Italian Prime Minister Silvio Berlusconi, who becomes President of the EU on July 1, is a man of vision who once loved risk -- and whose business bets paid off big. In the 1960s, he was the first to see that Milan, then a traditional Italian city where people walked to work, would become a modern metropolis, surrounded by American-style suburbs. So his fortune began in real-estate development.
Fifteen years later, Signor Berlusconi understood that the Italian state's monopoly of television would not survive and jump-started what became Italy's main privately owned media group. But you don't win in TV and the real-estate business without the right political connections. On both occasions, Berlusconi outwitted his competitors by siding with the Socialists, at the time the rising stars of Italian political life. His long association with Bettino Craxi, Milan's most influential politician in the 1970s and Italy's prime minister through much of the 1980s, started early.
On the other hand, political connections do not make a politician. Indeed, the jump from business into politics was probably not Berlusconi's own preference. By the 1990s, his media group was in trouble, weakened by excessive diversification (the decision to enter the retail-distribution business almost destroyed the group). Almost at the same time, ex-premier Craxi fled to Tunisia, chased there by the Italian courts at the height of the mani pulite (clean hands) investigation into the vast network of corruption known as Tangentopoli (Bribesville).
Craxi's flight and exile left Berlusconi feeling lost -- and without the reliable political backing that he needed. So he decided that he needed to become his own political sponsor. As has happened frequently in Italian history, Berlusconi's decision to form a new political party, Forza Italia, just a few months before the 1994 general election paid off handsomely.
Berlusconi's lack of experience in politics doomed his first government to collapse after only six months. Any other man as rich as Berlusconi would probably have given up. But Berlusconi remained and led the opposition for six years. In 2001 his determination was rewarded with a clear victory and, more importantly, a seemingly clear mandate for change.
Once again Berlusconi probably had no choice: by the late 1990s, his association with the disgraced Socialists was haunting him politically and legally. His only hope of fending off the magistrates was to control parliament and introduce new laws that would stop the series of corruption trials he faces -- a strategy that has now given him immunity from prosecution until he leaves office. Unfortunately, while Berlusconi's government is invariably long on speeches, legal provisions designed to stop the clock on his court cases are among the few laws that have passed in his two years of government.
Berlusconi's performance in government is a combination of good intuition -- for instance the early attempt to reform Italian pensions in 1994 -- and poor implementation, most likely because of a lack of courage, as surprising as that seems. In 1994, during his first government, he understood early on that Italy needed to overhaul its pension system, and introduced bold legislation. But one general strike was enough to kill his reformist zeal.
More recently, he courageously sided with the US on the war in Iraq, against the majority of the country and most of his own political coalition. But soon he seemed scared of his own boldness and faded into an almost invisible ally. Despite Berlusconi's rhetoric, he did not go (or was not invited) to the summit meeting with President Bush in the Azores, where the final decision to go to war was taken.
On labor reforms, he fought the unions head-on, but he chose the wrong fight: Italy's infamous "Article 18," which allows labor courts to return a worker to his job if a judge believes that the worker was unjustly fired. But while Article 18 is important in principle, it is almost irrelevant in practice. The outcome was a confrontation with the unions that distracted from more important labor reforms.
Contrary to what happened in 1994, Berlusconi's current government survives, but whoever hoped for a free-market revolution will be disappointed. There has been no tax cut of any significance and pension reform is still waiting. Berlusconi's powerful finance minister, Giulio Tremonti, speaks often and fondly of the necessity of renewed government intervention in the economy; nothing is done to prevent strikes in the public transportation sector.
Moderate right-wing voters, who wanted an Italian (ie, somewhat watered-down) version of the Reagan/Thatcher era are disillusioned. Berlusconi tries to mask his inactivity by scaring his voters, repeating again and again that electing the moderate left would mean signing a pact with the devil, ie, the "communists." Italians seem smarter, as the result of the June administrative elections clearly have shown.Why has the courageous visionary of the 1960s and 1970s lost his shine? Part of it is precisely that it is no longer the 1960s and 1970s: Berlusconi is 40 years older and for the past 10 years has lived in the world of Roman politics. There he learned the art of political (and personal) survival, but lost his vision and his love for risk taking.
Alberto Alesina is professor of economics at Harvard University and Francesco Giavazzi is professor of economics at Bocconi University, Milan.
Copyright: Project Syndicate
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