The Soviet Union collapsed because the nomenklatura – their bureaucratic apparatus – eventually caused it to become completely inoperative.

I wrote in the past how the growth of a country depends on the number of power groups. A country grows rapidly when there are many power groups. They want the pie to grow quickly to share its wealth. Countries controlled by a small number of power groups grow slowly. There are few groups involved in sharing the wealth generated by the economy.

In economies with an autocratic, socialist, dictatorial regime the bureaucracy is in control and the only way to survive is to be part of it.

Italy is collapsing. It is the canary in the coal mine. I know the Italians. I was born there. I was educated there and I decided to leave. Italy chose an economic planning system first mentioned by Rousseau and modified by Mussolini. Some crucial industries need to be protected for the good of the country. This is the fascist credo. The industries to be protected are the big ones. What is left is organized in guilds to protect their members from the big fish and hinder new entrants in the business.

The bureaucrats love it. They control the money and how it is spent. The management of these industries rotates to gain status and money. Example. The Italian government is “trying” to find a buyer for Alitalia, a bankrupt airline. They cannot find one. Why? Because those gaining from it would rather sink than salvage it.

This is the Italian legacy of fascist economic policies. Italy is sinking because there is only one major power group in charge: the bureaucracy. And they tax and spend, totally unconcerned about how fast the economic pie is growing. Their priority is their pocketbook.

The bureaucracy becomes a major power group as it gives to its citizens what they want. Everything sounds fine. What countries like Italy forget is to ask themselves who will produce the wealth to finance the glorious and populist social programs?

(This Observations appeared in the 3-03-08 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

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