Italy’s Political Upheaval and the Consequences of Inequality

Political upheaval, with the dangerous rise of the far right – in Italy and Europe – is likely to be stabilised when politics and policies again turn their attention to the priorities of the majority of impoverished voters, with a focus on reducing inequalities, unemployment and casualisation.

Instability in electoral behaviour is likely to continue as a result of a variety of factors, including the breakdown of traditional political allegiances, new ideological and cultural divides, the importance of leadership and novel forms of political communication. But underneath these political dynamics, can we identify the economic conditions that are associated with such political upheaval? In particular, what is the legacy of the crisis that started in 2008 and has been followed by a decade of recession and stagnation? What are the consequences of inequalities in income and wealth? What is the impact of unemployment and casualisation of the labour market?
In this contribution, fi rst, major trends in income and wealth are summarised, showing the overall impoverishment that has taken place in Italy, in particular among employees. Second, some associations with voting behaviour are explored, summarising the fi ndings of a recent study where the outcomes of Italy's general elections from 1994 to 2018 at the regional level are related to economic factors and inequality. 2 Finally, two lessons for the current European debate on political upheaval are proposed.

Italy's impoverishment
All Italy's economic indicators, from per capita income to productivity, document a long-term stagnation; no overall improvement has taken place compared to the levels before the 2008 crisis. Aggregate values, however, conceal the rise in disparities; data on individual incomes, wealth and employment are needed to provide an accurate picture of the economic conditions of the Italians, which may shed light on recent political changes. 3 First, we consider labour income -the earnings of employees in the private sector (before taxes and transfers, in real terms, based on INPS social security archives). The large majority of Italian workers are in this group, and public sector employees have experienced a similar trend in wages. Figure 1

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had the same real income as in 1994. Losses in real incomes are less than 10% for the richest half of employees, but are greater than 20% for the poorest 25%. Behind the appearance of stagnation, the reality for 90% of Italian employees has been impoverishment. Such detailed data are not available for the self-employed; their income is often under-reported and generally shows higher growth for the richest deciles and a similar fall for the poorer ones. 4 Second, we consider total household income -not just labour -after taxes and transfers, obtained from the Bank of Italy's survey (where very high and very low incomes are underestimated). Overall income inequality had fi rst declined (the Gini index went from 0.31 in 1994 to 0.28 in 2008), but the crisis had the effect of increasing disparities (the index was back to 0.30 in 2016), which are greater and increased faster in metropolitan areas and in the South.
Third, Italy's rate of unemployment had progressively declined since the late 1990s, to reach 6.1% in 2007, just before the start of the crisis; in 2014, it peaked at 12.7% with a modest fall to 10.6% in 2018. 5 The doubling of unemployment is made more dramatic by the extremely high values of joblessness among the youth and in the regions of the South. Moreover, among those classifi ed as employees in the private sector in our database, the share of those with temporary contracts increased from 12% to 22%; and a parallel increase has emerged in part-time contracts. The result is a widespread casualisation and a strong downward pressure on wages.
Fourth, we have to look at changes in wealth, another key dimension of polarisation, documented by the Bank of Italy's Survey on Household Income and Wealth. According to 2010 data, the richest 10% of Italy's households hold 45% of all wealth (as opposed to 27% of all incomes). The poorest 50% of Italy's households own 10% of all wealth. 6 Figure 2 shows that the Gini index of inequality of net wealth is around 0.6, with a stable trend (the level is twice as high as the Gini index for incomes), but disparities in fi nancial wealth have grown massively, with a Gini that goes from 0.62 to 0.75 between 1991 and 2016 (unaffected by the 2008 crash). Financial wealth is extremely concentrated (the lowest deciles have zero fi nancial wealth) and appears as a driving force of inequality. While high but stable disparities in real wealth are associated with the widespread home ownership that is typical of Italy, the fl ow of incomes generated by highly concentrated fi nancial wealth -profi ts, rents, capital gains, etc. -is the other side of the impoverishment of labour incomes.
In the last two decades, the economic conditions of Italians have been characterised by extensive impoverishment, casualisation and high unemployment, with inequality driven by lower wages, higher profi ts and fi nancial wealth. What political consequences can be identifi ed? 6 M. P i a n t a : Nove su dieci… , op. cit.  Conversely, higher Gini inequality indices are related to fewer votes for mainstream parties. Income inequality brings with it disaffection to politics in general, and to ruling parties in particular. Figure 4 shows a strong positive relation between mean net wealth and support for mainstream parties; wealth is the only variable that is positively associated with such votes, with many regions of the 'Third Italy' at the top of both distributions and many regions of the South with the lowest wealth and the lowest support for mainstream parties. Higher assets and economic privilege are related to stronger votes for the political forces that have ruled the country.  200,000 300,000 400,000 500,000 600,000 100,000

Metropolitan
Third Italy South

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A regression analysis has been carried out to explore relationships between economic conditions and voting behaviour -non-voting, share of electors supporting mainstream parties, M5S and Lega. 10 Our fi ndings show that • The rise in non-voting is closely associated with overall inequality, income polarisation, the rise of part-time jobs and unemployment.
• Consensus for mainstream parties is driven by high household average net wealth alone, and it is negatively affected by the concentration of poor employees, lower median incomes, higher part-time jobs and higher unemployment.
• The Lega has greater consensus in those regions where the incomes of the middle class are pushed down and get closer to those of the poor, and where the distance between the middle class and the richest employees is lower. The share of the vote for Lega is also higher in those regions where there is lower average wealth and a larger share of precarious jobs.
• Voting for the M5S is strongly associated with income poverty and casualisation, reaching very high values in Southern regions, where both variables are particularly high.
These fi ndings suggest that the worsening economic conditions of most Italians are indeed related to Italy's political upheaval, with an impact on rising abstention from voting, the distancing from mainstream parties and specifi c factors driving the success of 'anti-élite' parties.

Two lessons for Europe
Two broad lessons could be drawn from this exploration of the Italian case. The fi rst one concerns the understanding of political upheaval as a 'populist wave'. These long-term patterns have been investigated by Thomas Piketty for France, Britain and the US over the 1948-2017 period, using post-electoral individual surveys. 14 He fi nds a 'class-based' party system in the 1950s and 1960s, with poorer and less educated people mainly voting for left-wing parties. Since the 1970s-1980s, the left vote has moved towards more educated and richer social groups. In the 2000s and 2010s, well-educated élites tend to vote for the left, while high-income/high-wealth élites still vote for the right. Poorer and less educated social groups have turned to non-voting, as many of them do not feel represented by the existing party system.
These trends, however, do not shed light on the drivers of political upheaval. Some studies of populism have explored its economic basis, but a major problem is the lumping together of right, left and anti-élite parties in a single populist bloc. Acemoglu et al. defi ne populism as a political strategy for redistributive policies typical of left-wing politics, 15 now adopted also by conservative parties. Guiso et al. investigate 57 populist parties in 26 European countries with European Social Survey data, fi nding that lower income, fi nancial distress and economic insecurity associated with globalisation and labour market competition from immigrants can be identifi ed as drivers of the populist vote. 16 Algan at al. consider 'anti-establishment' parties in Europe and fi nd that increases in unemployment lead to greater support for such forces and to lower trust in parliaments and parties. 17 While some of these drivers of populism are coherent with our fi ndings for Italy, political upheavals can hardly be understood as a generic 'populist wave'. In Italy the vote for the Lega is rooted in the impoverishment of the middle classes, combined with a clear shift to the right in terms of ideology, identi-Forum cies that have prolonged the recession, failed to restore growth, worsened unemployment and lowered the incomes of most Italians. At the same time, they have implemented policies that protect the wealth of the higher classes. The 'economics of privilege' appears as the hallmark of policies by both centre-right and centre-left governments, including the reduction -and in some cases abolition -of real estate taxes, inheritance taxes and more favourable tax treatment of fi nancial income. In parallel, both centre-right and centre-left governments have increased casualisation of the labour market, weakened union power and national labour contracts, thereby contributing to lower wage dynamics. In the case of mainstream parties, support from the wealthy as well as the loss of the middle and working classes, and the youth, may be far from irrational behaviour.
In sum, we fi nd evidence that economic conditions matter at the ballot box, inequalities of incomes and wealth do have political consequences and the policies of governments do have an impact on voting behaviour. Political upheaval, with the dangerous rise of the far right -in Italy and Europe -is likely to be stabilised when politics and policies again turn their attention to the priorities of the majority of impoverished voters, with a focus on reducing inequalities, unemployment and casualisation.
ties and political agendas. The vote for M5S is rooted in poverty and precarity, with mixed political cultures. 18 There is a high political volatility, and over the last year a signifi cant part of previous M5S voters turned to the Lega, fuelling the shift to the right of Italy's politics. Rather than a generic 'populist wave', there are distinct political processes that have led to the rise of far right parties all over Europe, to the strengthening of some left forces mainly in Southern Europe and to the emergence of few anti-élite parties, with Italy's M5S being the most notable case. 19 What is more relevant now in Italy and in many European countries is the rise of the far right that needs to be investigated, also in its economic and social drivers.
The second insight from the evidence on Italy is that we should investigate more carefully the policies carried out by governments and their impact on voters. As argued elsewhere, 20 Italy's mainstream parties have followed the 'neoliberal consensus' and have carried out austerity poli-