In Box

Berlusconi Goes to China

How Italy's prime minister can remake his image -- and revolutionize Italian industries in the process.

The Economist calls him a "crass buffoon" and "a man of very questionable integrity." He embodies "nepotism, corruption, and dishonesty," says the Danish newspaper Information. The Swedish daily Aftonbladet dismisses him as "an arrogant clown." The German newspaper Berliner Zeitung writes that he is "a shady deal maker," France’s Libération concludes that he is a "threat to liberal democracy," and the Financial Times argues that "he lives in a media bubble where his public gaffes and gratuitous insults go largely unreported at home — at least until he goes abroad." The man in question is not Zimbabwe’s Robert Mugabe, Belarus’s President Aleksandr Lukashenko, or some other Third World strong man. He is Silvio Berlusconi, the twice democratically elected prime minister of Italy.

The international media’s depiction of the leader of an advanced European democracy and the current president of the European Union (EU) as a banana republic dictator is shocking, but even more surprising is that this fate should befall such a media-savvy, image-conscious chief executive. After all, Berlusconi owes his extraordinary success in business and politics to his skills in managing his media companies and influencing public opinion. But his negative public image has become so ingrained that all his media knowledge, his political shrewdness, and his immense personal resources may not suffice to repair his brand name. Berlusconi risks going down in history as a cunning businessman who took advantage of his country’s weak institutions to become Italy’s wealthiest tycoon and then managed to get elected as prime minister because of his quasi monopoly of the Italian media.

Unless, that is, Berlusconi makes a bold, image-shattering move. And here his inspiration should be another leader who also had to cope with huge image problems: former U.S. President Richard Nixon. He is remembered for Watergate, but his name also evokes his bold move toward China. Once a fervent redbaiter during the early years of the Cold War, Nixon stunned his country and the world with his decision in 1972 to travel to communist China and have tea with Chairman Mao Zedong. With one stroke, Nixon not only launched a new era in the relationship between the United States and the world’s most populous country, but he also added a new expression to the American political lexicon: "Nixon goes to China." This phrase has become a metaphor for a historic action as well as shorthand for decisions by leaders who make surprising moves that run counter to their traditional postures.

Berlusconi must also "go to China." In his case, however, he should look closer to home. Berlusconi’s "China" is the reform of the Italian private sector. Coming from Berlusconi — and notwithstanding his reformist rhetoric — such an effort would shock both Italians and the world. Yet, Italy desperately needs this initiative, and few people have better insights on the subject than the current prime minister. Berlusconi has lived inside the belly of the monster and knows better than most how the system works and what laws, institutions, and practices drag it down. Carrying through all the needed reforms will take a long time — like the opening of China. But launching the process with an important, irreversible action can become a historic event that is bound to add some badly needed luster to Berlusconi’s record.

Italy’s private sector is actually blessed with unique creativity, a skilled labor force, and good infrastructure. Its ability to respond rapidly to changes in market conditions is enviable. Italian companies are among the best in the world in sectors such as domestic appliances and high-end fashion. But Italy’s businesses are also plagued by overregulation, unacceptable conflicts of interests, excessive concentration, lack of transparency, the systematic abuse of minority stockholders, a medieval system of professional and trade unions, a rigid labor market, and a politicized and inefficient banking system.

The serious consequences of this stifling business environment are evident. Over the last decade, Italy’s trade grew just 1.7 percent on average, far below the country’s potential. Between 1997 and 2001, Italy averaged only $8.4 billion in foreign direct investment inflows per year, compared to more than $28 billion on average for other EU nations. While 40 of the world’s 500 biggest companies are French, just 9 are Italian. According to an assessment of regulatory barriers in 21 countries by the Organisation for Economic Co-operation and Development, Italy has burdensome and complex business regulations, the most significant obstacles to the creation of new businesses, and the highest barriers to competition. The number of companies listed on the Italian stock market has barely increased in more than a decade.

The Italian private sector is in desperate need of reforming its governance, practices, and structure. Only the government can bring about the changes needed to unleash the enormous potential of Italy’s entrepreneurs. Can Silvio Berlusconi be the political leader who brings Italy’s business practices into the 21st century? His own corporate empire will surely suffer if Italy’s economy becomes more transparent and accountable, with less tolerance for flagrant conflicts of interest and more appetite for competition. That potential cost makes him an improbable reformer. But, then again, Richard Nixon was also an improbable president to bring China closer to the West.

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