Why do Spain and Italy have so many economic issues compared to France, Germany, and the UK? originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Tonia Nagle, M.A. Economics and Politics, on Quora:

You need to look at the macro, micro, political and cultural environments to understand the economic environments in Spain and Italy.

First, I would say that both countries clearly had hangovers from their involvement in WW2 without benefiting from as much political or economic restructuring as Germany in the post-war period.

Second, they are ancient civilizations which have grown up with complex micro-structures. Modern business tends to rely on the ability to trade easily at scale. This brings down the costs required to get your products or services to the population. Spain has overcome this better than Italy, but scaling distribution is much harder in these countries than in the more Northern trio that you mention.

Thirdly, these are 'relationship' over 'rationale' environments. Cultures tend to oscillate between the two ends of the spectrum, with most positive long-term trying to find a happy medium. However, the cultural stereotype for our satellite offices here would go something like this:

Italy satellite office: "We have this fantastic opportunity to sell more and create a great ongoing business if we do this project."

Central office: "Great! Send us some numbers and if it stands up, you'll get the investment!"

Italy, 3 months later (still no numbers despite regular requests): "The reason we are going to miss our forecast is because you never gave us the investment for our fantastic opportunity!"

With Spain - the balance is a bit better, but the relationship stuff is super-important. They would run all the numbers and know their stuff, but a) you needed to visit them so they trusted you to trust them to do the work b) the you had to give them as much autonomy to run it by themselves as you could. It would invariably go pear-shaped somewhere along the line but they would pull it together because one of them went to have a chat with the right person to fix it all. This final step would be the bit they were most proud of.

Fourthly (if I haven't annoyed too many folks with my stereotyping already) - the legal system is a nightmare. Basic property and contractual law is mired with red tape and processes that test the patience of a pope. It's off-putting to investment and entrepreneurial zeal and encourages 'out of law' solutions which also may avoid taxes. As a result, favours and backhanders are more commonplace than in UK, France or Germany.

Fifth - It's hot. Do not underestimate the effect of climate on productivity. Northern countries have populations who are able to move around and breathe comfortably between midday and 3 PM for all the year and where you can work through August without melting. I would suggest that southern France also suffers from this and the economy would reflect it if you looked at activity by department.

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Published on: May 19, 2017