In with the old? New party names offer few fresh choices for Italy

Italians will drag themselves to the polls this Sunday, much as some go to church, more out of a sense of duty than conviction. But more than any election in modern times – and in Italy there have been many – this campaign has been fought amid a deep sense of national crisis and despondency.

It is not just that the economy is again hovering on the edge of recession – and, according to some surveys, nearly two-thirds of families cannot make it financially to the end of the month – or that the vast majority of voters detest a system that encourages unstable coalitions.

Now, there is a more profound fear that Italy is in serious decline, at least relative to the rest of Europe, and that its highly paid politicians are incapable or unwilling to reverse it.

In 1994 Silvio Berlusconi (pictured right) burst on to the political scene as a novelty. A super-rich media entrepreneur, he campaigned as an anti-politician and an antidote to the corrupt postwar parties that were then imploding. Now 71, Mr Berlusconi is fighting his fifth campaign and aiming to be prime minister for the third time. His newly branded, centre-right People of Freedom alliance looks as tired as he does on stage (despite the cosmetic surgery), surrounded by the same cast of politically incompatible allies. His programme of tax cuts, less public spending, more security and tighter controls on immigrants is little changed.

If the view from Ponte Milvio, known as a rightwing stronghold in northern Rome, is anything to go by, Mr Berlusconi still inspires popular support but no longer passion. “People will vote for Berlusconi because they are tired of the left,” says one woman. She does not like the billionaire but will vote for him because she is a fan of his coalition partner, Gianfranco Fini, leader of the rightwing National Alliance.

Walter Veltroni, leader of the new, centre-left Democratic party and a relatively popular mayor of Rome for nearly seven years, has been dashing all over Italy in a big green bus in an attempt to claim the reformist mantle for his party. Created last October out of a merger of former Communists and progressive Catholics, the Democratic party is bidding to capture the centre ground by dumping its coalition allies on the far left and promising tax cuts and a slimmer government.

If Mr Berlusconi does win – as the last opinion polls predicted when they were released two weeks ago – it will be largely due to Mr Veltroni’s inability to distance himself from the dysfunctional centre-left coalition government of Romano Prodi, former European Commission president, which collapsed in January after 21 months in office.

The centre-left had squeaked in by the narrowest margin ever. It is possible that Mr Berlusconi will end up like the hapless Mr Prodi, ruling with a slim senate majority and dependant on wayward allies. But demonstrating again how different Italy is from the rest of Europe, Mr Berlusconi has accused his opponents, with no evidence, of preparing electoral fraud.

For many Italians whose main wish is to live in a “normal country”, the electoral stage is set for a messy outcome. As one sceptical voter in Ponte Milvio exclaims: “We are just waiting for it all to be over.”

Crime bedevils politics in the pivotal south

The most powerful and efficient Italian “holding company”, as a recent 230-page parliamentary report characterised it, is not the rejuvenated Fiat carmaking group or one of the great names of fashion but the ’Ndrangheta criminal organisation.

From its historical stronghold in Calabria, the “boot” of southern Italy, the ’Ndrangheta has spread around the world and now controls much of Europe’s cocaine trade with South America.

The ’Ndrangheta is a secret society reputedly with close links to Masonic lodges. It has quietly penetrated the political and commercial establishment rather than confronting the state head-on, as the separate Cosa Nostra mafia attempted in Sicily with devastating attacks on the judiciary in the 1990s.

Unlike the hierarchical Sicilian mafia, which is in decline, the ’Ndrangheta is a more horizontally organised, family-based federation of some 300 clans with an estimated annual income of €40bn ($63bn, £32bn). Because almost all its members have blood ties, infiltration by the police is difficult and there are far fewer collaborators.

On top of drugs, it thrives on billions of euros siphoned from corruption in public services such as waste disposal. Having outgrown Italy, it is spreading across Europe into banking, property, shops, supermarkets and even the Russian oil trade.

“The ’Ndrangheta is growing every day and our resources are inadequate,” says Giuseppe Lombardo, an anti-mafia prosecutor in Reggio Calabria, the city that is a mafia heartland and has Italy’s second highest murder rate. “They thrive on the weakness of the state and are building their own parallel state,” he says. “They are exporting a model that functions. Their firms never go bankrupt. They destroy legal companies.”

Elections in Calabria are what could be called a family affair. Magistrates estimate that one in three of the population has some kind of connection to the mafia. With unemployment reaching the highest levels in Europe and some 1,300 people leaving southern Italy every week, the money and influence of the mafia go a long way.

Referring to the heads of the two leading political groupings contesting the general election nationally, Mr Lombardo adds: “[Walter] Veltroni and [Silvio] Berlusconi say they do not want the vote of the Mafiosi but there will be many and they will be decisive.”

One elderly shopkeeper laughed when asked how much people are paid to vote in a certain way: “They don’t need to give money. They are our friends. There is an understanding.”

Two-thirds of the centre-left regional government is under criminal investigation, according to politicians on the right, several of whom are also facing possible charges.

Since the north of Italy is set to vote largely for Mr Berlusconi’s centre-right alliance and the middle will lean towards Mr Veltroni’s centre-left, the outcome of the elections – especially in the senate – is likely to hang on the more volatile south.

In Calabria, the ’Ndrangheta has no political ideology. Instead it infiltrates all parties and, where possible, all levels of government from local councils to the senate. It likes to back the winning horse, say the magistrates. Last time the winning horse was the centre-left. This time it appears to be Mr Berlusconi.

Sicily lacks the political volatility of the rest of southern Italy, being historically a stronghold of conservative and Catholic parties, but the Mafia there is similarly entrenched. Salvatore Cuffaro, the region’s governor, is running for the centrist Union of Christian and Centre Democrats while appealing against a five-year jail sentence imposed for complicity with the Mafia. Senator Marcello Dell’Utri, a close ally and business partner of Mr Berlusconi, is also seeking re-election while fighting a nine-year, Mafia-related jail sentence.

Salvatore Boemi, Calabria’s veteran anti-Mafia chief public prosecutor, wants to ring Europe’s alarm bells. Like Italy 40 years ago, he says, the rest of Europe is asleep to the dangers posed by organised crime. “The Mafia are not content to control Italy’s economy alone. They are spreading through Europe.”

He adds: “Economic power becomes political power. I am not allowed to talk politics but I can only say that Italian politics is unstable and that instability carries many dangers for society. The Mafia plays on this.”

Beaten on cost, companies seek to burnish their brands

Roberto Berloni would like to sell you a set of carbon-fibre kitchen cabinets for €160,000 ($252,000, £128,000), write Adrian Michaels and Peter Marsh . A Chinese businessman is discussing becoming the first buyer of these impossibly exotic products, which illustrate the efforts being made by Italian manufacturers to survive the pressures posed by the growth of China and other low-cost nations.

Berloni, the kitchen company run by Mr Berloni in the Adriatic town of Pesaro, developed the cabinets and worktops after suffering tough competition from companies entering the Italian market and undercutting his prices. “Selling products such as kitchens is all about perceptions; to do well in this business you have to offer something different,” he says. “You cannot survive in the middle ground.”

As Italy prepares to vote, it needs entrepreneurs such as Mr Berloni to succeed more than ever. Growth has averaged just 1.4 per cent over the past decade, while the proportion of output taken up by manufacturing fell from 19.1 per cent to 16.6 per cent between 2000 and last year.

Yet the figures mask success stories, particularly in the north, where small, family-run companies have been formulating a variety of strategies. Mario Monti, the former European Union commissioner now president of Milan’s Bocconi university, says: “In the key industrial districts of Italy one hears far fewer complaints about China than was the case two or three years ago.”

Many of the businesses that have reappraised their strategies are not expecting much help from Rome’s next government, of whatever colour. Paolo Giroldi, a director at Gessi, a tap-maker, says: “Till 1990 Italy was founded on basic products and recognised as a place of cheap production. The strength of business [today] comes from recognising that Italy is not only the home of Fiat but also of Ferrari.”

The first and dominant approach is to focus on higher value products. Taps by Gessi, which is just 18 years old, will feature in the bathrooms of designer Giorgio Armani’s super-luxury hotel due to open next year in Dubai. Mr Giroldi says his company has yet to spot any sign of economic downturn. “The low end of the fittings market is suffering but we are not.”

Panaria, a tile manufacturer near Modena, has also adopted this strategy. It says Italian tiles, at about €11 per square metre, generally cost about double Chinese tiles. But Panaria charges on average more than €19.

Customers have to be convinced, of course, that the higher price is worth paying. Many top-end companies seek to compensate for relatively high costs by offering high-quality items backed with novel concepts – aided by the country’s long-held reputation for stylish design. “There’s no novelty from China. People there can copy [products made in Europe] but that’s not enough,” says Ernesto Gismondi, president and founder of Artemide, a maker of light fittings with plants in Italy, France, Hungary, the US and the Czech Republic.

Novelty on one level can simply mean a greater variety and range of designs. Panaria sold 2,000 variations of its tiles in Italy at the turn of the decade; it now offers 10,000.

Fabio Porro, managing director at OMP Porro, which makes brass door fittings, says that 10 years ago the company used to make its products in a minimum batch size of 50,000. It now makes batches as small as 500. “It’s impossible to beat the Chinese on price,” he says. “We oriented ourselves to the personal needs of our clients.” This entails greater customisation and a willingness to swallow less profit than some manufacturers in China. “It’s a hard life,” says Carlo Molteni, managing director at the kitchen and furniture designer founded by his father. “But Italians are happier with lower volumes.”

This plays to a trend in western consumer tastes that favours originality and a bespoke aura rather than mass-manufactured homogeneity. Mr Molteni says his company makes 5,000 wardrobes a year that are all different and cost up to €7,000 each. It made a 15-metre table for Bloomberg’s office in New York as a special item, an order that he says would be turned down by cheaper manufacturers.

Customisation and a greater product range costs money, requiring a daunting level of capital investment for these small companies. At its site near Novara in northern Italy, Gessi is spending €120m on a new factory and warehouse – surrounded by a nine-hole golf course – in an effort to more than double sales to €200m by 2012. “We have already spent the money that we will generate in the next 10 years,” Mr Giroldi says.

Successful manufacturers have often shied away from relocating the bulk of production to China, in spite of the savings available. Businesses including Alessi, a leader in consumer products such as fashionable corkscrews, and Luxottica, the maker of luxury sunglasses, have kept their main manufacturing operations in Italy. But they have started Chinese satellite plants or formed ties with specialist subcontractors, as a way to keep a check on costs. Andrea Guerra, chief executive of Luxottica, which is still family-controlled but large and publicly quoted, told the Financial Times last year that the immediate costs of manufacture could be 50 per cent lower in China but those savings might fall to just 20 per cent once other factors such as planning, distribution and supplier relations were included.

There is a patchy Italian record in mergers and acquisitions – a seemingly obvious route to cost savings and better margins – because family companies are often reluctant to cede control. Savino Rizzio, chairman of Vir, a valve-maker, says: “If two companies decide to be together, who will be number one? It’s possible to have a lot of people in the car, but only one can be the driver.”

But acquisitions or a loss of family control do happen, often when companies are on the point of bankruptcy. That is what prompted Roberto Gavazzi to move from a background of finance in large corporations to take over from the founding family at Boffi, a kitchen-maker, in 1989. Mr Gavazzi says Italian manufacturers need to shake off their traditional independent-minded approach and pursue alliances and mergers if they are to make headway against growing global competitors. “The owners of these small businesses should show more imagination in terms of linking up with others – perhaps informally, not necessarily in a full merger – to provide a full product offering and so give themselves a bigger platform for selling their brands.”

Boffi has pursued this idea through linking with two Italian furniture companies in a marketing alliance through which the three sell certain products on a joint basis. Some families have managed to build empires through acquisition. Riello, a machine tool-maker based in Verona, has bought three other companies, in Italy, Germany and Canada, trebling sales to an expected €130m this year. Andrea Riello, chief executive, says: “The only way to buy companies [has been] when they are bankrupt.” But he predicts that Italy will fast “leave the micro dimension” as a “new generation understands that growth is a strategy to maintain competitiveness”.

Marazzi, a maker of luxury ceramic tiles, has transformed itself through a series of acquisitions over the past 20 years to become the world’s second biggest. Ferretti, a maker of “super-yachts” that sell for up to €50m, has followed a similar approach.

Going public is a route to building a bigger name, but again is scarcely used. There are only 300 quoted Italian companies in total. Poltrona Frau, a producer of luxury furniture, was taken over by private equity and soon became a holding group, which includes Cassina and Cappellini, two other Italian design companies. Poltrona then went public and is promising its broader shareholder base considerable synergies.

Giuliano Mosconi, chief executive, says the 2007 results were worse than expected because the company was “only now becoming a group”. Some 40 different arms are becoming 20 and eight manufacturing plants will be reduced by the end of this year to five, of which one will be in China. The group’s margins are projected soon to hit 18 per cent, up from 10 per cent in 2006.

All these various strategies have shown the way for Italian manufacturers, but it is clearly hard work. Mr Porro at OMP Porro admits without humour: “Absolutely, yes it would be much more economical to sell it all ...If we sold up and put the money in the stock exchange it would be worth more.” But he adds that “life behind a computer is not very attractive”.

At least, even in a period of economic weakness there will be a continued appetite among the world’s richest people for upmarket goods. Vincenzo Cannatelli, chief executive of Ferretti, says: “If you own five houses and want something that will set you apart, you are much more likely to opt for an Italian yacht rather than one made in China.”