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T HE NEW YORK TIMES INTERNATIONAL EDITION TUESDAY, AUGUST 13, 2019 | 7

Business

Whatever hopes there were that a radi-

cally unconventional government might

jolt Italy out of its economic torpor have

mostly given way to bitter resignation

that, in this country, nothing ever seems

to change.

More than a year since Italy handed

power to a coalition of two fractious

partners — the right-wing populist

League and the anti-establishment Five

Star Movement — the economy is suf-

fering the strain of ceaseless political ac-

rimony.

And now the histrionics appear on the

verge of producing yet more chaos and

uncertainty, as Matteo Salvini, leader of

the League, last week declared irrecon-

cilable differences with Five Star and

called for snap elections.

Companies are deferring expansions

and limiting investment rather than

risking cash in a time of uncertainty. The

public debt remains monumental, run-

ning at more than 2 trillion euros, or $2.

trillion, or more than 130 percent of an-

nual economic output.

Banks are still stuffed with bad loans

— albeit fewer than before — making

them reluctant to lend. An economy that

has not expanded over the past decade

stagnated between April and June, ac-

cording to recent data, while investment

diminished. That kept Italy on track to

grow not at all this year while re-

inforcing its claim on an unwanted title:

weakest economy in Europe.

Early this year, the Adler Pelzer

Group, a major Italian manufacturer, se-

cured an order worth nearly $3 million

to make parts for military aircraft. That

meant 250 new jobs at its factory outside

Naples, the heart of perpetually trou-

bled southern Italy.

“It was a great opportunity,” said

Paolo Scudieri, the company’s chairman

and a member of the board of Confindus-

tria, Italy’s most powerful business as-

sociation.

But the company recently shifted the

work to a factory in Poland in reaction to

the intensifying political chaos.

“The battle with the E.U. and the con-

flicts with the world have created prob-

lems of credibility for the Italian govern-

ment,” Mr. Scudieri said. “They have

created problems not just for my com-

pany but for all Italian companies and,

most of all, for Italy itself. Whoever

might like to invest in Italy now thinks

twice.”

Italy last month managed to defuse its

most immediate problem, the risk of

punishment from the European Union

for breaching limits on its public debt.

After threatening to impose fines, Brus-

sels held off when some of Italy’s cur-

rent spending plans proved less expen-

sive than anticipated.

That achievement was celebrated in

Rome as evidence that Italy can reduce

its debt and avoid conflict with the Euro-

pean bloc.

“It was important to recreate trust in

the markets, especially that families

and companies believe that public fi-

nances are viable,” the Italian finance

minister, Giovanni Tria, said during an

interview in his cavernous office in

Rome, where the stupendous ceiling

frescoes could provoke jealousy at the

Vatican.

“We have eliminated all possible dis-

cussion about our position in Europe,”

Mr. Tria added. “We want to change the

rules, but we are complying with the

current rules.”

Yet more skirmishes with Brussels al-

most certainly lie ahead this fall as the

government begins deliberating over

next year’s budget. The League remains

intent on adopting a so-called flat tax

plan to reduce taxes. Paying for that

would force Italy to cut spending or

clash anew over European debt limits.

“We will have to choose,” Mr. Tria

said. “If you want to have fiscal reform

in the direction of the flat tax, we have to

cut expenditures.”

The trouble is that cutting spending

deprives the economy of fuel for growth.

Successive Italian administrations have

emphasized the need for expansion in

pleading with Brussels for permission to

spend more than budget rules allow.

This has always been a tough sell, giv-

en that austerity-minded European offi-

cials are prone to view Italy as a mis-

chievous teenager trying to pry loose

the family credit card. It is a tougher ar-

gument now, with Italy run by a govern-

ment whose leaders have frequently

threatened to break with European or-

thodoxy.

The political turmoil has intensified in

recent weeks after a report from Buzz-

Feed that advisers for the League met

secretly with Russian officials seeking

to improve the party’s prospects in this

year’s European Union elections. Mr.

Salvini has denied the report, while his

Five Star counterpart, Luigi Di Maio,

urged him to address Parliament. The

latest trigger for hostility was Five

Star’s opposition to a high-speed rail-

road connecting northern Italy to

France.

With the collapse of the government

now a looming possibility, Europe’s

fourth-largest economy remains stuck

in a familiar quagmire.

“It’s serial stagnation,” said Nicola

Borri, a finance professor at Luiss, a uni-

versity in Rome. “The economy doesn’t

contract, it doesn’t grow. Italy is a coun-

try that is weak, that is old, where there

is no investment in new ideas.”

Some business leaders argue that

gloomy talk is masking strength, espe-

cially in industrial areas in the north of

the country.

“The real economy in the country is so

strong,” said Carlo Messina, chief execu-

tive officer of Intesa Sanpaolo, Italy’s

second-largest bank by assets. “We will

continue to be a very resilient country in

any scenario.”

He dismissed the political drama as a

sideshow. “Believe me,” he said, “in Ita-

ly, we are used to a political situation like

this.”

The current government is in many

ways the product of public dismay over

Italy’s dismal economic performance.

Five Star gained favor with promises for

so-called basic income payments —

cash grants for low-income people. They

were especially appealing in the south of

Italy, where joblessness forms the back-

drop to everything. The League, now

the dominant political force, captured

Italy’s biggest economic problem? Itself

I TALY, PAGE 8

Clockwise from above: A worker making seat padding for Fiat cars at the Adler Pelzer Group in Naples, Italy; members of a community organization marching in the city against

unemployment and undeclared work; organization members gathering in an abandoned church in Montesanto, a working-class neighborhood.

PHOTOGRAPHS BY GIANNI CIPRIANO FOR THE NEW YORK TIMES

NAPLES, ITALY

Political chaos reinforces

what a professor calls the

nation’s ‘serial stagnation’

BY PETER S. GOODMAN

United States Senator Elizabeth Warren

has called for the breakup of big tech

companies like Facebook. Regulators

have opened investigations into Face-

book’s power in social networking. Even

one of Facebook’s own founders has laid

out a case for why the company needs to

be split up.

Now the world’s biggest social net-

work has started to modify its behavior

— in both pre-emptive and defensive

ways — to deal with those threats.

Late last year, Facebook halted acqui-

sition talks with Houseparty, a video-fo-

cused social network in Silicon Valley,

for fear of inciting antitrust concerns,

according to two people with knowledge

of the discussions. Acquiring another

social network after Facebook was al-

ready such a dominant player in that

market was too risky, said the people,

who spoke on the condition they not be

identified because the discussions were

confidential.

Facebook has also begun internal

changes that make itself harder to break

up. The company has been knitting to-

gether the messaging systems of Face-

book Messenger, Instagram and Whats-

App and has reorganized the depart-

ments so that Facebook is more clearly

in charge, said two people briefed on the

matter. Executives have also worked on

rebranding Instagram and WhatsApp to

more prominently associate them with

Facebook.

The social network’s changes are now

prompting a debate about whether a

more knitted-together Facebook,

WhatsApp and Instagram is just smart

business or helps strengthen potential

anticompetitive practices. Mark

Zuckerberg, Facebook’s founder and

chief executive, has repeatedly said his

company faces competition on all sides

and is loath to accept a fragmented ver-

sion of the social giant. He does not want

to lose Instagram and WhatsApp, which

are enormous and have the ability to

continue fueling Facebook’s $56 billion

business.

“The big question is, is this a logical

business plan?” said Gene Kimmelman,

a former antitrust official in the Obama

administration and senior adviser to

Public Knowledge, a nonprofit think

tank in Washington. “For a social net-

work with enormous growth in photos

and messaging, there’s probably signifi-

cant business justification for combin-

ing the units.”

But Representative David Cicilline,

Democrat of Rhode Island and the chair-

man of the House antitrust subcommit-

tee, said Facebook’s moves needed to be

scrutinized.

“The combination of Facebook, Insta-

gram and WhatsApp into the single larg-

est communications platform in history

is a clear attempt to evade effective an-

titrust enforcement by making it harder

for the company to be broken up,” he

said. “We need to hit the pause button.”

Facebook has pushed back on the idea

that the company’s moves — particu-

larly in private messaging — are in an-

ticipation of a potential breakup.

“Building more ways for people to

communicate through our messaging

apps has always been about creating

benefits for people — plain and simple,”

said Stan Chudnovsky, a vice president

at Facebook overseeing messaging.

“People want to be able to reach as

many people as they can with the mes-

saging app they choose.”

In Washington, Facebook has its eye

particularly on the Federal Trade Com-

mission, the agency that is now investi-

gating it for anticompetitive practices,

said two of the people with knowledge of

the social network.

The commission became interested in

looking at Facebook and its power last

year when the agency’s investigators

were separately examining the com-

pany for privacy violations, said two

people close to the process. At the time,

the trade commission’s investigators

uncovered internal Facebook docu-

ments that prompted concerns around

how the company was acquiring rivals,

they said.

Facebook’s long string of acquisitions

— it bought Instagram in 2012 and

WhatsApp in 2014, among many others

— has been targeted by academics and

policymakers for reducing competition.

They have argued that the company en-

gaged in “serial defensive acquisitions”

to protect its dominant position in social

networking.

This year, the trade commission

sought clearance from the Justice De-

partment to open an antitrust investiga-

tion into potentially anticompetitive be-

havior at Facebook, the people close to

the process said. The commission was

cleared to do so, and notified Facebook

in June. By late July, the agency had

contacted at least a half-dozen founders

of companies that Facebook had bought

over the past 15 years for information on

its acquisition practices, said four peo-

ple with knowledge of the outreach.

Around the time that the trade com-

mission’s activity on Facebook ramped

up, the company also stepped back on at

least one potential acquisition.

Last December, Facebook executives

were in advanced discussions to buy

Houseparty, a social networking app

that lets multiple people video chat on

their mobile phones at once, said two

people with knowledge of the talks.

Houseparty, founded in 2016 by a Silicon

Valley entrepreneur, Ben Rubin, was es-

pecially popular with audiences under

the age of 24. Facebook, whose mem-

bers are getting older, has coveted

younger users.

But weeks into the discussions, Face-

book’s corporate development team

killed the talks with Houseparty, the

people said. Houseparty’s executives

were told that a deal would draw unwel-

come federal government scrutiny to

Facebook, they said.

Facebook’s changes that appear to

make a breakup of its apps more difficult

began more than a year ago. Mr. Zucker-

berg focused on combining the underly-

ing infrastructure of WhatsApp, Insta-

gram and Facebook Messenger. The

project, called “interoperability,” re-

quires years of deeply technical and dif-

ficult engineering work.

The aim, in part, was to create less of a

hodgepodge of companies and more of a

unified network, said people briefed on

the strategy. Publicly, Mr. Zuckerberg

has said the initiative will help build a

more “private” version of Facebook so

customers can “communicate across

networks easily and securely,” as users

flock to messaging services en masse.

People will also get a better and more

streamlined user experience, he has

said.

Though employees at Facebook, In-

stagram and WhatsApp are in separate

physical buildings, executives have also

pushed for them to share more internal

resources and have reorganized their

reporting lines. In one instance, Face-

book executives ordered a change in the

messaging teams, two of the people

said, requiring the Instagram messen-

ger division to report to the leaders at

Facebook’s Messenger app. Bloomberg

earlier reported on the reorganization.

Last year, Facebook also began a re-

branding project, tapping at least one

outside agency for help, said three peo-

ple familiar with the initiative. The

agency, Prophet Brand Strategy, was

asked to make Facebook into a

“branded house,” where Facebook’s

moniker always preceded the names of

WhatsApp and Instagram, they said.

In March, Jane Manchun Wong, an in-

dependent security researcher, spotted

the new branding “Instagram from

Facebook” — in some unreleased lines

of code.

Employees at both Instagram and

WhatsApp, who have been accustomed

to greater autonomy, have chafed at the

coming changes, said three people fa-

miliar with the divisions.

In hindsight, Facebook had quietly

signaled that unification was afoot more

than a year ago. In June 2018, the com-

pany introduced a combined metric that

drew attention away from any individ-

ual product. It tallied the number of peo-

ple who used one or more of any of Face-

book’s services, including WhatsApp

and Instagram.

The name of the new metric? Face-

book’s Family of apps.

Facebook is changing to fend off scrutiny of its power

SAN FRANCISCO

BY MIKE ISAAC

Ben Rubin, founder of Houseparty, a

social network once coveted by Facebook.

WINNI WINTERMEYER, VIA HOUSEPARTY

Two months of boiling antigovernment

protests have divided Hong Kong’s peo-

ple. Now, the unrest has pitted one of the

territory’s best-known international

brands against some of its own employ-

ees.

The Chinese government has forced

Cathay Pacific Airways, a longtime em-

blem of Hong Kong’s proud status as a

global capital, to bar staffers who sup-

port or participate in the protests from

doing any work involving flights to

mainland China. As part of the same de-

mands, issued on Friday, it ordered that

the airline begin submitting information

about all crew members flying to — or

above — the mainland to the Chinese au-

thorities for prior approval.

Cathay said separately on Saturday

that it had removed from flying duties a

pilot who was charged with rioting in

Hong Kong, and that it had fired two

members of its airport ground staff for

misconduct. Earlier in the week, the air-

line said it would investigate accusa-

tions that its employees had leaked the

travel information of a Hong Kong police

soccer team.

The orders from mainland air safety

officials represent an escalation of intru-

sion in Hong Kong’s business affairs, il-

lustrating the power Beijing wields over

international companies that build their

fortunes on access to China. Some in the

semiautonomous Chinese territory fear

that Beijing’s political encroachment

also represents an economic threat, not

only to Cathay, but also to all multi-

national companies in Hong Kong.

On Monday, the Hong Kong airport

canceled more than 100 flights from late

afternoon as thousands of demonstra-

tors flooded the terminals to express

their anger over the police response to

protests across the city the night before.

They had gathered throughout the day,

eventually filling the arrivals hall, be-

fore more protesters went upstairs to

the departures hall.

Cathay representatives did not re-

spond on Sunday when asked how ex-

actly the company planned to enforce

the new orders from Beijing. China’s avi-

ation regulator was not available for

comment.

“If you’re a boss, you’re thinking, ‘Oh

my God!’ ” said Carol Ng of the Hong

Kong Cabin Crew Federation, a labor

union that represents airline workers.

“ ‘I just want to do business here. Now

they’re screening my staff.’”

This kind of fear could do real damage

to Hong Kong’s economy, Ms. Ng said,

“much more than the protests or rallies

themselves.”

The airline’s largest shareholder is

Swire Pacific, a conglomerate based in

Hong Kong with British roots. Its sec-

ond-largest owner is Air China, the

state-run carrier. Cathay Pacific’s

shares fell 4.85 percent on Monday.

The company’s predicament under-

Airline feels

growing grip

of Beijing on

Hong Kong

A IRLINE, PAGE 8

HONG KONG

Cathay Pacific is ordered

to limit flights for workers

who support protests

BY RAYMOND ZHONG

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