June 04, 2022 Global Indicators Briefs No. 7 Replicating Local Good Practices in Regulating the Business Environment at the National Level: What Italy’s Experience Reveals Luca Bettarelli and Tommaso Rooms E xcessive bureaucracy at any time is a burden on companies. In the context of the recovery from the COVID-19 crisis, it is an additional hurdle that jeopardizes the ability of small and medium enterprises to survive. Using the example of Italy, and drawing on primary data from the World Bank’s Subnational Doing Business studies, this Brief highlights how identifying local good practices in regulating the business environment and promoting them to national standards is one of the most powerful tools policy makers have to sustain rms’ creation and growth, reduce spatial inequality, and help create economic opportunities. Introduction (Subnational Doing Business, SNDB) to evaluate how easy it is to do business in di erent locations within a country, under the idea that Many scholars have argued that locational advantage (attractive country-level analyses may hide large variations within the country. qualities such as access to large markets, favorable tax regimes, easy bureaucratic procedures, lower production costs, lower institutional is Brief embraces the idea that a business environment that barriers, and lower risks) stimulates business activity and investment stimulates investment and rm creation is a crucial condition to sustain (Dunning 1980; Ascani et al. 2021). For more than 15 years, the the economy and the job market. rough the analysis of SNDB World Bank has produced subnational, quantitative indicators indicators in a sample country, it develops policy recommendations for Figure 1 Both GDP growth and the number of firms vary widely across locations in Italy Panel a. GDP growth Panel b. Number of firms Number of firms Percent 25 30,000 20 25,000 15 20,000 10 15,000 5 10,000 0 -5 5,000 -10 0 -15 -5,000 -20 -10,000 -25 -15,000 -30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Largest GDP increase Largest GDP lost Largest nmber of firms gaines Largest number of firms lost Source: Eurostat. Note: Panel a shows the percentage change of GDP at time t with respect to 2007 for each Italian NUTS-3 region. Panel b shows the difference in the number of active firms from time t to 2008 (2007 is not included due to data availability). NUTS 3 = Level 3 of the European Union’s Nomenclature of Territorial Units for Statistics. Affiliations: Luca Bettarelli, Université Libre de Bruxelles, Center for the Study of Politics–Cevipol; Tommaso Rooms, World Bank, Development Economics. For correspondence: trooms@worldbank.org luca.bettarelli@ulb.be. Acknowledgements: The authors would like to thank Norman Loayza, Madalina Papahagi, and David Francis for comments and for guiding the publication process. Nancy Morrison provided excellent editorial assistance. Objective and disclaimer: This series of Global Indicators Briefs synthesizes existing research and data to shed light on a useful and interesting question for policy debate. Briefs carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions are entirely those of the authors. They do not necessarily represent the views of the World Bank Group, its Executive Directors, or the governments they represent. All Briefs in the series can be accessed via: https://www.worldbank.org/en/research/brief/global-indicators-briefs-series. https://www.worldbank.org/en/research/brief/global-indicators-briefs-series. DECIG – Global Indicators Briefs No. 7 Box 1 Two rounds of regional investment climate assessments in Italy e 2019 Subnational Doing Business in Italy study—part of Data for cities in 13 EU member states have been published the Doing Business in the European Union series of reports produced under the Doing Business in the European Union series. ese are by the World Bank Group at the request of the European Bulgaria, Hungary, and Romania (2016); Croatia, Czech Republic, Commission (Directorate-General for Regional and Urban Portugal, and Slovakia (2018); Greece, Italy, and Ireland (2019); Policy)—targeted 13 Italian regions, each represented by a di erent and Austria, Belgium, and the Netherlands (2020). All data and city, providing a comprehensive picture of the entire Italian related reports are available at: https://www.doingbusiness.org/eu. https://www.doingbusiness.org/eu. territory. ese 13 are: Calabria (Reggio Calabria); Campania (Naples); Emilia-Romagna (Bologna); Lazio (Rome); Liguria Prior to the 2019 edition, a subnational measurement was (Genoa); Lombardia (Milan); Marche (represented by Ancona); performed in Italy in 2012 with a largely comparable methodology. Piemonte (Turin); Puglia (Bari); Sardinia (Cagliari); Sicily Nine regions have been measured in both 2012 and 2019: (Palermo); Tuscany (Florence); and Veneto (Padua). Campania (Naples); Emilia-Romagna (Bologna); Lazio (Rome); Lombardia (Milan); Piemonte (Turin); Puglia (Bari); Sardinia e methodology considers ve topics: (1) starting a business; (Cagliari); Sicily (Palermo); and Veneto (Padua). e study has (2) dealing with construction permits; (3) getting electricity; (4) been produced by the World Bank Group at the request of Italy’s registering property; and (5) enforcing contracts. Each topic is Department for Planning and Coordination of Economic Policy of evaluated according to three categories—the number of required the Presidency of the Council of Ministers (DIPE). Data and related procedures, time, and cost—with the aim of measuring the https://subnational.doingbusiness.org/en/ report are available at: https://subnational.doingbusiness.org/en/reports/subnational-reports/italy. e ciency and implementation of regulations. Four of the ve topics reports/subnational-reports/italy. https://subnational.doingbusiness.org/en/reports/subnational-reports/italy. (with the exception of starting a business) include a fourth category, measuring qualitative aspects of the laws and regulations. e nal Four topics are covered by both rounds: (1) starting a business; score a location receives is indicated on a scale from 0 to 100, where (2) dealing with construction permits; (3) registering property; and 0 represents the worst regulatory performance and 100 the best (4) enforcing contracts. All are measured in terms of costs, time, and regulatory performance. the number of procedures. policy makers to use in implementing local-level reforms. e focus is for 13 Italian cities, each representing a di erent region in the country, on Italy, as it is an ideal case study of a country characterized by sharp collected in two rounds in 2012 and 2019 (Box 1). e focus is on two internal disparities, which have been underscored by the dual shocks of critical periods: one as Italy was beginning to emerge from the global the global nancial crisis and the national debt crises, which occurred nancial crisis, and the other as the country (like the world) rst between 2007 and 2012. For example, between 2007 and 2019, GDP grappled with the COVID-19 pandemic. First, the Brief presents the growth in Italy at the NUTS-3 level ranged from +18 percent to -23 latest data to demonstrate the relevance of a subnational approach. percent.1 Similarly, business demography varied widely, with the Secondly, it compares 2019 scores with those collected in the previous number of active rms ranging from an additional of 21,420 businesses to a loss of 9,833 in the same period (Eurostat) (see gure 1). round. By comparing cities among themselves and over time, the analysis is able to identify good practices and improvements. Based on is Brief makes use of an original dataset including SNDB scores those, the Brief formulates policy recommendations. Italy has the largest average spread between the lowest-scored and the highest-scored cities of the Table 1 13 EU countries studied Starting a Construction Getting Registering Enforcing Mean Country/Number of cities busines permits electricity property contracts Austria (N=7) 2.0 12.6 5.3 3.9 5.7 5.9 Belgium (N=7) 0.0 5.6 5.6 6.7 7.2 5.0 Bulgaria (N=6) 3.7 4.5 10.9 2.3 8.3 5.9 Croatia (N=5) 7.1 22.5 3.9 4.8 8.7 9.4 Czech Republic (N=7) 2.0 3.5 29.0 0.5 4.4 7.9 Greece (N=6) 0.3 6.9 6.8 11.1 9.7 6.9 Hungary (N=7) 0.3 7.7 5.7 1.2 8.0 4.6 Ireland (N=5) 1.0 6.2 3.4 3.7 6.2 4.1 Italy (N=13) 3.0 15.5 20.1 3.3 12.4 10.8 Netherlands (N=10) 0.2 6.7 4.5 0.1 3.2 2.9 Portugal (N=8) 0.0 8.1 8.7 1.1 6.7 4.9 Romania (N=9) 3.3 12.4 14.2 1.7 11.9 8.7 Slovak Republic (N=5) 2.8 5.0 8.3 1.3 3.8 4.3 Source: World Bank, Subnational Doing Business in Italy. Note: N reports the number of cities benchmarked; mean is the average of the across-city spread by country (across topics). EU = European Union. 2 DECIG – Global Indicators Briefs No. 7 Figure 2 A different city ranks highest in each of the five topics, and gaps vary depending on the topic Score (0-100) Starting a Dealing with Getting Registering Enforcing business construction electricity property contracts permits 100 Ancona and Milan 90 Bologna Rome Rome 80 Bari and Padua Cagliari 70 Palermo Turin 60 Milan Country average 50 Florence 0 Best performance in country Italian average Worst performance in country Source: World Bank, Subnational Doing Business in Italy. Note: The scores are normalized to range from 0 to 100, where 100 is the best regulatory performance on the indicator across all economies measure by Doing Business from 2005 to 2019. The World Bank’s 2019 subnational assessment Time is the dimension that varies the most across the ve of the Italian business environment indicators. For example, the time needed for dealing with construction permits takes 105 days in Milan, but more than three times longer in e study reveals signi cant variation in the extent to which Reggio Calabria. Similarly, getting electricity requires two and a half entrepreneurs face di erent regulatory hurdles depending on where in months Bologna and Rome, but almost eight months in Palermo Italy they establish their business. Of the 13 European Union (EU) ( gure 3). member states assessed by the World Bank using the same methodology, Italy registers the largest spread between its lowest scored ese subnational variations suggest that each city could city and its highest. Table 1 reports subnational statistics broken down considerably improve its own performance by replicating more by the 13 countries. e last column indicates the average di erence e cient standards employed elsewhere in the country. between the minimum and maximum scores within each country. Italy, with an average di erence across the measured topics of 10.8, has A comparison with the 2012 round the largest range between the lowest- and highest-performing city, followed by Croatia (9.4) and Romania (8.7). e most homogenous Prior to the 2019 edition, a subnational measurement was country, the Netherlands, reports a value that is almost one-fourth that performed in Italy in 2012 with a largely comparable methodology. A of Italy (2.9). comparison of the nine cities and four topics that have been measured in both 2012 and 2019 highlights two interesting results. First, the No single Italian city does equally well in all areas measured. Each Italian business environment has clearly improved, on average. On 9 of indicator is led by a di erent city, and cities that do very well in one the 12 comparable indicator categories, average results are better in area perform poorly in others. Starting a business is easiest in Ancona 2019 than in 2012. e exceptions are the cost for dealing with and Milan, while Ancona scores second to last on getting electricity, construction permits, where the average cost increased slightly; the and Milan is last on construction permits. Cagliari and Turin lead on time needed to register a property, which increased from 18.5 to 22 construction permitting and enforcing contracts respectively, but they days; and the cost for registering a property, which remained stable. lag the other cities on registering property. Rome is the easiest city to register a property, but the hardest to start a business. For example, the average time needed to resolve a commercial dispute across the nine cities decreased from 1,438 days to 1,165, a Di erences across cities are particularly large in some of the drop equal to more than nine months ( gure 4, panel a). Milan measured topics ( gure 2). One telling example: in Bologna, the provides a concrete example of how these results were achieved. e authorization to excavate and install a new electricity connection is city court introduced regular strategic planning and monitoring and issued by one single agency (the municipality) in 30 days. An identical evaluation, which helped reducing the time needed to resolve a project in Palermo requires 15 approvals, bringing the waiting time to commercial dispute by 10 months compared to 2012. Beyond the six months. Even the experience of going to court can vary greatly. three-year strategic plan all courts must prepare, Milan also produces Entrepreneurs in Turin can expect to solve their disputes in a bit more an annual management plan, which is based on projections from the than two years. In Reggio Calabria, it takes more than twice as long. previous year’s court performance reports. is allows for quick 3 DECIG – Global Indicators Briefs No. 7 Figure 3 Time is the dimension that varies the most across the five indicators Panel a. Panel b. Panel c. Starting a business (days) Dealing with construction permits (days) Getting electricity (days) Ancona 5 Milan 105 Bologna 75 Milan 5 Cagliari 115 Rome 75 Padua 6 Padua 144 Turin 103 Bologna 7 Bologna 159 Florence 108 Genoa 7 Florence 165 Reggio Calabria 108 Palermo 7 Turin 185 Naples 112 Turin 7 Rome 189.5 Bari 119 Bari 8 Ancona 203 Cagliari 129 Cagliari 8 Palermo 206 Milan 136 Florence 8 Genoa 209 Genoa 160 Naples 8 Bari 270 Padua 172 Reggio Calabria 8 Naples 298.5 Ancona 184 Rome 11 Reggio Calabria 325.5 Palermo 231 Panel d. Panel e. Registering property (days) Enforcing contracts (days) Rome 16 Turin 860 Florence 17 Milan 985 Palermo 18 Bologna 1030 Reggio Calabria 18 Genoa 1060 Ancona 20 Rome 1120 Bologna 20 Padua 1130 Milan 20 Ancona 1180 Naples 20 Cagliari 1245 Genoa 22 Florence 1275 Cagliari 23 Palermo 1275 Turin 25 Bari 1470 Bari 26 Naples 1470 Padua 26 Reggio Calabria 1750 Source: World Bank, Subnational Doing Business in Italy. reallocation of judges to sections that need them most. Milan was also national per capita income), while in 2012 it varied from 8.5 percent the rst city to pilot a new sta -support program for judges, called of per capita income (in Bologna) to 17.5 percent (in Naples). e U cio per il Processo. e program allows professional judges to apply process to register property is currently the same across the measured for and receive assistance from a trainee and honorary judges cities. Four steps are required in them all, while in 2012 di erent steps ( xed-term judges, appointed on three-years contracts, whose role is applied depending on the location. Similarly, to transfer a property limited to auxiliary tasks) to support them in leveraging their workload. currently, several operations can be completed using national web-based tools for registration and transcription of ownership Similarly, the average time to obtain construction permits changes. ese measures allow notaries to access and update the decreased by about two months between the two rounds ( gure 4, cadastral and land registry records online. panel b). Cagliari o ers a paradigmatic example of successful reforms: it is the only of the measured cities that merged the one-stop shop for Even a procedure that strongly depends on local courts productive activities and the one-stop shop for construction into a converged—despite substantial di erences remaining. In 2012, the single authority, operating through the same digital platform. is di erence between the time needed to resolve a commercial dispute in helped reduce the time needed to complete the permitting process the fastest and slowest location was 1,167 days (or 39 months). By from 268 days (or 9 months) as of 2012 to 115 days (less than 4 2019, this spread had fallen by nearly half to 610 days (or 20 months). months) in 2019. National IT tools also helped in this case. Today, case- ling is done electronically, making it standard, fast, and easy to le a commercial e second interesting result is that, despite the remaining lawsuit and serve a defendant business across the country. di erences across cities as of 2019, there has been substantial convergence across cities since 2012. e main reason for the increased Policy recommendations and conclusions homogeneity is the introduction of information technology (IT) tools that operate at the central level. e processes for starting a business Regional disparities represent a drawback of the Italian business and registering property today are almost entirely electronic, and environment, but they also provide an avenue for policy reforms. di erences across cities are minimal. For example, all registration Replicating local good practices at a national level has the advantage of applications for limited liability companies, no matter in which city the not requiring major legislative overhaul. Moreover, these practices have new company will operate, must be lled electronically with the already been successfully tested within the country. register of enterprises, managed by the chamber of commerce. anks e analysis of regional disparities yields several general to information sharing among agencies, the process of registering with recommendations. First, the introduction of IT systems with the revenue agency and the social security administration, and of centralized management could contribute greatly to speeding up obtaining accident insurance, can be completed through a single notice applications for operating businesses and making the procedures sent to the register. As a result, for example, the cost of opening a predictable, transparent, and easy to understand. Second, increasing business is now the same in all cities (equal to 13.8 percent of the coordination among agencies is essential to reduce waiting times, given 4 DECIG – Global Indicators Briefs No. 7 The time to resolve a commercial dispute and to obtain construction permits decreased in Figure 4 seven cities out of nine Days Panel a Days Panel b 2100 370 1900 320 1700 270 1500 220 1300 170 1100 900 120 700 70 2012 2019 2012 2019 Years Years Bari Bologna Cagliari Milan Naples Bari Bologna Cagliari Milan Naples Padua Palermo Rome Turin Average Padua Palermo Rome Turin Average Source: World Bank, Subnational Doing Business in Italy. that entrepreneurs often must engage with many agencies in the through a complex and lengthy in-person process to obtain access to framework of the same application. ird, even in areas where all the e-portal. To avoid this, many companies end up hiring a labor Italian cities struggle, local good practices do exist. Adopting all of consultant who already has access to the e-portal. is adds to the cost them throughout the country would bring tangible bene ts and pave and complexity of starting a business. Once again, good examples at the way for larger improvements. the local level can potentially be adopted nationally. In Milan and Dealing with construction permits exempli es an area that would Turin, the labor o ce automatically obtains the needed information bene t tremendously from a centralized IT system. e introduction from the social security administration or from the chamber of of digital tools currently depends on the initiative of local authorities. commerce, with no extra interaction required from the new company. Bologna, Cagliari, Padua, and Turin have already switched to fully Finally, enforcing contracts is an area where all Italian cities need electronic systems for administering building permits, resulting in a 25 urgent improvements, especially because of the long time it takes to percent decrease in the waiting times compared to other cities in Italy. resolve commercial disputes in any of the country courts. Good However, rather than having each municipality or agency develop its practices exist locally. Milan and Turin, the fastest cities in this area own technology platform, a national digitalization plan should be according to World Bank 2019 data, utilize automated systems to designed and implemented, following the same approach taken when reduce waiting times and match judges’ expertise to cases. Increased Italy introduced centralized IT systems to start up a company or to automation would also help in balancing workloads. For example, transfer a property. is should involve all stakeholders, from central to automated case assignment that considers each judge’s current local authorities, and including professional associations and chambers of commerce. A national solution would be simpler and less expensive caseload—as in Bologna and Naples—could help prevent judges from to implement and maintain, due to the bene ts of scale, than multiple becoming overburdened and promote faster issuance of judgments. Or municipal systems, and it would prevent municipalities and agencies courts could draw inspiration from Florence’s Giustizia Semplice model from each reinventing the wheel and from developing incompatible to promote mediation services and alternative dispute resolution. systems. Italy can draw from the positive experiences of the cities that have already put a system in place to develop and design such national Notes platform. 1 e Nomenclature of Territorial Units for Statistics (NUTS) is a Starting a business is an area that could bene t greatly from classi cation system for statistical purposes developed and regulated improving coordination among agencies. One of the steps required to by the European Union (EU). Each EU member state has one open a business is sending an electronic noti cation to the regional NUTS 1 level, each of which is divided into territorial units of labor o ce about workers’ employment. is should be a smooth and roughly equal population at the NUTS 2 level, and nally, the fast procedure. In most cities, however, entrepreneurs need to go NUTS 3 level. Italy has 107 regions at the NUTS 3 level. References Ascani Andrea, Luca Bettarelli, Laura Resmini, and Pierre-Alexandre World Bank. 2013. 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