01/22/2013 01:45 pm ET Updated Mar 24, 2013

Italian Elections: A Test of Democracy

SEVILLA, SPAIN -- The upcoming Italian elections are testing whether democracy can correct itself. The elections are a contest between the populism of short-term fixes and the long-term reforms necessary to make Italy's economy solvent, competitive and sustainable over the long run.

Mario Monti's period as an unelected "technocratic" prime minister outside of politics was a "circuit breaker." It aimed at shifting Italy's unsustainable course by making reforms on a range of issues from pensions to taxes to flexibility in the labor market. Taking a sober look at the future, Monti's policies sought to respond to a reality all of Europe must face.

Europe has roughly 9 percent of the global population, accounts for 25 percent of global production and 50 percent of social spending. As the emerging economies from China to Brazil to Turkey level the playing field and erode Europe's share of production, Europeans will have to find a way to sustain their share of global product that finances the welfare state by becoming more productive and competitive. Or, the level of benefits people have become used to must be cut.

For all his willingness to face the facts, Monti has been rewarded by the electorate with plummeting poll numbers. Polls suggest he would only garner about 15 percent of the vote in an election.

To be sure, austerity alone cannot enable Italy to escape its debt trap. But debtor countries like Italy have little fiscal room for stimulus. That has to come from the creditors in Europe, namely Germany. Yet, there too, Chancellor Angela Merkel risks political failure in German elections next fall if she would agree to a stimulus program or a "bail out" of the debtor countries. In Germany too, the short-term horizon of voters blocks a long term solution to Europe's collective woes.

Monti's "circuit breaker" policies are a battle against two forces: the "diet-coke culture" of consumer democracy and the "vetocracy." In a consumer democracy, all the feedback signals -- the media, market and politics -- steer behavior toward immediate gratification. Just as people expect sweetness without calories, they seem to want consumption without savings, high standards of living without a competitive economy and a welfare state without taxes.

Vetocracy is a decayed form of democracy in which special interests -- from unions to banks -- have staked a claim on the state and seek to block any reform that threatens their spoils. In Italy, such special interests even have so-called "acquired rights." To satisfy such appetites, debt as a percent of GDP in Italy has soared from 60 percent in 1980 to 120 percent by 1992.

A vote to retain this status quo is not only a vote for the past -- because it is a vote for the vested interests of the present -- but it is a vote against the future. Former prime minister Silvio Berlusconi is in many ways the poster boy for diet-coke democracy and vetocracy as he revs up the right wing populist impulse. Beppe Grillo on the populist left has more to offer by rightly expressing the anger and frustration over pervasive corruption. But anger and frustration are not a governing program.

Italians should consider what is at stake. Albeit in a global growth environment, Gerhard Schroeder was able to push through the kind of structural reforms Monti proposed back in 2003 when he was German chancellor. He was rewarded by being kicked out of office in the next elections. Yet a decade later, Germany is the strongest and most competitive economy in Europe as a result of those reforms.

Reforms take many years to manifest their benefits, and are always unpopular at the outset. Clearly, democracy mispriced the value of Schroeder's reforms. Will it do the same for Monti?


The related issue is whether Mario Monti should have put himself forward directly as a candidate for prime minister again in the election campaign.

In an effort to retain his elevated, "above the fray" impartiality, Monti instead has agreed to serve again in government only if the reform agenda he proposes to continue his structural reforms gains enough support from the various parties contending for seats to win a sufficient majority. Only then would a new government be able to see them through. Critics argue that if Monti doesn't "earn" a leadership role as a candidate, he won't be "legitimate."

I understand this argument, but can also see how Monti's choice makes sense. What is important is the "circuit breaker" agenda. It would be useless to elect a "re-politicized government" without a majority to implement reform. Monti is already a member of parliament as a Senator for Life and thus legitimately eligible for a leadership role in Italy's parliamentary system.

Also, what Monti is attempting is not so strange in other democracies. When Jerry Brown successfully campaigned for governor of California in 2010, he pledged he would not raise taxes without "asking the people." One reason he did this is that bipartisan gridlock in the California legislature -- where a supermajority 2/3 vote is required to raise taxes -- blocked his ability to raise taxes through the legislature.

In his first two years in office, Governor Brown slashed spending while he sought to obtain supermajority approval -- not to raise taxes, but only to get permission from the legislature to put a proposition on the ballot so the voters could decide what to do. That also required a 2/3 vote, which he couldn't get.

In California's direct democracy, voters can make laws and change the constitution without going through the legislature. To do so, they must gather the requisite signatures from the public (around 1 million). Once it qualifies for the ballot, it becomes law if it passes.

So, failing to get the legislature to allow the public to vote, the Governor set up a civil society committee with the teacher's unions to propose raising the sales and income tax for a direct vote of the public. Even though he was the governor, his committee had to gather the requisite signatures to qualify the proposition. In November, that tax plan passed, giving California a temporary reprieve from budget bleeding.

I must add, however, that the new tax avoided the challenge of the "diet-coke habits" of the general public since it was targeted for restoration of education cuts, a good thing, but only applied to "others" -- the rich making over $250,000 per year. In a society edging toward plutocracy, this was a necessary precondition of broader reform, but only that.

The "candidate" in this case was not Governor Brown. The candidate was a tax policy put forward by a civil society group that included the governor.

Mario Monti's "agenda for reform" being put forward to the voters without a candidacy seems to me very much the same kind of idea. It is an innovation in democratic politics for the tough times we face -- a referendum on the future versus the status quo and the past. If that is legitimate in the radical democracy of California, why not in Italy?