Quaderni di Storia Economica (Economic History Working Papers) A Tale of Two Fascisms: Labour Productivity Growth and Competition Policy in Italy, 1911-1951 Claire Giordano and Ferdinando Giugliano December 2012 number 28 Quaderni di Storia Economica (Economic History Working Papers) A Tale of Two Fascisms: Labour Productivity Growth and Competition Policy in Italy, 1911-1951 Claire Giordano and Ferdinando Giugliano Number 28 – December 2012 The purpose of the Economic History Working Papers (Quaderni di Storia economica) is to promote the circulation of preliminary versions of working papers on growth, finance, money, institutions prepared within the Bank of Italy or presented at Bank seminars by external speakers with the aim of stimulating comments and suggestions. The present series substitutes the Historical Research papers - Quaderni dell'Ufficio Ricerche Storiche. The views expressed in the articles are those of the authors and do not involve the responsibility of the Bank. Editorial Board: MARCO MAGNANI, FILIPPO CESARANO, ALFREDO GIGLIOBIANCO, SERGIO CARDARELLI, ALBERTO BAFFIGI, FEDERICO BARBIELLINI AMIDEI, GIANNI TONIOLO. Editorial Assistant: ANTONELLA MARIA PULIMANTI. ISSN 2281-6089 (print) ISSN 2281-6097 (online) A Tale of Two Fascisms Labour Productivity Growth and Competition Policy in Italy, 1911-1951 Claire Giordano and Ferdinando Giugliano Abstract This paper offers the first quantitative assessment of labour productivity dynamics within Italy's industrial sector over the period 1911-1951 and of their links with competition policy. By relying on a newly compiled dataset and on fresh labour productivity estimates, we find that the earlier period of the Fascist era was characterised by a productivity boom, which ended and was reversed following the switch to a more interventionist industrial policy. In the overall period 1911-1951, new industries did not perform any better than the old ones and labour productivity growth was explained largely by internal productivity growth within industrial sectors rather than from the contribution of structural change from old to new industries. Finally, we find that reductions in the level of competition, induced by specific policies, were associated with lower productivity growth. This paper thus casts a shadow on the optimist accounts of Fascist industrial policy and confirms the findings of a revisionist literature minimising the positive role played by the State in the earlier stages of Italian industrialization. JEL Classifications: L16, L52, N14 Keywords: labour productivity, competition, Great Depression. Contents 1. Introduction……………………………………………………………………………………………… 5 2. Shifts in Italian industrial policy………………………………………………………………………… 8 2.1 Pre-Fascism industrial and competition policy……………………………………………………… 9 2.1.1 A three-pronged approach to industrial policy, 1861-1913…………………………………… 9 2.1.2 The impact of World War One ………………………………………………………………. 11 2.2 Industrial and competition policy in the age of Fascism……………………………………………. 12 2.2.1 A “liberal” Fascist phase……………………………………………………………………… 12 2.2.2 Quota 90……………………………………………………………………………………… 14 2.2.3 Competition policy…………………………………………………………………………… 16 2.2.4 The creation of IRI and foreign exchange policy…………………………………………….. 19 2.3 Measuring the effects of shifts in competition policy………………………………………………. 23 2.3.1 The evidence on concentration………………………………………………………………... 24 2.3.2 Prices and Cowling indices………………………………………………………………….… 27 3. Labour productivity growth dynamics and structural change…………………………………………… 31 3.1 Output per worker: the data……………………………………………………………………..…… 32 3.2 Output per worker: results…………………………………………………………………………… 36 3.3 Accounting for changes in hours worked………………………………………………………….… 41 4. Labour productivity growth and competition policy………………………………………………..…… 47 4.1 The existing evidence…………………………………………………………………………….…… 47 4.2 New econometric evidence for Italy……………………………………………………………..……. 53 5. Conclusions………………………………………………………………………………………….…… 59 A Data Appendix…………………………………………………………………………………….……… 61 B. Robustness check: labour productivity growth based on industrial census data………………………… 67 B.1 The data……………………………………………………………………………………………... 67 B.2 The results…………………………………………………………………………………………… 68 References…………………………………………………………………….…………………………..… 73 Economic and Financial History Division, Banca d'Italia. E-mail: [email protected] Department of Economics and Pembroke College, University of Oxford. E-mail: [email protected]. Quaderni di Storia Economica – n. 28 – Banca d’Italia – December 2012 1 Introduction1 The evolution of labour productivity in Italian industry over the interwar era has been mainly looked at from an aggregate point of view. Filosa, Rey and Sitzia (1976) have shown that it was generally slow throughout the 1922-1938 period. More recently, Broadberry, Giordano and Zollino (2011), in their century-and-a-half analysis of Italy's development, find similar results, with not only growth rates falling but also comparative labour productivity levels relative to the United Kingdom deteriorating after 1911. And since the United States were ploughing ahead in those years, it is clear that Italy was dropping even further behind from the new technological frontier. Only after World War Two did Italy decidedly embark on a catching-up trajectory. An aggregate analysis is, however, far from satisfactory. Studies conducted over the last twenty years on a range of countries2 have shown that the evolution of labour productivity in the different branches of the industrial sector was generally heteroge- neous. Even when grouping branches together, \new" industries often experienced rates of productivity growth which were very different from those registered by the `old staples."3 Disaggregated analysis, important per se, also enables researchers to use shift-share analysis to distinguish whether industrial productivity growth was due to internal productivity growth or to structural change, i.e. shifts of resources from low-productivity level industrial sectors to high-level ones. Lastly, disaggre- gated data can allow researchers to exploit the cross-sectional variation between industries to better study which factors truly drove productivity growth and, in par- ticular, whether a given type of industrial policy had a positive or a negative effect on productivity growth. All the mentioned lines of research are particularly appealing in the Italian case. The asymmetric performance of old and new industries, the role of structural change and the impact of active industrial policies in the interwar period have all been referred to in the literature. The division between new and old industries is particularly important, so much that Tattara and Toniolo (1976) have openly talked about a \dual economy:" using information from the industrial censuses taken in the second half 1We are very grateful to Brian A'Hearn, Federico Barbiellini Amidei, Emanuele Felice, Knick Harley, Anna Missiaia, Paolo Sestito, Gianni Toniolo and an anonymous referee for commenting on earlier versions of this paper. We also thank Stephen Broadberry, Carlo Ciccarelli and Kevin O'Rourke for useful suggestions, as well as participants of a seminar in Oxford, and Stefano Fenoal- tea and Emanuele Felice for sharing unpublished data with us. All errors remain our own. The opinions herein expressed are those of the Authors and do not necessarily reflect those of the Insti- tutions represented. 2For example, for Britain and the United States, see, among others, Broadberry and Crafts (1990b; 1992), Broadberry (1997) and De Jong and Woltjer (2011); for Britain and Germany, see Broadberry and Fremdling (1990) and Fremdling, De Jong and Timmer (2007). 3For example, in the British case, see Broadberry and Crafts (1990a). 5 of the 1930s, they argued that the productivity gap between new and old industries, measured in levels, was larger in Italy than in Germany or in Britain (Tattara and Toniolo 1976, p. 150). In their view, this gap was the consequence of the different dynamics in investments, with the level of horsepower rising much faster in the new industries than in the old ones. Although the two scholars do not analyse productivity dynamics in detail, they hint at the fact that such differences in levels may have not translated into large productivity growth differentials. This is because employment dynamics largely followed those of investments, so that structural change might have actually hampered productivity growth within new sectors by increasing employment more than output. An analysis of structural change within industry cannot, however, be detached from a more general analysis of Fascist industrial policy, which tended to favour new industries over the old staples. The decision to revalue the lira in 1926-1927 and the increase in import duties which accompanied it favoured the more modern sectors of the Italian economy while penalising the export-oriented old industries, starting what has been defined as `a deliberate policy of forced redistribution of resources' (Tattara and Toniolo 1976, p. 105). This included a general retrenchment from competition in the product market. Although the literature has emphasized the importance of this retrenchment, doubts remain over whether its impact on productivity growth was positive or, in fact, negative. This question can also be answered via a disaggregated analysis of productivity growth. The only study that has thus far looked at the evolution of labour productivity