared competence”. The idea was to give a clearer and more central role to the regional governments and the needs of Italian citizens. Unfortunately, the reform led to segmented legislation and frequent conflicts of competence between regional and state governments.

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To give you a sense of the situation: around 40 percent of the overall activity by the Italian Constitutional Court in the last 15 years has been dealing with clearing these conflicts. Let me give you some examples. Suppose that the national government develops and approves through Parliament a national energy plan. Every regional government currently has the ability to take this national plan to the Constitutional Court which will rule it to be illegitimate. This is possible because our constitution sees energy production and distribution as a question of national and regional competence. In my opinion, having a regional agenda and not, let’s say, a European agenda on the plan is simply unreasonable. Even if the government came up with the best plan to rationalize energy production and reduce energy cost, it is constitutional for any regional government to stop that plan. It is a similar case with national infrastructures. Consider airports, for instance: we have an irregular distribution of airports across Italy since regional governments decide how many to build without any national coordination. The result is overcapacity, excessive costs and inefficiency.

The bottom line is that creating shared legislative responsibilities between different levels of governments resulted in frequent conflicts of competence rather than more focused policy-making. These conflicts resulted in additional delay in the distribution of public services, the build-up of infrastructure and granting social and economic rights.

The constitutional reform under scrutiny by the referendum of Dec. 4 rationalizes this institutional structure and brings back legislative power to the national levels on all the policies that can be more effectively addressed by the state government. By the same perspective, it clarifies what regional legislation should be focusing on. This new equilibrium does not guarantee good policy-making but it does not hinder it either, as the status quo seems to do.

TSO: Renzi’s announcement to step down would give people an opportunity to perceive the vote as a vote for or against Renzi. Do you think this would be efficient in giving importance to the reform?

FT: We call this “personalizzazione” in Italian, which means identifying a political battle with a political figure. The prime minister has been very clear that he believes it was a mistake to give way to a confidence vote by the people on a constitutional issue. This constitutional reform will be approved or rejected not only by voters of the party that supported Renzi’s government, but also by others. People are voting on the new constitution, not on the government’s policy.

However, that said, I also think there is an issue of political accountability. This is a reform supported and facilitated by the current government as part of a precise sequencing that envisioned the renewal of our fundamental institutions as a necessary step to modernize the country in the face of unprecedented economic challenges. It is unreasonable to argue that rejection of this step should be empty of political consequence.

For the same reason that I would not advocate using of the Brexit vote as a lever to have Cameron stepping down, I would not use the constitutional vote to ask Renzi to step down. If you prefer that outcome, that’s fine, you have the national election for that. At the end of the day we are voting to overcome something more long-lasting and long-term: the fragility of the constitutional status quo.

TSO: Despite a widely applauded reform of Italy’s employment laws, the number of indefinite contracts offered by employers was down by a third in the first seven months of 2016. Can you comment on this in order to explain as a way to explain the implications of the reform?

FT: I am afraid that the communications by the Italian Social Security administration (INPS) and the Italian Statistical Institute (ISTAT), based on labor force survey used across the EU, tell a different story. The total number of jobs and the number of permanent contracts has increased according to the last available data released in September 2016. The number of permanent employment in the Italian economy is on par with 2009. The total employment figure recovered the level of 2011. The only change is in the growth rate of jobs, which has decreased in 2016 compared to 2015. A lower growth rate is not a drop in the overall number of jobs.

TSO: As Prime Minister Renzi’s Economic Advisor, should the referendum go through in December, what would be your policy advice to him?

FT: It’s not too complicated to explain. From 2011 to 2014, Italy has seen a big drop in investment levels. It accounted for almost 5 percent of GDP, which translates to around 80 billion Euro on a yearly basis, at current prices. We’ve seen some recovery in the investment cycle and solid job creation starting from 2015. However, more needs to be done, since the employment number is still below 2007 levels and the real GDP is still 8 percent less.

Assuming the referendum goes through, I see the following two things happening in the immediate future – first, a reduction in the time required for implementing economic policies will increase implementation effectiveness. Second, we are likely to see a push for more investments, especially long-term ones. This will support job creation even further. December 4 is a bifurcation point between the possibility of immediately enhancing the resilience of this country and, in the case of the no prevailing, the need to re-engineer the reform process. I’m afraid we don’t have so much time to start from scratch again though. Policy is about pacing but politics is about timing.