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2 Stages of Italian Industrialization: From Unification to the Present

2 Stages of Italian Industrialization: From Unification to the Present

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3 Development Profiles of the Italian Industrial System …



3.2.1



173



1861–1876 the Era of Historical Right Wing Parties



In the years following unification, notwithstanding increased agricultural output (a

42.7 % increase from 1861 to 1876 (Istat 2012),1 the surplus was not substantial

enough to allow for consistent investments in machinery and services. During that

period, in fact, the population also increased quite rapidly, from 21.8 million in

1861, to 26.8 million in 1871, to 28.5 million in 1881 (Istat 1976, Table 4). The

two trends (greater agriculture output and a rapid increase in the population) had not

yet translated into a larger domestic market to the advantage of industry. Positive

results were nonetheless obtained during those years. The most significant

improvement was an impressive expansion of the railroad infrastructure, from 2773

to 8422 km (Istat 2012, Table 17.1). The extensive railway system, however, did

not produce an immediate impact on the domestic market, nor on industrial production. The liberal approach adopted by the Historical Right eliminated customs

tariffs and promoted the export of agricultural products (which increased from ₤350

to ₤550 million (Italian lira) in the first twenty years following Italy’s unification).

Manufacturing sectors closely linked to agriculture, i.e. silk, wool and cotton

industries, gained the most advantage from the liberal approach. The prospects of

the steel and mechanical engineering industry, however, remained dismal. The

production of iron and steel was very meager, and the antiquated processing

methods, made Italian products uncompetitive in terms of prices. Consequently, the

Italian market was flooded by more affordable foreign products. The industrial

machinery sector also suffered from weak domestic demand and lagged in capital

goods. Unfortunately, the metallurgical and mechanical engineering industries were

not capable of taking advantage of the opportunities linked to the expanding railroad. Locomotives, train cars, and tracks were mostly imported; only a small

fraction was supplied locally (Doria 1998).

Fifteen years after the Unification of Italy, the industrial manufacturing sector

overall employed merely 382,000 workers out of 28.1 million Italians. The silk

industry, in many respects linked to agriculture, employed 200,000 of those

workers. More modern industries like chemicals or metallurgy were either almost

nonexistent, or incapable of gaining recognizable market shares. In fact, industry’s

share of private GDP (−3 % from 1861) represented only a little more than 17 %

(Castronovo 1980).



1



Istat data refer to the cultivation of the main herbaceous crops (cereals, pulses, potatoes, fresh

legumes, and horticultural crops); the major industrial and fodder cultivations (sugar beet and

tobacco); and the most important woody crops (vines, olives, citrus fruit, fresh fruit, nuts). For

greater detail see Istat (2012, Tables 13.9–13.11, 13.14 and 13.15).



174



3.2.2



M. Fortis and M. Carminati



1876–1895 Great Depression and State Intervention



The root cause of the depression, which hit Europe from the 1870s, was a decrease

in the prices of agricultural products on a world scale. This situation was particularly accentuated from 1875 to 1876. The expansion of the railroad, the development of steam-driven transport, which considerably reduced sea freight, and the

massive production of cereals from the United States, Russia and other Asian

counties flooded domestic markets, resulted in the collapse of the price of cereal.

The economic crisis started in the agricultural sector and quickly spread to other

sectors. To offset difficulties, most European nations strengthened their customs

tariffs. Italy officially adopted a protectionist policy in 1887, introducing stronger

customs tariffs in favor of the metallurgy, cotton and sugar industries. The chemical, machinery and mechanical engineering sectors were less favored by the tariffs.

Besides increasing tariffs, the Italian government in the 1880s adopted a series of

other measures in the hopes of fostering demand. It increased public spending by

44 % compared to the previous decade (Istat 2012, Table 121) with the objective of

financing its existing debt and further bolstering railway infrastructure, its naval and

armed forces. Consequently, there was a marked industrial upturn from the end of

the 1870s and for the entire decade that followed. Autonomous growth areas further

contributed to industrialization. Companies quickly consolidated their rapidly

increasing managerial skills, there was easier access to credit, and the cost of raw

materials decreased. The growth rate, from 1881 to 1888, in the following sectors

increased annually by: +22.5 % for metallurgy, +22.1 % for chemicals, +9.2 % for

machinery, and +4.4 % for textiles (Doria 1998).

The rate of development in the mechanical engineering sector was more contained than the chemical or the metallurgy sector, but still notable due to the diverse

nature of the firms operating within it, from large companies to small factories or

even craft shops. Shipbuilding firms such as Ansaldo and Odero from Genova,

Orlando from Livorno, and Pattinson from Naples were able to take advantage of

the rearmament programs of the Italian Armed Forces and especially the Royal

Navy. Furthermore, in 1885 Parliament passed the Boselli Law which introduced a

ten-year plan providing aid to naval shipyards and with specific premiums for ship

owners and shipbuilders. The mechanical engineering sector reaped the indirect

benefits, since it was involved, to varying degrees, in developing the shipyards

sector. During this period, the machinery sector began investing and renewing its

infrastructure: Breda, for example, was at the forefront of introducing new

American machine-tools which would increase production and productivity even

while employing low-skilled labor freshly urbanized from rural areas (Doria 1998).



3 Development Profiles of the Italian Industrial System …



3.2.3



175



1895–1915 the “Giolittian” Era



Strong GDP growth, both in production and productivity, are what characterize the

years from the end of the 19th century to the beginning of World War I. The share

of GDP of the various sectors, furthermore, shifted. Industry’s share of GDP

increased from 21 % in 1897 to 26 % in 1913, while agriculture decreased from 42

to 37 % (Fuà 1989b). Fuà calls this phase the “Giolittian”2 era; Italian industry

took-off and the “modern economic development” phase began, as defined by

Simon Kuznets, even though industrialization really took-off only at the beginning

of World War I.

Beginning in 1896, the world economy entered an expansionist phase. The

Italian economy also felt the positive effects of a change in the economic paradigm

which was taking place throughout the Western world. In only a few decades,

important scientific discoveries and technological innovations turned into new

means of production, which were rapidly applied to factories. The use of Bessemer

converters and the Martin Siemens furnaces in the steel industry abated the real

production costs of crude steel by 80–90 %. In the transport sector, the widespread

use of internal combustion engines using liquid fuels led to the birth of the Italian

automobile industry. The introduction of electricity allowed factories and other

industrial establishments to move away from sources of hydro motive power and

permitted them to relocate closer to their markets in large urban centers (Doria

1998).

It is within this context that the share of the various branches of Italian manufacturing change. While traditional sectors (textiles, food, wood processing) continued to be the dominant contributors, other sectors (chemical, electrotechnical,

and mechanical engineering and metal products) became increasingly important.

The most impressive development was in the mechanical machinery sector which

grew rapidly due to increased demand for investment goods, public contracts, and a

higher disposable income that translated into more means with which to acquire

durable consumer goods. Companies like Ansaldo, Breda, Tosi, Odero and Orlando

naval shipyards employed thousands of workers. As the mechanical engineering

sector grew, so did the steel industry. New plants for producing cast-iron, iron and

later steel were built. As previously mentioned, the Italian automobile industry also

began taking its first steps during this phase. It experienced rapid and tumultuous

growth up to 1907. The electrotechnical sector had a harder time as it faced

aggressive competition from foreign companies. Big companies were mostly Italian

subsidiaries of large multinationals like AEG Thomson Houston and Tecnomasio



The Giolittian era (1897–1913) is the first of the five significant periods in which Fuà (1989a, b)

subdivides the stages of Italian industrialization in terms of GDP growth. The other periods are:

World War I (1913–1921), the “fascist” era (1921–1938, World War II (1938–1949) and the

“Republican” era.



2



176



M. Fortis and M. Carminati



Italiano Brown Boveri. Companies such as Marelli, Ansaldo, and San Giorgio were

able to obtain niche markets. As for the electricity sector, hydroelectric plants

multiplied especially along the rivers flowing from the Alps, which provided

enormous amounts of “white coal” to Italian firms, and thus contributed to their

radical transformation. The chemical industry’s most notable growth was in the

production of sulfuric acid and phosphates used in agricultural fertilizers. Notable

companies include Montecatini di Guido Donegani, Unione Italiana Concimi and

Prodotti Chimici (Doria 1998).

More traditional sectors were strengthened with the widespread use of electricity. Cotton production increased and the wool sector by 1913 supplied 91 % of

domestic demand. Many sectors grew uninterruptedly up to 1907 (cotton, steel and

vehicle industries). When the world economic crisis arrived, it created serious

problems in excess production capacity (Doria 1998).



3.2.4



1915–1918 the Great War



Throughout World War I, pushed by the need to supply its army with large

quantities of evermore efficient ammunitions and arms, the state became the

absolute protagonist in the domestic economy. Thus, public spending financed

industrial production, that grew notwithstanding the sluggish latter years of World

War I. However, it became increasingly difficulty to guarantee regular supplies to

industries. Between 1914 and 1918 industry’s share of GDP increased from 25 to

30 % (Romeo 1991). Growth was not homogenous. It was strongest in sectors

closely tied to weapon supplies, while the share of light industry, which produced

consumer goods, decreased. Large companies, active in mechanical engineering,

steel and aeronautics were the main protagonists of the war years and rapidly

increased their market shares (Castronovo 1980). Among the expanding industries

were Ansaldo, which supplied the army with cannons; Ilva with the best integrated

cycle steel manufacturing plants; FIAT which diversified its production with marine

and aviation motors, arms and ammunitions; and Caprioni which quickly became

the aeronautical sector leader (Doria 1998).



3.2.5



1918–1921 Industrial Reconversion



Once hostilities ended, Italian industry found itself needing to face a complex phase

of reconversion and of transforming its industry from producing war related goods

to producing peace time goods. These were years of great crisis for the Italian

industrial sector. When the economic situation worsened in 1921, the two



3 Development Profiles of the Italian Industrial System …



177



companies which had grown the most during the war, Ansaldo and Ilva,3 were

completely downsized. Fortunately, they did not disappear completely. They were

so important to the Italian industrial scene that a government plan was enacted to

salvage them. In July 1921 a series of very protectionist customs tariffs were

introduced to supplant the ones of 1887 providing, as a consequence, protection

also for the mechanical engineering and chemical sectors.



3.2.6



1922–1938 the Fascist Era



The 20-year period between the two world wars was characterized by an increasing

convergence in economic growth of the various Western nations, with the United

States taking on a decisive international leadership role. The 20s are years of great

economic growth up to the sudden halt in 1929. Between 1929 and 1932 GDP and

industrial production in the United States and Europe (with the exception of the

Soviet Union) decreased significantly, to then started growing again all the way up

to the beginning of World War II.

The Italian economy felt the effects of a shift in international relations, while and

at the national level fascism, in its early years, provided greater freedom. Between

1922 and 1926, 19 bilateral custom treaties were signed to continuously reduce

customs barriers. These were years of domestic growth and increased foreign trade,

which further stimulated the already existing domestic economic upturn, that was

again boosted even further by a policy of low interest rates.

When the 1929 economic crisis exploded, there was general instability. Both the

industrial sector and the banking system were hard hit. To avoid the danger of

collapse, two conglomerates were temporarily created: in 1931 IMI (a public bank)

and in 1933 IRI (the state run Institute for Industrial Reconstruction). This time, the

Italian government did not limit itself to saving important national companies by

providing unlimited capital to private industry. It now became an owner through

IRI, which in 1937 was transformed into a permanent institution. The state ended

up controlling large parts of the steel industry, the main shipyards, shipping

companies, mechanical engineering, electricity companies, and even the telephone

company. Economic policy became protectionist once again. In 1936 it reached the

culmination with the introduction of an autarchic plan by Mussolini with the aim of

making Italy economically self-sufficient.

From an industrial perspective, the fascist era saw modest growth in the traditional sectors (food and textiles), while mechanical engineering and metal products

and the chemical sectors saw more significant growth, as did the electricity sector,

3



Ansaldo during WWI produced 10,000 cannons, 10 million pieces of ammunition, 3000 airplanes, 150 tanks, 95 warships, and 42 submarines. Its workforce increased from 9000 in 1914 to

40,000 in 1918. Ilva from 1916 to 1970 produced around 1,300,000 tons of steel and 850,000 tons

of cast iron. This was more than double what it had produced before the war; for greater details see

Castronovo (1980).



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M. Fortis and M. Carminati



which between 1921 and 1939 more than tripled its installed capacity and

quadrupled its energy production. Industries in the traditional sectors were penalized by stagnant domestic demand and by increasing difficulties in exporting their

products. This was initially caused by the re-evaluation of the Italian lira (with the

so-called “90 Quota”), and by other countries adopting more restrictive commercial

policies in the 30s. The large mechanical engineering and metal products, electricity

and chemical companies were instead able to fully exploit the policies and further

strengthen their market shares. Through company consolidations and mergers, by

1939 FIAT, Ansaldo and Breda possessed 25 % of the total capital of the

mechanical engineering sector; Montalcini controlled rayon production and 60 %

of chemical fertilizers; FIAT produced four fifths of Italian automobiles; Pirelli

monopolized the production of rubber and owned 60–70 % of high tension cables,

and Edison supplied 50 % of all the electricity produced in the country (Doria

1998).



3.2.7



1939–1945 World War II



Industrial production, at the beginning of the war, spiked upwards. In 1940 it

increased by 10 points with respect to 1938 (Castronovo 1980). But, by the winter

of 1942, as the Allied aerial bombings of large Northern cities increased, industrial

production decreased, haphazardly at first, then, abruptly almost broke down in all

sectors to the point that by the winter of 1944 it was practically paralyzed.



3.2.8



1946–1963 Reconstruction and the “Economic

Miracle”



Italy after WWII was once again faced with the grave problems linked to postwar

industrial reconversion. Moreover, this time it also needed to tackle high inflation,

high unemployment, and a net worsening of the population’s living conditions. This

already difficult situation needed to be handled within a changed and more complex

global economic environment.

In 1950, the commonly coined phrase “reconstruction” came to an end, and from

that moment onwards there was rapid economic growth which reached record levels

from 1959 to 1963. This period is known as the Italian “economic miracle”. From

1951 to 1963 GDP increased by 9.1 %, but from 1959 to 1963 it went up by

11.7 %. Gross domestic product for the manufacturing sector from 1951 to 1963

had an average annual growth rate of 8.8 %. Overall gross domestic fixed investments were 19.5 % in 1951 and 26.6 % in 1963. Using 1963 as a reference year,

the investments were partitioned as follows: 61.8 % for plants and equipment,



3 Development Profiles of the Italian Industrial System …



179



29.4 % for the housing sector, and the remaining 8.8 % for public works (Istat

2012, Tables 136, 137 and 140).

Domestic demand for goods was particularly lively, especially for capital goods,

as was export-led demand. Italy, in 1950, joined GATT and replaced its 1921

customs tariffs with new ones, thus adopting a more open approach toward exports.

In 1951, exports were equivalent to an eighth of the domestic market, by 1963 they

were one fourth. During these years, Italy also received direct financial aid through

the European Recovery Program (better known as the Marshall Plan), thanks to

which it was able to strengthen and modernize its steel, mechanical engineering,

electricity, chemical, and petrochemical sectors. New plants were either built or

rebuilt. Large integrated-cycle steel plants, extremely powerful thermoelectric

power plants using hydrocarbons as fuel, and refineries were further developed

along with the creation of a network of methane pipelines. The mechanical engineering sector imported significant amounts of foreign industrial machinery, thus

new technologies and machineries considerably increased the productivity of large

companies such as FIAT, Piaggio and Olivetti (Doria 1998).

Simultaneously and consequently, there was an impressive increase in domestic

demand especially for industrial raw materials, particularly steel, nonferrous metals,

rubber, plastics, cement, wood, paper and cardboard (Fortis 1993). A large part of

these raw materials, given Italy’s scarce availability, needed to be imported.



3.2.9



1963–1973 the Birth of “Mass Consumption”



If the period from 1946 to 1963 was characterized by the development of Italy’s

infrastructure and construction sector, the following decade (1963–73) could be

considered the culmination of the first phase of increased production for “mass

consumption”. It particularly affected the production of mechanical engineering and

metal products sector. Domestic demand for cars and industrial machinery continued to grow, and in the 70s demand for domestic appliances took off as well.

Italy’s share of the international market became more substantial for mechanical

engineering, metal and steel products.

The harsh recession which Italy experienced from 1964 to 1965 in construction,

machinery, and the textiles-wearing apparel sectors, were only a temporary setback

for the overall growth of durable consumer goods (cars, domestic appliances) and

industrial machinery. The sectors continued to grow at a relatively steady rate,

notwithstanding certain difficulties (like the “Hot Autumn” of 1969 and the 1971

recession) up to 1973 with the first oil crisis. The production of cars and refrigerators, two key “mass consumption” products, reached a historic peak in 1973,

with a record which would remain undefeated up to the end of the 80s (Fortis

1993).

It became evident, during these years, that the ambitious government industrialization policy, centered on developing large public companies and private operators in the chemical, electronic, and steel sectors, had failed.



180



M. Fortis and M. Carminati



Simultaneously and spontaneously a new development model sprang forth. It

was no longer based on large firms, which undoubtedly had a fundamental role in

the previous decades of Italy’s early industrialization phase, but were now in

decline. The model was based on small and medium-size enterprises, or relatively

large firms, but essentially family-run and led directly by entrepreneurs without the

typically top heavy bureaucratic structure of large groups. This new development

model appeared mainly, but not exclusively, within the so-called industrial districts,

whose role and growth has been analyzed in depth by Becattini (1998, 2000, 2002,

2009).



3.2.10 1974–1983 Economic Stagnation

The crisis in the construction and public works sectors became increasingly acute

during the first years of the 70s with a domino effect in the mechanical engineering

and metal product sectors. These sectors were closely linked to construction, and

received little traditional investments. Consequently, there was a net decline in

growth from 1974 to 1983, which found merely a partial outlet in exports. The

overall downward trend in production was particularly poignant, and the 1981–83

recession contributed to consolidate, into the mid-80s, the general sluggish growth

pattern of the Italian economy (Fortis 1993).



3.2.11 1984–2000 the Boom of Industrial Districts

and Exports

After a period of stagnation and re-adjustment during the 1974–83 decade, there

was a new boom in the consumption of goods (a second wave of “mass consumption”, relatively synchronized at the international level) before another

recession hit in the early 90s.

The 80s, and especially the 90s were a period of impressive growth for the

industrial district model and of “Made in Italy” products. Thanks to small and

medium-size enterprises and industrial districts, Italy became a top world actor in

manufacturing. This took place even without the numerous large companies that

were typical of other industrialized countries. Furthermore, beginning in the early

90s, the few large companies which did exist in Italy, i.e. the main protagonists of

the multinational expansion that characterized Italy in the second half of the 80s,

progressively lost their momentum, manifesting, to a greater or lesser degree, their

difficulties in maintaining their share of international markets. This was due to the

effect of recurring financial crises, and the fragility of their ownership structure. To

counterbalance these negative trends, medium-size groups, active in the traditional

“Made in Italy” sectors, became increasingly focused on an international growth



3 Development Profiles of the Italian Industrial System …



181



process: a phenomenon, also known as “quarto capitalismo”4, that provided continuity, renewed growth and contributed to a greater internationalization of Italian

industry.5



3.2.12 2001–2014 the New Millennium

When China joined the WTO in 2001, Italian manufacturing sectors, especially

personal and household goods, were severely affected by asymmetrical Asian

competition. Italian production started shifting increasingly toward mechanical

engineering, which was less exposed to competition from emerging countries.

However, the world crisis which exploded at the end of 2008, brought to a brisk

halt the high growth rates that had been typical of the machinery-mechanical

engineering sectors since 2003. The 2009 crisis was particularly grievous and

affected domestic demand as well as exports. The recession-stagnation, which

began in the autumn of 2011, that hit the whole Eurozone slowed down the positive

export trends of which there had been a glimpse from mid-2010 to mid-2011.

Fortunately, by 2012, the Italian trade balance became positive closing in 2013 with

a surplus of €29 billion and of €43 billion in 2014.



3.3



Manufacturing Exports from the Unification of Italy

to the Present—Growth Trends and International

Comparisons



According to the historical data analyzed by Fuà (1989b) (see especially the tables

in that work), in the decade from 1881 to 1891, the shares of Italian exports were

still 34 % food products, 15 % industrial raw material, and 37 % intermediate

products. Finished products represented only 14 % of exports.

From 1911 to 1920, once industrialization took off, the Italian export structure

had already undergone significant changes. Agricultural products had decreased to

22 %, while exports of finished goods had increased to 37 %.

The inter-war period was characterized by a relatively stagnant export trend.

Non-agricultural finished products had tremendous difficulty increasing their market share. Only after World War II did Italy make a significant jump in its



4



Quarto Capitalismo, (fourth capitalism) refers to companies of intermediate-size, i.e. neither large

nor small, which are generally distinguished by having an international presence and, at least in

part, have links to local production systems.

5

For more on Industrial Districts and international approach, see Coltorti (2006a, b, 2011, 2012),

Coltorti and Garofoli (2011), Mariotti and Mutinelli (2010), and Carminati (2011).



182



M. Fortis and M. Carminati



specialization of non-agricultural finished products. In fact, from 1966 to 1970 its

overall export market share grew to 72 % (Fuà 1989b, Table 8.8).

Fuà shows that between 1952 and 1967, there were other significant changes in

Italian exports. Agricultural products decreased from 14 to 5 %, and food and

tobacco decreased from 11 to 4 %. The export shares of chemicals and rubber

tended to remain constant, increasing slightly from 14 to 16 %, and steel also

increased from 4 to 6 %. The most impressive changes, however, took place in the

mechanical engineering and metal products sector which increased from 20 to

39 %. During that same period, textiles, leather, and wearing apparel decreased

from 28 to 19 % (Fuà 1989b, Table 8.10). Thus a clearer picture emerges depicting

how, in the first thirty years which followed World War II, an important shift

occurred in “Made in Italy” products. The traditional personal and household goods

exports were progressively flanked by increasingly specialized mechanical engineering and metal products. This trend which became progressively evident in later

years (ample proof will be provided in the following paragraphs).

Obviously, a historical reconstruction of Italian foreign trade cannot be done

independently of a comparison with other countries. Thus in this section, a brief

analysis will be provided of the main long-term Italian export trends, especially in

manufacturing compared to those of other major economies. First of all, the export

trends of the G-7 will be considered from 1900 to 1980. Second, more recent years

will be reviewed, extending the analysis to emerging countries, thus comparing the

export trends of Italy and other G-20 countries.

UN historical data allow us to reconstruct a comparative framework of export

dynamics in manufacturing and non-agricultural products of the main industrialized

countries from 1900 to 1980. WTO data are used for the subsequent years.

The UN historical data series are coherent with the SITC (Standard International

Trade Classification) which divides industrial manufacturing in four groups of

products: SITC 5 (chemicals), 6 (manufactured goods, classified mainly by the raw

materials used; leather, textiles, ceramics, metals, etc.), 7 (machinery-means of

transport which include IT and electronics), and 8 (other manufacturing including

wearing apparel, footwear, furniture, etc.). The historical WTO series which group

together many countries allow for homogenous comparisons and only differ slightly

from the UN data. The main difference is that the WTO does not include, among its

manufacturing products, nonferrous metals.

Italy, except for brief periods, has always been characterized by a slight structural deficit in its trade balance. In specific historical phases, the deficit depended on

a negative agro-food balance, while in others, including the present, it was mainly

determined by the so-called energy “bill”. However, Italy’s manufacturing trade

balance, except during the Giolittian era, has always been positive, especially since

World War II, and particularly from the 1960s Italy began to be characterized by a

high manufacturing surplus.

Italian industries, due to the “miracle” years, mainly focused on the domestic

market. After the “economic boom”, which ended with the 1964–65 recession, they

began focusing abroad for growth opportunities. Exports in many of the classical

“Made in Italy” products like wearing apparel, footwear, furniture, ceramic tiles,



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