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The Future of Italian Business

 

In the 1980s, Italian business moved in the direction of greater distance from politics or government. Several factors contributed to this development. The success of major Italian enterprises such as Fiat and Zanussi made their futures dependent on their ability to compete throughout the European Community and indeed internationally. Increasing competitive pressures strengthened the need for efficiency. Competition from Asia became more vigorous; even if Italian consumers were not allowed to buy Japanese cars, Fiat customers in other countries could. Fiat’s withdrawal from the American market in the 1980s indicated the strength of the pressures it was facing. The achievement of a single European market in 1992 will add further to competitive pressures.

Italian industry has faced two major difficulties in adapting to increased international competition. The first was that in the nationalised industries the gradual increase in politicisation, in order to serve the interests of the CD through patronage in the 1960s and 1970s, diminished the competitiveness of those industries. Under the original so-called IRI formula, managers of specific corporations owned by state holding companies such as IRI to some degree were insulated from political pressure; the state holding company stood between the management of the- specific corporation and the government. That insulation was gradually stripped away. The increase in the losses of nationalised industries and decreased competitiveness were important results. Public corporations also suffered from the major problem to hit private corporations — the rapid increase in unit labour costs that occurred in the 1970s to which we have referred earlier.

A number of developments have helped Italian industry escape from these problems. First, privatisation has restored some of the autonomy of the managers of state-owned corporations. Selling off entire corporations (such as Alfa Romeo) or some of the stock in corporations owned by the state has provided IRI or individual corporations with funds that could be used for investment instead of government-supplied funds that would have had political strings attached. This tendency has been strengthened by the ability of managers to borrow externally. The rise of the Italian economy and increased foreign understanding of it allowed both public and private firms to escape government’s financial controls by obtaining loans overseas.

Second, the decline of the CD, visible in earlier periods, reached a point that really mattered. The divorce and abortion referenda illustrated the diminished hold of Catholicism on Italy; the (by Italian standards) long tenure of the Socialist Prime Minister, Bertino Craxi, demonstrated the slackening of the CD’s grip on government itself. The decline of the CD allowed public corporations to more easily resist pressures to be suppliers of patronage or pork barrel for the CD.

Third, the Italian government and Bank of Italy have followed restrictive macroeconomic policies which have produced very high unemployment. In the late 1980s, Italian

unemployment was still over 16 per cent of the work force. In consequence, the power of unions declined. Italian wages and prices rose at an unusually slow pace by Italian standards, still faster than German or Japanese but slower than British increases. In consequence, some competitiveness was restored.

Finally, the dynamic smaller firms of the ‘new Italy’ such as Benetton escaped many of the problems of Italian industry. Such firms often operate in areas in which unions are weak. Firms in the ‘third Italy’ are often also in practice and sometimes by design less supervised to ensure their compliance with regulations or tax laws than are larger corporations.

In the 1950s, the Italian economy benefited from its late start. A supply of cheap labour especially from the south allowed its corporations to compete vigorously with European rivals. By the 1980s, the Italian economy had caught up with most of its European neighbours. Yet in so doing, the Italian economy had come to share in some of the general problems of European industries. In particular, Italian corporations were threatened with loss of competitiveness. Steel mills built in the south to boost the local economy and to take advantage of cheap labour could not compete with South Korea. Yet it is improbable that Italian success will end. The confused Italian political economy allows flexibility for adaptation even if no one points the way forward as clearly as in Japan or France. The skills of Italian engineers and designers also continue to provide products that consumers around the world want. As in politics so in the political economy, Italy may confuse observers yet still work.

 

 

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