master.jpg
The Roots of Italian Economic Decline (I)
•Lecture 2: The roots of Italian economic decline
•

print.jpg
The Rise of Artificial Researchers
December 5th
12.00 Room M117

print.jpg
The Path Toward Decline


print.jpg
Main Phases of Italian Economic Development
•
•1. Post-War Reconstruction (1945-1950)
•2. Economic Miracle (1950-1963)
•3. Stagflation and Social Unrest (1963-1983)
•4. Recovery and European Integration (1983-1992)
•5. Preparation for the Euro (1992-1999)

print.jpg
Post-War Reconstruction (1945-1950)
•
•Rebuilding of infrastructure and industry
•Marshall Plan aid
•Establishment of key public institutions (e.g., Cassa per il Mezzogiorno, 1950) •The IRI (Istituto
per la Ricostruzione Industriale) and the State involvement in the economy

print.jpg
The Istituto per la Ricostruzione Industriale (IRI)
•Origins and Role: The IRI, established in 1933 during the Great Depression, became a cornerstone
of Italy’s state-led industrial strategy. Post-war, it was instrumental in rebuilding Italy's
industrial base.
•
•Activities: It managed key sectors like steel, telecommunications, shipbuilding, and energy,
fostering industrial modernization and ensuring strategic industries remained operational.
•
•Impact: The IRI supported Italy’s economic reconstruction by driving industrial growth, creating
jobs, and stabilizing critical infrastructure. It played a significant role in the "economic
miracle" of the 1950s and 1960s, when Italy transitioned into an advanced industrial economy.

print.jpg
Cassa per il Mezzogiorno
•Purpose: Established in 1950, the Cassa was designed to address the economic disparity between
Italy's wealthier North and underdeveloped South (Mezzogiorno).
•Programs: It funded infrastructure projects like roads, dams, and irrigation systems, and provided
subsidies for industrial development in southern Italy.
•Impact: While it initially stimulated economic activity and improved infrastructure, its long-term
effectiveness was mixed due to inefficiencies and allegations of corruption. Nonetheless, it marked
an important effort to integrate the South into the national economy.

print.jpg
Combined Role in Economic Recovery:
•The IRI drove Italy's industrial revival, fostering innovation and competitiveness, while the
Cassa per il Mezzogiorno aimed to ensure that growth was more geographically inclusive. Together,
they contributed to Italy's transformation into a modern industrial nation, despite facing
challenges in governance and execution.

print.jpg
State ownership and public managers
•The IRI and other state-owned enterprises benefited from a cadre of highly experienced managers.
Many of these professionals had held crucial roles during the Fascist era, particularly in managing
the economic crisis of the 1930s. This generation of managers was instrumental in navigating the
complexities of post-war reconstruction, leveraging their expertise to restart production and
capitalize on new opportunities.

print.jpg
Economic Miracle (1950-1963)
•
•Rapid industrialization and urbanization
•High growth rates (average 5.8% per year)
•Expansion of exports: Italy from a low tech product exporter to light industry leader.
•Reduced North-South gap (internal emigration)

print.jpg
The social consequences of
the economic miracle
•Political Reconstruction and Stability:
The 1950s were marked by the gradual consolidation of democratic institutions and political
stabilization, both essential to addressing reconstruction efforts and fostering trust in the
institutions. •Social Tensions:
Post-war Italy was a devastated country: large segments of the population lived in poverty,
especially in the South, where infrastructure was severely lacking. In the North, industrialization
created new opportunities but also fueled tensions between the working class and entrepreneurial
elites. •Reform Movements:
Trade unions and left-wing parties fought for better labor rights and a fairer redistribution of
wealth. This pressure contributed to the introduction of welfare policies and social reforms, such
as the pension system. •Social Reconstruction:
Despite the challenges, there was a strong will for reconstruction and a sense of national unity,
which found expression in cultural movements such as Neorealism. This movement depicted the
hardships but also the dignity of the working class. •Hope for a Better Future:
The possibility of accessing higher education, purchasing a home or car, and living in a more
modern society fueled optimism for a better future. This confidence was further reinforced by the
perception that economic progress would support more inclusive social reforms and greater equity.

print.jpg
Stagflation and Social Unrest (1963-1983)
•
•Slowdown in growth
•High inflation
•Labor market tensions
•Oil shocks (1973, 1979)
•Rise of public debt

print.jpg
Recovery and European Integration (1983-1992)
•
•Economic recovery in the mid-1980s
•Further European integration (Single European Act, 1986)
•Continued increase in public debt
•Preparation for the Single Market

print.jpg
The Turning Point: the 1992 Crisis
•Causes of the 1992 Crisis in Italy
•Economic Challenges:
•High inflation and declining competitiveness in export industries.
•Rigidity of the European Monetary System (EMS), with fixed exchange rates limiting flexibility.
•Increased interest rates in Germany (to fund reunification) diverted capital, destabilizing
Italian finances.
•
•Structural Weaknesses:
•Dependence on foreign capital, making Italy vulnerable to sudden outflows.
•Liberalization of capital flows (completed in 1990) amplified "hot money" movement and inflation.
•
•Political Instability:
•Corruption scandals from the "Mani Pulite" investigations weakened government credibility.
•Failure to implement necessary economic reforms undermined confidence in Italy's ability to adhere
to EMS commitments.

print.jpg
An Ephemeral Revolution
•Collapse of the First Republic:
•Disintegration of long-standing political parties like the Christian Democrats and Italian
Socialist Party.
•Rise of new political movements, including Forza Italia and the Lega Nord.
•Economic and Political Shifts:
•Increased reliance on technocratic leadership to manage crises (e.g., Ciampi's government in
1993-94).
•Introduction of critical reforms like the 1993 wage agreement to combat inflation and restore
competitiveness.
•Impact on European Integration:
•Despite skepticism, "staying in Europe" became a political goal, symbolizing renewal and
modernization.
•Italy's eventual entry into the Eurozone in the late 1990s was framed as a national achievement
despite lingering structural weaknesses.
•

print.jpg
Preparation for the Euro (1992-1999)
•
•Currency crisis and exit from ERM (1992)
•Fiscal consolidation efforts
•Privatizations
•Labor market and pension reforms
•Meeting Maastricht criteria

print.jpg
The Rise of Berlusconi
•Silvio Berlusconi emerged as a central figure in Italian politics in the early 1990s, capitalizing
on the vacuum left by the collapse of the First Republic and its dominant parties, such as the
Christian Democrats and the Italian Socialist Party. His entry into politics marked a pivotal
moment in Italy's political transformation.
•Post-1992 Context:
•The collapse of the traditional party system due to the corruption scandals of "Mani Pulite"
created a fragmented political landscape.
•Disillusionment with the old political elite opened space for new movements and leaders to gain
traction.
•The Creation of Forza Italia:
•Berlusconi founded Forza Italia in 1994, presenting it as a fresh, anti-establishment force while
drawing on the networks and clientelistic practices of the past.
•Many of Forza Italia's early members had ties to the disbanded Christian Democrats and Socialists,
enabling Berlusconi to inherit aspects of their political base.

print.jpg
Berlusconi’s plan
•Objectives of Political Reconstruction:
•Berlusconi sought to rebuild the patronage networks and alliances that had underpinned the
pre-1992 system. His vision emphasized a return to a form of political stability through the
re-establishment of key relationships between political actors, private businesses, and the state.
This included leveraging state influence to benefit private interests, a hallmark of the Christian
Democrat-led governments of the First Republic.
•
•Economic and Political Strategy:
•Berlusconi’s policies aimed to reduce state intervention publicly while preserving strategic
alliances with business sectors that had historically thrived under state support. His populist
rhetoric appealed to a broad electorate, from small-business owners to workers disillusioned with
the left, promising both economic liberalization and stability.