The Italian way to a better capitalism

Economic democracy is about creating the opportunity and ability for people to influence decisions that affect their personal economy. This could range from worker representation within a firm, through shareholder decisions on bonuses, to a government’s representatives being given first-hand understanding of how austerity will affect its people.

The challenge the idea faces is the perception that it is well-meaning with positive social objectives, but is devoid of any practical realism. Conversations I have had highlighted anxieties over its competitiveness and efficiency, and the concept is often dismissed by others as being idealistic.

Unsurprisingly, I don’t agree with the assertion that economic democracy is simply a watered-down, top-down socialism. Issues around competition and efficiency should always be taken seriously and this article aims to show how a democratic economy would, in fact, work in favour of these.

Some of the lessons the UK should learn can be told by comparing three stories: those of the East Midlands, West Midlands and then Emilia-Romagna region of Italy.

There are 8000 co-operatives in the Emilia-Romagna region, with over half of the regional population taking part in one in some capacity. This structure has contributed to a GDP per capita level higher than that of the UK average, with an enviable unemployment rate of 6% (see table at foot).

Whilst the Emilia-Romagna region has 7% of Italy’s population, it produces 9% of the GDP. Contrast this to the similar-sized East Midlands, which has 7% of the UK population but contributes 6% of GDP. Furthermore, the West Midlands, which shares a similar story to Emilia-Romagna in terms of its automobile industry, has almost 9% of the population and produces only 7% of the UK’s GDP.

And the Italian region is more innovative too: Emilia-Romagna contributes 15% of Italy’s patents (in 2009) whilst the East Midlands and the West Midlands contributes 7% and 9% the UK’s, respectively.

What has made Emilia-Romagna a success?

After fascism’s defeat in 1945, co-operatives grew out of three national movements. The political left was represented by the Lega; the Catholic centre-right by ‘Confco-op’ and the centre-left by the ‘Associazione’. Whilst in their formation there were alternative political and religious influences, those differences have narrowed over time, and cross co-operation increased.

Concurrently, the number of small-medium enterprises in the area increased as business clusters were created, promoting the sharing of information, research, technology and skills.

In order to formalise the role and importance of co-operatives, article 45 of the Italian Constitution states:

‘The Republic recognises the social function of co-operation characterised by mutual aid and not private profit. The law promotes and favours the growth of these structures using the most appropriate means and guarantees that their character and purpose will be inspected accordingly.’

Co-operatives are encouraged by preferential tax rates (saving 40%) to encourage self-capitalisation, which has led to the idea of an ‘indivisible resource’ – a resource which exists to the benefit of future employees and members, thanks to the firm’s sustainability.

More recently, the law has been amended to require co-operatives to contribute 3% of profits in order to fund future projects of the same kind, which regional co-operatives then control.

This has allowed co-operatives to innovate and grow, increasing their ability to adapt to market conditions whilst maintaining an empowered and reliable workforce.

Reciprocity is clearly at the heart of these businesses.

Reciprocity between employee and employer, between the firm and its region, in the collaboration of businesses in projects or in tenders for contracts, and in the trust and social understanding between members.

These structures are only possible if the local authorities can wield a significant amount of power. The Emilia-Romagna region has a strong government and so is able to endorse the right SMEs, with their local knowledge and understanding of the region’s resources. Recent developments within the UK around devolving power and budgets to regions – and potentially city mayors – could be an important step in making such a transition.

What can we learn?

It is clear that the region of Emilia-Romagna can offer important ideas as to how we can reshape our economy.

Promotion of SMEs, backed by regional funding institutions (who have the knowledge and experience to assess risk) is absolutely key. Furthermore, investment and support over a long time frame, away from short term profit seeking, have been important in ensuring that these businesses are rooted firmly in the communities within which they operate.

Incorporating co-operatives is an easy way to increase worker representation, decrease inequality and boost workplace democracy. And fostering the longevity of social capital, which lies at the heart of trust and co-operation, will ensure these firms continue to grow and yet retain their roots in the local community.

Both of these factors can be promoted and supported by regional banks, whose scope of investment (and use of quantitive easing) is limited to a specific geographical area.

Whilst GDP per capita may not be the best measure of society’s success, a strong and distinct co-operative structure can simultaneously improve this figure while enhancing the qualitative measures which we all experience directly.

This isn’t about transplanting Emilia Romagna’s model into the UK – it suffers from different problems to ours. But if we are serious about rebalancing the economy both in terms of geography and industry, then utilising co-operative structures alongside healthy regional banks could help to build a British version of economic democracy.

Italy UK                      UK
Emilia-Romagna East Midlands West Midlands
Population of region 4,377,435 4,481,400 5,455,200
Population of country 60,340,328 62,262,000 62,262,000
Proportion of population in the region % 7.3 7.2 8.8
Proportion of country’s GDP from region % 9.0 6.2 7.2
National GDP per capita (€) 26,200 24,671 24,671
Regional GDP per capita (€) 32,200 21,265 20,199
Proportion of country’s patents from region % 15.1 8 5.5
Unemployment in region % 6.0 8.2 9.0
Number of co-ops 8000 261 200
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