The Growth of the Italian Economy, 1820–1960 Jon Cohen and Giovanni Federico CAMBRIDGE UNIVERSITY PRESS The Growth of the Italian Economy, 1820±1960 This volume in the New Studies in Economic and Social History series examines Italy's transformation from a largely rural state in the nineteenth century to today's industrial powerhouse. At the time of uni®cation in 1861, much of the country was backward, poor and agrarian: few would have believed that a hundred years later Italy would become one of the seven largest industrial countries, its people among the wealthiest in the world. This process of development and structural change has generated an enormous and evolving literature, alive with con- troversies and compelling insights. New research and reinterpre- tation of existing data have led to a re-evaluation of the nature of Italian dualism, while revisions to national income accounts are modifying the traditional picture of economic growth. Jon Cohen and Giovanni Federico provide a concise, up-to-date account of this literature, highlighting new views on old issues, and signalling areas in need of further research. jon cohen is Professor of Economics at the University of Toronto, Canada. His previous publications include International Monetary Problems and Supply Side Economics (edited with G. C. Harcourt, 1986) and Finance and Industrialization in Italy, 1894±1914 (1977). giovanni federico is a Fellow of the History Department in the University of Pisa. His previous publications include Eur- opean Industrial Policy: The Twentieth Century Experience (edited with James Foreman-Peck, 1999) and An Economic History of the Silk Industry, 1839±1930 (Cambridge, 1997). New Studies in Economic and Social History Edited for the Economic History Society by Maurice Kirby Lancaster University This series, specially commissioned by the Economic History Society, provides a guide to the current interpretations of the key themes of economic and social history in which advances have recently been made or in which there has been signi®cant debate. In recent times economic and social history has been one of the most ¯ourishing areas of historical study. This has mirrored the increasing relevance of the economic and social sciences both in a student's choice of career and in forming a society generally more aware of the importance of these issues in their everyday lives. Moreover specialist interests in business, agricultural and welfare history, for example, have themselves burgeoned and there has been an increased interest in the economic development of the wider world. Stimulating as these scholarly develop- ments have been for the specialist, the rapid advance of the subject and the quantity of new publications make it dif®cult for the reader to gain an overview of particular topics, let alone the whole ®eld. New Studies in Economic and Social History is intended for students and their teachers. It is designed to introduce them to fresh topics and to enable them to keep abreast of recent writing and debates. All the books in the series are written by a recognized authority in the subject, and the arguments and issues are set out in a critical but unpartisan fashion. The aim of the series is to survey the current state of scholarship, rather than to provide a set of pre-packaged conclusions. The series had been edited since its inception in 1968 by Professors M. W. Flinn, T. C. Smout and L. A. Clarkson and Dr Michael San- derson, and is currently edited by Professor M. W. Kirby. From 1968 it was published by Macmillan as Studies in Economic History, and after 1974 as Studies in Economic and Social History. From 1995 New Studies in Economic and Social History has been published on behalf of the Economic History Society by Cambridge University Press. This new series includes some of the titles previously published by Macmillan as well as new titles, and re¯ects the ongoing development throughout the world of this rich seam of history. For a full list of titles in print, please see the end of the book. The Growth of the Italian Economy, 1820±1960 Prepared for the Economic History Society by Jon Cohen University of Toronto and Giovanni Federico UniversitaÁ degli Studi, Pisa PUBLISHED BY CAMBRIDGE UNIVERSITY PRESS (VIRTUAL PUBLISHING) FOR AND ON BEHALF OF THE PRESS SYNDICATE OF THE UNIVERSITY OF CAMBRIDGE The Pitt Building, Trumpington Street, Cambridge CB2 IRP 40 West 20th Street, New York, NY 10011-4211, USA 477 Williamstown Road, Port Melbourne, VIC 3207, Australia http://www.cambridge.org © The Economic History Society 2001 This edition © The Economic History Society 2003 First published in printed format 2001 A catalogue record for the original printed book is available from the British Library and from the Library of Congress Original ISBN 0 521 66150 1 hardback Original ISBN 0 521 66692 9 paperback ISBN 0 511 01971 8 virtual (netLibrary Edition) Contents List of ®gures page vi List of tables vii Acknowledgements viii 1 Introduction 1 2 Measuring change in the long run: the data 6 3 The big picture: models of growth and 17 structural change 4 Modernization versus tradition: new views and 30 old on agriculture 5 Against all odds? The growth of industry and 46 services 6 Macroeconomic policy, institutions, and the 70 balance of payments 7 An economic miracle? Italy in the Golden 87 Age, 1945±1960 8 Conclusion 107 Bibliography 113 Index 132 v Figures 2.1 Indexes of Italian GDP page 11 6.1 Expenditure/GDP rates 73 6.2 De®cit/GDP rates 78 6.3 Exchange rate of the Italian lira: (a) against the 83 pound sterling, 1861±1913; (b) against the pound sterling, the French franc and the US dollar, 1920±1937 vi Tables 2.1 Growth rates in value added (linear interpolation) page 10 2.2 Total value added at factor costs, current prices 12 (millions lire) 2.3 Composition of the labour force, 1881±1961 13 2.4 Composition of value added at factor costs, 1870±1961 13 2.5 Percentage of agriculture according to the `European 14 norm' 2.6 Regional differences in GDP per capita 15 5.1 Growth rates of GDP, selected industries, 1861±1913 49 5.2 The size of the banking system and its structure 58 6.1 Money supply and state de®cit 79 vii Acknowledgements We are grateful to Giuliana Biagioli, Stefano Fenoaltea, Francesco Galassi, Giuseppe Tattara, Gianni Toniolo and Vera Zamagni for reading and commenting upon all or parts of earlier versions of the manuscript. The quality of the ®nal product is much improved thanks to their efforts. Errors of fact and/or interpretation that remain are, of course, the responsibility of the authors. We would also like to thank Sandra Monardo for assistance in preparing the bibliography. We would, ®nally, like to express our gratitude to the two editors of the series with whom we worked, Michael San- derson and Maurice Kirby, for their extraordinary patience, encouragement and the occasional gentle nudge. viii 1 Introduction 1.1 Italy ranks today as one of the seven largest industrial coun- tries in the world. Its people are among the world's richest whether one uses as a measure per capita income or the more broadly based Human Development Index (United Nations Development Program 1990). These observations alone would suggest that Italy's rise to economic prominence merits attention. But the country's success is all the more arresting because it was so unexpected. The city-states and principalities of the Italian penin- sula were economic leaders in Europe for much of the period between the twelfth and the seventeenth centuries but their prosperity waned as the locus of economic activity and economic power shifted from the Mediterranean to the Atlantic. At the time of uni®cation in 1861, much of the country was backward, poor and agrarian. Per capita income was roughly 50 per cent of that in Britain and about 60 per cent of that in France. While some Italians retained business skills and commercial know-how ac- quired during the late medieval and early modern economic expansion, very few, even among the country's most ardent champions, would have believed that, in a relatively short period of time, Italy would emerge as an industrial powerhouse. This process of growth and structural change has generated a huge and evolving literature, loaded with controversies and, often enough, compelling insights. The purpose of this monograph is to provide a concise, up-to-date account of this literature, to highlight new insights into old problems, and to signal areas desperately in need of more research. This emphasis on historiography instead of history is intentional. There are now a couple of excellent text- books on Italy's modern economic growth (Toniolo 1990; 1 2 The Growth of the Italian Economy, 1820±1960 Zamagni 1993a) but no comprehensive, critical review of the material on which these accounts are based. We have attempted in this book to ®ll the gap. 1.2 Italy succeeded in spite of formidable obstacles. The country lacked natural resources, especially one of the staples of nineteenth-century industry, coal. For many contemporaries, coal was the sine qua non of industrialization and without it Italy, they felt, was condemned to remain a second-rate industrial power. They were, of course, wrong. Some industries such as silk in which Italy had a comparative advantage were much less depen- dent on coal than others. There were ways to economize on the use of coal and other raw materials and Italian manufacturers exploited them. There were substitutes. Italian entrepreneurs, for example, realized early on that hydroelectric power was a compel- ling alternative to coal and invested heavily in its development and use.