Monday, March 9, 2020

Florence Hit by the Coronavirus: The Curse of Hyperspecialization

Like the Giant Panda, the economy of Florence is at risk of extinction. 

Florence is like the Chinese Panda: a creature highly specialized in the resources it exploits. The pandas need bamboo, Florence needs tourists. No bamboo, the pandas die. No tourists, well....

These days, walking in downtown Florence reminds me of my childhood, when Florence was not packed full of tourists. It is a ghostly experience: there is almost nobody around. The few Florentines walking in the streets look perplexed, as if asking each other "and now what?" All Italy is like that, frozen: schools and universities are closed, most restaurants have closed and the trains and the buses run nearly empty.

Right now, the number of victims caused by the coronavirus is relatively small. It will not be a new black death. But the epidemics illustrates the fragility of our economic system: it is being disrupted not because people are killed by the virus, but because it lacks resilience. It is subjected to that deadly phenomenon called "enhancing feedback" -- the loss of an element of the network can destroy the whole system.

This fragility is especially visible in some highly specialized economies: the city of Florence is a case in point. I already discussed how Florence evolved over the past two centuries or so from a purely agricultural economy to one centered on tourism. You might see it as a parasitic economy, or maybe a scavenging economy. Modern Florentines have been living on the work of their ancestors, hundreds of years ago, in the form of art masterpieces and spectacular buildings.

The problem is not how you define the Florentine economy. The real problem is another. It was known but carefully ignored: it is that this economy is fragile. Tourism is highly sensitive to economic shocks: in difficult times, the first thing that people stop spending money on are expensive trips abroad. And this is exactly what's happening: with the rampaging coronavirus, people all over the world have canceled their trips and they are staying home. And Florence is empty.

In a way, it was expected: it is what I call the "Seneca Collapse." It is something typical of complex systems. Normally, they can absorb external shocks and adapt. But when they are under stress, it may happen that a small shock unbalances the whole system and causes it to collapse. Here is how the Seneca curve looks like: it is inspired by something that the Roman philosopher Lucius Seneca said: "Growth is sluggish, but ruin is rapid."

It is nothing more than the old story of the straw that broke the camel's back. It was not a fault of the straw, but of the camel having been overloaded. Seen in retrospect, it was not a good idea to overload the Florentine economy with infrastructures that brought more and more tourists to the town and that required more and more tourists to provide the resources needed for their maintenance. More hotels, more restaurants, more shops, more events, more roads, and so on. Even a bigger airport was in the plans but that, fortunately, may never materialize. 

A lot of people in Florence are complaining because they are losing money from their investments in bonds and stocks. But the real problem is with the people whose living directly depends on tourism. The people who clean the rooms of hotels and of airb&b's, who serve in restaurants, who drive taxis, who sell trinkets in the squares, who take tourists on tour in groups, and so on. Right now, they are on the edge of panic. Typically, they have no financial reserves and they are often indebted to the banks. But they have to pay their rent and to buy groceries for their families. And they are running out of money.

There are further stacked layers of people who indirectly benefit from tourism. For instance, a friend of mine makes a living out of giving private English lessons. In turn, people in Florence take English lessons mainly because it is a skill useful to deal with foreign tourists. But the virus has scared her students and, in any case, in this uncertain situation, most of them thought it was better to skip the cost of English lessons, it is one of those luxuries that can be postponed for better times. My friend's income has dwindled to zero in a couple of weeks. And she has to pay the rent for her home and buy food for her family.

Let's see things a little more in perspective. According to Statista,  "In 2019, the contribution of travel and tourism to the Italian gross domestic product amounted to 237.8 billion euros. The industry, which is one of the most important ones for the country’s economy, constituted about 13.3 percent of the Italian GDP."

Can the Italian economy survive the loss of 13% of the GDP? Probably yes, just as you can survive being run over a truck. But that doesn't mean it is a pleasant experience, nor a painless one.

Then, how about Florence? There are no data about such thing as a "Gross Town Product" for Florence, but some rough estimates of mine indicate that the fraction of the Florentine economic machine that runs on tourism could be around 30%, and perhaps even more. Now, imagine that international tourism vanishes for an extended period of time. . .  Ow. . . No more bamboo shoots for those poor pandas.

With a bit of luck, the virus will go away in a month or two, leaving an Italy battered but still there. Italians have shown great resilience in the past, think of when they rebuilt the country after the disaster of the second world war. Can they do that one more time?

In principle, yes. But it would take a serious rethinking on the part of a political class that so far has placed all bets into expanding tourism as much as possible, beyond all reasonable limits, all in the name of growth for the sake of growth. For once, they might learn something from this experience.

Unfortunately, right now, the first impression is not good, with noises recently heard from the government about the need to provide economic stimuli for people to buy new cars in order to "restart growth." People never change their minds, just like pandas never change their diet. And, as usual, we march into the future while looking backward.


Ugo Bardi is a member of the Club of Rome, faculty member of the University of Florence, and the author of "Extracted" (Chelsea Green 2014), "The Seneca Effect" (Springer 2017), and Before the Collapse (Springer 2019)