Italy Crawls Toward Privatization

PUBLIC SECTOR WASTE

WASTEFUL, riddled with ``clientelism'' and maddeningly slow, Italy's union-dominated postal service can be counted on to take often more than a month to deliver a letter from Naples to Rome. This month the postal service (PTT) took a small but significant step in the Italian public service sector's long march toward efficiency. It launched a new espresso mail service - to be delivered by private couriers.

Perhaps nowhere else in Europe is the contrast in performance of the public and private sectors so stark or the resistance to privatization so strong.

It is largely the dynamism of Italy's private sector - which boasts companies like carmaker Fiat, computermaker Olivetti, and casual clothing manufacturer Benetton - that has catapulted Italy to the fifth-ranking economy in the world.

But fully one-third of industry is in public hands, according to economists. Italy's public debt now equals the nation's gross national product.

Italian businessmen say that though Italy is in its seventh consecutive year of growth, it is hindered by transportation, phone, and mail services that could make it the weak link in the unified European market after 1992.

``We are gearing up to beat down barriers in Europe, but in Italy we will be left with the barriers of bad infrastructure still standing,'' complains Innocenzo Cipolletta, deputy director general of the Confindustria, Italy's private industrialists' association.

The postal system, dogged by high absenteeism and low productivity, launched an effort to improve service that brought the average delivery in 1989 down to 5.1 days, compared to 8.5 days the previous year. Still, a recent survey shows, 80 percent of businesses use private couriers. The use of faxes has also exploded.

the Italian railway has among the highest operating costs in Western Europe, but the lowest quality of service. Last year, service at the national airline was constantly disrupted by strikes.

Italy's telephone company is now gradually converting from electromechanical switching to electronic switching, investing some $26 billion to upgrade a phone system that is still far behind European standards.

The Italian banking industry - 80 percent of which is state-owned - still takes up to a month to clear a check. It is undercapitalized and is among the least concentrated in the world.

Italy's infrastructure ``penalizes Italian businesses doing business abroad and deters foreign companies from setting up business in Italy,'' says Mr. Cipolletta.

Benetton - with its nearly 5,000 outlets in 79 countries - has estimated that infrastructure disadvantages make it 7 percent more expensive to do business in Italy than elsewhere.

Within the dominant Christian Democrat and Socialist parties, politicians are loath to abandon an entrenched system called lotizzazions, a spoils system that parcels out management positions in exchange for political favors. Yet pressure to trim the government deficit is building a consensus of politicians who favor more private initiative in the public sector, both to increase efficiency and reduce spending. So far, practical steps have been halting.

Just as the profit motive was considered suspect in Italy until the 1980s, so privatization is still something of a dirty word today. ``The fear of privatization is much stronger here than in the rest of Europe,'' says Cipolletta.

Because of political opposition, a number of moves toward privatization have recently been put on the back burner. In pending legislation concerning the privatization of banks, a provision has been inserted that would maintain the public sector stake at or above 51 percent. A proposal to create a railway company with mixed public and private capital has also been rejected.

And Minister of Industry Adolfo Battaglia has been unsuccessful in getting the public electrical utility to give up its monopoly, despite dire warnings of impending energy shortages.

Still, Cipolletta believes the PTT initiative presages much more privatization in Italy.

European unification, he says, will bring in large numbers of foreign companies who will grab huge chunks of market share from Italian state-owned companies. Predicts Cipolletta: ``At some point the government will tire of bailing them out and begin selling them off. It's inevitable.''