Why Is Italy Doing So Badly?

We analyse the current Italian economic crisis as a phase of a major systemic decline. We argue that ‘Italy’s system’ has forced the country to abandon a dynamic view of comparative advantage, crucial for sustained economic growth, in favour of a static view of specialisation. Creative destruction has been hampered and sectoral restructuring has not occurred, resulting in stagnation. The roots of this decline lie in collective action issues and an implicit contract between elites and civil society. We suggest that these issues must be resolved if the Italian economy and society are to revive.