20 September 2024
And yet it moves: the economy of the South after the crisis
Speech by Fabio Panetta – Governor of the Bank of Italy. Traveling with the Bank of Italy. The pulse of the economy – il Mezzogiorno* Catania, 19 September 2024
For decades, per capita GDP in the southern regions has been little more than half that of the Centre-North.
Such a large and persistent development gap over such a large area represents a negative record among advanced economies.
It crystallizes a de facto inequality in citizenship rights for the southern population and slows down the growth of the entire country. 1 If the per capita GDP of the South were to increase to 75 percent of that of the Center-North – with a convergence similar to that observed between the East and West of Germany – our per capita income would exceed that of France. 2 Furthermore, an ambitious but not unattainable increase in the employment rate to the levels of the Center-North would reduce inequalities both in the South and in the entire country. 3
The available data make it clear that the territorial gap that afflicts our country cannot be filled with welfare measures and a mere redistributive action, but requires policies aimed at stimulating the development of the southern regions. I will dedicate my speech today to this theme.
The territorial gap in a historical perspective
The Southern Question has been at the center of the economic debate since the decades following the Unification of Italy. It became a priority in the post-war period, when territorial gaps reached an all-time high.
During the “extraordinary intervention” phase, significant financial resources were allocated to the South, which in some years reached 2 percent of the national GDP4.
Convergence made strong progress in the 50s and 60s, when interventions favored the construction of infrastructures and large industrial plants with public participation. In that phase, the per capita GDP of the South in relation to that of the Center-North increased from 5 percent at the end of the XNUMXs to XNUMX percent in the early XNUMXsXNUMX.
Since then, convergence has been interrupted, affected by the crisis in heavy industry. The welfare nature of intervention policies has contributed to this, used increasingly to attract political consensus, to the point of losing effectiveness6.
Since the 7s, the perception of the Southern question as a major national problem has weakened. In a previous intervention, five years agoXNUMX, I underlined the desolate evolution of territorial gaps in the early years of this century.
The weaknesses of the Southern economy are well known, and concern the basic components of the productive and institutional structure8.
Among public services, numerous analyses have highlighted the inefficiencies of civil justice and the shortcomings of the school system9. The infrastructure network involves particularly long road and rail travel times and limits access to port and airport services. In several areas, the antiquity and inadequacy of the water and electricity networks are evident10; access to broadband, necessary for innovative production, is often unsatisfactory.
The structural undersizing and fragility of the private productive sector are also well documented. To describe the extent of this, I will simply recall that the southern regions, with a third of the Italian population, generate only a fifth of the GDP (fig. 2) and a tenth of the manufacturing product. The companies, on average smaller than those in the Center-North, are largely specialized in low-tech activities and oriented towards the domestic market.
Crisis, pandemic and recovery
Over the last fifteen years, the economy of the South has moved in line with that of the entire country, but with wider fluctuations.
The financial and sovereign debt crises have given rise to a prolonged phase of budget containment and a collapse in public investments that have hit the South hard11, causing a contraction in GDP of 2007 percentage points between 2019 and 10, compared to 2 in the rest of the country. Investments in relation to GDP have fallen for the first time since the 3s below the values, albeit low, of the Centre-North (fig. XNUMX).
In the post-pandemic period, Southern Italy performed better than the Italian economy as a whole. Between 2019 and 2023, GDP increased by 3,7 percent, compared to 3,3 in other regions (fig. 4); exports grew by 13 percent, 4 points more than in the Center-North. Employment rose by 3,5 percent, compared to 1,5 in the rest of the country. The unemployment rate fell by 3,6 points, double that of the Central-Northern regions.
According to our economic indicators, the expansion of the southern economy would have continued in the first half of this year.
The growth observed in recent years is partly due to temporary factors, linked to the response provided to global shocks by national and European authorities12. Southern Italy has benefited from the increase in public investments (fig. 5) and from income support for less well-off families13. The contribution of both construction, in relation to the so-called Superbonus and the launch of the National Recovery and Resilience Plan (PNRR) projects, and public and private services has been significant (fig. 6).
But the current recovery likely also reflects the processes of restructuring and productive consolidation triggered by the previous recession, which led to the expulsion from the market of weak, less efficient and typically smaller companies.
In the period 2007-19, the share of employees in Southern companies with at least 200 employees grew by almost 2 percentage points, to 10,2 percent.14 Financial leverage also improved, recording a drop of 10 percentage points both due to the exit from the market of highly indebted companies and to the capital strengthening of others, particularly medium-large ones.15
Progress has also emerged in the field of technology. Alongside traditional sectors such as the automotive, agri-food16 and tourism, specialized hubs in the production of semiconductors and microsystems and in the aerospace and pharmaceutical sectors have consolidated17. The use of robotics, cloud computing infrastructures and artificial intelligence by companies has increased in the South at rates similar to those in the rest of Italy18.
As for public services, the length of civil proceedings has halved, while the degree of digitalization of the Public Administration has increased. Signs of improvement also emerge in the university system19.
These positive trends must be evaluated with caution. They are indications – not proof – of a possible improvement in the competitive capacity of the southern economy. They could also be temporary or episodic in nature, and would in any case be insufficient to bridge the deep territorial gaps that I described above.
At the same time, we cannot ignore them. They denote the existence of a development potential of the South that can be released with appropriate policies.
It is necessary to give continuity to the recovery of the southern economy, supporting and strengthening these trends. …
The South in the new geography of trade
As paradoxical as it may seem, the phase of global uncertainty we are going through can offer development opportunities to the regions of Southern Italy.
The geopolitical shocks recorded in recent years – from the pandemic to the energy crisis, up to the tragic ongoing conflicts – have made the risks associated with production delocalization policies clear. Currently, companies in the main countries are placing greater emphasis than in the past on the issue of investment security and supplies of strategically important inputs, especially energy. There is an emerging tendency to locate production activities within national borders or in countries considered economically and politically reliable26.
Such a context offers new opportunities for our South . …
… The economic conditions I have so far focused on cannot be separated from those of civil life. Strengthening legality, combating the underground economy, carefully monitoring the appropriate use of public resources are the prerequisites not only for economic development but even more so for social progress. The exodus of many young southerners to other areas of the country, or abroad, is not only motivated by the search for better job opportunities, but also reflects the widespread perception of a context in which they cannot fully realize their talents.
The favorable trends of recent years can make us confident, but they do not justify excessive optimism. The reabsorption of such deep-rooted territorial gaps requires perseverance and foresight. It also requires an intervention articulated on numerous fronts, directed by a clear strategic vision and inspired by ethical principles.
These considerations lead me to think of Donato Menichella, whose fortieth anniversary of death was commemorated a few weeks ago. It was Menichella, by then Governor of the Bank of Italy, who conceived the idea of the Cassa per il Mezzogiorno in 1950 and designed its structure. A few years later, recalling that commitment, he mentioned the fear he had then had that unsuitable people might be appointed to lead the Cassa. I would like to conclude by quoting the very final words of his work, which require no further comment: "No instrument, however well conceived, can yield useful results if it is not entrusted to skilled hands and upright consciences." ( Full text with graphs and notes )
