In Italy: Small Changes, No Renaissance

On the day before Italy's national elections, Rome brimmed with humanity as Romans and tourists alike shopped and strolled the thoroughfares of Via Del Corso and Via Del Babuino. In the afternoon, a huge crowd of pleasure-seekers clogged the famed Spanish Steps, tilting their faces toward the sun. The mood was cheerful, yet there was an undercurrent of anxiety.

Surveys, which later proved accurate, pointed to a razor-thin victory by the center-left coalition -- sending Prime Minister Silvio Berlusconi to defeat. But the Romans I spoke to were not optimistic that the outcome would have much impact on Italy's economic malaise. The winds that had brought la dolce vita to two generations of Italians seem to be petering out.

Numbers tell the story. Italy has zero GDP growth, a 24% unemployment rate among young people, and a negative birth rate -- Italians are not having enough children to replace themselves. Its once-proud industries are in retreat. Homegrown tech industry champion Olivetti self-destructed, the auto industry is in decline, and even the fabled fashion industry is under assault from low-cost Chinese competitors.


  "My advice: Don't buy stock in Italy," says Mario Pianta, a professor of the economics of innovation at the University of Urbino, whom I met for lunch near Stazioni Termini, Rome's rail hub.Why can't Italy compete better? There are many factors, but I'll point to one glaring omission: This is not a startup-friendly economy. Only 1% of the $1.46 billion invested by venture capitalists and private equity firms in the first half of 2005 went to startups, according to a study by global law firm Gianni, Origoni, Grippo & Partners.

And the average investment was less than $.5 million. Bank loans are hard for innovation-based startups to get, as well. So it's no wonder there's no Italian Silicon Valley. Yet, at a time when globalization is battering countries that are not creative and nimble, Italy's paucity of startups could contribute to a long, slow slide into second-class economic status.

The closest thing Rome has to Silicon Valley is not close at all. Commune di Roma, the city government, is setting up a handful of startup incubators in the near-suburbs, where unemployment rates and dissatisfactions run high. I visited with administrators and entrepreneurs from several of the incubators in a small conference room at one of them, InVerso, which shares space with a public school.


  These people are as earnest and energetic as you could ask for, but they're so cash-strapped that their efforts seem Quixotic. One entrepreneur, Paola Rizzo, who has a doctorate in cognitive science, told me she is financing the launch of her company, Interagens, with the scant leftovers from her graduate scholarships.

Rome's incubators promote two things: entrepreneurship and socially conscious businesses. InVerso, which opened two months ago, has about a dozen tenants, including Binario Etico, which installs open-source software in recycled PCs, and Energetica, which manages alternative energy projects for buildings and villages.

The Open Source Software Incubator, which is just now launching, will have room for more than a dozen startups. Its goal is to create software packages for sale to governmental agencies and businesses. Others of the five Roman incubators focus on specific industries: Play, for multimedia, and Start, for entertainment. In addition to getting subsidized rents, the entrepreneurs share administrative help and office equipment.


  The businesses I learned about would be interesting to U.S. venture capitalists. Rizzo's Interagens, for instance, harnesses artificial intelligence to control digital animated characters. The idea is to use the characters to communicate more clearly and interactively with people in education, training, tourist kiosks, and on-line customer service situations. Another company, Animapolis Entertainment, sells short animations and videos -- such as cooking lessons -- through wireless telecom services providers.

It's a tough slog, though. After four years in business, Animapolis has just six employees. In frustration, President Mario Lombardo plans on setting up a U.S. subsidiary in Florida. "When people in Europe see I have a U.S. office, I'll get more credibility," he says hopefully. "Here, you can't get started."

That's even truer for Italians who are younger than Lombardo. He had years of experience working for Vodafone before he became an entrepreneur. Today's college graduates face a job market where there are very few high-paying jobs with career tracks. Instead, many are stuck on a treadmill of low-paying, dead-end jobs in retail stores or call centers. Because they can't afford apartments, many of them live at home with their parents into their 30s in a perpetual state of childhood. They can't afford to get married, either -- which helps explain the country's low birthrate.


  It's an exasperating situation. "This is a very difficult time for us, truly difficult," says Dario Carrera, a doctoral candidate at the University of Rome who works part-time doing administrative tasks at InVerso. On a subway ride, he becomes agitated as he describes the hurdles faced by people who dream of starting businesses. "Most people aren't like me. I have a passion. I want to do something," he says, looking furious. "I get so angry and I can't express myself."

Unlike their counterparts in France, Italy's young people haven't rioted in the streets to show their frustration. Not yet, anyway. Perhaps its the nature of Italians. When I ask Pianta, the college professor, how he deals emotionally with his disappointments, he quotes from Antonio Gramsci, the Italian socialist who spent years in prison for his political activities.

"Gramsci talks about the optimism of the will and the pessimism of the reason. That explains the dynamism of Italy," Pianta says. "No matter what the outcome of the elections, there will be interesting things going on." Too bad for Italy one of those things isn't an improved climate for innovation and entrepreneurship.

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