A Disappearance Act for Italy

Entire Factories Are Shipped Out of Italy Overnight

by Pater Tenebrarum

One day you see it, the next you don't. Fabrizio Pedroni's Firem Srl., a maker of electrical car components, that is. According to a report at Bloomberg late last week, the owner of the factory just had the entire thing packed up, lock, stock and barrel, and had it secretly shipped it to Poland overnight, a place where capital is evidently treated better than in Italy.

It is interesting to read why exactly he decided to act under the cover of darkness:

“Earlier this month, Fabrizio Pedroni wished his employees a happy summer holiday and told them to return to work in three weeks. That night, he began dismantling his electric component factory in northern Italy and packing its machinery off to Poland.

“Had I told them earlier about any plans to shift the production abroad, they would have occupied my factory and seized all my stuff,” Pedroni said in an Aug. 21 telephone interview from Poland. “The plain truth is that I wanted my business to survive and there weren’t the right conditions for me to operate in Italy any longer.”

The news that Firem Srl, based in Formigine near Modena, was shifting to Eastern Europe reached the 40 employees too late. On Aug. 13, 11 days after Pedroni activated his plan, a group of employees suspicious of the movements around the plant rushed to its gates just in time to stop the last of 20 lorries packed with machinery. Firem’s move became a national controversy and the fate of its workers is still unclear.

The loss of the factory highlights the struggle Italy faces to revive manufacturing and its economy, which remained in recession in the second quarter even as the broader euro area returned to growth. Italy ranks 128th in the World Economic Forum’s global pay and productivity table, one place behind Burkina Faso, compared with 39th for Poland.”

The fate of the workers is in fact clear: they are now jobless. Pedroni had to do what he did to escape the inevitable blackmail and violent disregard of private property of militant Italian unions, as his tale reveals. Meanwhile, Italy's appalling productivity ranking (behind Burkina Faso? That really takes some doing) proves one of our main contentions when we discussed Mario Monti's so-called 'reforms'. There were no reforms. All he did was raise taxes and put pressure on the citizenry with intimidation tactics (his financial police took pride in terrorizing the citizenry and regarded it as a major objective). Obviously, Italy's labor market reform has at best been cosmetic.

If you think we are exaggerating about Italian unions and their propensity to engage in violence to get their way, read on. Workers are pampered and radicalized in Italy, a country that prior to the collapse of Soviet-era communism sported one of the most powerful communist parties in all of Western Europe.

“Pedroni, 49, now lives in fear for his life after receiving multiple threats to himself and his family. He says he won’t change his mind about the choice he made for the company first opened by his grandfather after World War II. He’s not alone, with Italian companies from car firm Fiat SpA to Indesit Co. SpA, the maker of ovens and fridges, moving production lines abroad to cut costs.

Sneaking off “was certainly disputable and hopelessly harmed relations with his employees and community, but like many entrepreneurs before him, he abandoned the ship called Italy because it was the only way to survive,” said Carlo Alberto Carnevale Maffe, professor of business strategy at Milan’s Bocconi University. “In Italy, most businesses like Firem have been posting losses for at least five years.”

According to Pedroni, whose factory is close to the headquarters of luxury carmaker Ferrari SpA, his decision was forced by factors ranging from foreign competition to labor costs and higher taxes.”

Try as they might, neither politicians nor unions can alter the laws of economics. They can threaten Pedroni's life, and perhaps it will still turn out that he took too great a risk. But what choice did he have? What the militant workers who would have tried to force him to stay on by occupying and seizing the factory apparently don't realize is that the company would then have gone under in due course and they would have lost their jobs anyway.

Their rage is directed against the wrong opponent. The fault is with Italy's political class and its unwillingness to enact unpopular but necessary reforms for fear of losing votes. Italian bond yields and CDS on its debt remain subdued based on the ECB's verbiage, similar to the rest of the 'PIGS' (with the exception of Portugal, which seems close to blowing up again). However, its mountain of public debt continues to inexorably grow, while its industrial base increasingly becomes a hollowed out shell as a result  of the absence of meaningful reform. The report related above is only an anecdote, but it is  representative of Italy's malaise. Italy is a European welfare state on the verge of implosion. Investors are deluding themselves – no-one is going to bail out Italy.