Economic Policy in Italy: Planned Economy or Free Enterprise

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MODERN economists agree that it should be one of the State’s functions to steer individual initiative toward the attainment of social objectives. They agree, that is, on the end; but they disagree with regard to the means. One school, which includes both the socialists and the proponents of state capitalism, holds that the economy must be planned and forcibly implemented by the State and that the State should directly manage the major productive enterprises. The other, the liberal school, defends private initiative against the encroachments of an over-powerful State. The liberals would limit the State’s intervention to legislative measures placing at public disposal more effective tools for running and stimulating the economy, in the form of credit, fiscal policies, and the like.

Both schools of thought have powerful advocates in Italy; but it may be said that the liberal school, headed by men such as former President Luigi Einaudi, has prevailed. Italy’s postwar economic policy is largely based on the general principles which Einaudi has endorsed.

The foremost task after the liberation was to do away with the Fascist superstition of national economic independence and self-sufficiency, and to substitute for it a policy of open markets. The liberal school understood that a closed market policy actually works toward the destruction of wealth; that it increases international tension, reinforces monopolistic positions, and thus lessens the producer’s interest in social progress. Such a policy increases administrative intervention in the economy, with import and export duties, premiums, subsidies, and quotas being only a few of the necessary consequences. Hand in hand with these goes the planned management of the economy by an immense bureaucracy — resulting in the slackening of individual initiative characteristic of advanced societies, and the impoverishment of the many to the advantage of a small group in the scramble for political plums.

The international trade policy pursued by postwar Italian Governments has been based on a thorough understanding of these dangers. Far from being any form of economic isolationism, our policy has followed the path of international cooperation. Tariff barriers have been relaxed, quantity restrictions on imports and exports have been abrogated, restrictions on current payments have been removed, and discrimination between monetary areas has been almost totally eliminated. Trade controls have gradually been transformed into control of the movement of capital; and even in this area, progress has been made toward full Italian participation in the world market. The movement of capital, as it relates to foreign investments in Italy, withdrawal of investments, and the transfer of profits, may now be carried out in a healthy climate of freedom.

This policy has been reflected in the balanced expansion of our international trade. The value of exports has risen from 942 billion lire in 1953 to 1,588 billions in 1957; imports went up from 1,513 billion lire in 1953 to 2,267 billions in 1957; and the percentage of imports covered by exports, amounting to 62.3 per cent in 1953, reached 70 per cent in 1957. The latest annual report of the Bank for International Settlements calls attention to the fact that in 1957 Italy’s balance of payments registered a satisfying improvement over the previous two years and also noted that, for the first time since the War, the country showed a surplus on current account.

Italy’s strong position is shown by the fact that she is one of the five countries in which almost the whole of the total increase in international monetary reserves between 1952 and 1957 was concentrated. During this period, the overall increase in monetary reserves (excluding international institutions and the United States) totaled 9.7 billion dollars. Of this amount 7.4 billion were concentrated in five countries: Italy, Germany, Switzerland, Canada, and Venezuela, In Italy, the increase continued through the first half of 1958 and was estimated at about 230 million dollars.

On the money exchange, the disparity between official and unofficial market quotations is now practically nonexistent, and use of the lira for international payments has greatly increased. The record of international transactions during the first part of 1958 shows that 26.3 per cent of incoming and 13.7 per cent of outgoing revenue was paid in lire — a rather high percentage, if one considers that the lira was, until recently, not employed in international trade settlements. It is a further confirmation of the confidence the world’s traders have in Italian monetary stability.

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WILL the policy followed till now continue? The answer to this question depends on our ability to solve, for Italy, certain problems which are fundamental to modern society: how can we be sure that the powers of the State will be exercised, not by a special group in its own interest, but by a group representative of the interests of all social strata? And even when the powers of the State are exercised in the interest of all groups, which institutions will be most suited to channel the economic process along lines of optimum social progress? The European socialists have unquestionably contributed to our understunding of the society in which we live by stressing the importance of the clash of interests between the classes controlling the means of production and the unpropertied. And they were right in calling attention to the enormous political power of property owners as compared with the unpropertied; but they are wrong in believing that simply by abolishing private property all conflict in the distribution of income will be eliminated.

In Italy, as in other European countries, the respective spheres of State and private business activity have not vet been defined successfully. Those who support the further extension of State management do so in the erroneous conviction that it will channel economic activities toward socially desirable goals. But experience provides numerous (examples where ihe greatest opposition to the State has come from firms run directly by the State; nor is there any lack of eases where it is not the State that runs the enterprises under its control, but rather the enterprises that arrogate to themselves certain powers of the Stale. Those who oppose the extension of State management are equally wrong in their assertion that it must necessarily lead to less efficiency on the productive level; there are some cases in which it has been demonstrated that State management may reach a higher degree of efficiency than private industry. This theoretical dispute will certainly be prolonged lor some time in Italy; it is to be hoped that it will eventually be composed with the acceptance of a positive definition of the sphere of Stale management and that of private management.

This will require that neither the State nor private enterprise be hindered by a welter of conflict ing administrative orders. It will require restoring to markets their due function in regulating economic ad ivity. The chances are that a workable solution will be found, because all groups having an influence on Italian policy seem now to be aware of the measure in which private enterprise —and in particular, medium-sized concerns, which form the backbone of any free-enterprise structure have contributed to the economic progress of the nalion. All groups no matter where they stand otherwise—seem 1o realize that the Italian economy can compete on the world market only if it is in a position to draw strength from the continued existence of a structure in which medium-sized concerns can prosper.

All this seems to warrant a certain optimism, which appears even more justified if one takes into consideration the character of the Italian people: the soberness of their aspirations combined with their love of work the real capital of our nation. And as Ruskin said, “True reality is not income, nor is it the use we make of it; it is the life we lead in producing income.”The most urgent social problem is not always to increase man’s wealth, but to make him conscious of why he produces and why he works. Translated by Ben Johnson