An Overview of Welfare Reform in Italy

Samuelson stated in 1967 that “the beauty about social insurance is that ... everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in”. Such an optimistic belief seems to have been widely shared in Italy, where until the beginning of the reform process in 1992 social security could be described as a continuous succession of highly generous and diversified promises of payment made by the state to the different categories of workers on the basis of salary earned in the final stage of working life. The pension reform introduced by the Dini government in 1995 led to the adoption of a contribution‐based method of calculation, which meant a return to the forgotten “golden rule” that the financial equilibrium of pay‐as‐you‐go systems is ensured only if the implicit yield is equal to the rate of growth of the taxable basis of social security contributions. Equilibrium would thus be safeguarded, restoring itself automatically after any accidental disruption caused by demographic or economic upheaval, and operating regardless of the capacity and will of governments and of the majorities supporting them. The great efforts made to build up sufficient consensus with respect to such radical modifications of principle were, however, accompanied by a marked caution in bringing the system into full effect. This has left the country with the problem of accelerating transition to the new mechanism of calculating contributions, applied initially only to the newly employed and pro rata to workers with less than 18 years of contributions paid in, thereby making for a very long period of transition. In such a connection, a recent proposal has suggested that the state should try to induce workers to agree freely to a reduction in their accrued pension entitlements through the public system in return for a share in the process of privatization. If government were to repay the pension debt “below par”, this would allow for greater savings on future expenditure by using part of the revenues of privatization to pay off the pension debt in advance rather than by using these sums to pay off the national debt. More radical approaches aiming at cutting back social spending, would fail to take into account the risks involved in the collapse of public trust and of the structures that have hitherto guaranteed the cohesion of Italian society and the conditions for entrepreneurial commitment. On the other hand, an unbridled bottom‐up proliferation of networks of social cohesion, supplementary voluntary bodies and non‐profit initiatives may involve the risk of further arbitrary action being taken in the name of income redistribution. The social market requires bottom‐up action on the part of associations, but also the guarantee of state‐imposed rules that are equal for all parties and of a market that is free from the distortions of competition regulated from the top. A welfare state that has too often disguised the redistribution of resources in non‐transparent forms must be replaced by a transparent welfare system effecting an explicit redistribution of resources and allowing a suitably regulated market to operate without indulging continually in further forms of “correction”. This calls for the introduction of a microchip “citizen card”, able to offer characteristics both of uniformity and of fine‐tuning in terms of specific conditions of age, income, assets, education, etc., so as to permit forms of selection and/or cost sharing where desirable. Some of the rights to welfare services incorporated in the “citizen card” could in fact be assigned in monetary form but restricted to specific uses. Such “social money”, conveniently based on modern technological transaction structures, could become the money of the state sector, the private sector, and the third sector of non‐profit organizations and associations, enabling all parties to respond to the objective demand expressed by citizens in conditions of competition that are free of supply‐side distortion.