Li Kaixuan: The Crisis of "New Material Deprivation" in Italy’s Welfare Capitalism
Italy was one of the earliest European nations to establish welfare capitalism (also known as the welfare state). Since the 2020 COVID-19 pandemic, the sharp deterioration of Italy’s poverty problem has drawn widespread attention. According to the prominent Italian newspaper Il Sole 24 Ore (The 24-Hour Sun), the Fondazione Banco Alimentare (Food Bank Foundation) [1] provided relief to 2.1 million impoverished people struggling to feed themselves in the first half of 2020—a 40% increase compared to the same period in 2019. In reality, however, the grim realities of sluggish economic recovery, growing poverty, and widening wealth and regional gaps since 2008 had already shattered the facade of the "affluent society" [2] characterized by material abundance since the establishment of the welfare state. Italy’s worsening crisis of "new material deprivation" [3] stems not only from an unjust system of wealth distribution but is also closely linked to the "democratic deficit" of representative democracy.
I. The Intensification of Italy’s "New Material Deprivation" Crisis
Distinct from the large-scale absolute material deprivation surrounding World War II and the "material affluence" of the capitalist "Golden Age," Italian society has gradually slumped into a predicament known as "new material deprivation" since the 1980s and 90s, when neoliberalism began to dominate reforms across economic and social spheres. The worsening of poverty and the widening wealth gap are two sides of the same coin in this "new material deprivation."
(1) Large-scale increases in the impoverished population and intensifying wealth polarization
Although the livelihood risks faced by the lower and middle classes in 2020 were particularly striking, the deterioration of Italy’s poverty problem actually began with the 2008 international financial crisis. The dire situation under the COVID-19 pandemic is, in a sense, a continuation of prior trends. According to data released by the OECD, Italy’s relative poverty rate [4] was 11.9% in 2008 and rose to 13.9% by 2018, ranking fifth among the 19 Eurozone countries, lower only than Latvia, Estonia, Lithuania, and Spain.
The proportion and scale of absolute poverty in Italy have also shown an upward trend in recent years. (Absolute poverty refers to a state where individuals and families, under specific modes of social production and lifestyle, cannot maintain basic survival needs through labor income and other legal income; relative poverty refers to a state where, while food security can be maintained through labor or legal income, other life needs considered most basic under local conditions cannot be met.) According to OECD data, the ratio of Italy’s absolute poverty population to its relative poverty population increased from 33.2% in 2008 to 40.4% in 2017—a growth rate of 21.6%. This is far higher than that of Germany (5.9%) or the United Kingdom (13.5%) and Spain (9.1%), where poverty has also long been a focus of concern. The Italian National Institute of Statistics (ISTAT) pointed out in reports over the last two years that Italy’s absolute poverty rate was 7% in 2018, with 5 million people in absolute poverty; it dropped slightly to 6.4% in 2019, with a population of 4.6 million. However, the COVID-19 pandemic exacerbated the problem again—preliminary estimates suggest the absolute poverty population in 2020 increased by 1 million over 2019, reaching its highest level since 2005.
Intensifying wealth polarization is the other side of the "new material deprivation" crisis. Italy’s wealth gap is the most severe among traditional Western European welfare states. According to OECD statistics, in 2017, the income of the richest 20% of the Italian population was 6.1 times that of the poorest 20%, higher than Germany (4.5 times) and France (4.4 times), and significantly higher than Northern European countries like Sweden (4.2 times) and Finland (3.8 times); only Spain (6 times) and the UK (6.2 times) were comparable. According to World Bank data, over the past decade, both Italy’s Gini coefficient and its rate of increase have been much higher than those of other traditional European welfare states like the UK, Germany, France, Sweden, and Finland. In 2008, Italy’s Gini coefficient was 0.338, rising to 0.359 by 2017, an increase of 6.2%. As shown in Table 1, countries like Germany, France, Sweden, and Finland have lower Gini coefficients and have not yet exhibited the obvious upward trend seen in Italy.
(2) The deteriorating survival conditions of youth and immigrants
Italian youth and immigrants are marginalized groups within the Italian welfare system and face an even more severe "new material deprivation" predicament. OECD databases show that the Italian youth unemployment rate was 18.9% in 2008, climbed sharply thereafter to a peak of 41.3% in 2014, and then receded to 27.8% by 2019.
The poverty problem among minors in Italy is the most severe across all age groups. According to ISTAT, from 2008 to 2017, the relative poverty rate for the population aged 18–65 increased from 10.3% to 14%, while the rate for minors rose from 16.1% to 18.7%. This is much higher than for those over 66, whose poverty rate fell from 13.3% to 9.7%. Due to the intensification of economic inequality, ISTAT has emphasized absolute poverty data in its recent reports. Statistics show that in 2018, as many as 1.26 million Italian minors fell into absolute poverty, a rate of 12.6%, compared to the general absolute poverty rate of 6.4% for Italian citizens. Of the 4.6 million people in absolute poverty in 2019, 1.137 million were minors. Following the 2020 pandemic, the number of minors in absolute poverty reached 1.346 million. Italy's absolute poverty rate for minors climbed by 2 percentage points over 2019, reaching 13.6%.
Furthermore, the "material deprivation" problem for immigrants in Italy is far more serious than for Italian citizens. According to ISTAT data, in 2014, the absolute poverty rate for immigrant households was 23.9%, compared to 4.3% for Italian households. As Italy’s poverty problem worsened, by 2019, the absolute poverty rate for immigrants reached 30.3%, far higher than the 6.4% for Italian citizens.
(3) More severe "new material deprivation" in Southern Italy
In Southern Italy, where economic development and the construction of the welfare system are relatively backward, a higher proportion of the population has fallen into "new material deprivation." For example, although the Italian National Health Service (SSN) was built on universalist principles, it has undergone marketization and regionalization reforms since the 1990s, leaving the Southern healthcare system facing more severe shortages of medical resources. In 2017, public health spending as a share of GDP in the northern regions of Lombardy and Emilia-Romagna was 4.98% and 5.40% respectively, but per capita spending reached €1,904 and €1,940—still higher than the national average of €1,866, and much higher than the per capita level in most southern regions, which was less than €1,800. Due to this relative scarcity of medical resources, it has been common for years for people in the South to travel north across regional lines for medical treatment.
Simultaneously, the poverty problem in Southern Italy became further accentuated after the 2008 international financial crisis. In 2008, the absolute poverty rate for Italian households was 4.6%: 7.9% in the South, 2.9% in the Center, and only 3.2% in the North. By 2019, the absolute poverty rate for households in Southern Italy was 8.6%, significantly higher than the 4.5% in the Center and 5.8% in the North. In 2020, the rate in the South rose to 9.3%, while the North rose to 7.6%.
II. "New Material Deprivation" Stems from an Unjust Wealth Distribution System
The increase in Italy's impoverished population, the intensification of wealth polarization—especially the deteriorating conditions for youth and immigrants—and the further highlighting of the "Southern Problem" [5] are closely related to its unjust wealth distribution system. As French economist Thomas Piketty and American political economist Anwar Shaikh have noted in their respective works, when the rate of return on capital exceeds the rate of economic growth, those living on property income accumulate wealth much faster than those earning a living through labor. This phenomenon of the profit rate exceeding the growth rate is closely linked to the financialization of capitalism—the key mechanism for increasing inequality in capitalist societies in recent years. Furthermore, like other developed Western countries, Italy's "rob-the-poor-to-give-to-the-rich" tax system and its welfare system with weakened redistributive functions have fueled the "new material deprivation" crisis.
(1) The financialization of Italian capitalism and the "rob-the-poor-to-give-to-the-rich" nature of the tax system
Anglo-Saxon financial culture (i.e., the neoliberal financial model) has had a significant influence on Italy; the principle of maximizing shareholder interests has gradually been adopted as a "golden rule" by large and medium-sized Italian enterprises since the 1970s. In the mid-1980s, Italy conducted a so-called "necessary financial restructuring" of its domestic enterprises, thereby initiating a strategic transformation of capital accumulation. Italian firms became increasingly inclined to pursue short-term returns on financial assets rather than industrial production profits. As early as 1988, Italian scholars pointed out: "In recent years, the revenue expectations of Italian industrial enterprises have shown an extraordinary growth trend... investment in liquid financial assets is inconsistent with the nature of industrial enterprises that should be devoted to production." Simultaneously, major Italian banks implemented reforms to securitize receivables. These two changes prompted Italy to quickly develop a massive financial trading market, similar to the UK and the US. In addition, since the 1990s, Italy has implemented neoliberal reforms such as cutting labor costs, relaxing employment protections, and privatizing large state-owned enterprises to complement the financialization process. According to calculations by the Italian financial consultancy Mediobanca, the financial income (dividends, bonuses, interest, etc.) of 980 selected Italian companies rose from €2.6 billion in 1974 to €10.6 billion in 2002 (at constant 2000 prices); meanwhile, the labor costs of these same 980 companies as a percentage of turnover fell from 26% in 1971 to 15% in 1985, and plunged to 11% by 2001 following the 1990s reforms.
Over the last 20 years, the financialization of the Italian economy has developed further. According to Mediobanca’s statistical analysis of 2,032 Italian firms, the ratio of financial investment to capital expenditure showed a significant upward trend: it was 0.3 in 1990, surged to 1.8 in 2000, and then receded to 1.38 by 2007. Furthermore, shareholder interests have been continuously strengthened—dividends as a proportion of gross operating profit increased from 28.8% in 2002 to 41.5% in 2007. Meanwhile, the number of employees decreased by 6%. The acceleration of financialization has, to some extent, led Italy toward a rentier economy. Following the 2008 financial crisis, successive Italian governments adopted neoliberal measures such as reducing job protections and weakening collective bargaining, which further suppressed real wage growth and reduced the labor share of income; simultaneously, adopted fiscal austerity policies worsened the employment situation. Italy's neoliberal-tinged financialization has produced a "Matthew Effect" [6], wherein those living on property income can maintain their accumulative advantage over the long term, while those earning a living through labor are constantly dispossessed, finding themselves in increasingly difficult circumstances.
The continuous rise in the Gini coefficient of income distribution is closely related to the substantial increase in property income relative to labor income. From the perspectives of fairness and efficiency, a rational tax system’s regulation of wealth distribution is superior to the issuance of public debt or fiscal austerity. However, against the background of the accelerated global mobility of capital, many countries have joined a "race to the bottom" in taxation. For top-tier earners in most capitalist countries, the tax burden they shoulder is relatively lower than that of the lower and middle classes. Italy is no exception. In 2014, to alleviate fiscal expenditure pressures, the Italian government raised the tax rate on financial gains such as dividends and bonds from 20% to 26%, but simultaneously made a series of commitments to reduce or exempt taxes on related gains to attract capital investment. Furthermore, the tax rate on Italian national debt yields is a mere 12.5%. Income tax for the Italian working class is purely progressive, ranging from 23% to 46%. According to 2019 data published by the OECD, the Italian social security tax rate is 31.23%. Nominally, employers pay more than two-thirds of the social security tax while employees bear less than one-third. In reality, because labor supply elasticity in Italy is very low and a labor surplus exists, the social security tax is ultimately borne by the workers. This means that under conditions where full employment has never been achieved and a large amount of surplus labor always exists, Italy's labor supply does not shrink due to a decrease in wage rates [7]; thus, there is a persistent phenomenon of employers shifting the social security tax burden onto employees. It is evident that Italy’s tax rate on property income is generally lower than that on labor income. This arrangement, which possesses the quality of "robbing the poor to give to the rich," exacerbates the already existing problem of wealth polarization.
Italy's public debt and fiscal deficit began to deteriorate in the 1980s. Yet the Italian wealthy classes did not balance the government budget by paying more taxes; rather, they lent money to the government by purchasing government bonds and public assets. Between 1970 and 2010, the private wealth of the Italian upper class experienced extraordinary growth—rising from the equivalent of 2.5 years of national income to nearly 7 years. Nearly a quarter of this increase represents an increase in the debt of one group of Italians to another. Since 2001, the annual interest on public debt paid by the Italian government reached as high as 13% of Gross Domestic Product (GDP) at one point, and has remained near 4% since 2016. This is equivalent to Italy's public expenditure on education, higher than the expenditure on unemployment and family allowances (roughly 3% of GDP), and significantly higher than expenditures on housing and social exclusion [8]. Consequently, lower- and middle-class Italian taxpayers effectively bear the brunt of public expenditure cuts resulting from the public debt interest burden, which severely limits the quality of welfare programs they are entitled to, such as education, social services, and social assistance. This inevitably exacerbates Italy's educational decline, the worsening living conditions of young people, and the further polarization of regional development.
(2) The Dual Imbalance of the Welfare System and the Weakness of its Redistributive Function
As previously stated, social security taxes essentially derive from the labor income of the workers themselves. Therefore, pension, public healthcare, unemployment assistance, and social services within the Italian welfare system constitute a horizontal redistribution among employed workers rather than a vertical redistribution between the top tier and the lower and middle classes. However, the structural and regional imbalances of the Italian welfare system further weaken its horizontal redistribution function.
The structural imbalance of the Italian welfare system refers to the fact that, compared to Germany, France, and the Nordic countries where welfare systems are more mature and complete, Italy's public pension expenditures account for an excessively high proportion of total social welfare spending, while expenditures for non-elderly groups—such as unemployment, social assistance, and family allowances—are too low or even non-existent. Scholars from the United States and Italy use the ENSR (Elderly/Non-Elderly Spending Ratio) index—the ratio of per capita public spending on the elderly to per capita public spending on the non-elderly—to demonstrate this imbalance. In 1955, Italy's ENSR index was less than 7, but from the 1980s until 2008, it averaged as high as 28.9, far higher than Nordic welfare states like Denmark (5.75) and Sweden (6.50), or continental countries like France (12.9) and Germany (16).
Regional imbalance refers to the persistent and significant gaps in welfare projects decentralized to local levels—such as healthcare, social assistance, and childcare or elderly care—due to differences in economic and social development levels. In 1990, only 59.9% of Italian municipalities provided a "Minimum Vitality Allowance" (Minimo Vitale) to low-income families, and cities like Rome and Bari were not among them. In 2008, the per capita social service expenditure in the autonomous province of Trento in northern Italy was 280 euros, while in the Calabria region it was only 30 euros.
Faced with the structural imbalance and regional differentiation of the welfare system, the neoliberal "recalibration" reforms implemented by the Italian government did not first fill the gaps in areas like social relief; instead, they cut so-called "overly generous" welfare spending. Since the mid-to-late 1990s, Italy has reduced public pension spending by modifying the pension calculation method—moving from "defined benefit" to "defined contribution"—introducing nominal personal accounts, raising contribution levels, and extending the retirement age and contribution years. Under the new system, factors such as the macroeconomic growth rate, inflation rate, the continuity of a worker's career, and life expectancy have all become vital constraints on pension payment levels. After the 2008 international financial crisis, various regions in Italy cut public healthcare spending to varying degrees. Additionally, the Italian central government significantly reduced fiscal transfer payments supporting the development of local social assistance services—a reduction of more than two-thirds in 2011 compared to 2009. The specifics varied greatly by region: the southern region of Campania saw a 33.9% cut, the northern region of Lombardy 48%, and the central region of Umbria 5.6%.
While cutting welfare spending, Italy also implemented "flexibilization" reforms of the labor market in the name of promoting employment. These reforms created various informal forms of employment, such as part-time work, project-based employment, and agency labor, but reforms to the corresponding unemployment income support system lagged far behind. It was not until the reforms after 2007 that the Italian government, while further lowering labor market protection levels and relaxing dismissal standards, increased the unemployment insurance replacement rate and introduced a six-month unemployment benefit under quite stringent conditions. However, Italy still has not established a corresponding relief system for the long-term unemployed, first-time job seekers, and the self-employed, continuing to rely on the family as the pillar for dealing with poverty risks. Yet Italian family allowances are not as generous as those in France or Germany; generally, an eligible three-person family can receive a monthly allowance of about 140 euros. Meanwhile, the social assistance system—the touchstone of welfare state development and redistribution levels—has never received serious attention from the Italian political elite and lacks substantive reform. In March 2019, under public pressure, the mainstream Italian political elite launched a high-profile but nominal "Citizens' Income" plan. Although this income support plan claimed to be universalist, it actually contained numerous restrictions. First, the plan only supports individuals with a monthly income below 780 euros or families below 1,380 euros, but only one person per family is subsidized. Second, main family members must commit to training or re-employment (except for minors, the disabled who are confirmed as unfit for work, or those over 65). Third, the time limit is 18 months. Fourth, the expenditure is restricted to areas like housing, daily consumption, and medical care. Finally, non-EU immigrants must have legally resided in Italy for ten years before applying. From April 2019 to October 2020, Italy distributed a total of 832,000 "Citizens' Income" supports, 99% of which went to Italian citizens. The average allowance for Italian citizens was 490 euros, while for non-EU immigrants it was 471 euros. Therefore, judging by its eligibility criteria, the Italian Citizens' Income plan merely fills some gaps in income support for employed workers and acts more like a disguised form of unemployment relief. From the perspective of the population size covered and the amount of relief provided, the redistributive or poverty-reduction role of this plan is negligible.
III. "New Material Deprivation" Originates from the "Democratic Deficit" of Representative Democracy
Regarding the hope Thomas Piketty expressed in Capital in the Twenty-First Century for Western democratic systems—that it is "possible to carry out a just and effective regulation of the global patrimonial capitalism of today"—Anwar Shaikh offered a relentless rebuttal: "[The problems of] global inequality and the lack of democracy are aided and abetted by these very political systems and the 'democratic' interests of patrimonial capitalism." Clearly, Italy is no exception. Due to the representation deficit of the vested interests of current representative democracy—the mainstream political parties—and the marginalization and silence of left-wing forces such as the Communist Party, the lower and middle classes lack a true spokesperson in political life. The expansion of the EU's economic powers and the Italian political elite's frequent use of "technocrats" to push reforms have both expanded Italy's "democratic deficit" in the sphere of economic and social policy.
(1) The Representation Deficit of Mainstream Parties and the Silence of the Left
After World War II, Italy became a "Republic of Parties." The vigorous development of mass parties and their affiliated organizations—labor unions, youth organizations, and women's organizations—established close ties with the populace. Until the 1970s, due to the formation of a so-called "polarized multi-party system"—where the ideologies and voter bases of the Italian Communist Party, the Italian Socialist Party, the Christian Democracy party, and the Italian Social Democratic Party all showed high stability—representative democracy in Italy seemed to have achieved "full" development. Since the collapse of the Socialist Party, Christian Democracy, and their governing allies in the 1990s "Clean Hands" (Mani Pulite) anti-corruption campaign [9], the loyalty, trust, and enthusiasm of the Italian public for political parties and elections have plummeted. In the process of restructuring the party landscape, the center-left Democratic Party and the center-right Forza Italia have consistently sought to implement a system where the two major camps take turns in power through electoral reform—a "Americanization" of the political ecosystem criticized by the new Italian Communist Party. This political ecosystem encourages small parties to ally with large ones but is particularly unfavorable for the political participation and development of the traditional Left, which represents the interests of lower- and middle-class workers. Especially after the Communist Refoundation Party and others failed to re-enter parliament in 2008, no left-wing party has been able to stop the large parties from implementing neoliberal reforms that damage the rights and interests of employed workers, as they did in the 1990s. The pluralistic interest expression and coordination functions of the traditional Italian multi-party system have been substantially weakened.
In a situation where the rotation of power between left and right was once achieved, the Democratic Party gradually showed a high degree of convergence with the center-right in the field of economic and social reform—ignoring the basic demands of the lower and middle classes for employment protection, social services, and income support. Instead, they persisted in fiscal austerity and pushed forward structural and parametric reforms (such as increasing social security rates and delaying retirement) that reduced labor protection and cut welfare. These reforms have undoubtedly acted as a catalyst for the intensification of the "new material deprivation" crisis. During the 2018 parliamentary elections, the Democratic Party, which identifies as center-left, was criticized for having become an "elite party" for business owners and managers, much like Forza Italia; its support among the working class and the unemployed was only 11.3% and 10.3%, respectively.
Economic distributive injustice and the lack of political discourse power have fostered a pervasive sense of discontent and despair in Italy. The lower and middle classes, longing for change, have responded to the calls of anti-establishment elites by taking protest action. Since 2013, the populist Five Star Movement (M5S), which claims to uphold direct democracy and represent the interests of the grassroots, has won the support of the people in Southern Italy by a significant margin. Although the M5S's advocacy for anti-elitism, empowerment, morality, and welfarism makes it appear at first glance like the radical left, its rejection of traditional left-right ideological positioning calls to mind the famous warning issued in 1930 by Alain [10]: "When people ask me if the distinction between the parties of the Right and the parties of the Left still has any meaning, the first idea that comes to me is that the man who asks the question is certainly not a man of the Left." In other words, the rise of the Five Star Movement has not fundamentally improved the "representation deficit" of mainstream Italian politics vis-à-vis the lower and middle classes.
(2) The "Democratic Deficit" of Economic and Social Reform
The "democratic deficit" of Italy's economic and social reforms is mainly manifested in two ways: the conversion of European Union-level economic and social laws and regulations into domestic law in the absence of effective public supervision, and the use of technocrats by mainstream political parties to push through reforms while evading accountability from the electorate.
The EU's main instruments for influencing reforms in the economic and social policy spheres of member states are legal regulation, policy coordination, and structural funds. Given the preeminent influence of professional committees in EU affairs and the limited oversight role of the European Parliament, it is difficult for citizens of member states to exercise genuine supervision over the EU. For example, after the signing of the Treaty of Amsterdam, the EU's influence over labor market reforms in member states intensified. In 1997 and 1999, Italy received two EU directives regarding part-time employment and fixed-term contracts—the former aimed at achieving maximum flexibility in part-time employment, and the latter aimed at restricting the power of trade unions to intervene in fixed-term contracts. Despite facing union resistance, the Italian right-wing government used the pretext of the EU to forcefully push the parliament to transpose these into domestic law. Furthermore, the EU exerts "race to the bottom" and austerity pressures on the social spending of member states through legal regulations creating a common market and policy coordination under the Stability and Growth Pact. These processes are often difficult for the lower and middle classes to supervise effectively through so-called representative democracy.
Since the 1990s, mainstream Italian political parties, frequently plunged into political crisis due to neoliberal reforms, have often sought to evade voter blame and the loss of ballots by forming technocratic cabinets. These cabinets continue to advance reforms under the guise of EU pressure. For instance, in 1995, after the Silvio Berlusconi government’s pension cut reforms met with strong union resistance, the center-left and center-right jointly supported Lamberto Dini, a former governor of the Bank of Italy, to form a technocratic cabinet. This cabinet implemented a reform that shifted the pension system from an "earnings-related" to a "defined-contribution" model. Similarly, the "Onofri Commission" established by the Romano Prodi government in 1996 was dedicated to assessing "macroeconomic endurance for social spending" and pushing Italy toward early entry into the Eurozone. In recent years, the most influential example was the Mario Monti government, which, following the collapse of the center-right government in 2011, implemented structural and parametric pension reforms and further liberalized the labor market. This "depoliticization" of the economic and social policy spheres through "technocracy" [11] in Italy is essentially the replacement of democratic procedures with an elitist mode of authoritative decision-making.
IV. Conclusion
The crisis of "new material deprivation" in Italian welfare capitalism has profound institutional roots. The financialization of Italian capitalism and a tax system that "robs the poor to give to the rich" have further widened the gap between rich and poor. Meanwhile, the Italian welfare system—structured around formal employment, national citizenship, or long-term legal residency—operates through horizontal redistribution among wage earners, which has little effect on poverty reduction. The shift of the center-left Democratic Party toward the middle ground, combined with the long-term "aphasia" [12] of progressive parties such as the Communist Refoundation Party (PRC) [13] in the political arena, has further fueled the trend of "de-welfarization" in economic and social policy. The "technocratic" governance strategy habitually used by mainstream Italian parties to evade voter blame has further weakened the supervision rights of the lower and middle classes over the national economic and social reform process.
The expansion of economic inequality and the loss of political discourse power have provoked protest actions among the Italian lower and middle classes, which once pushed political elites to implement minor adjustments to the social assistance system. However, as long as left-wing forces like the Communist Refoundation—which advocate for an alternative to capitalism—remain in a state of long-term aphasia and the socialist movement fails to experience a revival, the "new material deprivation" predicament of the Italian lower and middle classes cannot be effectively improved merely by resorting to populist political mobilization.
(The author is an Associate Research Fellow at the Institute of Marxism Studies, Chinese Academy of Social Sciences)