The economic miracle

Industrial growth

The republic enjoyed economic success for many years. Initial U.S. support, especially food, oil, and Marshall Plan aid, helped to rebuild basic industries, including steel. The government abandoned the controls that had existed under the Fascists and the attempts at autarky, and all parties and trade unions approved the “reconstruction” program of 1945–47. Prewar industrial production levels were regained by 1948, and production for the Korean War (1950–53) provided further stimulus to growth. Italy became fully integrated into European trade and took an increasingly active part in Middle Eastern oil exploration and engineering development. Until 1964 (and in particular in the boom years of 1958–63) the country enjoyed an “economic miracle,” with industrial growth rates of more than 8 percent per year. Its most prominent industries, still in the northwestern industrial triangle, produced fashionable clothing (especially shoes), typewriters, refrigerators, washing machines, furniture, plastics, artificial fibres, sewing machines, inexpensive motor scooters (the Vespa and the Lambretta), and cars (from economical Fiats to luxury makes such as Maserati, Lamborghini, and Alfa Romeo). Italian firms became famous for their combination of elegant design and inexpensive production techniques. An extraordinary network of superhighways was constructed across Italy. The country was transformed in less than two decades from a largely agricultural backwater into one of the world’s most dynamic industrial nations. Economic success gave politicians additional resources to maintain their political support.

The postwar recovery and subsequent expansion benefited from a stable currency from 1948 onward and from Italy’s cheap access to raw materials, especially Middle Eastern oil. The dynamic policies of Enrico Mattei, president of ENI (Ente Nazionale Idrocarburi, the state-owned energy group), were central to this development. The petroleum company AGIP (Azienda Generale Italiana Petroli), which became a division of ENI in 1953, discovered natural gas in the Po valley and sold it at low prices to industry. Labour was inexpensive, as rural migrants flooded into the cities, trade unions were weak and politically divided until the late 1960s, regulatory agencies were even weaker, and taxes were low and easily avoidable. All this encouraged investment, especially as businessmen could borrow cheaply from state-owned banks and credit institutes. The IRI, founded under Mussolini in 1933, continued to dominate much of the economy, including not only heavy industry but also telephone service, air transport, and highway construction. The “economic miracle,” therefore, did not rest on market principles alone; government agencies played a vital role in it.

Land reform

In agriculture the major postwar change was the land reform laws of 1950, which made it possible for land reform agencies to expropriate large, badly cultivated estates, mostly in southern or central Italy, improve them, and sell them off to new peasant owners. The aim was to create a settled society of peasant cultivators, but this was achieved only in a few areas, because normally there was not enough land to go around: only 117,000 families actually acquired farms. Landless peasants moved abroad or to the cities instead. A major consequence of land reform, however, was that the reform agencies—run by central politicians in Rome—became economically dominant in many rural areas, controlling, among other things, land allocation, loans, and improvement grants. They thus undermined the traditional power of local landowners and became transmission belts for the political patronage of the Christian Democrats, especially in the south. Mechanization and modernization gradually replaced many of the traditional jobs in the Italian countryside. Seasonal women rice workers disappeared from the north, as did most day labourers and sharecroppers. Smaller, well-managed farms prospered, in part through EEC subsidies, and rural towns grew.

The south

The major economic problem was still the relatively underdeveloped south, where there was little industry and where per capita income in 1950 was half that of northern Italy. Initial policy stressed land reform and irrigation. For a while it seemed as if southerners were taking control of their own destiny for the first time since the Risorgimento. The huge, organized land occupation movements that swept across the south in 1949 and 1950 involved hundreds of thousands of landless peasants and politicized a whole generation. But the state intervened, sometimes lethally, to end the occupations on behalf of the powerful landowners. Because the land reforms that followed the occupations actually transferred little land to the peasantry and left many of the south’s inequities intact, millions of young men and women decided to migrate to the north.

The special Southern Development Fund (Cassa per il Mezzogiorno), established in 1950, financed roads, schools, electrification, water provision, and land reclamation. After 1957 it began to invest in industrial development as well, helped by a government policy that directed the expansion of state firms southward and by credit and tax breaks for private investors. Other agencies were founded to develop specific sectors. Promising areas of the south were selected for industrial development, and key plants were built there, together with the necessary infrastructure. The result was the establishment of a number of large, capital-intensive plants—for example, steelworks and heavy engineering at Taranto and oil refineries at Porto Torres—that were hugely expensive, often produced nonmarketable goods, and employed little local labour. These factories quickly became known as “cathedrals in the desert.” Although a few areas did take off (notably the Puglian coast north of Bari), the industrialization policy soon faced widespread criticism. Northerners resented having to pay for it, and southerners could see little benefit, especially as small firms received few incentives. The environmental costs were also enormous. Funding was gradually shifted, therefore, to subsidizing labour costs—especially social security contributions—and training and, by the 1980s, to making selective grants available for small and medium projects. The fund spent $20 billion between 1950 and 1980, but it did not industrialize southern Italy. Southern unemployment remained at three times the northern rate, and wages were still 40 percent below the national average.

The south did benefit, however, from some of the fund’s original activities, such as providing decent roads, clean water, much improved health services, and secondary schools, as well as eradicating malaria. It also received many state welfare benefits—often derived from friendly politicians in need of votes—and subsidies to agriculture. The social impact of automobiles, television, and processed foods was as great in southern Italy as elsewhere. The south also benefited from emigrants’ remittances as large-scale migration to western Europe and the northern cities resumed from 1950 onward. More than three million people, mostly able-bodied young men, left the south between 1955 and 1970. Some rural areas became seriously depopulated, whereas Rome and many of the northern cities virtually doubled in size, with the immigrants being crowded into bleak housing estates on the outskirts or into improvised shantytowns.