DEVELOPMENT AND PROGRESS:
WHAT THE FORMER EAST GERMANY
CAN TEACH SOUTHERN ITALY
Executive Summary
National Interest
November 2015
Study conducted by Intesa Sanpaolo
for Aspen Institute Italia
© Aspen Institute Italia
Executive Summary
The plight of Italy’s southern regions is one of the major challenges that the country must contend
with in order to kick-start a robust and durable process of overall recovery. Indeed, the disparity
that currently exists between performance achieved and the resources available across such a vast
and populated area is holding back the growth of the Italian economy.
This study aims to examine the case of the former German Democratic Republic (GDR) and draw
insights regarding constructive steps that could be taken to get a comparable process of regional
convergence underway in Italy.
Since 2006, Germany’s new eastern Länder have seen a significant decline in their unemployment
rates, which have approached levels close to those of West German Länder (9.8% vs. 5.9%). In
contrast, the divide has once again widened in Italy since 2009, such that in 2014 the
unemployment rate in the South reached 21%, compared with 9% in the North.
In the eastern Länder, manufacturing industry’s share of employment rose from 14.5% in 2005 to
15.8% in 2014 (up by 109,000 jobs). In Italy’s South, however, for the same period there was a sharp
drop in industry employment, which fell by more than 100 thousand units from 2009.
The positive signs that have emerged in the manufacturing sector of the new Länder are
attributable to their capacity for expansion in foreign markets. Indeed, thanks to the excellent
results achieved between 2010 and 2014, exports from these areas of Germany have risen well
above 2008 levels, registering an increase of around 30%. The new Länder have thus succeeded in
closing the gap with those in West Germany in terms of export propensity. In contrast, at the end
of 2014, the export levels of Italy’s southern regions were 5.5% lower than for 2008, losing further
ground vis-à-vis the rest of Italy.
The eastern Länder have benefited from investments in loco by German (that is, western Länderbased) and foreign multinationals operating in the automotive, pharmaceutical, mechanical
engineering, plastics, chemical, and agro-food industries. In Saxony, for example, the operations of
some 750 suppliers and components makers center around five Volkswagen, Porsche, and BMW
vehicle and engine plants, making for a total of 81 thousand employees in the entire industry.
This process has undoubtedly been facilitated by massive influxes of capital, knowhow, and
technology, incentives for new production facilities, as well as the post-unification boost given to
infrastructure in these areas, which also benefit from being very favorably positioned logistically
with respect to Eastern Europe. According to unofficial estimates, gross transfers from the West
between 1991-2011 amounted to around 2,000 billion euro, which is equivalent to an annual
average of 100 billion euro and represents 4.4% of German GDP.
In addition, the new Länder have also been able to rely on an efficient and effective legal system, a
strong manufacturing tradition, and relatively low-cost but high-quality human capital. Despite
increasing in recent years, in 2014 the ratio of gross wages and salaries to turnover in the new
Länder was around 2.5 percentage points lower than in the western Länder.
The presence of a first-rate training and innovation system has also been a key factor. The
universities in the eastern Länder have, over time, managed to increase their ability to attract
foreign students, demonstrating the high standard of the education system in these areas, which,
looking to the future, could also serve as a positive driver for economic internationalization. In
2014, the proportion of foreign students in East German universities was almost 10%, two
percentage points higher than for universities in West Germany. In Italy, the average is around 4%,
with figures close to 1% in the South.
© Aspen Institute Italia | National Interest | Development and progress: what the former East Germany can teach Southern Italy 2
Public universities and research centers have also succeeded in creating an environment conducive
to innovation, as is further evident from the high proportion of public research in the eastern
Länder. There has been a proliferation in these areas of high-innovation clusters, which, in various
fields of specialization (ranging from pharmaceuticals to biotechnology, microelectronics,
photovoltaics, bioeconomics, and mechanical engineering) see universities and research institutes
involved, along with multinationals with a local presence, as well as subcontracted SMEs that have
sprung up around these organizations.
Industry in the South of Italy has not been able to count on such favorable extraneous conditions,
thus emerging even further weakened from the crisis of recent years. Several major sectors –
particularly the metallurgical, clothing, chemical, and electronics industries – have suffered a
slump in exports. In foreign markets, only agro-food exports have grown at sustained rates, taking
advantage of the rich heritage of food and wine that typifies the South. With the exception of the
pharmaceutical and – to some extent – the aerospace, and automotive components industries, the
contribution of other sectors has been insufficient, despite the presence of successful players in the
fashion, and metalworking and mechanical engineering industries.
The South would seem to be held back by insufficient development of a
manufacturing/production base and by a lack of stimulus from big industry, which in Italy is
either absent or, where it does exist, does not play the kind of galvanizing role seen in Germany.
Support from foreign multinationals has also been limited. Being able to integrate into
international value chains, including as a result of the establishment of new facilities by large localor foreign-owned companies as has happened in the new German Länder, could reduce the
considerable gap that still characterizes Italy’s southern regions, by drawing to advantage on
already existing skills and strengths.
The examples of mechatronics and pharmaceutical industries in the Bari area, the aerospace sector
in the Apulia and Campania regions, and ICT industry in Catania demonstrate that wherever an
environment conducive to development has been generated (such as through the provision of
adequate infrastructure, and the existence of a university and research system that is fit for
purpose), the South has attracted investment, thereby creating the necessary conditions for the
emergence of advanced industrial clusters, with an often unique wealth of innovative capabilities,
sophisticated know-how, and specialized products and institutions.
However, the previously mentioned success stories in hi-tech sectors continue to be few in
number. Similarly, there would still appear to be ample scope for growth in the agro-food sector in
the South, but also in the fashion industry. Thus, looking ahead, local skills and strengths, both in
traditional sectors and in those that are more hi-tech (such as the pharmaceutical, aerospace,
automotive, and mechatronics industries), need to be turned to better advantage.
Now more than ever, there is a need for an incisive and top-priority medium- to long-term
regional development policy, which breaks decisively with the recent past and follows in the
footsteps of the positive experience of the 1960s and early 1970s, when the South – thanks to an
active policy of industrialization accompanied by significant infrastructure investment – became a
key player in the country’s economic development.
From a broader perspective, there is no one single mechanism that would enable the challenges
posed by the South to be overcome, and “even a radical reform of the labor market would leave
intact the various factors that continue to perpetuate the underdevelopment of the South, in
particular... inadequate infrastructure, limited markets, and, above all, shortcomings in the
administration of justice and the protection of property and civil rights” (Faini, 1998).
© Aspen Institute Italia | National Interest | Development and progress: what the former East Germany can teach Southern Italy 3