Italy: Simultaneous Crisis of Democracy, Innovation and Economic Efficiency

Abstract

This chapter examines Italy as simultaneously a case of crisis of democracy, innovation and efficiency, to understand how a major Western economy turned into an economic laggard in only three decades and how to reverse the trend. The analysis interrogates Italy also as a laboratory of the decline of the West and of the European Union (EU), with its increasing inequality, decreasing social mobility and lack of innovation. The chapter analyses Italy in the years after World War II, when it emerged from the devastations of two decades of Fascist dictatorship, produced the “Italian economic miracle” of the reconstruction and the “industrial district” model, consolidated its democratic institutions and anchored itself into the Western sphere of international relations. Until the 1990s, with the collapse of Italy’s party system, the accentuated personalization of politics and a growing split within the electorate, shaking Italy’s institutional structure and putting a break on growth that started a trend of loss of human capital fleeing abroad. Multiple top-down attempts at reforms have failed to aggregate and incorporate knowledge holders’ inputs, while currently populist movements even question innovation-driven changes. The chapter empirically shows how a twenty-first-century “renaissance” reversing these trends is likely to be based on innovation-driven change originating from the grass roots, Italy’s networks of model cities, unions of municipalities and town associations. In closing, the chapter argues that to succeed such strategy prospect needs to be framed by national and EU policies.

Let a hundred flowers blossom

—Mao Zedong

4.1 Introduction: The Background of the Italian Case

Italy may well be the first and most interesting case to investigate of a twenty-first century major Western economy and democracy turned into a laggard in only three decades. Indeed, in many respects Italy is a case opposite to that of China.

For almost fifty years after World War II, Italy appeared to validate even in a rather discontinued fashion its post-World War II history as a liberal democracy turned into an economic power, by proceeding in an upward trajectory of ten- to twenty-year cycles of ups and downs, with peaks of growth and civic engagement and lows of inflationary pressures and even domestic terrorism, but a positive trend nonetheless. Until the decade of the 1990s.

Emerged from the devastations of the two decades of Fascist dictatorship and of World War II, in the 1950s and 1960s the country experienced high growth rates and what was even termed the “Italian economic miracle” of the reconstruction. Cities were rebuilt from the ruins left by devastating bombing, and the country’s industrial apparatus was renewed and expanded, through policies that showed the key role played by the strategic state-owned large enterprises supplying the country with oil and gas (Giontoni 2017; Crainz 2005). This growth path was accompanied by the consolidation of Italy’s democratic institutions and by their putting down roots clearly into the Western sphere of international influence, including the membership in NATO and the European Economic Community (De Leonardis 2014).

In the 1970s and 1980s, Italy was a case studied by economists, when it became the centre of the economic revolution of the “small is beautiful”, reaping growing outputs produced by the flourishing vitality of its newly created “industrial districts” (Piore and Sabel 1984; Fuà 1983).

The industrial district model of spatially and vertically integrated small and medium-size sectoral enterprises, emerged first in the country’s North-Eastern and Central regions which had inherited strong traditions of community cooperation and solidarity and enjoyed the revived presence of dense networks of civic associations and mutual aid societies after the Fascist period. The model then spread to Southern regions along Italy’s Adriatic coast and beyond, but in a spot pattern likened in the literature to the leopard’s skin (a pelle di leopardo). At the same time, in the late 1960s through the 1970s the country experienced the tragedy of the twin terrorist phenomena of the extreme left Red Brigades and the extreme right New Order, but its democratic institutions ultimately and successfully defeated both without compromising constitutionally granted rights.¹

Growth kept on at a sustained pace, also spurred by significant public investments via Italy’s ensemble of large public enterprises. Deficit spending increased the national debt which used to be around the European average at about 60% over GDP until the early 1980s and rose to 120% at the start of the 1990s: a legacy built in one decade that the country is still paying for. In the Southern regions, the large-scale industrial projects in the steel, chemical and oil refinery sectors planned for by the Fund for the South (Cassa per il Mezzogiorno) continued to receive investments, creating employment.

Throughout Italy, the strengthening of the devolved decision-making powers to the twenty regional governments in important policy sectors, such as health care, agriculture, housing and tourism, created positive opportunities for growth and social policy expenditure. At the same time, it also left room for administrative inefficiencies and, as a consequence, differential performance by regional institutions in service delivery and increased regional budget deficits.

By the end of the 1980s, it was clear that the country had paid a political and institutional cost in terms of the loss of credibility of the ruling political parties in the light of corruption scandals that had come to the attention of public opinion (Crainz 2005). The fall of the Berlin Wall in Italy accelerated the trend of the dissolution of its traditional political parties, in the face of high inflation and the burgeoning public debt .

Thus, the 1990s were a fateful decade that began with the collapse of the party system that, centred on the Christian Democracy party, had been the protagonist of Italian political life after the war. In the early 1990s, the “clean hands” (“ mani pulite ”) judicial sweeping movement of arrests of public figures and high visibility entrepreneurs accused of corruption saw the emergence of the secessionist Northern League party and the entry into the political arena of Italy’s media mogul, Silvio Berlusconi , and also his new party Forza Italia. The judicial revolution accompanied the harsh fiscal measures to contain the burgeoning public debt and restrain inflation, a policy direction necessary to align Italy with more virtuous European partners (Fossati 2013; Scoppola 1994). The coalition government of Forza Italia–Northern League in 1994 clearly signalled the change towards a personalized political system and approach to public policies which began to characterize Italy, in particular starting with the Berlusconi coalition majority’s approval of openly ad personam laws favouring his business.

Throughout the decade and in spite of the political turmoil, the resilience and steadiness of the institutions of the Presidency of the Republic and of the Bank of Italy stirred the country into the EMU (the precursor of the Euro) and its further anchoring into the European integration process which was making historically important steps forward. Thus, in the 1990s the economy held well, partaking of dividends provided for its exports by the booming US economy under the Clinton presidency and the launching of the European Single Market on 1 January 1993. The significant resources for the amelioration of conditions in its less developed Southern regions (“Mezzogiorno”) provided by the Structural Funds of the new Cohesion Policy of the EU (Leonardi 1995, 2017) added employment opportunities.

Yet, the radical changes that had occurred within Italy’s political system had created a deep split within the electorate, between supporters and opponents of the secessionist message of the Northern League and of the neoliberal message of Forza Italia and ad personam policies of its leaders. The climate of confrontation and divisive messages brought about uncertainty amongst the electorate, feeding a growing sense of disenchantment and confusion and the consequential distancing of citizens from political institutions. It was this institutional earthquake following the mani pulite inquiry that signalled the rapid and uninterrupted decline in voter participation, expression of feelings of protest and apathy (Chiaramonte and De Sio 2014; D’Alimonte and Bartolini 2002).

The response to such transformative change by the new Ulivo party that led a centre-left coalition government in 1996 under Romano Prodi was to maintain the direction of strong pro-Europe policy support, gearing up for Italy’s entry into the Euro currency which became operative in 2001. At the same time, its modest modernization policies of selected privatization and opening up of closed professional and labour market sectors (Barucci and Pierobon 2007) increased employment and produced Italy’s last significant growth rate, at a respectable 2.9%, in the year 2000 (ISTAT 2000).

It is in the last two decades of this twenty-first century that Italy appears to have run into a path of unfolding worrisome events that combine to shake its institutional structure as well as put a break to its growth: defining growth in terms of both socio-economic and cultural dimensions. Thus, in the new century Italy found it had lost not only its “miracle” and “magic” but also much of its sense of community and identity.

The Forza Italia–Northern League coalitions that governed for most of the first decade failed to carry out expected structural reforms to, amongst others, improve the performance of the civil law judicial system, simplify the taxation mechanisms, reorganize and refinance the educational system, increase the competitiveness of universities and increase the efficiency of the public administration by linking careers and results. This state of affairs compounded the impact of the deepest fiscal and economic crisis the world had experienced since the Depression. When it started in 2008, it lasted longer in Italy than in most of the EU, so that Italy has not regained the pre-crisis levels of income per inhabitant.

A worrisome change was the accentuated personalization of politics which profoundly mutated the content of the communication with citizens by the Forza Italia–Northern League government led by Berlusconi , including the implication of the lesser importance of parliament as a representative institution portrayed as full of corrupt people, in favour of the importance of a strong leader. Indeed, a Northern League’s motto was “big thief Rome” (Roma ladrona). Moreover, measures of amnesty (condono fiscale) for tax evasion and for building without planning permission (condono edilizio) thwarted attempts by previous governments to change this type of citizen behaviour. Finally, the unrelenting campaign by the Northern League to secede sent a divisive message to citizens of a country that is not only still deeply divided between North and South, but also now even wanted to act on such a division.

This climate of the combination of the ineffectiveness in economic performance and doom about the future enveloped the country by accelerating its negative mutations, as it brought about the double punch of fiscally restraining policies to halt the run on capitals and of large-scale closure of small and medium-size firms, with consequential higher unemployment rates (Bosco and Verney 2012; Di Quirico 2010). Indeed, in July 2011 the country had faced economic collapse, when the cost of financing the public debt soared. Berlusconi resigned, and the technical government led by Monti took its place (Consob 2011; Scacchioli 2014).

Monti’s governmental experience proved to be short-lived. Focusing on rescuing the country from the risk of bankruptcy, it lasted a year after it carried out a number of fiscally onerous measures to reassure the markets. On the level of structural reforms, it carried out the most extensive reform of Italy’s pension system (the Fornero law) aimed to insure its sustainability. After the elections of 2013, the Monti government was replaced by three successive Centre-Left government coalitions—led by Letta , Renzi and Gentiloni—with tenuous majorities in parliaments.

These three government coalitions carried out many reforms in both the economic and civil right areas (such as rights for gay partners), but did have neither the political strength nor the vision to effectively address the entrenched status of economic stagnation and social malaise that Italy was living through. Therefore, the period between 2013 and 2018 saw Italy’s very timid recovery from the crisis, and yet none of the structural problems of the country (from the depleting human capital , to the non-performing bureaucracy and to the comparative lack of innovation ) was tackled with a clear strategy.

This period also saw the emergence and very rapid growth of a populist movement, the Five Star Movement (“Movimento 5 Stelle-M5S”)² as well as of the rebranding as national of the formerly Northern League party as the League, the latter spreading a fierce populist and nationalist message and ditching the message of secession. Following their victory in the March elections, the M5S strongly based in the Mezzogiorno and the League in the North, the two parties in June 2018 formed a coalition government pledging to a platform (contratto) inclusive of promises of deep tax cuts and income redistribution. They also assumed a more confrontational and euro-sceptical position in the intergovernmental dialogue with the EU institutions in comparison with the collaborative stance that Italy had always displayed as a founding member.

Such populist led government, in which the M5S is the largest partner, is the very first in a major European country (The Economist, 2 July 2018). Yet, notwithstanding the enthusiasm of a movement born in the urban peripheries and in the more deprived areas of the country and spreading its message of the inevitability and superiority of “direct democracy ” in its intuition of the move to the use of the Internet in elections and the formulation of policy proposals, the government platform does not have a strategy for Italy to adopt towards sustainable growth and 4.0.

Indeed, the economic approach espoused by the M5S is what they themselves term the “happy decline” (“decrescita felice”),³ embracing income redistribution through a guaranteed citizen salary (reddito di cittadinanza) scheme, opposing large-scale infrastructure investments , re-introducing quasi-nationalization measures of control over citizens’ savings, and increasing the rigidity of Italy’s labour market by imposing new limits to temporary contracts (decreto dignita’). The ideas profiled are a mixed bag of potential innovations and possible steps back, whose combination and actual realization are clearly too early to assess.

On its part, in its first months of co-governing, the League has elected to focus on a single issue. In spite of the decreasing numbers of immigrants, the League has been turning immigration into a crisis of personal security for Italians, using unheard of bellicose tones against immigrants, aiming to block arrivals and challenging EU partners to change the EU current accord on immigration.

The paradox embodied by the emphasis placed on this single issue is that the question relates to less than 30,000 immigrants disembarking on the beaches of Sicily in the first eight months of 2018, and to about 80,000 in the previous two years. While the League’s message has captured a great share of the attention of media and of the electorate, there has almost been no discussion in Italy of the question that around 200,000 young Italians are leaving the country each year to look for better opportunities in other European and extra-European countries. Italy is loosing some of the human capital which will determine its long-term growth potential and yet it seems totally absorbed by the nightmare of an “invasion” which does not qualify as such.

The separation between reality and perception is so staggering that it points to a much more profound problem that is central to our investigation: a country that has been the frontrunner of the freedom supported values—empirical exploration, intellectual curiosity, foresight adventure—which defined the West , seems to have transformed itself into its own contrary: inwardness, fear, inertia. Intellectuals close to the M5S speak on social media critiquing the concepts of progress and modernity, so that they contribute to reinforce citizens’ sense of acquiescence leading to their espousing positions to simply conserve what they have rather than to engage in actions which they perceive as useless. It is, in this sense, that Italy unfortunately can be one of the most effective representations and cases for studying a decline of the “spirit of the West” to be contrasted with the East and China.

The events right before and since the turn of the twenty-first century constitute the new political background against which to understand Italy’s lagging economic performance. Indeed, since the turn of the twenty-first century Italy’s growth rate has been essentially flat (–0.64%). As noted, at the opposite side of the growth spectrum, China has topped the world ranking in the same time period. Amongst the 198 countries of the United Nations, only countries which defaulted on their own debt (Greece and Puerto Rico) or properly failed States devastated by civil wars (like Libya, Central African Republic and Zimbabwe) managed to do worse. Since 2001, Italy has consistently occupied, that is each single year, one of the two last positions in the ranking per economic growth rates of the EU .

Italy has also lagged behind in innovation after having been one of the powerhouses of the inventions which defined the first industrial revolution—from the telephone to the electric bulb—and of the second industrial revolution—from satellites launch to some of the household names in cars and fashion produced in its thriving industrial districts. In the currently unfolding Internet -driven industrial revolutions Italy has been lagging behind. Italy is behind not only fast-growing countries but also its own traditional European peers in terms of telling indicators including: educational achievement, broadband infrastructure, venture capital, and the adoption of smart technologies like electric cars .

On the democracy front, as underlined, Italy is a “founding” member of the Western democratic camp: it was amongst the six states which established the European Economic Community in 1957; it is a member of the G7, the club of the seven most industrialized countries in the world and one of the seven largest shareholders of the IMF. Italy’s democracy, although assessed by The Economist Intelligence Unit (2018) as “flawed” rather than “full”, is still rated 7.98 out of 10. To explain the rating, Freedom House points to problems in terms of the relatively unsatisfactory status of independence of media that is traceable to a significant degree to the ownership of important media outlets concentrated in the hands of Berlusconi , in addition to the economic dependence of many media outlets on government subsidies. Nonetheless, censorship does not exist in Italy and retaliation for expressed opinions is unknown.

From this introduction, it becomes clear how China and Italy are almost two mirror images. But at the same time, it is really important to underline that the two countries share much history, as they both come from, and thus contributed to, millennials of history of human civilization. They hosted the two most stable, prosperous and lasting empires in human history, respectively in the Empire of the Middle and the Roman Empire. It was an Italian—the Venetian explorer Marco Polo —who, after centuries of Western decadence, first put back in touch the Empire of the Middle with the West in the thirteenth century, recreating the thriving “silk road” of global trade exchanges.

What is really striking about Italy today is the duration and ultimately the magnitude of its relative economic decline vis-à-vis not only the developing part of the world but also its European partners. In parallel, there is the country’s decline in the capability of its democratic system of governance to engage with citizens, as it did in the past through its mass-based political parties interacting with civil society’s range of intermediate bodies, from trade unions to civic and voluntary associations and to economic and professional organizations.

Therefore, with the disappearance of the mass-based parties first, and the emergence of “fluid” parties as little more than electoral machines with almost no territorial structure,⁴ politics in Italy has become more than ever before a top-down process, whereby the face-to-face interaction of elected representatives with citizens and their associations is lost and, with it, politics loses the capacity to engage citizens as partners in a process of change and adaptation. Our argument is that what has been lost is something that the one on one social media exchanges cannot replace, so that new mechanisms of collective grass-roots engagement need to be devised. With this system’s disappearance, the consequence is the increasing distance between institutions and the electorate.

As discussed, the latter trend has spawned the birth and growth of the anti-establishment political movements that have been profiled, whose brand of quasi-nationalist populism pioneered a phaenomenon of strong Euro-scepticism and anti-immigration advocacy that has become common across European countries. Accompanying such developments, there has been the trend of the transformation of Italy’s political landscape. New minor political groups have been appearing on the scene (liste civiche) but then dissolving without having the chance to find common issues on which to coalesce across communities, in what is not just a metaphorical rendering of the concept of the “liquid society” (Bauman 2000).

Yet, we have underlined that even in this climate of instability, economic stagnation and increased indebtedness, particularly after the beginning in 2008 of the long-lasting recession, Italy did see a flow of civil and welfare reforms which were often encouraged or imposed by the European Institutions, including the partial administrative reform introduced by the Renzi government and the new law on competition of the Gentiloni government. Nonetheless, these reforms seem to point to a problem of approach in the way in which Italy and Europe conceptualize the notion of social transformation.

Specifically, the interventions were engineered in a manner that in the eyes of many citizens did not manage to touch the privileges of vested interests and only marginally reduced the intrusive presence of the public bureaucracy. For example, the result has been (as we will see in Sect. 3.2) the delay in the launching of significant societal or economic innovations . Therefore, the comparison of Italy with China promises to say much about why a liberal democracy shows such signs of institutional obsolescence and relative economic impasse in this twenty-first century and what kind of new processes and adjustments may be considered to reverse the trend.

This chapter on the Italian case study is structured into four sections, in addition to this first introductory section, as follows.

In the second section, we analyse and measure the main traits of Italy’s decline and discuss how lagging economic growth, increasing inequality and decreasing social mobility , feed into innovation gaps and mutually reinforce each other.

In the third section, we focus on the latest direction Italy’s democracy has taken, with the failure of a quasi-permanent institutional reform process that had meant to render the national executive better able of making policy choices and delivering policy decisions more promptly.

Furthermore, we focus on how in this critically important last two decades, Italy’s policy-making processes, from the national to the local levels, have too often failed to aggregate and incorporate knowledge holders and on how this result has translated into low performance of the Italian economy and its diminished capacity to be ready and respond to global challenges of competition and transformation.

In the fourth section, we zero in on the range of structural changes Italy should face up to, consider and adopt in order to turn the problem of the country’s adaptation to the changes underway in the new century into an opportunity. In particular, the focus is on how to leverage territorially specific characteristics and assets to be positive contributors, and then success factors, in the transition to a new industrial and institutional model supported by a national commitment.

The fifth section expands the argument of declining citizens’ engagement and lagging innovation to the more general case of the EU and underlining cases of other European countries. In terms of both trends, this broadened discussion strengthens the capacity to understand the prospects of innovation-driven sustainable growth for Italy as well.

At the same time, we also draw conclusions from the findings of our inquiry of the Italian case and refine and offer more general proposals for the validation of our initial thesis on the participatory adjustments which a democracy would make to pursue knowledge and innovation-driven growth.

4.2 Italy as a Laboratory of the Decline of the West

It is true that all along the course of history nations have gone through phases of success and of decline, and it is also true that the elements which decide on the virtuous versus the negative path a country embarks upon are time and context determined, so that some nations “succeed” better than others, and some “fail” (Acemoglu and Robinson 2012).

In the case of Italy, we can date its economic and social decline starting back towards the middle of the 1990s⁵ which is about two decades ago. In 1994, Italy did, in fact, manage to even surpass France (after having famously done the same with the UK ) and become the fourth largest economy in the world behind USA , Japan and Germany. It is therefore remarkable and perhaps hard to believe that only over twenty years later the country is expected to slip into position number ten (by 2019). Italy’s performance has been poor, as we observed earlier, not only vis-à-vis unstoppable low cost-based competitors, but also in comparison with its most similar peers (D’Agostino and Scarlato 2015).

Figure 4.1 shows the twenty-year evolution (1996–2015) of Italy’s GDP compared with the world of the developed countries (OECD member states) and of the 15 EU oldest Member States, thus not including the enlargements to Northern and Eastern Europe.

Fig. 4.1

(Source Authors on World Bank Data)

Comparison of Italy’s GDP with other countries’ (1996–2015)

The curve for Italy has been almost completely flat as the country in 2017 produced just 17% more than in 1992 (with 1992 as year 100), the year Italy’s so-called Second Republic was established; this amounts to an average of 0.4% per year. Italy was still 7% below its GDP immediately before the 2007 crisis. Such performance is way below that of the world as a whole and also worse than the other OECD richest countries (including USA and UK ) and worse than the 12 EU Member States that joined the EURO by 2001.⁶

As a matter of fact, Italy has grown less than its peers every year for the last 25 years and its growth has been lagging behind at the rather steady rate of 1.5% percentage point per year vis-à-vis its developed peers.

This evidence indicates that, opposite to what has been argued by many (more recently Savona and Tria, who currently are ministers in Italy’s government), the change of Italy’s currency from the Lira to the Euro is not the only or not even the main reason for Italy’s economic problems of the last two decades.

Indeed, Italy’s economic decline has its roots in the country’s high indebtedness which began to show in its growth statistics before the introduction of the Euro. And yet, it has turned out that the perception that many Italians acquired of the negative impact of the new Euro currency on their lives deepened and became a main booster of the fortunes of populist parties a few years later.⁷

Against this complex institutional and political background, the interpretation that our conceptual framework introduces is that the fundamental determinant of Italy’s decline is the loss of capacity by the country to increase and maintain a high stock of knowledge and to apply it in designing and implementing innovation led policies. Indeed, knowledge generation and knowledge utilization in collective problem-solving are two interconnected processes.

4.2.1 Weak Capability to Maintain, Attract and Use Human Capital

Perhaps the most striking dimension of Italy’s problem of under-performance is that in the current historical phase of transformative social changes, the country that had created the very first university in Europe⁸ and given the world the geniuses of the Renaissance, is the EU member state less capable to leverage its human capital , a condition that if not promptly reversed indicates that the worst may yet to come.

The reference here is to the migration of many of the most talented young people who have left the country in the last two decades to find gainful opportunities in labour markets in the EU and also overseas. While labour movements within the EU is a physiological phenomenon showing an integrated job market, in terms of a specific country such as Italy it becomes a quasi-pathological phenomenon because it has a one-way direction. Italy does not attract talented young people from other countries.

The number of young people who have left the country in the last twenty years is staggering and increasingly worrisome are the compounded numbers. As a matter of fact, the numbers shown in Fig. 4.2 for the 2007–2016 decade may be even worse because they consider only people who officially moved their residence to their new country, whereas there are many Italian citizens who go abroad maintaining their official residence in Italy. The total number of young people who emigrated in this period reaches 406.666.

Fig. 4.2

(Source ISTAT)

Italian emigration of young people (15–34 years)

The best qualified leave, as the likelihood of a young Italian person to find suitable employment abroad is higher, the stronger her academic performance and the better the reputation of her university. This has resulted in a diaspora of what was supposed to become Italy’s ruling class (“classe dirigente”). More problematic yet, recent research has shown that the diaspora has spread to a wider segment of young people (even non-graduated) and older workers with some level of specialization (Vision 2012).

Low capacity to attract and maintain talents is coupled with Italy’s low capacity to promote and use the potentials of the human capital available in the country. In Italy the numbers of young people trapped in a condition of not being in education , employment or training (NEETs) are amongst the worst in the EU (Fig. 4.3); 1.5 million Italian youngsters in such a condition represent a quarter of the EU total.

Fig. 4.3

(Source Eurostat)

NEET (neither in education , nor in employment, nor in training) % of total population within the age segment (15–34 years), 2016

Additionally, Italy has not shown signs of improvement over time in regard to bridging its long-standing territorial divide, so that today the country remains profoundly split between North and South in regard to both phenomena of out-migration and NEETs (data for the latter are shown in (Fig. 4.4), with the South showing staggering high figures for both, in comparison with the North).

Fig. 4.4

(Source ISTAT)

NEET (neither in education , nor in employment, nor in training) % of total population within the segment; by geographical area, First Trimester 2018 (15–29 years)

Another side of this gloomy picture is the striking realization that although many analysts seem to ignore it, the entire cost of the country’s crisis has been paid by the younger generation. Indeed, Fig. 4.5 provides a different story of the great recession Italy has experienced in the last decade. Since 2007, Italy’s overall employment rate has not moved a lot. The real big change has been a huge intergeneration shift within the labour force. Before the crisis 65% of Italians in the crucial age after graduation (25 and less than thirty years of age) were employed; today only 54% of them are working. On the other hand, if only 48% of mature workers (between 50 and 60 years of age) were working back in the year 2000, up to 58% of them were doing so in 2007. And their number happily continues to rise, notwithstanding a crisis from which the country’s GDP has still to recover; it was up to 67% in 2017.⁹ Therefore, the essence of the crisis in Italy has been mostly about a massive reallocation of resources from the young to the less young, whereas the graduates have been facing a sort of absurd law of “last hired first fired”.

Fig. 4.5

(Source ISTAT)

Employment rates by age; 2000–2017

In addition as Fig. 4.5 also shows, Italy is suffering a wide gap vis-à-vis the Euro area countries, although the employment rates are higher today than when the Euro was adopted (1999). Nonetheless, Italy’s gap vis-à-vis Europe is entirely due to a lower capacity of its system to recruit young people into the labour force (in Europe 71.3% of the 25–30 years old people are working) so that it is clearer why the country is witnessing a diaspora of its human capital .

This fact in itself indicates another specific condition of Italy’s labour market, that it overly protects older workers in permanent contractual employment while it does not pay enough attention to the employment conditions for younger workers.

Indeed, it is paradoxical from a modern labour market’s point of view that especially during a time of crisis young people’s employment conditions should not be more resilient. After all, younger workers cost less, their lifestyle is more flexible and with fewer constraints so that they can better accept sacrifices and be more mobile. They also tend to be more creative and more apt at finding solutions to problems in the work environment , thus overcoming the issue of the lesser experience. It is a paradox not only in Italy, because even in other countries young people tend to pay for the crisis more than the old, and yet this results in a double cost: the gap in employment rate reduces immediately the economic capacity of the country and, worse, it reduces its potential in the long term. Young people who are idle tend to loose trust in themselves and this produces an exponential cost which takes its toll in the years to come.

Thus, more significantly than in other countries, Italy is pioneering the resource gap between old and younger generations, a new kind of inequality in the post-World War II experience of the advanced economies, and one that acts as a depressing force of long-term growth through innovation .

Additional analysis also shows that inequality in Italy is not only growing but also often rewarding those who do not “deserve it”.

On the winning side of the inequality equation in larger numbers are men: retired workers whose contribution to their pension schemes was lower than what they are receiving as retirees; protected workers who are sheltered from industrial restructuring; and, in general, entire segments of highly secured public administrative workers whose productivity is not what it should be.

On the losing side there are women who in addition to being quite unrepresented in the Italian labour force in comparison with their condition in other EU countries, when they are employed earn—according to Italian National Institute of Statistics (ISTAT 2018)—about 25% less than men, thus contributing less to family income. Amongst the losers, there are also migrants who often work in Italy’s underground economy, young people looking for jobs, and social segments such as the physically handicapped who can add economic value and yet are not mainstreamed into the labour force to the extent that the law demands.

In other words, in a thwarted manner Italy manages to “hit two birds with one stone”: producing unjustifiable inequalities and reducing the efficiency of its economic system.

Presently Italy has lost its battle on the enhancement of its human capital to the levels demanded by the technological revolution in order to be competitive and nurture a sustainable path of growth. Hopefully, Italy will not lose the war. This negative condition has happened because Italy has entered the age of the economy that is based on the unrelenting production of knowledge, exactly at the same time when a combination of political and institutional conditions had the country lose its traditional propensity to reward talent, creativity and knowledge.

4.2.2 Economic Crisis as a Cognitive Problem

The “wasted generation” that many of Italy’s younger generation have become as the trap of unrewarded human capital envelopes them, in addition to its high human cost also steals Italy’s long-term growth potential. This result is visually demonstrated in Fig. 4.6, where the unbalance across public sectoral expenditures is shown in terms of the high priority which is given to the retirees.

Fig. 4.6

(Source Elaboration of the authors on Eurostat and OECD data)

Public expenditure on retirement benefit and public expenditure on education and research as a percentage of GDP (%; 2015; 6 major European economies)

Italy has been spending amounts on pensions which technically constitute a subsidy to those who have left the labour market, because the amounts are based on the last levels of salary (sistema retributivo) and not on the contributions actually made by workers to the pension systems (sistema contributivo). Indeed, the amounts spent on pensions are four times more than what Italy invests on educating those who have not yet joined the labour market.

The comparison with EU member states of similar population sizes and age structures confirms that Italy is an anomaly even within such group of developed and ageing countries: although the excess weight of pension systems is a problem of all advanced economies, in no other EU country the proportion between pensions and education reaches four. No other country in Europe spends as much as Italy on retirement benefits, with the most glaring difference shown by the comparison with Germany at almost 6% points. Conversely, there is no other country which invests as little as Italy in education.

As striking as this issue appears today, it is not new. In the last quarter century, that is approximately during the long period of Italy’s decline, one counts 7 reforms of the pension system, with the first reform dating back to 1992 and to the then Prime Minister, Giuliano Amato. Today the problem of a pension system that was not sustainable has been alleviated, but not solved, by the more incisive Fornero reform of 2011. And yet, according to the last DEF of 2017 (Documento di Economia e Finanza that each year the government presents to the European Commission before drafting the mandatory annual Financial Law), the ratio between the expenditures on pensions and those on education is expected to worsen and reach a value of six times from the current four before it stabilizes.¹⁰

Our friend Stefania Giannini, a former Minister of Education ,¹¹ provided us with the explanation of the problem that she, as an on-hand operator, fought against. In her view, the inability to re-balance public expenditures in favour of education is due first to the marked ageing of Italian society, whereby Italy is second only to Japan in terms of highest life expectancy and at the same time has one of the lowest birth rates in the world. But a second factor is cultural, that is the resistance of an entire nation today to a merit-based selection which has diminished the importance of education in the eyes of many, lowered the social status of teachers, allocated resources not in line with growth and ultimately hurt the quality of educational institutions as well as the prospects of the Italian family-centred capitalism. Drawing on her background in linguistics, she also pointed to the semantic issue that Chomsky has written about and that we have recalled as the decline of the West : most difficult to be tackled unless one starts from examples.

The consequences of lack of investments on knowledge are far reaching. Italy is underperforming in comparison with other EU countries in terms of percentage of GDP allocated to R&D , although the country was, as underlined, one of the forerunners of scientific advancement for most of the twentieth century. There is no Italian university amongst the top 100 in the world (in the various world rankings of universities published by Quacquarelli and Symonds, Times Higher Education , Academic Ranking of World Universities), even though Italy created the very notion of university, as pointed out, with the founding of the university in Bologna in 1088. Even leadership in creativity seems to slip, when Italy used to be the second country in the world list of the most valuable brands for number of household names amongst the most valued 100.

However, the problem is not only one of misallocation of public resources. Even firms in Italy tend to underinvest in skills and this contributes to complacent moods and behaviours across a civil society that appears to have adapted to the deterioration of its knowledge assets and, thus, to its own decline. The rapidly increased support for populist parties, promising a return to a past of social protection for all at no cost to individual citizens while they do not address the urgent issues of investment in education and research and reward for competence and merit, is a confirmation of this change of attitude within the public at large.

The diaspora of the young is facilitated by the fact that even when young Italians succeed in gaining a good education and look for jobs in Italy because they desire to stay, too many find a knowledge adverse labour market. Italian labour markets are characterized by a lower reward for quality studies (OECD). At the professional level and in significant part this is due to the standard legal recognition accorded to every college degree as well as to the generous time allowance college students are given to stretch-without grade point average penalty-over many years the completion of their course of study (fuori corso).¹² Indeed, Italy’s legal culture does not differentiate in terms of quality amongst college degrees giving, as it does, equal legal standing to college degrees from qualitatively different institutions with differential entry-level requirements. While this approach responds to a purported dimension of equity, it neither nurtures merit nor it insures the preparation of the best-qualified private sector workforce and public bureaucracy. On the contrary, it even harms merit, as when in competitive public examinations (concorsi) college grade point averages bear on a candidate’s score.

This non-meritocratic approach has been coupled with a declining rate of social mobility which in the last couple of decades has reached a very low point. Italy shares such low upward mobility with the UK and the USA , even though the way in which the social elevator has been crippled in the three countries is different. In the UK and in the USA , the elevator has been slowed (Putnam 2016) by the specific and escalating costs of education , particularly college-level education, the declined level of public funding to close the gap between well-funded versus poorly funded local schools reflecting their respective neighbourhoods’ social make-up, and consequently the ultimate result of the best education being expensive and largely accessible only to well-off people (The Economist, ‘Dynasties’, 18 April 2015).

In Italy, where the cost of public education in spite of the insufficient investment remains comparatively very low, the halt to social mobility is the consequence of a rigid labour market that protects those who have permanent employment contracts, of the political resistance to liberalizing competition within some professions like lawyers, and of the capacity of interest groups to defend acquired status and income (rendite di posizione) and pass them on to their family and friends.

In essence, returning to the concept of social capital , in terms of its evolution over the last few decades, Italy has seen a strengthening of bonding social capital at the expense of bridging and linking social capital. As pointed out, one effect of which is the halt impressed to social upward mobility. Two other factors have contributed to the de-escalating of social mobility . One is the disappearance of mass-based parties, which used to train and select leaders from within their ranks in a mode that has a degree of similarity with China’s, while the other is the changed focus of the Catholic Church more on the world and less on Italy and the role it used to play in the identification and support of Catholic leaders.¹³

Moreover, while emphasizing that in Italy education is distributed in a more equal way and that college education is almost free but it counts much less in the determination of the future occupation of workers, additional explanations for this incongruence bring to light other factors, such as: the many small-size family-owned companies preferentially hiring their own, large numbers of graduates in traditional fields with no job market prospects, and local cultures privileging employment in the public sector which is instead contracting.

The consequences for Italy of underinvesting in innovation are far reaching.

Italy’s industrial clusters in the North and Centre that in the 1980s so fascinated Piore and Sabel and other orthodox economists as a continuing example of an unorthodox path towards innovation during the long-lasting economic crisis have shown a mixed performance. Some industrial clusters made up of the smaller firms and in a contextual territorial environment , where inter-firm cooperation is rarer and the coordination with and support of public institutions is difficult to achieve, have collapsed. This has been more often the case in Italy’s Mezzogiorno, that is, within regions that partake of significant EU Structural Fund resources that are programmed to be devoted to policies of innovation, as per the call of the strategy Europe 2020. Thus, in such environments, ambitious prospects of internationalization of sales have not materialized and Italy’s Southern regions are again lagging behind in the investment of the Funds (Leonardi 2016; Petrosino and Romano 2016).

In Italy’s Northern industrial districts, where the presence of medium-size firms is more the norm, the picture is mixed. Weaknesses in the capability of firms to maintain competitive advantages have more often than elsewhere been overcome through investment in innovation . Very good examples can be cited of industry 4.0, that German-derived terminology applied to a group of rapid transformations in the design, manufacture, operation and service of manufacturing systems and products.¹⁴ One top example is the Motorvehicle University of Emilia-Romagna (MUNER), a consortium of universities and the top sectoral firms to attract the best students from the region and the world and train them as the “engineers of the future” to design road and racing vehicles, sustainable propulsion systems and subsystems for intelligent functionalities and production facilities under the banner of Industry 4.0. Another example is Open Italy, a partnership between four large enterprises, one medium-size technological enterprise, a successful start-up, an investment fund, the Italian Association of Private Equity and the Milan Polytechnic’s incubator facility PoliHub to focus on opportunities for innovation in Italy and support them.

Indeed a selection process has occurred (Intesa San Paolo 2017; Unioncamere 2013) reducing the number of successful districts, so that some have been in a position to expand the size of the firms, internationalize their production, and remain competitive. What is more worrisome is the fact that the success stories have come against regulatory frameworks which make innovation quite difficult. Notwithstanding a decade of economic decline, Italy continues to maintain such regulatory frameworks which for many firms are a disincentive to invest in innovation.

In this regard as well the contrast with China is particularly telling. If China manages to produce more electric cars and batteries, more solar cells, more drones than the rest of the world combined; Italy is lagging behind everybody else in the production as well as the adoption of each of such goods whose production calls for a great investment in innovation.

At the same time, it is true that different countries can specialize in different sectors with important investment in innovation , because knowledge-led growth is also territorially specific. Thus, the comparison of Italy with China further underscores that Italy’s problem is not as much one of industrial capabilities or economies of scale. Rather, it is the country’s reluctance to face up to the challenge of undergoing a great transformation in its legal frameworks to allow for the redesigning of its territorial institutions and the formulation of differentiated investment strategies at the sub-national level.

It is on the unique patrimony of cities, regions and rural areas which are characterized by distinct and valuable assets that Italy’s investment in innovation should begin and concentrate on. For example, both the country’s precious art city centres and its historical hilltop villages would well benefit from innovation bringing to them differentiated modes of green transport. Yet, the existing legal framework does not allow for locally adjusted regulations, other than at great expense and with great difficulty.

In 2011, the combination of slow growth and rising public debt appeared to bring the country to the point of collapse, when the loss of interest of financial markets for Italian bonds as too risky rendered conceivable the possibility of Italy’s default. Three subsequent governments as noted (the first led by economist Mario Monti ; the second by centre-left exponent Enrico Letta and the third by centre-left new party secretary Matteo Renzi ) were asked by the EU institutions to implement a broad agenda of institutional reforms.

However, we argue that these reforms missed the real problem of the country: the misallocation of public and private resources which has favoured less productive uses (meant as beneficiaries of policies; social groups; industries) with the final result of reducing the long-term potential of the country and its overall productivity.

Seven years after that crisis, Italy is still trapped in the most unfavourable position that our conceptual framework envisages: that is to say, the country is bearing all the costs of a democratic system which is structured to postpone decisions and dilute choices made. At the same time, the country is not drawing the benefits that congruent means of participation should provide in terms of knowledge and information to be incorporated into effective collective decisions.

Our framework connects the “democratic trap” with the deterioration of the knowledge assets of the country. This assessment leads us to the next section where we explore the obsolescence of Italy’s democracy as both cause and effect of the crisis in the capacity of Italian society to adapt to a radically new international context and, therefore, to sustain the prosperity levels and competitive advantages that the country enjoyed until into the 1990s.

4.3 Italy’s Innovation Paradox and Obsolescent Democracy

In the words of former Prime Minister Enrico Letta in the speech with which he presented his new government in a moment of rather dramatic institutional crisis, Italy’s institutions managed to be suffering from a dual crisis of “efficiency ” and “capacity to represent citizens ” (Letta 2013).

Italy is a striking example of the denial of what common wisdom may suggest to policy makers and to architects of institutional reforms. It is not necessarily true that between “representation” in policy making and “delivery” of growth results the output is a zero-sum game; that is the more people participate in the decisions, the less effective the decisions are. Italy managed to perform poorly on both. Italy’s profile is an important case for our thesis which argues that information inputs from society are needed in order to design innovation driven policies and implement them more quickly.

Italy is a paradigmatic case where a country belonging to the camp of Western liberal democracies is trapped in a position (in the lower part of the U curve in the chart presented in Chapter 2) where it has all the costs of democracy—including lengthy negotiations and dilution of the choices—without enjoying the benefits of democracy meant as a system to gather dispersed information and knowledge so that they can inform policies and collective choices.

As we will see, ineffective democracy resulted not only in suboptimal policy design, but also in a great number of reforms which managed to produce pieces of legislation approved by parliament and that nonetheless failed to effectively change the country. Italy does show that laws that are too complicated to be understood, that do not have efficient mechanisms for enforcement and that do not engage citizens, tend to present a tremendous implementation problem.

4.3.1 A Torn Social Contract

The decline of democracy is the decline of the capacity of a community to reflect on itself and exercise collective problem-solving which moves a democratic country towards progress and at the same time it has citizens feeling that they are sharing in a vision of change and in projects to realize it.

In Italy, the crisis of democracy has translated not only into an increasing distance between citizens and the various levels of government, but also into a growing distance amongst citizens themselves. This new condition is reducing the sense that citizens have of partaking of a shared identity of community in both large cities and small towns. This amounts to a detectable erosion of “social capital ” which used to be the real strength underlining the envied model of the Italian economy of interconnected industrial districts (Becattini and Rullani 1993) and of the communitarian cohesive society of neighbourhoods and villages (Putnam et al. 1993).

The deterioration of Italian democracy is shown in numbers and, more importantly, it is perceived almost unanimously by sectors of Italy’s public opinion. On the one hand, numbers show that dissatisfaction with traditional means of participation has risen rapidly. As pointed out, this is demonstrated by the steepest drop in turn out at elections (Vignati 2015); the emergence of populist movements like the League ; and more recently the growth of the M5S which pioneered anti-establishment campaigns and now are at the helm of the national government.

Conversely, in Italy some of the elements of free elections are becoming more significant in terms of citizens’ opportunity to participate: intra-party democracy, for instance, may well be growing due to the introduction of systems of primaries to choose party leaders (this is especially true within the Democratic Party) and candidates to run as mayors or regional governors. Narratives of accountability are also growing due to the spread of social networks, a phenomenon which however also increases the risk of unsupported and unfair value judgements about candidates. And yet it is probably this contradiction between growing public scrutiny and people’s expectations of concrete opportunities to be engaged in decision-making that is one of the reasons why Italy is a case study for Western liberal democracies experiencing crises of legitimacy.

A more careful reflection on the difficulties being experienced by Italian democracy points to the transformations of Italian political parties since the early 1990s. As we pointed out in the introduction, when a major corruption scandal involving the Socialist Party and the Christian Democrats brought in the magistrates in a sweeping series of court trials—the so-called clean hands judicial move—which brought down Italy’s party system as it had existed since the first free elections in 1948 after the passage of the 1947 Constitution.

But frequent changes of government did not result in finding solutions to the still ongoing deterioration of the relationship between citizens and institutions: a signal of which is that since 1992 not once the political parties in power managed to win the next general election.

More recently, the crisis of democracy has also found what is almost a formal recognition.

In 2014, Italian citizens discovered that three Italian parliaments in a row (2006, 2008 and 2013) had been elected according to an electoral law that in part was found to be unconstitutional by Italy’s Constitutional Court. As a response, parties in Parliament negotiated and approved by a large majority a new electoral law, only to see that even the new law was found to be in part faulty by the same Constitutional Court.

These events have created a problem in Italy of formal legitimacy which is unique even within the context of weakened Western liberal democracies . Moreover, they have opened up Italy’s political system to critical attacks of underpinning a trend of widespread degeneration of Italian democracy, failing in its mechanisms to engage citizens in policy making and holding legislators and governments accountable to them.

Today Italy appears lost in what may well be called a “democracy’s trap”. A trap which has stolen much of the energy of what used to be one of the most dynamic societies in the world. In a sense, the perception that the country is the pioneer of a crisis which may signal the decline of the West and of the democratic idea that the West has represented (Emmott 2017).

4.3.2 The Limits of Reforms Without Change

The ultimate paradox is that Italy is one of the countries in the EU that experienced more reforms, but reforms that have not been effective to overturn established trends.

As mentioned, reforms of pension systems are a very clear example of reforms without yielding definitive change. Consequently, they appear an example of “much ado about nothing”; however, much political capital invested in Italy with meagre results also applies even more to other policy areas.

The OECD counted at least four reforms of the public administration and four of the education systems as practically all governments exercised themselves in the task since the early 1990s; the labour law was modified three times and the same applies to the rules of competition and to banking; as pointed out, there were three electoral laws and three times there were major amendments to Italy’s Constitution with powers shifting back and forth between regions and the central government.

The “tutto cambia affinchè nulla cambi” (“every thing changes so that nothing changes”) paradox, is one of the most insightful literary acknowledgements (Tomasi di Lampedusa’s Il Gattopardo 1958) of the peculiar characteristic of the Italian ruling class to announce overhauls that rarely manage to significantly change anything.¹⁵ In the last twenty years, Italy appears the best representation (even in the theatrical meaning of the word) of the broader failure of a Europe wide thrust at “reformism”. This effort is mostly made up of formal legislative changes espousing ambitious objectives and yet failing to produce lasting transformations because the institutions behind them systematically fail to leverage citizens’ engagement and to promote change which, in turn, would make positive modifications in people’s behaviours.

One of the reasons of the paradox is that in the last three decades every new Italian government spent the first part of the legislature to undo the reforms that the previous executive had delivered.

This changed institutional behaviour is due to the extreme confrontation that has come to characterize the Centre-Right and the Centre-Left, the two main coalitions that rotated in governing the country during the post-“ mani pulite ” period, and while the sharp political contest between the main parties has also shown peculiar non-traditional features. As some researchers, political scientists and observers noticed (Comin & Partners 2018; Sartori 2006; Altinier 2007) the public debate of issues and policy proposals has almost entirely been based on catchwords promoted by the Centre-Right and fabricated within the context of traditional media (television and newspapers) and more so of social media. Examples are: on politicians of the other camp being “ignorant” (whereas the lack of skills appears to be transversal); on immigration “Italians first”; on vaccination of children and infrastructure investment “no VAX” and “no TAV” campaigns.

While this highly simplified language approach to public debate is also true in other Western countries, Italy has pioneered specific techniques whereby polls are systematically and daily used to understand what people want to hear: this may be partly due, as underscored, to the entry into Italian politics in 1994 of an unprecedented political party (Forza Italia) led by media tycoon Silvio Berlusconi , owner of Italy’s largest media companies (Publitalia and Mediaset). The end result of such a process today is a political arena dominated by what experts of communication call “narratives” or “perceptions” or even “fears” with little space for facts, data and therefore informed discussions of possible issue solutions.

However, one more profound reason for “reformism without changes” is that when in power the two governing coalitions were subject to the same constraints provided by powerful ministerial bureaucracies whose jobs are fully protected and which in Italy are able to delay the implementation of laws without being held responsible for lack of results. In this regard, lack of accountability remains a major issue. In a country where, contrary to the charges made by the populist parties, there seems to be weakened rather than strong institutions (“poteri forti”) left, the one institution continuing to hold much control is constituted by the bureaucrats of the central administration and also of regional administrations in their areas of primary competence.

Moreover, the large degree of control and discretion exercised by ministerial and regional officials may well have increased as the capacity of the EU bureaucracy to monitor national and regional performance appears to have decreased in the last two decades following the two enlargements to 28 Member States which brought to Brussels new and perhaps less experienced technocrats coming from different working traditions. While the enlargements increased the size of the EU workforce to the point of subtracting from clarity in attributing responsibility.

And yet the way in which in Italy the public administration itself selects, promotes and maintains its own elite is the demonstration of how knowledge has been marginalized in the country that invented many of the mechanisms through which knowledge is generated, nurtured and transmitted.

Figure 4.7 is a representation of one of the most structural and less debated obstacles preventing reforms to have an impact in Italy and to reverse its three-decade-old decline.

Fig. 4.7

(Source Elaboration of the authors on National Open Data)

Distribution of civil servants working for the cabinets of ministries by highest educational achievement (%; 2015; selected G7 countries)

High-level ministerial bureaucrats in Italy have the lowest educational background, for example as indicated by the proportion of those holding Ph.Ds (less than 20% versus Germany at 50%).

We may be casting a harsh judgement in the hope for change to accrue, when we argue that Italy’s democracy seems to have turned into a lengthy, costly exercise of bureaucratic, formalist processes which have depleted the country’s capacity to nurture collective problem-solving.

In turn, this state of affairs is the result and the cause of both, the deterioration of knowledge assets that the country used to count on and of the lessened feeling that Italian citizens have of being part of a community, local, national and European. The sense of belonging used to be strong at the local level and especially across some regions and its decline today accompanies another shared feeling of less confidence in a more integrated and protective EU. We restate that the obsolescence of the mechanisms of democracy in Italy ultimately maintains all the cost of consultation—lengthy decisions, influence of lobbies producing piecemeal economic policies, dilution of decisions when it comes to the identification of priorities—without the benefit of better informed collective choices.

Yet, Italy has the possibility to recover because it holds positive assets; it is still the leader in some sophisticated and decisive industries (such as robotics and brand creation), academic fields (such as nanomaterials), technological domains (space), and territorially specific productions (quality food). Moreover, Italy is still one of the world leaders in the culture, arts, creativity and tourism industries which have the potential to fill the employment and salary gaps that the fourth industrial revolution is opening up.

Building on these positive assets, Italy is a country which should enjoy a natural competitive advantage on how to engage with an era whose economy will be based on the diffused capacity to process and garner information to produce knowledge. To fulfil this potential it is crucial for Italy to identify promptly and to adopt new modes of decision-making to leverage the traditional energy of its civil society which in the last few decades has been latent; but a civil society that undoubtedly still holds in its folds the normative values transmitted through centuries of community engagement and, consequently, the capacity to regain vigour.

For this purpose, and to gain trust in the possibility of positive national change, we move now to inquire about a number of cases of innovation policies as well as of interesting models of city planning where new mechanisms of participation are being developed. As for other countries, the problem in Italy is that such innovations are not being systematically assessed and narrated as positive results from which specific lessons can be learned, so that they can be institutionalized and widely adopted.

4.4 Cycle and Counter Cycle: A Strategy for a Twenty-First-Century Renaissance

To inquire about exemplary innovation policies and model applications at the territorial level in Italy and reflect on their significance and potential, we are bound to first turn briefly for insights to the country’s rich intellectual history. Indeed, similar to China in its endowment of millennial heritage, Italy is a country permanently connected to its traditions, culture, and the evocative imprint of its intellectual giants, even at times when the country may appear to have disregarded them. It is therefore by reconnecting with strategic thinking from the past that the interpretation of today’s best practices in innovation policies and participatory models gains validity in underlining their significance for Italy’s prospects of reversing the negative growth trend of the last three decades, possibly already in the medium term.

It was the twentieth-century Neapolitan philosopher Benedetto Croce who re-discovered and made cogent in contemporary Italy the path-breaking thinking of Giambattista Vico, another Neapolitan philosopher. Vico’s very modern insights about the ultimate aspiration of nations to move towards democratic institutions crossed, unattended by the intelligentsia of the time, the seventeenth and the eighteenth centuries in a Europe dominated by autocratic regimes and it anticipated the regime changing views of the “Enlightment” (Pasini 1970). Vico’s powerful intuition was his conception of human history as a non-linear path of changes. Rather, as the time adaptation of a tri-cyclical path, but nonetheless a path that led people as communities of nations to purposefully aspire, through changes in their bodies of norms and behaviours, to move to the third cycle of civility, leaving behind the two cycles of incivility and of the rule of the strong and the few.

Contextualizing by historical epoch, Vico’s conception saw the time specific embrace by nations of cultural values, adoption of laws and establishment of consequential political and economic orders. Drawing from Vico’s intuition, we observe that incrementally over the last three decades and more so since the oncoming of the great economic crisis that started in 2008, Italy has slid backwards from the cycle of civility, even though its constitutionally fenced institutions have prevented its entry into the cycles of incivility and the rule of the strong and the few. In Italy for example, views of exclusion and disrespect for human rights and episodes of racially instigated violence, sentiments of personal frustration and envy, as well as of calls for individualistic entitlements and attacks on merit have increased, under the force of the political rhetoric coming from the top and that has amplified them. The result is that more Italians than before today embrace cultural values at odds with solidarity, ethical norms, and a common ground vision for the future.

While an acute social analyst (De Rita 2018; De Rita and Galdo 2018) sees even the danger of citizens resigned to accept such developments as Italy’s inevitable status quo of economic stagnation and lack of social mobility (assuefazione ed appiattimento), we instead see positive signs of grass-roots response. Therefore, it is with conviction that we now pose three interconnected and observable scenarios, arguing that taken together they constitute the basis for a national renaissance strategy of transformation to be understood and endorsed, a strategy that has social capital endowed communities at its centre. Thus, in this twenty-first century it is the Italy of the civil cycle of cities and towns that, like its predecessor cycle of the XV–XVI centuries Renaissance, leads the trend of change towards the knowledge economy nurtured from the grass roots.

• First, we pose that the slide towards the cycles of incivility and the rule of the strong and the few, fed by the top-down populist rhetoric, has exhausted its strength and has reached its bottom so that Italy is on the verge of moving upward again towards a new cycle of civility, and with it a new renaissance model of growth nurtured from the bottom up.

• Secondly, we pose that, similar to the renaissance epoch when Italian cities acknowledged and grew giants of innovation from within their communitarian soil, Italy is pushed in this virtuous and promising direction by the multiplication across its land of innovation experiences in modes of production, creation of common goods, and grass root mechanisms of smart participation . That is to say, the multiplication of experiences showcasing social capital in action for the common good is the second pillar of the doable strategy.

• Moreover and thirdly, we pose that the technological and communication revolution is spurring behaviours of adoption, adaptation and imitation of innovative experiences from the large and small urban communities where they originate to others across the land, in a thickening spot pattern distribution of cases that mixes networks of cities that become denser as well as single cities that stand out for their attractiveness as models for others in specific experimental sectors.

Table 4.1 shows the operational framework we have created to analyse later in this section a selection of case studies of community generated innovations in Italy according to the three interconnected scenarios which incorporate the strategy of positive change.

Table 4.1 Case study operational framework of community generated innovations in Italy

Actors are identified in the two principal categories of “networks of cities and towns” and of “model cities ”. Areas of innovative community intervention are singled out as: technology-enhanced modes of production aiming at sustainability, expansive creation of common goods improving people’s personal and community quality of life, and modalities of smart participation singling out and valuing knowledge contributions. Key innovation output generated by the grass-roots actors in the three areas of action consists of: the ignition of a community growth trend which in its essence is sustainable, the restart of a process at the community level of social mobility and social inclusion , and the spawning of a knowledge imbued democratic process.

We move from the operational framework to a predictive framework, showing what it is likely to happen to the ongoing experimentation of innovation at the local level in Italy. Figure 4.8 shows first, in the outlined triangle, the interactive nature of the community level production of innovations induced by social capital , from the actors to the areas to the results. It is indeed the stock of the community’s bonding, bridging and linking social capital that activates the actors to action and results, thus facing challenges of unemployment, sense of insecurity and isolation, and more that the community has been confronted with.

Fig. 4.8

The virtuous cycles of social capital induced community innovations in Italy

Then, because of the interactive nature of the production of innovations and of the tendency of social capital to increase when contextual opportunities activate it, Fig. 4.8 underlines how a cycle 1 of production of innovations moves to cycle 2 and longitudinally on to a path of “virtuous cycles” as the stock of social capital augments because of it being invested (Nanetti and Holguin 2016).

In our cases, internally the virtuous trajectory is via the important dimension of “snowballing” when citizens who may not have participated earlier are enticed to do so. Outwards, what may well come into play is the dimension of “diffusion” of the innovation experiences to cities/towns outside the networks and the model cities ; this happens through the mechanism of imitation with adaptation. We now move to the analysis of the selected case studies.

Networks of cities and towns

Metropolitan cities and smart participation (citta’ metropolitane)

After several partial attempts over a number of years and a constitutional change that granted powers of local taxation, the 2014 legislation created metropolitan cities, aligning Italy with most EU countries that have long instituted metro level governance for their major urban conurbations. Today, replacing as many provinces, there are fourteen metropolitan cities in Italy, of which six—Bologna, Florence, Genoa, Milan, Turin and Venice—are in the North-Centre; Rome was designated as “capital” with special status; and seven others—Bari, Cagliari, Catania, Messina, Naples, Palermo and Reggio Calabria—are in the South.

The creation of the network of metropolitan cities was rightly heralded a great opportunity for citizens and the prospects of modernization and development as their key governance aims are to embrace a strategic planning approach, facilitate the integrated delivery of services and communication infrastructure, and institutionally engage in close relations with other cities and European metro areas. Altogether, prospective results of greater efficiency and efficacy of decisions driven by innovation , and consequently prospects of the reconnecting of citizens with institutions.

Operationally, the functions of metropolitan cities include the formulation and implementation of the strategic metro plan as well as of the territorial plans for upgraded services and infrastructure, for the medium- to long-term direction of economic and social urban development, and for ICT information systems covering the entire area and with the capacity to serve the objectives of the strategic plan.

In the light of this institutional charge, metropolitan cities find themselves in the forefront of today’s challenge to pursue the goal of “smartness” in governance—defined as the capacity of cities to embrace an approach to urban development successfully combining the aims of competitiveness and sustainability, and in so doing meeting the global targets of the United Nations 2030 Sustainable Development Goals (SDGs) by engaging with citizens as knowledge stakeholders.

Thus, the goal of smartness in governance incorporates the operational dimension of smart participation , that is to say the active participation of knowledge stakeholders in defining the content of the strategic urban plan and the related formulation of urban programs. Smartness in governance through smart participation turns around the traditional interpretation of the top-down relationship between local level institutions and civil society , devising modes of grass-roots collaborative work with the support of ICT.

The results of the latest rating system of the degree of smartness in governance through smart participation identify top performers and clearly point out the persistence of the deep North-South divide, but they also measure the significant advances made by some of the metropolitan cities (ICity Rate 2017 Report, by FPA, of Digital360). In the last few years, the City Index compounded measure¹⁶ shows that while the top three performers are in the North—Milan, Bologna and Florence—the results for the more than half of the metropolitan cities have improved. Amongst them, are Rome, and Naples, Messina and Reggio Calabria in the South even though this group of metropolitan cities remains at a very great distance from the top three, confirming the South’s major structural delay in accruing the benefits of smart participation. Nonetheless, the results underscore that the action areas in which some improvement has occurred indicate grass-roots processes of osmosis and imitation in economic production and common goods creation, as well as of adaptation approaches in terms of smart participatory modes.

Indeed, the indicators of the City Index single out growth in digital transformation, life-long education , sustainable mobility, energy efficiency , together with advanced culture and tourism services. Ultimately though, even the noticeable distance covered by the top three metropolitan cities in Italy towards the goal of systematically collecting diffused knowledge and translate it into community innovations to produce continuous improvements in the lives of citizens, is short and insufficient. Particularly when they are compared with European city champions, such as Copenhagen, where their local level innovations are supported by congruent national legislation and important investments that lend added value to the transformations at the local level.

Milan, the metro area at the top, boasts the most significant rates for economic growth and competitiveness, sustainable mobility, research and innovation, digital transformation, but also very good rates for citizen participation in the creation of advanced common goods. Specifically, Milan has top scores for productivity, start-ups and entrepreneurial diffusion, social innovation, innovative projects for urban development and shared management, broadband diffusion, home banking, diffusion of modes of coworking. Very closely behind Milan is the metropolitan city of Bologna with a governance profile different from Milan’s but yielding even more important results in smart participation as well, in particular in the area-wide participatory process inclusive of multiple experiences with town meetings and public fora insured by the adoption of the “Statute for living together and deliberative democracy”. For this reason, Bologna is also analysed as a “model city ” case.

Unions of municipalities ( unioni dei comuni ) for shared smartness in governance

Unlike France with its tradition of centralized state structure, the characterizing historical trait of Italy’s institutional architecture is the municipality (comune), so much so that a common saying depicting Italy’s essence is “Italy of cities and towns” (l’Italia delle citta e dei borghi’). Confirming the persistence of this feature in the current phase of transformative economic and social changes is the emergence of unions of municipalities , when a legislative decree of 2000 instituted and promoted them particularly amongst the demographically smaller ones, followed by their rapid growth in the last decade in response to the high cost of local services and the loss of economic activities due to the long-lasting crisis. Unions have acquired full-scale institutional decision-making functions and autonomy in strategic and service planning (Labianca 2014).

Data show that as of 2018 there are 537 Unions of municipalities, comprising a population of just over 12 million people (http://www.comuniverso.it) out of Italy’s population of 60, 6 million (2016), and that the density of their distribution indicates a greater presence in some regions, including Valle d’Aosta and Emilia-Romagna in the North and Sardinia in the South.¹⁷ While a key aim of Unions is to incrementally realize economies of scale in service delivery by sharing them at the area level (Bartolini and Fiorillo 2006) in time the modalities that accompany local processes of rationalization have mutated from the traditional top-down public service planning mode to incorporate participatory assessments of needs in the planning phase as well as private service management in the delivery phase. Digitalization of information services and of public data to make public document reading accessible and transparent as well as to facilitate citizens’ monitoring of expenditures, has been central in supporting the process of administrative restructuring at the area-wide level and in attracting the interest of knowledge stakeholders in support of it.

This recently afforded and expansive opportunity for the engagement of knowledge stakeholders in decision-making is happening as municipalities across the country have come together to create Unions. However, our analysis of the universe of Unions to identify significant cases of performance, once again underlines that the North-South divide remains significant, even though it is not as much in terms of the rate of creation of Unions (Ivaldi et al. 2016). Rather the North-South divide appears in terms of the activation of the Unions, that is to say of their capacity to carry out the administrative reorganization at the inter-municipality level that would insure saving and greater efficiency in service delivery. But, even more challenging, the divide appears in the capacity of Unions to launch themselves into the new activities envisioned and called for by legislation of 2014 of embracing a strategic planning vision shared with the public at large and of programming and implementation shared with knowledge stakeholders, leading to service delivery modernization and sustainable growth; all of which, their institutional functions call for.

This recent institutional opportunity has not yet produced general studies evaluating the performance of Unions in the engagement of knowledge stakeholders in area-wide level planning and programming; while early assessments have been made of their institutional nature as well as of their capacity to invest in communal services (Arachi et al. 2015; Ahrend and Schumann 2014). Results of analyses restricted to the budget show that Unions in the North on average have greater capacity to accrue and spend resources than their counterparts in the rest of the country and that some regions, such as Campania and Calabria, have created Unions that are merely administrative in nature. Our review of the universe of Unions has indicated that to delve into the evolution of Unions as promoters of knowledge economy innovators necessitates a case study approach. Therefore, the two cases that we analyse below are from the North.

Collio Alto Isonzo

The Union comprises twelve municipalities, for a population of about 65,000 people including the middle size city of Gorizia, within Friuli-Venezia Giulia autonomous region, on Italy’s Eastern border with Slovenia. Collio Alto Isonzo has recently re-acquired geographical centrality after the 2004 accession of Slovenia and former Eastern European countries into the EU as a link with the Balkans and Central Europe, while its historical partaking of the culture of Central Europe affords the Union a multi-cultural and multi-linguistic heritage of traditions and performing administration.¹⁸ Building on this context and opportunity, the Union of Collio Alto Isonzo has focused on the aim of promoting sustainable economic growth by improving the force of investment attractiveness of its territory through the engagement of knowledge stakeholders. The instrument has been the participatory mode of the formulation of the 2018 Strategic Plan (UTI) that incorporates three more municipalities for a total of fifteen.

UTI has identified a vision and incorporated it into a policy framework for the Union that aims to harmonize not only its public and private financial resources but also their allocation to policies of “creation and increase of social capital in its essence of system of relations amongst enterprises, human capital , and common goods, that render productive the UTI territory in terms of its dual social and economic dimensions”. The contextual territorial analysis that UTI is based upon has been carried out with the inputs of both the entrepreneurial and social actors already operative on the territory as well as of young and would be social and economic entrepreneurs. Through the process of participation and consensus seeking.

UTI has adopted eight area-wide strategic objectives, amongst them: tourism, where employment and innovations in agri-productions are growing, is identified as the driving sector; industry and artisanry, with a strong presence organized in industrial districts, are singled out as recipients of investments to increase knowledge driven innovations to render them more competitive; agriculture, as a common good, whereby strengthening the associational capacity of producers and new producers also contributes to the re-introduction of indigenous productions; social services as an integrated and shared system; and upgraded Internet networks to reach and made affordable to all citizens and entrepreneurs. Throughout it, the UTI process underlines the significance of the new area-wide identity of the territory, an identity which is more complex and also in a position to better plan and yield results on the basis of greater knowledge inputs because it “makes use of common know how that is produced and shared by all”, as experiences and knowledge are sought and translated into planning and operational inputs. In this participatory approach to facilitate the taking roots of the sense of identity and solidarity characterizing the area-wide community, UTI also singles out in the implementation phase the role of the actors of the “third sector”.

Terre di Pianura

With total population of circa 60,000 people, the Union Terre di Pianura comprises six municipalities located in the region of Emilia-Romagna, surrounding to the North its capital city of Bologna, in the Po Valley. A territory of ancient settlements, dating back to the Villanovian civilization, and then Roman military posts and defence castle in the Middle Ages, Terre di Pianura has a significant architectural patrimony and a heritage of strong community traditions of solidarity and culture, visibly noticeable in the dense network of historical villages (borghi storici) around the principal towns that showcase museums and galleries, opera theatres, music ensembles, but also historical hospital and refuge complexes for the destitutes and pilgrims.

The fertile territory of the Union in history has been the “bread basket” of the capital city and today it boasts acknowledged quality agricultural productions such as green asparagus, potatoes, onion, sugar beet, and a range of fruit, which have acquired protected status (IGP and DOC) through the work of the consortia and cooperatives of producers that market them for domestic consumption and export . The agricultural vocation of the territory is accompanied by the presence throughout it of SMEs that include productions of excellence in mechanics, orthopaedics, and food processing. Also of high quality is the network of specialized public hospital facilities such as the hyperbaric chamber, the pulmonology and surgery clinics, and the nationally known prosthetic district, that are parts of the integrated metropolitan health system.

It is upon such a communitarian heritage and presence that today the Union, created in 2010, is building its area-wide planning initiatives that the expanded legislation of 2014 has rendered possible. Indeed, the process of service delivery and digitalization at the area-wide level has been rapid. As a Union, Terre di Pianura has aimed to coordinate and integrate the delivery of public services at the area-wide level and improve their quality and efficiency through economies of scale and upgrade. Integration in service delivery has been completed, so that for example, municipal police is located in one of the municipalities while serving area wide. Digitalization of data is well advanced, so that public libraries have full digital services for the public and partake of the metropolitan library system; and so are vital statistical and information services, while in 2016 the important One-stop Office for Economic Activities became operational at the area-wide level (Ufficio unico per le Attivita’ Produttive) in support of local start-ups and expansion of existing firms.

The process of improving the efficiency of service delivery and the quality of services at the Union level has taken place within the framework of the ambitious metropolitan planning process. Terre di Pianura has been important in the launching and partaking of the 2013 Metropolitan Strategic Plan (PSM), a participatory and collegial process of public institutions and private knowledged stakeholders, to share and construct a vision of the future for the metro area, make priority choices and formulate programs to well position the metro area regionally, nationally and internationally. The institutional process has included Planning Groups (Tavoli di progettazione) yielding fifteen strategic projects. Participation has seen entrepreneurs, the third sector, research centres, associations, and individual citizens in sessions of debate and mediation amongst different positions arriving at the definitions of shared objectives and strategies of implementation that have included the specification of the resources and the definition of tasks for public and private partners.

The focus has been on territorial sustainability, inclusiveness, and attractiveness for entrepreneurs and investors, while the approach has been geared to encouraging creativity and seeking out new “intelligence and energies”. The strategic projects bearing most significantly on Terre di Pianura include: the Renaissance of Manufacturing (IRMA) based on the promotion of techno-scientific education and resources for new talents and for advanced manufacturing processes; investments in activities to fight the condition of NEETs ; the expansion of the metropolitan transit system; and the Health Houses (Le case della salute) as the drivers of innovation in the primary health care focusing on prevention and education, together with the Industrial District for Electronically Delivered Health Care (Distretto industriale della Sanità Elettronica).

Self-selected towns ( Associations of towns ) in projects for territorial sustainability and identity

A modality of territorial revival making use of innovative ideas and means that has emerged in Italy and that has found its natural roots in both the patronage of the arts history (mecenatismo) and the communitarian traditions of Italian localities is the self-selection of towns into associational networks which are created to carry out broad-based development projects. This recently emerged modality also draws from the contemporary Anglo-Saxon examples of the involvement in development by large corporations, so that in Italy as well the modality sees the initial leadership in action of the large actors of the not for profit sector. But then in Italy the initial move leads to the partnering of the large private actors with the local institutions and the very active role of the local civil society actors through whom the projects are defined and carried out.

This modality of associations of towns goes beyond the twinning type of best practice collaboration in development which has typically characterized projects between two towns sponsored by the EU in a mentorship style. It also goes beyond the cases of temporary emergency help lent by cities and towns to others during times when natural disasters hit as well as the associations of cities and towns (www.comuniverso.it) that share a common trait or interest, such as the National Association for Renewable Energy (ANTER). Rather, this modality foresees long-lasting collaboration in development as a sustainable process and the keen interest in employing innovative instruments to realize results. We illustrate and discuss one exemplary example of this associational modality for sustainable development.

Save the Apps

Through the leadership of the two foundations, Fondazione Merloni and Fondazione Vodafone Italia, the project “Save the Apps” was launched in March 2018 to revive the economy of the Central Apennine areas spanning four regions that were heavily damaged by the August 2016 earthquake. The project is supported by significant private resources provided by the two foundations and other private sector donors. Starting from municipalities in the Marche region, municipalities in the other three regions of Umbria, Lazio and Abruzzo, also affected, have adhered to the project that envisions their renaissance countering the risk of depopulation by focusing on “digitalization and innovation …and a long-term vision which is shared by local institutions and private enterprises”. The primary aim is to “mobilize the energies diffused across the territory in order to relaunch the power of attraction of the Apenine areas” (Letta 2018).

The project strategy is to concentrate on the specific assets of the territories to restart in particular those sectors which have been hit the most. Thus, the small enterprises producing traditional quality niche products characteristic of the areas are the main targets to be involved in the adoption of new innovative technologies in both the production and the marketing phases, as they partake of an associational milieu of hope and motivation. In addition, returning tourists are the targets of innovative modalities to facilitate and enjoy their stay as they rediscover areas that have a great cultural character. Therefore, exemplary initiatives sponsored by donors and informing the “Save the Apps” project are:

• “Foodranking”. Realized through Amazon this initiative entails a software infrastructure to support the food productions of the areas and facilitate their marketing. Essentially it places hundreds of small producers of quality cheeses, preserves and other excellences who are scattered across mountain spaces in a position to be known nationally and internationally.

• “Walkers of the Soul” (Camminatori dello Spirito). The support of the two foundations is contributing to the software infrastructure consisting of a digital database of the ecosystem composed of hermitages, millennia-old abbeys, footpaths, and mountain routes, that in the past used to be travelled and visited by wayfarers. Today, this ecosystem brings back for tourists the experience of harmony between nature and inspiring man-made structures.

• “Hazelnut production”. Working with local farmers, the food conglomerate Ferrero is sponsoring a long-term project to apply techniques of digitalized agriculture in the production of the high-quality Franciscan hazelnuts for the making of the well-known Nutella spread.

• “Health point”. In the municipality of San Genesio, singled out by Unesco as a creative town, which is located in the mountain area of the province of Macerata, the experimental health point staffed by trained volunteers who serve the older residents for their routine health controls and send the data to the Ancona hospital that in turn sends back the results. This project is to be expanded to the other towns.

• “Export of excellence”. A web platform developed by the foundations is the companion project to the ranking, providing marketing space and technical support to small producers to sell their quality products nationally and internationally.

• “Institutional upgrading”. PricewaterhouseCoopers, the consulting and audit company, is sponsoring month-long working sessions to train hundreds of municipal administrators of the area in the digital preparation and handling of budgets and of the accounting of the economic assets of municipalities.

Model cities

We now move to briefly discuss a selection of five case studies of community generated innovations in Italy in one or more of the three interconnected scenarios incorporating the strategy of positive change, whereby the context is that of cities that are singled out for their excellence and acquired visibility that render them models for other cities. The case studies, three in the North and two in the South, are: Bologna, Brescia, Matera, Parma and Siracusa.

Bologna: participatory governance and innovation

In the smart cities ranking Bologna, as seen, is second to Milan. But what in the ranking singles out Bologna as a model city is the role that its institutional system and the related and pervasive modalities of participatory governance it adopts play in spurring knowledge driven innovations in the city’s economic and social activities. The result is that Bologna is not just a smart city, for example in terms of performance in digital transformation and renewable energy in public transit; rather, it is a model city because it plans and does not leave unexpected changes unattended. At the same time, today Bologna plans by looking forward through an egalitarian perspective, aiming to create new and diffused employment opportunities by valuing its strong civic traditions and leveraging its heritage of scientific traditions, both of which have historically informed the city’s identity.

Thus, the deliberative engagement of citizen and knowledge stakeholders today happens in a context of transformative challenges that are being faced by the close institutionalized alliance between the city and knowledge stakeholders. For example, specific modalities of collaborative debate include the creation in 2017 on the one hand of the Advisory Board with scientists of the Alma Mater Studiorum to provide scientific inputs and assessment of policy proposals to be considered as content for the Metropolitan Plan. While, on the other hand the creation of the Development Council, an outreach mechanism open to newcomers, has instituted a permanent forum of participation and debate amongst economic and social stakeholders, in addition to municipal institutions and public bodies, to garner expansive inputs into the process of planning.

But the contribution of its citizens to new modes in participatory governance yielding the creation of common goods includes what has given Bologna the leading role in instituting this type of collaboration between citizens and municipal administrations. In 2014, Bologna experimented the recognition of “collaboration pacts” (patti di collaborazione), making the city the experimental place in new forms of privately driven collaboration with the public sector, followed in this approach by the city of Trento, for the shared management of public goods. Ranging from the maintenance of public green spaces, to urban décor, to summer camps for children and more, there are presently over one thousand such pacts as the modality has been adopted and adapted by over 150 municipalities.

Brescia: urban sustainability and innovation

A prosperous city and a powerhouse of the metallurgy industry and known for its rod productions now in a critical stage, Brescia is undergoing a transformative change (Tononi 2015) in the direction of seeking to combine advanced and green industry with the creation of a service centre, thus rendering the city environmentally clean and socio-economically sustainable. Brescia positively partakes of its location in the region of Lombardy, the first in Italy for innovations in the energy sector, in terms of both the numbers of patents and start-ups. Indeed, according to the Rapporto Osservatorio Innov-E 2018 (Istituto per la competitività I-Com) Brescia and its provincial territory rank sixth in Italy for start-ups in the energy sector. But, importantly, Brescia benefits also from its tradition of high level of social capital showing today in the dense network of community organizations engaged in the debate and policies of sustainable urban change.

Thus, today Brescia is a model in applying innovations to the strategy of the pursuit of multi-dimensional urban sustainability unfolding over the three dimensions: environmental, economic and social. The strategy entails focusing on the increase of green spaces and the refurbishment of peripheral neighbourhoods; the sustainable redevelopment of older residential areas and public spaces; the transformation of vacant industrial sites into incubators and spaces for new green economic productions strengthening Brescia’s position in the circular economy; and projects to make public and private mobility sustainable and in so doing also improve the connection between the city centre and its peripheral areas. In this pursuit, Brescia has engaged in a planning process that incorporates as priorities a Strategic Environmental Assessment, the participation of environmental and other associations and discussion of their proposals, and the elaboration of innovation projects.

The implementation of the strategy sees a blend of participatory mechanisms and of projects of innovative content. Examples of the former are the Consulta per l’Ambiente that is the forum for the engagement of environmental associations, the La.C.I.S. (laboratory on citizenship and social inclusion ) a research-oriented asset to analyse issues of citizenship and proposals impacting on the 17% of Brescia’s immigrant population, and Urban Centre Brescia as the urban forum promoting and accommodating research, meetings, events of entrepreneurs, associations and citizens debating the transition that the city is undergoing and elaborating projects.

Matera: traditional past and innovation

The essence of backwardness when the general public discovered Matera through Carlo Levi’s 1945 literary masterpiece¹⁹ this city of 60,000 people after the war was the chosen location for the work of great movie directors and artists, attracting external talents and becoming a hub of experimentation in the arts and the valorisation of culture and of its unique local assets. Characterized by its patrimony of dwellings and churches built into the rocks of its hills (“i sassi” and “chiese rupestri”) over the years Matera has sought to leverage it through a path of innovations that, amongst others, while reviving the construction traditions have unobtrusively re-used its buildings as sites for museums, arts events, and tourism. Thus, Matera is the first Southern city to be designated “world heritage site” and has become an important destination for international and domestic tourists.

Building on these targeted achievements, more recently Matera has been orientated to expand the breath of sectors in which to concentrate the city’s acquired focus on innovations . The concerted preparation of the broad-based programme to bid for the designation of European City of Culture which Matera won and will be in 2019, while maintaining the aim of adding to the valorisation of its architectural and structural patrimony, has given the city the opportunity to fine-tune its vision for the future. Matera is entering a new phase of pursuing sustainable development through innovations by sectorally broadening the definition of culture to its multiple territorial assets, thus making the “culture of the territory” the very essence and texture of the city capable of attracting talents and investments , and, coherently, including in its strategy the spatial extension of its cultural reach into its surroundings.

The strategy of innovations in culture through a collaborative approach that seeks to create permanent and deep relations between local and external talents and innovators has informed the 2019 programmes and its projects. For example the projects of the Open Design School and of IDEA, processes that have Matera as the agora in the co-creation and co-production of arts and events that address contemporary issues. Examples of themes are the future in the education of the young generations and the recovery of the wisdom of the old generations. In terms of the latter, the aim is to leverage the re-acquired and diffused artisan skills, as for the carving of the local stone, together with the employment of modern technology and scientific inputs.

Parma: food excellence and innovation

Ranking high on the smart cities index , this city of about 200,000 people located in the Emilia-Romagna region has a history as an independent duchy and a heritage of architectural treasures and classical music traditions. Today, Parma is recognized as a capital of quality food productions being exported to the entire world, for which it has been rewarded as the headquarters of the European Food Safety Authority (EFSA) and the research knowledge it brings. This platform of food speciality and traditional skills is augmented by the new technical competence innovating the modes of production of Parma’s large and small producers. It is on this basis that the city is involved in a process of systematic modernization of productions and seeking greater efficiency in their marketing but also going beyond it and into the greening of its economy.

Parma’s high social capital stock supports the process, which sees the University, the consortia of smaller producers, the large producers, and civil society associations taking part through the Smart City Governance, the local organization that links the municipality with knowledge stakeholders in order to identify ideas, skills and projects to be promoted. As the food industry has grown and continues to grow, innovations in the logistic sector for its efficient distribution have assumed great importance to make food transport safe and compatible with stricter environmental regulations as well as to insure that its distribution is minimally intrusive to people’s mobility in and around the city.

To this end, Parma in 2018 developed an Integrated Action Plan for Urban Logistics; one of the results of which is the robotics line for re-packaging, developed by Number 1 Logistics Group, a leader in integrated logistics for consumer goods. Also, the Parma University Campus, the scientific centre of the University, and the Barilla international food conglomerate have emerged as key levers of knowledge stakeholders. The former leads the innovative project Master campus to regenerate a large area South of the city into a model district where integrated solutions to energy management, innovative construction, ICT, green economy, and more are tried out and later to be translated into other city districts. The latter is investing Euro 1 billion over the next five years to expand its production facilities and to support projects in environmental, social and economic sustainability.

Syracuse: archaeology and innovation

The powerful ancient capital of Magna Greece in South-Eastern Sicily, which has celebrated 2750 years since its founding, in this new millennium has seen a turnaround from conditions of geographical marginality and economic de-industrialization. Declared a Unesco World Heritage Site in 2005, Syracuse is focusing on the unique assets of its rich archaeological patrimony in and around the island of Ortygia, to enhance its potentials as a major international and culturally characterized tourist hub. Innovation projects in Syracuse are driven by this objective, while the attractiveness of this long-forgotten city has enticed the interest of national associations and research centres together with that of foreign universities and investors.

Leveraging the support of municipal institutions and citizens, two primary external movers in this trajectory of change in Syracuse have been the National Research Council (CNR) and the National Association of Italian Municipalities (ANCI). Through their sponsored project “Smart Cities Living Lab” Syracuse is being equipped with multi-media instruments and a system of tourism-oriented services that render accessible and preserved its archaeological and monumental patrimony. Amongst other services, the project guides tourists in a digital and tri-dimensional tour of the sites, making use of “QR-code” instruments located at the sites. Other innovative monitoring equipment comprising an integrated system of on location and mobile stations is to provide data on the city ecosystem, that is energy and water consumption as well as waster production. Additional external and technically specialized support for the Living Lab is lent by the Institute for Archaeological and Monumental Assets (IBAM) and the Institute for Construction Technologies (ITC), the latter in regard to the conservation of monuments and refurbishing of urban dwellings in the historical city centre. Moreover, the participation of Syracuse in IBM’s “Smarter Cities Challenge”, is lending additional expertise.

An important initiative from within and in support of the transformation of Syracuse into a hub for advanced tourism services is the project to redevelop the Akradina neighbourhood as the city’s upgraded commercial core that is informed by the circular economy model and adopts an innovative management approach to realize it. The local commerce association (Confcommercio) has been in the forefront of creating a network of civic associations partaking of the project, and in informing citizens of the opportunity to participate in it.

4.5 The Argument Expanded: Europe at a Crossroad Between Transformation and Decline

We have pointed out that the malaise that has struck Italy with a triple whamming—that is the malaise hitting the country in its democratic institutions, in its economic core with the prolonged state of stagnation and in its social fabric with the erosion of bridging and linking social capital —may have reached its fever peak. And we have underlined that within the specific Italian context so bound to traditions, there are signs of countering moves at the local level facing the challenge to reverse the three negative trends by building on grass root promoted innovations . But, as the political scene in Italy at the moment makes us uncertain that the locally produced responses can win in the end, first by producing a critical mass of positive change and then by converging into a nationwide strategy of knowledge produced sustainable growth, we seek additional clues about the future in the experiences of others.

Thus, while the comparison with the China case, so different in context from Italy’s but nonetheless promising of positive inputs is made throughout our work, we reason that our investigation of the Italian case also needs to be accompanied by reflections on cases of Western democracies that are more directly comparable to Italy. Even more compelling for its impact on the future of Italy’s democracy and development prospects we believe to be the case of the EU at large, that is the institutional and socio-economic “house” to which Italy belongs. Today, like Italy, the EU shows worrisome signs of fractures between citizens and their representative institutions as well as a loss of forward-looking attitude and of thinking outside the box and courage that both its Executive (the Commission) and its technical administration had shown at critical times in the past.²⁰ Such reflections are what follows in the body of this section.

4.5.1 The Whammy Against Democracy

We start by reflecting on the crisis of liberal democracy which makes it under threat. One element that is both a symptom of the crisis while at the same time it feeds the popular perception of it, is the diffusion of social media and of ad hoc constructed “fake news”. Indeed, the giant social Facebook has openly admitted the threat. In an official note, Facebook manager responsible for “civic engagement” stated that he cannot guarantee that the positive aspects of socials will “win over the worrisome ones” and, thus, not pose a risk for democracy. “If there is a truth on the impact that social media have on democracy is that it amplifies every intent, for the good or the bad. In its best aspects, it allows us to express ourselves and to participate; in its worst, it becomes an instrument for people to diffuse disinformation and erode democracy itself” (la Repubblica, 25 January 2018).

Official acknowledgement of and institutional reaction to fake news is being formalized in the UK . The Digital, Culture, Media and Sport (DCMS) Parliamentary Committee has investigated disinformation and fake news following the Cambridge Analytica data scandal. In its first report DCMS charges that the UK faces a “democratic crisis” due to the spreading of “pernicious views and the manipulation of data” and it calls for tighter regulations for social media companies to make them responsible for the algorithms controlling the content of their sites; additionally, DCMS calls for election rule changes to “be made fit the digital age” (BBC, 29 July 2018).

A second related element feeding this perception of the crisis of democracy is the unknown before systematic attack on the news media and the personal attacks on political opponents by top institutional representatives, a posture that deprives citizens of the learning which is gained through the political debate contributing different views on issues. This posture aiming to crush the agoras of debate in favour of one bite messages is the current mode of political expression of the top representative of Western democracies, the President of the USA . But it is also the mode of the populist leaders in Italy, France, Austria, Hungary and Poland.

A third related element is the response of widening sections of the electorate that have increasingly distanced themselves from a political process that to many sounds either hollow in the promises it makes or unnecessarily partisan in its conduct, or even dated in its essence. The impact of this third element is first of all the growing rates of abstention from voting characterizing elections all over Europe, and in Italy even the thinking that the parliamentary expression of representative liberal democracy with its debate on the issues has seen its time and is coming to an end.²¹

This thinking, which is in a minority at the moment, is about parliamentary democracy to be substituted by the continuous expression online of views of citizens on one single issue at the time, through the referendum mode and without the intermediation of public debate and analysis. If this were to happen it would be the death of democracy as the system built on factual and informed public debate on issues to feed the representative institutions at which level the synthesis on policy decisions is made. And, in a thwarted twist, “direct democracy ” would be the Trojan horse for the beginning of a time, returning to Vico’s insights, of the rule of the strong and the few making the choices for the “individual” many from above.

A fourth related element is the reshaping of the traditional political parties from territorially based and intermediate bodies that were carriers of characterizing and shared value systems, into “fluid” electoral machines that fluctuate widely in terms of support and are splintered in terms of the values they embrace, in addition to being territorially unstructured. In Italy, in a marked fashion, traditional parties have largely disappeared, while they have been weakened in other EU countries and such changes reflect also onto the parties in the EU parliament.

Therefore, the disappearance or weakening of the traditional parties that were the key type of associational network expressing bridging social capital has meant the loss of the linking social capital as well. That is to say, it has meant both, the lesser capacity across Western democracy of the connection of citizens with the representative institutions and the lesser capacity of representative institutions to be the recipients of multi-sectoral policy demands conveyed from the grass roots. Indeed, increasingly policy declarations are in the hands of governments, and in Italy they resemble the simplistic slogans characterizing electoral campaigns.

However, we would argue that these elements of the malaise affecting democracy that we have discussed are just the symptoms of a more profound and wider transformation which becomes a “disease” for democracy if not properly understood and treated. In this regard we underscore that liberal democracies at the levels of nations as well as of international organizations are fundamentally challenged by a double impact that Internet is producing, as follows:

• (a) Disintermediation by new knowledge holders: on the one hand, social media are having on today’s political debate, the same technical effects that the printing machine had on the mechanisms of reproduction of knowledge at the end of fifteenth century; at that time, the Church and the monasteries who had the monopoly of the channels through which knowledge could be spread, were disintermediated by new knowledge holders. Today, representative institutions, intermediate bodies, and scientific experts are too often disintermediated by “one counts for one” views on social media.

• (b) Connection of multiple worlds: on the other hand, today the—semantic and not only technical—pervasive connection of different “worlds” (different geographical areas, different industries and different languages and cultures) is virtually transforming all important societal problems into an amalgam of interdisciplinary issues. The complexity of which is so great that our atomized and “liquid” societies cannot properly address; unless, and this is a challenge for democracy, new modalities of assessment and intervention are devised, that combine—in an original and efficient manner—the fields of economics, psychology, political science, natural science, management and more.

At the moment, this double impact is subjecting the ruling class, and not only at the European level, to the exposure of more competition from the grass roots, whether vetted or not; while, at the same time, the ruling class becomes more vulnerable because it is used to address issues through sectorial experiences that are totally out of sync with the mode in which today issues present themselves. The result is a ruling class trapped into a cognitive hole where leaders do not know how to choose and on what to proceed, while citizens express resentment and abstain from lending their support while claiming rewards without responsibilities.

Italy is, in a sense, a pioneer of the gradual erosion of the legitimacy of a twenty-first century ruling class not only because of single unpopular economic decisions or unsatisfactory economic performance; but also because of the inadequacy of the instruments it kept on using for too long and the failure to identify the nature of today’s societal demands and move to design possible solutions.

4.5.2 The Whammy Against Economic Prosperity

The deep and almost decade-long financial and economic crisis that started in the USA in 2007 showed its worldwide impact, hitting Europe in 2008. While Member States in Southern Europe were hit most severely, in the last few years a steady and fairly significant recovery has taken place in most States, while it has been weaker in Italy so that Italy remains last in the EU in terms of growth rate. Today, the general acknowledgement by economists, but also by EU institutions and the public, is that the current phase of globalization of markets, flows of communication and trade which took off in the 1980s has been one without adequate rules. At best it has evolved as a process under rules that were designed mostly in the immediate post-World War II years to regulate the new “world order” on its way to economic reconstruction.²² But in the successful pursuit of growth, in the current phase of globalization insufficient attention has been paid to the notion of “development” and the inclusiveness that the concept incorporates.

Thus, while this process of globalization has lifted hundreds of millions of people out of poverty in the developing countries, it has impacted very unevenly Western democracies; as seen, insuring until the 2008 crisis significant levels of growth across the EU save for the exception of Italy. What appears to have happened? The structural changes to the economies of EU member states and others, driven by the unrelenting path of innovations that this current phase of globalization has produced and continues to produce, have increased productivity rates, upgraded the skills of the workforce, and modified the size of firms and the nature of their internal and external relations. In a non-systematic manner across sectors, firms, and geography such changes have also happened in Italy.

However, throughout the EU and more pronounced in Italy, the process of innovation -driven globalization has also created the basic conditions for a two-tier economic system, reinforcing the perception of many that liberal democracy is no longer delivering on prosperity for all. On the one hand, as public policies in education and research throughout the EU have not kept pace with the changes in the modes of production to facilitate widespread employment opportunities in the knowledge demanding sectors of the new economy, many have been confined to marginal and low paying jobs or expelled from the job markets. On the other hand, as well paying and career rewarding jobs in the new sectors have become available, the less skilled jobs not only have increased more rapidly but their pay scales have dropped, thus contributing to rendering such workers and their families closer to poverty status, in a mode of social dumping. Additionally, the traditional jobs affording employment to many in the public sectors have also not kept pace, so that their lesser pay rewards have squeezed workers, feeding the perception of economic stagnation and even of going backwards.

What has contributed to such strong perception of economic decline for many is the loss of intermediate bodies such as trade and manufacturers associations, and with trade unions in the forefront. The rapid and profound changes in the workplace have brought about a decrease in the adherence of workers to the unions, somewhat less pronounced in Italy than across the EU and certainly less so than in the USA but nonetheless significant. The unions’ presence has diminished, as the collective workplace at times has become immaterial or disappeared or robotics has substituted actual workers. Thus, the unions’ capacity of negotiation on behalf of workers has diminished, posing the additional problem of the weakening of yet another bulwark of bridging social capital . And this has happened in the absence of new rules, as in the case of the Gig economy, and when the traditional rules for the relationship workers-entrepreneurs increasingly appear out of sync with the changes in the economy.

4.5.3 The Whammy Against the Social Fabric

Accentuated by the economic crisis, an underlining and pervasive negative impact of the current phase of transformations is undoubtedly the social disparities that the unevenly distributed growth has created, as seen particularly pronounced in Italy but that have occurred in the EU and across Western democracies. One glaring manifestation is the phenomenon of the NEETs , and the implications that it has for families and the future of today’s younger generations. Socially self-isolating, feeling disenfranchised and removed from a technically advanced world of which they appear to appreciate only the online means of entertainment, NEETs carry on with their lives without hope in distinctly different ways. In predominantly Anglo-Saxon cultures, such as the USA , the Netherlands and the UK , NEETs often end up increasing the ranks of the homeless. It would then be up to public policies to meet the challenge their separateness presents. The Netherlands have in place a more comprehensive set of actions to contrast the NEET phenomenon; while the UK and even less the USA have acted with little degree of success.

Conversely, in the social cultures of Southern Europe families tend to support NEET s at home, with the contribution of parents and grandparents. Thus, in an apparent paradoxical but perhaps explainable twist of social relations, the comparatively still greater strength of the bonding social capital expressed by families in Southern Europe appears to have increased in response to the challenge posed by the NEET phenomenon and in the absence of effective public policies. However, in so doing, the growth of bonding social capital acting as substitute for public policies may inadvertently have contributed to the current trend of erosion of bridging and linking social capital .

Indeed, increased social disparities parallel economic disparities, in a mutually re-enforcing negative relationship. Warnings about consequences multiply. The “national crisis of solidarity: rising racial bitterness, pervasive distrust, political dysfunction” is decried in the USA (Brooks 2017) but also in Italy with the warnings that “the sum of particularistic interests does not amount to the general interest” (Polito 2018) and that the mass of socially excluded may well become the fuel “for a permanent rebellion” (Mauro 2017), and with the message addressed to Western democracies that the individualized society of “liquid” modernity (Bauman 2000) is one where the consumer logic of the market has altered the sense and direction of political commitment. Thus, one of the consequences of the increased social disparities is the loss of associational strength and with it the lesser capacity in Western democracies to continue to link the demands from the grass roots to well performing representative institutions.

4.5.4 The European Union: Transformation and Not Decline

Is it possible to perceive effective responses to alter what currently appears to be a generalized risky state of affairs for Western democracies and if so, what are they? Which is the direction that should be followed? Our analysis of the Italian case and our general reflections on the current state of Western democracies lead us to a logical place, that is to bring our final focus of discussion onto the EU to seek responses. The reason for our position of looking at the EU for insights is as simple as it is compelling, even though it is one that has been disregarded and undermined in the current climate of acrimony, hatred and anti-European sentiments that has grown to a disturbing level. A climate that has been able to take in many European citizens, in a one-sided and distorted view of where the relationship between the EU and its member states is and in the indication that it should either be overturned to return to the early years of the Community and pre-globalization phase when the member states’ national interests predominated or be severed altogether as in the case of the exit of the UK .

We reflect forcefully and with conviction on the fact that the EU remains an island of peace and prosperity that has no comparison anywhere in the world, in terms of the social provisions, freedoms and liberties it insures its citizens. And we see that the comparative view of the EU conditions of peace and prosperity is what has not been underlined to the public. At the same time, we also assess that the evolution of the EU democratic institutions has not kept pace with the European wide challenges of the time posed by the increasing economic and social inequalities, the perceptions of insecurity and external threat from immigration, and the rise of national populism . Indeed, the EU institutional architecture is wanting in the face of demands for solutions that require EU level responses. In the perception of citizens, the EU is failing first of all in the inadequacy of its democratic decision-making process that leaves too much discretion to its administrative apparatus. But it is failing also because in this historical moment it leaves too much discretion to member states and national agendas that may violate its fundamental values.

In a sense the EU and, actually and more specifically its institutions, manage to be both too centralized and not effective enough; they suffer both from a crisis of legitimacy and insufficient capacity to deliver solutions. In a sense, the Italian crisis and the European one are twinned and related.

Europe is too centralized because it has not been able to leverage the great diversity of its cities within their national cultures which we indicate as the resource upon which Italian and European renaissance should be organized. The dominance of the principle of national sovereignty has so far imposed the intergovernmental modus operandi in critically important policy sectors of EU decision-making, and impeded substantive moves to reshape the institutional architecture and decision-making processes of the EU.

A centralized Europe around the principle of national sovereignty demonstrates that it is too slow and unresponsive even when faced by manageable problems. A recent example is the show of the EU lacking the capacity to resolve even the problem of the redistribution of few thousand migrants which, because of its high visibility, in a very short time has become fuel for widespread nationalist propaganda and feelings of resentment across member states. Such condition in which the Union is found today calls for a reflection on the nature of the Union.

The very idea of a Union of Nation States which today is being revamped by various populist movements is exactly the problem which would accentuate the obsolescence of EU institutions and Western democracy, and certainly it is not the solution. Rather, it is the problem for democracy and its potential to perform once again for national and European citizens because it is simply the most outdated proposal, moving against the direction of history in terms of the unrelenting communication and technological revolution which connects the world and does not know national boundaries. But it is also a devastating proposal because it is moving against the stamina, ideas, and experimentations lively and powerful at the grass roots of the EU, thus thwarting the genius loci of European cities and local communities.

These reflections bring us to the question of the direction of change to be taken. We perceive that what the EU is missing today is the open embrace of its founding ideal of a community of peace and prosperity, ideal which is to be rooted in a renewed vision of how to institutionally perform to deliver on the three challenges. Therefore, to thwart the option of decline and increase the support of citizens, the direction is very bold steps to be taken for further democratization of European institutions, with additional power to the parliament, the emergence of transnational parties, increased participation of EU associational networks, and greater representativeness for the executive Commission.

In this line of reform, States no longer would have veto power and a right of being represented by a quota number of nominated commissioners, functionaries in the EU institutions and only national members in the Parliament. This calls for a critical debate and questioning at the EU level of the revamping by some of the idea of a Union of Nation States. It also calls for a soul-searching discussion and consensus to advance the idea of a more democratic and efficient set of institutions which will have acquired much autonomy from their original shareholders to become part of an EU agenda of transformative policies necessary to survive and adapt to the challenges of the new century.

Simultaneously, to adopt the option of the transformation of the EU economy incorporating knowledge diffused across civil society the direction is steps for further EU budget supported policy initiatives focusing on the diffusion of best practices of smart participation for sustainable smart growth at the local level. Additionally, within a multi-level governance system comprising EU and national framework principles and monitoring, the direction to follow is steps to delegate important programmes of knowledge seeking innovations to identified transnational as well as national networks of cities and regions to facilitate their implementation and diffusion.

This first line of direction of change should then be accompanied by a concerted effort of the EU parliament and the Commission to advance new proposals that would move member states’ economic and social policies towards greater convergence in terms of their adoption of national policies of knowledge induced sustainable and inclusive growth.

But an important direction of change is also the acknowledgement of the negative evolution of the EU administration from a performing technocracy with vision to an unresponsive and self-protecting bureaucracy, and the steps needed to reverse the trend. Accountability in terms of results, attribution of responsibility and physical presence in communities have decreased with the increase in the level of job protection and detailed job definition. Perhaps unfairly, this is the perception that citizens have of a distant and unproductive bureaucracy devoted to minutiae, a perception they share about the bureaucracy of other international organizations. And the evolution in the negative direction happened when the need for dedication and vision is greatest.

In essence, our reflections first acknowledge the apparent desire for greater authority at the national level that many citizens now express without considering their being outdated and producing counterproductive consequences. This is the point made we shared with the former EU Commissioner and former Italian Prime Minister, Romano Prodi . Then, our reflections move to the new vision that more citizens of the EU ought to boldly endorse of a renewed EU where citizens find the reason and the means to constructively participate in the first person in the affairs of their territorial communities. An EU that endorses actions more than ever before focusing attention to the transformative experiences of innovation taking place at the communities’ level, that while they render competitive the economic base they also reinforce the solidarity values and rebuild each community’s stock of social capital . Thus, a social capital richer EU for an EU of diffused prosperity.

4.6 Conclusions and Ideas for a Possible Renaissance

Our conceptual framework of the U curve relationship between a country’s capacity to make and implement decisions about innovation -driven sustainable growth and the country’s degree of openness of its civil society and institutions is largely confirmed by Italy’s case. Indeed, at a first reading Italy appears to be the exact opposite case to China’s, but this would be too simplistic a conclusion.

A most interesting take from our analysis is that Italy represents both the example of a Western democracy whose weakened national institutions are unable to perform for the citizens in this historical phase of technology-induced transformative changes, and at the same time an example of how the resilience of Western democratic values of solidarity, freedom and creativity survives and emerges at the level of local territorial communities where these values were born centuries ago.

“Like Florence in the Renaissance ”: it is Florence, the thriving innovation hub where Michelangelo, Raffaello and Leonardo grew up professionally, the place to which Silicon Valley is compared in terms of creativity. And it is what is left of the great concentration of talent across Italian local communities, the asset which can still inspire a strategy meant to reverse Italy’s decline (The Economist, ‘Peak Valley’, 1 September 2018).

If China has an advantage in its combination of centralization coupled with local experiments, we have found that even today Italy has one great advantage in the heritage of the civic culture of its cities and towns with their traditions of self-governance, while it has a disadvantage in the current state of its national and the EU institutions lagging behind the curve.

Therefore, as with the case of China, we close this chapter by offering ten points of reflection to be incorporated into the discussion in the last chapter of this work about the respective strategic approach that in our view the two countries should embrace to face the innovation challenge in the era of the Internet . The first five points of reflection reason on vulnerabilities to be first understood in order to be overcome, as Italy has come to exemplify the decline of Western democracy in values and performance; while the second five underscore Italy’s assets to be preserved and built upon.

4.6.1 Vulnerabilities to Be Overcome

Intergenerational gap. The first point of reflection is on the distortion in policy priorities that Italy continues to accept. Rather than investing solidly in education and research, proactively discovering talents, and reaping growth results even in the medium term, the country places comparatively much larger resources with the older generations. Thus creating an intergenerational divide which in these times of democracy crisis and economic stagnation contributes to pit the ones against the others, causing a loss of mutual trust and depletion of associational and engagement social capital (bridging and linking). At the same time, Italy fails to acknowledge and translate into appropriate and innovative policy initiatives the richness of human capital that retirees express, as for example in tutoring programs for the young and in experimental green mobility.

Revival of amoral familism. The second is that in a context of globalization without appropriate rules and which creates conditions of marginality for many and steals their children’s hope in the future, Italy is witnessing a grass-roots process that revives an archaic and counterproductive attempt at a defensive response against such changes. Replacing the State that is not performing well on investing in research and securing a modern path of education for the young that leads to gainful employment, often the traditional strength of the Italian family resurfaces, closes ranks and steps in to accommodate their youngsters’ behaviour of anomie. The results are what misplaced good intentions produce, that is contributing to relieving the State of its responsibilities towards NEETs and thus to the depleting of Italy’s human capital .

Unproductive bureaucratic culture. The third is that since its unification and independence Italy’s policy strength has not been in its central administration, unlike not only China but also Western peers such as France or Portugal that have administered modern empires. Italy retains a bureaucracy that continues to be insured against non-performance, defined as poor results not meeting policy targets on sustainable growth and well-being. The costs of such an unproductive bureaucratic culture are enormous, and they are not just quantitative. Indeed, the intangible costs are as large: thwarting the intent of policies, failing citizens in their expectations, confusing the public on the attribution of responsibilities for lack of results, and inducing imitative behaviour at the regional and local levels of public administration.

Resistance to merit. The fourth is that the costs of the unproductive bureaucracy are a symptom of a wider condition of vulnerability which exposes Italy to a future of further decline. It is the entrenched attitude of not recognizing and betting on merit that tends to draw the country back. While this attitude has different roots, from the egalitarian views of the trade unions to traditions of political clientelism and professional nepotism, all contribute to the same negative results of discouraging effort and increasing the numbers of the best who leave the country to be rewarded elsewhere. It is the worst loss of human capital and the worst depressant of smart participation , a combination that Italy cannot afford to ignore any longer.

Politics of promises and disengagement . A fifth reflection is that, while political platforms always contain promises, the habit of governing coalitions to make them to the electorate without proven results, conveys to citizens either the message of a politics based on hollow announcements of “changing everything so that nothing changes” or of sheer incompetence generating mistrust, scepticism, and alienation from democratic institutions. But it is politics as the exclusive realm of politicians not engaging citizens, coupled with the absence of accountability of results, that in Italy is so pervasive and which penalizes citizens in their right to know, make informed judgments, and therefore contribute knowledge inputs into the decisions on priority choices as well as into formulation and implementation of policies. More importantly citizens become spectators of politics on TV or, more recently, social media. This creates the false illusion that transformation is about something that politicians must provide and that it can happen without the responsibility and the mobilization of a large enough number of people: this traps the country in the paradox of “reforms without change” which has spread to the same EU’s approach to modernization.

4.6.2 Assets to Build Upon

Networks of places experimenting innovation . The first point of reflection is that innovation-driven change needs a structure to promote it, to be relied upon and to give continuity to its pursuit. It cannot just happen on an occasional basis of single experimentations. The incipient networks of cities, in tune with the deeply felt Italian tradition of self-governance, can be strengthened and functionally become the institutional mechanism interactive with the national and the EU levels of policy making in such a pursuit. The advantage is that the network-based structure in its “confederation mode” accommodates, without subtracting, the territorially specific assets of which the best performing city cases are good examples and which modern development economics recognizes to be the path to follow. But this confederation mode also induces behaviour of imitation, as in the Renaissance the free movement of traders, bankers, and art geniuses from city to city did. The smart city network that the EU is promoting has a broad base potential in Italy particularly if a framework of accepted rules is also put in place. This is another important point made to us by former Prime Minister, Romano Prodi .

Tradition of cooperation for imitation amongst local actors. A second point is that it is not just century-old history reminding of such a positive process of imitation. The more recent history of the Italy that emerged from the ruins of World War II and reconstructed its cities and towns, universities and industrial districts, hospitals and civil societies, tells us of the solidarity tradition of technical cooperation for reconstruction between North and South after times of natural disasters, such as the earthquakes in Irpinia of 1980 and Aquila in 2009. And even before, starting in the 1960s, the technical assistance lent by cities, such as Bologna and Reggio Emilia, to others in respectively the training of municipal officials to prepare historical centre plans inclusive of a social dimension and of the model “nursery school” (scuola materna) adopted around the world. The twin city mode of inter-city cooperation for innovative urban projects which the EU began to experiment with in the mid-1990s saw a precedent of tradition in Italy dating back to the 1960s.

Diffused entrepreneurship. The third point of reflection has to be on that Italian exceptionality which is its base of SMEs, the largest in the West as they constitute 95% of Italy’s productive system. But it is not only the exceptionality of the number per se that draws the attention onto the country’s economic future, even though the number certainly underlines the precious asset of the tradition of diffused entrepreneurship based on quality craftsmanship and artisan skills. It is also the modality of the “industrial district” of multi-sector and vertically interconnected firms that emerged in the 1970s and has significantly adapted to the pressures of internalization. This modality expresses in modern times both the “learning by doing” tradition of local craftsmen that in the past performed for the city patrons (Signori) and the cooperative and interconnected working tradition that have characterized the economy of cities and their hinterland since the Middle Ages.

Culture of genius loci. A fourth point is on what is acknowledged around the world to be the distinctive feature of Italian productions: that they are the modern expression of the traditional culture of the genius loci. Internationally known brands underline a path of quality and style and capacity to innovate, from fashion to automotive. At the same time, this culture has extended to new sectors, such as wine and gastronomy where Italian productions have taken over the top echelons of international markets. Interpreters of this trend are sectoral associations (consorzi) insuring brand recognition (DOP and IGP) and protection as well as the cultural institutions of Museums and archaeological sites with the launching of innovative projects and experimentation techniques in conservation. But another example of which are the re-organized industrial districts whose capacity of adaptation to the challenge posed by the prolonged crisis is promising. Added, is a reflection on the acumen expressed by rethinking innovative modes for making liveable the periphery of cities.

EU’s urban focus. A final point of reflection is on the role that the EU Cohesion and research policies can play in a specifically important way for Italy’s approach to innovation which is so much from the bottom up. Too often and by too many ignored, the Cohesion policy, incrementally since the mid-1990s, has now acquired an important urban dimension, clearly shaping the Europe 2020 strategy of innovation -driven, sustainable and inclusive growth and its Horizon and other research programs. The urban dimension needs to be further stressed by Italy, and cities and towns need to become mainstream institutionalized players like member states and regions, with a representative forum of theirs in Brussels.

The ongoing discussions of the 2021–2027 EU budget appear to maintain and even expand the urban focus in EU development policies, with the acknowledgement of cities as the drivers of innovation . In addition, cities are also acknowledged as the spaces where inequalities and divisiveness amongst citizens are most clearly observable and where confrontations may then take place also ignited by ethnic and demographic population changes. They are the level which, according to a network mode, should be targeted more specifically by the EU development policies in the next budget cycle.