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Predominantly displayed at a bookshop at Linate airport in Milan is the cover of Quando eravamo i padroni del mondo (When we were the masters of the world). The book about the Roman empire has been on the bestseller list since it was published in September. It reflects Italians’ nostalgic longing for their now rather ancient glory. They could take solace from the fact that many Italian brands are still masters of the world: think fast cars (Ferrari, Maserati, Lamborghini), elegant motorcycles (Ducati, Vespa), beautiful clothes (Gucci, Prada, Zegna) and accessories to go with them (Fendi, Bottega Veneta).
Except that few of Italy’s coveted marques and labels these days—including all of those listed above—are fully Italian. Many are either incorporated abroad, listed elsewhere or owned by foreigners. And taken together, they lag behind those from other big European countries in terms of value. Italy’s 30 biggest brands are collectively worth just a third of Germany’s top 30 and a quarter of France’s, according to Kantar, a research firm.
Ugh!
Corporate Italy more broadly likewise punches below the country’s signature braggadocio. The entire Italian stockmarket is worth less than €800bn ($860bn), barely twice the market capitalisation of LVMH, the French owner of several Italian luxury brands (including Fendi). The Milan bourse is smaller than those in Paris and Frankfurt relative to each country’s GDP (see chart 1). In the past ten years it has underperformed them, too (see chart 2). Just five of the world’s 500 biggest companies by revenue hail from Italy, down from 13 in 1997; 136 are American, 30 are German and 23 are French. Even Spain, whose economy is a third smaller than Italy’s, has 11 firms on the list. “Italians are world-class at creating companies but they are not good at managing and growing them,” says Stefano Caselli, dean of the Bocconi School of Management in Milan.
This irks Italy’s prime minister, Giorgia Meloni. Her right-wing government aims to recreate Italian champions in industries from cars and energy to food and fashion. On February 6th, it pushed a bill related to capital markets through the lower house of parliament. It is designed to attract more listings to the Milan stock exchange, pre-empt hostile takeovers, and prevent big companies from incorporating in places like the Netherlands (corporate home to Ferrari, whose biggest shareholder, Exor, also part-owns The Economist’s parent company).
Supporters of the bill argue that it would eliminate a major obstacle to the creation of corporate giants—the shallow Italian capital markets. Critics caution that it may have a contrary effect. A lawyer representing institutional investors, Dario Trevisan, notes that 95% of shareholders in Italian listed firms are foreign. The foreigners are concerned that the bill may favor Italians by enabling public companies to grant long-term shareholders, who tend to be domestic, shares with significant voting rights and, if their stake exceeds 9%, the power to veto some board appointments.
Italian commerce could clearly use a more extensive reservoir of funds. In its nonattendance, many firms have no option but to depend on bank credits to support their expansion. This fact also applies to other European nations, such as Germany. What sets Italy apart is that countless of its leaders honestly favor borrowing from creditors to partaking in authority with other stockholders, remarks Andrea Alemanno of Ipsos, a research organization in Milan. Poetically speaking, he mentions that, akin to Julius Caesar, they would prefer being foremost in a barbarian village rather than subordinate in Rome. Regrettably, this situation often results in businesses assuming excessive debts and becoming insolvent or being taken over by the administration.
The alternative is to remain petite. Italy accommodates 4.3m businesses with fewer than 250 workers. This is a third more than Germany, notwithstanding the fact that Germany’s economy is twice the size and hosts the iconic Mittelstand of small and medium-sized enterprises globally renowned. Such establishments contribute to 80% of the workforce and 70% of the value-added in Italy, compared to 56% and 43% respectively in Germany. Almost 95% of them have fewer than ten employees. These small-scale undertakings, which generally display lower efficiency than larger enterprises, employ nearly half of the Italian labor force.
“We have a significant layer of enterprises with 100 to 500 employees, but beyond that it becomes very scarce,” acknowledges Corrado Passera, a former economy minister who operates Illimity, a bank specialized in extending credits to small and medium-sized Italian firms. Nonetheless, he and his family possess unwavering faith in il bel paese and its entrepreneurial soul. His wife established a network of veterinary clinics and his son founded a hotel enterprise.
According to Mr Passera, establishing a company in Italy is both enjoyable and uncomplicated, particularly for technology entrepreneurs. The governmental legislature in which he served ratified the Startup Act in 2012, brimming with incentives intended to foster innovative technology companies. Qualified businesses are exempted from online incorporation fees, certain levies and taxes, and are eligible for expedited visa proceedings for their international staff and tax benefits for their investors.
Despite Mr Passera’s optimism, Italy has yet to establish a rival to corresponding equivalents elsewhere in Europe, not to mention the original American imprint. Although Italy has the world’s tenth-largest economy, it ranks outside the top twenty even among European nations in terms of startup investment, as reported by Sifted, an online platform tracking such advancements. Italy has produced only two unlisted tech corporations valued at $1bn or higher (both in fintech). Perhaps, it will breed another one soon. Bending Spoons, which aids clients in devising apps, has thus far accumulated over $500m, according to PitchBook, a data provider. Nevertheless, this would still leave it trailing behind Spain, housing four such “unicorns”. Germany has 33, and France 24.
Many promising Italian startups, similar to numerous beloved Italian trademarks, are in pursuit of prosperity overseas. Newcleo, founded by three Italians, is developing pioneering lead-cooled nuclear reactors. It has raised €400m ($430m) thus far. Its research-and-development hub is located in Turin. However, its headquarters are situated in London. This is because after a referendum in 1987, Italy phased out nuclear energy, translating into no demand for its products within its domestic market. There is a possibility that Ms Meloni might endeavor to reintegrate it as part of the nation’s transition to clean energy. Nevertheless, she might opt not to do so—decisiveness isn’t the forte of Italian administrations.
A substantial regulatory burden and legislative ambiguity pose a predicament not only for atomic startups but for all businesses in Italy, states Andrea Bonomi, chairman of Investindustrial, a private-equity firm in London focusing on Italian establishments. If Ms Meloni desires Italia SpA to thrive, that is where she should dedicate her attention. ■
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