Big Labor in Little Italy

di Anne JolisThe Wall Street Journal del 28.03.2012

A Milanese business explains how Mario Monti’s reforms could help them—and why more change is needed.

Mario Monti’s proposed reforms to Italy’s 1970 Workers’ Charter would supposedly deliver a labor market so liberalized that it would be “not European, but American,” according to Democratic Party leader Pier Luigi Bersani. In the words of the Italian General Confederation of Labor, Prime Minister Monti would be handing “unilateral power to businesses.”

Even applying the standard political-rhetoric discount, these are overstatements. But to employers such as Cesare and Donata Novellone, it would at least be a start.

“I hope and I think he will win, but only after some difficulty,” says Mr. Novellone, who with his sister runs Amisco, the electrical coil and valve business that their father started in 1936. “As it is today, we cannot continue like this.”

“Today, if you want to fire a person, he goes to court and the judge forces you to take him back,” explains Ms. Novellone. Under Mr. Monti’s reforms, the courts could still force employers to rehire fired workers if they don’t agree with the cause for dismissal. But during hard times, businesses could in future lay off workers for the low price of up to 27 months’ severance pay.

“This would be a big improvement,” says Ms. Novellone. “If you can fire people, it means you can also hire people. Today, we can’t do anything without agreement from the unions.”

This arrangement hasn’t worked out too well. After a tour of their factory, where a handful of workers and several robotic arms fashion the custom-designed gadgets that will wind up in truck brakes and other industrial parts, Mr. and Ms. Novellone explain why.

“During the ’80s and ’90s, here in Italy and at Amisco, we were like China is today,” Mr. Novellone explains. “The Italian lira was devaluing every year, and that allowed us to export every year with no problems, to be competitive in selling to Germany, France, Holland and so on.”

But by the end of the ’90s, Italy had signed up for the euro and “this trick of devaluation stopped,” he continues. At the time, Amisco employed about 230 workers in Italy, “but we had to change our mentality—the way of doing business that we were used to was finished. We could not continue to rely on the devaluation of the lira. We needed to be more competitive with new production systems, with more automation, and in developing new products.”

To get there, Amisco first needed to reduce its headcount, which was “a long, long process,” Ms. Novellone recalls with a sigh. “It took about three years, and a lot of money of course. With Article 18 [of the Workers’ Charter], you cannot fire anybody.” Through attrition, buy-outs and early retirements, Amisco has now gotten its headcount down to about 170 people at its two Italian production facilities, with another 80 workers at a factory they opened in China in 2006.

Mr. Novellone is sure to praise the Italian system that “protects workers—this is a good thing.” But the “rigidity” of the labor laws is also “one of the reasons why Italian companies are so small. No one wants to grow too much at any single production facility, otherwise the unions will be too strong and start telling you what to do.”

Through its hard-gotten productivity gains in the last decade, Amisco is now booking low double-digit profit margins and looking to build a new factory—in the Czech Republic.

“We are not a low-cost power any more, we’re not a low-cost country, either with respect to the rest of Europe, or to the rest of the world,” Ms. Novellone says, explaining that Amisco’s Italian labor costs average about €28 per hour per employee, versus about €8 in the Czech Republic. “Do you imagine,” she asks, “the difference that makes in the prices to our customers?”

Amisco’s costs are even higher than the Italian average, in part because “the unions are so strong here at Amisco because it’s an old company,” Mr. Novellone says. “We have people who have been working here for 30 years, and since the ’70s, every three years we have to renegotiate with our works councils [union representatives] for new internal contracts.”

His sister interjects: “And every time we have to give them something more, normally money.”

For all that, their workers’ paychecks are worth at best only half of what it costs Amisco to employ them. “The rest is taxes, social security contributions, health costs, so on,” Ms. Novellone says.

On this front, Mr. Monti hasn’t exactly helped so far. The government’s balanced-budget plans include billions in new tax increases, and won’t touch income rates that claim 38% above €28,000 per year and 43% above €75,000. “I would ask Mr. Monti to reduce the cost of manpower,” Ms. Novellone says, pulling out a spreadsheet that details Amisco’s spending on national and local payroll taxes and three separate mandatory employee-retirement plans. “That is all before they get to our profits,” she adds, leaning back in her chair. Cumulatively, the Novellones estimate that Amisco gives about 50% of its profits to the government, after labor and other costs.

“There are so many taxes it’s hard to remember them,” notes her brother.

But most of all, what they want from Mr. Monti is what every Italian politician of recent memory has promised: Simplicity and predictability.

“In Italy, we get a new law every two months,” Ms. Novellone says. “It just grows and grows, sometimes the laws change, sometimes they’re new, sometimes they’re retroactive—bureaucracy is killing us.”

For instance, per government decree, “every year I have to sign 50 letters to give instructions to my employees on how to keep ‘confidential information,'” Mr. Novellone says. “It’s information nobody cares about! It’s crazy.”

“You need so many people just to push paper, to make these declarations,” adds Ms. Novellone. Most recently, Amisco has had to conduct psychological stress studies on its work force. “You need consultants for everything, otherwise it’s too difficult, you do one thing wrong and then the inspector comes.”

“If you follow all the laws, you can go crazy,” adds Mr. Novellone. “There are many people who don’t. Unfortunately, we do. We care about following the laws.”

Despite everything, it would be unthinkable for the Novellones to leave Italy and incorporate elsewhere. It’s not hard to see why: Before discussing any business, they sit for lunch at the Amisco cafeteria with three of their children, who now work at Amisco. The menu is fresh penne Bolognese, and the conversation concerns neither Italy nor its issues, but the excitement of China, where two of the young Novellones recently travelled to see to the Amisco factory in Shenzhen. They rave over the dynamism of the emerging economy, and even the ready availability of good Italian food in China’s large cities. But in the end, they say they’re happy to be back in Milan.

“It’s important to highlight that there is a big difference between Italian politics and Italian industry,” says Mr. Novellone. “In industry, we are clever people, and there is a strong entrepreneurial will. We just have a bad political class.”

Ms. Novellone points out that despite all of Rome’s shenanigans in her own and their father’s lifetime, the company has come through. “The politicians are not us. And Italy is not ready to be bankrupt.”

Fonte: The Wall Street Journal

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