5/2/18: Italy Smacks into VUCA Wall

VUCA wins. In Italy.

Italian elections results are coming in and several key VUCA components are now clearly at play in Europe's third largest economy: https://www.theguardian.com/world/ng-interactive/2018/mar/05/italian-elections-2018-full-results-renzi-berlusconi.

Now, what does this mean?

Italian Parliament:
234 seats for M5S
122 seats for Lega
105 seats for PDs
96 seats for FI

Italian Senate:
115 seats for M5S
55 seats for Lega
53 seats for FI
50 seats for PD

M5S - the 'Five Star Movement' has consolidated and expanded its launching position of 2013, despite virtually all analysts declaring the party to be 'falling' in support, especially after 2017 local elections. Welcome to the world of VUCA, where the more 'accomplished' the analyst, the less accurate are her/his predictions, because our traditional analytical tools miss the C & A bits of VUCA (complexity & ambiguity).

Renzi & mainstream politics have lost. His PDs are decimated. They have only themselves to blame: centre-left ideology is of nil distinction from centre and centre-right these days. Not only in Italy, but elsewhere too: just observe the U.S. Democrats sparing with the U.S. Republicans on virtually everything, save actual policies. The squabbling that the lack of ideological core implies is intense within the centre-left in Italy. Just as it is intense elsewhere (e.g. the U.S., where the centre-left's only differentiation from the centre-right is who to blame for the country problems, save blaming themselves).

Centre-right (Berlusconi) failed to capture anyone's hearts and minds, so the Lega Nord has taken its votes. Which makes Lega a major winner in the election: the party went from its cyclical low of 4 percent in 2013 election to its historical peak of around 18 percent in this election. The change of leadership in 2013 (to Salvini) has paid off.

Key takeaway from all of this is that in the modern, highly volatile, uncertain, complex and ambiguous political environment, writing off populist parties at the extreme o political spectrum is a dangerous game. We think of these parties as being driven to successes and subsequent failures by individual personalities of their leaders. That does not appear to be the case. Complexity overrides trends.

Meanwhile, in Brussels, power-fixing mode was on. As reported in the Guardian: "The [EU] commission’s chief spokesman, Margaritis Schinas, told reporters its president, Jean-Claude Juncker, wanted to see a “stable government in Italy” and “regarding the potential impact and so on and so forth... ‘Keep calm and carry on’”. In other words, get Renzi back by all possible means and do not challenge centrism. That is just another manifestation of VUCA for you: the ossified elites dependent on status quo ante will only recognise VUCA effects after they drive the system to a point of no return.

26/2/2013: 'Italy effect"

Mid-day 'Italy effect' or may be 'democracy effect' or 'No Goldie Sachs Boy in Rome effect'? CDS markets (via CMA) the EU has not banned... yet

Also, note that everyone in the periphery is being clubbed: Ireland and Portugal inclusive (we can safely assume that Tunisia, Sweden, Russia and Bulgaria have been coupled into the group on ad hoc bases).

26/2/2013: The Real Lesson from Italian Elections

The outcome of the Italian elections is the current core driver of the newsflow. Alas, so far, it is for a very wrong reason. The Italian voters have returned a divided Legislature, prompting the claims that Italy is now at a risk of becoming 'ungovernable'. In reality, such statements are confusing one of the symptoms for the entire disease because the original departing assumption of the analysts arguing such a scenario is that the brief period of technocratic governance under Mario Monti administration was:

1. Effective in enacting / implementing reforms,
2. Involved reforms needed to address the core problems faced by Italy, and
3. A sustainable 'new normal' for Italy.

In fact, none of the above three assumptions are valid.

Firstly, the reforms enacted by Mario Monti administration were shallow, not structural and addressed the issue of deficits (which are not the core problem for Italy). These reforms were successfully resisted on the ground - with exception of few tax measures, which were all regressive to growth and were unlikely to survive intact into the future due to their unpopularity as much as due to the fact that Italians evolve very systemic tax evasion responses over time to virtually all attempts to claw tax out of the real economy. There is also a pesky problem that Italian tax burdens are already very high, creating disincentives to entrepreneurs and highly skilled.

Secondly, the reforms enacted by Monti were not addressing the main two problems faced by Italy: the gargantuan Government debt, and the decades-long period of economic stagnation. Structurally, Monti reforms were like a plaster applied to a shark wound, helping to lower the cost of funding the state, but changing little in terms of what is being funded, why it is being funded, and how it is being funded.

Thirdly, technocratic regime is simply incompatible with democratic institutions, and as such cannot be sustained. The result of the latest election actually show the deep disconnect between professional capability of the state / business managerial elites (Monti) and political leadership (ideas-light, and thus forced into rhetorical campaigns juxtapositions) that is emblematic of the proceduralist, bureaucratised European modus operandi since the 1960s. 

Europe's political elite - thin on ideas, experience of real management and knowledge - is incapable of defining leadership beyond populism. Meanwhile, Europe's professional elite - permanently shielded from reality of life by protectionism and bureaucratic licenses - is incapable of capturing hearts & minds of any electorate, let alone emotive electorate found in the periods of crises. Hence, popular leaders turn out to be incompetent managers, while competent managers turn out to be uninspiring as leaders.

This is not an Italian problem - it is a European problem. And the most likely 'European solution' to it will be that Italians will have to vote again, relatively soon, like the Greeks almost  a year ago, in a hope that forcing electorate to face 'explained' or rather 'better marketed' choices can yield the desired outcome, a la Ireland ca 12 June 2008 through 2 October 2009.