Italian Scandal May Bring Reform to Business Ethics

ITALY'S bribery and corruption scandal could change decades-old ways of doing business in the country.

For more than a year, businessmen and politicians have been confessing to investigators that they gave and received billions of dollars' worth of kickbacks on public contracts. The scandal has badly hurt state-owned companies and construction companies, which depend heavily on public contracts. It has even touched large private companies: Two senior managers of the carmaker, Fiat, remain in prison, despite appeals for their release.

As the judicial probes advance, there is a sense of hope among many businessmen that the result will be a more transparent market, says Aldo Fumagalli, president of the Young Businessmen and vice president of the Confindustria employers' federation.

"There's optimism because we see a change in the rules of play nearing, an effort to recover a true market," Mr. Fumagalli says. "But changing the rules isn't enough if there isn't different behavior along with it."

He does not want to see the country's entire business class tarred by the scandal.

Indeed, he maintains that most Italian businessmen have not paid bribes.

"But there are those who have," he is quick to add, "and they should be mercilessly rooted out."

Already the public sector is changing as a result of the scandal and of early steps by Prime Minister Giuliano Amato's government toward privatizing Italy's mammoth public companies. Governing boards are being streamlined.

"What we're hearing is that decisions are being made on an economic basis these days," says a Western diplomat in Rome. "There are real attempts to operate in accordance with market forces.... This has real significance, provided it continues."

But deeper change - genuine privatization - has been stalled by opposition within the Amato government to sell-offs, preoccupation with the current scandals, and unfavorable market conditions.

"There has not been a wholesale dumping of stocks on the Milan stock exchange or internationally," the diplomat notes.

It is largely executives from state agencies - the ENI hydrocarbons conglomerate, the ENEL electricity generators, and the ANAS road agency, for example - who have gone before judges in recent months to defend themselves or to confess to paying kickbacks to Christian Democrats, Socialists, and politicians of lesser parties.

As revelations continue, the political landscape is rapidly changing. The Socialists, who supported and helped build a strong state economic sector, have been hit hard by the scandal. A year ago, they were the second-largest party in the governing coalition; today, they enjoy about as much voter support as the small Greens Party. In a few weeks Italians will vote in a referendum on 10 questions, including one that would establish a mandate for changing the electoral system for the Senate. The current pro portional representation system has fostered 12 national political parties. The proposed change would establish a British-style system, probably resulting in the survival of only two or three parties. A "yes" vote is expected.

As the scandal grinds on and uncertainty persists over the proper ethical standards in making deals these days, public contracts - even at the regional and city government levels - have ground to a halt. The parliament rejected a move by the Amato government this month to unblock state funds and allow even those businesses that are being investigated in the scandal to continue work on public projects.

"In good or bad faith, many public administrators won't do more than what they're supposed to do: administrate," Fumagalli says. "So it's not only because of the magistrates' actions that there's this paralysis in many cases, in many regions."

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