The Italian Economy: Some Notes on Its Achievements and Problems

1

IN THE last ten years Italy’s economic progress has been surpassed by few other nations. Her recovery from the destruction and dislocations of the War has been almost as astonishing as that of West Germany. Foreign assistance, such as the American Marshall Plan aid, helped at first to prime the pump; hard work, resourcefulness, and optimistic determination have done the rest. The most striking achievement has been in industrial production. The output of 1938, which was Italy’s peak prewar year, has been more than doubled. Exports have reached record levels, and many Italian products are now famous all over the world.

However, despite these accomplishments, some of Italy’s most basic problems — overpopulation and the consequent unemployment and underemployment, and the wide gap between the standards of living in the Northern and Southern parts of the country— have not been solved.

One of the main goals of every recent Italian government has been the bridging of this gap between North and South. (Senator Zanotti Bianco has given the historical background of this situation in his article, “The Problem of the South,” in this collection.) Some idea of the size of the gap may be drawn from the statistics for 1955: if the average per capita income in the South for that year is graphed at 100, the average for Northern Italy is 145. And while only l½ per cent of the inhabitants of Northern Italy live under sub-standard conditions, the sub-standard percentage in the South is 28. All the indices relating to consumption, savings, sanitary conditions, education, unemployment, and so on show a similar disparity; it is almost as if North and South were two different countries.

Not all the government measures have been equally successful. Much progress has been made in the South, it is true, but the highly industrialized North has taken even greater strides, so that the gap is widening rather than being closed. The Government allocated a sum of over seven hundred and fifty million dollars for the first five years for its Southern Development Fund, this to be applied in addition to normal public works budgets for the area. But, not infrequently, financial pressures have obliged the ministries concerned to reduce their normal expenditures for development. Only sustained effort on a vast scale can solve the problem of the South, and it will take a long time.

Out of our total population of about 49 millions, some two million are unemployed. And the population is increasing each year at the rate of 300,000, with the largest growth in the depressed South. Then it is estimated that there are between three and four millions of underemployed — workers with part-time or seasonal jobs which cannot support them. In the past, emigration helped to relieve the pressure of overpopulation. But today the demand from abroad is for skilled workers while those who might fill it are, for the most part, untrained. As a matter of fact, there is even a shortage of skilled labor in certain Italian industries.

A large number of Italians, who remain citizens of Italy, have either permanent or seasonal employment outside the country. There are about 250,000 in Switzerland alone and many in France, West Germany, Belgium, and England. 105,000 emigrated overseas in 1957, the greater part of them going to Canada, Venezuela, Australia, the United States, and Argentina. Of these, about 60 per cent were from the South, Sicily, and Sardinia.

The trend toward automation in industry is a further problem and one which is leading to some conflict between government and private industry. Manufacturers must cut costs to meet foreign competition, but in the large number of Italian industries which are State-controlled there is naturally pressure to keep up employment figures regardless of cost.

2

THERE are probably more State-owned, or Statecontrolled industries and other commercial enterprises in Italy than in any other country west of the Iron Curtain. To date, the pattern has perhaps been closer to what might be called “state capitalism” than to the concepts of orthodox socialism. Much latitude has been given to the managers of these industries, and the way in which most of them have been operated has differed little from that of private business. Recently, however, a more socialistic government policy for the State-controlled industries has been gaining ground.

Last year, for example, a new law required industries the greater part of whose capital comes from the State, to withdraw from the Confederation of Industry. This meant that their production and wage policies would no longer follow that of privately-owned industry. And a new Ministry of State Shareholdings was established to co-ordinate the many State-dominated enterprises.

What are these State-dominated industries? Most of them are grouped under two large holding companies, the IRI (1st it at o per la Ricostruzione Industriale) and the ENI (Ente Nazionale Idrocarburi). There is also the State Tobacco Monopoly, under the Ministry of Finance. The IRI embraces: the Finsider group, whose companies produce more than 50 per cent of Italy’s steel; the Finmeccanica group, which includes AlfaRomeo automobiles, several shipbuilders, engineering firms, and manufacturers of machinery; Finelettrica in the field of power companies; Finmare, which runs four of the largest shipping lines; The Alitalia airline; all five of the country’s telephone companies; the Italian Broadcasting and Television Corporation; and, significant because of its effect on the nation’s credit structure, the three major banking chains. The ENI group controls the leading domestic oil company and shares ownership with British Petroleum and Standard Oil of New Jersey in three large refineries. It also dominates the ANIC Chemical Company and a large number of other concerns.

While ihe State may hold technical control of all these businesses, it is essential to remember that, in a great many of them, private stockholders represent a substantial interest and that the managerial class which operates them is, by and large, very strongly oriented toward the profit-making concepts of free enterprise.

Another somewhat socialistic aspect of the present Italian economy is government price-fixing. The Interministerial Committee for Prices determines the price scale for such basic products and services as coal, gasoline, natural gas, asphalt, certain ores, glass, many chemicals, fertilizers, medicines, wheat, rice, sugar, electric power, water supply, telephone service, hotel rooms, and even daily newspapers. During the crisis after the War there was considerable regulation of the import and export trade, in order to conserve foreign exchange for essentials, but these restrictions have been progressively loosened with the marked improvement in the gold and dollar reserve position. As of March, 1958, these reserves amounted to 51 per cent of the Bank of Italy’s note circulation and the average national import figure for five months.

Is the Italian economy expanding as rapidly as it might ? Italian industrialists are sometimes accused of preferring a high profit on small volume to the theory that lowering prices will increase sales. This charge is certainly unfair to our more progressive business leaders, who are eager to enlarge their markets and who also believe, as did Henry Ford, that higher wages are returned in increased consuming power. Yet it is certainly true that some industries have not expanded for fear of future labor problems in a recession period. Both government regulations and pressure from the unions make it difficult to lay off workers in Italy. The postwar emergency measures forbidding dismissals have been relaxed, but an employer must still reckon with strong public feeling if he seeks to reduce his labor force.

The labor movement is not at present very influential in the shaping of economic policies. Involvement in political rivalries has prevented unification and weakened its overall strength. The largest block of unions is the Communist-dominated CGIL (Confederazione Generale Italiana del Lavoro), followed by the Christian Democratic CISL (Confederazione Italiana Sindicati Liberi), with the UIL (Unione Italiana de Lavoro) considerably less strong. The ACLI (Associazione Cattolica di Lavoratori Italiani) is extremely influential within the Christian Democratic Party, and a number of its members have been elected to Parliament.

In recent years, the level of wages in Italy, particularly in the North, has risen dramatically. The improved standard of living resulting from this rise is seen both in the growing market for automobiles, motor scooters, radio sets, appliances, and in the changing pattern of foodstuff consumption.

The broad improvement in our economic situation has been possible because of the stability of the lira. Between 1938 and 1947 there was a runaway inflation which reduced the value of the lira by fifty times; stringent controls and reviving production checked the decline after 1947, and, while we still have inflationary pressure, it is being kept in hand. A liberal import policy now makes imported products available at stable prices, and the cost of living index has been rising at an average rate of only between 4 and 5 per cent in recent years. To be sure, we still have a government deficit, which is carried by tfie sale of 9-year 5 per cent Treasury Bonds and by some increase in the note circulation; and it is hard to see how the country, and especially the South, can be developed as it must be without continued recourse to deficit financing; yet, as long as productivity continues to rise proportionately, there seems little ground for serious concern.

The credit system is, in effect, controlled by the Government, through the State-dominated banking chains and the Bank of Italy, which is our bank of issue. Commercial banks handle only short-term loans; medium and long-term credit is issued through State-controlled agencies such as the Mediobanca. It is not so easy here as it is in the United States for an individual to get a small loan, but installment buying has become an important stimulating factor in the economy. Almost anything can now be bought on the installment plan.

Poverty, as we have seen, is still widespread in the South, but in the North, the only classes which are suffering economic hardship, apart from the unemployed, are civil servants, whose pay is low compared to that in industry, people living on pensions, retirement pay, or from controlled rents, and seasonal agricultural laborers. Italy is far from being a “welfare state” to the extent that Britain now is. Our welfare and social service programs are not, in general, financed through the government budget. Instead, independent welfare institutions have been created to which both employer and employee are required to contribute. It is estimated that for every 100 lire in wages an employer must pay an additional 50 lire into the various welfare funds; employees contribute a varying, but small percentage of their wage. By and large, only the employee himself, not his dependents, is entitled to benefits, and the whole system is strongly criticized because of its high cost in relation to the poor service given to the employee.

The Italian tax structure is extremely complex, with indirect taxation the major source of revenue. There is a Turnover Tax on every transaction, even on component parts in the manufacturing process, and practically everything in Italy is taxed, from the neon signs outside shops to automobiles. A determined effort is now being made to increase the revenue from direct taxation, with emphasis on income tax and surtax. Individuals are now required to file income tax returns where formerly they were simply assessed by the authorities. There is also the “Family Tax” which amounts to a municipal income tax. Tax evasion, for years a scourge, is now being more successfully controlled.

Italy is now pinning great hopes on the Common Market, or European Economic Community, which she has joined along with West Germany, France, Belgium, Holland, and Luxembourg. The Community’s aim is to achieve in twelve years an entirely open market among the six nations, in which all barriers to the unhampered flow of trade will have been abolished. It is also working toward the free movement of capital and labor, which should be most beneficial for Italy, which is short of capital but long on manpower.

Italy will also be a partner in the Free Trade Area proposed by Britain, which is to include the other free nations of Europe and Turkey. The European Economic Community is, of course, a more fundamental concept since it looks eventually to political federation, too, while the Free Trade Area will not go beyond trade, and the member nations will be permitted to maintain individual tariff systems. Both plans will, unquestionably, present serious problems, as well as advantages, for Italy, in terms of competition and foreign investment. Nevertheless, most Italian businessmen favor the proposals, looking to the vastly enlarged markets for their products and hoping that their ingenuity will find ways to meet the competition from abroad for their domestic market.

When friends in America ask me to define the underlying philosophy which is guiding the Italian economy today I find it difficult to give any very simple answer. We have many quasi-socialistic situations in our structure, yet we are certainly not a socialist society. Free enterprise is anything but dead in Italy, and the rewards for individual initiative are far from discouraging. There is much more government intervention in business than you have in the United States, but labor is weaker, and we are not, as I have said, a “welfare state” like Britain.

Perhaps, to try to sum it up, I might quote a New York acquaintance who recently spent some time here talking with representatives of Government, industry and banking. “What you seem to have here,” he told me, “is a kind of pragmatic economics. It doesn’t go by the book, either the capitalist’s or the socialist’s book. Your Government came in strong after the War, with capital and controls, because it had to, to get things going. And as new problems developed your planners met them with whatever they thought would work. What didn’t was dropped or changed. You have a strong managerial class and good bankers; but they know they cannot swing it alone without government help. As a result, there is a kind of unwritten understanding between the business and political leadership that socialism will go so far and no farther. It may not exactly be a planned economy, but it certainly seems to work.”