The authors describe the development of the Italian economy from the era of gradual modernization following the unification of the country in the nineteenth century to the golden age of growth after World War II and, most recently, the period of economic stagnation and demographic decline that leaves Italy's real GDP per person today lower than it was two decades ago. Bastasin and Toniolo ask whether other advanced economies facing demographic challenges are similarly doomed to this malaise of low growth. The structure of Italian industries compounds the problem: Italy has an abundance of vigorous small- and medium-sized firms but lacks the large global corporations required to meet the competitive challenges of the twenty-first century. Successive governments papered over underlying structural problems by enacting generous social and industrial policies financed by excessive borrowing. The economic consequences materialized in the 1980s, with growth markedly slowing once the country had made the easy gains in catching up to more advanced economies. Uncertainty then spiked with the multifaceted crisis of 1992, when corruption scandals upended politics, currency speculators destabilized the lira, and the sustainability of the government's finances came into doubt. The result was a devastating loss of confidence, creating an unfavorable climate for investment and inaugurating an economic slump from which Italy has never recovered. The authors conclude that it is too early to tell whether other economies are doomed to follow in Italy's footsteps.
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