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Italy's North-South Gap Widens

The poor Mezzogiorno still lags prosperous north; is more government money the answer? INVESTING IN GROWTH

Raw steel rods poke out from unfinished rooftops ringing a dusty square where an older woman in black piles laundry into an outdoor basin. The scene is San Luca, a poor Calabrian mountain village in the the southernmost part of the peninsula of Italy. But it could be any one of the countless backward towns of Italy's Mezzogiorno. A huge area that stretches across 40 percent of the national territory and includes more than a third of the nation's population, Italy's Mezzogiorno is among the poorest regions in Europe.

San Luca bears little resemblance to the bustling towns of Italy's industrialized north. Nor does the Mezzogiorno show signs of the staggering $115 billion that was funneled south from 1950 to 1984 through the Cassa di Mezzogiorno, the former national development fund for the south.

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Today, Mezzogiorno watchers are worried that the gap between Italy's prosperous north and poor south is growing rather than shrinking - despite massive investments by the Italian government in public works projects and industries. Growth in the central and northern regions of Italy has consistently outstripped the south, which failed to cash in on the nation's impressive growth spurt of the 1980s.

``There has been no reduction in the gap. Those who believed that huge investments would make a difference are faced with this failure,'' says Giampaolo Galli, an economist at the Bank of Italy who prepared a special chapter on the problems of the Mezzogiorno for the central bank's annual report.

In the still largely agrarian economy of the Mezzogiorno, Italian families earn just over half the salaries of their northern compatriots. Industry only accounts for 10 percent of jobs in the southern regions.

And while new jobs are being generated by factories in the booming north - the industrial engine that has catapulted Italy to the world's fifth-ranking economy - unemployment is growing in the south. Southern unemployment is inching upward this year from 20.6 percent in 1988. Among northerners, who pride themselves on their work ethic, the unemployment rate was 7.8 percent last year and is expected to fall.

This is not to say progress has passed the Mezzogiorno by. The endemic illiteracy, disease, and infant mortality of the southern regions before World War II has all but disappeared as roads, schools, and hospitals were built. Per capita income has multiplied four times in the postwar period in the south, just as it has in the north.

Still, life in the Mezzogiorno lags far behind Italian, not to mention European standards. Addressing the problems of Italy's Mezzogiorno on a European level, the European Community (EC) has doubled aid to poor regions considered at risk of slipping further and further behind European levels of development.

European aid levels were raised partly because of concern about the impact of European integration on disadvantaged regions. Says Mr. Galli, ``There are those who fear that the increase in competition will bring greater a concentration of economic activity that will further penalize the south in Italy.''

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For decades, the prevailing belief was that only more private and public investment was needed to overcome the south's handicaps. But faced with the evidence that the problem is not going away, government officials are looking beyond the assumption that simply more money is the answer.

Still, there is certainly no lack of encouragement for public and private companies to invest in the Mezzogiorno. On the surface, doing business in the south would seem like a golden opportunity.

To begin with, the cost of labor is lower in the south. And so eager is the national government to promote development that it pays outright for investments in the Mezzogiorno. Galli of the Bank of Italy calculates that the state plunks down up to 70 percent of a project. When these grants are combined with other incentives such as low interest rates and tax breaks, ``In essence it doesn't cost anything to invest in the south,'' he says.

Earlier this year, top Italian companies such as carmaker Fiat and computermaker Olivetti announced plans to establish research and manufacturing centers in the south. Fiat plans to sink $642 million into a series of automobile and aeronautics research centers in the south. Much of the financing will be provided by government grants.

So why don't companies - Italian and foreign - find doing business in the south more attractive? Part of the answer is simply they are afraid. The presence of organized criminal groups - which dominate whole regions of the south according to national law enforcement authorities - is certainly one of the principal reasons why it is so difficult to draw new investors that would help break the south's cycle of poverty.

Pouring money into the south can even backfire and work to the criminals' benefit, some argue. This view was first voiced by Mafia expert Pino Arlacchi, a native Calabrian and sociologist. Mr. Arlacchi believes that Mafia groups have used large government funds for banking, real estate, and agriculture to build up their own criminal enterprises.

Arlacchi, who believes nonetheless in government economic intervention in the south, notes that those regions that have successfully developed are the ones like the Abruzzi and Apulia where organized crime groups are weakest.

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