Gig Economy: Italy Has A Few Cards to Play
Italy has every reason to embrace gig economy platforms and everything digital
After year of a painful recession, Italy seems to have found growth again. The unemployment rate decreased for the first time in years —from 12.8% to 11.3% in January 2016. New Prime Minister Matteo Renzi promised to modernise the country. With the improved unemployment figures he can boast of “Italy’s new credibility”. Renzi credits the labour reforms that have been passed to make the labour market somewhat more flexible. Consumer confidence rose at the end of 2015 to its highest level in a decade. Low interest rates —bond yields are close to zero— make it easier for companies and the government.
But things are not all rosy in Italy. The public debt is still 136% of the country’s GDP and, though a little higher, forecast growth remains modest. Youth unemployment is still a major issue. Overall unemployment continues to be one of the highest in Europe. And underemployment is highest in Italy where about 13% of the active population work part time and would prefer a full-time job (the figures are 7% for France and 20% for Spain). Many of the unemployed and underemployed are already gig workers, often in the shadow economy. Like Spain, Italy has a large shadow economy — it is more than 25% of its GDP, which is much higher than EU average — and high level of general distrust. A recent European Commission report showed that 97% of Italians thought corruption was widespread in their country, superseded only by Greece (99%) — by contrast, the percentage of Danes who feel that way was 20%.
As a result, like Germans and Spaniards, the young (and the less young) have embraced the changes brought about by the digital revolution. Many work freelance, often for lack of long-term job opportunities. US platforms like Uber and Airbnb have become hugely popular with Italians who desperately need to complement their stagnating (or dwindling) revenues. And because tourism remains an essential part of Italy’s economy, these platforms are all the more successful in Italy. Also, Italy and Greece are the two countries with the largest underground economies (Spain is not far behind), so there is a lot to gain by making part of the gig economy legal to generate more tax revenues and restore trust. The development of online payment via platform applications will help make part of the shadow economy legal again.
It’s still too early to know whether or not Renzi’s reforms are a success, but the government’s labour laws may have helped make the jobs market more fluid. The “Jobs Act”, implemented progressively over 2014 and 2015, may have been instrumental in getting more work contracts signed in 2015 compared to 2014. Faced with the durable duality of the labour market, the PM sought to create a new middle-ground between short-term contracts and permanent jobs so as to give young workers greater security. What the Jobs Act reveals is basically that the growing army of gig workers who lack protections and security is gradually taken into consideration. Whether or not the reforms will change much in the long term is debatable. But at least it will be marginally easier for startups and companies to fire and hire, and for gig workers to fight for recognition.
The changing face of work in Italy was beautifully illustrated by the film Quo Vado?, which turned out to be Italy’s most successful film ever! The film is about a 40-year-old civil servant in southern Italy, whose job is suddenly made redundant by an administrative reform and who goes to great lengths to keep his status as a civil servant. “Il posto fisso non si lascia” (“You don’t leave a steady job!”). The reasons for the film’s success were widely debated. Italians liked it because it made fun of their conservativeness, because it denounced the absurdity of the country’s administration, and because it worked as a catharsis and expressed so well Italians’ fear of a fast-changing job market. Others accuse the film of being outdated: “Young people today don’t obsess over steady jobs anymore. Rather, they think about a career abroad.”
But Italy produces few local startups and lags behind the rest of the EU in tech
Italy lags behind the rest of the EU on everything digital. It produces very few local startups likely to compete with US players and grab some of the market. Unlike in Germany, where many big corporations have developed fairly decent alternatives to the services offered by digital pure players, the more established businesses in Italy have hardly developed their digital offers. There are few apps and little online sales. And things are moving quite slowly.
Italian businesses are still mainly non digital and use online channels less than other European countries: only 5.1% of small and medium enterprises sell online, and turnover from online commerce is less than 5% of total turnover. Because a lot of Italians claim they don’t trust the internet, only 42% of internet users make use of online banking and 35% shop online. Therefore the digitization of traditional businesses is a demand/offer chicken-and-egg conundrum. Though the share of users who have engaged in online transactions has improved in the past few years, it remains very low. It seems obvious that spreading online commerce is a key challenge for a lot of SMEs that are put under pressure by the declining purchasing power of many Italians as it represents an opportunity to expand their markets.
Perhaps the spread of AWS (Amazon Web Services) and other new-generation, well-designed, easy-to-use cloud-based services is likely to reverse the trend. Italians may ultimately catch up on digitization: with 20% adoption of cloud solutions, Italy seems to be ahead of many other countries (5th place in the EU) in the use of cloud-based solutions. Italians could just skip a generation of tech and develop cloud-based digital services on mobile.
But Italy lags behind on connectivity and overall use of internet. Broadband connection is just not as widespread as elsewhere in the EU. Fast internet was only available to 36% of households, which represents the second worst coverage in the EU and only half the population has subscribed to fixed broadband, which is less than anywhere else in the EU. On connectivity, Italy ranks 27th among EU countries. Yes, mobile broadband is more developed — a lot of Italians use smartphones rather than computers and have skipped a generation of devices: on the use of mobile, Italy has the 9th highest value in the EU. But Italy has one of the lowest percentage of regular internet users in the EU — just 59% use the internet on a regular basis, and there’s a very high percentage of people who have never even used the internet: more than one third of the total population does not contribute to the digital economy! (EU average is 18%). This can be accounted for by the age pyramid combined with the geographic divide: the elderly in the Mezzogiorno are isolated and not connected.
Italy has a low level of digital skills. Bright students just don’t study CS or STEM. There are disproportionately few Italian engineers and computer scientists and disproportionately few people who code. They’re not into it. A mere 1.3% of Italians aged 20 to 29 hold a STEM (Science, Technology and Math) degree. Many of the few people who do have a STEM degree have fled Italy in pursuit of more alluring work prospects in Germany, for example.
Demand for digital services is surprisingly low: Italy is close to the EU average when it comes to digitising its public services (the current government promised it would improve the digitisation of the country’s public services), but a low number of Italians will use these digital services, which slows down further development of online services. Italy therefore falls into the cluster of low-performance countries.
Finally, Italy has very little venture capital. There are virtually no funds to help ambitious startups become global. Italia Startup, an association created to boost Italy’s startup ecosystem, bemoans the lack of venture capital available. “Growth is the biggest challenge facing any startup,” says Federico Barilli, the association’s General Secretary. “At the moment we have just €100 million of venture capital available for them to grow — that’s very low compared to the rest of Europe.” The association aims at increasing that figure fast.
The development of Italy’s digital economy is understandably held back for all these reasons. But Italy is also held back by other more structural problems.
Italy has structural issues that can’t be overlooked
Insufficient mastery of the English language is one factor crippling the Italian digital economy. As Nicolas Colin wrote in an article titled “The Power of the Tongue”;
“The expectation that English is the common language in the global digital economy creates a distorted reality. Entrepreneurs don’t realise that if nothing is written about them in English, it’s as if they don’t exist in the eyes of prominent investors and influential industry leaders”.
In fact, the Italians don’t speak much English, while the Italian-speaking market is dwindling. In Scandinavia, the young generations may be learning English as a near native language, but no so in Italy. Of course English is now the most taught foreign language, but a surprisingly large proportion of the population does not speak it at all (most notably because, in proportion to the overall population, there aren’t that many young people).
There is also a strong (and commendable) attachment to the Italian language: the Accademia della Crusca pledged to combat the use of English words in Italian. (Unlike the Accademia, Matteo Renzi doesn’t hesitate to use English expressions and called his reform the “Jobs Act” rather than the “Decreto sul lavoro”. Renzi’s use of English contrasts with that of other, older, politicians in Italy).
Not only do the Italians not speak English much —a critical element to join the global English-speaking economy— but they also can’t rely on a large Italian-speaking market, unlike Germany, Spain or France. German-speaking businesses have a market of at least 100 million, and Spanish-speaking entrepreneurs can also target a large population of Latin Americans, thus scale up and cater to a market that’s often unaddressed by US platforms. (A startup like Cabify, an online chauffeur service, operates in Spain, Chile, Mexico and Peru). The French, whose English leaves even more to be desired than the Italians’, can count on an ever expanding market of French speakers. Meanwhile Italian businesses must make do with a small —and dwindling— market of Italian speakers.
Italy has also an acute demography problem. According to the national statistics office, Italy has never had fewer babies. And net migration does not compensate, as Italy sealed its borders to new immigrants — in 2014 immigration was at its lowest in 5 years. “We are very close to the threshold of non-renewal where the people dying are not replaced by new-borns. That means we are a dying country,” Health Minister Beatrice Lorenzin said. And Italy’s population is one of the oldest in the world.
“Italy will need to raise its retirement age to 77 or admit 2.2 million immigrants annually to maintain its worker to retiree ratio. The region of Liguria in northwestern Italy now has the highest ratio of elderly to youth in the world. Ten percent of Liguria’s schools closed in the first decade of the 21st century. The city of Genoa, one of Italy’s largest and the capital of Liguria, is declining faster than most European cities with a death rate of 13.7 deaths per 1,000 people, almost twice the birth rate, 7.7 births per 1,000 people, as of 2005.” (Wikipedia)
Obviously, 40 and 50-year-olds can also make fantastic entrepreneurs, but the prospect of a fast-dwindling population with a growing population of impoverished elderly people is not an encouraging prospect for anyone who would want to launch a startup. There are also too few twenty and thirty-year-olds to show the way and innovate. Much has been written about the reasons why Italy’s fertility rate is so low. Here are some of the explanations generally put forward:
- Free childcare is insufficient, especially in some parts of the country.
- The lack of positive economic prospects is discouraging. (but is it different in other countries with high unemployment, like France?)
- More profoundly, the gap between society (and Italian men)’s expectations of what an Italian mother should be and the reality of what women want (a career) is a good explanation. Italian men help less at home than most of their European counterparts, for example.
- Long-term, not having children and focusing on one’s individual accomplishments has become a more culturally acceptable option. This is also true in other European countries like Germany and Spain, for example.
Lastly, Italy’s North-South divide is growing and infrastructures in the South are crumbling. For many decades we’ve heard about the Mezzogiorno — 8 southern regions including the islands of Sardinia and Sicily — being less developed than the rest of the country. The geographic divide is all but new. But it is growing at a fast rate and therefore much worse than just a generation ago, unlike similar geographic divides in other EU countries, especially the East-West divide in Germany. More worryingly its infrastructures are crumbling fast due to lack of tax revenues.
As national economic data always mask regional differences, it’s not always clear how the economic stagnation of the 2000s has affected the South. In the 2001–2013 period, the Italian economy as a whole grew by about 2%, but in the South, the economy shrunk by 7%! The Italian economy and its future prospects are either much stronger or much weaker than usually presented whether you look at the north or the south of the country. Of the nearly 1 million people who lost their jobs between 2007 and 2014, 70% were southerners!! In the south, employment (at 40%) is lower than in any country in the EU, including Greece. For lack of economic prospects, young southerners emigrate northwards and abroad in very large numbers, which naturally increased the age gap between north and south (only the old remain in the south). So the few businesses in the south that are still standing find it impossible to recruit the employees they need. Italy’s statistical body, ISTAT, forecasts that the south could lose 4.2 million more residents to the north and abroad over the next 4 or 5 decades.
Because there are now a lot fewer people in the south, the gap in terms of GDP per person between North and South is not that big anymore, but the South has no more resources to develop its infrastructures — roads, bridges etc. The infrastructures (roads essentially) that internet platforms rely on —not only for deliveries and passenger transportation!— are dramatically insufficient and crumbling further. That was sadly illustrated last year with the terrible collapse of part of the main highway in Sicily caused by a landslide. The time that is now necessary to cross the island is twice what it was before the collapse. And Sicily does not have the resources to fix it fast. It could take many years. Sicily’s railways are also crumbling: they’re the country’s oldest railways (opened in 1839).
Corruption is harder to root out in the south. The widespread mafia culture of violence and intimidation has not been made to disappear. It’s just made people leave. Gian Antonio Stella and Sergio Rizzo, two Italian journalists, wrote about the slow agony of the south in a book that became a huge best-seller two years ago. In “Se Muore il Sud” (“The South Is Dying”), they tell the complete loss of energy the South has suffered in decades. The slogan is now “Save yourself if you can” , which could also be rephrased as “Get out of here fast if you want to live”. Stella and Rizzo also blame the “subsidy culture”: it is so pervasive in the South that it partly accounts for the absence of entrepreneurial drive. The EU’s Structural Fund and Cohesion Fund paid out about 99 billion euros to Italy (which served mainly the south, but not exclusively) between 2006 and 2013. Because of too little oversight, a lot of these resources were probably wasted on non-viable projects.
A large part of the country is thus simply not included, the way a part of the population is isolated from modernity. These gaps (between the North and the South and between the old and the young) make the market smaller and a lot more rigid. All in all, Italy is not a good breeding ground for local startups.
The Italian market is conquered by US platforms as shown by Uber
The plight of Uber in various EU countries (see Spain here and Germany here) can be regarded as emblematic. The battle generally fought between the incumbent taxi industry and the US platform highlights the influence of the taxi lobby with powers-that-be. It illustrates how conservative or protectionist the authorities of the country are, and how popular the service truly is with users and gig economy workers. It shows how sensitive the market is to well-designed digital offers, and whether or not the alternatives to those services are appealing to users. And it says a lot about the strength of the local startup ecosystem: if Uber can find a few allies, then it could mean there are other innovators whose interests are also to fight the powerful influence of established corporations.
In Germany, Uber is just not that popular, because being a Uber driver in Germany is mostly not worth it and Germans use a host of local apps and services. The alternatives to Uber are decent enough for a lot of users. Furthermore, depending on the city and the Land, there is a different legal situation: Uber is banned in some places and tolerated in others. Even if the EU were to make all Uber services legal everywhere in the EU, Uber would still have a relatively hard time gaining traction in Germany as fast as in Spain, France or Italy.
In France, the battle between the taxi lobby and Uber is fierce, but unlike in Italy, it also pits local digital startups — Le Cab, Chauffeur-Privé, Snapcar, Heetch — in league with Uber to fight the influence of the taxi lobby and liberalise the market. The repressive measures implemented by the French government to stop Uber’s progression are hurting a host of local ride-sharing platforms. Uber is strong enough to survive the legal attacks whereas smaller competitors could suffer badly. In the end, Uber could become the only alternative to the traditional taxi rides. Meanwhile it has found unexpected allies in the local startup ecosystem.
In Italy, Uber is a very popular service that would just conquer the market completely if it was unconstrained by legal barriers. The taxi industry does not offer unified seamless digital alternatives to its services. There are few if any local startups that compete with Uber. Italian taxis are highly regulated and there’s a strict limit on the availability of taxi licences. The market seems like a chaotic jungle of legal (and illegal) taxi drivers fighting to grab customers off the street.
In Rome, for example, tourists can find the taxi situation somewhat confusing: they are generally pleased to see that the 45-minute (or more) ride from the Fiumicino airport to the city (and back) costs a fixed amount (€40) if the taxi is licensed in Rome, but appalled to discover that the ride can be twice as expensive when the taxi is licensed elsewhere (like Fiumicino). Though adventure-seeking tourists are happy to find authentic Italian-ness in Roman taxi drivers, Uber’s expansion in Italy happened fast because Italian users find the service very appealing. The company now operates in five of Italy’s biggest cities — Milan, Turin, Padua, Genoa and Rome.
Uber’s dominance would have been complete if a Milan court had not ruled in May 2015 that allowing users of Uber’s smartphone app to order a ride from a driver creates “unfair competition”. The court ruled that Uber was to be held to the same standard as a public taxi service, so UberPop, Uber’s ride-sharing platform that connects unprofessional drivers to passengers, was deemed illegal because its drivers don’t have a commercial licence. (The exact same ban occurred in France just two months after, in July 2015). Meanwhile, UberBlack, which has drivers with professional licences (vetted by the company) continues to be available in Milan and Rome. Before the ruling, Uber had in fact been operating with fewer restrictions than almost anywhere else in Europe. It had already seduced drivers and passengers alike. Carlo Alberto Maffè, a business professor at the Bocconi School of Management said that “this is the first case that I know of where a single judge — one person — can decide to stop a service at a national level on the basis of an (unsubstantiated) economic and theoretical argument.” Until the ruling, Uber was able to operate in a grey zone (neither legal nor illegal) and expand freely.
Anti-Uber movement peaked in the streets of Milan when the then general manager of Uber Italy, Benedetta Arese Lucini, was the victim of a violent harassment campaign that exposed Italy’s still ingrained sexism. In February 2015, a sign accusing Arese Lucini of being a prostitute was displayed near her house. Lucini said the sign was evidence of a cultural bias against female entrepreneurs in Italy. Corriere della Sera journalist Beppe Severgnini commented on the attacks in which he too saw blatant sexism:
“Se Benedetta fosse stata un manager americano, un Ben o uno Stan con i baffi hipster, i toni sarebbero stati diversi.” (“If Benedetta had been an American manager, a Ben or a Stan with a mustache hipster, the tone would have been different.”)
The attacks were particularly violent: she had eggs thrown at her and many Uber vehicles were attacked and damaged in Milan. The address of her office in Milan had to be kept more or less secret and unmarked from the outside: “we try to avoid too many people knowing where we are”, she said then. Uber’s marketing directors were insulted on Twitter every day and everyone involved with Uber was afraid of Italian taxi drivers’ “private justice”.
Uber’s challenges exemplify the challenges that any innovative player faces in Italy: deeply entrenched regional or local interests, like the taxi industry, a slow-moving judicial system and a tiresome bureaucracy. As in other countries where Uber faced the same legal issues, Uber argued in Italy that it is fundamentally a tech company and not a traditional taxi service. It has been pounding this argument so often and so relentlessly that the argument may ultimately win.
The case is likely to be settled for all of the EU this year when the European court decides whether or not Uber is in fact to be dealt with like a traditional taxi service. The decision will set a precedent for all legal battles across the continent. Needless to say, Uber will wield all its lobbying power to make that happen. But whatever the EU decides this year, all the anti-Uber legislation passed in Italy (and France) will only have hurt local entrepreneurs and stifled local innovative efforts more than it will have hurt Uber, whose resources (legal and financial) are nearly limitless. Uber has become so popular with all users desperate for a well-designed and convenient service that these users have started exerting pressure on the authorities. In Italy, Uber is confident there is no credible alternative to its services. It can wait. It knows it will have it all.
Italy does still have a few cards to play
Design is one of the keys to a potential Italian digital Renaissance. Italians are well-known for their luxury brands, good taste and food perfection, and thus can count on ‘Brand Italy’ to help some of their startups and other businesses flourish. Eataly, founded just ten years ago by Oscar Farinetti, is the largest Italian marketplace in the world, comprising a variety of restaurants, food and beverage counters, bakery, retail items, and a cooking school. Entrepreneur Oscar Farinetti was formerly involved in the consumer electronics business. His concept reminds of the design, principles and ambition of the kings of the Silicon Valley. There are already 27 Eataly stores, in Italy, the US, Japan, Dubai, Germany, Brazil … and in France soon. Eataly is so hugely popular because urbanites like slow food, high quality and authenticity. Eataly managed to scale up the traditional, local and authentic grocery store to cater to the needs of the world’s rich. That is how it became the luxury food retail empire ready to take over the world.
Even though there are in Italy no retail giants like Walmart or Carrefour, it is in retail (particularly food retail) that Italians innovate and inspire the most today. Last year’s food-themed Expo Milan was a case in point, with Italian Coop’s “Supermarket of the Future”, a dedicated exhibition showing their vision of the future of retail. Italians are the first to be concerned about the declining quality of food. That concern has proved to be an amazing business opportunity which Italians could make theirs.
It is also in retail (or rather for retail) that Italy has produced its best gig economy platform. BeMyEye is a service for crowdsourcing store checks, mystery shopping and sales leads generation. With a network of 80.000 on-demand workers using an iPhone or Android app, BeMyEye can provide trustable data in a relatively short time from many locations in Italy, the UK, France, Germany and Spain. BeMyEye has not yet raised enough capital to become a true giant, but the startup doesn’t lack potential and has a convincing value proposition.
Because Italy lacks the tech talent to generate credible tech startups, it is in many ways ‘bypassing’ the tech ‘step’. Italians have lousy broadband coverage but are among the most mobile-friendly Europeans. Italian businesses lag behind in digitisation but adopt cloud-based solutions at a faster rate than their European counterparts because they can skip a generation of tech and have no tech legacy. Among Italy’s noteworthy startups are companies that aim at helping entrepreneurs ‘skip’ the technical aspect to focus on design and business instead. AppsBuilder is a Milan-based startup that helps entrepreneurs put together templates and create their own apps with no coding experience required. MakeItApp is a social network (founded in 2013) that connects people with ideas and people with the skills to make the apps. Whether or not these startups can find success is uncertain, but they are illustrative of a new world where tech is secondary. Innovation is often not primarily about tech anymore. Let us see if it creates more opportunities for Italy to seize.
I would be very interested in reading about your own experience of the gig economy in Italy & the noteworthy gig economy platforms (and other startups) you know of. Please add a note or send me a message on Twitter. @Vitolae
Laetitia Vitaud
