Etudes économiques par pays

Economic survey of Italy 2007: Enhancing competition and productivity in services

 

Contents | Executive Summary | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise Chapter 2 of the Economic survey of Italy published on 4 June 2007.

Contents                                                                                                                       

How could the functioning of product markets be improved?

Over the past decade, TFP growth has been dramatically slow in the sector of services, representing a missed opportunity for Italy. This was in sharp contrast with developments in leading OECD countries such as in the United States and certain Nordic countries where productivity growth surged in the service sector, notably in retail trade and financial services. Acknowledging increasing evidence that competition-restraining regulations contributed to this sluggish performance, the Italian government recently passed two major packages of liberalisation in areas such as retail trade, taxis, pharmaceuticals, professional services, local public services and retail banking. Even though some of these measures are symbolic (opening barber shops on Monday) and some of them were only half-heartedly implemented (taxis), most of them should help reduce barriers to entry, cut bureaucratic red tape, expand consumer choice and diminish rents in protected sectors – and are therefore welcome steps forward to boost competition and revive productivity. The momentum of liberalisation efforts should be preserved, as there is still scope to enhance competition further.

In the sector of professional services (such as lawyers, pharmacists, accountants and notaries), the Bersani decree laws removed some of the most protectionist regulations among European countries. Minimum tariffs were banned and advertising was allowed for informative purpose. However, barriers to entry are still high. Important steps forward could include replacing excessive licensing requirements by other mechanisms such as certification, fully liberalising advertising, removing quantitative restrictions and holding back the influence of firm or professional associations. This would surely accelerate the process of commercialisation of professional services, thus fuelling price competition and accelerating productivity gains – to the benefit of consumers.

Enhancing competition is of paramount importance in the sector of retail and wholesale trade as market contestability, productivity and job creation seem low. The “Bersani decree” removed many restrictions at the central level. The sector however remains heavily regulated at the local levels, notably by zoning restrictions, creating risks that vested interests hamper the recent liberalisation. As national competition authorities do not have the capacity to review and correct local restrictions, competition “watchdogs” should be established at the regional level and be empowered to monitor their local authorities, applying a checklist of pro-competition practices defined at the national level. Besides, shopping hours could be relaxed. As experiments suggest, further liberalisations could have large positive effects: higher productivity coupled with lower margins should push down consumer prices, while consolidation of traditional small stores is likely to be balanced by net gains in job creation.

Should government involvement in business operations be reduced?

State control of the enterprise sector is still comprehensive in Italy relative to other countries, despite past privatisation programmes. According to the OECD product market regulatory indicators, government involvement remains large in business operations, direct control of companies is significant and the size of the public enterprise sector is still above average. Hence, divesture programmes should be continued, notably in the sectors of media, transportation and public utilities. The Italian government retains golden shares in some divested companies operating in “strategic sectors”, such as energy. Although a law passed in 2003 significantly reduced the scope of golden shares, the authorities should explore whether alternative arrangements – such as appropriate sectoral regulation and strengthening independent authorities – might in the future replace golden shares, so as to conform to OECD and EU recommendations and avoid discouraging foreign investment.

Local public services (such as public transport and water distribution), which are often in the hands of municipalities, must improve their quality and reduce operating costs. By allowing private companies to bid for the provision of public services, the “Bersani decree” may help to spur competition and efficiency. However, there is a lack of transparency and market contestability in local bidding procedures. Even though the “Lanzilotta decree” goes in the right direction by requiring more competitive practices and transparency in procurement procedures at the local level, more needs to be done. For instance, the proposed competition “watchdogs” at regional levels could carefully monitor tendering procedures and quality of services to guarantee pro-competitive behaviour.

How could the performance of the banking sector be enhanced?

The restructuring of the banking system is speeding up. After the wave of concentration, involving small-scale banks during the late 1990s, there has been foreign bank entry onto the Italian financial scene through acquisition of controlling interests in two major local institutions, and there has been a merger of two among the largest domestic banking groups. New legislation has reshaped and streamlined the bodies responsible for regulating the financial sector, giving to the Competition Authority the power to deter anti-competitive practices in the sector. The first “Bersani decree” prohibited bank account closing fees and the Bankers’ Association has reacted to recent criticisms by encouraging greater transparency in fee-setting. New procedures are being put into place to further reduce the costs of switching banks. New codes were enacted in order to improve the quality of corporate governance and financial market transparency. However, competition between intermediaries in serving customers must remain the cornerstone of regulations governing bank-customer relations. To stimulate competition in retail banking and help reduce banking fees, it will be important to enact the “Bersani decree” in a fully transparent manner and in co–operation with the competition authorities. The authorities and banking association should continue to make it easier and less costly for bank customers to switch banks.

Regulation in selected service sectors
Professional services, 2003

1. Index 0-6 scale from least to most restrictive.
2. Preliminary estimations for 2007 before next PMR updates, taking into account the two Bersani decrees.
Source:OECD Product Market Regulation Database.

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.

The complete edition of the Economic survey of Italy 2007 is available from:

Additional information                                                                                                  

 

For further information please contact the Italy Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Alexandra Bibbee and Benoît Bellone under the supervision of Patrick Lenain.

 

 

 

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