Italy has a very anomalous economy. Parts of the country, especially the North, are highly industrialized; the South, by contrast, never fully experienced industrialism and modernization. Italy is a very large economy (the seventh largest in the world), with a high standard of living, yet it is also short of multinational companies. Even Switzerland and the Netherlands, let alone Germany, France, and Great Britain, possess larger numbers of huge firms with worldwide interests. Italy industrialized late behind steep tariffs imposed by the governments of Agostino Depretis and Francesco Crispi in the 1870s and 1880s. This mercantilism enabled a domestic steel industry to grow and helped wealthy business interests in the North, but retaliation from other countries, notably France, damaged agricultural exports from southern Italy. The massive wave of migration from Italy in the late 19th and early 20th centuries was provoked by agricultural depression in the South that industrial growth in the North could not sufficiently assuage. The figures show clearly that Italy’s economic growth was distinctly weaker than Germany’s between the 1860s and the outbreak of World War I. In 1900, Italy’s share of world manufacturing, at 2.5 percent, was exactly the same as it had been in 1860. Germany, meanwhile had improved its share from 4.9 percent to 13.2 percent. Overall GNPincreased (measured in 1960 U.S. dollars) from $7.4 billion to just $9.4 billion, although it is true that there was real acceleration in the decade preceding war. In per capita terms, this meant a meager increase, from $301 to $311 (figures from Paul Kennedy, The Rise and Fall of the Great Powers. London: Fontana, 1989, 189–190 and 219–220).
   The war boosted production in some areas of the economy but added indebtedness and inflation to Italy’s economic woes. Despite its rhetoric, Fascismnever came to grips with Italy’s economic problems. Benito Mussolini’s obsession with Italy’s prestige only compounded Italy’s difficulties by making certain decisions, such as the devaluation of the lira, impossible, while the worldwide economic crisis of the 1930s bankrupted Italy’s leading investment banks and threw major industries, such as shipbuilding, into crisis. The Fascist state’s solution was to nationalize whole swathes of the economy in the Istituto per la Ricostruzione Industriale (IRI). Italy’s share of world manufacturing output was 3.3 percent in 1929; by 1938, on the eve of war, the figure had fallen to just 2.9 percent. Despite the fact that defense spending took almost 15 percent of GNP and living standards were hardly higher than in 1914, Italy’s war potential was lower than any other major power. Indeed, Italy was not a major power. Under the circumstances, Mussolini’s reluctance to enter the war until Nazi Germany’s victory seemed certain can be explained by the dictator’s awareness of the country’s economic weakness. His costly adventures in Ethiopiaand in the Spanish Civil War are less explicable. Italy could not afford Mussolini’s foreign policy.
   After World War II, Italy’s devastated economy was put back on its feet by the sound money policy followed by the Banca d’Italia, which avoided hyperinflation, albeit at heavy social cost, and Marshall Plan aid, which in Italy’s case undeniably helped the transition to democracy. In the 1950s, the boom known as the economic miracle began. The percentage of the population working on the land finally decreased. Italy became the workshop of Europe, producing light industrial goods for the rapidly expanding European consumer market. The statistics are striking: In 1951, agriculture employed 42.2 percent of the working population; industry 32.1 percent. In 1971, agriculture employed just 17.2 percent; industry, by contrast, had expanded to 44.4 percent. The shift of workers into the service economy began in earnest only in the 1970s.
   Postwar Italy made a conscious choice to extend state participation in the economy. Indeed, by the 1970s, Italy was probably the most statist economy outside the communist bloc. In addition to the dozens of firms operating within IRI, which included Ilva (steel), Stet (telephones), and Finmeccanica (an engineering group), the state controlled the energy industry through the Ente Nazionale Idrocarburi (ENI) and dominated the market for credit via its dominating presence in the banking system. Almost the entire banking sector, and all big lending and investment decisions, were in the hands of stateowned banks, which in practice meant the political parties. The economic consequences of such massive state participation were predictable: Italy’s biggest companies, especially in southern Italy, became social welfare agencies and political fiefdoms (which is one reason why there are so few multinational Italian firms today). By the 1980s, the state sector was running giant losses. Contemporaneously, however, the other characteristic feature of the modern Italian economy also appeared. Small businesses, usually family-owned and employing less than 10 employees, began to form industrial districts in which whole communities collaborated in the production of specific products and shared marketing, design, and research costs. The economic growth of Venetia and Lombardy is largely attributable to the success of these companies, which have made Italy a world leader in a vast array of high-quality consumer goods. In 2000, 83.5 percent of Italian manufacturing firms employed less than 10 employees. More significantly, the total of industrial firms employing over 100 workers was less than 1 percent, even though these firms accounted for 55 percent of sales (figures from Martin Bull and James Newell, Italian Politics. Cambridge: Polity, 2005, 178).
   The inefficiencies of the Italian state, which eroded the competitive edge of the small business sector, was one major cause of the rise of the Lega Nord/Northern League (LN). The crisis of Italy’s public finances in the 1990s also impelled change. In 1993, Italy began the largest privatization program (larger even than Great Britain’s) of any Western democracy to date. By 2000 numerous banks had been auctioned off, as had the state motorways, Rome airport, parts of ENI, Telecom Italia (as Stet was now known), and Ente Nazionale per l’Energia Elettrica (ENEL), the national electricity agency. Proceeds amounted to 170,000 billion lire, and billions of euros more have since been raised by further sales of stock in ENEL. It is also true that these gains have been offset by huge subsidies to the remaining state enterprises such as Alitalia, the state airline, and the loss-making state railway system.
   Italy’s main economic need today is transforming its economic model to meet the new challenges emerging from low cost manufacturers in countries such as China, India, and Turkey. Italy’s economy is more exposed to competition from emerging nations than Germany’s or Britain’s, and its political system is less able to implement reforms. The postwar economic boom arguably had a greater transformational effect on Italy than any other European country, but the conditions that made it possible have now vanished.

Historical Dictionary of Modern Italy. . 2007.


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