Italian Economy: Italian Economic Miracle (1945-60s)


Figure 1.--The photo shows a working-class family from San Severo (southeastern Italy) with their new and very probably first family car. This is something that most families before World War II could not even dream about, especially in southern Italy. The car is a Fiat 600, a little city car produced by the Italian automaker Fiat from 1955 to 1969. For many Italian families this was the first car that they or probably their neigbors ever owned. This one seems a late-1950s model. Later Fiat changed the opening direction of the doors. The photo, clearly taken on a hot summer day, shows how low-income families commonly dressed.

Italy like much of Western Europe after the difficult immediate post-War years experienced an economic boom, often described as an economic miracle. The most famous of these ecionomic miracles was the one in Germany. But the same occurred in the Low Countries and France as well. The one major exception was Britain which before ghe War had the highest living standard. It would be the only major Western European country without a post-War economic miracle. Mussolini and the Germans left a devestated country in their wake. Government officials faced an enormous challenge. Italy did not have important natural resources such as coal and iron. Its agricultural land not very productive. The trahnsportation system was destoyed in the War. Huge numbers of houses and apartment buildings were destroyed. Inflation quickly became a problem. The Banca d'Italia issue large summs of paper money. There also was a reaction to the removal of Fascist era wage and price control. Italy did not choose carry out a currency as was done in West Germany (causing the Soviets to blockade West Berlin) to create a hard currency. Italian monetary authorities decided to tmpen down inflation by restricting bank lending They imposed a 25 percent reserve ratio on the banks. This absorbed the excess liquidity of the banking system. The Government prohibited Treasury borrowing from the Central Bank without specific authorization. The new Italian Government inherited from the Fascist Government large industrial concens thathad been nationalized as part of Mussolin's Corporate State policies. As a result, the state oened the following assetts: shipbuilding (80 percent), oig iron (60 percent), railroad rolling stock (40 percent), and other industrial holdings. The L'Instituto per la Ricostruzione (IRI) operated as a holding company for these nationalized state enterprises. The company had initially been created to protect the interest of depositors in failing banks. The Government refocused operations to deal with communications, electricity, shipping, shipbuilding, steel and engineering. The Government used IRI to prevent failing state-owned business from laying off workers and adding to the unemployment problem (late-1940s). European integration was an important part of the Italian and wider European success story. heUnited States tied Marshall Plan aid to regional cooperation (1948). This and the Frabco-Germnan raprochment set in motion an integration process. Regional integration beginning with the European Coal and Steel Community (1951) and leading ultimately to the European Union finally brought Italy into the 20th century, including southern Italy. Italy prospered as part of a united Europe. The first real benefit was creating good paying jobs for Italian workers. Many Italian workers went to West Germany where the Economic Miracle first took hold. The money they sent home became a major impetus in jump starting the Italian economy, including industrial expansion that created jobs in Italy itself. At first Italian compaies had the advantage of relatively low wage rates. Italian companies also benefitted from access to a greatly enlarged market whichb included far more affluent consumers than the Italian market offered. Italy had aubstantial population, but large numbers of opeople, particulkarly in the south, lived largely outside the money economy. Another huge assett was that the American military guantee through NATO allowed Italy to limit military spending. The rapid development of the Italian economy after World War II was a major success story. It probably saved Italy from turning to the Communists and following Eastern Europe into the Soviet Empire. The immediate post-War economic reconstruction was followed by spectacular economic growth (1950-63). Increases in the gross domestic product (GDP) totaled an impressive 5.9 percent annually, peaking at aphenomenal 8.3 percent (1961). Italians refer to the 1958-63 period as Italy’s Economic Miracle with phenomenal industrial exoansion. The growth in Italian industrial output peaked at over 10 percent annually at this time. Only Japan and West Germany reported higher numbers. And Italy experience practically full employment, very unusual in Italian economic history.

World War II Devestation

Mussolini and the Germans left a devestated country in their wake. Italy was not a rich country before the outbreak of World War II. The country despite Fascist propaganda to the contrary was not prepared militarily to enter the War or to support an extended War effort. The war was a disaster for Italy. Over 0.3 million Italian military personel were killed or missing. Thre were bombing raids before the Allied invasion (September 1943). Most of the civilian casualties and destruction occured, however, after the Allied invasion. Much of this occurred in connection with Allied assaults on German positions. The Germans set up a series of defensive lines as the Allies pushed then north. The Allies to minimize battelfield losses would use their superority in artillery and air power to heavily shell German positions. As a result of the inaccuracy of aerial bombing at the time, large areas around or near German positions including tows and villages were destroyed. The result was an Italy with large areas devestated by the War. About 70,000 civilians were killed. Such numbers while a tragedy were relatively small compared to other countries devestated by the War. The physical damage in Italy, however, was very substantial. Many towns and villages were heavily damaged or competely destroyed. One estimate suggests that about 10 percent of the physical industrial plant of Italy was destroyed in the fighting. [Harrison, p. 37.]

The Challenge

Government officials faced an enormous challenge. Italy did not have important natural resources such as coal and iron. Its agricultural land not very productive, especially un the south. The transportation system was destoyed in the War. Huge numbers of houses and apartment buildings were destroyed. Inflation quickly became a problem. The Banca d'Italia printed large summs of paper money without the revenue to back it. There also was a reaction to the removal of Fascist era wage and price control.

Fiscal Policy

Italy did not choose carry out a currency as was done in West Germany (causing the Soviets to blockade West Berlin) to create a hard currency. Italian monetary authorities decided to tampen down inflation by restricting bank lending They imposed a 25 percent reserve ratio on the banks. This absorbed the excess liquidity of the banking system. The Government prohibited Treasury borrowing from the Central Bank without specific authorization.

State Ownership

The new Italian Government inherited from the Fascist Government large industrial concens that had been nationalized as part of Mussolin's Corporate State policies. As a result, the state oened the following assetts: shipbuilding (80 percent), pig iron (60 percent), railroad rolling stock (40 percent), and other industrial holdings. The L'Instituto per la Ricostruzione (IRI) operated as a holding company for these nationalized state enterprises. The company had initially been created to protect the interest of depositors in failing banks. The Government refocused operations to deal with communications, electricity, shipping, shipbuilding, steel and engineering. The Government used IRI to prevent failing state-owned business from laying off workers and adding to the unemployment problem (late-1940s).

The Marshall Plan

The United States tied Marshall Plan aid to regional cooperation (1948). World War II had left Europe devastated. A staggering 40 million people were killed in World War II. German cities had been levelled by the Allied strategic bombing. Fighting on the Eastern Front had also destroyed cities in Russia and Eastern Europe. The economies were prostrate. Jobs did not exist and capital was scarce to revitalise the economies. The performance of the Communists in the Resistance had increased their prestige. The desperate economic conditions also increased support for the Communists. After the War, the Communists were one of the largest political parties throughout Western Europe, especially in France and Italy. Only in Germany where people feared the Russians did the Communists not build an electoral threat. In an effort to promote economic recovery, the United States implemented the Marshall Plan. (It was not called the Truman Plan because that would have doomed it in the Republican controlled American Congress.) The Plan was proposed by American Secretary of State George C. Marshall in 1947. Eventually over $12 billion (in 1948 dollars) was provided. This assistance is generally credited with helping to launch the European economic recovery. Some authors down play the importance of the Marshall Plan, maintaining that the recovery was already well underway. Marshall Plan assistance was offered to Russia and the Eastern European satellites. Stalin, suspicious of American intentions, rejected the offer and speeded the establishment of Stalinist regimes throughout Eastern Europe.

Italian Companies

At first Italian compaies had the advantage of relatively low wage rates. Italian companies also benefitted from access to a greatly enlarged market whichb included far more affluent consumers than the Italian market offered. Italy had aubstantial population, but large numbers of opeople, particulkarly in the south, lived largely outside the money economy.

American Security Umbrella

Another huge assett was that the American military guantee through NATO allowed Italy and the other European countries recoivery from the War to limit military spending. The Red Army which smashed the Wehrmacht was a profound threat to democracy and capitalism in Western Europe. Even if Western European countries had devoted substantial resources to military spending, it is doubtful they could have stopped Red Army advances west. The key would be America's post-War policies. The United States after World War I had quickly withdrawn from Europe. President Roosevelt had assumed that the same would be the case after World War II, albeit with an occupation and de-NAZIfication of Germany. He told Stalin as much at Yalta. The decesion of President Truman to make a stand against Soviet aggressiion with NATO and the Berlin Air Lift, has significant polititical repercusions throughout Europe. The American security umbrella allowed Italy and the other Europeans to focus available revenue on economic recovery and social programs.

Post-War Elections (1946-48)

The rapid development of the Italian economy after World War II was a major success story. It probably saved Italy from turning to the Communists and following Eastern Europe into the Soviet Empire. Even after NATO was formed and America made a military commitment to Western Europe, Stalin was still hopeful of cracking the Western alliance. He pinned his hopes on the Cmmunist parties in the West, especially the large French and Italian Communist parties. The Communists had gained considerable prestige during the last 2-years of World War II. They were the only effective Italian resistance to the Germans and Fascists as the Allies drove up the Peninsula. They proved to be the backbone of the the Partisan movement. The first important post-War election resulted in the Communists (ICP) polling nearly 20 percent of the vote (1946). Even though the Italian left (Communists and Socialists) polled about 40 percent of the vote, the Democrazia Cristiana (Christian Democrats - DCP) who polled only 35 percent of the vote formed the government. The Communists were given the Justice Ministry. The Communists exploited public disatisfaction with economic conditions and the May Crisis durng 1947 with strikes and disorders designed to bring down the Government, but failed. The Italiamn left decided to form a United Front (FDP) for the next election. This would be a crucial election because it was before the Economic Miracle had kicked in. And it would be vital to Italy's economic future. Italian industrialists and even small businessmen were not going to make investments in a country run by a Socialist-Communist Government. Democrazia Cristiana (Christian Democrats-DCP) led by Alcide De Gasperi won a resounding victory with 48 percent of the vote, an astonishing victory in multi-party parlimentary system (1948). This would prove to be their best result ever, never repeated. The FDP only received only slightly over 30 percent of the votes, less than the combined Socialist-Communist vote in 1946. The Communist Party subtanially outpolled the more moderate Socialists within the FDP. The 1948 election would set the mold for subsequent Italian elections. For nearly four decades, Italian elections would be won by the DCP. Italian industrial workers were the backbone of the ICP believing that Communism would lead to higher wages and prosperity. In fact, Communism where adopted was so inefficent, that workers were paid very low wages. This became apparent early on. The Eastern European revolts against the Communists which began in 1953, primarily centered on worker disatisfaction with low wages and poor working conditions. The ICP was led by Palmiro Togliatti who like many other European Communists spent most of the inter-War era in the Soviet Union. There they were carefully vetted by the NKVD. Many disappeared into the Gulag. Togliatti survived. He led the ICP in post-War Italy to become the second largest political party in Italy, and the largest non-ruling communist party in Europe. The success of the Italian Economic Miracle ultimately prevented the ICP from winning national elections during Togliatti's life. The ICP did win many municipal elections and governed quite a number of cities and and regions, most Naples and the industrial north..

European Integration

Italy was one of the larger European countries. Even so, it had nothing like the economies of scakle that American countruies benefitted from. European integration was an important part of the Italian and wider European success story. This and the Franco-Germnan raprochment set in motion an integration process. Regional integration beginning with the European Coal and Steel Community (1951) and leading ultimately to the European Union finally brought Italy into the 20th century, including southern Italy. Italy prospered as part of a united Europe. The first real benefit was creating good paying jobs for Italian workers. Many Italian workers went to West Germany where the Economic Miracle first took hold. The money they sent home became a major impetus in jump starting the Italian economy, including industrial expansion that created jobs in Italy itself.

German Economic Miracle

Germany was vital not only to Italian economic recovery, but to all of Wetrern Europe. Germany before the War was the industriual heart of Europe. And developments there affected the rest of Europe. European recovery from the War would be in large measure dependent on German recovery. Recovery was slow after the War, not only in Italy, but the rest of Western Europe as well. The central steps were taken in the Western occupation zones of Germany as opartb of a currency reform creating a strong currency--the Dutsche Mark. This was a joint effiort of the Western Allies and the West German authorities. Helmet Kohl, a future West German Chancellor, would play a central role. The Soviets were fundamentally opposed to the currency reform. Putting hard cirrenvy in the hands of people took power away from central planners and into the hands of the people. They wanted to be able to simply print money and have the West Germans foot the bill. It allowed them to buy anything in the Western zones with worthless bills. Stalin responded to the currency reform by blockading West Berlin, resulting in the Berlin Air Lift (1948-49). The currency reform, however, ignited the West German economy and with it the economy of the rest of Western Europe.

Regional Differences

Since unification, southern Italy had been the poor section of the country and northern Italy the more developed and rich. Areas of the south and Sicily were almost feudal. At the time of unification (1860s), Naples in the south was the most industrialized city in Italy. A factor here was the protectionist policies of southern Italy's Bourbon monarchs. The new government of unified Italy connected to the interests of the commercial farmers of the North, Italy's richest farming region, adopted free-trade policies. This quickly ruined the South's emergent steel and locomotive manufacturers. As industrialization took hold in the North, the Kingdom of Italy adopted protectionist policies to priotect emergent industries. Industrial concerns in Naples had already disappeared. Southern consumers, however had -based companies, but just in time to raise the prices of manufactured goods to southern consumers. [Zamagni] Mussolini's Fascist regime made vlittle progress on modernizing the south. The post-War ecomomic boom and Italian Economic Miracle, however, has made enormous progress in brunging the south into the economic mainstream.

Economic Growth

The immediate post-War economic reconstruction was followed by spectacular economic growth (1950-63). Increases in the gross domestic product (GDP) totaled an impressive 5.9 percent annually, peaking at aphenomenal 8.3 percent (1961). Italians refer to the 1958-63 period as Italy’s Economic Miracle with phenomenal industrial exoansion. The growth in Italian industrial output peaked at over 10 percent annually at this time. Only Japan and West Germany reported higher numbers. And Italy experience practically full employment, very unusual in Italian economic history.

Sources

Harrison, Mark. The Economics of World War II: Six Great Powers in International Comparison (Cambridge University Press, 1999).

Zamagni. Vera. Economic History of Italy 1860-1990





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Created: 2:39 AM 6/8/2013
Last updated: 10:43 PM 7/30/2018