EUROPEAN BUSINESS MANAGEMENT PRACTICES: SIMILARITIES AND DIFFERENCES

A lecture given by prof. Antonio Martelli of the Università Bocconi, Milano, Italy at the MALAYSIAN INSTITUTE OF ECONOMIC RESEARCH on August 27, 1999

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The general topic we have chosen for this lecture is the differences in European business management and practices. The topic is extremely wide as you may imagine: in the European Union we have 15 countries at the moment in the Union and each country has a separate set of values and separate ways of looking at business and management. Obviously we couldn’t just elaborate in one hour on all the difference aspects of European business and management practices so we have chosen one in particular, which is the set of values, or rather the differences in the set of values, which inspired business in our different countries.

Now Europe is far away from here but you certainly know about the processes which have taken place there and above all the process of integration. The economic integration, meaning the creation of a single market, was achieved in 1993 and now we are well under way towards monetary integration which means having a single currency. That single currency does already exist, it is called the euro, e u r o: at the moment it is just a virtual currency but it will start to circulate in 2002. By that time the currencies of the single countries, meaning the Deutsche Mark, the Italian Lira, the French Franc, the Belgian Franc, etc. will disappear and will be replaced by this single currency. Now we have already a system of fixed exchange rates between the different currencies. The countries having decided to adopt the euro as their currency are eleven out of the fifteen members of the Union because so far four countries, namely Britain, Denmark, Sweden and Greece have for different reasons not yet decided to adopt it. Nevertheless, this is probably the first example in history of a group of countries with rather important economies who have decided voluntarily without any outside coercion to relinquish their currencies and adopt a new single currency for them all.

Therefore, seen from a far off place like this or any other far off place in the world Europe might begin to look like a sort of monolith, as a sort of unitary construction where the differences are rapidly fading away. In fact it is not like this because, in spite of the effects of the economic integration which are already quite evident - on the other hand the economic integration started back in 1951, so it has been a very slow process - in spite of this there are still strong differences and the perception of these differences might be of interest to a business community which is not very close to Europe but has probably growing opportunities of contacts with European countries and the different European business systems.


The process of integration has already created new realities. There are areas where now we can already think in continental terms, for example national markets as such, like say the national Italian market for household appliances or the national French market for cars, are a gradually melting together to form a new reality which is the European market. But there are even more in depth consequences. Again when you look at the European economic geography you generally think in terms of a North to South axis which starts more or less in the area of London, goes down through the Rhine valley and the regions along the Rhine and ends up in the Northern Italian peninsula. This was and still is the main axis of development in Europe but together with this North/ South axis, another one is emerging which is the West to East one starting from Catalunia crossing the South of France, again going through the North of the Italian peninsular and spreading towards the East. The emergence of this new axis of development is certainly one of the most important consequences of the process of economic integration.

If many phenomena have contributed towards creating the structure of a single unitary economic system, at the same time there are other areas where the process of integration has not yet made much progress. One of these areas about which I would like to talk to you today is the area of business values. By business values I mean how business people, economic operators, look at how things are to be done, how business is to be transacted, what general ideas inspire them in this respect. And this is of interest because it is an area where differences are destined to remain for quite a long time. We can imagine that a process of economic integration brings about a relatively fast process of material amalgamation but we cannot imagine that the same applies where human values are concerned.

Now what determines values and how can values be compared? This is a very difficult question which has been addressed not only by economists, but also by sociologists and psychologists and I don’t want to steal their trade so I will limit myself to those values which are dominant in business and management. Of course, values are determined by psychological differences - personality, culture, human perceptions - and also by external factors - the economy, society, politics, religion, the history of the country, are certainly very important in determine the kind of values which emerge. To orient ourselves in this labyrinth we need an analytical tool, to compare the values which are dominant in different countries and which for various reasons have an important role in the economic history and also in the economic development of our time.

The model which I would like to use on this particular occasion has been proposed by an American economist called Mancur Olson who died a couple of years ago. He actually looked especially at Europe to elaborate his model, which he called the model of distributive coalitions. What is a distributive coalition? A distributive coalition is an alliance between various groups of interest which is very important, in some cases even decisive, in determining the distribution of resources within a given society, If we look at the reality of modern countries, of modern economies, we immediately perceive the existence of these alliances between groups of interest which are mobile and change in time but are anyway able to exert an influence - may I stress again sometimes a decisive influence - on the distribution of resources. Usually in a society there are several or many distributive coalitions but there is also usually one which is the decisive one or at least the primus inter pares, first b between equals. The interplay between the distributive coalitions is actually what determines the balance between the various solutions which are proposed to a society and the decisions which are taken to chose among these different solutions. Olson used to say there is not such a thing as a decision which is taken by means of global negotiation. It is impossible to rule a society by means of global negotiations, you always need some sort of equilibrium between the different distributive coalitions but in the end the opinions, the aspirations, the values or the practical targets of one coalitions prevails over those of the others.

A very important thing which brings us closer to the subject of the differences in values in Europe is that stable societies, societies which have remained stable for quite a long time with more or less fixed structures, tend to accumulate in the course of time a large number of collusions and distributive coalitions, i.e. of organisations for collective actions. The members of small groups have an out-of-proportion organisational power - this is very important - for collective actions. In stable societies the imbalance tends to decrease but never disappears completely. The encompassing organisations have some incentives to make the societies where they operate more affluent, more prosperous, as well as to redistribute income but this redistribution stops whenever its social cost is higher than the cost of the income which is redistributed. And in taking decisions distributive coalitions are also slower than the individuals and the firms of which they are made up. Besides they tend to determine prices more than quantities. You see, at least in our European experience when you talk about negotiations in the labour area, if a society has been stable for a long time, and so the trade unions for example have acquired a sizeable power, the tendency is to decide and determine more prices than quantity, more the level of salaries and more the level of costs and prices than the amount of products which are manufactured.

Now the point is that distributive coalitions are unavoidable and in fact exist in all societies, but in many cases they slow down the ability of a given society to adopt technologies and reallocate resources and thus to answer the changes of external conditions. In this way they also slow down the pace of economic development. Once they reach a size which is sufficient to make them successful, these coalitions become exclusive and tend to reduce the difference in incomes and values among their members but not towards those who are outside them. As long as more distributive coalitions are added, the complexity of regulations and the complexity of the government action is increased and besides the orientation of the social evolution may be changed.

This theory like all theories that have been worked out by economists and sociologists is just a tool for us to interpret the evolution of society: we shouldn’t take theories as if they were fetishes to be adored but as useful tools in a rational analysis of what is going on. Well if this theory holds its logical conclusion is that those countries where distributive coalitions were deprived of strength or abolished by totalitarian governments or by foreign occupation like some countries in Europe after the WW2 will grow at a relatively fast pace after the establishment of a legal and free order. And which are those countries? For example, this is an explanation of the great success of Germany in the post-WW2 period. Of course, there are also physical factors which we should not forget: Germany has some raw materials, Germany is strong in technology, etc. But also the fact that the old distributive coalitions were destroyed first by a totalitarian government and then by the foreign occupation explains, in the terms of Olson’s theory, why it was easier after WW2 to adopt new attitudes and new regulations and therefore, to grow at a faster pace than those countries where these upheavals did not take place like, for example, Britain. This country has instead enjoyed a long period of democratic freedom to organise itself while at the same time has preserved to a certain extent the strength of the old distributive coalitions. The latter were not wiped away by external events like in Germany and to a lesser degree in France and Italy, so they had a longer influence also in slowing down the pace of change.

This is actually the gist of the message which Olson left to us. And he actually says, and I am quoting now, “The unique stability of British life since the eighteenth century must have had an influence on the social structure and on the social mobility and on the cultural attitude”, It is also important to note that this process did not take place by means of class conspiracies or the co-ordinated action of some groups of classes. It was a much subtler process which must be studied at a more analytical level. And this is what I will try to do now, within the time constraints I have, of course. Having set the standards by which we will analyse the values of different European countries in business and in management but we have to keep in mind the relative role which the distributive coalitions played in those different countries.

Of course, we cannot examine 15 countries in such a short time, so I have chosen Britain, France, Germany and Italy which are the largest economies in Europe.

Let’s go in alphabetical order and start with Britain. A catch phrase which we can use for Britain is that it is an individualistic but well organised society where the persistence of distributive coalitions has been particularly strong. We can examine each country on two different levels of approach: the organisationally relevant issues and attitudes and the business climate and approach to management. For the organisationally relevant issues and attitudes, the first characteristic we not in Britain is individualism: we deal with a very individualistic. At the same time it is a society where some sort of deference is attributed to seniors in general, seniors in the workplace, seniors in age, etc. and where a certain degree of inequality is accepted as a matter of fact. Self control is very important, people tend to be self controlled and reserved. People coming from other cultures where it is more frequent to be emotional, to manifest one’s emotions, find this attitude of the British society particularly. On conservatism, I don’t have to expand very much: we all know that there is an important residual conservative attitudes in this society as is confirmed by the maintenance of time honoured institutions and also by the rituals which go together with the maintenance of these institutions. There is also a certain degree of xenophobia, on mistrust of foreigners. Management theorists who have examined at length the attitude of the British society have come to the conclusion that it is a very egalitarian society provided there is deference towards seniors and a shrinking degree of inherited prestige accepted as a matter of fact: but this by itself does not extend to foreigners. Honesty and trust are very important, liberty is very important, i. e. individual liberty. If you contrast for example the attitude towards liberty of the British or may be I should say the English and the Italians, the English have a relatively orderly way of behaving, they respect public rules, they do things in an orderly fashion because they want to preserve their individualism and the possibility of doing whatever they like in their private life, whereas the Italians are more individualistic, their respect for rules is more limited, the traffic is chaotic, etc. but then they are more prone to follow fashions than the English. When there is a fashion in clothes, most of the population, meaning all those who can afford it, follow the fashion, but this does not happen in Britain at least to that extent. In comparison with other countries Britain is certainly a more class-conscious society than the continental countries of Europe: needless to say, we are talking about relative, not absolute values.

Another feature of the organisational issues is the political system which is respected as a structure, and as separate procedures, to reach political decisions what brings about stability. The economic context is marked by insularity and also by a certain difficulty in adopting changes, changes in organisation for example, changes in the way things are produced. It is no secret that this is a thing going back in time: probably the main reasons why the British industry was overtaken by the American industry and by the German industry around the turn of the century was the difficulty which British entrepreneurs had in adopting new technologies and new ways of producing things.

So how does this impinge on the business climate and the approach to management? Well, for example, there is still a relatively negative attitude towards industry and business. Industry and business are seen basically as a tool, in some cases even as a period in life, to reach a certain standard of living and then they might be easily discarded. It is not something which most preserved. I usually make this comparison with Italian attitudes towards industry and business, When an Italian sets up a business starting with a little thing, a little workshop, maybe in the basement of his house and then this little shops grows and grows and becomes a company and may be in the course of time a very successful company with hundreds and may be thousands of employees, the idea is that he is creating something for the family which must be preserved and passed on to and inherited by his sons and daughters because it is a sort of family trust which he has to pass on. In the relevant attitudes are different. When a company is successful, very often the aim of the entrepreneur is to sell it so that he can live like an affluent gentleman in the countryside may be in a very nice house, etc. Of course, all these are stereotypes and I don’t want to give you the impression that we are dealing only with stereotypes, but certainly there are influences which determine the behaviour of people in different ways and which are inherited from the past and also from the way in which the distributive coalitions have worked, how they have praised growth instead of conservatism, etc.

For class divisions, let’s just give a very practical, even banal example: communal cafeterias in companies have become the rule only in the last ten years, before you had different canteens for employees and for managers. Careers are important, or very important, because they are again a way to assert success. There is also a certain preference for formality. If you compare for example a British business environment and an American one you will see a definite preference for formality in the first case in comparison with the second and instead - this on the contrary is similar to American practices - the political behaviour is important. With the term political behaviour I don’t mean here the politics of parties, the national policy, but what you do within a company. Political behaviour is something which takes place more or less in all companies and organisations when they go beyond a certain very limited size. There are countries one where this is important: forming for example clans, forming groups and alliances within the organisation, so that one group can extend an influence on one or more others. In other countries this is less important. From this point of view Britain and the United States share an inclination towards political behaviour. Trade unions were very important and they were part of the distributive coalition for a long time, more during periods of labour governments than with the Tory governments but nevertheless the unions were very important because they were an essential part of the system to re-distribute resources and as there were no external pressures for a long time. They tended to be conservative in their ways and this is another explanation of the British slowing down in comparison with other countries. Nevertheless in comparison with other countries it grew much less and this was probably due to the influence of the trade unions. It is not a surprise that, after the Thatcherite years when the unions were reduced to a more limited role, the economic pace of growth in Britain has regained momentum and now the growth is actually faster than in other European countries.

The second country we want to examine is France. France is the second largest economy in Europe after Germany. Let’s get a catch phrase also for France: a centralisation (but gradually less) friendly society. France is a centralised country because it has had the experience of a centralised monarchy for over a thousand years, which is a long time, and the centre of everything is Paris. Now the centralisation is gradually diminishing in the sense that more importance is given to the regions and to the local communities. Nevertheless France still maintains a lot of centralisation and the organisational model has for a long time been the public administration. A vast and relatively efficient public administration had existed in France a long time before the industrial revolution and so when the industrialists had to adopt a model to organise their businesses, they looked at the public administration. This explains again why there is a relevant degree of centralisation also in French companies. As for the role of distributive coalitions, this is more limited than in Britain but it is substantial. It is more limited because France, like Italy, Germany and other European countries, went through an ordeal during WW2 when it was first defeated, then occupied by the Germans and then there was the Resistance. All the old institutions were not destroyed but certainly they were limited in their influence. But now, as it has been a stable country for over fifty years, the role of distributive coalitions is becoming gradually more important. There is one particular feature of distributive coalition in France. The interchangeability between public and private personnel. It is frequent, much more frequent than in other European countries, that a high level manager of a French company goes to work for the government: but also the inverse process is quite frequent. There are high level bureaucrats who leave the ministry for a private company. This is a particular feature of some distributive coalition where people in different positions share the same beliefs, share the same opinions, share the same outlook on how things should be done.

As to relevant attitudes and values, the formality of interpersonal relations is important also in France. I don’t know how it sounds in Malaysian but in English you have practically one way of addressing people, you say “you” and they could be either your best friend or the general manager of your company. In continental European languages you have a distinction: you have the “you” which is more or less like “thou”, with which you address friends, your children, wife or husband, and then there is a more formal way of addressing people used for all for people one does not know. If you meet somebody on the road usually you don’t say “thou”, you use the more formal address. Among the younger generations this is decreasing, not disappearing but decreasing, in the sense that the younger generation tend to discard the more formal way of addressing people but it still exists and in France you say “thou” only to somebody you know quite well. There was a legend that General de Gaulle who was first leader of the Resistance and then the President of France for a long period after the war addressed his wife in the formal way, not using “thou” but the formal “vous”. I don’t know if this is true but that’s what the legend says.

An important feature is the separation of functions and personalities. French people tend to separate what they do on the working place from what they do in their private life. For various reasons one’s private life is a personal reserve, nobody has to go into it, so the work is kept outside. But this in a certain way it allows a greater freedom of behaviour. There is a famous story going back to the sixteenth century and related to a famous French philosopher-essayist, Michel de Montaigne, whose essays are still read in many languages in Europe and are one of the sources of European culture. He was at the same time mayor of Bordeaux, a town in the south-west of France, an important port on the Atlantic. All of a sudden the plague erupted and he left saying that Montaigne and the mayor of Bordeaux who two separate persons,. He thus could distinguished between what he did as a person, i.e. saving his life from the plague, and what he should have done as the mayor remaining in the city with his fellow citizens. This was not very heroic, but saved the beauty and culture of essays for us

Hierarchies are important. In a French company you often see the organisational chart hanging on the wall. Hierarchy is important because it establishes both horizontal and vertical lines of division. The logical argumentation is important: everything must be done with “clarté”, clarity. Everything must be put in an orderly fashion but at least according to some researchers, a rather clannish mentality is common. Groups are of course formed in every country - groups within the company which tend to feud with each other but in France they are apparently more the rule than the exception. Also for these reasons communication channels are rather rigid, it is not easy to go around them. They can be bottom up or top down but they are not easily circumvented with indirect communication. This actually reminds me that it does not happen only in France. I remember - this is just a personal anecdote - that when I started working so many years ago that I don’t care to remember, I was in a very large Italian chemical concern and I was put in a room almost as big as this one, or just a bit smaller, with many other working people. I had a colleague of my own age who sat at a desk right opposite mine. But we belonged to different departments, I was in the export department and he was in some other department. One day he had to communicate something to me but he couldn’t communicate across the desk: he had to write to me and what he wrote went up to the higher echelons of the hierarchy and then down again along a chain of probably four or five different levels up and four or five different levels down. An organisation can also be funny, not just difficult to cope with.

As far as business climate and approach to management are concerned, . to begin with formal education is highly considered. Especially in medium sized or large companies managers have a high level of education, a formal university degree in engineering, economics or another subject as the case may be. By the way in continental European countries engineering is a very important university degree, it is a title one obtains after five years of study after high school, in France, Germany, Switzerland, Italy and other countries. An engineer is a doctor in engineering which means that he or she has studied quite a lot after high school.

The attitude towards industry and business is mixed: it is recognised that it is an important tool for growth, so it is accepted but it is not the top priority in the choice of careers. The public administration has a lot of appeal for ambitious, career minded people. And then there is the already mentioned interchangeability of private and public personnel. Political behaviour has a relatively limited role unless it is done in a clannish way, in which case it is important: otherwise it is not as important as in British or American companies.

The role of the unions is at the moment probably stronger than it is in Britain. It has been preserved, it has not gone through the same crisis. In fact, especially now that there has been a shift towards the left in the last elections, the role of the unions, which in any case has never been greatly diminished, has maintained its importance. However, the tradition of the union has changed. Their behaviour was very turbulent especially before WW2 and immediately after but then gradually they have converged towards a search for consensus. This does not rule out tools like strikes or conflicts with employers but they are more prepared to accept the necessity of reaching a consensus.

Also for Germany we can use a catch phrase: it is a manufacturing friendly society. Manufacturing is very important in Germany, it still has the highest proportion of GDP resulting from manufacturing, 40%. In all other European countries the proportion is lower: in my country, Italy, it is slightly over 30% but in Germany it is still very important. As a matter of fact Germany is still the most important exporter of manufactured goods in the world, more than the United States. The United States are big exporters because they also have commodities or materials, etc. but in manufacturing Germany has the lead.

The role of distributive coalitions is limited, because they were wiped out after WW2. So it took time for them to re-emerge but it is perhaps growing in a particular way which must be examined slightly more in depth. What are the organisationally relevant attitudes and values? In Germany tradition is very important. What has been done in the past is important, as is belonging, one has to belong to something. This is the where they differ from the British or the Italians who do not necessarily feel the need of belonging to some group or organisation. In Italy we have the highest proportion of self-employed workers in Europe which means, at least in part, that this need for belonging is not that strong or so diffused as in other countries.

One more structural characteristic than belonging is the importance of the vocational training system which is the best in Europe. The Germans conceived this vocational training system last century; the vocational training system involves a youth of around fifteen who spends a couple of years as an apprentice with a company dedicating part of his / her time at the workplace and part of his time in the classroom, thereby enjoying both things. He / she is paid less than a fully fledged worker but the training that (s)he receives in the workshop and in the classroom is specifically geared to give him or her the tools to become a fully trained worker the moment he or she starts. This period lasts two or three years, it is extremely well conceived and extremely well organised between vocational schools, even universities, and companies and is particularly sponsored by public institutions.

On the other hand, German companies probably suffer from what may be called “over-engineering”. Being a manufacturing friendly country engineering is very important: the title of Doktor Ingenieur is very important here. Because manufacturing is so important companies are more frequently managed by engineers and technicians than by marketing people or by financial people. This some times has created resentment in some areas of German business.

The level of professional education is quite high: German managers and German technicians are generally very well trained and the professional status is at least as important as managerial authority. There is not an urge to become managers too soon because in the early stages of the career priority is given to the professional status. Here we may remember as another analytical tool a study made by an American sociologist called Alvin D. Gouldner in the late Fifties when he distinguished two types of executives in American companies: the locals and the cosmopolitans. The locals are those who were particularly attached to that company or organisation, who wanted to make a career within that company or organisation, so they were very interested in company politics and were interested a career within that organisation and looked at their future as tightly bound to the future of that company or organisation. The cosmopolitans were instead more interested in their professional status. They wanted to be recognised as equals in a community of peers who shared the same professional values, the same background: it could be marketing, it could be finance, it could be production, or whatever. Now in this particular sense you could say that the attitudes of young German managers towards their future prospects are more inclined to be cosmopolitan in the sense of belonging to a profession rather than local, but the trick is that they are also local, this is the trick, they are both cosmopolitan and local. They are cosmopolitans in the sense that they recognise the importance of professional status and they want to enhance their professional status by continuously improving their background but they are also locals in the sense that they are interested in the companies where they work. However, the rule in Germany used to be that one started to work. in one company and worked in that company for the rest of one’s life. This pattern is now becoming less frequent: exchanges of people between different companies are becoming more and more common. The professional status is anyway very important and the manager is above all a specialist, not a generalist, somebody who knows the rules and background of that particular trade. He or she might be an engineer, a marketing person, a financial person, whatever you like but anyway a specialist. This also has its negative sides because there is a limited degree of multi - culturalism. The Germans themselves recognise that perhaps there is an insufficient proportion of foreign managers, of foreign people in their companies (apart from the lowest levels in the organisation as there are a lot of immigrants of course). In the higher echelons of companies there is not a sufficient number of foreigners. At the same time there is not a sufficient number of German managers who have a wide experience with working abroad This is not to deny that there are German managers abroad: I know there are many also in this town, but in proportion to the size, ambitions and aspirations of the German industry which is now the core of the European industry, i.e the core of the third largest population in the world and second largest economy just after the United States, the number of people who have a multi-cultural experience is not sufficient. Here too some corrections will have to be introduced with time.

The role of the trade unions is peculiar because in Germany after WW2 and after the Marxist ideology was rejected by the German trade unions at the conference of Bad-Godesberg in 1950, the trade unions have always on principle looked for agreements with the employers. This does not mean that there were no strikes or conflicts, of course there were, but to begin with much less than for example in Britain, France and Italy. The aim was always to reach a solution which was balanced and favourable to both parties so both could reap the advantages of the consensus. And this is the rule now.

Finally Italy. We can use for Italy the catch phrase “it is a dualism friendly society”. We are very good at inventing dualism even where it is not really needed, I will explain why in a moment. Distributive coalitions of course exist in Italy as they do in other countries but with an evolving role: first there were several different distributive coalitions which conflicted with each other but now probably they are trying to reach a broader consensus, for example with some agreements which have been introduced in the labour legislation. Now the level of the increase in wages is targeted, to avoid the pitfalls of inflation which have plagued us for about twenty years.

As for organisational relevant attitudes and values, the pyramid of industry is very broad based in the sense that Italy is a country of small companies. Of course, we have big companies, everybody knows Fiat, Pirelli, Merloni, etc., Italy has dozens of big companies but the rule of the game is to be small and sometimes even to remain small. Just to give you a figure, in the other European countries small and medium sized enterprises represent 60% of the GDP. In Italy small and medium sized companies represent 70% of the GDP. This also brings about many advantages not just disadvantages Why? First and foremost because if you grow too much you run the risk of losing control of your company, because for example you to grow external financing. The company is, as I said before, something to leave to the future generations. If this is not a rigid rule it is certainly the general trend. So when an Italian who has created a company when he / she was young and is now in his / her fifties or early sixties, (s)he has to decide whether to let the company grow by means of an external inflow of capital or to keep it smaller so that the son or daughter may inherit and go on. He or she quite frequently does opt for the second solution..

So the industrial system is dual; there are a few very large companies at the top. Up to two or three years ago, this group of large companies was split in two subgroups: the group of private big companies and the group of state owned big companies. Now Italy is in the lead of the privatisation programme in Europe. By next year the largest state owned group of the country which was founded in 1931 and is called IRI will be dissolved as most of its companies have already been sold, So we will probably just have the group of big private companies and then the broad field of small and medium sized companies. Perhaps we do not have enough medium sized companies in between to create a sort of balance. An industrial system is not well organised when it has just big companies or just small companies: there should be a right proportion of big, medium sized and small companies. In any case also the management system is dual because of course the way you run a small family business is different from the way in which you run a big structured company.

Another point is the importance of regional differences. Regional differences exist in all countries, the attitude and mentality of the Bavarian is not the same as the inhabitant of Berlin’s but in Italy they are certainly more pronounced. There are more regional differences than in other European countries, there is a rather big split between the industrial and affluent North and Centre-North of the country where the standard of living is not different from the standard of living in France, not much lower than the standard of living in Germany, and the relatively poor South which is instead much less developed. There is very little industry and the weak point is that a large proportion of the GDP in the South comes from transfers from the government, meaning salaries and wages of public employees, pensions and this sort of things. This is certainly a very weak point which has not yet been solved after many years of huge investments in the South.

The family in Italy is very important, it is actually the centre of life. The life of the individual is centred on the family. For example, Italian young people tend to live with the family much longer than young people from other countries.

On the other hand there is a peculiar Italian way of organising production which is important and has been so far successful: the constellation of or if you want to use a word from Marshall’s work, “the industrial district”. In some relatively small areas there are tens, hundreds, thousands of small companies all producing the same thing. It is woollen clothing in Prato, it is cotton clothing in some other areas of Italy, it would be steel around Brescia, etc. These small and medium sized companies are closely knitted together in a small area where a very flexible but extremely efficient way of distributing the activity has developed. There are people who collect the orders, distribute them to the small companies, receive the product and then distribute it on the domestic and foreign markets. In these industrial districts the cohorts of the SME function almost as if they were just one company. One of the last surveys I have seen about the number of industrial districts or constellations which is a new word used by economists - economists are very fond of inventing words - quotes them as over 700.

Another great advantage among some disadvantages of the smallness of Italian companies is that they are very flexible. In the fall of 1997 I went to visit a textile fair in Biella, a town not far from Milan which is a centre for wool products. The Asian crisis had just started a couple of months before. They immediately understood they would have difficulties in selling their products in what we call the Far East, meaning countries like Malaysia, Thailand, Korea etc., because the currencies would be devalued. So they were very fast reorienting their activity towards the North-American market. This is the advantage of the small dimension, the advantage of flexibility. It must also be said however that a sizeable amount of the activity carried out by Italian small companies is subcontracting for larger companies which in some way resembles the Japanese system. There is also of course a high degree of aesthetic sensibility which is difficult to define: at least in some activities, fashion and also furniture, a peculiar characteristic of the Italian production is the search for beauty, of what at least looks good. And this sensibility finds a more favourable environment in small than in large companies.

As to business climate and approach to management, interpersonal relations in a system of this kind are very important. This does not mean that there are no hierarchies. There are hierarchies. There are procedures and there are people who carry out the assignments received from their bosses but also in these cases the interpersonal relation is important and again one important point - possibly less now than twenty years ago - is the way in which you address people. When you start addressing people by their Christian name, it is a different system. I have a Christian name which is Antonio and a family name which is Martelli. When somebody starts to call me Antonio and I reciprocate calling him or her by the first name, it means that we have established at least a minimum level of specific interpersonal relations. On the other hand as we as a nation do not like surprises, the hierarchical structure, the boundaries between the separate activities, are relatively clear. And also the network of mutual obligations is important, in the sense that a lot of activity is carried out by means of interpersonal exchanges: there is not a great deal of formal communications but there is a great deal of “I do this for you and you do this for me” which means that you must trust the other person and the other person must trust you, otherwise you don’t do what you promise to do or the other way round. The more the network of obligations is extended, the better it is from this particular point of view,

The role of the trade unions is similar in a way to the French one: another belligerent system of trade unions which reached its peak in the early Seventies when we had the world record of strikes, then it declined and in the last two or three years we are actually below the European average of absenteeism for strikes from labour per man hour of activity.

So, in spite of the rapid pace of economic integration among European countries there are still a lot of differences and particularly differences in values, attitudes and ways of looking at business. These differences will probably decrease in the course of time as the systems of management and production will be more and more integrated but they are there to stay for quite a long time