Italian Public Administration: Why Accounts Don't Balance

Since 1995, when I was called to Bocconi to study accounting and control in public administrations, I have seen an infinite series of accounting reforms in local government, until the most recent one. What emerges is the enduring asymmetry between prolific norm-making and progressive inefficiency and ineffectiveness of systems of control, down to the current disaster: the more norms accumulated, the more the system of controls worsened, either fo its ability to locate critical elementa and distortions in spending or for its inability to direct the activities of public administrations toward a more efficient and responsible use of public spending. Why do we keep ending in a cul-de-sac when it come to accounting reforms? We do for at least five reasons. Firstly, the approach to control is legal rather than economic, so that faced with a problem a new norm is introduced which is harsher than the existing one and a new control bodycomes into being (see the recent case, with the introduction of the spending review in Italy), but it never dawns on people's minds to ask why existing rules didn't work. If this is the approach, we'll never make any progress. Secondly, the distance between central and local government has become huge. The former look at reality through a PC screen, the latter experience real issues in the field, thus their vision is completely different. While the former formulate juridically abstract norms, the latter have to manage their implementation, obsessing over the respect of norms and losing view of spending management priorities. Two cultures are developing that are no longer able to talk to each other. Lawmakers would finally fall down to earth if they took a sabbatical in local government. Thirdly, the country's institutional setup is perennialy caught in mid-stream between a centralized and a federal model of government (in 2009, 56% of public employees worked for central administrations) and there are uniform controls in a country that has profound regional differences. The control model does not conform with what Italy actually is and thus it does not work.
The stability pact as it is conceived today is an insult to book-keeping. It thinks in terms of ceilings on spending, the inputs, and does not correlate spending to results, i.e. its outputs. Maxima are set individually and thus prevent the search for optimizing administrative combinations. It incrases rigidity at a time when flexibility is needed, while control should keep track of results in various areas. Fifth: we must reduce current spending, and that's the real issue. In order to do it, we need a medium-long term horizon for budgeting and stable rules. Today, according to the present stability pact the approval of the preliminary budget can be delayed until July. So you plan for four months (not counting August vacation) by being sure the rules will change again. The exact opposite of what it's needed. Finally, all controls are focused on legal consistency ex ante, not on actual financial consistency ex post. Thus budget control is virtually impossible, because you cannot compute variations between the planned budget and actual spending. Instead of arguing on numbers and new rules, it's time to have a frank discussion on principles and their actual implementation.