In 1995 Italy’s labor productivity was above that of the USA. In the following quarter-century Italian productivity almost stagnated. This long relative decline of an advanced country has no parallel in modern economic history. The slow adaptation to the second globalization and digital technology is ascribed to financial and political uncertainty. The chapter identifies the areas in which adaptation to the new global environment was too slow (education, R&D, reliance on SME, inefficient bureaucracy, and judiciary). We also emphasize social and political weaknesses resulting in the large public debt. Uncertainty held back domestic and foreign investments. A brief window of opportunity in the early 2000s showed Italy’s potential resilience, when economic decline could have been reversed.

During the Renaissance, central–northern Italy was both Europe’s intellectual and artistic hub and its most prosperous economy. From the seventeenth to early nineteenth century, the Italian economy drifted from center to periphery, in a long economic decline. During that decline, Italy was fragmented and subject to foreign occupations. Structural divides got deeper and a distance between citizens and public authorities emerged. We summarize the fruits of Italy’s “modern economic growth” since political unification through four periods in Italy’s transition from poverty to abundance: a) 1861–1896 slow growth and divergence from Western Europe’s leading economies, b) secular movement from “periphery” to the “center” of the developed world; 1896–1995 was a century of almost uninterrupted, if uneven, convergence with the world’s richest countries, c) 1995–2007 was a period of losing ground: slow growth and relative decline, d) 2008–2019 from relative to the absolute decline of the Italian economy.

The chapter is devoted to the economic, political, and social crisis of the early 1990s: a shock with long-lasting consequences. The crisis catalyzed the weaknesses of the previous political, social and economic fabric. The economic crisis had several components: a public finance crisis, an exchange rate collapse, and a fall in private investment. But the longer-lasting impact of the crisis came from the corruption scandals leading the judiciary to decapitate the main political parties that had run the country since 1945, as well as most of the industrial powerhouses. At a time when bold decisions were swiftly needed to adjust to the new economic and geopolitical landscape, the early 1990s left a legacy of political fragmentation and financial uncertainty.

The twin crises of 2008–9 and 2011–12 witnessed the largest GDP loss in Italian history, except the last two WWII years. In 2020, Italy’s GDP per person was still below the 2007 level. The economy was slow and uncertain in reacting to the crisis. The fiscal response proved to be inadequate, but it nevertheless resulted in a substantial increase in the debt/GDP ratio, which fed into uncertainty about the future of the country, affecting investments. The growth rate of the economy was low, spreading doubts about debt sustainability in the medium-long run. Zero growth accentuated the antagonistic mentality in politics. The traditional North–South gap widened, as did poverty, income inequality, and social divides. Distributional coalitions gained political leverage. The 2018 general elections yielded a populist majority.

The Risorgimento focused on independence from foreign powers and the state’s unification. This perspective is of interest today in a global interdependent context. Economic revival was largely frustrated during three decades after unification. GDP growth fell short of catching up with the more advanced countries. Relative if not absolute decline continued but its causes were different from those prevailing before the mid-nineteenth century. Growth acceleration required institution building, monetary unification, the creation of a single market, physical infrastructures, all of which could not be created overnight. The chapter emphasizes a) widespread uncertainty, in the first decade after unification when the survival of the new kingdom was in doubt, b) the long process of creating trust in the state, particularly in the southern regions.

This chapter recapitulates the findings, showing how financial and political instabilities feed into each other. We show the correlations between financial instability and the fall in investment and between a stagnating economy and the loss of trust in the stability of the democratic system. Italy is the only case so far of a “high-income trap” leading to long-term economic decline. The resilience after the pandemic crisis testifies to two prospective fields of research: the lack of credibility in the national institutions was successfully complemented by the European institutions. The vibrancy of the economy remains as a century-old attitude of Italians: a self-defense mechanism, rooted in centuries of skepticism versus public authorities. This might be a relevant factor in the survival of liberal democracies.