Italy’s Creeping Capitalism

September 28, 1953

ROME—Controlism, statism, and socialism have lost a great deal of their former prestige in Western Europe. Yet even the statesmen who have ceased to believe in controls and government ownership do not seem to know how to get rid of them. Italy is an outstanding example. After eight years of leadership of anti-Fascist and anti-Communist Premier De Gasperi, the government is now in the hands of his former Treasury Minister, Premier Pella, a conservative who used to be described by De Gasperi as his economic conscience.

Although Italy several years ago got rid of general price fixing, a formidable network of controls remains. Under nationwide union contracts an employer cannot drop workers without giving them heavy terminal pay which may run a month for every year of service. This penalty, of course, makes for immobility of labor and forces employers to keep unneeded men. It produces featherbedding and inefficiency and discourages new hiring. If an employer is too inefficient to meet competition and has no more money to pay his surplus workers, the government subsidizes him.

Here we encounter a remarkable agency known as Istituto per la Ricostruzione Industriale, popularly known as IRI (pronounced Erie). This organization owns stock in most large Italian industrial companies. It uses the earnings of the profitable ones to pay losses in others. The government makes up the deficit that still remains. This, of course, promotes inefficiency, keeps the companies in business making the wrong things, reduces the capital available for expansion of needed production, and both directly and indirectly puts a needless drain on the government budget. The government owns and operates the railroads directly. Like our own government it subsidizes its wheat growers. It has kept rent control on old houses, which both discourages new building and further restricts the mobility of workers. Externally, it imposes exchange control and requires special licenses on dollar imports. In fact an Italian must get a license even to set up a new business at home. The individual Italian communes (roughly equivalent to our counties) often impose restrictions on the movement of workers and goods across communal lines. Italy retains the equivalent of general wage control. The Confindustria (a sort of super-NAM) and big unions (Communist and non-Communist) negotiate a master contract covering practically the whole of Italian industry. This is collective bargaining with a vengeance for it sets a bloc wage scale that controls every employer and worker. Registered unemployment is about 2,000,000 out of a working force of 19,400,000. The cost of living, as the result of past inflation, is now 56 times as high as in 1938. Where 31 percent of the electorate voted for Communism in 1948, 35 percent voted for it in the elections a few months ago. Such facts make the Italian economic situation look black. Yet in some major respects, it has never been better. The average hourly wage rates of all industrial workers are 75 times as high as in 1938; thus more than keeping pace with living costs. As measured by per-capita consumption of such important items of diet as sugar, milk, butter, and eggs, the Italians are eating better than ever before. And the official index of industrial production is more than 50 percent higher than in 1938.

Not the least important, Italy’s inflation, as measured by the stability of the lira, has been halted. The official rate of 625 to the dollar was established in 1949 and the black-market rate has now fallen to practical identity with this. The import of gold coins, an important index to the lack of confidence in currency, has dwindled from 43 tons in 1951 to practically nothing. (In short, Italy is still suffering from a totalitarian hangover—from the days of Mussolini’s Fascism—but it is well on the path to reform. If it can now maintain a government devoted to the philosophy of economic freedom, its revival could become one of the most dramatic in the present era.)