Abstract:
Under pressure from the European Union, which had admitted Italy to the Eurozone hesitantly, on condition that the country control its deficit spending and reduce its high public debt, the central government in Italy initiated dozens of cost-cutting programs in the late 1990s and early 2000s. One such program aimed to economize, to the tune of billions of euros, on public procurement of goods and services. The program's first priority was to identify products and services bought widely by public agencies at every level of government, and consolidate them into nation-spanning mega contracts. By aggregating public sector demand in this manner, analysts had reasoned, Italy's public sector could greatly increase its market leverage and win big discounts from suppliers. This appraisal proved correct but also politically explosive. In November 2003, Italy's Minister of Economy and Finance ordered a temporary halt to the program to give political and administrative leaders a chance to figure out what to do.
Learning Objective:
This decision-forcing case allows students to consider how Italy might have averted this political backlash, and challenges them to propose how the government might adjust the project in ways that address the concerns of the critics, but still allow it to improve procurement efficiency and reduce its costs.
