Forms of Enterprise in 20th Century Italy: Boundaries, Structures and Strategies

Forms of Enterprise in 20th Century Italy

Forms of Enterprise in 20th Century Italy Boundaries, Structures and Strategies

Edited by

Andrea Colli Department of Institutional Analysis and Public Management, Bocconi University, Italy

Michelangelo Vasta Department of Economics, University of Siena, Italy

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Andrea Colli and Michelangelo Vasta 2010 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009941010

ISBN 978 1 84720 383 0

02

Printed and bound by MPG Books Group, UK

Contents List of contributors Foreword Franco Amatori Acknowledgments 1

Introduction: forms of enterprise in 20th century Italy Andrea Colli and Michelangelo Vasta

PART I

2 3 4 5 6

8 9

1

BIG BUSINESS: CATCHING THE TECHNOLOGICAL FRONTIER

Big business (1913–2001) Renato Giannetti and Michelangelo Vasta State-owned enterprises (1936–83) Pier Angelo Toninelli and Michelangelo Vasta Foreign enterprises (1913–72) Andrea Colli Big business and Italian industrial policies after World War II Francesca Fauri Financing the largest manufacturing firms: ownership, equity, and debt (1936–2001) Leandro Conte and Giandomenico Piluso

PART II

7

vii x xii

25 52 87 112

132

THE POWER OF LOCALISM: EXPLOITING WINDOWS OF OPPORTUNITY

Small firms and local production systems (1900–1960) Mario Perugini and Valentina Romei Public utilities in the 20th century Simone Fari and Andrea Giuntini Industrial policy and artisan firms (1930s–1970s) Giuseppe Maria Longoni and Alberto Rinaldi

v

161 185 204

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Forms of enterprise in 20th century Italy

PART III

10

11

‘Leaping frogs’ in the demography of manufacturing firms (1911–71) Lucia Castellucci and Renato Giannetti The medium-sized manufacturing enterprise (1927–81) Fabio Lavista

PART IV

12

IN SEARCH OF AN IDENTITY: STRUGGLING WITH THE CONTEXT

248

COOPERATION: THE IMPORTANCE OF NETWORKING

Co-operatives (1951–2001) Patrizia Battilani and Vera Zamagni

References Index

227

273

294 323

Contributors Patrizia Battilani (University of Bologna) took her Ph.D. in Economics at the University of Bologna. She is now professor of Economic History. She has published several books and essays on tourism history and on the history of cooperative enterprises. Lucia Castellucci (University of Firenze) took her Ph.D. in Economic and Social History at Bocconi University, Milano. Andrea Colli (Bocconi University, Milano) took his Ph.D. in Economic and Social History at Bocconi University. He is now professor of Economic History. He is specialized in Business History, and his fields of interest are: the structure and evolution of SME, the role of family firms in modern economic growth, corporate governance in a comparative and historical perspective, and foreign direct investments in the long run. Leandro Conte (University of Siena) took his Ph.D. at the University of Napoli. He is now professor in Economic History and has published in academic journals on financial markets and business history. Simone Fari (University of Torino) took his Ph.D. in Economic History at the University of Bari. He is now research fellow in Economic History and research fellow in Technological History at the Science Museum of London. Francesca Fauri (University of Bologna) took her Ph.D. in Economic History at the European University Institute, Firenze. She holds a Jean Monnet Chair in European Economic History. She has extensively published on issues concerning the history of European economic integration and Italy’s postwar economic and business history. Renato Giannetti (University of Firenze) is professor in Economic History. His publications cover the history of technology and business history, especially the Italian experience from Unification to the present day. Andrea Giuntini (University of Modena and Reggio Emilia) took his Ph.D. in Economic History at the University of Napoli. He is now professor in Economic History. His research covers contemporary economic vii

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history and his main fields are: history of networks, energy, transport and communications, and urban history. Fabio Lavista (Bocconi University, Milano) took his Ph.D. in Economic and Social History at Bocconi University. He is now fellow at the Department of Institutional Analysis and Public Management. Giuseppe Maria Longoni (University of Milano) is lecturer in Contemporary History. His main research interests, particularly focused on Lombardia, include labour history, trade and business association history. Mario Perugini (Bocconi University, Milano) took his Ph.D. in Economic and Social History at Bocconi University in 2009 with a dissertation on the history of the Italian chemical industry in the 1930s. He is now research assistant at the Department of Institutional Analysis and Public Management. Giandomenico Piluso (University of Siena) took his Ph.D. in Economic and Social History at Bocconi University, Milano. He is now lecturer in Economic History, and the editor of Imprese e storia, the Italian business history journal. He has published extensively on economic history and business history, concentrating on financial institutions. Alberto Rinaldi (University of Modena and Reggio Emilia) took his Ph.D. in Economic and Social History at Bocconi University, Milano. He is now lecturer in Economic History. His research interests cover the 18th to the 20th centuries, focusing in particular on industrial districts and local production systems, interlocking directorates and international investment. Valentina Romei (Financial Times, London) took her Ph.D. in Economic History at the European University Institute, Firenze. She is now working as a statistical researcher. Pier Angelo Toninelli (University of Milano-Bicocca) is professor of Contemporary and Business History at the Department of Economics. He has published extensively on different historical subjects such as state-owned enterprise, accounting, methodology and economic development. Michelangelo Vasta (University of Siena) took his D.Phil. in Economic History at the University of Oxford. He is now professor in Economic History. His main interests concern Italian economic development focusing on both micro- and macroeconomic topics such as technical change in historical perspective, trade and growth, business history and corporate governance.

Contributors

ix

Vera Zamagni (University of Bologna) took her D.Phil. in Economic History at the University of Oxford. She is professor of Economic History and visiting professor of European Economic History at the Bologna Centre of the Johns Hopkins University. Her main publications cover Italian economic history with special reference to national income estimates, regional disequilibria, income distribution and wages, state intervention, business history, evolution of the cooperative movement and European integration.

Foreword The volume that follows is the outcome of a multiunit project sponsored by the Italian Ministry of Universities that involved scholars from Bocconi University and the Universities of Milano (Bicocca), Bologna, Modena, Firenze, and Siena. The task of writing this foreword falls to me as coordinator of the project but the reality is that this book had two determined editors as well as excellent authors so my role is almost superfluous. I cannot help but remind readers that this is an important book as it represents a significant moment for reconciling the two ‘souls’ of Italian business history. On one side there are those who, having studied in depth several cases of companies or sectors, thought that the story of Italy could be considered in a Chandlerian perspective in the sense that big business was absolutely critical to the nation’s development. On the other side are scholars with a strong quantitative inclination. Using an extensive database, Imita.db, on Italian joint stock companies, these scholars seemed inclined to consider the role of large firms as of secondary importance and thought that for Italy there was a more realistic path to development with its emphasis on the weight of small businesses and non-heavy industrial sectors. I am known as belonging to the former group and once, having written that at the end of the 19th century the word ‘industrialization’ in Italy was synonymous with ‘steel’, I was semi-seriously accused of not offering quantitative support nor archival evidence of my affirmation.1 Indeed, ‘Chandlerians’ are not so naïve as to think that in its process of industrialization Italy embodied a model based on big business American-style. Instead, we are well aware that: ● ●

●

the actors of development were different, the Gerschenkronian substitutive factors, especially the State, were very much present and, hence, politics ended up playing a different role than in the United States and in other advanced European nations; and, that the weight of small business is by far greater than in the tale told by Chandler.

x

Foreword

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Nonetheless, for Italy big business (in sectors such as metallurgy, engineering, chemicals, and electricity) was the engine of growth, especially in the phases of more intensive growth such as the glorious two decades starting in 1950, when it looked as if it would be possible to catch up with the ‘first row’ nations. ‘. . . the overall contribution of the large firms to the “Italian wealth” has been extremely relevant from all points of view and . . . it had, at least in the course of the first three-quarters of the century, been growing’. This sentence, which you can read in the editors’ introduction to this book, highlights (supported by the formidable quantitative work done by Giannetti and Vasta’s team2 that built up the Imita.db database) a merger between the esprit de geometrie and the esprit de finesse which characterized Italian historiography. Furthermore, all this is favored by the fact that both ‘currents’ are well aware of the articulation and of the peculiarities of the economic fabric of Italy where big business is placed side-by-side with very dynamic small firms that act either alone or within industrial districts, with local municipalized companies or cooperatives that are politically oriented in some way, with niche or mid-size companies that now seem to be the most representative of the lively national economy. In closing, it is my firm conviction that this volume highlights an important step ahead for Italian business historiography with its innovative aspects (for example, the attention to the action of foreign multinationals, the attempt to measure the real boundaries of the State-owned enterprise system, and the effort to trace the history of the Italian mittelstand) and a direction of research that invites further investigation so as to give an increasingly realistic portrait of the historical evolution of the Italian enterprise. Franco Amatori Bocconi University, Milano September 2009

NOTES 1. F. Amatori (1997) ‘Italy: the tormented rise of organizational capabilities between government and families’, in A.D. Chandler, Jr., F. Amatori and T. Hikino, Big Business and the Wealth of Nations, New York and Cambridge: MA Cambridge University Press, 246–76; J. Cohen and G. Federico, The Growth of the Italian Economy 1820–1960, Cambridge: Cambridge University Press, 2001, pp. 67–68. 2. R. Giannetti and M. Vasta (eds), Evolution of Italian Enterprises in the 20th Century, Heidelberg, Physica Verlag (2006).

Acknowledgments This volume is the outcome of a truly collaborative effort undertaken by five units (Bocconi University, University of Bologna, University of Firenze, University of Modena and Reggio Emilia, and University of Siena) which put together the results of a research effort lasting for almost four years. As editors of the book which summarizes the results of this research, and on behalf of the other participants to the project, we wish to acknowledge many colleagues and friends who enthusiastically provided their precious advice in order to improve the quality of this work. The chapters which compose the book have been discussed in three preliminary workshops, hosted by the University of Bologna in June 2005 and September 2006 and by University of Modena and Reggio Emilia in February 2006. We owe a special and warm thanks to Vera Zamagni and Giuliano Muzzioli for their generous hospitality. A final conference, open to the scientific community and hosted by the Bocconi University in June 2007 has involved many colleagues as discussants of the final version of the chapters. Margherita Balconi, Stefano Breschi, Giancarlo Cainarca, Giuseppe Conti, Marco Doria, Giovanni Federico, Emanuele Felice, Enrico Giovannetti, Sergio Mariotti, Mario Minoja, Luigi Orsenigo, Claudio Pavese, Francesco Silva, Andrea Sironi and Ercole Sori provided precious comments and invaluable help from which all the members of the research group greatly benefited. The project has been possible thanks to the joint financial support of Bocconi University, Universities of Bologna, Firenze, Modena and Reggio Emilia, and Siena, together with the Italian Ministry of Education, University and Research (COFIN # 2004134099). We express our gratitude to Franco Amatori, the scientific coordinator of the whole project, who has been constantly following the research’s development and providing key support from both the scientific and the organizational point of view. Special thanks go to Riccardo Benedetti for his excellent research assistance on Imita.db and other databases. The quality of this book has been enormously raised by the valuable and very patient language editing supplied by Chris Engert. Andrea Colli & Michelangelo Vasta Firenze and Varese, Summer 2009 xii

1.

Introduction: forms of enterprise in 20th century Italy* Andrea Colli and Michelangelo Vasta

1.1

GENERAL FRAMEWORK

One important issue which has recently captured the attention and the research efforts of both economists and economic historians has been the debate about the different forms of capitalism in the world today. The ‘variety of capitalism’ debate has involved scholars of different fields, from finance to management, from corporate governance to industrial economics (La Porta et al. 1999; Whitley 1999; Whittington & Mayer 2000; Hall & Soskice 2001; Morck 2005; Baumol, Litan & Schramm 2007). It is not easy to establish the starting point of this debate, which undoubtedly goes back to the explanation of the different paths of economic development (Gerschenkron 1962). The focus of the analysis was, from this perspective, mainly comparative. It tried to identify, by adopting a macro-economic approach, the national – basically institutional – determinants of the different paths of growth. Implicitly (and sometimes explicitly), when the comparison involved the advanced (Western) countries, the explanation of the different levels of development was linked to the internal structure of the country’s capitalist institutions, which regulated the economic system. Not surprisingly, this has recently become the favourite topic of those economic historians interested in the issue of the ‘great divergence’ between Europe and its Western offspring on the one hand, and India and China on the other (Pomeranz 2000; Maddison 2007). In this very last case, it is clear that the origins of this divergence are basically to be found in the affirmation of a capitalist culture which was established well before the First Industrial Revolution (Landes 1998; Acemoglu et al. 2005). Then, taking the Western lead for granted, the rise – and the fall – of the European champions has been seen as a never-ending competition about more and more efficient sets of institutions which regulate, enforce and strengthen national models of capitalism (North 1990; 2005). By identifying technical change as a key factor in the process of economic growth, another interpretation, following a Schumpeterian approach, provides a 1

2

Forms of enterprise in 20th century Italy

periodisation of world economic history as a sequence of homogeneous technological phases (Freeman & Soete 1997; Freeman & Louçã 2001). From this perspective, the variety of forms of capitalism is determined by the ability of a country to adapt to the different technological phases by striving to narrow the gap with the technological frontier (Fagerberg 1994). This is clearly due both to opportunities (for example, in terms of natural resources) and capabilities (for example, in terms of technological institutions or human capital). In this sense, differences in the structure of capitalist systems and their rate of economic growth are mainly due to the ‘technological congruence’ of the latecomer countries with the leading ones (Abramovitz 1986). By adopting a ‘meso’ perspective, another stream of analysis, largely based upon the literature which draws on the findings of industrial economics, tends to connect the issue of growth and development, as well as the differences among different capitalist systems, to the structure of manufacturing industries. From this perspective, what makes the difference among different capitalist (and non-capitalist) economic systems is the ability to foster the growth of those industries which lead the process of economic development (Mowery & Nelson 1999; Malerba 2005; Whitley 2007). From this point of view, in order to achieve high levels of performance, a national economic system has to build a system of innovation, involving research and educational institutions, an efficient financial sector, and cultural attitudes towards entrepreneurial activity in new and innovative industries (Lundvall 1992; Nelson 1993; Freeman 1995; Steil et al. 2002). Technology is thus considered to be the main driver in this process, and the differences and divergences among different systems are basically the result of the ability to develop, or to adopt, superior and new technologies, or to shift the pattern of national specialisation to those industries which are more developed and advanced in technological terms. From this perspective, institutions (which are at the core of the macrooriented argument) are taken into account when they are able to create the conditions under which the process of technological advancement can take place unhindered. Along the same pattern, another approach explains the difference in the level of economic performance of regions and/or countries by explicitly focusing on a ‘micro’ perspective, i.e. taking into consideration the different forms of enterprises as an (additional or principal) explanation of the differences in the level of growth and performance of an economic system. In other words, if the macro perspective stresses the role of institutions in determining the relative efficiency of the different national systems, the ‘micro’ view provides an explanation largely based upon the differences in the ‘demography’ of the enterprises (i.e. the mixture

Introduction

3

of small, medium and large firms), the adequateness of organisational structures and the behaviour and attitudes of the entrepreneurs. Even if an institutional influence on the persistence of certain typologies of business organisations can also be taken into account in this case, the ‘micro-approach’ literature tends to focus on the internal characteristics and on the structure of business organisations, considered as the main unit of analysis in the explanation of the differences and divergences at the macro-level. As is well known, this is the approach followed by Chandler (1962; 1977). From this perspective, the differences in the levels of performance of different economic systems largely depend on the relationship between technological waves and the adoption of the ‘right’ strategies or policies, which, in their turn, have to be supported by coherent organisational structures. Chandler (1990) provides an example of comparative analysis in order to explain the rise and decline in the efficiency of different business systems, emphasising the role played by the large, integrated enterprises in the leading capital, R&D and technology intensive industries of the Second Industrial Revolution. The comparative analysis of modern capitalist economies from a micro-structural point of view has been carried on to a further extent in another major business history synthesis (Chandler, Amatori & Hikino 1997). Even though the latter research does not explicitly address the issue of the divergences in the structure of the capitalist economies, and never mentions the concept of national business systems, the relationship between the specificities of the national models of large enterprises and the overall performance of the economic system considered emerges clearly and contributes to shaping the ‘different’ forms of national capitalism. In emphasising the impact of the ‘micro’ dimension – i.e. of the industrial corporation upon the ‘wealth of a nation’, Chandler was undoubtedly right. Under another perspective, his seminal analysis suffered from some limitations, or rather, gaps, which the following research in business history is now trying to fill. First of all, the sharp focus of the analysis converges on a very restricted number of particular actors (the large, vertically integrated corporations), which are scrutinised with regard to the coherence between their policies, or strategic choices, and their organisational structures. In some sense, it was precisely because of these characteristics that Chandler’s (and his followers’) research efforts converged on the ‘Tyrannosaurus rex’ of modern economic growth. This has clearly been reflected in both the available research and in the synthesis, recently published, on both a national and an international, comparative basis. The analysis of the strategies and structures of large enterprises – and of their national deviations from the standard American

4

Forms of enterprise in 20th century Italy

paradigm – has, for decades, been at the top of the agenda of researchers interested in understanding the evolution of economic systems starting from a micro-economic approach. Even though it is extremely useful and conceptually strong in emphasising the micro-level contribution to the macro-economic framework, as well as the necessary coherence among strategies, structures and other variables as the characteristics of the demand and the institutional and cultural framework, the classic approach which focused on large organisations provides only a partial explanation of the different patterns of economic growth among countries and within the same country in different periods (Langlois 2003). Moreover, it dismisses, or, even if not explicitly, it underestimates the contribution of other business forms and typologies of enterprises to the ‘wealth of the nation’, and, in doing so, misses the opportunity to broaden the original analytical intuition and extends it to the interpretation of the differences among various national business systems, as well as the real variety of the entrepreneurial responses to the opportunities provided by the transformation/evolution in technologies and markets, and, more generally, in the environment in which the firms operate (Scranton 1997; Lamoreaux, Raff & Temin 2003). This book moves a step forward in this direction, explicitly putting at the centre of the analysis the variety of business forms present inside a specific country – Italy – during the process of its economic growth and modernisation.

1.2

THE RESEARCH PROJECT: AIMS, SOURCES AND METHODS

Although the economic literature during the 20th century mainly focused on macro-economic issues, especially on the process of industrialisation and on aggregate growth, the last decades have witnessed deep changes. As we have seen, growing attention has been devoted to issues concerning organisational and institutional varieties, and, more generally, to the micro-behaviour of economic actors and to policies able to address them by adopting specific incentives. Moving from these considerations, the goal of this research project has been to act as a bridge between the two above-mentioned approaches – one which privileges structural continuity, while the other stresses differences and varieties – in the perspective of building a wider and more complex picture of Italian business and economic history. The main aim of the project has been to analyse the evolution of Italian capitalism during the 20th century by focusing upon those different

Introduction

5

forms of enterprise which have typified different phases of the economic growth process. The starting point of the analysis is thus the identification of the presence, in a long-term perspective, of the various dominating models of enterprise that have characterised, with their dynamism, the different stages both with regard to the nature of the technological and market opportunities and with regard to the national and international institutional contexts. The different typologies of enterprise analysed in this book were not selected upon the basis of the binary logic applied to a group of specific variables, but by adopting a fuzzy logic in which an articulated set of analytical dimensions can assume approximate, rather than precise, values (Zadeh 1965). In other words, by considering a set of dimensions such as size, legal forms, types of governance or ownership, performance and so on, we have identified eight different forms of enterprises which represent as many different fuzzy sets. This means that the membership value for each variable is not exclusively 0 or 1, as in the binary logic, but can range between these two values. At the same time, the membership is not exclusive in the sense that some single firms can belong to two or more categories of enterprises. It is clear that the different typologies do not provide a ‘robust’ taxonomy, since the dimensions that identify them (size, legal forms, etc.) are active at different levels, which may, to some extent, interact or overlap. Clearly, these forms of enterprise have been selected by considering the evolution of the Italian historiography, which has already extensively focused on some of them. The added value of the project has been to provide a more robust foundation for historical investigation, by verifying the consistency and significance of these forms upon the basis of long-term data which can allow a comparison between the variety of the forms of Italian capitalism and the models which characterise other historical experiences. With regard to firms of large dimensions, three forms of enterprise have been selected. The first one, big business, represents, in general terms, the largest Italian companies. The analysis is not only focused upon the Chandlerian-type manufacturing company, but also takes the top companies in non-financial service sectors into account. The second form analysed is the state-owned enterprise, a large and very articulated group of firms generally characterised by their large dimensions and by a wide variety of control-enhancing mechanisms, such as pyramidal structures. Furthermore, another form of enterprise is the foreign-controlled company, representing a large and variegated group of firms, which, in general, have contributed, with different strategies in the different phases, to the introduction and diffusion of new technologies. Two other forms of enterprise identified are strictly linked to the local environment. On the one hand, attention has focused on one of the typical

6

Forms of enterprise in 20th century Italy

forms of Italian capitalism, the small firms operating in a local productive system; on the other hand, the focus is upon the municipalised firms, which provide services within an administrative county or a homogenous geographical area. Then, two forms of enterprise which have emerged as relevant in recent research approaches are analysed. First of all, the focus is on the mediumsized firms, a form of enterprise which has been identified and studied over the last few years, and whose historical roots this research aims to investigate. Then, following the results of the recent literature on firms’ dynamics (Sutton 2002), attention is directed to the Italian firms which have rapidly changed their size, by either increasing or decreasing, in terms of assets. Because of their distinctive feature of ‘jumping’ up and down in the sizeranking of Italian companies, this form of enterprise has been called the ‘leaping frogs’. Last, but not least, the focus is upon a form of enterprise, the co-operative, which – proposed as an alternative to capitalist corporation and characterised by a particular model of governance – has assumed a growing importance in the Italian economy in the last decades. The research project was organised in various units which focused their attention on different forms. Although the level of knowledge about these forms was very uneven, different research units set common minimal targets. Even where the focus of the individual chapters was not always able to deal with the entire century, the attempt is to provide a general view of the topic. This means that the research project was developed by sharing aims, sources and methods, in an attempt to offer homogeneous pictures of different subjects. The mutual aim was, first of all, to identify the boundaries of the selected forms, and, secondly, to identify their performance along the time-span that we analysed. In its attempt to fill a traditional gap in Italian economic and business history, the project has been grounded on a strong quantitative base. In fact, for each form of enterprise identified, the first step was to measure its dimension and relevance within the Italian economic system, trying, at the same time, to adopt a shared conceptual framework as well as common proxies, and not just to provide a merely descriptive approach. The starting point of the research activities is the Imita.db database which has been extensively used in previous research (Giannetti & Vasta 2006) and which represents the standard source for Italian companies in historical perspective (http://imitadb.unisi.it). In some cases, such as the chapters on big business, on mittelstand (see below) or on the ‘leaping frogs’, the Imita.db was the main source employed. In other cases, such as the chapters on state-owned enterprises or for foreign enterprises, the Imita.db database has been implemented by adding information from other sources. Even for the forms of enterprise which are only partially

Introduction

7

considered by the Imita.db database, such as co-operatives or small firms, quantitative information is given upon the basis of the data collected by further traditional sources such as the Bollettino ufficiale delle società per azioni (BUSA) or other materials provided by the chambers of commerce of the individual towns.

1.3

A GLANCE AT ITALIAN FORMS OF ENTERPRISE TODAY

The specificity of the Italian business environment, and of the country’s economic, social and political history, has contributed to the creation of a large variety of business forms which accompanied the country’s economic evolution during the whole of the 20th century. Some of these forms of enterprise are strictly specific to the Italian case: small firms, co-operatives and municipalised companies corresponded, in their diffusion, form and structure, to the particular set of social conditions which characterised the 20th century. In other cases, such as for big business and multinational enterprises, the Italian situation proves to be not particularly different from that of other industrialised nations, in terms of capital concentration in mass production sectors, even if the models and forms which the large firms took in the country’s specific experience were definitely ‘national’. Even nowadays, each of these enterprise typologies presents its own relevant character within the Italian economy. In order to provide a sketch of the present relevance of these forms of enterprise, some raw proxies are shown in Table 1.1. For each form of enterprise, with the exception of the ‘leaping frogs’,1 information is provided about employment, sales and other available variables. Although these data refer to a recent period, they have been collected from several sources which were not completely homogeneous. However, the data presented are useful both to draw a general framework and, in particular, to follow the evolution of the different forms up to the beginning of the new century. Table 1.1 describes the structure of Italian capitalism on the eve of the 21st century. Big business and state-owned enterprises have considerably reduced their weight in the last few decades and represent a small share of the Italian business system, while the weight of foreign-controlled companies is even more relevant. The most important forms of enterprise are the small- and medium-size enterprises, which, even if they have been recently challenged by the rise of new competitors from less developed countries, still represent the largest segment of Italian enterprises. In this sense, it is worth mentioning the increasing weight of the mittelstand, a group of enterprises well-rooted in the local production systems and active in the

8

Employed

Table 1.1

5.6% of employees in total enterprises 9.6% of employees in manufacturing enterprises

Big business

Co-operatives 6% of employees in total enterprises

Municipalized companies 1% of employees in total enterprises

Mittelstand 20.7% of employees in total enterprises 31.2% employees in manufacturing enterprises

Small firms 49.8% of employees in enterprises with fewer than 10 employees 73.7% of employees in enterprises with fewer than 50 employees 25.9% of employees in manufacturing enterprises with fewer than 10 employees

Foreign enterprises 7% of employees in total enterprises 18.2% of employees in enterprises with more than 20 employees

State-owned enterprises

2.2% of employees in total enterprises

Forms of enterprise in Italy at the beginning of the 21st century

9

Sources:

Other

Sales

40% of TOP 200 manufacturing enterprises

14.6% of sales of total enterprises

13% of value added of manufacturing enterprises

1.4% of sales on total domestic production 11.2% of total enterprises with more than 500 employees

Goldstein & Piscitello (2007: 71); Istat (2001, 2008); Mediobanca (various years), Le principali; Mediobanca (various years), Calepino.

12% of TOP 200 manufacturing enterprises

4.7% of sales on GDP

59.3% of employees in manufacturing enterprises with fewer than 50 employees

10

Forms of enterprise in 20th century Italy

Made in Italy sectors. The municipalised enterprises have maintained their weight and, even through merger and acquisition processes, have been able to enlarge their size. Finally, co-operatives, which represent a particular trait of the Italian capitalism, play an important role, even though they are concentrated in some specific sectors.

1.4

FORMS OF ENTERPRISE AND ITALIAN LONG-TERM ECONOMIC GROWTH

This book is organised in four parts, which include chapters concerning the analysis of the individual forms of enterprise, and three in-depth chapters focusing on policies and institutional contexts. Part I, Big Business, concerns the various forms of large firms (big business, state-owned enterprises and foreign enterprises). It focuses on the characteristics and the mechanisms of the Italian way of catching up to the technological frontier at different stages of its evolution. The in-depth, monographic essays deal, on the one hand, with the relationship between big business and the financial system, and, on the other, with the specific case of technological transfer, the Marshall plan. It has already been recognised by the historiography on the Second Industrial Revolution (for a synthesis, see Chandler, Amatori & Hikino 1997), that large, modern and integrated enterprises also play a relevant role in the case of Italy. Looking at the general evolution of Italian big firms over the whole of the 20th century, the first three chapters in Part I quite clearly stress that the overall contribution of the large firms to the ‘Italian wealth’ has been extremely relevant from all points of view, and that it had, at least in the course of the first three-quarters of the century, been growing. This basically happens in coincidence with the two technological regimes of electricity, steel and oil, and cars and mass production (Freeman & Soete 1997; Freeman & Louçã 2001). The former starts in the 1880s and characterised the first decades of the 20th century up to World War I; the latter takes its shape around World War I and sees its full diffusion, at least in Europe, only during the so-called Golden Age. The analysis of big business (Chapter 2, Giannetti & Vasta), is continued by focusing, for several benchmark years over the whole 20th century, on the 200 largest enterprises in manufacturing and services ranked in terms of assets, and confirms the overall relevance of this form of enterprise in the course of the industrialisation process. It also shows its adaptation to the country’s general conditions in terms of market dimensions and dynamism, institutions, prevailing ownership and governance models as well as organisational structures.

Introduction

11

Strong turbulence is a dominant feature of Italian big business, both in the manufacturing and in the service sector. As for manufacturing, this seems to be due mainly to the sequence of the technological waves which provide new opportunities for new firms. In this sense, it is interesting to note, in the Italian case, the reduction of the lag of the spread of the different technological regimes. If, on the eve of World War I, the electricity and steel sectors were largely under-represented, at the beginning of the 1960s, the firms of the oil and mass production regime were already well established, and the technological wave of the information and communications technology (ICT) appears in Italy from the 1980s, as in the other leading countries. With regard to service sector, most of the turbulence is, instead, due to the institutional changes, with a succession of nationalisation and privatisation processes which characterised the Italian economy. This general turbulence, jointly with the unwillingness of Italian enterprises to grow, could even be due, at least partially, to characteristics of the legislation framework, such as the absence of trustworthy re-launching devices in the case of bankruptcy (Di Martino & Vasta 2010). Moreover, one particular feature of Italian big business is its ownership structure, which can be roughly divided into three main categories: privately owned (basically by individuals and/or families), state-owned, and foreign-controlled enterprises. At present, it is relatively difficult to provide a comparative analysis of the relative performance of the big firms according to their ownership structure, even though the available data highlight the (relatively obvious) superiority of multinational enterprises and state-owned enterprises over the rest in terms of the adoption and diffusion of technological standards, and (it may be added) of organisational structures and managerial practices. This emerges quite clearly from the next two chapters of Part I, in which a more detailed analysis of the contribution by state-owned enterprises (Chapter 3, Toninelli & Vasta) and foreign-controlled companies (Chapter 4, Colli) is carried out. In terms of ownership, the distribution of the largest firms becomes more and more differentiated throughout the 20th century. Foreign investments flowed to the country both before World War I and also immediately after, grew considerably after World War II and during the economic spurt of the Golden Age. Foreign-controlled firms basically tend to cluster (albeit not exclusively) in industries in which the indigenous firms are backward or even absent, and where it is necessary to have a high technological expertise. In this sense, their role in the diffusion of a new technological regime seems to be crucial. The same can be said for state-owned companies, even if, in this case, their contribution to the country’s industrial framework is concentrated in a period going from the mid-1930s to the beginning of the 1990s. Even in this case, the large

12

Forms of enterprise in 20th century Italy

state-controlled firms tend to cluster, with a more or less different degree of diversification, in all capital intensive and more innovative industries, sometimes even jointly with foreign capital and expertise. As far as the foreign-controlled enterprises are concerned, their role assumed increasing relevance during the different phases of the Italian economic growth. If the contribution of foreign enterprises as a vehicle of technological diffusion was already considerable at the beginning of the industrialisation process, during the Golden Age, foreign direct investments certainly increased and contributed to the upgrade of the Italian industrial system. Finally, from the analysis of the whole structure of big business, we can see that, starting from the 1970s and with the rise of the ICT regime, the role of multinational companies became even greater. The parabola of stateowned enterprises clearly determined their contribution to the introduction and diffusion of new technologies. In the technological regime of oil, cars and mass production, they acted, through an articulated pyramidal structure, as a substitute of the public company of the Chandlerian tradition. This confirms the crucial role of the IRI (Istituto per la Ricostruzione Industriale) group in the technological development of Italian industry during the Golden Age (Giannetti & Pastorelli 2007). It is even more interesting to note that, even after their general decline throughout the 1990s, state-owned enterprises seemed to maintain a certain role in the diffusion of the ICT regime. The evolution of big business must be analysed by taking the general framework surrounding the entrepreneurial action into account. As suggested by the Chandlerian approach, apart from the size and dynamism of the market, the relationship between big business and other elements which were able to influence its performance in various ways, such as the relationship with the state – in terms of economic policies – and with the financial system, are deemed to be relevant. One crucial example of a virtuous relationship between the state and entrepreneurs can be found in the policies followed by the Italian government immediately after World War II, in the years of the Marshall Plan (Chapter 5, Fauri). A kind of virtuous alliance was, in fact, established between the most dynamic sections of manufacturing industry (both large firms and SMEs) and government in order to try to fill the technological gap, not only in capital intensive industries, but also in specialised suppliers sectors. In this case, too, as stressed above, a solution to the technological backwardness of Italian firms was found thanks to external intervention, properly endorsed by the government. Even though this co-operation apparently helped Italian firms to achieve important results, the low level of continuity in these kinds of policies, as well as the persistent recourse to the instrument of external or exceptional intervention, instead of structural intervention, has to be

Introduction

13

stressed. After this phase of intervention, which characterised even the Golden Age – a period in which there was a notable capacity to introduce and adapt new technologies in Italy (Antonelli & Barbiellini Amidei, 2007) – state support in technology investment was considerably reduced, reverting to the situation that existed before (Vasta, 1999a). The structure of the financial system is, from another point of view, relevant in order to explain both the strategies and the performances of the large firms. The Italian case is particularly significant in this respect (Chapter 6, Conte & Piluso). A strong path-dependency towards indebtedness can, in fact, be detected, both in the case of state- and of privately owned enterprises (with the relatively obvious exception of multinationals). The particular characteristics of the Italian financial market – after the 1930s, when it was mainly based upon short-term credit provided by large banks under the control of the state and upon a weak stock exchange – emphasised a tendency by large firms, both state-owned and private, to prefer debt to equity in order to finance their needs. This phenomenon slowed down the process of separation between ownership and control, while, at the same time, increasing the degree of dispersion of corporate ownership among large firms. In this respect, two main considerations can be drawn. The first is that, even before the de facto nationalisation of a large section of the banking system in the second half of the 1930s, banks dominated over the market system. Independently of the determiners of this process, this was going to have long-term effects on Italian big business, especially in terms of ownership structures, and, hence, of managerial models and styles. The second consideration is that the largest banks, committed to financing the large firms, left another relevant section of the credit market to regional banks, which were locally active in financing small firms (Conti 1999). This explains why the local production systems could enjoy a virtuous relationship with local banks, which played an extremely relevant role in the mechanisms of formal and informal financing at the local level. Part II, The Power of Localism, focuses on forms of enterprises (small and municipalised firms) which operate in a defined area and thus have a strong connection with both formal and informal local institutions. The in-depth chapter deals with the relationship between small firms and the industrial policies and tries to verify whether and, if so, how, the former received support, as happened for big business. The long-term efficiency of small firms – both territorially dispersed and concentrated in articulated forms such as industrial districts and local production systems – is largely explained by the capacity to exploit the windows of opportunity which emerged from changes in the technological situation as, for example, in the case of the crisis of mass production in the 1970s. However, the vitality

14

Forms of enterprise in 20th century Italy

of local productive forms is dependent on a number of other factors which go from the structure of the local banking and credit system, to the local and national institutions, which foster, in different ways, the survival and efficiency of small firms as well as of artisanal workshops (Arrighetti & Seravalli 1997). What is interesting to note in this perspective – and which emerges both from the chapter dedicated to a quantitative analysis of three (Lombardy, Tuscany and Campania) regional systems (Chapter 7, Perugini & Romei) and from the essay on the industrial policies for artisan firms (Chapter 9, Longoni & Rinaldi) – is that the role of state intervention is less clear-cut than the previous literature has shown (Becattini 1998). If, on the one hand, the growth and transformation of local systems – as well as their decline – seemed to have taken place largely in the absence of direct and explicit state intervention, on the other hand, the existence of ad hoc policies conceived to sustain small and medium-size enterprises (SMEs) clearly emerges. This happened both in the case of the legislation for artisans and very small firms introduced during the years of the economic miracle, and for the policies undertaken in the last decades of the century in order to foster the process of ‘light’ industrialisation in the southern regions of the country. This is probably not sufficient to demonstrate the existence of centrally planned policies conceived to support small enterprises and spread entrepreneurship, but certainly the issue is more controversial than was once believed, and requires further investigation. This means that the traditional dichotomous view of the existence of large, state-supported enterprises on the one hand, and of small and Mancunian-like, not state-supported, enterprises on the other hand (for instance, Cafagna 1999), has to be reconsidered. The ‘upstream’ industrialisation process coming from counties, districts and regions enjoyed, at a very ‘micro’ level, the initiatives in which municipalities and local administrations were involved. Another form of institutional entrepreneurship, the municipalised company, occurred at the very beginning of the industrialisation process and continued until very recent times (Chapter 8, Fari & Giuntini). The attitude – geographically different, but nonetheless widespread throughout the country – shown by the local councils to undertake the supply of public services, or to manage public goods and public utilities, had diffused over time. It is worth noting that, even in this case, the degree of diffusion of this typology, its prevalent geographical location (in the Northern regions), and its long-standing level of economic performance, can mainly be explained by taking into account the favourable framework provided by a mixture of cultural and institutional factors, including, for instance, the Italian tradition of administrative decentralisation and autonomy. Moreover, it must be underlined that, in the last few years, some municipalised companies considerably

Introduction

15

increased their size and started to play an important role at a regional, and even at a national, level. Given the above-described forms of enterprise, the Italian business system has, for a long time, been characterised by a strong polarisation between large and small, and even very small, companies. It is, however, interesting to note that other forms of enterprise, or, rather, different strategies and behaviour among the existing companies, do appear to coincide with transformations of the external conditions. Part III, In Search of an Identity, deals with two forms of enterprise which emerged from the particular features of Italian capitalism. Firstly, the phenomenon of turbulence and the difficulty for enterprises to strengthen their position, a typical trait of Italian industrial companies, characterise the ‘leaping frogs’. Secondly, the capacity of a group of firms to compete on international markets by maintaining a limited size, as has emerged from recent research, identifies the mittelstand. Remarkable examples of these phenomena are provided by the so-called ‘leaping frogs’ (Chapter 10, Castellucci & Giannetti) – i.e. firms able to gain a dominant position quickly in specific markets by exploiting the competitive potential of a shift in the technological regime – and medium-sized, internationalised firms active in global niches (Chapter 11, Lavista). In the case of the ‘leaping frogs’, it is a mixture of technology and market conditions which determines the dynamism of this entrepreneurial form. This is a recurrent phenomenon and coincides with the emergence of a new technological regime, which determines, as we have mentioned for big business, the turnover amongst companies. What is intriguing, however, is the fact that new firms, able to concretise advantages deriving from entrepreneurial initiatives in new industries, show an extremely high degree of downward mobility, that is to say, they have a low rate of survival in innovative industries. In other words, entrepreneurial successes are, for many reasons, not likely to last, with very few exceptions. This confirms the already mentioned high turbulence, which is one of the dominant traits of Italian capitalism. The behaviour of the ‘leaping frogs’ is probably more understandable if it is compared with the last (chronologically) form of enterprise detectable in the Italian case, i.e. the medium-sized enterprises, which very often emerge from the entrepreneurial seedbed of industrial districts. In this case, too, the rise of a ‘new’ entrepreneurial form – which seemed to be almost absent before the 1990s in Italian industrial demography – can be viewed as the efficient, even though probably sub-optimal, response of the national business system to a challenge coming from the changes in the international situation. In this case, it is not (or only partially) a new technological wave which creates entrepreneurial opportunities. Instead, another phenomenon, that of globalisation, is impacting on Italian small firms, especially those in industrial

16

Forms of enterprise in 20th century Italy

districts, with a double effect: selection and growth on the one hand, and specialisation in niches, particularly in the traditional sectors, on the other (Colli 2002b). These mittelstand companies, however, go on sharing many of the features of the small firms typical of the industrial districts, including individual and family ownership, ‘oligarchic’ management models, and innovative patterns which have not been formalised. Favourable external conditions explain the emergence of this model quite well, which is, however, puzzling in its ability to last as an enduring and even successful form of enterprise because, in the long-term perspective, ‘mediumness’ is a transient condition. From the analysis, it emerges that very few firms have found their optimal size status within the middle-sized enterprise group. It seems to confirm, once again, the traditional difficulty in growth faced by Italian enterprises which, after having become medium-sized, in most cases, return to being small. Part IV, Cooperation, focuses on a peculiar form of enterprise, cooperatives, which have a long tradition in the Italian economy, and which, in the last decades, have increased their role particularly in some service sectors. The history of the Italian co-operative movement presents some important particularities in comparison to what has been generally observed for other countries. First of all, similar considerations to those previously suggested for municipalised companies can be made for co-operatives. As in the latter case, the co-operative enterprise shows at least two interesting features (Chapter 12, Battilani & Zamagni). Firstly, within this category, it is possible to find a large spectrum of companies of different dimensions, in various sectors and with different organisational structures. Secondly, like municipalised companies, co-operatives show a tendency to cluster in well-defined geographical areas, namely, in the northern and central regions of the country. Moreover, since the beginning of the co-operative movement at the end of the 19th century, co-operatives have enjoyed a favourable framework in terms of ideology (both leftist and Catholic) and legislation, not only at the local, but also at the national level. In this case, too, as in that of municipalised companies and small firms in industrial districts, the conclusion is drawn that the local conditions played a relevant role in explaining the emergence, the performance level and the long-term survival of these particular forms of enterprises which successfully adapted to the environment. Especially in the last decades of the 20th century, co-operatives were able, in some cases, to consolidate and grow considerably through a merger and acquisition process, or by creating wide networks of enterprises. This growth process recalls, at least partially, that observed for some municipalised companies. In this sense, the two forms of enterprise play the same role to replace the private initiative – particularly in large scale retailing for

Introduction

17

co-operatives and in multi-purpose utilities for municipalised companies – in the process of growth size, which becomes necessary due to the new technological and market conditions.

1.5

SUMMING UP: FORMS OF ENTERPRISE AND PERFORMANCE

The relationship between the different forms of enterprise and their performance throughout the 20th century cannot be fully addressed in this book. However, all the chapters have endeavoured to understand how and why the different forms of enterprise have been competitive during the different phases of Italian economic growth. In other words, the research has tried to focus on the capacity of the different forms of enterprise to adapt to the various changes which have characterised the 20th century. This phenomenon has, clearly, many drivers, which are assessed in depth in the individual chapters. However, in summing up the main results of the research project, it is worth mentioning at least one of the key drivers, namely, technology. This means that, looking at the sequence of the three technological regimes which characterised the world economy from the last decade of the 19th century up to the end of the 20th century, not only can we provide some explanations regarding the rise and the fall of the forms of enterprise analysed, but we can also offer some general interpretations of the evolution of Italian capitalism. In order to provide a general overview, in Figure 1.1 we illustrate the sequence of the technological regimes in relation to the performance of the different forms of enterprise. Clearly, the performance level identified must be considered merely as a raw proxy which emerged from the research project and not as a result of precise measurement.2 However, it must be taken into account that we cannot use a unique concept of performance, because each form of enterprise, having its own goals, pursues its own performance typology. Moreover, it must be borne in mind that the diffusion of the technological regimes presents a time-lag with regard to the conventional adopted date of their rise. This means, for example, that the co-evolution of the institutional context with the new technological situation may be a little delayed. Let us, thus, have a look at the dynamics of the different forms of enterprise following their pattern throughout the period analysed. Before the introduction of the technologies of the Second Industrial Revolution, Italy had yet to start its industrialisation process. At this time, the most relevant form of enterprise was the small firm, while all other forms of enterprise were not very important or were even absent. The shift from

18

1908

Oil, cars and mass production

1971

COOP

MNE

ICT

MUNICIPALISED

SOE

Figure 1.1

The evolution of Italian forms of enterprise (1880–2000)

Note: BB Big business; SOE State-owned enterprises; MNE Foreign enterprises; SME Small and medium-size enterprises; COOP Cooperatives

Electricity and steel

1880

MITTELSTAND

SME

BB

2000

Introduction

19

the technologies of the First Industrial Revolution to those of the Second Industrial Revolution, and specifically to the technological regime of electricity and steel, coincides with the first steps of the Italian process of industrialisation. In this phase, we can clearly observe the increasing pervasiveness of large firms, be they national- or even foreign-owned. The new technologies, strongly biased towards large scale enterprises, were introduced with many difficulties and through the support of the Gerschenkronian substitutive factors. The process of concentration that accompanies the success of big business reduces the importance of SMEs, which are less efficient in the new sectors. Thus, in order to catch up with the technologies of the new regime, the oligopolistic character of the Italian system of enterprises emerged, which developed an entangled network of relations between big firms and big banks, especially the German-type universal banks. The following shift from the regime of electricity and steel to that of oil, cars and mass production, occurred in Italy, but, more generally, in Europe, with a certain lag in comparison with the United States, and did not immediately provide major changes in the previous patterns. As is well known, the big crisis of the early 1930s hit the Italian economy hard. The big companies, in particular, suffered from this shock, but the large category did not lose its weight. What changed within big business were the forms of governance. In fact, the weight of the state grew consistently, with the rise of an articulated network – characterised by cross shareholdings and pyramidal structure – of state-owned enterprise, which became one of the main long-term features of Italian capitalism. The big crisis of the 1930s, with the autarky policies which followed, determined even a certain reduction of the weight of foreign-controlled enterprise. Moreover, the co-operatives, and partially even the municipalised firms, which took their first steps at the beginning of the 20th century, were subsequently regulated by the Fascist regime, which barely tolerated these forms of enterprise. The diffusion of the technological regime of mass production, which marks the Golden Age, represents the pervasive development of the largesize enterprises. There was a growth in the weight of big business in which the role of state-owned and foreign-controlled enterprises increased. With regard to the former, the expansion process started during fascism, and continued and consolidated, while, with regard to the latter, the openness of the markets allowed them to resume the role that had been neglected after the major crisis. The 1950s and the 1960s are known as the years of the Italian ‘economic miracle’, perhaps the period in which the structure of the Italian system of enterprises tended to be more similar to that of the most advanced countries. In this sense, the weight of small firms reduced

20

Forms of enterprise in 20th century Italy

consistently and seems to have become marginal. As far as co-operatives and municipalised enterprises are concerned, the situation is less clear cut: with the return of democracy, they certainly resumed a role, even though their weight remains, in general terms, quite limited. The big changes of the 1970s, with the crisis of mass production and the shift towards the technological regime of ICT, brought many ‘surprises’ to Italian capitalism. Large firms rapidly lost their importance and two phenomena can clearly be identified. The first was a tendency shown by the largest groups towards restructuring and downsizing, which were, in many cases, convenient, because of the multiplication of work conflicts, and a decentralisation of production into smaller, independent units. From another perspective, new technologies started to play a role in making medium-size enterprises efficient, in production, marketing and R&D activities. In the first phase of the shift from the mass production regime to ICT, the trajectory of the state-owned enterprise is distinct. The crisis overwhelmed many large private firms and, at least until the mid-1980s, the system of public enterprise, even though it had to cope with great difficulties, increased its weight within Italian capitalism. This was due to a large process of bailing out private firms, which considerably weakened state-owned enterprise. The full diffusion of the technological regime of ICT marks a general change in the weight of the different forms of enterprises. Big business continued its parabola, which was accompanied by the start, in the 1990s, of the great process of privatisation, considerably reducing the role of state-owned enterprises. This role was, at least partially, taken by foreign enterprises. In fact, foreign direct investments played a crucial role in the diffusion of the new information and communication technologies within the Italian industrial system. At the same time, even co-operative and municipalised enterprises conquered spaces, albeit limited to some sectors, within the large dimension companies. Finally, another aspect which must be underlined is the emergence of the medium-size enterprises: the capacity of a group of medium-size enterprises to adapt to the new technological situation by trying to play a role in the market niches which had previously been occupied by small enterprises. The rise of the ‘mediumness’ can be seen either as a new phenomenon in Italian capitalism or simply as a passing condition of some enterprises which, as often happened in the past, have a weak capacity to grow. In concluding, this book has as its main aim to move a step further towards the understanding of the features of Italian capitalism during the 20th century. By adopting an approach which focuses on different forms of enterprise, we believe that single chapters provide new elements, both qualitative and quantitative, on the Italian economic history and

Introduction

21

particularly on the main drivers which determined the structure of the national business system. We leave to the reader to evaluate whether these goals have been, at least partially, achieved.

NOTES *

We wish to thank Franco Amatori, Giuseppe Conti, Giovanni Federico, Renato Giannetti, Ercole Sori, Pierangelo Toninelli and Vera Zamagni for comments and criticisms. The usual disclaimer applies. 1. For this form of enterprise, which is not properly codified in the literature, there is no source able to offer any proxy measure. 2. In Figure 1.1 we measure the vertical axis by an ‘ideal’ index which is the outcome of different parameters capturing each form’s contribution to the wealth of the nation. Each form’s contribution can in fact be decomposed into performance measures (employment, output, turnover, added value, exports, profits, number of patents and others). To consider only one or few of these variables, both in a static and dynamic perspective, may underestimate one form’s real contribution to the whole picture. Hence our decision is to put on the vertical axis a multidimensional index largely intuitive − but possibly subject to more formal measurement − in order to capture the varied impact of the different forms on the national business system.

PART I

Big business: catching the technological frontier

2.

Big business (1913–2001)* Renato Giannetti and Michelangelo Vasta

2.1

INTRODUCTION

In economic history, the approach to big business was developed by Alfred Chandler (1962, 1977), who described the ‘strategy and structure’ of the American business system from the end of 19th century, while comparing big business – the top 200 firms – in the three main industrialised countries: the USA, the UK and Germany (Chandler 1990). According to Chandler, the rise of large manufacturing enterprises emerges from the cluster of innovations introduced during the Second Industrial Revolution, at the end of 19th century, in the fields of electricity, steel, chemicals, and later in the automobile industry.1 The size and organisation of the firms depend firstly on the characteristics of the technology which prevailed during a specific historical phase; the strategies of firms followed from their structure, according to their internal capabilities. The better adapted these capabilities were to exploit the new technology, the greater the resilience and the duration of the existing firms. The chance to remain in the leading position, thus creating long-term barriers to entry, depended on the firms’ R&D activities and on their specific organisational capabilities, which allowed the firms to grow through innovation, and later by diversification (Patel & Pavitt 1995). The aim of this chapter is to extend this research tradition by starting from the notion of ‘technological regimes’. This term describes the strong interrelations and interdependences among the innovations that clustered in a certain historical phase. These innovations were interconnected with regard to products and processes, in equipment and organisation, both technical and managerial, forming a coherent and mutually enhancing set of technologies and industries, which were capable of creating a wave of growth in the economy. The evolution of a new technological system also follows a certain collective logic, which approximates a generalised natural trajectory. In this trajectory, the dynamic of firms is characterised by an initial turbulence, due to a cluster of innovations – tied, in turn, to the emergence of a new technological regime – followed by a long-term stabilisation

25

26

Forms of enterprise in 20th century Italy

of the surviving firms until the emergence of a new technological regime where new firms introduce new technologies and grow again. This argument means that, within a ‘technological regime’ the surviving firms are those which are ‘big’ in any historical experience, depending on the specific features of the technologies involved. However, other institutional features, such as the way to finance the growth of the firm and/or their form of ownership, may differ according to local institutions. A frequently advanced argument to explain these differences refers to different forms of ownership and organisational regime seen as substitutive factors. State-owned enterprises (SOEs), for example, or state intervention for promoting the diffusion of new technologies, have often been the case, as in Gerschenkron’s approach (1962) to state and universal banks as substitutive factors for the market in the Italian and German industrialisation during the late 19th century, or in Amsden’s (2001) explanation for the ‘rise of the rest’, the Far Eastern countries, in the second part of the 20th century. In a standard approach, these differences in the behaviour of firms are explained without emphasising technology in se, but by resorting to market mechanisms. For example, a pervasive empirical finding in the recent literature shows that differences in behaviour within-sector prevails on differences in behaviour between-sector (Sutton 1998; Haltiwanger 2000). The magnitude of within-sector heterogeneity implies that idiosyncratic factors dominate the determination by which establishments create and destroy jobs while achieving rapid productivity growth or suffering productivity declines. This literature suggests that heterogeneity, uncertainty, establishment-level differences in managerial ability, vintage capital, location and disturbances as well as the diffusion of knowledge may account for a creative/destructive perspective on the dynamics of firms. According to the evolutionary perspective, we analyse Italian big business in order to identify how it reflects the ‘technological regimes’ characterising modern capitalism. In fact, national institutional patterns show some difference between the Italian experience and that observed for the most industrialised countries, as they do for firm organisation and forms of ownership in the different technological regimes (Perez 2002). This study is organised as follows: in Section 2.2 we introduce the sources and methodology adopted to identify the different samples; afterwards, we examine the role of big business in the Italian economy (Section 2.3). In Section 2.4, we focus on the structural change of the largest firms, both in manufacturing and in services. In Section 2.5, particular attention is devoted to the understanding of the strong turbulence of the leading firms. Section 2.6 focuses its attention on the relationship between ownership and technology in the top manufacturing firms. Finally, in Section 2.7, we present conclusions.

Big business

2.2

27

SOURCES AND METHODOLOGY

The samples employed in this paper are mainly drawn from Imita.db.2 From this dataset, we have selected the top 200 firms − excluding financial, in all sectors (henceforth top 200 ALL), in the manufacturing (top 200 MAN) and in the service sector (top 200 SER) − classified in terms of assets for the years 1913, 1921, 1927, 1936, 1952, 1960, 1971, 1981. For the last two benchmark years, 1991 and 2001, we used the Mediobanca data (various years) because the formerly used source ceased in 1984. These samples are updated versions if compared with previous ones employed in other studies (Giannetti & Vasta 2003a; Vasta 2006a; 2006d). Firms are ranked as to total assets, according to the majority of the historical investigation into the matter (Berle & Means 1932; Chandler 1990; White 2002). The only alternative is, in fact, the use of capital, since the data covering the entire period are not available for turnover, employment, added value or stock exchange capitalisation. The use of capital was discarded because it is a less adequate measure than assets in representing the real size of the firm, as it varied considerably according to different ownership and financial strategies. Apart from a few exceptions, only joint stock companies are included in the analysis; this does not substantially alter the picture, although, especially in the first benchmark years, even some of the larger firms adopted other legal forms (Federico & Toninelli 2006). More recently, there have also been co-operative firms which should have been included in the sample of services (see Battilani & Zamagni in this volume). Our exceptions concern some SOEs, which were not organised as joint stock companies, but are particularly important for the Italian economy, such as Ente Nazionale Idrocarburi (ENI) or Ente Nazionale per l’Energia elettrica (ENEL). Furthermore, firms in the financial and insurance sector were excluded from the analysis because their assets are not comparable to those of other firms in the sector.3 Finally, we excluded those groups of companies for which data were only available for the last two decades, when it became compulsory for firms to draw up consolidated accounts of their activities. The use of such a broad time-span creates several problems when the denomination of firms changes, or because of mergers, acquisitions and de-mergers. The criteria that we chose to provide continuity to a company are based upon a series of qualitative elements obtained from: (i) a brief historical profile that the source contains for each firm; (ii) notes in the Mediobanca and R&S volumes; (iii) historical profiles reported in the Mediobanca digital archives (R&S Mediobanca various years); (iv) information obtained from the ever more numerous company websites. We also resorted to a few traditional sources on enterprises such as the Guida

28

Forms of enterprise in 20th century Italy

Monaci, Il Taccuino dell’azionista and the Calepino dell’Azionista, as well as, in several cases, the histories of individual companies. Notwithstanding our caution, such criteria are not free from arbitrariness, essentially due to the succession of company makeovers. In general, however, we adopted a very broad continuity criterion in cases of changes within the denomination of a firm, while, in the case of mergers and acquisitions, we assigned continuity to a firm upon the basis of localisation, ownership structure and the sectoral prevalence of its activities. Finally, in the case of splitting de-mergers, we assigned continuity to the company that carried on the core business activity of the firm, classifying diversifications into other activities as new companies. Despite these caveats, the methodology that we adopted is in line with the main research carried out in other countries (Chandler 1990; Wardley 1991; Carreras & Tafunell 1993; Cassis 1997; Hannah 1976; 1999; Louçã & Mendonça 2002).

2.3

ITALIAN BIG BUSINESS: AN OVERVIEW

Following a Chandlerian approach, the literature on big business has generally focused its attention on industrial firms, and, in particular, on manufacturing firms, the latter being considered the engine of growth for the entire economic system. As underlined by some critics (Hannah 1995), this view underestimates the role of services in the economic growth process, even though Chandler has considered railway companies as the origin of the modern big business (Chandler 1965). Even Italian historiography has focused its attention on big manufacturing companies, emphasising their late and difficult development when compared with examples in the main industrialised countries (Amatori 1997). More recently, some studies, which have adopted a more quantitatively oriented approach to business history, have shown that Italian big business is smaller in size than that of the main industrialised countries. Moreover, at least during its first phase of economic growth, Italian big business tended to adapt its structure slowly to the changing technological regime (Giannetti & Vasta 2003a; Vasta 2006a). Nevertheless, Italian big business showed a very good performance, at least until the 1970s (Vasta 2006b). In order to provide an idea of the importance of big business in the Italian economy, we consider the share of total assets of the three different samples on GDP. The proxy proposed has only a descriptive aim; it is relatively approximate because, on the one hand, it compares a stock variable (assets) with a flow variable (GDP), while, on the other, an important fraction of the assets could represent the choices made by the companies in

Big business 70.0

ALL MAN SER

60.0 50.0 %

62.3 54.7 42.6

40.0 34.0

30.0 20.0 10.0 –

29

11.6 8.2

1913

10.8

17.0

6.4

1921

12.7

14.3 14.2

6.6

1927

1936

16.4

16.3

1991

2001

10.7

6.9

1952

21.8

24.1

27.5

17.4

8.1

44.7

49.1

34.3 25.7

25.2 20.6

46.2

38.5

1960

1971

1981

Years

Figure 2.1

Total assets of the 200 top firms on GDP (1913–2001)

previous periods. However, this proxy is usually adopted in a comparative historical perspective. The analysis, as shown in Figure 2.1, refers to three different samples: top 200 ALL, top 200 MAN and top 200 SER. The first element to be underlined is that the weight of big business is very large, despite the fact that small- and medium-sized enterprises are prevalent within Italian business system. As for the top 200 ALL, it can be noted that the ratio of assets to GDP is much higher than that observed for the other two samples. This depends on two effects: (i) the large share of the non-manufacturing industrial enterprises (mining and, in particular, utilities); and (ii) the high level of concentration which characterises all sectors, in which a small number of big enterprises are all included in the sample. By looking at the top 200 ALL, a marked increase prevails up to 1971. The ratio of the assets of the top 200 firms on GDP increases, in fact, from 20.6 per cent in 1913 to 54.7 per cent in 1960, reaching 62.3 per cent in 1971. This quota dropped sharply in 1981, and remained stable over following years. This pattern was mainly influenced by the dynamics of the manufacturing firms. The ratio of the assets of the top 200 MAN on Italian GDP showed a rising curve from the beginning of the period, in accordance with the rise of the technological regime following the Second Industrial Revolution and the Fordist paradigm. It reaches its highest point, with 38.5 per cent of the total GDP in 1971, in the final phase of the Golden Age, when large enterprise, based upon the low cost of raw materials and upon economies of scale, underwent a deep crisis at global level. After the great changes during the 1970s, the share of the large Italian enterprises decreased to around 25 per cent in 1981 and 1991. The decline

30

Forms of enterprise in 20th century Italy

increases in the last decade of the century, and the share of top 200 MAN falls to 16.3 per cent of the total GDP in 2001. The dynamics of the top services firms are remarkably different. The ratio of the assets of top 200 SER on GDP remains quite low, at least until 1952. Subsequently, it grew considerably from 10.7 per cent in 1960 to 16.4 per cent in 1991, but it remained at lower level in comparison with the other two samples. In 2001, it reached the 21.8 per cent, and, for the first time, it exceeded the share of the top 200 manufacturing firms. This ‘overtaking’ showed how the growth of services in the Italian economy also occurred in big business.4 Alternatively, it can also be seen as the effect of the ‘decline’ affecting big Italian manufacturing firms (Gallino 2003). Let us now see how the sectoral structure of Italian big business changed in the 20th century. Table 2.1 shows the sectoral composition of the top 200 ALL. The first point that emerges here, is a substantial structural stability between the first benchmark year, 1913, and the last one, 2001. Manufacturing firms increased from 99 to 110, while utilities drop from 39 to 31, and service enterprises decreased from 50 to 47. The number of construction firms increased (from 4 to 11) while mining companies decreased (from 5 to 1). This picture of stability seems to suggest little change in the sectoral composition within large Italian firms. If we observe the internal dynamics of the period, however, some relevant changes emerge. The first change concerns manufacturing firms, which reached their height in 1971 with 147 companies (73.5 per cent of the total), at the peak of the Fordist paradigm, and subsequently lost ground, going back almost to their starting level. Utilities show even more relevant changes, as they are essentially affected by the institutional change that characterised the sector during this period. In fact, we can see strong expansion of the firms during the 1920s and 1930s, until 1936, when there are 58 utilities amongst the top 200 enterprises (29 per cent of the total). Afterwards, we register a drop that brought the number of utilities among the top 200 firms in 1960 to 1913 levels. In 1971, due to the nationalisation of electricity which occurred in 1962 (VV.AA. 1989), only three companies were still in the sample. Finally, in the year 2001, the number of companies again increased considerably, as a consequence of the process of liberalisation of electricity production and distribution and of the decentralisation of state power to local institutions. In the last two decades, we can also observe an increase in construction firms, which were scarce until 1936, and had been completely absent in the first years after World War II, while in 1991, there are 16 construction firms dropping to 11 in 2001. As far as services were concerned, we can observe a decline from 1921 to 1952: the firms in the top 200 in this sector decreased from 50 to 30. Subsequently, a considerable growth takes place: the number of companies in 2001 is close to that of 1913.

31

3 5 142 99 39 4 50 200 1.2 2.5 66.5 43.4 21.2 2.0 29.8 100.0

% assets Agriculture, forestry and fishing Mining and quarrying Industry Manufacturing Electricity, gas and water supply Construction Services Total

1913

1.0 2.7 69.4 51.7 17.2 0.4 26.9 100.0

4 4 143 100 41 2 49 200

1921

1.3 1.7 73.7 38.2 34.9 0.6 23.3 100.0

4 6 142 84 55 3 48 200

1927

1.2 1.1 86.2 42.4 42.2 1.6 11.6 100.0

3 4 160 98 58 4 33 200

1936

0.2 1.5 86.2 53.7 32.4 0.0 12.0 100.0

2 6 162 119 43 0 30 200

1952

0.0 3.7 82.1 56.0 26.1 0.0 14.2 100.0

0 9 157 118 39 0 34 200

1960

Distribution of top 200 firms by sector (1913–2001). All firms but financial

Number Agriculture, forestry and fishing Mining and quarrying Industry Manufacturing Electricity, gas and water supply Construction Services Total

Table 2.1

0.0 4.0 78.3 57.8 20.0 0.5 17.8 100.0

0 6 153 147 3 3 41 200

1971

0.0 3.6 71.8 54.2 16.3 1.4 24.5 100.0

0 2 150 138 4 8 48 200

1981

0.0 5.0 67.8 43.3 21.8 2.7 27.3 100.0

0 2 154 131 7 16 44 200

1991

0.0 3.2 54.9 29.8 23.2 1.9 41.8 100.0

0 1 152 110 31 11 47 200

2001

32

Forms of enterprise in 20th century Italy

A glance at the sectoral distribution of the assets of the top 200 enterprises of all sectors (second part of Table 2.1) reveals further elements. The first one regards the increase in the manufacturing sector, which is similar to the evolution of the number of companies, with a peak of 57.8 per cent of the total in 1971, and a reduction to about 30 per cent in 2001. The share of utilities shows less of a see-saw movement than that previously observed for the number of companies; in this case, the share is less influenced by institutional changes, because the weight of Ente Nazionale Energia Elettrica (ENEL) compensates for the disappearance of the former private companies. It is interesting to underline the evolution of the construction sector, in which the increase in the number of firms observed in the last decades showed no corresponding increase in terms of the percentage of assets. Generally, we can observe how the share of service sector in terms of assets is more important than the share in terms of the number of firms; strong growth emerges in the last decade, when the share of their assets reaches 41.8 per cent of the total, thus achieving a prominent position among the sectors taken into consideration.5

2.4

STRUCTURAL DYNAMICS IN MANUFACTURING AND SERVICES

Having focused our attention on the overall sample, the aim of this section is to analyse the structural dynamics of the Italian big business both for manufacturing and for services. Let us start with the manufacturing companies. If we observe the evolution of sectors of the top 200 MAN (upper part of Table 2.2), we first note the great weight, in the first benchmark years, of the textile sector, as well as of other traditional sectors − leather, wood and non-specific manufacturing industries. In 1913, in fact, the four traditional sectors together make up 35.5 per cent of the total occurrences (71 firms) among the top 200 firms. This share, though declining, was still very high in 1927, with 29.5 per cent of the total (59 firms). In 1952, textile firms were still at the top of the ranking, alongside metals and metal products, with regard to the number of occurrences. The share of assets of the textile sector over the total of the top 200 MAN (lower part of Table 2.2) also confirms our observations concerning the number of firms: in 1913, their share tops that of all the other manufacturing sectors, accounting for over a quarter of the overall total assets. Regarding the observed weight in terms of the number of firms, the quota of assets of the textile sector decreased more rapidly, but, in 1927, it still reached 18.3 per cent. The structure of Italian manufacturing big business, on the eve of World

33

35 52 3 1 5 2 22 5 27 3 9 33 3 200

10 21 10 6 25 4 200

1921

28 64 2 1 6 1 22

1913 31 56 1 1 6 5 30 2 9 23 2 5 28 1 200

1927 29 41 1 1 6 11 36 3 11 23 5 10 22 1 200

1936 22 32 1 1 7 24 28 3 7 32 6 19 17 1 200

1952

Distribution of top 200 firms by sector (1913–2001). Manufacturing

Number Food products and tobacco Textiles and textile products Leather and leather products Wood and wood products Paper products, publishing and printing Coke and petroleum products Chemicals and chemical products Rubber and plastic products Other non-metallic products Basic metals and metal products Machinery and equipment Electrical and optical equipment Transport equipment Manufacturing n.e.c. Total

Table 2.2

16 10

13 28 29 3 13 30 18 26 13 1 200

9 24 33 4 13 31 6 22 16 1 200

1971

19 22

1960

9 24 28 4 13 21 24 30 23 2 200

16 6

1981

200

12 18 36 4 15 19 19 36 13

21 7

1991

12 10 34 2 17 11 21 38 22 1 200

25 4 3

2001

34

(continued)

% assets Food products and tobacco Textiles and textile products Leather and leather products Wood and wood products Paper products, publishing and printing Coke and petroleum products Chemicals and chemical products Rubber and plastic products Other non-metallic products Basic metals and metal products Machinery and equipment Electrical and optical equipment Transport equipment Manufacturing n.e.c. Total

Table 2.2

13.4 27.0 0.6 0.2 1.7 0.2 9.7 – 3.2 19.6 7.6 3.8 11.3 1.5 100.0

1913 10.0 18.7 0.6 0.2 1.1 0.4 8.5 – 1.8 21.2 8.6 5.3 22.3 1.2 100.0

1921 9.8 18.3 0.2 0.3 1.6 1.7 27.0 2.3 2.6 14.6 0.6 2.3 18.4 0.4 100.0

1927 10.1 10.6 0.2 0.2 1.9 8.3 20.9 3.5 3.1 15.7 3.5 3.4 18.2 0.6 100.0

1936 6.6 9.2 0.1 0.1 1.9 10.5 19.5 3.4 2.3 22.2 1.4 5.2 17.2 0.4 100.0

1952 4.8 5.0 – – 1.8 10.4 22.1 7.4 4.0 20.2 1.1 6.1 16.7 0.3 100.0

1960 4.1 2.0 – – 2.4 14.3 24.2 2.5 3.4 17.8 4.6 9.0 15.6 0.2 100.0

1971 3.6 1.3 – – 2.2 18.6 10.8 2.3 2.7 16.3 8.8 14.8 18.2 0.3 100.0

1981

7.2 2.1 – – 3.0 10.1 12.9 1.4 4.4 9.3 7.5 23.1 18.8 – 100.0

1991

9.9 2.0 0.8 – 6.0 7.5 11.7 0.8 5.3 6.3 9.1 18.6 21.6 0.2 100.0

2001

Big business

35

War I, was considerably different from the experience of the United States, Germany and the United Kingdom (Vasta 2006a: Table 5.4). It generally mirrors the Italian delay in the diffusion of new technologies. This difference is greater if we consider the Italian specialisation within the new technologies. There are, in fact, relevant differences in technological and productive specialisation observed at a more specific level of sectoral specialisation. In chemicals, for example, Italian firms concentrate their activities on less technologically intensive new products – nitrogenous fertilizers – and maintain their specialisation in products derived from the processing of animal fats, which have nothing in common with those of the Second Industrial Revolution (Vasta 1999a). After World War II, the structure of Italian big business underwent a change, even though it was, again, not a radical transformation. As already noted, the share of the textile sector was still high, even though it was declining; the petroleum sector emerges, due to the increasing diffusion of the car and to the strong growth in energy consumption. It is, however, the basic metals and metal products sector, as well as the electrical and optical equipment sector, which obtain the top positions for both proxies. Despite the observed permanence, by the early 1950s, a rapid convergence in the patterns of specialisation to those of the leading countries had already appeared (Vasta 2006a, Table 5.5). During the Golden Age, the share of traditional sectors decreases in a substantial way: the textile sector shrinks from 32 to 10 firms, paralleling its percentage of assets, which also decreases considerably (from 9.2 per cent to 2 per cent); the food products sector also decreases, while the leather and wood product sectors disappear from the top 200 MAN. In contrast, a considerable growth appears in the paper products and the non-metallic products sectors, both in terms of firms and in terms of overall percentage of assets. This growth depends on the development of the firms that exploit economies of scale in the paper and cement sectors. A strong increase can also be found in the machinery and equipment sector, as well as in the electrical and optical equipment sector. The rise of the machinery and equipment can be explained by ‘completing the national productive matrix’ (Pellegrini 2003) which characterised this phase of Italian economic growth; the increase of electrical and optical equipment was dependent on the large programme of automation of the national telephone network in the 1960s carried out by SIP, a state-owned enterprise (Bottiglieri 1993), and on the early emergence of electronic firms, both as multinational branches of a foreign company and national, like Olivetti (Salvati 2000). During the last 30 years of the 20th century, the phase of the development of the Third Industrial Revolution was mainly related to the diffusion of information and communication technology

36

Forms of enterprise in 20th century Italy

(ICT). The sectoral structure of the large Italian manufacturing firms adapted quite rapidly to current technological changes. There is, in fact, a substantial growth in the number of firms in the electrical and optical equipment sector, in which all the ICT firms were included. This sector ranks first with regard to the number of firms among the top 200, while it ranks second, behind transport equipment, with regard to assets. Even the transport equipment sector shows considerable growth, and, in fact, the number of firms among the top 200 in this sector increased from 13 in 1971, to 22 in the year 2001. Minor progress can also be noted in the machinery and equipment as well as in the non-metallic products sectors. The food products sector showed intense growth: from 16 companies, with a percentage of 4.1 per cent of the total assets in 1971, to 25 companies, with 9.9 per cent in 2001. During the same year, the leather products sector appears again, after 50 years, with three firms (Prada, Gucci and Tod’s), which are part of the Made in Italy brand (Quadrio Curzio & Fortis 2000a). The petroleum firms decrease in number (from 28 to 10 in the period 1971–2001) as the metal products do, decreasing from 30 to 11 during the same period. Both sectors reduced their share even with regard to the percentage of assets held. In the case of the leather sector, the reentry is mainly due to the emergence of hierarchical production systems, with the consolidation of some leading trademarks which specialised in traditional products within the local systems (Harrison 1997). With regard to petroleum products and metal product firms, their decrease depended on the extensive re-organisation caused by the privatisations of the 1990s, and, in some cases, on the transfer, presumably for taxation purposes, of company headquarters abroad, as, for example, was the case with Europa Metalli. At the beginning of the 21st century, the structure of Italian manufacturing big business is quite similar to that of the US (Vasta 2006a, Table 5.6). This convergence towards the same sectoral composition of the top 200 firms of the richest countries can be explained by the process of globalisation. Let us take a look, now, at the service sector sample, top 200 SER (Table 2.3). On the eve of World War I, almost 60 per cent of the Italian service big business was in the transport sector, mainly in land transport, and, in particular, in railways and tramways. This share is even more evident in terms of assets, amounting to 71.8 per cent of the total (54.1 per cent for railway enterprises). The nationalisation of the railway system in 1905 did not immediately prevent the railway companies from remaining at the summit of Italian big business. The presence of firms managing tramway transport on a local basis was also significant. In the transport sector, the presence of shipping companies was also high, with 22 occurrences in the top 200 and the 15.6 per cent of the assets. The other

37

12 1 30 1

12 1 30 1

5 5 200

2 46 38

11 81 22

4 2 200

1

58 5

29 3

5 1 200

1

13 47 30 2 7 10 29

1 50 4

4 2 200

4

13 49 12 1 10 9 54

2 36 3

11 2 200

4

7 35 47 2 14 8 27 1

1 38 3

6 4 200

1 7

5 27 72 1 14 7 22 1

1 28 4

5 2 200

15 1 1

6 11 42 3 32 6 21 2

8 34 11

3 1 200

1

3 1 36

13 9 17 2 24 5 17

12 43 13

200

5 200

4 29 5 18

13 6 11 6 31 16

17 17 17

2 1 7

5 5 15 3 27 4 2 1 13 4 31

16 49 20

1913 1921 1927 1936 1952 1960 1971 1981 1991 2001

Distribution of top 200 firms by sector (1913–2001). Services

Sale, maintenance and repair of motor vehicles; retail Wholesale and commission trade, except of motor vehicles Retail trade, except of motor vehicles and motorcycles; repair Hotels and restaurants Land transport; transport via pipelines Water transport Air transport Supporting and auxiliary transport activities; travel agencies Post and telecommunications Real estate activities Renting of machinery and equipment and of personal goods Computer and related activities Research and development Other business activities Education Health and social work Sewage and refuse disposal, sanitation and similar activities Activities of membership organisation n.e.c. Recreational, cultural and sporting activities Other service activities Total

Number

Table 2.3

38

(continued)

Sale, maintenance and repair of motor vehicles; retail Wholesale and commission trade, except of motor vehicles Retail trade, except of motor vehicles and motorcycles; repair Hotels and restaurants Land transport; transport via pipelines Water transport Air transport Supporting and auxiliary transport activities; travel agencies Post and telecommunications Real estate activities Renting of machinery and equipment and of personal goods Computer and related activities Research and development Other business activities Education Health and social work Sewage and refuse disposal, sanitation and similar activities Activities of membership organization n.e.c. Recreational, cultural and sporting activities Other service activities Total

% assets

Table 2.3

– 22.0 2.9

0.2 21.2 1.6

1.2 8.9 1.6

1.7 5.5 1.4

1.7 5.3 2.0

2.5 4.7 4.3

4.8 5.8 3.8

2.6 7.7 5.0

1.9 2.1 5.3

2.4 0.5 2.9 3.6 2.1 1.7 1.1 1.4 0.9 1.1 54.1 18.7 17.9 25.0 9.6 6.7 2.5 1.9 2.5 23.8 15.6 41.3 31.2 4.6 30.8 28.1 13.6 6.1 3.2 1.6 – – 0.3 0.5 1.1 3.5 5.6 3.5 3.3 2.0 2.1 2.3 1.3 3.9 3.5 9.5 27.2 13.2 13.5 7.1 0.1 0.2 10.2 27.5 30.9 29.5 25.9 32.3 45.1 43.6 14.7 9.8 11.0 19.2 8.4 6.1 5.4 3.7 0.6 – 0.5 0.1 – – 0.1 0.1 0.2 – 0.2 0.5 – – – – – – – 0.3 1.2 3.0 – – – – – 0.1 – 0.1 0.3 0.3 – 0.2 0.2 1.9 0.6 1.2 3.5 20.8 9.8 4.5 – – – – – – 0.1 – – – – – – – – – 0.1 – – – – – – – – – – 0.1 – 0.2 – – – 0.2 – – – – – 0.1 0.9 1.7 1.9 1.6 4.2 4.0 2.9 2.0 4.0 2.9 1.1 0.3 0.2 0.4 0.3 0.6 0.2 0.2 – – 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

– 8.0 0.5

1913 1921 1927 1936 1952 1960 1971 1981 1991 2001

Big business

39

two sectors showing most occurrences were the commercial sector with 32 firms – 29 in wholesale trade – and the real estate sector with 30 firms. In terms of assets, however, the share of the real estate sector amounts to 14.7 per cent of the total, while the commercial sector has a share of only 8.5 per cent, thus showing the difficulties of large commercial distribution in Italy. There are also 11 companies managing the largest hotels in the country. During the interwar period, a few significant changes can be noted, even though the sectoral structure did not undergo any dramatic transformation. The transport sector greatly reduces its share among the top 200 firms, with 72 companies in 1936 (43 less than in 1913), and only 34 per cent of assets, compared to more than 70 per cent in 1913; this is mainly due to the nationalisation of the railway system in 1905 and of most of the shipping sector after 1933. The real estate sector increased its share considerably with 54 occurrences in 1936, compared to 30 in 1913. There was also a slight increase in the share of assets. The commercial sector was substantially stable, probably because the late 1920s and early 1930s saw a general contraction of consumption after the boom experienced in the early 1920s. Between the 1920s and the 1930s, telephone companies came to the fore − 9 occurrences − obtaining 27.5 per cent of the total assets in 1936. The structure of the top 200 SER does not appear to have undergone any significant transformation after World War II, except for the decrease of the real estate companies. This reduction was dependent on the growing role of the state in building council houses and in promoting small property ownership from the early 1950s. In addition, there were occurrences of land transport companies facing reduction in size, being replaced by water transport companies, which increased from 12 occurrences in 1936, to 47 in 1952. The Golden Age presented several interesting changes within the service sectors. In the commercial sector, wholesale trade businesses remained stable, but there was an overall rapid growth of commercial firms essentially due to an increase in firms handling car sales, the sale of spare parts and fuel, as well as in retail trade. This progress was slower in terms of assets. In the transport sector, there was an important reduction in land and water transport firms, while auxiliary companies increased from 14 to 32, moving from 3.5 per cent of assets in 1952, to 27.2 per cent in 1971. This phenomenon, as already observed for the commercial sector, was essentially due to the diffusion of the car, which was accompanied by the rapid construction of an extended Italian motorway system. In 1971, in fact, four firms engaged in the management of the motorways were positioned among the top 10 enterprises in the service sector (Vasta 2006d). The presence of companies supplying

40

Forms of enterprise in 20th century Italy

services to businesses also emerges in a significant way, moving from 4 occurrences in 1952, to 15 in 1971, even though their share in the total assets remained quite small, reaching 3.5 per cent of the total. In this phase, the sector was characterised by companies specialising in esattorie (tax collection) and in advertising. Generally speaking, the Golden Age registers the period during which a general modernization of the services took place in Italy, but the change was built on the rapid diffusion of the car, the ‘fourth technological wave’ according to the classification of technological dynamics proposed by Freeman and Soete (1997). In Italy, the process of the diffusion of the car, from 1950 to 1970, grew at a spectacular rate, since the number of cars per 1000 inhabitants increased dramatically from 7 to 192 units (Deaton 1976). The last three decades of the 20th century coincided with the rise of ICT, which led to a general streamlining of industrial activities to the advantage of the service sector. It was in this last period that the service sector in Italy ‘overtook’ the industrial sector in terms of the number of employees. The most relevant changes occurred as an effect of the strong growth of telecommunication firms. Between 1981 and 1991, while remaining almost unchanged in terms of occurrences, they move from 32.3 per cent to 45.1 per cent with regard to their share of assets; in the following decade, they reached 16 occurrences, maintaining their share of assets as in 1991.6 The boom that was registered can be explained, for the first decade, by the emergence of private TV, while, in the second decade, it is largely due to the liberalisation of telephone services and to the expansion of mobile telephony. The extent of the transformations due to technological change is well represented by the increase in the companies specialised in supplying computer services − hardware, software and integrated systems. This sector was absent until 1971, showed 3 occurrences in 1981, which increased to 13 in 1991, and to 29 a decade later. The majority of these are mediumlarge companies which, on the whole, in the year 2001, represented only 3 per cent of the total assets. The structural change linked to the rise of ICT was also visible in the growth of the occurrences of the companies in R&D, moving from 0 in 1971, to 5 in 2001, and of those engaged in other business activities, which grew from 15 to 18, even though, in both cases, their share in terms of assets remained rather small.

2.5

STABILITY OR TURBULENCE?

According to Chandler (1990) the big enterprises emerging in a period of technological discontinuity survive for a long time thanks to their

Big business

41

800

773

MAN SER

700 600 500

457

400 300 214

200 100 0

Figure 2.2

8 2

9 3

11 7

16 8

27 17

10

9

8

7

6

29 14

5

70 54

4

97 84

3

152

2

1

Frequency of occurrence among the top 200 firms (1913–2001). Manufacturing and services

capability to create and adopt innovations. This capability ensured them a long-lasting competitive advantage also in later phases of the development of the technological regime in which they emerged, due to the fact that this capability allows them to diversify profitably in new fields (Patel & Pavitt 1987). In contrast to the predictions of the Chandlerian hypothesis, the population of large Italian firms in the 20th century is characterised by strong turbulence. In general, both samples show (Figure 2.2) this feature; as far as service firms are concerned, the phenomenon is really impressive. With regard to manufacturing, we can see that only eight firms are present in all the benchmark years, while another nine firms have nine occurrences.7 Even though the continuity criteria adopted were rather broad, the demographic change has great relevance, considerably superior, for example, to that observed for the US (Louçã & Mendonça 2002). In the American case, the authors argue for the existence of a strong turnover at the apex of American capitalism, upon the basis of the permanence of 28 firms among the top 200 during the period from 1917 to 1997. The large scale enterprises in the services sector were characterised by a higher turbulence than that observed for the manufacturing sample. In this case, only two companies were persistently present in the top 200 for all the benchmark years; three were present for nine years, and seven for eight of the benchmark years considered. Only two enterprises, apart from the two persistently present, are in the top 200 both in the initial and in the final year. In this case, it is even more evident that Italian large scale enterprises were unable to consolidate their position once they had reached the summit of the ranking.8 It is thus evident that the service sector was

42

Forms of enterprise in 20th century Italy

characterised by an even greater turbulence than the already considerable turbulence pertaining to Italian manufacturing companies. The reasons for this high degree of turbulence amongst the leading firms of Italian capitalism can be summarised with two explanations. The first regards one of the general traits of Italian capitalism, which is characterised by a low capacity to consolidate the growth of firms within their own field of specialisation, or to diversify into new sectors (Giannetti & Velucchi 2006; Vasta 2006a, 2006d). The second line of explanation is more sector-specific and probably must be explained separately for the two samples analysed. With regard to manufacturing, we have observed that, since the end of 19th century, the top 200 Italian firms show the sequence of the ‘technological regimes’ generally observed in the majority of advanced countries. This phenomenon shows two Italian peculiarities: (i) the difficulties in developing the technologies of the Second Industrial Revolution with the consequent persistence of the firms linked to the First Industrial Revolution sectors; (ii) a shortening of the delay of diffusion for firms connected to the new technological regime of ICT. If, with regard to manufacturing, the evolution observed represents the effect of technological change, as far as service firms are concerned, the high level of turbulence is, instead, due to causes that characterise the different phases. Firstly, it is mainly due to the long-term changes taking place within three important sectors (wholesale trade, water transport and real estate). These changes are respectively referable to: (i) the persistence of a highly fragmented distributive system; (ii) the different degree of international openness that characterises the different phases of development in the Italian economy; and (iii) the peculiarity of real estate companies, which are characterised by a life-cycle that was linked to site development. Secondly, institutional changes played an important role: nationalisation and privatisation processes strongly influenced, for example, transport and communications, but also different sub-sectors. The impact of technological change is not, however, null, but it does become quite significant during the last decades, when the diffusion of ICT strongly affected the structure of Italian big business in the service sector.

2.6

TECHNOLOGY AND OWNERSHIP IN THE MANUFACTURING SECTOR

According to the Chandlerian tradition, there is a precise relationship between technology, organisational features, and the ownership of big business: the leading firms were generally public companies, run by professional managers. This is true for the first mover countries, while, in the

Big business

43

followers, such as Italy, the relationship between technological regimes, ownership and the organisational features of big business could be different according to a diverse cultural and institutional environment (Mayer & Whittington 1999). Latecomers do not have an autonomous innovative capacity, but usually absorb innovations from foreign countries. In this context, firms are financed mainly by banks and not by stock markets, which are primarily concerned with the control of firms, instead of maximising their profits. A small number of families controlled big firms through groups, and the state was often a substitute actor in order to promote big business even through direct ownership. According to this framework, in this section, we reconstruct the evolution of the ownership structure of the Italian top 200 MAN to identify the relationship with their technological features during the different phases of Italian economic growth.9 In doing so, we classified the ultimate ownership of the firms according to three different typologies: (i) family firms (FF); (ii) SOE; and (iii) multinational enterprises (MNE).10 Family firms are a persistent feature of the ownership of Italian firms up to the end of the 20th century within the group form; the state became a historical substitute for the introduction of new technology, especially after World War II, and multinationals were important vehicles for the introduction of new technology into the latecomer countries. The identification of these three typologies is not simple in historical perspectives, primarily because of problems concerning the absence of precise information about the control of firms. We have thus used alternative methods, which, in general, may produce an underestimation in identifying the different typologies. In order to classify firms as FF, we have looked at the composition of their boards of directors. In particular, a firm is considered to be family-owned if, on its board of directors, there are: (i) at least three people with the same surname; (ii) at least two people with the same surname, and at least one of them holds a position on the board as chairman, vice-chairman or chief executive officer; (iii) at least one person whose surname is included in the name of the firm itself and who holds a position in the board as chairman, vice-chairman or chief executive officer. In order to avoid under-estimating the identification of some firms which are well known as being family-owned, we have also used qualitative information, and, for a few cases, we also considered as FF firms which do not respect the above-described criteria. We have then classified firms as SOEs when the state owns, directly, or indirectly through the holdings of other firms, at least 20 per cent of their capital, following the rules used by Toninelli & Vasta (in this volume). Finally, we have classified as MNEs those firms which are foreign-controlled following the rules proposed and employed by Colli (in this volume).

44

Forms of enterprise in 20th century Italy

Let us now introduce the evolution of the share with regard to the different typologies identified above on the top 200 MAN. First of all, we can observe (Figure 2.3.a) that the number of FF is very high, fluctuating around 50 per cent of the total, up to the crisis of the 1930s; after World War II, their share regularly decreases until the beginning of the 1990s (21 per cent), but, in the last benchmark year, it increases again up to 29.5 per cent. The evolution of the share of SOEs in the top 200 MAN follows the ‘parabola’ of the role of the state in the Italian economy (Figure 2.3b). There is a relevant and qualified presence, around 10 per cent, up the 1960s, which considerably increases over the following two decades, reaching about 30 per cent of the top 200 MAN in the 1981. During the 1980s, we can observe a slight reduction in the presence of SOEs amongst the Italian leading companies, which, in 1991, amount to 24 per cent of the total. The process of privatisation of the 1990s strongly reduced the share of SOEs, which, however, was still significant in 2001 with 12 per cent. The share of MNEs (Figure 2.3c) represented the different features (by technology, by countries, and by types of ownership) of the flows of foreign direct investments in Italy throughout the century. Their weight grew constantly from 12 per cent in 1913, up to 25.5 per cent at the beginning of the Golden Age, and to 35.5 in 1971. In the last benchmark year, after a slight reduction, their share reached the highest value for the entire period, amounting to 40 per cent. A first look at periodisation suggests that the different forms of ownership observed in Italy depended on institutional shocks. In particular, looking at SOEs, the first period is connected to the crisis of Italian universal banks and to the creation of the Instituto per la Ricostruzione Industriale (IRI) in 1933, which was set up in order to bail out the enterprises that the banks controlled; on the other hand, the second period depended both on the financial crisis of SOEs during the 1980s and on the wave of privatisation that followed after 1991. The most rapid growth of SOEs was concentrated between 1961 and 1981, with a stronger growth in the 1970s, albeit due to different causes. Only in the 1960s, in fact, the rise of SOEs was due to a government goal to develop strategic sectors and to increase the rate of growth of the country; after 1971, public intervention was again contingent, conceived to bail out private and state-owned enterprises that were swept away by the oil crisis and by the inflation that followed (Federico & Giannetti 1999). This picture is consistent with the ‘political economy’ approach (Pagano & Volpin 2001) advanced, for the Italian case, by Aganin & Volpin (2005); the authors assessed that, when the state has direct involvement in the economy, private firms – largely family businesses in civil law countries – were crowded out; on the other hand, if the government had a more

Big business

45

(a) FFs occurrences – % 60.0 50.0

50.0

50.0 49.0

48.0

41.5

40.0

35.5 30.0

29.5 28.0 23.5

20.0

21.0

10.0 0 1913 1921 1927 1936 1952 1960 1971 1981 1991 2001 (b) SOEs occurrences – % 40.0 29.5

30.0

24.0

22.0

20.0 10.5

10.0

11.5

12.0

7.0 0

1913 1921 1927 1936 1952 1960 1971 1981 1991 2001

(c) MNEs occurrences – % 50.0 40.0

40.0 32.0

30.0 20.0 10.0

23.5 12.0 14.0

25.5

35.5

32.0 26.5

15.0

0 1913 1921 1927 1936 1952 1960 1971 1981 1991 2001

Figure 2.3

Typology of ownership in the manufacturing sector (top 200 MAN)

46

Forms of enterprise in 20th century Italy

limited involvement in the economy, private business grew through the development of financial markets. Our data do not allow us to perform a deeper analysis into the ownership structure of the top 200 firms, in order to establish whether a crowding out was present in the different phases, or to say more about family business, the organisation of business groups or state intervention (Barca 1996). However, in the following, we introduce a simply structural and functional explanation for the observed evolution of the ownership of Italian big business. By using the notion of ‘technological regimes’, we can find, in different regimes, different rates of growth with regard to sectors and firms. Each ‘technological regime’ had its own characteristics which deal with specific features of firms (capabilities to absorb and generate technology, forms of organisation, access to financial resources, models of ownership, etc.) and even with environmental features (the monetary system, the education system, property law, etc.). If a country, in a certain period, has a strong presence in the most advanced sectors – those which are close to the technological frontier – it has a greater aggregate rate of growth (Freeman & Louçã 2001). According to this perspective, traditional sectors grew rapidly in the First Industrial Revolution regime; science-based and mass-production regimes were the leading ones in the Second Industrial Revolution; and science-based sectors were the driving forces of the Third Industrial Revolution of ICT. As we have previously seen (see Table 2.2), Italian big business shows, with some peculiarities, the sequence of the different technological regimes: the top 200 MAN were strongly rooted into the light sectors of the First Industrial Revolution up to the 1930s; starting from the 1950s and up to the 1970s, the sample shows the rise of the scale intensive firms in steel, petroleum, paper and non-metallic products (cement, tiles, etc.); and finally, during the last three decades, those pertaining to the Third Industrial Revolution, a strong rise of the ICT firms can be observed. In order to provide a first sketch of the relationship between technology and ownership in the Italian manufacturing big business, we have disaggregated each typology of ownership according to a taxonomy, proposed by Pavitt (1984), of technology which sub-divides firms into four distinct types upon the basis of their technological characteristics: supplier dominated (SD); economies of scale (ES); specialised suppliers (SS), and science-based (SB). In Table 2.4, we provide a sort of Revealed Technology (Pavitt’s classification based) Advantage index for the three ownership typologies.11 The ownership of the technologically leading firms in the 20th century is concentrated in MNE and SOE typologies. MNEs represented the main actors of technological diffusion both in the Second Industrial Revolution and in the Third one. They had a strong advantage in ES up to the 1960s,

Big business

Table 2.4

(a)

47

Revealed Technology Advantage index for typology of ownership

FFs

Years

ES

SS

SB

SD

1913 1921 1927 1936 1952 1960 1971 1981 1991 2001

0.9 0.9 0.9 0.9 0.9 0.9 0.9 1.2 1.3 1.2

0.7 0.9 0.6 0.6 0.8 0.8 1.0 0.4 0.2 0.3

1.4 1.0 0.5 0.6 0.3 0.4 0.8 0.4 0.3 0.3

1.2 1.1 1.2 1.3 1.3 1.6 1.7 2.0 1.8 2.1

Years

ES

SS

SB

SD

1936 1952 1960 1971 1981 1991 2001

1.1 1.0 1.1 1.0 1.0 0.8 0.6

1.6 2.0 1.6 1.5 1.3 1.9 1.6

– 1.9 0.5 0.6 1.0 1.2 2.2

0.8 0.5 0.4 0.8 0.7 0.7 –

Years

ES

SS

SB

SD

1913 1921 1927 1936 1952 1960 1971 1981 1991 2001

1.6 1.0 1.3 1.2 1.2 1.1 1.0 1.0 0.9 0.8

1.4 1.8 1.0 0.9 0.8 1.1 1.0 0.9 0.6 1.0

– 1.2 – 1.3 1.6 1.4 1.8 1.8 1.7 1.6

0.5 0.8 0.7 0.6 0.6 0.6 0.5 0.2 0.8 0.7

(b)

(c)

SOEs

MNEs

48

Forms of enterprise in 20th century Italy

and their advantage in SB, always relevant, becomes particularly strong after 1971 with the diffusion of the ICT regime. MNEs always play a crucial role in the diffusion of new regimes in the long run, thus confirming the historical evidence suggesting that Italian firms are unable to be technological leaders (Giannetti 1998). SOEs were always specialised in SS sectors, and, over the last decades, even in SB sectors. Still in this phase, and after the strong process of privatisation of the 1990s, SOEs show a specialisation in the crucial sectors of Italian big business. The specialisation in SS sectors, which are crucial for the ICT regime because they develop product innovations as well as interaction with customers, is of particular importance. Finally, it clearly emerges that FF are always specialised in SD sectors in all different technological regimes. FF were mainly concentrated in the traditional sectors of the First Industrial Revolution, which, in the long run, characterised Italian big business. Only more recently did they provide a comparative advantage even in ES, especially in the iron and steel sectors, probably thanks to the process of privatisation.

2.7

CONCLUSIONS

This study has reconstructed the experience of Italian big business during the entire span of the 20th century with regard to its evolution in relation to the prevailing technological regime. This chapter has focused on three different samples, considering, firstly, the top 200 firms in absolute terms (top 200 ALL), and then the top firms in manufacturing (top 200 MAN), and services (top 200 SER). The first result concerns the large weight, which, in general, big business holds in the Italian economy. This crucial role was largely influenced by manufacturing firms, and, in fact, it reached its apex at the beginning of the 1970s, just before the crisis of the Fordist paradigm. Even the sectoral structure of Italian big business is strictly connected with the role played by manufacturing firms, which follow the ‘parabola’ of the Fordist paradigm, growing since the beginning of the period up to the end of the 1960s, and then losing ground over the last 30 years of the century. If we compare the beginning and the end of the period, we can notice a certain stability in the sectoral structure, although many things changed throughout the century. Afterwards, we analysed the structural evolution of both samples, the manufacturing sector and the service sector. The former sample clearly displays the sequence of the technological regimes described above, with the addition of two original characteristics. The first one, which is typical for a follower country, is the delay in the absorption of the technology of the Second Industrial Revolution, together with the consequent

Big business

49

persistence of firms rooted in the technology of the First Industrial Revolution. The second is Italy’s reduction in the time-gap with regard to the spread of firms active during the second phase of the technological wave of the Second Industrial Revolution, which was already well established in the benchmark year of 1960. In contrast, the technological wave of the Third Industrial Revolution appears in Italy from the 1980s, just as in the other leading countries. This process is also favoured by the presence in Italy of multinational firms, especially in the computer and pharmaceutical sectors. With regard to the services, the changes due to the sequence of technological regimes have a less defined effect than we see for manufacturing firms. This impact is not, however, null, but seems to have a different weight according to the rise of the different technological waves: although it was quite limited during the phase of the diffusion of the technologies of the Second Industrial Revolution, it is very important during the phase of the ICT regime. Italian big business, both in the manufacturing and in the services sector samples, is characterised by strong turbulence. In the former case, this contrasts with the Chandlerian literature, which underlines its long period stability due to the capacity to create barriers to entry and to diversify in the new technologies thanks to accumulation of skills. The Italian manufacturing firms were on the contrary, very unstable: only 8 firms are continuously present in all the benchmark years, while 457 were present only once. We do not observe any capability on behalf of consolidated firms either to diversify into new sectors or to improve their own position substantially. The firms able to take advantage of the new technological opportunities were, for the most part, new firms. It must be considered, however, that this result could depend on the habit of Italian firms to diversify through the creation of new firms belonging to groups, rather than diversifying existent firms. With regard to services, we observe a higher degree of turbulence than in the manufacturing sector: only two firms are present for all the benchmark years, while 773 firms are present only once. In this case, most of the turbulence is due to the changes taking place in wholesale trade, which is characterised by a highly fragmented distributive system, water transport, which is affected by different degree of international openness, and the real estate sector, which is characterised by a life-cycle of single projects. Even institutional changes played a crucial role with a succession of nationalisation and privatisation processes. The relationship between the ownership forms and the technological regime in the Italian manufacturing sector of big business suggests four main conclusions. The first is that MNEs always played a crucial role in the diffusion of new regimes in the long run. The second is that SOEs are the substitutive firm by which Italy developed the Second Industrial

50

Forms of enterprise in 20th century Italy

Revolution regime based upon economies of scale, differently from managerial public companies of the Chandlerian tradition. Thirdly, SOEs were present in the leading sectors of the ICT regime, working probably as network integrators. Finally, FFs were always mainly concentrated in traditional sectors and their growing presence in the last benchmark year is surprising on the eve of the Third Industrial Revolution.

NOTES *

1.

2. 3.

4.

5.

6.

7. 8.

9.

We wish to thank Leslie Hannah, Francesco Silva and Pier Angelo Toninelli for comments and criticisms. Special thanks goes to Andrea Colli for sharing his data on multinational firms. The usual disclaimer applies. We also thank Riccardo Benedetti for excellent research assistance. We adopt here the approach introduced by Freeman & Soete (1997) and Freeman & Louçã (2001), which sub-divided the modern history of technology into five different phases: (1) industrial mechanization (1770–1830), (2) steam power and railways (1830– 75); (3) electricity and steel (1875–1908); (4) oil, cars and mass production (1908–70); (5) information and communication technologies (1970–). By adopting a classical periodisation, the first two phases refer to the First Industrial Revolution, the second two to the Second Industrial Revolution, while the last phase overlaps the Third Industrial Revolution. The Imita.db is a standard historical dataset on Italian companies. It is available online at: http://imitadb.unisi.it. For further information, see Vasta (2006c). If we had included financial intermediation companies in the services sample, the picture would have been distorted. In the different benchmark years, in fact, banks, financial companies and insurance companies would have filled from 70 to 95 places among the top 100 firms in the service sector. This aspect is also discussed in Ville & Merrett (2000: 16). To some extent, this growth is due to the ‘entry’ into the sample, thanks to their transformation – in 2000–2001 – into joint stock companies, of four state-owned enterprises which manage the Italian railway system: Rete Ferroviaria Italiana (RFI), Trenitalia, Ferrovie dello Stato (FF.SS.) and Italferr. Without the weight of these firms, the quota of the service sector would still overtake that of the manufacturing sector, but with a value of 16.6 per cent. This growth is due, as we have previously seen, to the entry of the railways system companies into the sample. If one does not take into consideration this phenomenon, the weight of the service sector would still be relevant with a percentage quota of assets at 34.3 per cent. This result, however, is underestimated because of the effect of the ‘entry’, in the year 2001, of the companies belonging to the Italian railway system. Not taking this phenomenon into consideration would lead the telecommunications section, in the year 2001, to amount to over 57 per cent of the total assets in the service sector. The dataset contains 876 firms for a total of 2000 available positions (200 firms for each of the 10 years selected). A total of 457 firms, more than half of the entire sample, appear only once in the list, while 152 firms are present for two benchmark years. On the whole the top 200 SER dataset contains 1176 firms for a total of 2000 available positions: two-thirds of the sample (773 firms) appear in the list only once, while 214 firms are present for two benchmark years. Each firm, therefore, holds 1.7 positions in the dataset, while manufacturing firms, in comparison, yield 2.3 positions. We have made this analysis only for the manufacturing sectors. So far, data on ownership for the service sector for the entire period are not available. Moreover, Pavitt’s

Big business

10. 11.

51

classification was aimed to classify manufacturing firms and is not suited to illustrate service firms’ features. These typologies do not cover all the firms in the sample. Thus, there are some firms which are not included in any typologies. The Index is calculated in the same way as Revealed Comparative Advantage (RCA) first used by Balassa (1965) for the analysis of international trade. In this case, the index measures the comparative advantage of each typology of ownership for the four Pavitt categories of firm. An index value >1 reveals a comparative advantage for a kind of ownership in a single category, while an index value <1 reveals a comparative disadvantage.

3.

State-owned enterprises (1936–83)* Pier Angelo Toninelli and Michelangelo Vasta

3.1

INTRODUCTION

Italian economic growth had long been penalised by structural frailties such as a narrow internal market, a shortage of capital, financial weakness and a decline of entrepreneurial initiative. On the whole, these elements have contributed to the emergence of a large state-owned enterprise (henceforth SOE). It was actually since the unification of the Kingdom in 1861 that finance represented a sector in dire need of special attention from the government as Italy was suffering both from chronic instability and from a shortage of intermediaries (Confalonieri 1974–6, 1982; Bonelli 1978). If the founding of a few German-type universal banks in the 1890s had provided a partial remedy for the latter, it conversely increased the potential instability of the system, which came close to the breaking point in the early 1930s. The envisaged solution was quite original and efficacious: a special body – Istituto per la Ricostruzione Industriale (IRI)1 – was created for the purpose. It was a state-owned enterprise which took over all the banks’ industrial investments, while the banks themselves came under its control. In the period following the Second World War, the Italian government, unlike the governments of other defeated powers, not only resisted pressure to divest public properties progressively and to encourage a free market ideology, but also gradually enlarged its control over the economy – particularly over finance and banking, industrial production and transport – through what was to become in short an organised shareholding system. IRI stood out as the main character in the story as well as the pillar of the system. The second pillar was Ente Nazionale Idrocarburi (ENI),2 the state energy super-holding, created in 1953. Later (1962), these two were joined by the Ente Autonomo di Gestione per il Finanziamento dell’Industria Meccanica (EFIM),3 into which the heavy machinery companies controlled by the state were merged. In between these two dates (1956), a superior institution to oversee most of the Italian SOEs was created: the Ministero delle Partecipazioni Statali4 (for an overview, see Barca & Trento 1997; Amatori 2000; Toninelli 2004).

52

State-owned enterprises

53

Thus, it is no surprise that historians largely agree that the second half of the 1950s and the 1960s represented the heyday of state intervention in Italy (Posner & Woolf 1967; Cavazza & Graubard 1972; Osti 1993; Sapelli et al. 1993; Balconi et al. 1995; Barca & Trento 1997; Amatori & Colli 1999; Amatori 2000; de Cecco 2000; Petri 2002; Toninelli 2003). This was a period when, both at national and at international level, public enterprise could enjoy a favourable cultural, political and social climate, in which state intervention in its different forms – planning, anti-cyclical policies, and support to private enterprises – played an essential role to secure a Gerschenkron-type convergence of the latecomer countries towards the first-comers (Gerschenkron, 1962; van der Wee 1986; Stiglitz 1989; Toninelli 2000a, 2000b). According to some 1970s estimates pertaining to more than seventy countries (not including the US), SOEs (excluding city-owned ones) produced on average about 10 per cent of the national wealth and contributed approximately 16.5 per cent to the formation of gross capital (Short 1984: 115). The 1970s were an important turning point in the history of public enterprise. In the two decades that followed, the poor performance of the mixed economies, and then the collapse of the collectivist regimes, overwhelmed the faith in the thaumaturgic capacities of the public hand. Scepticism and disappointment gradually replaced the initial hopes, giving way to intense political reshaping of the role of the state, both through the initiative of deregulation and through ample policies of denationalisation (Feigenbaum et al. 1998; Toninelli 2000a; Clifton et al. 2003; Chick & Lanthier 2004). This wave of deregulation also reached Italy: in the early 1990s, the process of privatisation began putting an end to the long parabola of public enterprise in the country (Zanetti & Alzona 1998; Affinito et al. 2000; Barucci & Pierobon 2007). An overall appraisal of the whole experience should not be influenced by today’s almost generalised distrust of state action (Stiglitz 1989). However, it cannot be ignored that state enterprise is nowadays perceived by the public opinion, both in Italy and abroad, as a lethargic, monolithic organism: an organism which has been increasingly exercising collusive practices, both at an inner level – between the management and the workforce, to defend their own privileges – and at an exterior level – with regard to political power – in order to be protected from market competition. As a consequence, at the end of the last century, an almost unanimous consensus emerged towards the privatisation policies, based upon the assumption that the main cause of inefficiency was to be explained primarily by the form of ownership and not by the form of governance or by the management behaviour of the firm, and/or by the market structure and regulation (World Bank 1995; Shleifer 1998; Megginson & Netter 2001). The

54

Forms of enterprise in 20th century Italy

process of privatisation is still ongoing and certainly has not settled: while the technical analysis tends to classify it as a success, especially in the transitional economies and in the less developed countries, for other aspects, it seems to have not fully satisfied the initial expectations, particularly with regard to the transparency of governance and the quality of services (Stiglitz 2002; Birdsall & Nellis 2003; Clifton et al. 2004; Rodrik 2004). On the other hand, in Italy, too, the recent vicissitudes of telecommunication and motorways certainly do not give support to an uncritical application of the so-called liberal consensus (Mucchetti 2003, 2006). Finally, the appraisal of the SOEs’ performance depends either on the valuation criteria linked to proxies of static efficiency that estimate accountable profits and losses, or proxies of dynamic efficiency that consider the externalities which they generate in terms of the diffusion of innovative capacity or of the accumulation of skills, and thus on overall productivity (Aharoni 2000; Amsden 2001; Millward 2005). In the Italian case, for example, the contribution made by the state holdings to the creation of modern management, to the formation of human capital, and to the rationalisation of industrial relations after World War II, should not be undervalued. It is sufficient to mention here the diffusion of American managerial and organisational techniques introduced by IRI, as well as the activities of the controlled Istituto Formazione Addestramento Professionale (IFAP) in the opening and management of training centres and in the creation of specialised workers, technicians or management, or, even further, the precocious job evaluation systems pioneered by Finsider (Bertini 1997; Saletnich 1999; Ricciardi 2002) as well as the contributions of technical innovations and spillover given by the R&D divisions of Italian SOEs (Giannetti & Pastorelli 2007). Despite the importance of the phenomenon of Italian SOEs, and of the rich historical debate it generated, only a limited amount of empirical studies is so far available (Rapporto Saraceno 1956; Sartori 1957; Posner & Woolf 1967; Arrighetti et al. 1982; Bognetti & Spagnolo 1992; Rapporto Marsan c. 1992). Thus, it is quite difficult to identify precisely – at a micro level – the real dimension of Italian public enterprise, and hence assess a phenomenon whose real quantitative consistence remains unknown to us. The aim of this work is to fill this gap by showing the basic features of Italian SOEs. For this reason, we have reconstructed the boundaries of the three main state holdings that have characterised the system of Italian public enterprise over a long period: IRI, ENI and EFIM. The originality of our approach, in comparison to previous empirical studies, is essentially due to three elements: (i) the time-span, which covers about half a century: five benchmark years are likely to give quite a satisfactory picture of the entire period; (ii) the use of a dataset,

State-owned enterprises

55

Imita.db, which allows us to compare the effective weight of the public enterprise versus the overall Italian enterprise system; (iii) the attempt to reconstruct, through the identification of the structure of shareholding, the models of governance adopted. The work is organised in the following way: after this introduction, in Section 3.2, we describe the sources and methods employed. In Section 3.3, we illustrate the intra group structure of the three state holdings analysed as they emerge from the dataset of the Italian joint-stock companies, then we reconstruct the extent of the Italian public enterprise (Section 3.4), also taking into account the different forms of control involved (Section 3.5). In Section 3.6, some final conclusive considerations will be suggested.

3.2

SOURCES AND METHODS

Our aim is to provide a quantitative mapping of Italian public enterprise that will allow us to analyse both the extent of ownership and its mechanisms of control. This is achieved by using a representative sample of Italian firms, the Imita.db dataset (Vasta 2006c; http://imitadb.unisi.it).5 The source has already been extensively used for examining the general characteristics of Italian industry in the 20th century (Giannetti & Vasta 2003b, 2005, 2006), but here we have used it to single out which, amongst the recorded firms, were to be considered as state-owned or as statecontrolled enterprises.6 The information related to SOEs was gathered directly from the IRI and ENI archives: it is made of documents used to produce consolidated balance sheets of the various yearbooks published by the two state holdings and of other sources of various kinds (balance sheet accounts, board of directors reports, etc.); other classic records of Italian firms were also consulted, such as the Taccuino dell’azionista, the Annuario delle aziende di credito e finanziarie, the Calepino dell’azionista and the Annuario R&S. The analysis focuses on five benchmark years (1936, 1952, 1960, 1972, 1983) of the Imita.db.7 For each of these years, it verifies the shareholders of each individual firm, reconstructing, in particular, those relating to state holdings (IRI, ENI and EFIM), those held by the financial holdingcompanies or the other holding-companies of the group,8 and those of all other firms of the group.9 Figure 3.1 shows an example, without any reference to time, of the general structure of the IRI group’s shareholding. This model is also valid for the two other state holdings, even though they, especially EFIM, had a much simpler group structure. As we have stated, IRI directly entered in a few holding-companies (financial or not) with a variable holding share,

56

Forms of enterprise in 20th century Italy IRI 77.3%

50.1%

Financial holding company

Financial holding company 60%

X1

80%

Y1 ?

Z1

Figure 3.1

40%

60%

90%

X3

X2 30%

25%

Y2

? Z2

100%

Holding company

100%

X4 20%

Y3 ?

Z3

Example of the structure of the IRI group

which was always above 50 per cent; moreover, IRI held shares directly in other firms (X2, Y2). In addition, the holding-companies held shares in many firms (X1, X2, X3, X4) with variable percentage: these (X1, X2, X4), in turn, could hold shares (Y1, Y2, Y3) in a chain structure which scaled down to a lower level (Z1, Z2, Z3). In some firms, the direct share of IRI was to be added to that of the holding-company (X2), while, in some cases, the share structure was more complex and could involve up to 10 other subjects. The sources analysed have enabled us to reconstruct most of the shares of the three state holdings, of their sub-holdings (financial or not), as well as of the most important firms at the lower levels (X1, X2, X3, X4). Even though the resulting map takes a good part of our sample into account, it was not possible to reconstruct further levels of the control chain (Z1, Z2, Z3). Thus, the mapping achieved underestimates the boundaries of Italian SOEs. The analysis was developed following the recent literature on corporate finance and corporate ownership (La Porta et al. 1999; for a survey, see Morck et al. 2005). It considers the various levels of shareholding that make it possible to assess the different estimates of the size of control of the various groups according to two measurements: share capital and assets. In particular, it was decided to adopt four different criteria: (i) accounting; (ii) effective control; (iii) majority control; (iv)

State-owned enterprises

57

pyramidal control. We will now go into more detail, and describe the logic which inspired these criteria. The accounting criterion attributes to the groups the size of control that emerges from an algebraic calculation of the capital shares.10 This is the main criterion employed throughout the entire analysis and represents the benchmark to which the other estimates will be compared. Such a criterion offers a quantitative reconstruction of the share of each holder, which is the level of ownership of the diverse public groups, although it does not guarantee a realistic analysis of the level of state control of the Italian enterprise system. For this reason, we have searched for other criteria, diverging from a strictly accountable evaluation and thus broadening the quantitative approach. The second criterion deals with the effective control: it attributes to the group the entire capital of a firm that is controlled at a level above 20 per cent, while the capital of a firm that is controlled by a percentage of less than 20 per cent is not considered. In other words, one assumes that the control by the group of a percentage equal to 20 per cent or more corresponds to the full control of the relative firm. Using the 20 per cent threshold as a rule of attribution of effective control of the entire capital of a firm is coherent with a methodology recently proposed by the literature on corporate ownership, according to which, the control of 20 per cent of the capital of a firm would guarantee, in a context in which ownership is sufficiently dispersed (for example, public companies), that the appointment of a number of directors would be sufficient to secure effective control of an entire firm (La Porta et al. 1999; Bertrand & Mullainathan 2003). However, it is well known that ownership in Italy is far from being dispersed.11 In order to offer a more realistic, and, at the same time, more prudent assessment of state control, we have experimented with two other criteria. The third criterion, majority control, attributes to the control of the group the total capital of a firm that is controlled by a percentage of more than 50 per cent,12 while it excludes the capital of a firm that is controlled with a percentage equal to or less than 50 per cent. The logic of this criterion is similar to the previous one, but it avoids potential over-estimation. Moreover, it is appropriate to the particular features of the Italian ownership system. Finally, the fourth criterion is aimed to verify how relevant to the public sector is a very widespread model of governance of Italian private groups: the pyramidal control. In order to obtain this, each group was attributed the capital of the firms controlled through a chain of shareholdings that was greater than 50 per cent. It is appropriate to recall that this case differs from the previous ones because it does not proceed with a simple

58

Forms of enterprise in 20th century Italy IRI

51%

Holding company

51% X1

51% Y1 51%

Z1

Figure 3.2

Example of pyramidal control within the IRI group

algebraic calculation, as it looks upon situations of repeated control. The logic behind the pyramidal control enables us to evaluate the weight of the public groups on all Italian firms with regard to the widespread practice of creating chains of firms able to guarantee the total control of the underlying firms, thus limiting the capital directly invested by the parent company. Figure 3.2 should clarify the logic behind the pyramidal control: it shows how one unit, in this case IRI, with just one stake (in the holdingcompany) can act as the ultimate owner of all the firms in the chain, including those in which it has not invested directly.13 The methodology described above is applied to the firms which belong to the three state holdings registered in the Imita.db archive. However, beyond these firms, our sources enabled us also to identify the firms belonging to the three groups, but which are not included in the Imita.db14 (as shown in Table 3.1, where we present a synthetic overview of Italian SOEs). In total, over 2500 firms have been identified, but those used in the following analysis are about 1200, which are the ones contained in the Imita. db. In the first four benchmark years, as shown in Table 3.1, the percentages of firms in the Imita.db of the total number of recorded firms are remarkable for IRI, ENI, and, in 1971, also for EFIM. The representativity decreases in 1983, when only half of the detected firms are registered

59

Italian firms corresponding with Imita.db (a)

148 120 147 201 230 846

28 40 63 78 209

1936 1952 1960 1972 1983 Total

1936 1954 1960 1972 1983 Total 7 11 32 95 145

32 35 54 53 362 536

Italian firms not corresponding with Imita.db (b)

1 18 119 128 266

33 24 21 11 248 337 ENI

IRI

Overseas firms not corresponding with Imita.db (c)

36 69 214 301 620

213 179 222 265 840 1 719

Total firms (d)

80.0 78.4 66.3 45.1 59.0

82.2 77.4 73.1 79.1 38.9 61.2

Italian firms corresponding with Imita.db on total Italian firms (a)/(a+b)

Number of firms included in the census for the three state-owned groups and Imita.db

Years

Table 3.1

2.8 26.1 55.6 42.5 42.9

15.5 13.4 9.5 4.2 29.5 19.6

Degree of internationalisation (c)/(d)

60

1936 1952–54 1960 1972 1983 Total

148 148 187 326 367 1 176

62 59 121

Italian firms corresponding with Imita.db (a)

Years

1936 1952 1960 1972 1983 Total

(continued)

Table 3.1

32 42 65 106 504 749

21 47 68

Italian firms not corresponding with Imita.db (b)

213 215 291 572 1 268 2 559

93 127 220

Total firms (d)

IRI+ENI+EFIM 33 25 39 140 397 634

10 21 31

EFIM

Overseas firms not corresponding with Imita.db (c)

82.2 77.9 74.2 75.5 42.1 61.1

74.7 55.7 64.0

Italian firms corresponding with Imita.db on total Italian firms (a)/(a+b)

15.5 11.6 13.4 24.5 31.3 24.8

10.8 16.5 14.1

Degree of internationalisation (c)/(d)

State-owned enterprises

61

by the Imita.db. This could be the consequence either of the changes in the capital threshold criteria employed to include firms in the database, as it went from 100 million Italian Lire in 1973 to 1 billion in 1984, or of the increase in the number of controlled firms with other legal forms, or both. The number of overseas firms in which the state holdings had shares – as shown by the high degree of internationalisation – deserves a few more words of explanation. In ENI, such a phenomenon significantly increases after the early 1970s as a consequence – partly – of the changing international economic conditions. Difficulties on the oil market, particularly in the supply of crude oil, imposed the strengthening of the core business, namely, the development of the upstream activities: this required investment in countries rich in primary energy sources, mainly through joint-ventures with local companies. In IRI, the increase started in the early 1980s and was probably linked to a change of the group strategy: in the 1970s, it was more focussed on the implementation of its industrial structure, while later it leaned more towards both the acquisition of a strategic position on international markets and financial assets in several developing countries.

3.3

THE STRUCTURE OF THE GROUPS

Figures 3.3a–c show the disaggregation, using the accounting criterion, by macro sector in terms of the number of firms, share capital and assets, at the same time illustrating how the structure of the three state holdings evolves as time goes by. Apart from the number of controlled firms and the percentage of controlled share capital, the analysis uses another proxy (assets) which is generally reputed as one of the most reliable for measuring the dimension of the firm (White 2002): in other terms, it is hypothesised that the control of the firm share corresponds to a similar control of its assets. In order to have a more uniform picture, which is less vulnerable to the occasional economic turmoil of a single benchmark year, our data provide the triennial averages for the following five periods: 1935–37, 1951–53, 1959–61, 1970–72, 1981–83.15 With regard to the IRI group, in the first place, the substantial stability of the weight of the sectors emerges, albeit with a tendency to polarisation through time. In the first year, the structure appears quite diversified, with the presence of some agricultural firms, mining firms, and a steady weight of utilities. After the 1962 nationalisation of electricity, the IRI structure becomes less diversified. The number of manufacturing firms fluctuates around 40 per cent of the total, the service firms around 25 per cent, while financial firms increase their weight reaching as much as about a third of

62

Forms of enterprise in 20th century Italy Number 35.2 35.1 46.1

3.2

1970–1972

29.2

0.6 4.1 42.0 0.5 6.9

0.9

1981–1983

24.2

0.5

6.2

1.8 6.1

3.6

2.5

Ag ri

cul

tur ea

nd

fish ing M Ma ini ng nu fac tur ing U Co tiliti es nst ruc Fin tio an n cia l in Serv ice ter s me dia tio n

1935–1937

21.6 16.1 28.3 18.0

35.2 14.0

4.6

1.8

1951–1953

3.6

2.4

0.7

1959–1961

13.5 23.8 15.2

40.0 12.2

Share capital

71.2 72.4

9.2

19.3

0.3

0.0

1981–1983

0.0

53.8 10.2

16.6

1970–1972

0.1 0.4 19.3 12.4

0.2

0.1

1959–1961

0.1

0.1

1951–1953

14.2 11.6 0.2

0.8

64.1

14.2 0.1 40.5

3.9

0.2

21.2 14.4

19.6 0.3

0.3

shi ng Ma Min ing nu fac tur ing Ut Co iliti e nst ruc s Fin tio an n cia l in Serv ter i me ces dia tio n

0.8

Ag

ric

ult

ure

an

d fi

1935–1937

Assets 69.0 72.6 15.5 14.9

1981–1982

0.0 0.1

0.1

1959–1961

0.3

1951–1953

0.3

74.3

0.2 11.1 5.8

10.3

0.1 6.9

1.4

0.9

6.1

Ag ric ult ure

an

d fi

1935–1937

18.8 0.2

63.6

14.6

15.5 4.7

0.2

0.0

13.7 0.4

0.0

shi ng Ma Min i nu ng fac tur ing Co Utili n str ties Fin uct an io cia l in Ser n v ter me ices dia tio n

1970–1971

0.0

13.1

64.7

0.6

Figure 3.3a

Disaggregation of IRI by macro-sector – number, share capital and assets (%)

State-owned enterprises

63

Number 46.7

4.9

2.6

1981–1983

54.2 11.9 1.3

23.8 8.8 18.8 3.1

14.633.1 29.4 6.3 3.1 20.9 36.2 5.2 20.7 25.8

1970–1972

Ag

Ma

ric ult ure a

nd fi

1954–1955

2.6 17.3

shi ng Mi nin nu g fac tur ing U Co tiliti es nst ruc Fin tio an n cia l in Serv ice ter s me dia tio n

1959–1961

8.7

Share capital 53.9

1981–1983

24.0

9.8 4.5 7.7 0.0 27.8 1.7 6.8 0.1 0.2 47.6 33.7 1.9 15.8 57.6 0.1 0.8 20.5 21.8 0.0

63.5 0.0

1970–1972

Ag

ric

ult

ure

an

1954–1955

d fi shi ng Ma Min ing nu fac tur ing Ut ilit Co ies nst ruc Fin tio an n cia l in Serv ice ter s me dia tio n

1959–1961

Assets 46.4

18.9 32.1

1981–1982

0.0

44.2

40.1

1970–1971

12.4

15.0

7.1

0.1 15.1 0.3 30.6 23.3 0.1

36.1

35.0

28.9

0.3

8.2

0.2

5.6

Ag ri

cul

tur e

an d

fish i

ng

1954–1955

Ma Min in nu fac g tur ing Ut ilit Co nst ies ruc Fin tio an n cia S erv l in ice ter s me dia tio n

1959–1961

Figure 3.3b

Disaggregation of ENI by macro-sector – number, share capital and assets (%)

64

Forms of enterprise in 20th century Italy Number 68.0 18.3 68.2 1.7

3.4

1981–1983

6.9

1.7

12.7

14.3

es

edi a

vic Ser

int

nst

Ut

Ag

ric ult

Fin

an

cia l

Co

Ma n

erm

ies

ruc tio

ilit

ing

ng

ctu r ufa

Mi ni

shi ng d fi an ure

n

1.6

1970–1972

tio

n

3.2

Share capital

81.8

78.2 16.8

0.0

0.1 19.9

n dia me

ruc

cia

l in

Co

ter

nst

Ut

tio

es vic

n tio

ies ilit

ing tur fac

an

Ag

ric

ult

Fin

ure

Ma

an

nu

Mi

d fi

shi

ng

nin

g

1970–1972

1.7

0.1

0.1

Ser

0.1

1981–1983

1.2

Assets 44.7 53.1

int

Ser

uct

ion

Fin an cia l

str

ilit Ut

Co n

0.9

Ag

ric u

ltu r

ea nd

fish

ing Mi nin Ma g nu fac tur ing

1970–1971

ies

0.3

39.9

es erm edi ati on

1981–1982

1.7

0.3

58.9

vic

0.1

0.1

Figure 3.3c

Disaggregation of EFIM by macro-sector – number, share capital and assets (%)

State-owned enterprises

65

the total in 1981–83. Clearly, either in terms of share capital or in terms of assets, the weight of financial firms is much higher, touching almost 75 per cent of the total. In contrast, in the post-war era, the manufacturing firms hold about 20 per cent of share capital and 15 per cent of the assets of all the firms within the group. The structure of the ENI group is less polarised and shows less stability at sector level.16 Mining encompasses a limited number of firms but always scores the highest result with regard to capital, even though, in terms of assets, its weight is less significant. Manufacturing covers a considerable share (about 40 per cent of the group): moreover, when the other two proxies (share capital and assets) are considered, the manufacturing character of ENI emerges, and is even greater than that of IRI. This was the consequence not only of the development of the industrial activities connected to the core business – oil production and refining, as well as chemical activities – but also of the diversification both into correlated activities, such as pipelines (Saipem), or pumps (Nuovo Pignone), and into un-correlated ones, such as textiles (Lanerossi). The structure of the EFIM was strongly biased towards manufacturing, which accounted for more than two-thirds of the firms in the group. Such a group also includes quite a number of financial firms, but, once the share capital is considered, the situation is overturned: financial firms represented more than 80 per cent of the total, while, if we consider assets, a substantial balance between manufacturing and financial firms emerges. Furthermore the different holding share typologies described above (Section 3.2) have been analysed: the various combinations of control can be determined for each benchmark year, differentiating among manufacturing firms and firms in other sectors. These data provide, at a first approximation, interesting information concerning the governance adopted by the three public groups. With regard to IRI, Table 3.2 shows that the form of control changes remarkably over time. The growth of the group reflected mainly the development of the holding-companies (financial or not). In 1936, IRI was involved – directly and exclusively – with these firms, which were subsequently to be ascribed to the group (50 manufacturing firms and 87 firms in other sectors). In 1952, the situation was already more fluent even though direct holding share was still the most common link (44 cases). Shareholding through financial companies was also widespread (19) as well as the joint shareholding by IRI and the financial holding-companies (34). In the following years, the shareholding scheme becomes more complex: on the one hand, the number of firms in which IRI directly held shares decreased while the number of those whose

66

ENI group** Kind of shareholding ENI direct (1) Holding-companies (2) Financial holdingcompanies (3)

51

5

1

96

4

87

other

50

D

1936

147

4

6

137

tot

1 10

3 71

1 48

1 2

15 8

13

32

other

3 26

6

12

D

1952

2 12

4 119

18 34

19

44

tot

2 7

10 20 4 2 62

19

7

D

1 15

22 6 6 5 84

21 1 23

other

1960

3 22

32 26 10 7 146

28 1 42

Tot

IRI, ENI and EFIM by typologies of shareholding (number of firms)

IRI group* Kind of shareholding IRI direct (1) Holding-companies (2) Financial holdingcompanies (3) Other group firms (4) (1) + (3) (3) + (4) Other Total

Table 3.2

2 15

31 6 5 3 92

46

1

D

1 17

33 6 6 10 108

15 4 34

other

1972

3 32

64 12 11 13 200

16 4 80

tot

8 1

32 3 7 3 80

3 1 31

D

4 4 1

29 9 20 12 149

13 3 63

other

1983

4 12 2

61 12 27 15 229

16 4 94

tot

67

Note:

5

1 17

4 1 2 10

1 3 27

9

12

2

1 5 1 27

5 7 1 39

6

6 5 8 19

14 42

6 2 28

2

28

2 1 34

14

22 61

6 33

8 3 62

16

40

1 39

8 9 2 9 37

18

7 11

11 3 5 12 40

58

8 50

19 12 7 21 77

D = manufacturing; Other = other sectors; *excluded state holding IRI; ** excluded state holding ENI; *** excluded state holding EFIM.

EFIM group*** Kind of shareholding EFIM direct (1) Financial holdingcompanies (2) Other group firms (3) Total

Other group firms (4) (2) + (3) (2) + (4) Other Total

68

Forms of enterprise in 20th century Italy

share capital was controlled through financial holding-companies and other firms of the group increased; on the other hand, the multifaceted shareholding – direct, through financial holding-companies and through firms at the second level – became quite frequent. In the period considered, the group structure seemed to move towards a pyramidal system. In particular, from a holding with direct control over the manufacturing activities, IRI was transformed into an owner of the last resort controlling the financial holdings: these, in turn, guaranteed the control over the forward firms, both through indirect share-holding – with a chain that allowed the control of a firm with small investment – and through cross share-holding (Section 3.5). In the case of ENI, the forms of control are quite different, but here, too, as in IRI, they become more and more articulated over time. ENI’s direct presence remains scarce as firms are mainly controlled by the holdingcompanies and/or the other firms of the group. From its foundation in 1953, ENI sectors of activity were clearly separated into productive and commercial divisions, and each one was controlled at the top by a holdingcompany. For instance, for most of the 1950s and 1960s, there were four divisions: upstream activities headed by Agip Mineraria, downstream by Agip, natural gas by Suam, chemicals by Anic. Then, the first two were merged into Agip but, in a short time, the number of holding-companies began to increase. Furthermore, after 1983, the number of companies which held shares within the group as well as cross shares between the holdings and the firms grew. In contrast, EFIM’s structure of control was much simpler: the state holding controlled some financial firms which, in turn, directly controlled other (mainly) manufacturing firms. EFIM kept direct control of almost all the financial firms and of the shares of the capital of the service firms; in 1982, the control of the capital of the manufacturing firms was almost entirely in the hands of the financial firms of the group.

3.4

THE BOUNDARIES

The identification of the boundaries of the Italian public enterprise represents one of the central aims of this study. In fact, while it is well known that the size of the Italian SOEs was by no means insignificant, the internal structure of public enterprise was too complex to allow a systematic quantitative estimation of its dimensions. Only some studies (Mortara 1976; Arrighetti et al. 1982; Bognetti & Spagnolo 1992) have attempted to produce mapping of SOEs, but only for short periods17 while studies on the long-term nature of governance fail to provide a systematic analysis of

State-owned enterprises

69

Italian SOEs (Aganin & Volpin 2005). Furthermore, the lack of quantitative information on the constellation of the Italian firms has precluded any estimate of the real weight of the SOEs in the economic activities of the country. The results presented here provide a first step in the direction of both the study of the evolution of Italian capitalism, and, in a broader perspective, of the comprehension of the nature of the governance of the Italian firms. This, in turn, would allow the relationship between governance and performance, the evolution of the financial structure and the economic growth in general to be brought to light. Table 3.3 shows the number of companies whose shares were partly or totally controlled by the three groups and their weight vis-à-vis the total of Italian firms. The percentage of the total share capital controlled by the three groups, using the accounting criterion, is presented in Table 3.4 for all sectors, and, in Table 3.5, for the manufacturing sector alone. With regard to IRI, the overall percentages become even more significant: already in 1936, three years after its foundation, when IRI was still a temporary agency, its weight on the total capital of the Italian joint-stock companies was 12.5 per cent (Table 3.4). In the first two post-war benchmark years (1952 and 1960), in other words during the Golden Age, the weight of IRI rose considerably, reaching values higher than 15 per cent. In the period that followed, the percentage grew further: 21.2 per cent in 1972 and 29.9 per cent in 1983. The weight of ENI also tended to increase: it was about 3 per cent of the total in the two benchmark years after its foundation, but it approached values of around 8 per cent in the last two years. The weight of EFIM, albeit lower, was not negligible, amounting to about 2.5 per cent of the overall share capital of Italian firms. Actually since the 1960s these trends were affected by the State’s additions to their endowment funds, the mechanism envisaged by the government to offset the ‘improper financial burdens’ in their balance sheet (Saraceno 1975), which however increasingly exposed SOEs to political pressures. Therefore, when adding up the percentages of control of the three main state holdings in accordance with the structure indicated above, we can observe that the values continue to grow considerably during the period analysed (Figure 3.4). Their value during the Golden Age amounts to about 20 per cent of the share capital of Italian firms. In the early 1970s, this percentage rose to almost a third (32.1 per cent), despite the caveat mentioned above, and reached 40 per cent in the early 1980s.18 The disaggregated analysis at sector level shows that control by IRI, as already noted in the analysis of the group structure (see Section 3.3), is remarkable in the banking and financial sector, with percentages that oscillate from 22.5 per cent in 1936 to about 50 per cent of the total capital

70

Agriculture and fishing Mining Manufacturing Utilities Construction Services Financial intermediation Total

188 241 158 256 93 127 144 161 1 764 3 017 3 163 6 140 224 169 167 77 139 196 181 427 1 553 2 009 2 066 3 947 285 422 492 795 4 246 6 181 6 371 11 803

166 34 2 911 26 244 1 105 1 100 5 586

10 6 51 9 4 42 26 148

1936 1952 1960 1972 1983 1936

Imita

5.3 6.5 2.9 4.0 2.9 2.7 9.1 3.5

%

IRI, ENI and EFIM firms and their weight on Imita.db

Macro-sector

Table 3.3

2 13 58 22 2 32 19 148

1952–4 0.8 10.1 1.9 13.0 1.0 1.6 4.5 2.4

% 1 16 74 27 8 39 22 187

1960

0.6 11.1 2.3 16.2 4.4 1.9 4.5 2.9

%

7 10 168 5 18 81 37 326

1972

2.7 6.2 2.7 6.5 4.2 2.1 4.7 2.8

%

IRI group + ENI group + EFIM group

6 4 157 11 11 78 100 367

1983

3.6 11.8 5.4 42.3 4.5 7.1 9.1 6.6

%

71

Agriculture and fishing Mining Manufacturing Utilities Construction Services of which transport Financial intermediation Total

ENI group

EFIM group

Total

0.6

4.0

0.4

–

–

–

3.3

12.5 19.4 16.0 21.2 29.9

2.5

0.3

8.6

0.4

65.4 42.1 86.7 1.6 2.6 4.4 2.9 1.3 49.6 – 0.8 0.5 0.0 0.7 0.1 – 1.4 0.1

–

22.5 56.0 44.3 50.5 55.2

2.7 5.0 0.8 0.5 – 7.9 7.4 8.5 7.1 18.9 6.7 8.6 7.5 1.0 0.0 5.8 5.5 1.7 5.0 7.3 19.9 17.9 18.2 13.6 29.6 40.9 30.5 33.3 27.4 61.4

27.3 16.9

7.7

0.7

94.8 6.8 2.9 0.4 7.9 0.4

0.4

2.3

6.2

0.0 0.8 – 0.1 0.2 –

–

43.0 11.1 8.8 2.5 19.0 34.7

0.6

87.3 12.3 50.5 5.7 13.9 27.5

4.0

94.9 27.1 2.9 7.7 37.8 62.2

1.2

2.6 12.5 22.7 18.5 32.1 40.2

5.6 22.5 56.0 44.6 57.1 61.5

0.0 2.7 70.3 1.3 7.9 9.0 – 6.7 11.6 0.0 5.8 5.5 0.2 19.9 17.9 0.4 40.9 30.5

0.3 27.3 16.9

1936 1952 1960 1972 1983 1936 1954 1960 1972 1983 1936 1952 1960 1972 1983 1936 1952–4 1960 1972 1983

IRI group

Weight of share capital of firms held by IRI, ENI and EFIM on Imita.db (% of all sectors)

Macro-sector

Table 3.4

72

ENI group

EFIM group

Total

0.0

3.2

–

–

3.7

0.1

2.0

–

0.1

–

–

–

3.8

0.1

3.6

–

–

1.1

–

1.7

–

–

–

1.2

–

0.0

–

9.5

–

–

–

8.2

0.2

–

–

–

–

0.2

–

–

4.2

–

–

–

–

8.8

–

–

0.4

–

0.0

–

6.5 10.0 23.5

13.6 10.5 16.6 44.9

–

–

–

–

–

1.3

0.3

–

0.2

–

–

0.1

1.0

0.7

0.1

–

–

–

–

–

1.4

–

6.6

0.4

0.9

–

–

3.9

0.2

–

4.0

13.8

3.8

–

–

–

0.1

2.0

–

–

4.2

2.2

9.5

–

–

8.8

9.7

–

1.4

0.7

8.5 11.4 23.6

10.6 16.6 44.9

3.9

–

–

3.2

0.0

1936 1952 1960 1972 1983 1936 1954 1960 1972 1983 1936 1952 1960 1972 1983 1936 1952–4 1960 1972 1983

IRI group

Weight of share capital of firms held by IRI, ENI and EFIM on Imita.db (% of manufacturing)

Food products 0.2 and tobacco Textiles and 3.9 textile products Leather – and leather products Wood and – wood products Paper products, 0.9 publishing and printing Coke and 0.4 petroleum products Chemicals 6.6 and chemical products Rubber and – plastic products

Sector

Table 3.5

73

Other non– metallic products Basic metals and metal products Machinery and equipment Electrical and optical equipment Transport equipment Manufacturing n.e.c. Total manufacturing 6.4

–

7.4

7.9

8.5

–

–

7.1 18.9

–

13.0 17.9 37.4 28.3

12.2

0.0

11.3

9.4 13.6

4.5

1.7

9.9

5.5

20.3

38.1

2.4

25.9 26.2 18.0 55.8

1.7

26.8

2.5

2.4

2.0

1.6

–

–

–

–

–

–

2.6

–

–

–

3.5

–

–

4.4

–

–

–

1.7

–

2.7

6.8

–

–

0.3

4.4

0.4

0.2

0.8

–

2.6

0.9

1.2

1.4

0.5

1.3

–

4.9

0.8

2.1

1.0

1.7

7.9

0.0

12.2

1.7

38.1

26.8

2.0

9.0

–

13.0

11.3

20.3

25.9

2.4

5.0

4.3

7.4 12.9

–

– 11.1 12.3 27.1

–

17.9 40.0 33.3

9.9 10.3 14.7

9.0

26.2 19.4 57.2

2.5

74

Forms of enterprise in 20th century Italy 45 share of Imita.db (capital) 40

share of total Italian joint stock companies (capital)

35

share of Imita.db (assets)

40.2

32.1 33.5

30 29.7

% 22.7

25 20 15

22.1 20.1

19.0 17.9

20.4

12.5 11.5

10 1936

Figure 3.4

18.5

26.1 18.5

1952–54

1960

1971–72

1981–83

Weight of share capital and assets of firms held by IRI, ENI and EFIM of Imita.db and of Italian joint stock companies

in the period following World War II. It is worthy of note that the transport sector also grew in size within which IRI’s weight exceeds 60 per cent of the total capital of the firms in 1983. ENI controls a very high percentage of mining: in 1983, it accounted for almost the entire share capital of the sector. With regard to the utilities sector, the values are somehow misleading: in fact, the 1972 peak (49.6 per cent) was caused by the effects of the 1962 nationalisation of electricity. A great part of the electrical activities was given to a new public body, Ente Nazionale per l’Energia Elettrica (ENEL) which was included in the Imita.db sample in 1972. However, in that year, ENEL had not yet been endowed with proper funds by the government. As a consequence, the overall capital values of the electrical companies was strongly undervalued.19 The wide impact of SOEs on the economy emerges from the aggregated data of the three groups: in a considerable number of sectors of primary importance – mining, financial, transport, utilities – the weight of SOEs is clear and their presence broadly diffused, and is, no matter how it is viewed, sizeably bigger than indicated by the fragmentary estimates previously available. Focusing now on the manufacturing sector, Table 3.5 enables us to analyse the weight of the three public groups. As noted while analysing the group structure, all three groups show a strong and growing specialisation in manufacturing. Their total weight grew from 7.9 per cent in 1936, to 12.3 per cent in 1972. Clearly, in 1936, this weight depended entirely on IRI, which was joined in the 1950s by ENI, and then, in the last two benchmark years, also by EFIM. Here, too, the year 1983 registers a notable

State-owned enterprises

75

expansion: the combined weight of the three groups rises above a quarter of the total. The data disaggregated by sector highlight how the control of the three groups over the whole period was concentrated in the heavy sectors, albeit with an alternate trend. IRI is strong in the steel industry and in the transport equipment sector. In steel (basic metal in the table), in the first three benchmark years, the IRI share oscillates around 25 per cent, reaching 55.8 per cent in 1983; in transport, the share increases from 12.2 per cent in 1936 to 37.4 per cent in 1972, attaining 28.3 per cent in 1983. A significant presence can also be found in the machinery and equipment industry, especially in the first years, and also in the electrical equipment industry. ENI is concentrated in the energy sector, with a significant weight in the oil sector and, especially in 1972 and 1983, in chemicals. In the last two years analysed, ENI underwent a process of unexpected diversification, as can be seen by looking at the not unsubstantial percentage in the textile industry, where ENI accounted for 8.8 per cent of the total of capital of Italian firms in 1983. The smallest of the three state holdings, EFIM, was less specialised. Its presence, in general rather low, was, however, well distributed over almost all the heavy sectors and especially in machinery and transport equipment. Following the hypothesis, advanced earlier, that the control of the capital share of the firm corresponds precisely to the control share of the assets,20 a further analysis of the weight of the three state holdings within the Italian system of firms can be provided precisely by using assets. Their estimates are shown in Tables 3.6 and 3.7 which respectively concern the assets that were both directly and indirectly controlled by IRI, ENI and EFIM of all sectors as well as the manufacturing sector alone. The weight of the three public groups in the overall economic activities (Table 3.6) is quite stable, even in comparison to what was observed above with regard to the share of capital (Figure 3.4). In the first four benchmark years, the overall weight oscillated around 20 per cent, with a peak in 1981 of 26 per cent. The weight of IRI remains stable, while ENI presents steadily growing values. A more precise analysis of the data is beyond the aim of this study: however, it suffices to notice that, generally speaking, our results are quite different to those observed using share capital. For instance, the difference between the two proxies in 1972 can be explained, at least partly, by the above-mentioned anomalous trend of the capital share in the electrical sector. Nevertheless, a few interesting aspects already emerge, such as the major stability of the weight of assets compared to what was observed for share capital. Moreover, even some sectorial differences due to specific features of SOEs can be identified. In

76

ENI group

EFIM group

Total

–

–

0.3

1.2

20.1 17.2 17.0 16.9 20.9

2.1

0.2 3.2

0.6 4.4

0.4

31.7 57.5 76.5 92.7 1.4 1.9 5.3 10.2 3.1 4.6 8.3 15.7 – 2.2 0.4 0.6 – 0.1 0.1 8.1 – 0.0 0.1 0.1 –

– 15.5 0.1 10.9 39.8 63.2

5.1 4.4 1.6 0.9 9.3 11.5 9.0 8.4 9.4 8.8 6.9 0.1 26.0 4.3 5.7 8.9 8.6 29.9 30.5 29.3 17.5 39.8 40.8 39.1

–

29.5 21.3 22.3 21.2 21.9

0.8

3.3

6.9

33.0 16.2

0.4

0.3

– 0.7 – 0.1 0.0 –

–

0.8

0.6

0.1 2.1 – 0.2 0.2 0.2

0.3

20.1

29.5

5.1 9.3 9.4 26.0 8.6 17.5

33.0

18.5

21.3

36.1 12.9 11.9 4.3 29.9 39.8

16.2

77.5 14.4 8.4 9.4 29.4 39.2

6.9

92.8 27.7 15.8 11.6 48.1 63.6

1.5

19.0 20.4 26.1

22.5 22.0 22.9

59.1 10.9 11.5 7.9 30.5 40.9

3.3

1936 1952 1960 1971 1981 1936 1954 1960 1971 1981 1936 1952 1960 1971 1981 1936 1952–4 1960 1971 1981

IRI group

Weight of assets of firms held by IRI, ENI and EFIM on Imita.db (all sectors)

Agriculture and fishing Mining Manufacturing Utilities Construction Services of which transport Financial intermediation Total

Macro-sector

Table 3.6

77

ENI group

EFIM group

Total

0.0

–

–

–

3.8

–

3.1

–

0.4

4.0

–

–

0.7

0.2

6.3

–

–

2.2

0.2

2.9

–

–

3.2

0.0

–

1.5

–

1.8

–

–

–

1.5

–

0.0

–

4.2

–

–

–

6.2

0.1

–

–

–

–

0.1

–

–

5.1

–

–

–

–

8.4

–

–

0.6

–

0.2

0.5

3.1 10.2 12.7

15.2 14.2 25.1 54.0

–

–

–

–

–

1.1

0.3

–

1.5

–

–

0.0

0.3

0.4

0.1

–

0.2

–

–

–

2.2

–

6.3

0.2

0.7

–

–

4.0

0.4

–

3.7

15.2

3.8

–

–

–

0.0

3.4

–

–

5.2

1.8

4.4

–

–

8.4

8.4

–

1.3

0.9

5.4 12.0 12.9

14.4 25.1 54.0

3.1

–

–

3.2

0.0

1936 1952 1960 1971 1981 1936 1954 1960 1971 1981 1936 1952 1960 1971 1981 1936 1952–4 1960 1971 1981

IRI group

Weight of assets of firms held by IRI, ENI and EFIM on Imita.db (manufacturing)

Food products and tobacco Textiles and textile products Leather and leather products Wood and wood products Paper products, publishing and printing Coke and petroleum products Chemicals and chemical products Rubber and plastic products

Sector

Table 3.7

78

IRI group

ENI group

EFIM group

total

–

9.3 11.5

0.0

9.0

–

–

8.4 15.5

– 1.4

–

–

–

13.9 23.0 18.2 23.3 29.2

8.3 –

7.4

1.5 10.2

6.5 7.3 20.8

7.0

44.9 20.3

–

2.9

26.4 32.9 28.0 24.6 50.0

2.0

–

2.4

3.7

1.6

1.9

–

–

–

3.5

–

–

0.1

0.4

–

–

0.2

5.3 10.2

–

–

0.6

4.0 10.5

–

1.1

0.7

–

1.6

0.7

0.8

1.1

1.4

2.1

–

6.9

0.2

5.4

2.1

2.1

9.3

0.0

13.9

1.5

44.9

26.4

1.6

12.9

–

23.0

10.2

20.3

32.9

2.4

5.4

6.1

8.7 21.2

–

– 10.9 14.4 27.7

–

18.2 24.8 36.1

7.4

10.5 11.3 24.3

28.0 25.7 52.2

2.0

1936 1952 1960 1971 1981 1936 1954 1960 1971 1981 1936 1952 1960 1971 1981 1936 1952–4 1960 1971 1981

(continued)

Other nonmetallic products Basic metals and metal products Machinery and equipment Electrical and optical equipment Transport equipment Manufacturing n.e.c. Total manufacturing

Sector

Table 3.7

State-owned enterprises

79

the financial sector, for example, with the exception of the year 1936, when IRI was controlling numerous banks, the financial firms prevailed, serving as sub-holdings for the three state holdings. Compared to banks and insurance firms, these companies had smaller assets, and thus their values under state control are smaller in terms of assets compared to those seen for share capital. Other sectors, such as transport or even mining show a post World War II similar trend between the two proxies. The same can also be observed in the manufacturing sector as well as in the most of the sub-sectors of which it was composed.

3.5

FORMS OF CONTROL AND BOUNDARIES

In order both to understand the mechanisms of control and to assess the ‘real’ weight of public enterprise, it would be necessary, as a consequence of the extreme volatility over time of the shares detained by the public groups, to distinguish among the different forms of control. Thus, following the criteria previously introduced (Section 3.2), three different models have been identified: (i) minority shareholdings (less than 20 per cent of total capital), which does not allow the control of the firm; (ii) shareholdings between 20 and 50 per cent, which suggests an effective control; and (iii) shareholdings greater than 50 per cent, which determines the majority control of a firm. On this basis, in Table 3.8, we present these three different models of the groups. As for IRI, the majority control is prevalent for all the benchmark years. Moreover, it shows fairly clearly that manifold minority shareholdings are quite numerous, especially in 1936. In the following years, shareholdings determining effective control (between 20 and 50 per cent) became more numerous, except for the last benchmark year. The ENI group presents a limited number of small shareholdings throughout the period, but it has a considerable number of shareholdings that allow effective control, especially in 1952 and 1972; this, as in the case of IRI, was considerably reduced in the last benchmark year. The same trend is recorded for EFIM, which, in 1972, owned many shareholdings (48.4 per cent of the total) which allowed effective control. As in the other state holdings, such a percentage diminished considerably in 1983, thus favouring majority shareholdings. Therefore, in the central phase of the period (corresponding to the benchmark years – 1952/4, 1960 and 1972), the three state holdings took charge of a significant percentage of the shareholdings that allowed them to control the firms without owning the majority of their share capital. The 1983 data show that, in the early 1980s, this phenomenon was clearly reduced.

80

9.5

9.5

39.9

39.9

IRI ENI EFIM IRI+ENI+EFIM

20≤p≤50

<20

1936

50.7

50.7

>50

10.1

11.7 3.6 33.1

30.0 46.4 56.8

58.3 50.0

<20 20≤p≤50 >50

1952–54

11.8

12.9 7.5 28.3

29.9 22.5 59.9

57.1 70.0

<20 20≤p≤50 >50

1960

1972

12.9 12.7 4.8 11.3

29.9 36.5 48.4 34.7

57.2 50.8 46.8 54.0

<20 20≤p≤50 >50

Strength of shareholding of IRI, ENI and EFIM (% number of firms)

% State holding

Table 3.8

20.4 6.4 5.1 15.0

12.2 9.0 27.1 13.9

67.4 84.6 67.8 71.1

<20 20≤p≤50 >50

1983

State-owned enterprises 70.0

81

66.9

60.0 50.0

43.2

40.7 40.0

%

33.8 28.8

30.0 20.0

23.6 18.1

10.0

3.8

–

3.6

2.0 –0.6

–10.0 1936

1952–54

1960 IRI

Figure 3.5

ENI

1972

1983

EFIM

Increase (%) of firm control under the effective criterion in comparison to the accounting one

Having reconstructed the distribution of the shareholdings of the three state holdings by typologies, we proceeded to calculate their control capacity according to the previously identified criteria: this provides an estimate of the real weight of the public groups on the Italian joint-stock companies. In the light of this, by adopting the accounting criterion, these estimates were referred to the control of share capital. We have assumed that, for all the firms with effective control, the whole capital could, in fact, be entirely attributed to state control. Shareholdings which did not reach the 20 per cent threshold have been not considered either. In Figure 3.5, the percentages have been calculated considering 20 per cent to be the inferior threshold for effective control: this considerably broadens the boundaries of Italian SOEs in a way that extensively widens their dimensions, so that they appear much larger than commonly thought. With regard to IRI, for example, it becomes evident how the boundaries of the IRI group appear significantly wider than previously imagined (Section 3.3). In particular, for the period between 1952 and 1972, the boundaries reconstructed on the basis of effective control are much larger in comparison to the estimates made upon the basis of the accounting criterion. In the central years, at the very least, the relative weight of the share capital controlled by a value of between 20 and 50 per cent might be large enough to compensate for the value of the share capital of the minority shareholdings that were not considered by using the effective control criterion. In contrast, in the case of the other two groups (ENI and EFIM), the

82

Forms of enterprise in 20th century Italy 40.0 30.6 29.0

30.0

20.3 20.0

% 10.6 10.0

5.1

2.5

– –1.0

–1.9 –10.0 1936

1952–54

1960 IRI

Figure 3.6

ENI

–8.1

–3.6 –6.6

1972

1983

EFIM

Increase (%) of firm control under the pyramidal criterion in comparison to the accounting one

increase of the effective control compared to the accounting control is minor, although, in terms of proportions, it nevertheless remains significant, as seen in Figure 3.5. The increase in the percentages of the controlled capital shows some peculiarities over the different benchmark years. In 1960, it was IRI and ENI that registered the major growth, while, in 1972, it was IRI and EFIM that showed a similar trend, stabilising at around 25 per cent. ENI’s growth, in contrast, is quite irrelevant, anticipating the trend that was to become common for the three state holdings in the 1980s. In addition, we have also calculated the degree of control following the majority criterion, obtaining only marginal differences in comparison to the accounting values. This seems to suggest that the weight of the majority shareholding which did not reach total control (i.e., 50.1 to 99.9 per cent) – attributed entirely according to the majority criterion – is compensated by the considerable number of less than 50 per cent shareholdings calculated by the accounting criterion but not by the majority criterion. Finally, the growth of the weight of the three groups when a pyramidal control criterion is adopted, if compared to the weight calculated following the accounting criterion, is presented in Figure 3.6.21 On this basis, we proceeded to sum up the entire capital of the firms controlled through a chain of shareholdings above 50 per cent. This means that, in situations of repeated control, both direct or indirect, we did not consider the accounting capital value but the entire capital of that firm.22 The increase of the control of the firm, in this case, highlights different

State-owned enterprises

83

trends for the three groups. With regard to the IRI group, its boundaries again result as being significantly wider than those defined by the accounting criterion, although they are narrower than those obtained using the effective criterion. For the other two groups, the pyramidal criterion shows the opposite trend: we can notice narrower boundaries than those resulting from the accounting criterion for the whole period, with the exception of ENI in the year 1960. These results highlight the different strategies adopted by the three state holdings. IRI is characterised by a strongly pyramidal structure, with permanent indirect and cross shareholdings (see Table 3.2), which allowed it to control a vast number of firms. The other two state holdings show a weaker structure and a more limited (ENI), or even almost completely absent (EFIM), chain of control.

3.6

CONCLUSIONS

The initial hypothesis of our research was that the scale of state ownership has been characterised over time by an accentuated variability, which was determined by a continuous stream of acquisitions, mergers and dismissals. Such variability, together with the scarce availability of quantitative information on the structure of the systems of Italian firms, prevented scholars in the past from identifying the boundaries of Italian SOE. The results presented in this study can be summarised as follows: iii.

iii.

iii.

The weight of the three public groups, measured by two standard proxies, such as share capital and assets of all the Italian firms, is very significant and shows growth, which, for some sectors (mining, transport, finance and utilities) reached quite remarkable percentages of the total: this is particularly true with regard to the weight that the three state holdings had on the manufacturing and especially on the heavy sectors (such as the steel industry, transport equipment and the oil industry). The group structure of the three state holdings is quite complex, both with regard to the large number of firms distributed all over the sectors of the economy and because of the high level of complexity of the forms of control. This complexity increased over time, together with the enlargement of the boundaries of public enterprise. The three groups show a growing tendency to polarise their activities, even though IRI tends to maintain a robust multi-sectorial structure. Moreover, quite a clear manufacturing specialisation emerged in the three groups over time.

84

iv.

v.

Forms of enterprise in 20th century Italy

The estimates presented – namely, the outcome of the different forms of control of the subordinate firms which have been hypothesised – have highlighted how public control can, at times, expand considerably (even increasing by 60 per cent), when criteria different from the accounting one are employed. With regard to the forms of control of the groups, some significant differences have emerged. For example, IRI managed an increasing number of shareholdings through financial holding-companies, while ENI almost always operated through non-financial holdingcompanies. Furthermore, IRI directly handled a considerable amount of shareholdings: in the case of ENI, this was quite unusual.

This study represents, therefore, a first basic step towards the construction of a quantitative picture of Italian public enterprise. Although it is only an initial analysis, this study has already produced quite important results for the economic history of Italy, as shown, for instance, by Figure 3.4. The level of direct state intervention in the economy reconstructed here has not even been approximated by previous studies: thus, this new evidence on the subject can be employed as a useful basis for further analyses.

NOTES * 1.

2.

3.

We wish to thank Fulvio Coltorti, Francesca Fauri, Renato Giannetti, Graziella Marzi and Robert Milward for comments and criticisms. The usual disclaimer applies. We also thank Giovanna Baldi and Riccardo Benedetti for excellent research assistance. IRI was created in 1933. It was conceived as a temporary institution, with the aim of restoring and re-organising the suffering companies before returning them to the market. Later (1937), the absence of private buyers as well as changes in the international climate (autarky, re-armament) resulted in its transformation into a permanent institution. In the post World War II period, IRI expanded its activity remarkably and played an important role in the industrialisation of the south of the country. In the 1970s, the IRI group was hit strongly by the economic crisis: in the early 1980s, a large re-organisation process was started; in 1992, the super-holding was transformed into a joint-stock company which, finally, in June 2000, was definitively wound up. State activity in the energy sector began in 1926 with the establishment of AGIP, which aimed to secure the oil supply to the country. AGIP was the original core of ENI, the super-holding envisaged by Enrico Mattei in order to rationalise and control the Italian energy market. Together with IRI, it became one of the main agents of Italy’s economic policy and growth, as both the state holdings’ statutes had social, as well as economic, goals. Later, it entered into other manufacturing (chemicals – especially fertilisers – and even textiles) and service (finance and wholesale) sectors. In 1992, it was transformed into a joint-stock company, which was to be privatised in a few years. EFIM was created to operate in the mechanical industry. Following its creation, it was forced to diversify into other manufacturing sectors following rescue operations of private activities. It went into liquidation in 1993.

State-owned enterprises 4.

5.

6. 7.

8.

9.

10.

11. 12. 13.

85

The Ministry of State Shareholdings primarily had a political function, which was to re-organise, and take control of, all state holdings (enti di gestione) – IRI, ENI, and later EGAM (Mining) and EFIM – as well as other minor state activities. Thus, it represented the main channel through which politics entered into the management of these economic agents. For the first four benchmark years used in this study (1936, 1952, 1960 and 1971), the sample, which includes only between 18 and 25 per cent of the Italian joint-stock companies, still represents more than 90 per cent of the total share capital (Vasta 2006c). For the last benchmark year, 1983, there are not enough official data on the degree of the representativity of the sample. According to a recent estimate, such a weight could, nevertheless, reach 83.3 per cent of the total of Italian joint-stock companies (Cerise 2006). A first quantitative analysis that uses Imita.db in order to compare the dynamics of SOE to private firms in service sectors can be found in Toninelli & Vasta (2007). It was not always possible to employ data concerning the same year. Data from the Imita.db and those regarding IRI refer to 1952, while for ENI, whose first balance sheet was presented on 30 April 1954, we used the 1952 data for controlled firms as well as the 1954 ones for shareholdings, adding the ENI holding data both to the universe and to the firms of the group. Regarding the last two benchmark years, our data refer to two biennials (1971–2 and 1982–3): data on share capital refer to the years 1972 and 1983, while those on assets refer to 1971 and 1982. In order to identify the shareholding structure of the various groups we have defined holding-companies in a more rigorous way than that adopted in the three state holdings documents, as these reflect their internal routines. In particular, a holding-company has been identified as a firm in which: (i) one of the three state holdings has a stakeholding that is higher than 50 per cent, and (ii) controls at least one other company by a percentage greater than 50 per cent. The sector of activity of a firm allows us, moreover, to distinguish between financial holding-companies, pertinent thus to Section J (financial intermediation) of the Ateco-Istat classification, and operative holding-companies (not financial), following the terminology adopted, for example, at the IRI Archive. Such a definition, which may appear quite restrictive, guarantees that the firms that are to be referred to as holding-companies are only those firms where state holdings were able to maintain the control of forward firms without direct shareholding. Therefore in this case, group firms are considered to be not only those companies that are defined as such in various state holdings’ documents, but all those firms that are stakeholdings in the state holding, of a holding-company (financial or not) or of another firm of the group. For example, always referring to Figure 3.1, the group is granted control of 100 per cent of X4 share capital, while, for the X2 firm, we have added the percentage controlled directly by IRI (40 per cent) to 50.1 per cent – the percentage in which IRI controls the financial holding company – of the 60 per cent share by which the financial holdingcompany controls the firm X2. The percentage of control attributed to the group reaches therefore a total of 70.06 per cent (40% + 60% * 50.1%). On this idea, see La Porta et al. (1999), and for the Italian case: Rinaldi & Vasta (2005) and Bargigli & Vasta (2006). This kind of control has already been described in the Berle & Means’ (1932) pioneering work and is today often used in studies on corporate ownership. In other terms, Figure 3.2 shows how IRI, through a limited investment, can control the activities of the group through the majority of share capital and of voting rights of all the firms in the chain. For example, if the Z1 firm had a share capital equal to 100, in the case of a pyramidal structure, financial commitment of IRI to control Z1 would be equal to 6.8 per cent. In fact, IRI controls, through 51 per cent of the holding company, 26 per cent of X1 (51% * 51%); through 26 per cent of the X1 controls 13.3 per cent of Y1 (51% * 26%); and, finally, through 13.3 per cent of Y1, 6.8 per cent of Z1 (51% * 13.3%). In the absence of a pyramidal structure, in order to gain control of Z1, IRI

86

14.

15.

16.

17. 18.

19. 20. 21. 22.

Forms of enterprise in 20th century Italy would have had to take a shareholding equal to 51 per cent of Z1 share capital, maintaining therefore a financial outlay equal to 51 (51 per cent of 100, share capital of Z1), much greater than the amount maintained under the hypothesis of pyramidal control (6.8). It is important to remember that Imita.db includes the joint-stock companies with a share capital greater than the specified threshold (which could change from year to year). Small joint-stock companies and other firms with different structures are therefore not included. Moreover, Italian firms with their headquarters abroad are also excluded. For further information, see Vasta (2006c). We have considered those years which are adjacent to the benchmark ones, with the exception of 1972 and 1983, where we had to resort to the two previous years. Imita.db contains a complete time series of the balance sheets until 1971, and then for the period 1980–82. With regard to ENI, we take into consideration the biennial 1954–55, the first one after the creation of the state holding. This latter aspect is, however, partially determined by the changing sectorial classification of some firms of the group, like, for example, AGIP. Imita.db, like other main datasets on firms, attributes the sectorial classification of a firm according to its prevailing activity. For many diversified firms, their prevailing activity could change over time; in this way significant percentages of share capital are moved from one sector to another. Mortara (1976) refers to the period 1970–74, Arrighetti et al. (1982) refer to 1976–78, while Bognetti & Spagnolo (1992) analyse the 1983–88 period. It must be underlined, as already anticipated in note 5, that the representativeness of the Imita.db in the universe of Italian joint-stock companies declines in the final benchmark year, 1983. The weight of the three public groups on the Imita.db and on the Italian joint-stock companies almost coincides with the first four benchmark years, when the Imita.db represented always more than 90 per cent of the total. Compared to the values presented in Table 3.4, in fact, the weight of the three public groups in the Italian jointstock companies is 12.5 per cent in 1936, 22.7 per cent in 1952–54, 18.5 per cent in 1960 and 32.1 per cent in 1972. In 1983, instead, there is a large gap: the weight of all three groups on the Imita.db climbs up to 40.2 per cent, while the weight on the joint-stock company universe is equal to 33.5 per cent. In our analysis the endowment funds given by governments are considered equivalent to the share capital. The Imita.db archive does not yet include the balance statements of the real estate firms nor, as a consequence, their asset values. That is, on the presumption that a particular agent is able to maintain absolute control of capital in the various forward firms by means of a continuous chain of shareholdings and by a limited investment (Bertrand & Mullainathan 2003). Following Figure 3.2 and note 13, it is easy to explain the difference: using the accounting criterion, we will attribute to the IRI group 6.8 per cent of the capital of the firm Z1, while adopting the pyramidal criterion, we will attribute the 100 per cent.

4.

Foreign enterprises (1913–72)* Andrea Colli

4.1

ISSUES AND RESEARCH QUESTIONS

This chapter deals with the history of foreign direct investments (FDIs) in the Italian manufacturing industry during the first three-quarters of the 20th century. A comprehensive reconstruction of the historical evolution of the presence of foreign capital should help to answer questions concerning the external contribution to Italy’s catching-up process, highlighting the contribution of exogenous capabilities and competences to the process of Italian economic development, often seen by the dominant historiography as basically endogenous – i.e., based upon indigenous entrepreneurial forces and on pervasive state intervention (see, for instance, Amatori & Colli 1999). As recognised by the empirical and theoretical research on foreign investments (see, for example, Jones 2005, Chapter 10), multinationals and, more generally, international companies play an important role in the transference of new technology, administrative practices and organisational structures. In order to exploit their ownership advantages, they propagate ‘hardware’ as well as ‘software’ capabilities, thereby providing benchmarks against which indigenous competitors can assess themselves. This chapter provides quantitative evidence to assess these issues in the case of Italy. This chapter is organised as follows: the next section (4.2) will provide the background of the research, briefly introducing the dataset upon which the study has been built. In Sections 4.3, 4.4 and 4.5, the emerging evidence will be discussed in the light of the available literature and research. In the final section (4.6), some conclusions are drawn in the light of Dunning’s eclectic paradigm (Dunning 1993).

4.2

BACKGROUND

In an international comparison with her EU partners, Italy today lags far behind in terms of foreign capital penetration. The structural explanations

87

88

Forms of enterprise in 20th century Italy

traditionally put forward to account for the scarce presence of foreign capital in Italy include the pervasive state intervention, the peculiar structure of the Italian manufacturing sector – mainly based upon labourintensive industries – and the high degree of fragmentation of the local consumption markets. Unfortunately, for the first half of the 20th century, official statistics do not provide reliable data on stocks and flows of foreign investments. The Ufficio Italiano Cambi (Bureau of Currency Exchanges, Bank of Italy) started to collect data about the inflows and outflows of foreign capital only in 1947. However, up to the 1960s, these data are unreliable and practically useless. There is no distinction between direct and portfolio investments, debts and loans, making it virtually impossible to detect an even approximate trend in foreign direct investments (FDIs), at least up to the 1970s. In this chapter, flows and stocks are only partially considered as relevant, given the difficulties in their measurement from a historical perspective. This chapter is based upon a different approach, i.e., on the reconstruction of the general trends through the collection of detailed information at the level of the single company. For this purpose, a new database of FDIs in Italy has been built which is largely based on Imita.db (Vasta 2006c; http://imitadb.unisi.it). The database has, at the time of writing, produced seven datasets, each one coinciding with a benchmark year. The datasets provide information on an increasing number of companies with a significant presence of foreign capital, as shown in the following table. It is interesting to note that, notwithstanding the increase in the number of companies present in the Imita database (and with the exception of 1913, for which the data are partially biased), the percentage of foreignTable 4.1 Benchmark

1913 1921 1927 1936 1952 1960 1972

Foreign-controlled companies as % of the Imita.db No. of foreign- Companies in Imita.db (b) controlled companies considered (a) 164 184 248 233 328 522 687

1242 3080 4476 4243 6180 6271 11783

(a)/(b)

Share capital foreign-owned/ total share capital of Imita.db

13.20 5.97 5.54 5.49 5.31 8.19 5.87

19.1 8.7 12.6 8.0 9.2 9.6 12.9

Foreign enterprises

89

controlled companies remains more or less constant – around 5–6 per cent of the Imita.db population until the 1960s, when the ratio of foreigncontrolled companies to the total started to rise again. As far as share capital is concerned, after 1913, the average settles around one-tenth, including during the period of steady growth of the 1960s. At the beginning of the 1970s, the incidence of foreign-controlled capital in the total rises again.

4.3

BEFORE WORLD WAR I

Background On the eve of World War I, Francesco Saverio Nitti1 wrote an important pamphlet entitled Il capitale straniero in Italia in which he pointed out the strategic role played by foreign investments in the process of Italian industrialisation. According to this influential statesman, these investments (under the form of credits, loans, direct and portfolio investments) had fuelled the process of economic growth of the country both in capitalintensive industries and in labour-intensive industries (for example, in textiles). The influence of foreign capital was so preponderant that there was reason to worry about the dependence of the Italian industrial apparatus on foreigners. Nitti aggressively pointed out the pervasive presence of foreigncontrolled firms in all the most relevant (strategic) industries, from utilities to transport, from energy to steel and specialised mechanics, and his perception is confirmed by the available historical research (Gille 1968; Dumoulin 1989). In her seminal book on the Italian industrialisation process prior to World War I (Zamagni 1978), Vera Zamagni stressed the pervasiveness of the foreign (particularly German and Swiss) presence in the capital- and technology-intensive industries, such as electricity and electro-mechanics. Peter Hertner (Hertner 1984) focuses on German investments on the eve of the war in finance, services, transportation and manufacturing, concluding that, up to the outbreak of the conflict, the German presence in the Italian economy was impressive. At present, much less information is available about other countries and industries. However, some evidence is available from US sources with regard to several industries (see, for instance, the US Senate 1946; Bova 1995). In the first volume of her comprehensive account of the internationalisation of US business (Wilkins 1970), Mira Wilkins provides important information about the subsidiaries of US firms in Italy before World War

90

Forms of enterprise in 20th century Italy

I. However, her extensive research collects data on US investments in Italy in a non-systematic manner, basically relying on internal and secondary sources, which does not produce a database or a list of the investments. Our knowledge of British investments in Italy on the eve of World War I is also episodic, with the noticeable exception of a few single case studies (Bova 1987), while the same can be said for another major investor in Italy, namely France. Evidence from the Database 1913 is the only benchmark provided by the database for the period preceding World War I, and concludes a period of a relatively high degree of openness on the part of the international economic system, as well as within the Italian economy, to foreign capital. Upon closer examination of the sample, a number of interesting features emerge. First of all, one can note the high number of industries affected by the presence of foreign capital. According to the data available, the macro-sectors most represented in terms of the absolute frequency of companies are D (manufacturing, 34 per cent of the companies in the sample), followed by E (utilities, basically electricity, 27 per cent) and I (transportation, 24 per cent). Among the 57 manufacturing companies, the most represented industries were DG (chemicals, 22 per cent of the manufacturing total), DB (textiles, 18 per cent) and DL (mechanics, 12 per cent). In conclusion, just before World War I, foreign capital tended to flow to energy and transportation, and, within manufacturing, to chemicals, textiles and mechanical engineering (in general, electro- and heavy mechanical engineering). In these industries, the presence of foreign capital was quite significant with regard to the total number of companies and capital invested in 1913, at least, in the sample constituted by the largest stock companies listed in Imita.db. In at least one case, that of E (energy), the capital of the foreign-controlled companies was nearly 50 per cent of the total capital of the firms of the same sector, and an outstanding 60 per cent of the total assets. As far as manufacturing was concerned, in 1913, the foreigncontrolled companies in textiles accounted for 13 per cent and 11 per cent of the share capital and total assets, respectively, of textile companies, a sector traditionally considered as truly ‘Italian’. In the case of electrical equipment (DL), the same percentages are 43 per cent and nearly 50 per cent, respectively. In chemicals, the weight of foreign-controlled joint-stock companies was about one-third in terms of capital and total assets. The evidence from the database seems to confirm the general findings provided by the existing literature, albeit with some interesting new information. First of all, the concentration of foreign capital tended to privilege

Foreign enterprises

Table 4.2 Country

B CH F D USA UK OTHERS

91

Main investments in 1913, by home country (selected) N (1913)

n/164 (%)

% of total foreigncontrolled capital in Imita (1913)

% of total foreigncontrolled assets in Imita (1913)

41 33 31 27 14 7 11

25.0 20.1 18.9 16.5 8.5 4.2 6.7

28 19 16 21 7 4.6 4.4

31 16 19 18 7 6.2 3.8

the capital-intensive and technology-intensive industries – for instance, energy and electric machinery, chemicals and pharmaceuticals, in which Italian backwardness was more relevant, and those in which the amount of capital needed made it necessary to tap resources not immediately available on the internal financial market. Besides the distribution of foreign capital across industries (which is, to some extent, relatively well known), the sources of the capital invested in Italian industry are interesting as well. Table 4.2 shows the distribution of the foreign-controlled companies in the selected benchmark year by home country. French-speaking countries – Belgium and France – accounted for nearly 44 per cent of the total, Switzerland another 20 per cent, and Germany less than 17 per cent. This is an interesting observation, at least in absolute terms, which shows that German capital was less frequently present than Belgian, French and Swiss capital. Roughly the same conclusion can be drawn by looking at the weight of the capital and of the total assets of the foreign-controlled companies in Imita.db (the last two columns of Table 4.2). As far as national specificities were concerned, Belgium and France shared a very similar model based upon utilities and public transportation, revealing a pattern which corresponds to the available literature (Dumoulin 1989). The ‘French-speaking’ investments in utilities displayed another relevant feature, the relative under-representation of electricity compared to gas and water supply. Belgium tended to replicate the internationalisation pattern of its capital throughout the European periphery. The Italian situation on the eve of World War I replicates, more or less in the same way, the Spanish situation, both in tramways and in narrow-gauge railways (Martinez Lopez 2003; Ciullo 2007).

92

E (water, gas, electricity)

Forms of enterprise in 20th century Italy

DB (textile and textile products)

DG (chemicals and chemical products)

Figure 4.1

Total assets distribution of Swiss-controlled firms, representative industries, 1913

Swiss capital seems to privilege utilities as well, primarily electricity (an industry characterised by a high degree of technological intensity in which Switzerland, as well as Germany, had a consistent competitive advantage (Figure 4.1). Nonetheless, Switzerland is also strongly represented in the textile industry (the DB code), in which 67 per cent of the capital under foreign control and 74.6 per cent of the total assets were Swiss. One explanation of this situation is that, in the case of Switzerland, there was a strong continuity in the investment model, based upon textiles (mainly cotton spinning and weaving) which took place during the second half of the 19th century. The relevance of Swiss FDIs in textiles, however, introduces some methodological problems. Given the specificity of the history of Swiss investments in Italy – entire families of Swiss entrepreneurs not only invested, but also immigrated to Italy, preserving very few formal links with their home country at times – it is not very clear if all the Swiss capital can really be considered to be truly Swiss. Looking at the database, the German investment pattern proves not to be too different from what is described in the available literature. Electricity is, by and large, the most significant industry to which German capital is directed, followed by chemicals, transportation and mechanical engineering. The relatively small amount of US investments before World War I is indisputable (only 14 companies in the sample, less than 10 per cent were American) and confirmed by the literature (Wilkins 1970). However, it is interesting to analyse the industries in which the US capital was clustered. Commercial activity (G) is the most important, followed by electric machinery and other machinery. Furthermore, the data verify the

Foreign enterprises

93

unquestionable role of oil-related activities (one third of the US-controlled firms) confirmed by the existing research (Wilkins 1970). Taken as a whole, the presence of foreign-controlled companies just before the war was non-negligible, both in absolute terms, and in terms of total assets and share capital in their respective industries. As may be expected, the technology- and capital-intensive sectors prevailed among the various destinations of foreign capital with transportation, water works, gas, and other utilities, which were absolutely critical during the years of the ‘first Italian economic miracle’.

4.4

BETWEEN THE TWO WORLD WARS

Background After World War I, the ‘Italianisation’ of firms and industries in which German and Austrian capital prevailed meant that some important companies in energy, utilities, mechanics and metallurgy now came fully under Italian control. There was no doubt about the enduring presence of foreign capital in many branches of manufacturing, utilities and services: Swiss, French, Belgian, British and US capital continued to be active in Italy during the 1920s. Nonetheless, it is difficult to find evidence in the contemporary literature of even the slightest debate about the relevance and role of FDIs during the inter-war period. From the historical point of view, the (scarce) available research (Bova 1987, 1995; US Dept. of Commerce 1930) shows, beyond any doubt, a persistent, albeit declining, inflow of direct investments throughout the whole period. The most reliable information is provided by the (roughly impressionistic) documents produced by the Constituent Assembly immediately after World War II (Del Buttero 1946), according to which, a general slowdown in the FDI inflows took place between the two wars. In 1931, all the foreign shareholdings amounted to more than one and a half billion dollars (Del Buttero 1946: 96), one quarter of which was represented by US capital invested in transportation, utilities, oil and manufacturing. According to the Census, foreign share ownership as a whole – on the eve of World War II – privileged manufacturing over utilities and transport, and, within manufacturing, mechanics, chemicals, pharmaceuticals, oil refining and distribution, glass, textiles, food and drink, and, last but not least, mining were where a non-negligible amount of capital was concentrated. Other research commissioned in the same period by the trade unions (CGIL 1948) established that 255 of the companies with more than one million Italian Lire of share capital were

94

Forms of enterprise in 20th century Italy

controlled by foreign capital at the end of 1945, and among these, the companies active in chemicals, synthetic fibres and mechanics stand out. According to the source, British investments dominated, followed by the US and the Swiss. The lack of reliable information and the long time series, however, do not allow these data to be considered as being particularly solid. Evidence from the Database Three benchmarks are available in the database as far as the inter-war period is concerned, i.e., 1921, 1927 and 1936. Two of them are in the 1920s, before the Great Depression, while the third gives us a snapshot of the situation immediately before World War II. Right after World War I, the number of foreign-controlled companies listed in Imita.db rises modestly from 164 to 186. The data are nonetheless interesting, especially if one bears in mind that, immediately after World War I, a large number of German and Austrian investments were Italianised, as mentioned above. In this way, growth in the absolute number of foreign-controlled firms gains greater significance and legitimises the hypothesis that, in the period of World War I or immediately afterwards, a number of new investments took place in terms of the acquisition or the enlargement of existing activities. In terms of industries and sectors, investments in utilities and transportation were still the most relevant after the war. Utilities, transportation and energy represented around 45 per cent of the foreign-controlled companies, as opposed to 51 per cent during the pre-war years, and still counted for 29 per cent of the capital and 30 per cent of the total assets of foreign-controlled firms. A true increase can be detected in manufacturing: from now on, as foreign-controlled companies in Section D account for more than 50 per cent of those in the sample. In 1921, they were 56 per cent of the total, as opposed to 35 per cent in 1913. The variety of the industries in which foreign capital is present seems to be much wider with regard to the previous benchmarks. In order of relevance, textiles were still the most represented, followed by chemicals and electric equipment, while new industries started to be targeted by foreign investments, such as non-metallic products, metallurgy, machine tools and machinery. Textiles absorbed nearly one-fifth of total foreign capital and assets. In the case of chemicals, which are characterised by higher capital intensity, the same percentages were nearly 21 per cent (capital) and 17 per cent (assets), while in the case of electrical equipment, both capital and total assets accounted for around 6 per cent of the total foreign-controlled capital.

Foreign enterprises

Table 4.3 Country

F CH B USA UK D Others Unknown

95

Main investments in 1921, by home country (selected) N (1921)

43 39 33 19 17 7 8 18

n/184 (%)

23.4 21.2 17.9 10.3 9.2 3.8 4.3 9.7

% of total % of total foreignforeigncontrolled controlled assets in capital in Imita.db (1921) Imita.db (1921) 15.1 19.2 15.5 7.1 6.2 8.2 13.1 15.6

14.5 16.5 16.9 8.9 7.0 6.7 15.2 14.3

The main industries targeted were not radically different from those before the war. However, it is important to note the decline in the number of companies controlled by foreign capital in utilities and energy (the E and I branches), where foreign (German) capital was more relevant – and hence subject to more Italianisation. A simple figure gives a clear idea of what was happening in this industry. After World War I, in the sample, there were 9 foreign-controlled companies in branch E 40.10, i.e., electricity, mainly of Swiss origin. Before the war, there were not less than 30. In 1913, the total assets of foreign-controlled electricity producers were 22 per cent of foreign-controlled total assets. In 1921, the proportion dropped to 12 per cent. The transformation in the relative weight of certain industries also meant a general transition in the relative importance of the home countries. The apparent decline of the Belgian presence did not change the specialisation of Belgian investments, mainly concentrated in utilities and transport, while the French pattern of investment appeared to be much more diversified with a non-negligible concentration in utilities and significant levels in basic metals (DJ – for instance, aluminium), non-metallic products (for instance, glass) (DI), as well as chemicals (DG). A detailed analysis of the next relevant country, Switzerland, is also interesting. Swiss capital is represented in almost all industries, with considerable relevance in textiles, utilities, chemicals, electrical equipment, and also in food and beverages. In 1927, six years later (after a period characterised by much greater political and economic stability) there are 248 foreign-controlled companies in the Imita.db universe, between 5 per cent and 6 per cent of the

96

Forms of enterprise in 20th century Italy

250 000 200 000 150 000

assets capital

100 000 50 000 0 DA

Note:

DB

DE

DG

DH

DI

DK

DL

E

I

Industry codes: see Table 4.4.

Figure 4.2

Capital and total assets of Swiss-controlled firms, 1921, by industry (D, E and I) (k Italian Lire)

total, while the share capital of these companies is no less than 12 per cent of the total. The dynamic in the distribution of industries targeted by foreign capital was much more significant. In 1927, it was evident that utilities and transport were no longer the most relevant industries in terms of foreign investment attractiveness; they had been surpassed by other sectors, namely, textiles, chemicals, and electro-mechanics. The decline in the importance of utilities and transport was mirrored by the distribution of foreign investments, in terms of share capital and total assets. The case of chemicals gives us an idea of the relevance of foreign capital in these ‘new’ industries: in 1927, the foreign-controlled total assets were nearly one-quarter of the total of the whole Italian chemical industry. The main sources of investments in the chemical industry were Switzerland, France and the United Kingdom. One interesting issue is the link between the trend in foreign investments and the internal conditions of the country. Given our present knowledge, it is not easy to establish how much, and in which direction, the political and monetary policies of Fascism had an impact on FDIs. In this respect, sorting the existing companies on the basis of their foundation year is of little help. In the years 1922 to 1927, 86 out of 248 (nearly 35 per cent) were founded as joint-stock companies. However, this wave of start-ups can only be partially explained by the favourable conditions of the market, or by the legislative and financial interpretations. For instance, a ‘start-up’ can be a misleading term, since a simple transformation in the legal status of a pre-existing company would make it a joint-stock company that very year. On the other hand, since – as stated above – the acquisition model

Foreign enterprises

97

was quite often based more upon brownfield than greenfield investments, a company founded before the 1920s might have come under foreign control during the 1920s. Unfortunately, the information in Imita.db does not offer homogeneous evidence on this issue. The trend described above continued during the 1930s. The following benchmark (1936) shows that, nine years (and one world crisis) later, the evolution of the pattern of FDIs had considerably changed again. The overall number of companies falls to 233, an effect which can be easily connected to the global economic crisis. The distribution of their assets reflected a change in the sectoral specialisation of FDIs that was taking place in these years. From Table 4.4, it is easy to note the diminishing importance of energy and utilities (E and I) during the inter-war years, while, in contrast, manufacturing increased in relevance in almost all its sub-sectors. In particular, on the eve of World War II, the most relevant industries had become non-metallic products (DI), coke and petroleum products (DF), electrical equipment (DL) and chemicals (DG), all of which also showed the highest rate of growth. In conclusion, the paradigm of foreign investments seems to have changed considerably over 15 years, shifting from utilities, transportation and public services in general, to prevalence in manufacturing, technology and capital-intensive industries. The overwhelming presence of foreign capital in the technology and capital-intensive industries appears to be even more significant if one looks at its weight within the total of capital invested and total assets in the single industries. The trend in the main industries was clear and homogenous and was characterised by a heavy presence of foreign capital. In all cases, there was an increase in the weight of foreign capital and total assets during the 1920s in almost all the industries considered. In many cases, the trend is linear, with the exception of transportation, which manifests a structural decline that had begun before World War I. In some cases, the spurt is outstanding, for example, in non-metallic products, basic metals, and electrical equipment. According to the data, certain industries were heavily dependent on foreign capital, and to an impressive extent, in some cases (chemicals and electrical equipment), immediately before the Great Depression. After the crisis, as one might expect, and as one finds in the literature, there was a flight of foreign capital from the country. This trend was confirmed in the case of both chemicals and electrical equipment. To appreciate the general trend fully, it is worth examining a further disaggregation of these leading industries in terms of sub-sectors of activity. In the case of chemicals, for instance, the foreign investments seem to

98

DA DB DC DD DE DF DG DH DI DJ DK

Industry*

Table 4.4 1927 (N=248)

1936 (N=233)

4.93 8.59 0.00 0.00 1.33 20.00 12.84 na 9.82 6.67 20.59

4.98 11.74 0.00 0.00 1.87 11.85 22.62 na 6.46 5.01 6.95

4.84 11.08 0.00 0.00 1.66 29.39 23.45 na 7.66 5.51 10.77

3.54 8.31 0.00 2.78 1.50 7.14 13.71 57.14 11.88 7.03 12.86

3.21 11.47 0.00 2.40 1.18 4.49 49.97 20.85 14.59 11.01 9.21

3.27 12.60 0.00 1.36 1.52 12.34 41.73 15.85 15.37 9.17 12.81

2.84 9.41 0.00 0.00 3.25 17.95 21.07 45.45 14.02 9.14 13.51

3.08 18.86 0.00 0.00 3.87 46.67 33.58 25.54 22.05 13.86 11.52

2.79 19.26 0.00 0.00 3.22 50.87 33.27 23.49 22.56 12.53 14.97

% of % of % of % of % of % of % of % of % of foreignforeignforeignforeignforeignforeignforeignforeignforeigncontrolled controlled controlled controlled controlled controlled controlled controlled controlled total companies total share total companies total share total companies total share capital over assets over over capital over assets over over capital over assets over over industry industry industry industry industry industry industry industry industry total share total assets total total share total assets total total share total assets total capital capital capital

1921 (N=182)

Main industries in terms of share capital and total assets of foreign-controlled firms, 1921, 1927 and 1936

99

33.33 4.17 5.71 8.54 8.81 13.31 3.92 7.79

33.46 5.28 10.93 10.14 21.47 10.13 9.94 12.09

38.02 4.70 14.60 10.29 23.13 11.58 10.84 12.25

30.00 4.17 3.39 8.68 5.49 7.71 3.02 6.53

41.39 6.12 1.80 19.23 17.28 4.82 12.69 15.86

44.81 6.61 1.93 17.03 15.75 6.33 28.46 16.59

27.78 3.61 5.88 10.93 1.79 1.97 2.05 6.40

35.87 2.34 7.28 19.68 1.11 3.22 3.05 9.72

34.99 1.25 7.95 18.25 1.25 5.39 5.49 10.53

Notes: ** DA: Food and Tobacco; DB: Textiles and textile products; DC: Leather and leather products; DD: Wood and wood products; DE: Paper products, publishing and printing; DF: Coke and petroleum products; DG: Chemicals and chemical products; DH: Rubber and plastic products; DI: Other non-metallic products; DJ: Basic metals and metal products; DK: Machinery and equipment; DL: Electrical and optical equipment; DM: Transport equipment; DN: Other manufacturing; E: Water, Gas, Electricity; I: Transports Others: C Mining and quarrying; F: Building; G: Commerce; H Hotels and restaurants; K Real estate. ** others 1921 and 1927: C, F, G, H, K: others 1936: C, F, G, K

DL DM DN TOT_MAN E I Others** Total

100

Forms of enterprise in 20th century Italy

0.25 0.2 1921 1927 1936

0.15 0.1 0.05 0 B

Figure 4.3

CH

D

F

S

UK

USA

Distribution of total assets of foreign-controlled firms, 1921, 1927 and 1936, by country

have privileged raw chemicals and pharmaceuticals for the entire inter-war period, while, in the case of electrical equipment, the production of electric machines absorbed the majority of foreign capital and assets. The distribution by home countries also changed during the inter-war years (Figure 4.3). Only Belgium shows a marked and persistent decline in representation. Not surprisingly for a neutral country, Switzerland remains constant. France, too, remains constant, though to a lesser degree than Switzerland, and was the largest investor (in purely numerical terms) in Italy for almost the whole inter-war period, at least as far as our sample is concerned. Not surprisingly, US investments declined after the crisis, but re-started in the decade preceding the Second World War. The role of the US as a net investor in Italy was, however, a secondary one, at least for the 1920s. A closer look at the destination of US, Swiss and French capital gives us an idea of the persistent difference in investment patterns as well as of the differences among continental countries. The absolute majority of US direct investments were directed to sector DF (coke and petroleum) followed by DL (electrical and optical equipment), and then by DK (machinery and equipment). In the Swiss case, textiles and textile products still dominated, followed by chemicals, and basic metals and metal products. As far as France is concerned, chemicals and basic metals absorbed the majority of the investments, followed by DI (other non-metallic products) – namely, cement. Sources of capital apart, during the inter-war period, the technological paradigm shifted definitively from one characterised by utilities, gas, energy, water, transportation (i.e., in general, infrastructure) towards a new focus that privileged the industries of the second industrial revolution: chemicals (and pharmaceuticals), metallurgy, specialised mechanics and non-ferrous metals (among which aluminium had a central position). In

Foreign enterprises

101

conclusion, the pattern of foreign investments followed what the literature on Italian economic growth stresses as a general trend, i.e., the transition towards more modern industries characterised by capital and technology intensity.

4.5

FROM THE ECONOMIC MIRACLE TO THE EARLY 1970S

Background The documents of the Constituent Assembly emphasise the potential role of foreign investments and capital in contributing to the country’s economic reconstruction (Del Buttero 1946; Ministero per la Costituente 1946: 112 et seq.). The interviewed entrepreneurs were generally clear about the necessity of foreign capital for the needs of national enterprises, especially in capital-intensive industries. Many of them also clearly showed the advantage of direct investments over loans and bonds, given the necessity for Italian firms of filling the gaps in technology and managerial practices. Nobody could imagine, however, the importance that they were going to assume in the country’s economic landscape in a few years time. Beginning in the mid-1950s and for the whole of the 1960s, the number of foreign-owned or foreign-controlled firms grew steadily at each dimensional level and in almost every industry. Clearly, it is not easy to identify the determinants of this growth. Common interpretations refer to the ‘American Challenge’, i.e., the investment activity of US-based multinationals in Europe. According to the report published by the US Department of Commerce (1976), ‘in the years from 1950 to 1957, investments to Europe began to rise steeply, reflecting and also contributing to the resurgent economic strength of the area’ (p. 13). Alongside the US contribution during the 1950s and 1960s, increasing activity was also seen from large, European corporations in the late 1950s and the 1960s (Franko 1976). This activity grew at a considerable rate during the period considered, thus partially confirming the view that the investments of American companies in Europe represented a strategic move taken in response to the threat of the adoption of protectionist policies by the European Common Market after the Rome Treaties of 1960 (US Dept of Commerce 1976: 13). At the same time, the enlargement of the consumption market also made it attractive for foreign companies, which started to invest by directly buying existing facilities or by building new ones. However, the existing

102

Forms of enterprise in 20th century Italy

literature is not unanimous about the entity and the destination of foreign investments. In terms of industries, it appears that foreign firms (mainly American) tended to exploit their competitive advantages in terms of superior technology, and, hence, clustered in the industries in which Italian competition was traditionally weak, namely, in specialised chemicals, machine tools, electric machinery, chemicals and pharmaceuticals, and, as one would expect, oil refining and distribution. The favourable situation created by the natural evolution of the internal market was reinforced in these years by the explicit idea that foreign capital could be a powerful tool to sustain the growth rate of investments in the manufacturing industry. This resulted in a more friendly governmental attitude towards foreign investments (Acocella 1983: 78). FDIs were to be attracted in order to help balance the gap between the northern and the southern regions of the country. This generally favourable climate towards FDIs was reinforced by the many initiatives aimed at facilitating the inflow of foreign capital. Our knowledge about these initiatives is still imprecise, as is our understanding of the impact that the monetary policies undertaken by the national governments may have had on the decisions of foreign firms to choose Italy as the basis for their activity within the European market. What is quite clear, though, is that there was a combination of explicit legislative efforts at a general level aimed at easing the inflow of foreign capital. For instance, a major act was passed by the Parliament in 1956, which radically reformed the legislation on FDIs by relaxing it and making it easier both to invest and disinvest. Combined with the political stability given by the Christian Democrat governments, this acted as a powerful stimulus to foreign investments. The institutional framework and incentives are clearly a major issue, despite the fact that the degree of ‘conscious’ co-ordination of the policies undertaken during this period still needs to be analysed in depth. Just to give an example, IMI (Istituto Mobiliare Italiano), a statecontrolled financial institution which was previously in charge of managing the Marshall Plan aid, set up a special branch in the late 1950s, called the International Investment Office, which was in charge of providing any type of help or information to international investors who wanted to set up a business in Italy; the impact of this remains to be evaluated. Finally, one cannot neglect culture. Americanisation represented a movement which encountered far fewer obstacles and opposition in Italy than in other European countries, such as France and Germany. Mental models and stereotypes undoubtedly contributed to the assertion of US companies in many industries, especially in those where the consumption habits tended to imitate the American models (De Grazia 2006; Djelic 1998).

Foreign enterprises

103

Evidence from the Database Two benchmarks fall within the ‘Economic Miracle’ period, 1952 and 1960, while a third (here examined separately) gives a snapshot of the early 1970s. The universe of foreign-controlled companies is now non-negligible in numerical terms. In 1952, there are 328 companies on the list (by capital, around 10 per cent of the whole Imita.db universe), while eight years later, they numbered 522 (more than 12 per cent). In 1972, the dimension of the universe reaches 685 companies. On the eve of the big spurt of the 1950s, the situation depicted immediately before World War II was not markedly different. In terms of the industries targeted by foreign investments, excluding chemicals, it includes oil refining, textiles and textile products, immediately followed by electrical equipment. Machinery, metals, and non-metallic products have a nonnegligible presence, while Sections I and E (utilities and infrastructure) have by now become almost irrelevant. A few years later, the situation had partially changed. In the case of food and beverages, and non metallic-products, the importance of foreign capital remained substantially the same (even in two numerically different universes). In other cases, the presence of foreign capital seems to grow dramatically during the decade. In chemicals, for instance, the weight of foreign capital reached and surpassed 40 per cent of the universe as far as the aggregate value of share capital and total assets is concerned. A similar situation can be observed in the case of machine tools and equipment, as well as electric machinery, with the aggregate value of foreign capital and assets nearly doubling from 1952 to 1960. In summary, the data seem to confirm that, during the ‘Economic Miracle’, a sizeable wave of foreign capital was directed to Italy under the form of new investments and share capital increases in capital-intensive and technology-intensive industries. As far as the sources of the foreign capital are concerned, the situation did not change radically during the Economic Miracle. The US definitively established itself as the most important investor, both in numerical terms, and in terms of total assets controlled, while both Switzerland and France (which dominated the inter-war period, as stated above) slightly reduced their share. Another important point concerns the distribution of the capital of the main investors (Switzerland, France, UK and the US). In the Swiss case, the main areas of investment were not radically different from the inter-war period, with textiles in first position – with regard to total assets – followed by chemicals and pharmaceuticals. In the case of France, chemicals and pharmaceuticals were followed by petroleum, non-metallic products and basic metals. The UK was mainly represented in textiles (a

104

Table 4.5

Forms of enterprise in 20th century Italy

Foreign-controlled companies in Italian manufacturing: some branches, 1952 and 1960

Industry*

1952 (N=328)

1960 (N=522)

% of % of % of % of % of % of foreignforeignforeignforeignforeignforeigncontrolled controlled controlled controlled controlled controlled total total companies total total companies assets share over assets share over over capital industry over capital industry industry over total industry over total total industry total industry assets total share assets total share capital capital DA DB DC DD DE DF DG DH DI DJ DK DL DM DN TOT_MAN E I Others** Total

3.15 7.65 1.64 0.00 3.92 22.22 18.25 14.29 11.68 5.44 9.90 19.52 4.31 4.35 9.01 3.55 1.37 3.40 6.72

8.25 15.78 3.65 0.00 4.97 73.58 37.23 16.63 31.42 8.53 16.81 35.87 1.06 13.03 25.34 0.58 5.47 12.60 13.20

3.76 17.71 1.79 0.00 6.46 62.16 34.90 13.88 21.38 7.33 17.10 36.21 1.04 8.19 19.24 1.91 5.63 14.16 13.27

5.94 8.01 1.67 1.35 5.62 27.88 30.58 17.72 11.42 9.34 13.29 24.90 5.51 14.81 13.10 4.19 0.93 4.64 9.33

8.24 14.07 1.12 0.97 12.39 66.68 40.72 21.59 14.75 7.00 28.56 38.43 1.14 13.30 24.27 0.60 0.45 8.10 13.11

5.29 18.74 1.36 1.87 8.49 59.44 41.36 7.73 15.88 6.23 20.53 39.61 1.05 15.57 20.95 1.21 0.88 13.05 14.21

Notes: ** Industry codes: see Table 4.4. ** others 1952: C, F, G; others 1960: C, F, G, K

significant distortion is the presence of British capital – Courtaulds – in a strong position in SNIA, which is classified as a chemical company, de facto producing fibres). The US manufacturing investments in 1960 are basically found in petroleum, chemicals and electric machinery. One point worth stressing here is the ‘transversality’ of the investments in the chemical industry, although closer examination would be necessary to establish if there was national specialisation inside the different branches

Foreign enterprises

105

% 40 35 30 Number of firms 1952 Number of firms 1960 Total assets 1952 Total assets 1960

25 20 15 10 5 0

B

Figure 4.4

CH

D

F

NL

S

UK

USA

Main investors in Italy, 1952 and 1960. Number of firms and aggregate total assets (%)

of the chemical industry. At first glance, Switzerland seems to be more specialised in fibres and pharmaceuticals, while the US and France show a more general approach to the sector (American investments are, for instance, equally divided among raw chemicals, pharmaceuticals and home products), while the UK exhibits a tendency to invest in raw chemicals. Another interesting piece of information comes from the analysis of the dataset in 1960 ordered by year of foundation. Nearly one fifth of the companies were founded after 1956, which confirms, together with other indicators, the effectiveness of the institutional changes introduced by the above-mentioned legislation which relaxed the barriers to foreign investments. However, the information provided by the database does not provide an exact account of the FDI inflow, since it is not possible to distinguish with sufficient precision between greenfield and brownfield investments. The last benchmark considered in this chapter is 1972, a date which coincides with a marked slowdown in the impressive growth experienced by the Italian economy during the years of the Economic Miracle. During the second half of the 1960s, well before the oil crises of the 1970s, the country’s economic environment began to deteriorate. Tensions began to come to the fore with regard to the cost of labour. More generally, the whole political and social climate deteriorated, with immediate consequences for the shape of foreign – basically US – investments in Italy. On the other hand, however, a number of conditions enhanced the investment opportunities for foreign firms. Thus, the Italian market remained an attractive one, given the persistent high rate of growth in private consumption. Besides this, many entrepreneurial and family firms, which had grown quickly during the 1950s and the 1960s, were unable to

106

Forms of enterprise in 20th century Italy

cope with the necessary changes in financial, organisational and managerial terms imposed by the dynamism of the market. In food and beverages, and in the mechanical industry, as well as the practically new industry of household appliances, the result was a high rate of acquisitions by foreign capital during the 1960s. The number of foreign-controlled joint-stock companies in 1972 was quite considerable (about 700). As far as manufacturing and utilities were concerned, the picture at the beginning of the 1970s shows some changes. Looking at the destination of total assets, the relevance of chemicals and pharmaceuticals and petroleum (much more than in the past) is confirmed, followed by electrical equipment, machines and basic metals, while food and beverages became more significant in terms of foreign investments (Table 4.6). This is consistent with the literature, which stresses the wave of foreign acquisitions in this sector between the end of the 1960s and the beginning of the following decade mainly due to a series of entrepreneurial failures. As stated above, the attractiveness of the domestic market, which was steadily growing in terms of consumption rates, played an important role as well. In chemicals and pharmaceuticals, the presence of foreign capital remained relevant, albeit apparently less so than at the beginning of the 1960s, and settled at roughly the levels of the early 1950s. The presence of foreign capital in the chemical industry is confirmed both at the top level of the dimensional ranking as well as in the medium and small dimension, especially as far as pharmaceuticals and para-pharmaceuticals are concerned. Machinery is another example in which there was a heavy presence of foreign capital, basically in machine tools, machines for special purposes (elevators, machines for agriculture, and some household appliances). It is in electrical machinery, however, that the foreign presence confirms its standing. Foreign firms dominate in household appliances, light bulbs, computing and electro-mechanics. The geographical distribution validates the hierarchy of foreign investors that took shape after World War II. In manufacturing, by now the most important area of investment, the US confirmed its place as the most important investor, followed by France and Switzerland. Britain and Belgium lost almost all their relevance. Last, but not least, the presence of foreign-controlled capital is notable among the largest firms. In 1972, 51 out of the top 200 Italian companies (25.5 per cent) – ranked by assets – were foreign-controlled; this percentage is slightly higher than in 1913. The presence of large foreign firms among the top Italian corporations is also confirmed by the available secondary literature. According to the Harvard researcher Robert Pavan, there were 31 foreign-controlled firms among the Italian top 100 in 1970 (Pavan 1973: 62).

Foreign enterprises

Table 4.6

107

Foreign-controlled companies in Italian manufacturing (some branches, 1960 and 1972)

Industry*

1960 (N=522)

1972 (N=689)

% of % of % of % of % of % of foreign foreign foreign foreign foreign foreign controlled controlled controlled controlled controlled controlled total total companies total total companies assets share over assets share over over capital industry over capital industry industry over total industry over total industry total assets industry total assets total share total share capital capital DA DB DC DD DE DF DG DH DI DJ DK DL DM DN TOT_MAN E I Others** Total

5.94 8.01 1.67 1.35 5.62 27.88 30.58 17.72 11.42 9.34 13.29 24.90 5.51 14.81 13.10 4.19 0.93 4.64 9.33

8.24 14.07 1.12 0.97 12.39 66.68 40.72 21.59 14.75 7.00 28.56 38.43 1.14 13.30 24.27 0.60 0.45 8.10 13.11

5.29 18.74 1.36 1.87 8.49 59.44 41.36 7.73 15.88 6.23 20.53 39.61 1.05 15.57 20.95 1.21 0.88 13.05 14.21

8.94 5.08 1.47 1.75 6.93 23.58 25.82 9.05 4.32 8.07 12.67 22.88 6.91 6.58 10.96 1.30 0.64 2.17 7.20

16.05 8.82 1.31 1.26 14.29 63.76 23.76 25.81 15.50 11.87 25.97 45.67 2.37 9.15 23.14 0.42 0.70 18.70 19.64

15.64 11.01 1.13 1.67 12.22 50.22 25.68 28.07 14.69 10.35 25.70 41.72 2.45 10.55 21.51 0.03 1.01 10.89 15.07

Notes: ** Industry codes: see Table 4.4. ** others 1960 and 1972: C, F, G, K.

4.6

CONCLUSIONS

This research shows that foreign capital has been constantly present in the country’s industrialisation process. The waves in FDIs followed both the shifts in the dominant technological paradigms, and the tendency of indigenous capital to privilege more ‘traditional’ industries. The data collected

108

Forms of enterprise in 20th century Italy

in this chapter show, beyond any doubt, that, over time, foreign capital was invested in the country in the high-tech and capital-intensive industries during the three industrial revolutions. From the beginning of the industrialisation process, foreign firms fully exploited their ownership advantages over Italian producers, often providing a fundamental contribution to the progress and modernisation of their respective industries. Location Advantages An evaluation of the impact of location advantages on the strategies of investment undertaken by foreign producers is more difficult to make. The poor endowment of natural resources, a weak distribution system, and the prevalence of local and fragmented consumption markets characterised, at least until the mid-1950s, by a remarkably scarce dynamism in terms of consumption, contributed to reduce the attractiveness of Italy to foreign investment in theory and in practice. Location advantages became important in explaining the strategies of foreign capital probably only after World War II, and especially during the 1950s, when the internal market started a remarkable process of growth, economic and industrial incentives for FDI were introduced, and a great deal of favourable legislation was passed. Internalisation Strategies The databases do not allow any statistical assessment of the internalisation strategies followed by foreign enterprises investing in Italy to be undertaken. The information available about the entry mode and the form of the investment (brownfield, greenfield or joint venture) cannot be collected for such a large number of companies, especially for the period before World War II. A prosopographic approach based upon the analysis of single cases would probably provide some interesting evidence. For instance, at a first impression (and as a pure hypothesis), entry strategies into the Italian market can roughly be divided into three main phases, even if the sectoral specificities in terms of technology and markets have to be taken into consideration. The first phase – from the beginning of the industrialisation process up to World War I – has been characterised by a mixture of entry strategies ranging from greenfield investments undertaken by free-standing enterprises in utilities or foreign entrepreneurs (for example, in cotton) to partnerships or joint ventures. In these cases, in general, the foreign partner was supposed to provide technology not available in Italy, and the Italian partner to lower the degree of ‘liability of foreignness’. Some

Foreign enterprises

109

cases, already analysed by the literature, provide a clear evidence of these policies (see, for instance, the case of Società Tubi Mannesmann analysed in Hertner 1984. Clear evidence of these practices is provided by the hightech and new branch of airplane production, in which the practice of the joint venture was the normal way in which – at the beginning of the 20th century – companies were created (see, for instance, Mantegazza 1987). During the inter-war period and until the mid-1950s, the investment policies of the foreign firms privileged direct investments through greenfield and brownfield strategies. In general, greenfield investments were preferred in technology-intensive industries: when IBM settled in Italy at the beginning of the 1930s, it opened a new facility in Vimercate, near Milan. The acquisition of already existing companies was more often in use in industries with a consolidated technology, such as glass production. During the 1930s, for instance, Saint Gobain controlled nearly 15 facilities throughout the country, as an outcome of an acquisition policy pursued for decades. An analogous mixture of greenfield and brownfield strategies characterised the period from the Economic Miracle to the 1970s. Notably, while foreign firms continued to exploit their ownership advantages of a technological and organisational nature by setting up new facilities, a growing number of acquisitions was registered, due basically to structural features of the Italian entrepreneurship of the Economic Miracle. In many cases, there was a failure during the generational transition from founder to the new generation to provide foreign companies with an opportunity to enter the Italian market. In some industries – such as the fast-growing industry of household appliances, with the acquisition of one dominant domestic player, for example, Ignis, acquired by Philips in 1968 – the phenomenon spread very quickly. Ownership Advantages The lack of capital, as well as technological knowledge, explains quite clearly the pervasive presence of foreign capital in certain branches of manufacturing rather than in others. What is interesting to note is the persistent backwardness of Italian firms in certain branches, notwithstanding the incentive for imitation that the presence of foreign capital could have provided. One significant example is the chemical (and pharmaceutical) industry, where there was a constant and significant foreign presence for more or less the whole of the period considered. The same can be said for energy, except when things went differently due to external factors. After World War I, the German presence in energy (electricity production) almost disappeared, and Italian firms took over the foreign ownership in

110

Forms of enterprise in 20th century Italy

the industry. Interestingly, this did not happen in other cases, such as local transportation, and gas and water supply, where the foreign (Belgian and French) presence remained dominant. In this period, the energy industry was dominated by US capital, in concurrence with the technological shift from electricity to petroleum. ENI, the state-owned company, was the way for Italy to contrast foreign superiority in the oil industry. It is revealing, however, that in petrochemicals and fibres, both ENI and its Italian competitor, Montecatini (after Montedison), started several joint ventures with their foreign competitors in order to acquire the relevant technology. Clearly, the technological shifts did not just coincide with a transformation in the sectoral distribution of the investments (for instance, from utilities and transportation to electricity and electro-mechanics, to chemicals and pharmaceuticals, to petroleum and machinery). They also coincided with a shift in the nationality of the major investors, according to their overall competitive advantage in a certain period. Thus, in the years of the Italian first industrial revolution (from the 1880s to World War I), the 100

K I

90

G F

80

E DN

70

DM DL

60

DK %

50

DJ DI

40

DH DG

30

DF DE

20

DB DA

10 0

Note:

CB CA 1913

1921

1927

1936

1952

1960

1972

Industry codes: see Table 4.4.

Figure 4.5

Distribution by industry of foreign-controlled firms among the top 200 ranked by assets, 1913–72 (%)

Foreign enterprises

111

dominant investors were Germany, in electricity, and Belgium and France, in utilities and transportation (leadership was due to both technical and managerial ability, as well as considerable competence in collecting and managing capital). The participation of Switzerland and France grew more significant in the inter-war period when the technological paradigm shifted not only to chemicals and pharmaceuticals, but also to basic metals and non-ferrous metals (for example, aluminium). Then, after World War II, US capital and firms attained almost complete dominance in all the branches of manufacturing, especially in petroleum, chemicals and pharmaceuticals, as well as electric and other machinery. The technological shifts and the changes in the sources and destinations of foreign capital were reflected in the dynamics of the foreign presence at the top of the ranking of large Italian firms. The distribution by industry, in absolute values and percentages, of the foreign firms among the top 200 efficaciously describes the changes discussed above. Figure 4.5 shows, the decline of transportation and utilities, the expansion of petroleum and electrical equipment, especially after World War II, and the persistent relevance of chemicals and pharmaceuticals. The database upon which this chapter is built provides, for the first time, a comprehensive picture of FDIs in Italy during a large part of the 20th century. However, it is also evident that a more detailed and reliable outcome will only be attained by adding a prosopographic and qualitative approach, which would assess other relevant dimensions of the topic through the analysis of case studies, for example, the governance and ownership structure of foreign firms, their strategic behaviour, the resulting organisational structures, and, last but not least, their potential influence over their national competitors.

NOTES *

I would like to thank Franco Amatori, Renato Giannetti, Sergio Mariotti, Fabrizio Onida, Michelangelo Vasta and Vera Zamagni for their useful comments. I am however solely responsible for the contents of the chapter. 1. Francesco Saverio Vincenzo de Paola Nitti (Melfi, 1868 – Rome, 1953). An Italian economist and Radical politician, served as the prime minister of Italy between 1919 and 1920.

5.

Big business and Italian industrial policies after World War II* Francesca Fauri

5.1

INTRODUCTION

At the end of the war, Italy’s productive apparatus had suffered only limited damage. According to revised calculations, the destruction of buildings, machinery and plant (including stocks) did not exceed 10 per cent of fixed capital (Zamagni 1997: 36–7). Coal provision was the most urgent and practical problem, as industrial production could not resume without an adequate supply of coal. Close co-operation between industrialists and government developed throughout the immediate post-war period, and gave priority to the resumption of basic industrial production. The government asked the Confindustria (the industrialists’ organisation, which represented their interests in the political and economic fields) to co-operate in the layout of the Piani di primo aiuto (Initial Aid Plans). A list of raw materials and fuel was developed according to the industrialists’ wishes. The co-operative effort continued with the implementation of the Marshall Plan, especially in relation to the complex procedures required for the purchase of American machinery and plants. All in all, 358 Italian firms took out a European Recovery Program (ERP) loan to import the most modern and expensive machinery to be found on the American market. These technological transfers, rather than being passively accepted, were selectively managed by Italian companies in order to respond to their needs, and were often integrated into their old production lines. Thus, US technologies not only modernised Italy, but were also made congruent with the Italian context. The Italian case shows the high level of indigenous technological capability that had been achieved, which allowed an intelligent choice among available producers and an optimal adaptation of foreign input to both local necessities and factors of production (Rosenberg 1982). Italian entrepreneurs were able to make the most of these new technological opportunities: their successful exploitation of the technology already employed by the technological leader also reflects the fact the Italy had developed the necessary social capabilities.1 112

Big business and Italian industrial policies after World War II

113

The diffusion of technological innovation incorporated in new capital goods imported from the US was the result of investment decisions influenced by the micro-economic behaviour of firms and macro-economic factors, such as a growing access to markets (Heertje and Perlman 1990). The diffusion of new technology led to higher levels of productivity and, as will be shown, an increase in employment. Both industrial production and productivity growth in the 1950s demonstrate the degree to which Italian industry was able to exploit the opportunities for modernisation offered by international aid. They also demonstrate that Italy seized the opportunity to catch up and bridge its technological gap with the United States thanks to import substitution, a well-designed liberalisation policy, and the subsequent expansion of exports. We may thus speak of the ‘creative accumulation’ of technological capabilities during these years, which augmented the presence of two Schumpeterian variables: high technological opportunities and the high appropriability of innovation at company level (Malerba & Orsenigo 1990). Appropriability conditions are endogenous, as, in part, technological opportunities tend to be: they need a high level of human capital to be rapidly and successfully transmitted to industry. The learning process is a key element in the evolutionary theory of the firm: the more scientific knowledge is exogenous and complex, the more the firm needs internal capabilities to absorb and exploit it (Malerba 2000). Therefore, it was also the knowledge base built up in the previous decades that allowed Italian industry to seize the opportunity to catch up with its competitors on the technological frontier. The work is organised in the following way: after this Introduction, Section 5.2 describes the Italian situation at the end of the war; Section 5.3 describes the ERP, and Sections 5.4 and 5.5 focus on the role it played in the Italian industry. Sections 5.6 and 5.7 reconstruct the policy choices and the relationship between government and industrialists. In Section 5.8, some conclusions will be suggested.

5.2

POST-WAR RECOVERY 1945–47

In December 1944, the government and the industrialists represented in the special Expert Committees for Industrial Reconstruction laid down an Initial Aid Plan with the task of evaluating plant efficiency and the war damages that the country had suffered. Here, it was decided to direct the maximum effort to the reactivation of transport and of repairable electrical plants, as well as to increase agricultural production and consumer goods supplies.2 The United States financed the Initial Aid Plan, together with other ad

114

Forms of enterprise in 20th century Italy

interim programmes, and, at the end of 1945, set up the United Nations Relief and Rehabilitation Administration (UNRRA). Italy was allocated $425 million of goods, the main part of which were essential commodities, such as food and medicine, plus different kinds of raw materials, such as coal, petrol, pig iron, steel, non-ferrous metals, cotton and wool. These last two products spurred the late 1940s export boom of the textile industry, which had escaped undamaged from World War II (Confederazione Generale Industria Italiana 1947: 223). However, internal and international financings to industry between 1945 and 1946 did not prove sufficient. Recovery did not take off, and rapid obsolescence of machinery and plants continued to be a widespread problem.3 Italy sent a technical delegation (Deltec) to Washington at the end of 1944 to co-ordinate the Initial Aid Plan, which was financed by the US and entailed purchases on the American market. The Italian delegation also requested an international loan, but this only resulted in $25 million to import cotton. Prime Minister Alcide De Gasperi’s trip to the US in early January 1947 was more successful in acquiring funds and gaining support from the American people.4 The day before he left Washington, the Eximbank announced a grant of 100 million dollars to support key sectors of Italian industry. This amount was only a small portion of Deltec’s estimated needs of 940 million dollars. However, De Gasperi believed the sum was primarily a political victory. In the words of Ambassador Tarchiani, ‘having a definite amount is what really counts, all the rest does not count’.5 The financial structure regulating the loan proved convincing for the Americans, with the government as the warrantor, and IMI (Istituto Mobiliare Italiano), a public financial institution, as the contracting party (Maione 1986: 214; Segreto 2000: 79). The loan allowed Italian firms to buy raw materials and machinery (25 per cent of total imports) in order to promote reconstruction and the development of the export market (ISE 1949a: 57). The interest rate was fixed at 5.5 per cent, and repayment was to begin in March 1950, with different amortization and repayment periods fixed according to the productive sector involved; for example, four years for the rubber sector, and up to a maximum of ten years for the metal engineering sector. All in all, Eximbank loans amounted to $104 993 500, and were, for the most part, allocated to large firms (44 per cent) (Segreto 2000: 88–91). During his visit to the US, De Gasperi was reportedly encouraged to form a new government without the leftist parties. In May 1947, he formed a new Christian Democratic government, and a liberal economist, Luigi Einaudi, was nominated Minister of the Treasury. On 4 August, Einaudi implemented draconian measures to halt the

Big business and Italian industrial policies after World War II

115

continuous rise in prices which threatened to transform a growing inflation into hyper-inflation. A higher rate of obligatory reserves was introduced, the discount rate was raised from 4 to 5.5 per cent and the lira was devalued. The introduction of the higher reserve system solved the heavy speculative situation which was characterised by the incessant expansion of commercial credit, fed by bank withdrawals from the Central Bank. This system had allowed large speculative accumulation of stock, which ‘raised prices to an excessive level compared to the level of incomes’ (Baffi 1965: 184–88). Einaudi’s measures lowered wholesale prices by 11.8 per cent between September and December 1947, and the cost of living index fell by 8 per cent. The Confindustria and its president, Angelo Costa, supported this policy, even though not all businessmen endorsed the credit freeze, which brought many firms to the verge of a financial crisis.6 Consequently, the government decided to set up the FIM or Fondo per il finanziamento dell’industria meccanica, a fund for the financing of the engineering industry, in order to guarantee the necessary liquid assets to the engineering sector. The FIM aimed to provide incentives for a company’s conversion to a new line of production, and for the dismantling of companies producing goods no longer requested by the market or whose production had been forbidden by the peace treaty (Jacoboni 1949: 13). Many contemporary observers have considered the interventions of the FIM completely unsuccessful and have severely criticised the selection process for applicants. Between 1947 and 1950, the FIM gave 66 billion Italian Lire to 37 companies; the principal beneficiaries were: Breda (21 billion Italian Lire), Caproni (15 billion), Fiat (12 billion), IRI (a state holding company – 5 billion) and Ducati (4 billion). Only 23 out of 66 billion Italian Lire were reimbursed. Fiat and IRI were the first to pay off their debts. Three major groups defaulted – Breda, Ducati and Caproni – which resulted in closures or state control (CISIM 1952: 361). The government’s industrial policy of company rescue had begun. Many firms were already on the verge of collapse when the FIM stepped in, while others employed such an enormous number of workers that the state felt compelled to intervene.7 Despite the closures of some firms, in general, Italian business was ready to resume production and conquer new markets. However, there was a lack of the raw materials and fuel to set plants in motion, and the growing dollar gap made it impossible to buy these materials on the American market (Fodor 1985, 2006). Thus, it was against this scenario that the Marshall Plan was announced on 5 June 1947. In the following months ‘the most unsordid act in history’ began to take shape.8

116

Forms of enterprise in 20th century Italy

5.3

ITALIAN INDUSTRY AND THE EUROPEAN RECOVERY PROGRAM

The law instituting the ERP was passed by US Congress in April 1948 and entailed the birth of ECA (Economic Co-operation Administration) with the task of implementing the aid program in Europe (Wexler 1983; Donovan 1987). The Marshall Plan was to provide grants (aid in kind), and loans. A special bank account was opened with the Bank of Italy. The Italian Lire counter value of the goods freely provided by the US and sold by the government was to be paid into this account and used with the consent of the ECA mission. However, the ECA could not direct how the participating country should use these funds, but could withhold its approval if a country proposed to use them in an inflationary manner (Kindelberger 1987: 78). Indeed, it was precisely because of the structure of the programme that the Marshall Plan was so effective. The structure was: A resident mission in each country, a central administration subordinate but not reporting to the president, close monitoring by the MP administrators of the use of the each dollar and counterpart funds. (Eichengreen 2001: 131)

Loans were meant to help industries renew their plants and import capital goods from the USA (ISE 1949b:504). Out of $668 million of goods in grants over the first year, $67 million were allocated as loans to industry. The conditions set for these loans were ‘utterly favourable’, even though they underwent slight changes when the Ministry of the Treasury passed the definite executing law. The US National Advisory Council announced its conditions on 27 July 1948. It took just two months for the Ministry of the Treasury to enact them and make them public – see Table 5.1 for a comparison of the US and Italian loan conditions. The clear disparity of conditions provoked complaints within the Confindustria. Only the Treasury stood to gain from the new rules, while private entrepreneurs had to endure terms that were worse. The length of the loans was shortened (from a maximum of 35 to 25 years), as was the moratorium (from eight to two-to-three years). Nevertheless, the loan terms were still appealing compared to what was available on the market. As a result, many large firms decided to start the lengthy procedure entailing the submission of a detailed application and the beginning of an arduous selection process. IMI was the state body entrusted with the first screening. It was to evaluate what each firm wanted to attain and the economic strength of each production unit, its war damages, the type of production, the reconversion possibilities, all technical information regarding the plants

Big business and Italian industrial policies after World War II

Table 5.1

117

Comparison of US and Italian loan conditions US government

Duration of loan by sector Electricity Iron and steel Oil Engineering Metallurgy Textile Printing Cinematography Interest rate Interest rate payment Exchange risk End of amortisation period Moratorium Electricity Iron and steel Oil Engineering Metallurgy Textile Printing Cinematography Waiver clause

35 years

2.5 % Starting 30 June 1952 6 2.5 % Second quarter of 1956 8 years

Italian government 18 years 18 years 17 years 17 years 12 years 10–12 years 10–12 years 8 years 5.5 % Included in interest rate To be decided 3 3 2 2 2 2 2 2

In case of balance of payments difficulties

Source: Archivio Storico Confindustria (ASC), b.1.5/11 Giunta Esecutiva, Verbale delle riunioni del 27 e 28 maggio 1949.

and the machinery installed, and the type and model of the capital goods requested on the American market with the indication of the supplying firms and the unit dollar prices (the latter aspect entailed having well-established existing connections with the American supplier). Furthermore, IMI asked to check the budget and examine the balance sheet of each applicant in order to evaluate the financial reliability of each firm, together with its export and production forecasts. After this close scrutiny by IMI, approval had to be obtained from the Ministry of Commerce, the Ministry of the Treasury with endorsement of the IMI ERP Committee, and, finally, the approval of the ECA (Trezzi 2008). IMI then had the task of finalising each contract. This lengthy bureaucratic procedure and the delay of the Ministry in

118

Forms of enterprise in 20th century Italy

releasing the final technical details for the filling out of the application (available only on 8 September 1948) caused a late start to the loan programme.9 Notwithstanding this, Italian entrepreneurs had already begun sending IMI their loan requests even before they knew exactly what the formal procedure and final conditions were. And IMI, for its part, had immediately begun performing the preliminary investigations in order to collect the necessary data to formulate its final assessment.10 This preliminary work enabled it to select, by November 1948, 105 loan applications out of a total of 370, for a total amount of $83 million on the first portion of the loan quota, which greatly exceeded the maximum of $26 million set for the first quarter of 1948.11 As is clearly shown in Table 5.2, Table 5.2

Distribution of ERP loan to industry (first quarter of 1948)

Industry Engineering Fiat IRI Finmeccanica Riv Galileo Reggiane Daldi e Matteucci Tosi Bosco Laminazione sottile Meschini Marelli CGE Ferrero Montanari Iron and steel Fiat Finsider Ilssa Viola Ditta Colombo Textile Oil State railway FFSS Aeronautics Mining Rubber (Pirelli) Total Source:

ASC 47 1.5, Fondo ERP.

$

%

11 699 870 5 000 000 2 500 000 1 000 000 1 000 000 600 000 387 870 300 000 250 000 250 000 200 000 160 000 26 000 26 000 8 584 250 5 000 000 2 349 250 1 000 000 235 000 2 070 000 1 675 000 1 000 000 650 000 468 000 200 000 26 347 120

44.4 19.0 9.5 3.8 3.8 2.3 1.5 1.1 0.9 0.9 0.8 0.6 0.1 0.1 32.6 19.0 8.9 3.8 0.9 7.9 6.4 3.8 2.5 1.8 0.8 100.0

Big business and Italian industrial policies after World War II

119

IMI contracted out $26 million, the first fraction of the loan, giving a net priority to engineering and iron and steel companies. Large private and state companies were the main beneficiaries of this first loan. The reason why Fiat, Finmeccanica and Finsider were among the biggest recipients can be explained by the following set of factors: the readiness of these companies in submitting the request, the possibility of dedicating a few qualified employees to preparing the documentation needed, their established familiarity with international channels and their acknowledged financial reliability. The Confindustria representatives in the IMI ERP Committee pressed for the inclusion of two small enterprises, Ilssa Viola and Colombo, among the beneficiaries. This inclusion was, in part, because they urgently needed the capital goods requested in order to complete their plants, and, in part, due to the initiative taken by the Confindustria to show that small businesses could also take part in the ERP mechanism provided that they stood by the rules. The Confindustria representatives also operated in another direction. They generally reduced the amount requested by each firm, in the light of the fact that national industries were already able to supply part of the machinery requested from the American market.12 A balance was to be found between suiting the needs of industrial modernisation and sustaining national producers, even though the good terms of the ERP loan very much favoured American producers. Many firms need new machinery and would be willing to buy it in Italy. ERP rules only allow them to buy on the dollar market . . . .This is why the Confindustria must intervene in order to change the rules and divert some ERP money to buy new machinery on the Italian and European market.13 [Author’s translation]

The government finally passed a law (law no. 730 of 21 August 1949) which integrated the first $67 million with a withdrawal from the Italian Lire fund of 32 billion Lire, which could be spent by Italian entrepreneurs to buy foreign or home produced capital goods (Bottiglieri and Castronovo 1995: 377–82). The Confindustria was satisfied that the government had agreed to its suggestions regarding the necessity of allowing purchases also on the Italian market. In this way, ‘the major shortcoming of the ERP loans was finally corrected – namely, the possibility to buy only on the American market – and it was made clear that machinery that could be made in Italy could not be bought abroad’14 [author’s translation]. The 32 billion Italian Lire were soon all allocated and new laws were passed (in July 1950) in order to use 100 billion Italian Lire to buy capital goods on national or international markets.

120

Forms of enterprise in 20th century Italy

Bureaucratic delays during the first ERP year caused shipping delays. Despite the high number of requests, the arrival of capital goods amounted to only 0.8 per cent of total ERP goods which reached Italy in 1948. This small percentage rose quickly in the next few years, going up to 15.7, 25.4 and 28.9 per cent of total ERP imports in the last ERP year as shown in Table 5.3. In 1951–52, the single most requested item was machinery, and, in particular, metal working machinery and turbines. There are many explanations for this slow start. Firstly, the lengthy decision time taken by the Ministry of Treasury with regard to the loan conditions, which were only made available in September 1948. Secondly, the complex and lengthy selection process, which required the approval of various Italian institutions, as well as the meticulous scrutiny of the ECA, which in the end sent many requests back to IMI for more accurate and complete information on the application presented. Finally, in 1948, with the ERP still in its trial period, only 40 per cent of the goods allocated to Italy were effectively shipped in.

5.4

MACHINERY REQUIRED FOR MODERNISATION

All in all, 358 Italian firms took out an ERP loan to import new American machinery. The majority were private firms (70 per cent), while 30 per cent were state firms. Not all entrepreneurs were convinced that modernisation of plant and equipment was what Italian industry needed at the time. The president of the Confindustria himself, Angelo Costa, deeply believed that Italy did not need to import new labour-saving machinery, since what the country had in excess was unemployed workers. Besides, the ERP encouraged the modernisation of plants even without a real need for Fordist production, with the risk of raising the firm’s debt.15 Last, but not least, Costa was convinced that although ‘Italy is still an agricultural country, things are going to change in 50 maybe 100 years’.16 But the economic miracle was already on its way and things were going to change in less than a decade. Clearly, Costa was not convinced of the congruity of American technology with Italian resources, the new path of technological change indicated a labour-saving direction which the Confindustria president did not like and did not think suitable for Italy’s labour abundant structure. In his opinion, the Italian economy was not endowed with the suitable abilities to pursue a path of progress that was labour-saving and capital-intensive. Other entrepreneurs, who were more far-sighted, valued the benefits more than the costs of adaptation to the new technology. Pirelli (rubber

Big business and Italian industrial policies after World War II

Table 5.3

ERP imports 1948–52 (%)

Items

Year I 1/4/1948– 30/6/1949

Cotton Grain Oil products Coal Machinery Industrial machinery (general) Airplanes and parts Tractors Railway equipment Metal working machinery Tools Precision instruments Auto vehicles and spare parts Machinery and turbines Technical assistance Mining equipment Electrical appliances Agricultural equipment Generators and engines Other Total Source:

121

Year II Year III Year IV 1/7/1949– 1/7/1950– 1/7/1951– 30/6/1950 30/6/1951 30/6/1952

Total

17.08 39.26 10.38 23.06 0.80 0.55

39.13 10.13 11.84 5.33 15.72 7.69

42.31 6.44 16.05 2.45 25.36 9.01

18.59 0.00 27.89 15.28 28.86 7.32

27.67 17.54 15.75 13.08 15.55 5.38

0.01

0.06

1.25

0.13

0.36

0.00 0.01

0.31 0.07

0.54 0.00

0.55 0.06

0.31 0.03

0.00

1.13

4.29

4.92

2.31

0.01 0.07

3.36 0.18

4.75 0.31

2.30 0.35

2.28 0.21

0.02

0.05

0.00

0.01

0.02

0.00

0.07

1.32

5.26

1.45

0.00

0.00

0.10

0.50

0.13

0.04 0.08

1.61 1.11

2.05 1.54

1.77 1.70

1.19 0.97

0.01

0.08

0.19

0.09

0.09

0.00

0.00

0.01

3.90

0.82

9.42 100.00

17.87 100.00

7.38 100.00

9.36 100.00

10.434 100.00

Author’s calculations from Bollettino ERP, 1951 e 1952.

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Forms of enterprise in 20th century Italy

industry) thought Italy should not miss the opportunity offered by the ERP loan: Great Britain has ordered 90 billion dollars worth of new machinery, France has ordered 60 billion dollars . . . Many European nations take advantage of the Marshall Plan to restructure their productive plants, since production modernisation is a fundamental step towards price reduction . . . I personally encourage modernisation of plants. We have to catch up with the progress of other countries.17 [Author’s translation]

According to Pirelli, the ERP could help win the challenge of international competition. Vittorio Valletta (Fiat’s general manager) shared the common view. He asked for a $35 million loan to import the best American technology, and the most modern machinery and equipment to be found on the American market. His high technology requests provoked an ECA member to exclaim: ‘You want to be fed with caviar and champagne.’ Valletta promptly answered: ‘You can’t expect us to be satisfied with fish and coca cola.’ Fiat obtained the largest share of the American loan and the first ‘Marshall Plan baby’ was the Fiat 1400 model, which came out in 1949. The Fiat 1400 was the first load bearing body vehicle mass-produced and was a great economic success.18 The automatic processes that were introduced allowed a net saving of per-man working hours in every productive division. On average, the hours spent by the workforce directly in the making of the different car parts decreased from 100 in 1948, to 47.5 in 1953, to 27 in 1958.19 A similar story is that of the Vespa. The company Piaggio used to build small airplanes, but, after the war, decided to convert to the production of motor vehicles. The first model had already been designed in 1946 by aeronautical engineers, but only 402 million Italian Lire were allocated by the ERP loan to allow the firm to import the American machinery and plant needed for mass production. Productivity increased dramatically within a few years. In 1946, Piaggio produced barely 50 Vespas a month. In 1952, monthly production increased to 4000 units and in 1955, after all the American machinery and plant had been installed and were working full-time, to 8500 units.20 What the consumer gained from these productivity increases was a progressive reduction of the basic model price (Wellisz 1957: 1035). Vespa became the symbol and the leading product of Piaggio, and its great entrepreneurial success allowed the first Italian mass-motorisation phenomenon to impose itself in the country. As to the kind of machinery imported from the US, major Italian engineering firms (Fiat, Piaggio, Lancia, Tosi, Innocenti e Necchi) ordered and obtained different kinds of machine tools, presses, rolling-mills and plants from their carefully selected American producers.21 Duccio Bigazzi’s

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123

account of the Fiat case can be extended to the other Italian companies that benefited from American technology: What the firm bought abroad with ERP funds was the most modern and expensive machinery to be found on the American market in order to speed up the production process, shift from manual working to the use of specific tools or machinery, ease the working process so that non-qualified workers could be employed . . . this transfer of technology, which was taking place in the early 1950s, was not a once-and-for-all affair, and it would be very superficial to think that American complex technical knowledge could be simply incorporated in machinery and plant transferred through a purchase contract. (Bigazzi 2000: 144–167) [Author’s translation]

Most Italian companies adapted American technological transfers to their necessities, integrating new processes and old lines of production to achieve the best results. This technological transfer did not occur by chance, as machinery and plant were carefully selected on the spot by highly qualified Italian mechanical engineers, who chose the best American producers or the ones with whom they had a well-established tradition of industrial contacts, after a careful evaluation of the possibility of adapting their output to the needs of Italian firms. Thus, the process was not just passive acceptance of new technology input. Nonetheless, it can be affirmed that technical progress stimulated productivity growth in many industrial sectors. Technological change increased efficiency in production, which, in turn, led to productivity growth (Link 1987: 1–3). Furthermore, productivity growth not only ameliorated the competitive position of many Italian firms within the international community, it also contributed to increase the incomes of Italians, thereby enhancing the standard of living and the quality of life throughout the country.

5.5

FOSTERING BIG BUSINESS BUT KEEPING AN EYE ON THE SMES

ERP loan distribution to Italian industry clearly reflected the predominance of big business, both public and private. Fiat, Acciaierie di Cornigliano, Edison, Montecatini and Falck were the first four beneficiaries, as is shown in Table 5.4. Many Confindustria members owned a small- or medium-sized enterprise (SME) and President Costa himself repeatedly affirmed that the SMEs, resting on small productive centres strongly tied to the territory, performed a central role in the Italian economy: ‘The very nature of the

124

Table 5.4

Forms of enterprise in 20th century Italy

Distribution of the ERP loan (all values in millions of Italian Lire: companies receiving more than 2 billion Italian Lire) ERP dollars

ERP Italian Lire

Total

%

Public firms – Total Acciaierie di Cornigliano Soc. idroelettrica Piemonte ILVA LAI Linee aree italiane SPA Municipal firms Soc. Mineraria Carbonifera Sarda

45 797 17 326 4 061 4 427 2 687 2 260 2 187

5 290

51 087 17 326 8 061 4 427 2 687 2 492 2 187

29.7 10.1 4.7 2.6 1.6 1.4 1.3

Private firms – Total Fiat* Edison ARAR-SPEI** Termoelettrica veneta SPA Soc. meridionale di elettricità Falck Spa Termoelettrica tirrena SPA STES Società termoelettrica siciliana Manifatture cotoniere meridionali SPA Aquila Montecatini

107 803 20 955 15 064 3 142 4 058 6 177 4 082 4 061 3 623

121 086.1 21 820 15 064 8 676.1 8 058 6 177 4 082 4 061 3 623

70.3 12.7 8.7 5.0 4.7 3.6 2.4 2.4 2.1

2 668

1.5

2 255 2 002

1.3 1.2

Total

153 600

1 168

4 000

232

13 283.1 865 5 534.1 4 000

1 500

2 255 2 002 18 573.1

172 173.1

100.0

Notes: ** Fiat invested 28 per cent of its loan on renovation of automobile production and 23 per cent in modernizing its iron and steel plants. ** ARAR-SPEI took care of small industry financing. FAS and FLAMs are not considered. Source: Author’s calculations from Lombardo (2000: 663–93).

Italian economy, its market and scarce natural resources contributed to the development of the small firm’ (Costa 1980: 141). Costa estimated that the owners of SMEs amounted to at least 85 per cent of the total, a figure which made it essential, for the very survival of the confederation, to look after the SME: ‘If Confindustria does not care about the SME, it means that it does not care for itself’ (Costa 1980: 381). In 1950, thanks to the association’s continuous pressure, the government

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passed specific financing laws for the SMEs, and was able to grant them 40 per cent of the Italian Lire fund allocated to industry (Lombardo 2000: 194–300). The outbreak of the Korean War proved to be a turning point. Aid from the Marshall Plan was gradually merged with military aid under the Mutual Security Act. The immediate purpose became rearmament, and thus the priorities for loan concessions changed accordingly. Defence industry investments received absolute priority, while other sectors, such as food processing, oil refining, printing, textile and shoe production, received a negative priority and no more American aid was allocated to them from 1951 onwards.22

5.6

INDUSTRY AND ITALY’S LIBERALISATION CHOICE

After World War II, Italy chose to liberalise trade from quantitative restrictions. In compliance with the Organisation for European Economic Cooperation (OEEC) requests, quotas were removed from 99.7 per cent of imports, and tariff protection was lowered in accordance with international and American pressure. The Confindustria, ‘in order not to compromise Italy’s relationship with the United States’, gave in to the necessity of accepting the GATT Annecy Agreement, which made reductions in general tariffs.23 Much more vociferous and long-lasting was the protest against the 10 per cent autonomous tariff reduction decided by Minister Ugo La Malfa in November 1951. La Malfa’s choice stemmed from the fact that Italy was exporting a great deal and had reached its maximum credit allowance within the European Payments Union (EPU), $205 million. This last tariff cut – together with preceding measures – reduced the average tariff protection from 24.4 per cent to 14.5 per cent (the latter figure representing the so-called ‘tariff in use’) (Fauri 1995: 350 ff). Before the tariff cut in November 1951, the Confindustria representatives had exerted considerable pressure upon Ministers Pella and La Malfa. However, the latter reaffirmed the necessity of a temporary six-month tariff reduction, and, evidently, was not convinced by the Confindustria’s arguments.24 The only concession was that the cut would be short-term and subject to renewal, in order to assure industrialists that, in the event of serious balance of payments problems, a return to the protection of the legal tariff was always possible. Successively, whenever the subject was discussed at Confindustria meetings, voices were raised in favour of the abolition of the 10 per cent tariff reduction. When a Permanent Committee on Economic Affairs was set

126

Forms of enterprise in 20th century Italy

up within the organisation in February 1953, its first meeting was explicitly titled ‘For the abolition of the 10 per cent tariff reduction’, and all the members expressed their unanimous agreement in favour of exerting pressure upon the government for its abolition.25 As emerges from the minutes of the Executive Committee meetings, industrialists feared that: it was going to be increasingly difficult to negotiate on the basis of the legal tariff no longer in force. We need to draw up a new tariff (more protective than the current one) in order to have a proper basis from which to start calculating international tariff reductions.26

At the end of 1952, during a preparatory meeting to decide what Confindustria’s policy would be in the afternoon talks with Ministers La Malfa and Campilli, it was finally decided to ‘try to convince Minister La Malfa to abolish the 10 per cent autonomous tariff reduction . . . [as] this would also demonstrate abroad that Italy was not willing to proceed with liberalization any further without reciprocity’27 [author’s translation]. What emerged from the debate on liberalisation and tariff reduction was a profound divergence among the opinions of the members of the Executive Committee. As Costa himself underlined during the meeting, ‘among the industrialists, there are supporters of liberal and protectionist trade policies’. However, at government meetings with Campilli and La Malfa, Confindustria members were told to avoid mentioning matters on which they themselves were in disagreement. When it came to discussing European integration proposals, the industrialists were inevitably divided between fast-growing industries exporting on the international markets (in fields such as engineering, means of transportation, precision instruments, shoes and the fashion industry), against industries which feared German competition (such as chemical, electrotechnical and optical firms), as ad hoc surveys of the time show (Bergman 1956; Fauri 1996b–; Petrini 2005). In the end, such internal disagreement led to acceptance of the government’s tariff cuts, which remained in place until Italy’s entrance into the European Common Market in 1957.

5.7

THE GOVERNMENT–INDUSTRIALISTS RELATIONSHIP: AN EVALUATION

Were there excessive ties between government and industry after World War II? What we can affirm is that government did strive to deal with the needs of Italian firms. Moreover, the requests of Italian industry were always met. The government gave priority to the industrial sectors that Confindustria

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127

chose, to the necessity of extending the Marshall Plan loan terms to the Eximbank loan, to the possibility of purchasing Italian machinery with ERP funds, and to the necessity of having a scheme to help the SMEs obtain part of the funds. There was a range of views within the Confindustria on the utilisation of the Italian Lire fund, and the president, Costa, and Valletta agreed to use the money to finance public works and the rehabilitation of transport. Enrico Cuccia,28 a banker, thought the Italian Lire fund should be used to cover the state debt. In this way, new savings would accrue to the private sector and stimulate the capital market, which had been idle for too long. In the end, the Confindustria adopted Costa’s position and recommended that the government use the counterpart funds for ‘general priorities, such as the building of new houses for low income workers, investments in the South, and measures to help the unemployed’.29 In fact, the state spent its counterpart funds on the rehabilitation of transport and communication and on house reconstruction work (Battilani and Fauri 2004). Even outside the Marshall Plan, many government interventions followed the industrialists’ suggestions, and were strongly supported by Confindustria. In relation to the new progressive income tax, which became law in September 1947, Costa openly stated in 1946: Let us pass it, the sooner the better, and apply it gradually, and let us give the tax-payer the impression that he will not have to pay other extraordinary duties, that the Treasury is not the enemy who tries to attack private capital, but only requires what is strictly necessary for the good functioning of the state. (Costa 1946: 19–20) [Author’s translation]

On other occasions, the state passed laws which the industrialists had been asking for since the end of World War II, such as the Foreign Credit Financing Insurance Act (1953) (Sbrana 2006). Even state policy towards the development of the South at the beginning of the 1950s corresponded with Costa’s suggestions, which had stressed the necessity of infrastructural and agricultural investments from as early as 1946 (Bottiglieri and Castronovo 1995: 471). In the words of a contemporary historian, Liborio Mattina, during the first post-war governments, ‘big business was able to influence government decisions to a degree of efficiency not comparable to any other period in republican Italy’ (Mattina 1991: 275). In return, the Confindustria offered the Christian Democratic Party (DC) financial and electoral support. However, the government did not comply with Confindustria’s requests on the abolition of tariff cuts, and trade liberalisation remained a state priority throughout the 1950s. Disagreement among the industrialists and President Costa’s innate liberalism combined to play in favour of quotas and tariff reduction (Fauri & Zamagni 2007).

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Forms of enterprise in 20th century Italy

Divergences among the industrialists also emerged during the European integration process (which was closely monitored by a Confindustria representative in Brussels, Vice-President Mattei), but were not expressed. From 1955 to 1957, Mattei followed the negotiations and had the opportunity to present, through the Italian delegation, ad hoc suggestions and compromise solutions in order to protect the future EEC’s weakest member, and, in particular, the interests of the industrialists. The resumption of tariff controls or measures of safeguard ‘where a sudden crisis in the balance of payments occurs’ – Article 109 of the EEC Treaty – was a concession made to Italian industrialists, frightened by the progressive reduction of tariffs (Fauri 2006). Thus, we may say that, from 1947 to the middle of the 1950s, big business and the Italian government were able to confront one another on many different issues, but with the same objectives: to relaunch the Italian economy and to gain an important economic position in Europe. Italian industry in the 1950s was producing according to Balassa’s winning trilogy: the right goods (for which demand was rising rapidly), exporting them to the right countries (the fastest growing), at the right price (being competitive in international terms) (Balassa 1979). Between 1950 and 1962, Italian yearly exports grew by 13.8 per cent, and GNP by 6 per cent per year. These were the years of the economic miracle. From the middle of the 1950s onward, economic policy decisions were less and less compatible with the wishes of the Confindustria and the government–big business agreement drew towards an end. The Po valley was solely assigned to a newly born state agency, ENI, for gas and petroleum research and exploitation, a specific Ministry for Public Companies was set up, the IRI state firms left the Confindustria, and politicians close to the industrial world became fewer. Meanwhile public firms and bureaucrats were gaining power, instituting a set of relationships based upon clientelism and nepotism, leading to a degrading period in the life of public firms. It was the end of the privileged relationship between the state and industry, and the beginning of a harsher attitude on the part of the industrialists, who were often prone to criticise the political decisions. It was also the end of amicable relationships with the labour force based upon the weak bargaining power of labour unions.

5.8

CONCLUSIONS

After World War II, the ‘catching up’ hypothesis worked in the case of Italy: technological borrowing from the United States allowed a oneway stream of benefits from the leader to the follower. There were some

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understandable instances of resistance and difficulties in the adaptation of the old capital structures (and mentality) to the new technology. The desire to mitigate the social costs of growth, as in the case of President Costa, caused ambivalent attitudes to the possibility of exploiting the emerging technological opportunity coming from the US. Yet, on the whole, Italy’s capability for technological advancement was not weakened and the more enlightened industrial world pursued a path of industrial progress aimed at catching up with the technological frontier. Undoubtedly, an important component of Italy’s social capabilities was its most dynamic entrepreneurs, whose innovative strategies were influenced by the incentives offered by the ERP programme, and who contributed to the national pattern of technological accumulation.30 Thus, the Marshall Plan represented a favourable window of opportunity for entrepreneurs to catch up, through low investment costs, with the international technological frontier. While the highly protectionist inter-war period widened the gap between Italy and the international technological frontier, the gap was bridged after the conflict thanks to the inflow of American machinery and plant (Toniolo 1977).31 Italian entrepreneurs were able to seize these new technological opportunities because of two fundamental factors. First of all, the knowledge of productive techniques had not been destroyed by the war, and they were able to transplant US leading machinery into Italy successfully, thanks to their widespread capability (due to the presence of very experienced technicians and engineers) to alter, modify and adapt such technology in thousands of different ways. Italian industrialists were keen to engage in improvement engineering, thus reshaping a vast range of foreign technologies to their needs, upgrading the qualitative level of their workers, and exposing them to new machinery and ways of production which called for adaptation to local conditions. The workers also showed amazing adaptability and willingness to comply with foreign methods, and the capacity to make foreign technologies congruent with the local context produced spectacular results. The input of new technology increased productivity, while labour demand increased thanks to expansion in demand both at home and abroad. In the second place, the state made the necessary infrastructural investments and institutional changes – such as the re-introduction of the country into the international context, and the adoption of trade liberalisation measures (Olson 1982). As a result, large and rich international markets opened up for exports, and triggered the rapid development of light industries (mechanical production in the first place) and consumer durables (household electrical appliances, for instance) (Sapelli 1992: 294–6).

130

Forms of enterprise in 20th century Italy

Thus, state economic policy acted as a major determinant of Italy’s economic growth, as has recently been confirmed by empirical studies which looked into the role of government policy in shaping the growth process (Easterly et al. 1994: 76).32 Even though the role of the state in the ‘miraculous growth’ of the 1950s remains controversial, since the forces to catch up were very strong too, it is quite evident, from what we have seen so far, that public policy did affect the path of Italian economic development and that government support to the industrialists’ technological drive positively affected Italy’s growth rate. In conclusion, in the years when entrepreneurs and government representatives shared common views, positive practical results emerged. This confluence of interests, which lasted only for a few years, enabled Italy to direct its best efforts to reaching the technological frontier and set the basis for the country’s economic miracle of the 1950s and 1960s.

NOTES * 1. 2. 3.

4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

I wish to thank all the colleagues involved in the research project for their stimulating suggestions. None of them bears any responsibility for what I have written yet my work has benefited greatly from their comments. In the words of Abramovitz: ‘Countries that are technologically backward have a potentiality for generating growth more rapid than that of more advanced countries, provided their social capabilities are sufficiently developed’ Abramovitz (1986: 389). Archivio Storico Confindustria (ASC), 35 3.1, Piano di Primo Aiuto. The Italian state also directly intervened in favour of industrial financing through subsidised credits and industrial rehabilitation and reconversion funds: ‘public capital . . . that has represented a providential breath of oxygen for many companies.’ See the work by Doria (1987: 43). On the Deltec, see the contribution by Napoli (2005: 208). On the life of Alcide De Gasperi, see Craveri (2006). On 18 January 1946, the Deltec asked Eximbank for a loan amounting to $940 million, a first request accompanied by ‘very little optimism’. See Bottiglieri and Castronovo. (1995: 361) and the memories of Egidio Ortona (1984: 175). ASC, Fondo Giunta Esecutiva, verbale seduta 12 novembre 1947. Archivio IMI, Fondo FIM. Churchill’s definition quoted in Jones (1955: 256). ASC, Fondo ERP 47. 1.6 Lettera da Ministero Industria a Confindustria 14 settembre 1948. ASC, Fondo ERP 47.1.5 Lettera da Siglienti a Costa 11 ottobre 1948. ASC, Fondo ERP 47.1.3 Gli aiuti degli Stati Uniti all’Italia. ASC, Fondo ERP 47.1.5 Appunto per il segretario generale 29 giugno 1948. ASC, b.1.5/11, Giunta Esecutiva, Verbale delle riunioni del 27 e 28 maggio 1949. ASC, Fondo ERP 47.1.3 Gli aiuti degli Stati Uniti all’Italia. ASC, Fondo ERP 47.1.3 Commissione per il Piano Marshall, riunione del 28 aprile 1948. ASC, b.1.5/11 Giunta Esecutiva, Verbale delle riunioni del 27 e 28 maggio 1949. ASC, Fondo ERP 47.1.3 Commissione per il Piano Marshall, 16 giugno 1948. NARA Archives Washington 541734.

Big business and Italian industrial policies after World War II 19.

20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

31. 32.

131

On the technological progress in Fiat, see Sassi (1961: 181), and see, also, Bigazzi (2000: 168), who underlines the importance of the technological input introduced together with the changes in the management of the labour force. On Fiat in the 1950s, see Fauri (1996a). Archivio IMI, Busta Piaggio. Archivio IMI, Fondi aziendali. Archivio IMI, Fondo CIR, Letter from Dayton (ECA Mission) 13 July 1951 on the changes concerning the priority criteria approved on 8 May 1951. ASC, 1.5/11 Fondo Giunta Riunione Giunta Esecutiva 6 maggio 1949. ASC, 1.5/14 Fondo Giunta, Verbale riunione Giunta Esecutiva 6 novembre 1951. ASC, 30.3/1 Fondo Comitato Permanente degli Affari Economici, Abolizione riduzione 10% sui dazi, 20 febbraio 1953. ASC, 1.5/16 Fondo Giunta, Riunione di Palermo 26–28 giugno 1952. ASC, 1.5/16 Fondo Giunta, Verbale riunione di Roma 18 dicembre 1952. Enrico Cuccia was the head of the new Mediobanca, established in 1946 in order to ‘meet the medium-term financing requirements of Italian manufacturing enterprises’. See Piluso (2005). ASC fondo ERP, busta 1.3. Riunione dalla Commissione per il PM, 20 e 28 maggio 1948. Such a pattern can be traced back to the micro decisions of single entrepreneurs, who, in the end, always retain a certain amount of discretion on whether to innovate or not. Thus, a country’s dynamics reproduce and amplify the outcomes of numerous micro decisions. See Dosi et al. (1994: 143). Theoretical and empirical studies emphasise international transfers of technology as the most important part of the international growth linkages (Pasinetti 1981: 250). Furthermore, the new technological input also influenced the ways firms were run, since the adoption of mass-production called for the adoption of new management techniques (Dosi et al. 1992).

6.

Financing the largest manufacturing firms: ownership, equity, and debt (1936–2001)* Leandro Conte and Giandomenico Piluso

6.1

INTRODUCTION

Economic literature has often highlighted the positive connections that can arise and create a relationship between finance and growth (DemirgüçKunt & Levine, 2001), with regard to both the temporal structure of funding and, more broadly, the type of financing sources of the enterprises’ investments (Nakamura, 1993; Yosha, 1995; Johnson, 1998). It has been observed that the investment strategies in physical capital and human capital depend on the financial structure and on the prevailing model of corporate governance (Rajan & Zingales, 1995). Thus, in the long term, such choices determine the different degree of the competitiveness and the innovation capabilities of the firms. Finally, by extending the criteria of this analysis to a macro-economic level, the different dynamics of the growth of national economic systems have been outlined (Beck et al., 2001). On these topics, the institutional approach has become particularly relevant. This approach, while rejecting the theorem of Modigliani and Miller, focuses the attention on the transaction costs of the several ways in which enterprises collect and invest capital. Hence, it mainly points out the differences that result from the choice of how the capital to fund and manage the business is collected, according to the specific ownership structure and corporate governance. In fact, it can be assumed that investments that can be easily reallocated on the market, are generally funded through the debt capital, and that creditors (principals), when issuing funds, might not have sufficient information about the would-be borrowers (agents) to whom they commit their funds, and about the quality of the investment project. Such asymmetry could encourage and implement opportunistic behaviour. In the event of bankruptcy, the enterprise assets will be stripped and their evaluation will depend on the possibility of the 132

Financing the largest manufacturing firms

133

corporate capital to be reallocated on the market (for further in-depth analysis, see Hart, 2001). The way the ownership rights are used affects the firm’s efficiency (estimated in terms of profitability or the capacity of the firm to survive), in that the control patterns of the enterprises can affect both their growth and their investment decisions. It has been acknowledged that the efficiency of the enterprise depends on an efficient assignment of the ownership rights. According to this perspective, the new school of ownership rights has worked out a theory to identify their efficient allocation. The main point of this research is the analysis of the relationships between the holders of the ownership rights and those who exert control over the firms (Hart, 2001). This robust body of studies focuses its attention on the concept of ‘dynamic efficiency’ (Grossman & Hart, 1986; Hart & Moore, 1990; Hart, 1995). It outlines how the individual’s capabilities to be an entrepreneur are not exogenous, but depend on the way in which the control of the firm is allocated. It can happen that individuals who are potentially able to become successful entrepreneurs do not, because they are not given the opportunities and incentives consistent with that goal. Hence, the firm tends to lose efficiency – and, on a different level, so does the economy as a whole, when the inefficiencies in the allocation of these ownership rights are generalised. This condition of inefficiency can be overcome when the underlying rules of the capital market and corporate ownership allow individuals to be put in charge who have not already necessarily proved to be suitable or, similarly, when there is a tendency ‘to support the permanence of the main enterprises with centralised power as they operate in a productive way’ (Barca, 1997). The main aim of this work is to focus on the structure of the financial system, trying to explain, from one side, the strategies of large firms, and, on the other side, their performance. In so doing, we focus on the slowness of the process of separation between ownership and control, a long-term trait of Italian capitalism. The chapter is organised as follows: at the beginning, the literature on the Italian state-owned enterprises is concisely presented and discussed; furthermore, the sources used to reconstruct the capital structure and the impact of external financing of the top 200 manufacturing enterprises, ranked by total assets and selected for benchmark years for the period 1936–91, are introduced and discussed (Section 6.2). The variation of the capital structure and of the ratio between equity and debts for the largest 200 manufacturing enterprises are then presented with reference to the ownership (state-owned or private) and to the industrial sector according to the Ateco 1991 divisions1 (Section 6.3). More detailed information about the debt composition for a limited number of enterprises (the largest

134

Forms of enterprise in 20th century Italy

20 enterprises by total assets), representing about half of the total assets of the top 200 enterprises, allows the previous analysis to be integrated (Section 6.3.1); with the reconstruction of the series in relation to the connection between net worth and total debts, and to the main components of the debts of the two largest state-owned holding companies, IRI and ENI (Section 6.4). Final considerations and some interpretative hypotheses are introduced in brief in Section 6.5.

6.2

CAPITAL STRUCTURE AND DEBT OF THE TOP 200 MANUFACTURING FIRMS

Opinions about the role and the parabola of state-controlled business ownership in Italy can be brought back to the following kinds of consideration. Particularly suggestive in this respect is the essay of Barca and Trento (1997), which focuses the attention both on the split between the forms of funding, and the ownership and control of state-owned firms: this was determined by the various institutional contexts which had a role in the enterprise, and in the efficiency of the system as a whole. The authors point out the compensating role of the state-owned enterprises in Italy both in the years of great uncertainty (as during the crisis of the 1930s), and in the times of fast industrialisation or growth, where the completion of some investments was necessary. These investments were viewed as fundamental for the growth of the entire economy, i.e., in the main infrastructures and in the key sectors of the industrial structure. In this way, the state-owned firms would compensate blanks and shortages in private businesses, thereby ensuring the permanency of the large industrial groups that were able to drive the modification of the productive context and of strategic manufacturing sectors. More generally, in this way, state-owned enterprises were able to maintain the efficiency of the industrial system itself without interrupting the accumulation process of physical capital, technology, and technological capabilities. Moreover, they observed that, starting from the 1950s, a sort of ‘negative’ compensation replaced the positive one (de Cecco, 1997). This, in turn, became structural over the following decades, when the state-owned enterprise was given the possibility of remaining operational through specific financing sources, by means of ad hoc laws, which were not dependent on the firm’s efficiency or on its financial structures (Merusi, 1974). In accordance with what was pointed out by Barca and Trento (1997, Table 1), from the 1970s, the state-owned enterprise could have compensated its increasing losses caused by the badly managed manufacturing firms, by accessing special recapitalisation funds, that is to say, through

Financing the largest manufacturing firms

135

the supplies of money granted through legal measures. This proposal of the centrality of state-owned ownership and action was not followed, according to these authors, by a consistent reorganisational action. They believe that the state-owned top management determined a dynamic inefficiency which ‘betrayed’ its mission, which was to support the growth of the enterprise productivity. The top management pursued the goal – not always consistent with the previous one – of integrating industry with politics, that is to say, of preserving employment and defending the enterprises that were believed to be central to the national economic system (for example, the Finsider group) (Amatori, 2000). They argue that, from this social and political constraint, the top management would initiate both the choice of adopting specific industrial and economic policies largely supporting the state shareholdings (Partecipazioni Statali), such as those proposed by Pasquale Saraceno, which assigned ‘improper burdens’ to the state-owned enterprises, and the subsequent policy of the ‘national champions’ The authors believe that the crisis of the state-owned enterprises and the impossibility of reversing the situation in a context dominated at first by inflation, during the 1970s and the 1980s, and, afterwards, by the external constraints of the state budget, was due to the inefficiency in the relationships between ownership and control (Barca & Trento, 1997; Amatori, 2000; Bellini, 2000; Toninelli, 2000b). This key to interpret the ‘parabola’ of the state-owned enterprises and of the state shareholdings is very persuasive, but leaves significant margins of analysis and discussion. The empirical evidence collected in this research allows us to integrate the considerations and the hypotheses available to date. The specificity and the critical situation of the state-owned enterprise stem not only from what happened at a capital availability/profitability level (equity), but also from the debt dynamic (debt) as of the mid-1970s. Although this chapter allows us to revise some points of what is already known, it has to be pointed out that its primary purpose is that of information: it aims to reconstruct the trend of the overall debt of the state-owned manufacturing enterprises included within the largest 200 enterprises ranked by total assets, from the mid-1930s up to the 1990s. In particular, the purpose is to identify the possible differences in the financial structure of the state-owned enterprises compared to the largest private manufacturing enterprises. With this in mind, the financial structure analysis of the main manufacturing enterprises has been integrated with the analysis of the financial structure of the two main state-owned super-holding companies, the Istituto per la Ricostruzione Industriale (IRI) and the Ente Nazionale Idrocarburi (ENI) (Amatori, 2000). The goal of this analysis is to measure the relationship between debt and equity in the large-size Italian manufacturing enterprises; in particular, the

136

Forms of enterprise in 20th century Italy

attention is focused on two specific objectives. Two samples are used in order to study the dynamics of the capital structure of the largest industrial enterprises. The first sample takes into consideration the largest 200 manufacturing enterprises, ranked by total assets, presented here with reference to their ownership (state-owned or private) and with reference to the industrial sector according to the Ateco 1991 divisions. The second sample is a smaller one in which the largest 20 manufacturing firms, whose liabilities are better detailed, are considered: ii.

ii.

to point out the financial structure of the top 200 Italian manufacturing stock enterprises, and to establish if there are differences between them according to the different ownership systems and to their different technological specialisations; to estimate how the capital structure changed and, in particular, how the ratio between total debts and net worth in the two main state-owned holding companies, IRI and ENI, modified.

In relation to the first goal, the benchmark years 1936, 1952, 1960, 1971, 1981 and 1991 were used. The data in relation to the first four series were drawn from the database Imita.db, while those of the last two years, chosen because of the connection with the industrial census, were drawn from Le principali società italiane, published by Mediobanca.2 After having standardised the main balance-sheet items, we have calculated certain ratios for each year, such as the ratio of debt to net worth. Thereby, the impact of the collected funds as a whole was estimated with the aim of comparing the behaviour of the state-owned enterprises with that of the private enterprises of the selected sample, in order to verify if there were significant differences in the fundraising capacities and in the corporate finance choices, in order to determine the characteristics that were specific to the state-owned enterprise. As far as the second goal is concerned – the debt and capital structure analysis of IRI and ENI – the series of their balance sheets was reconstructed up to 2001. The ENI data are complete: its balance sheets go from 1955 to 2001 and the consolidated ones from 1974 to 2001. Data for IRI are not available from 1936 to 1941. The series of the consolidated balance sheets going from 1975 to 1999 is, however, complete (in the years 2000 and 2001, only the balance sheet of IRI in liquidation was drafted). In these cases, a standardisation of the balance-sheet items was also carried out, with particular attention to the reclassification of those which constituted the external financing and the net worth capital. The change for the benchmark years in the relationship between these two groups was estimated, and, as far as the external funds, in particular, were concerned, the strength of the impact

Financing the largest manufacturing firms

137

of bonds was also taken into consideration. All the elaborations were calculated at constant prices, taking 1970 as the base year.

6.3

CAPITAL STRUCTURE OF THE TOP 200 MANUFACTURING FIRMS

Empirical evidence shows differences in the composition of the sources of finance in major national cases, and by industry and sector. Generally, bond markets play a minor role in providing external financing in all major industrialised countries with the exception of the United States. In the 1980s and 1990s, it was observed that retentions had the lion’s share of the external financing in almost all major developed countries, albeit with differences in their size: much larger in the United States and the United Kingdom than in France, Germany, Italy, and Japan. Equity issuance accounted for a minor share, and loans for a consistent share in France, Italy, and Japan (Mayer, 1988, 1990). Leverage is usually rather different, also according to industry and sector, as was noted for the American case. In the mid-1980s, for instance, the debt to equity ratio – a measure of capitalisation – in the American manufacturing industry was 1.20 against an average of 2.11 for all industries (White, 1991).3 The analysis of the composition of the funding sources conducted on the major Italian private and state-owned enterprises shows the relative under-capitalisation of the Italian enterprises in all the benchmark years. The connection between capital and debt shows an unambiguous tendency of the largest Italian manufacturing firms to collect the necessary resources through debt. From the early 1950s to the early 1990s, the total debts were equal to two-thirds of the total of the available resources, amounting to double the venture capital invested in the enterprises themselves (the average debt to equity ratio for the whole period is 2.22). In the 1960s and 1970s, the amount of debt out of the total financing sources reached a particularly high level (in 1971, the debt to equity ratio reached its peak at 4.26), and, in the latter decade, the very high debt was joined by uncertainty about the cost due to the fluctuation of the (increasing) interest rates. Both these conditions penalised those enterprises which chose to fund themselves through external financing (debt) rather than through share capital (equity) (Table 6.1). The credit-rationing measures implemented by the central monetary authorities, the cost reduction of long-term interest rates and the recovery of the production capacity of enterprises allowed, as of the second half of the 1980s, the majority of the enterprises to reproduce, in the early 1990s, a status similar to that of the middle of the century (with the debt to equity ratio at around 2) (Tables 6.1 and 6.2).

138

Forms of enterprise in 20th century Italy

Table 6.1

Equity and debt in the top 200 manufacturing enterprises, 1951–91 (%) Average 1952 1952–1991

Equity Debt Equity private enterprises Equity state-owned enterprises Debt private enterprises Debt state-owned enterprises

1960

1971

1981

1991

31 69 29.59

30 70 31.71

38 62 37.62

19 81 16.55

30 70 32.52

40 60 34.96

32.34

27.5

37.41

25.81

28.68

43.07

70.4 67.65

68.28 72.49

62.37 62.58

83.44 74.18

67.47 71.31

65.03 56.92

24 21 18 15 12 9 6 3

Jan-70 Sep-70 May-71 Jan-72 Sep-72 May-73 Jan-74 Sep-74 May-75 Jan-76 Sep-76 May-77 Jan-78 Sep-78 May-79 Jan-80 Sep-80 May-81 Jan-82 Sep-82 May-83 Jan-84 Sep-84 May-85 Jan-86 Sep-86 May-87 Jan-88 Sep-88 May-89 Jan-90 Sep-90 May-91 Jan-92 Sep-92 May-93 Jan-94 Sep-94 May-95 Jan-96 Sep-96 May-97 Jan-98 Sep-98

0

Official rate

Source:

ABI rate-“prime rate”

Banca d’Italia (2006: n. 1).

Figure 6.1

Official interest rate (Bank of Italy) and the ‘prime rate’ (ABI), 1970–98

Paradoxically, the sources of finance of Italian manufacturing firms were much more dependent on debt (mainly, on short-term banking loans) when nominal interest rates became increasingly high, with a negative effect on their financial structure. Thus, for about a decade, high interest rates as a macro-economic variable negatively and strongly conditioned micro-economic behaviour and firms’ performances (Figure 6.1). The use of external funding is traced back in the literature to a series

Financing the largest manufacturing firms

139

100 80 60 % 40 20 0 1952

1960

1971 debt

Figure 6.2

1981

1991

equity

Equity and debt of the top 200 manufacturing enterprises

of variables, such as the capital intensity prevailing in the sector, the degree of maturity of the sector, and the average size of firms prevailing in the sector (Rajan & Zingales, 1995, 1998; Fisman & Love, 2004). In the Italian case, the habitual resort to external funding can also be traced back to other variables, such as the governance model of the large Italian enterprises (Barca, 1996; Bianco, 2003; Bianchi et al., 2005), the weakness of the offer of capital for equity issuance due to monetary policy choices, which orientated household savings to the massive underwriting of state bonds (Cotula, 1989; Ciocca, 2000), and the regulation of the Italian stock market, which discouraged listing, mainly at a fiscal level (Pagano et al., 1996; Siciliano, 2001). These variables were also accompanied by a cyclical dimension. The trend of the variable in the benchmark years, for example, appears as an average which is related, in its peaks, to the marked worsening of the financial situation of the large Italian enterprises from the late 1960s and the next decade. It is important to note that the position of the largest enterprises was more negative both because of the greater inelasticity in the capital-intensive sectors in which they operated, and because of the disproportional influence of the increase of the costs of input, energy included. The financial turmoil of Ansaldo, Fiat, Montedison, and Pirelli are significant examples (Marchi & Marchionatti, 1992; Amatori & Brioschi, 1997; Amatori, 2000). The equity and debt shares in the funds collected by the main Italian industrial enterprises to finance fixed capital investments and turnover growth show, in terms of the average figure for the entire period in consideration, essentially similar behaviour by the two components, state-owned and private firms. The state-owned enterprises of the sample seem slightly

140

Forms of enterprise in 20th century Italy

more inclined, or more able, to fund their growth by resorting to risk capital in comparison to the private enterprises. This fact, though, as we will see, was not also affected by the recapitalisation efforts made in the 1980s, which noticeably reduced the debt of the major state-owned enterprises before privatisation started at the beginning of the 1990s (Table 6.1). The average figure relating to the whole period softens the differences which can be seen in the different benchmark years, in which behaviour and choices which were partially not homogeneous between the two sub-groups came to light. The differences concern both the various years and the two sub-groups. In particular: (i) a marked contraction of the equity share occurred in 1971, which should offer a measure of the undercapitalisation, within a more general trend, noted for the largest Italian enterprises after the progressive financial worsening of the industrial firms started in the mid-1960s; (ii) it can be observed that the positions of the two sub-groups vary significantly according to the benchmark year. A fairly good weight of the equity component is seen for the first two years, in line with the average or even higher (in these two years, private firms appeared to be slightly more capitalised in comparison with the state-owned enterprises). A marked contraction follows for the private enterprises in 1971 (17 per cent) (state-owned enterprises went through a similar contraction but not to a degree that was radically distant from the average), with a return to a fairly good level of capitalisation in the last two years. Finally, the relatively high level of capitalisation of the state-owned enterprises just before privatisation is noteworthy (Table 6.2). In general, the composition of the funds by equity and debt appears less unstable in the state-owned enterprise sub-group. The strong Table 6.2

Equity, debt and debt-to-equity ratio for state-owned and private firms, 1952-1991 1952

1960

1971

1981

1991

State-owned enterprises Debt (%) Equity (%) Debt/equity ratio

72 28 2.57

63 37 1.70

74 26 2.84

71 29 2.44

57 43 1.32

Private enterprises Debt (%) Equity (%) debt/equity ratio

68 32 2.12

62 38 1.63

83 17 4.88

67 33 2.03

65 35 1.85

Financing the largest manufacturing firms

141

under-capitalisation emerged for the private enterprises in 1971 (characterised by a strong decline) and was probably limited for the state-owned enterprises by the possibility of access to state refinancing granted by the increases in endowment funds, as stated by Barca and Trento (1997). As this flexibility was not available to families owning the main private groups, the importance of leverage mechanisms increased, as leverage could allow the maintenance of the control of the enterprise by considerably reducing their stakeholdings (for example, the Fiat and Pirelli cases); in other cases, they had to hand over the firm’s ownership (for example, Olivetti) (Coltorti, 1988; Brioschi et al., 1990; Barca et al., 1997). These variations are consistent with the relevant role played, in those decades, by Mediobanca as an agent of balance, a sort of clearing-house, in the ownership and control structure of the major Italian groups (Colajanni, 1991; Amatori, 1999; Piluso, 2005). What has been observed so far can be further specified by analysing the average and median figures of the debt to net-worth ratio of the top 200 manufacturing enterprises, both private and state-owned enterprises. Two main trends can be identified in Table 6.3: in the first place, the stateowned enterprises appear, according to this ratio, to be generally more dependent on debt in comparison with private enterprises; secondly, the difference between the average and the median, particularly high for the public sub-group, shows that a low number of large state-owned enterprises tended to depend on debt to such a great extent that the whole subgroup was affected. Also note in this regard the increased importance of the state-owned component within the largest 200 enterprises in the last three benchmark years (see Table 6.3). Table 6.3

Ratio of debt to net-worth for the top 200 manufacturing firms, 1936–91 1936

1952

1960

1971

1981

1991

Top 200 manufacturing enterprises debt/net-worth ratio, average debt/net-worth ratio, median

200

200

200

200

200

200

1.5 0.7

6.4 3.3

2.6 1.7

4.9 2.9

7.1 4.1

3.9 2.1

State-owned enterprises debt/net-worth ratio, average debt/net-worth ratio, median

14 2.5 2.1

21 13.5 3.9

23 3.5 2.9

44 9.7 5.3

58 12.6 6.1

47 8.1 3.2

Private enterprises debt/net-worth ratio, average debt/net-worth ratio, median

186 1.5 0.6

179 5.6 2.9

177 2.4 1.6

156 3.6 2.6

142 4.7 3.5

153 2.7 1.8

142

Forms of enterprise in 20th century Italy

The apparent difference, between the state-owned component and the private, of the impact of debt on the sources of finance used by enterprises permits the integration of the hypothesis of a strong similarity and analogy between these two components (Giannetti & Vasta, 2003b, 2006). As far as the debt to net-worth ratio is concerned, an evident worsening of the state-owned component can be observed from the late 1960s and for the whole of the 1970s. Such a strong worsening of the financial structure of the major state-owned enterprises appears connected to two negative phenomena: (i) the profitability slump of this component; and (ii) the difficulties encountered by the sectors in which the presence of state-owned enterprises is greater, because of the price variation of raw materials and the intermediates used in these sectors, and because of the relative obsolescence of the technologies adopted by the Italian enterprises. Furthermore, a significant growth of the number of state-owned enterprises included in the sample is to be noted (44 in 1971, 58 in 1981). The average values of the ratio show an incontestable worsening, from a co-efficient of 3.5 for 1960, to one of 9.7 for 1971, up to one of 12.6 for 1981, reduced to 8 for 1991. The median values show, once again, that the financial worsening of the state-owned enterprises was mainly dependent on a group of firms whose debt clearly grows worse to a greater extent. The state-owned and private enterprises sectoral allocation shows a strong concentration of the state-owned firms in the Ateco divisions DI, DK and DJ, namely, in the sectors of other non-metallic products, machinery and equipment, and iron metallurgy. In these sectors, in the early 1970s, a marked worsening of the financial situation can be observed (Table 6.4). The state-owned manufacturing enterprises in these sectors were affected by the contraction of the state-controlled funding in a period in which a commitment to investment programmes at a deferred profitability was necessary. In order to estimate the comparative impact gained by the specifics of the ownership system (private versus state-owned) and, mutually, the comparative impact gained by the technological specifics (belonging to the various Ateco sectors) in determining the financial structure of the largest 200 enterprises in the six benchmark years, the average trends of all external funds and that of the net-worth capital for private and stateowned enterprises have been taken into account – for each Ateco 1991 sub-division – and these trends have then been compared with the average trend of all enterprises in each sub-division in the same years. The analysis shows that the variance from the average was mainly determined by the differences in the ownership structure. The trend of the external funds and the net worth of the private enterprises in most of the sub-divisions follows the average trend of the entire sector closely, while the trend of

Financing the largest manufacturing firms

Table 6.4

143

Ratio of debt to net-worth for the top 200 firms by sector (Ateco 1991), 1936–91

Industries*

1936

1952

1960

1971

1981

1991

DA DB DC DD DE DF DG DH DI DJ DK DL DM DN

0.49 0.99 0.36 0.52 0.70 2.00 1.04 0.53 0.88 2.54 5.13 1.19 3.99 0.13

10.65 6.74 6.41 1.34 3.10 3.92 2.86 1.12 1.40 6.99 6.08 6.80 13.64 0.62

2.79 1.61 – – 1.54 2.25 2.43 0.93 1.38 3.04 1.69 3.87 3.97 0.14

2.86 3.91 – – 2.96 4.30 9.21 2.05 1.89 4.92 4.16 4.43 8.34 0.17

3.09 3.77 – – 3.98 9.74 4.30 2.54 1.64 9.14 10.17 10.62 7.90 0.86

2.32 2.70 – – 1.76 4.38 1.91 1.57 1.00 10.18 5.47 5.22 3.57 –

Average Standard deviation

1.46 1.48

5.12 3.82

2.14 1.15

4.10 2.56

5.65 3.60

3.64 2.64

Note: * DA: Food and Tobacco; DB: Textiles and textile products; DC: Leather and leather products; DD: Wood and wood products; DE: Paper products, publishing and printing; DF: Coke and petroleum products; DG: Chemicals and chemical products; DH: Rubber and plastic products; DI: Other non-metallic products; DJ: Basic metals and metal products; DK: Machinery and equipment; DL: Electrical and optical equipment; DM: Transport equipment; DN: Other manufacturing.

the state-owned enterprises – especially from 1960 and then, much more consistently, from 1971 – is to indebtedness levels that are higher than the average. Tables 6.5, 6.6 and 6.7 highlight three sectors as examples: textiles (DB), oil (DF), and basic metal and metal products manufacture (DJ). These variances appear much more meaningful if we consider that, in some cases, they are determined by a small number of enterprises. They are seen in sectors on which the impact of the state-owned enterprises within the largest 200 (both in terms of number of enterprises and in terms of total assets) was relatively limited. In certain areas, even small groups of enterprises, if not single ones, determine important variances from the average. The clearest example of this is certainly the chemical sector (DG), in which the figure of the external funds of the state-owned enterprises was determined, in 1960, by the indebtedness of only one enterprise, ANIC, which was joined in 1971 by Eurallumina and Terni (Table 6.8).

144

Table 6.5

Forms of enterprise in 20th century Italy

Debt and net-worth capital in the textiles sector (DB) 1936–91 1936

DB sub-division, top 200 industrial firms Private firms (number) SOE (number) SOE in DB sub-division (% firms) SOE in DB sub-division (% total assets) Debt/net-worth average, DB top 200 Debt/net-worth average, DB private firms Debt/net-worth average, DB SOE

Table 6.6

1952

1960

1971

1981

1991

41

32

22

10

6

7

37 4 10

32 0 0

21 1 5

8 2 20

5 1 17

7 0 0

8

0

7

24

40

0

0.99

6.74

1.61

3.91

3.77

270

0.84

6.74

1.55

4.03

2.81

270

2.45

0

2.87

3.43

8.56

0

Debt and net-worth capital in the oil sector (DF), 1936–91

DF sub-division, top 200 industrial firms Private firms (number) SOE (number) SOE in DF sub-division (% firms) SOE in DF sub-division (% total assets) Debt/net-worth average, DF top 200 Debt/net-worth average, DF private firms Debt/net-worth average, DF SOE

1936

1952

11

24

11 0 0

1960

1971

1981

1991

24

28

24

18

24 0 0

21 3 13

24 4 14

16 8 33

12 6 33

0

0

29

34

62

63

2.00

3.92

2.25

4.30

9.74

4.38

2.00

3.92

2.20

4.16

9.54

5.32

0

0

2.62

5.15

10.14

2.50

Similarly, in the textile industry, the figure of the state-owned firms in 1971 is obtained by the sum of the debts of Manifatture Cotoniere Meridionali and, above all, of Lanerossi, which affected the sector in terms of total assets only by 24 per cent in the same year. The variances of the indebtedness of the state-owned enterprise appear to have increased in both the 1960s and 1970s with more impact than the

Financing the largest manufacturing firms

Table 6.7

Debt and net-worth capital in the basic metal and metal products sector (DJ), 1936–91

DJ Sub-division, top 200 industrial firms Private firms (number) SOE (number) SOE in DJ sub-division (% firms) SOE in DJ sub-division (% total assets) Debt/net-worth average, DJ top 200 Debt/net-worth average, DJ private firms Debt/net-worth average, DJ SOE

Table 6.8

145

1936

1952

1960

1971

1981

1991

23

32

31

30

21

19

20 3 13

24 8 25

22 9 29

17 13 43

10 11 52

13 6 32

41

64

66

75

79

57

2.54

6.99

3.04

4.92

9.14

10.18

2.85

4.58

2.70

3.30

3.43

2.73

0.50

14.22

3.89

7.05

13.29

26.33

Debt and net-worth capital in the chemical sector (DG), 1936–91

DG Sub-division, top 200 industrial firms Private firms (number) SOE (number) SOE in DG sub-division (% firms) SOE in DG sub-division (% firms total assets) Debt/net-worth average, DG top 200 Debt/net-worth average, DG private firms Debt/net-worth average, DG SOE

1936

1952

1960

1971

1981

1991

36

28

33

29

28

36

34 2 6

28 0 0

32 1 3

26 3 10

23 5 18

27 9 25

4

0

7

12

27

38

1.04

2.86

2.43

9.21

4.30

1.91

0.91

2.86

2.47

3.73

3.37

1.46

5.43

0

1.00

2.56

4.06

3.25

average (caused by the far larger number of private firms falling into debt with smaller quantities), and collapse in 1981. This determines the distance between the two sub-sets and, as a consequence, confirms the hypothesis that the ownership affects the indebtedness levels and thereby the ranking

146

Forms of enterprise in 20th century Italy

position of the largest 200 enterprises.4 This determined the subsequent decrease of the profitability of state-owned firms, their increasing difficulty in collecting long-term funds through bonds issuance, and growing indebtedness in the short-term credit market, initially at prime rates, then more often at higher rates (Pontolillo 1980). As a consequence of this, the debts vis-à-vis the banking system increased and the financial structure of the firms gradually worsened. Ilva (IRI group), for example, which, in the benchmark years, 1971–91, was always included in the first three positions of the top 200 firms, is a remarkable example of these conditions, recording both negative figures of the return on equity (ROE) and returns on assets (ROA) indexes, and a significant level of short-term debt vis-à-vis banks (Coltorti, 1988; Balconi, 1991; Osti, 1993). 6.3.1

The Debt Components of the Top 20 Manufacturing Enterprises

The analysis of the debt components is currently possible only for a small sub-set of manufacturing firms, due to limitations of sources. However, it is possible to obtain detailed information for the top 20 enterprises (ranked by total assets), through the data collected by Mediobanca for the years 1952–71. This sub-set includes more than half of the overall total assets of the top 200 enterprises.5 The analysis takes into account the structure of the available funds, and reconstructs to what extent the financing sources available for the enterprise growth depended on equity, long-term indebtedness on the obligations market, short-term debts to the banking system, and short-term debts in general. For this sub-group, the consistency of the infra-group debts and credits was evaluated, as these data were useful to estimate, at least partially, the spin-off for the manufacturing enterprises of the long-term indebtedness ability of the group holdings. The mix of the external funds of the selected major enterprises confirms the importance of short-term debts provided by the banking system. The overall average highlights a mixture of the debt liabilities of the selected enterprises, and shows the role of the banking system as a source of collecting short-term, middle- and long-term credits, confirming the bankoriented characterisation of the Italian financial structure (Biscaini-Cotula & Ciocca, 1978). The banking system provided more than 45 per cent of the external funds collected by the major industrial enterprises, whereas the debts with the associated firms represent an amount that is slightly smaller than that of the long-term debts incurred through the issuing of bonds (Table 6.9). The funding composition shows that the relative weight of the middleand long-term debts is, on the whole, equal to about 40 per cent of the

Financing the largest manufacturing firms

Table 6.9

147

Debt composition of the top 20 enterprises, 1952–71 (%) Average 1952 1952–71

Banks Obligations Debts with associated firms Other debts Mid- and long-term debts

1952

1960

1960

1971

1971

15 9 7

SOE 19 12 5

Private 23 14 6

SOE 9 11 4

Private 14 25 3

SOE 22 6 10

Private 17 6 3

36 31

64 –

57 –

51 25

49 9

16 46

55 19

total (Table 6.9). Such information is consistent with what is known about the access to the middle- and long-term funding for the Italian enterprises. The main industrial enterprises seem to have had easier access to the middle- and long-term funding and on the obligations market, thanks to the opportunity to offer guarantees – accountable and administrative – that were not available for the smaller enterprises (Conti, 1999; Piluso, 1999). It is less easy to specify and to distinguish, in its components, the mixture of the most relevant item in the relative terms: the ‘debts’, equal to slightly less than 40 per cent of the total, most probably represent shortterm liabilities that were not incurred with banks, as those with suppliers could be, and short-term management debts with the bank system (see Table 6.9). In the first benchmark year, the debt composition – a less detailed composition – shows that the largest amount was represented by the shortterm ‘other debts’, as they can be described from a formal point of view. The funding granted on middle- and long-term conditions is not clearly identifiable, due to the amount of short-term debt vis-à-vis the banking system, whereas funding obtained from the market through obligations had, in step with the data of the Italian capital market, a larger consistency in comparison to the average, when referring to the whole. In 1960, the amount of obligations was slightly less than a fifth of the total, and combines with middle- and long-term debts offered by the special credit institutions, to represent about a third of the whole. These data confirm the basic trends highlighted in the literature, which is that the major industrial enterprises could, at this stage, obtain funds at relatively low interest rates through the roll-over of their formally short-term debt. Due to the increase in middle- and long-term debts, there was a relative contraction

148

Forms of enterprise in 20th century Italy

of the debts incurred with the banks, while the infra-group debts with the associated firms remained essentially at the same levels. The general trends in the debt composition of the large industrial enterprises are also substantially confirmed by the data referring to 1971, which highlight the increase of the middle- and long-term debts offered by the special credit agencies, and the reduction of the debts incurred through the issuing of obligations. The poor flexibility of the market offer against the loss of profitability of the largest Italian industrial enterprises – even only through the expansion of the bonds component – highlighted the underlying rigidity of the Italian banking system (Gigliobianco et al., 1999). The erosion of the self-financing ability of the large enterprises and the gradual worsening of their financial structure in the 1960s and 1970s – phenomena detected through the first sample of investigations carried out by Mediobanca – is confirmed by the analysis. The worsening of the debt situation of the main industrial enterprises, which emerged from the second half of the 1960s, probably caused the recomposition of the enterprises debt as pointed out in Table 6.9 (Coltorti, 1988). The worsening of the large enterprises’ profitability and the subsequent decrease of their self-financing ability (essential, up to then, to ensure the sustainability of the long-term investments) induced the enterprises and the banks that provided funds to change part of the debt from shortterm to middle- and long-term debt in order to avoid conflicts between the temporal composition of the banks’ portfolio and the banking law. As a matter of fact, as is known, the settlement of the debts through the obligations was only formally obtained, because the obligations which were issued – but not absorbed by the market (or, if so, to a degree lower than what was needed) – had to be undertaken in their portfolio by commercial banks: a phenomenon known as ‘double intermediation’ (Carli, 1978). The debt composition shows a remarkable difference between the group of state-owned enterprises and that of private enterprises. The percentage of the middle- and long-term debts of the state-owned enterprises is twice as high as the same percentage calculated for the private enterprise group. It reflects the ability to obtain greater quantities of credit issued on special administrative conditions. The amount of the obligation debt seems to consolidate at levels which, all in all, are not homogeneous with the two sample sub-groups, with 7 per cent of the debt of state-owned enterprises and 11 per cent of the debt in private companies being incurred through the issue of obligations. The amount of debt with the associated firms is double for the state-owned enterprises compared with the private enterprises, and this could be the first confirmation of the idea that the infragroup financial relationships were more developed in the state-controlled area than in the private one (see also Frasca & Marotta, 1988).

Financing the largest manufacturing firms

149

The last relevant information is constituted by the amount of nonspecified debts, which were, in principle, short-term debts with suppliers: the percentage of this item is smaller for the group of the state-owned enterprises, and is mainly a sign of more rigid supply (and payment) practices.

6.4

THE CAPITAL AND DEBT OF IRI AND ENI

The possibility and the ability of the enterprises operating in the statecontrolled sector to collect funds for investments depended on the financial policies of the holdings to which they belonged, whose financial structure depended, in turn, to a large extent, on the Parliamentary decisions regarding the issuing of additional funds for the endowments of the holdings themselves. The dynamics of the net worth and debts of IRI and ENI confirm the relevance of the industrial policy choices with regard to the adjustments in the levels of capital in the two major state-controlled holdings. Due to delays in the policy choices and to the scarce incentives for investments in the state-owned enterprise obligations, these enterprises had no choice but to resort to the bank credit, which they obtained because of being state-owned, even when their operational conditions were not such as to be able to offer a real margin of guarantee. The resulting increase in the cost of debt in these cases further worsened the conditions of the enterprises. The industrial flop of IRI is not, in fact, to be attributed to the financial difficulties which ended up affecting its financial structure as well as the organisation of its business. Figure 6.3 shows the dynamics of the capital collection put into effect by IRI. From the post-war recovery up to the mid-1970s, a relatively gradual progression both of the net worth and the debt can be observed, in clear connection with the expansion of investments and the increase in the number of controlled enterprises. At this stage, it can be pointed out that, at constant values (1970), IRI was able to collect resources by means of middle- and long-term indebtedness through the obligations market and through special credit institutions. From the mid-1970s onwards, the net worth of IRI suffered a drastic drop, only partially halted twice in the following decade: in the 1980s, the financial readjustment of IRI was achieved through a gradual recapitalisation, which had to be put into effect again, as an extraordinary measure, at the end of the decade, because its debt dynamics were out of control. The quick and marked contraction of the relative figures in the 1980s coincides with the restriction of the perimeter of the state-owned enterprises, which started with privatisation. As illustrated in Figure 6.4, the supply of funds on the obligations

150

Debt and net worth capital of IRI, 1933–2001

–50 000 000

450 000 000

950 000 000

1 450 000 000

1 950 000 000

2 450 000 000

2 950 000 000

Figure 6.3

Italian Lire (constant prices 1970)

1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 Net worth

1963 1965 1967

1969 Debt

1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

151

Bonds and other debts of IRI, 1933–2001

0

500 000 000

1 000 000 000

1 500 000 000

2 000 000 000

2 500 000 000

Figure 6.4

Italian Lire (constant prices 1970)

1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 Bonds

1963 1965 1967

Other debts

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

152

Forms of enterprise in 20th century Italy

market was extensive, and increased up to the second half of the 1960s, but reduced to a significant extent at the end of the decade and for the whole of the following decade. The supply of funds on the obligations market allowed IRI to fund the investments achieved in the 1960s at relatively controlled cost, with the support of the funds coming from credit obtained on easy terms (Posner & Woolf, 1967). The difficulties which, to an increasing degree, emerged on the bond market from the early 1970s were derived from the reduced willingness of investors to buy bonds issued by state-controlled holdings and by special credit institutions, and this coincided with the diffusion of the ‘double intermediation’. The increase in the other debt components seems to be in line with what was noted by Gian Lupo Osti, an IRI manager, in a statement about the Finsider group: as of the early 1970s, having to quit the funds supplied through obligations, IRI and Finsider, in particular, had to resort to short-term debts with the banking system at very high rates. This had the effect of importing elements of disequilibrium in their own financial standing, which facilitated the political pressures on the management of the state-owned holding companies (Osti, 1993, p. 276). The data from the IRI consolidated balance sheets reinforce the trends observed in its own balance-sheet data. Moreover, the consolidated balance sheet allows us to access information regarding the area effectively controlled by the major super-holding. As can be observed, the under-capitalisation of IRI seems persistent, and was not curbed until the mid-1990s (Figure 6.5). The analysis of the same variables referred to ENI offers some confirmation of the differences between the two major state-owned holding companies. While IRI was a conglomerate which was present in nonrelated sectors, ENI had, and has, a specialisation in the energy sector, with consistent ramifications in chemistry, a specialisation which, though exposing the holding to the variations of the prices related to the sector, permitted it also to catch fully the opportunities derived from the expansion phases of the sector (Carnevali & Sapelli, 1992). The destabilising effect of the oil crisis of the early 1970s was, in substance, reabsorbed in the following years, and only in two phases did the debts outnumber the net worth, while the last decade highlights a strong financial reinforcement of the holding (Figure 6.6). Similarly to IRI, ENI was affected by the reduction of the opportunities to collect funds on the bonds market. But, unlike IRI, it kept the increase of non-bond debts under control in the 1980s and 1990s, with the exception of two peaks (Figure 6.7). Similar trends are at least verifiable for the consolidated balance-sheet data: the group consolidated balance sheet for ENI shows the greater

153 Net worth

Debt

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Net worth and debts of the IRI group (consolidated), 1975–99

0

2 000 000 000

4 000 000 000

6 000 000 000

8 000 000 000

10 000 000 000

12 000 000 000

14 000 000 000

16 000 000 000

Figure 6.5

Italian Lire (constant prices 1970)

154

ENI net worth and debt, 1955–2001

–200 000 000

300 000 000

800 000 000

1 300 000 000

1 800 000 000

Figure 6.6

Italian Lire (constant prices 1970)

1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 Net worth

1976 1977 1978 1979 1980

Debt

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

155

Bonds and other debts of ENI, 1955–2001

0

500 000 000

1 000 000 000

Figure 6.7

Italian Lire (constant prices 1970)

1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Bonds

1975 1976 1977 1978 1979

Other Debts

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

156 1987

1986 Net worth

1989

1988

1985

1984

1983

1982

1981

1980

1979

1978

1977

1976

1975

1974

1990 Debts

Net worth and debts of ENI group (consolidated), 1975–2001

–1 000 000 000

1 000 000 000

3 000 000 000

5 000 000 000

Figure 6.8

Italian Lire (constant prices 1970)

7 000 000 000

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

Financing the largest manufacturing firms

157

influence of the debts, only partially represented by bonds, than the net worth compared to the group holding. In comparison to the data referring to the single holding, the consolidated data concerning the whole group confirm ENI’s trend to rebalance significantly the connection between net worth and debt at the end of the last century (Figure 6.8). The debt dynamics and the capital structure development of the two main state-controlled holdings confirm some comments which emerged with reference to the manufacturing enterprises. The financial worsening of IRI and the need to substitute the middle- and long-term debts obtained through obligations for short-term debts with the banking system implied, for the state-controlled conglomerate, an exposure to the risks connected with the variances of particularly high interest rates. The marked contraction of the operational enterprises of IRI and the crisis of entire sectors, such as the iron and steel industries, in which the conglomerate had a massive presence from the early 1970s, pushed the debt upwards – at increasing costs – and further weakened the ratio of debt to net worth, which contributed to set financial imbalances that were only partially resolved through transactions of recapitalisation of the holding in the following decade. In contrast, the financial structure of ENI appears to be placed along a more balanced trajectory, despite some phases of uncertainty due to large variations in oil costs, and to the assignment to the holding of general tasks of energy supply to the country. The endurance of ENI seems, therefore, to be connected, not so much to the possibility of access to additional sources of finance, but to the control of the total amount of debt. Thus, the crisis of IRI, from this point of view, must be imputed to the increase of the amount of debt, which was out of the control of the holding, and to the lack of profitability dynamics which could support the high level of accumulated debt in the long run.

6.5

CONCLUSIONS

The top of the whole of the Italian manufacturing system was characterised by weak capitalisation, and, most of all, by an increasing indebtedness throughout the considered period. The preference for the debt seems to be ‘ingrained’ in the system of the main industrial enterprises, regardless of the nature of their ownership. Having said that, the debt structure evolved differently in the two sub-groups, those of state-owned and private enterprises. The indebtedness of the state-owned enterprises tends to rest mainly upon forms of middle- and long-term duration. It follows that the weakness detected in the state-owned enterprise system from the 1970s can be attributed, not just to specific product and technology choices, but to

158

Forms of enterprise in 20th century Italy

the choices related but to the debt–equity ratio and, even more so, to the specificity of the liabilities. As observed, some long-term trends in the composition of the debts of the top 200 industrial firms confirm the relative lack of flexibility and efficiency of the domestic financial market, on the one hand, and the increasing rigidity of the banking system from the early 1970s, on the other. When a sharp downturn of the profitability of the largest manufacturing firms eroded their self-financing ability in the 1960s and 1970s, a worsening of the financial structure rapidly occurred. From the early 1970s, stateowned enterprises experienced both a fall in profitability and an increase of short-term debt to the banking system. Some major state-owned firms, such as the steel-maker Ilva, suffered growing costs from these high amounts of short-term debt, while less expensive long-term debt through the issuing of bonds became more and more difficult. Finally, the severe impact of some macro-economic shocks, such as the increase in bank interest rates or in the price of raw materials, on the financial structure of industrial firms was particularly hard for state-owned manufacturing enterprises. Eventually, the unaffordable amount of debt was among the causes of the wave of privatisations that occurred from the early 1990s onwards.

NOTES * 1. 2. 3. 4.

5.

We are grateful to Andrea Sironi for his helpful comments on an earlier draft of the chapter. The Ateco classification of industrial sectors, used by ISTAT, is the national classification system akin to the International Standard Industrial Classification (ISIC). About the database, see the chapters by Giannetti and Vasta, and Toninelli and Vasta in this volume. For a discussion of this topic, see Tirole (2006). It should be noted, though, that the ranking is defined in terms of the total assets of the balance sheet. This does not allow us to understand if the debt capitals obtained were invested to increase production capacities with the same technology (which is most likely to increase plants’ scale); to develop or acquire technologies to enhance productivity or heighten quality and expand the product range in line with international technological trajectories of the respective sectors; in investments of a financial nature; or to face the dynamics of the current expenses (for example, for personnel remuneration). This is normally included between 53 per cent and 55 per cent, decreasing to 49 per cent in 1981 to 44 per cent in 1991.

PART II

The power of localism: exploiting windows of opportunity

7.

Small firms and local production systems (1900–1960)* Mario Perugini and Valentina Romei

7.1

INTRODUCTION

In Italy, the discussion about the role of small firms in the process of industrialisation and economic development has been lively for a long time, especially since the 1970s, when the concept of ‘industrial district’ became of common theoretical use.1 A prolific period of case studies produced dozens of interpretative models and hundreds of analyses of ‘local areas of industrialisation on traditional sectors’.2 Historians, economists and sociologists who studied the industrial districts took a large variety of topics into consideration, from the role of institutions, to the mechanisms with which social and industrial structures interact, in addition, of course, to the more traditional studies on the production structure and organisation. A number of economists identified the economic and social events of the 1970s – the crisis of Fordism as a form of organisation, the crisis of mass production in general, the reorganisation of the large factories in the north-west of Italy that led to a decentralisation of manufacturing production and the development of numerous subcontracting firms in the central and north-eastern Italian regions – as the main factors for the development of clusters of small and medium enterprises (SMEs) in Italy (Brusco & Paba, 1997; Bellandi, 1999; de Cecco, 2001). However, the thesis of the origin of Italian industrial clusters in the 1970s has been disputed by historical research that has highlighted the importance of small firms in the long-term Italian economic development (Federico, 1994a; Colli, 2002a). Moreover, the continuity observed in a number of existing industrial clusters with the artisan manufacturing areas of the 19th century is considered as an indication of the deep roots of industrial clusters in the history of the country (Belfanti & Maccabelli, 1997; Nuti, 1997). Many questions remain to be answered, though: in which regions and forms were the first systems of small firms born? How is it possible to explain 161

162

Forms of enterprise in 20th century Italy

that some of them survived and transformed into industrial clusters that are still flourishing, while others existed only for a limited period of time? Is the geographical concentration on the north-east of Italy a long-lasting characteristic? What was the relationship between industrial and political history of the country and the emergence of the industrial clusters? This piece of research tries to provide answers to those questions by combining quantitative and qualitative approaches: it consists of a quantitative analysis that maps the clusters of small firms, and an interpretation of the map accomplished by using qualitative sources of information. Despite the various pieces of research that studied the origins of the Italian industrial clusters in the first stages of the economic development of the country, there is no quantitative study that temporally and geographically covers the entire national territory during the crucial period 1900–1960. A long-term quantitative analysis of local production systems raises various problems of data availability, homogeneity and comparability. The only source of information for the whole country and for the whole period that distinguishes among the different geographical areas is the National Censuses of Industry.3 The censuses are sources of historical statistics of enormous importance for analysing the changes that occurred during the evolution of the industrial structure of the country, but they are not free of problems of comparability. This is why most of the studies refer to the post-world War II period,4 when the details and the availability of data allow some of these difficulties to be faced. The most comprehensive and quoted study is the one by Brusco and Paba (1997). This is based upon a methodology developed by Sforzi (1991), and then adopted by the National Statistical Office (ISTAT). The main concept is the identification of ‘areas of local labour market’,5 that is to say, geographical areas to which a large part of commuters headed.6 After mapping the various industrial districts using commuter data for the year 1991, Brusco and Paba looked at the same districts back in the period from 1951 to 1991. However, if the methodology they used set a new statistical approach to the study of industrial districts, it cannot be applied to periods before 1951, and the 1951–61 period needed important ‘adaptation’, due to the lack of data (Brusco & Paba 1997: 277). In order to attain the necessary level of coherence and homogeneity for the first five industrial censuses of the country (1911, 1927, 1937, 1951, 1961), we used provincial data.7 The lack of data for smaller geographical areas, such as boroughs, is one of the reasons that led us to the adoption of a mixed methodology in which qualitative information8 completes and helps us interpret the results of the quantitative analysis. The methodology adopted to achieve the main aim of this work is the following:

Small firms and local production systems

1. 2. 3.

163

We built a database with homogeneous and comparable data on employment by sector and by firm size;9 We created an algorithm to identify the local systems of small firms; We integrated the statistical analysis with the qualitative sources in order to correct, complete and implement the available information. We did this with the annual economic reports of the local Chambers of Commerce.

However, for the purpose of this work, we did not look at the whole country, but limited the study to three regions that are considered to be representative and illustrative of the various economic and industrial scenarios of the Italian peninsula, namely, Lombardy, Tuscany and Campania.10 The choice of Lombardy, the main industrial region throughout the 20th century, is an example of the co-existence and the integration of large firms in capital-intensive sectors and local production systems of SMEs. In contrast, Tuscany is one of the first examples of economic development based upon ‘light’ manufacturing production. The last region, Campania, is an example of the evolution of the local systems in the south of the country. The analysis of the latter is particularly interesting because it offers the opportunity to verify whether the emergence of clusters of small firms in the south is only a recent phenomenon (Viesti, 2000) or whether it is rooted in the ‘proto-clusters’ composed of small artisan firms which emerged from the mid 19th century, but then disappeared because of the competition of the new large firms and mass-production methods in the north-west of the country (Galimberti & Paolazzi, 1998). The analysis of the local systems of small firms in these three regions during the first half of the 20th century should cast some light on the role of small firms in Italian industrial development, and should also help us Table 7.1

Number of industrial employees in Lombardy, Tuscany and Campania (1911–61)

Year

Lombardy

% Italy Tuscany % Italy

1911 1927 1937 1951 1961

646 948 920 848 1 116 624 1 250 063 1 656 442

Source:

Authors’ elaboration on industrial censuses.

28.6 29.3 27.8 29.7 29.8

181 972 257 295 298 635 299 542 442 940

8.0 8.2 7.4 7.1 8.0

Campania

% Italy

Italy

155 891 159 254 217 196 205 590 265 901

6.9 5.1 5.4 4.9 4.8

2 261 971 3 144 759 4 020 438 4 211 618 5 565 786

164

Forms of enterprise in 20th century Italy

to identify the roots of the ‘Italian districts’ which, for more than 30 years, have characterised the Italian economy. This chapter has the following structure: Section 7.2 describes the quantitative parameters that compose the algorithm used to identify the local industrial systems, while Sections 7.3, 7.4 and 7.5 illustrate the chronological evolution of the manufacturing clusters from 1900 to 1960. Section 7.6 concludes the chapter.

7.2

THE QUANTITATIVE PARAMETERS

In order to identify the local industrial systems of small enterprises, we have used the national censuses of industry. We applied an algorithm to the standardised11 census data, which was able to identify the areas with: (1) a high level of specialisation; (2) a high importance of a sector in the economy of the province; (3) a dominant role of small firms12. The quantitative parameters have been defined as follows: (1) Index of specialisation of production (a) It is formally defined as a = [D (j) (Pi) / D (Pi)] / [D (j) (I) / D (I)] ≥ 1.2 where: D (j) (Pi) is the number of industrial employees (D) in the industrial sector (j) in the province (Pi); D (Pi) is the total number of industrial employees (D) of the province (Pi); D (j) (I) is the number of employees in the industrial sector (j) in Italy; D (I) is the number of industrial employees in Italy. (2) Importance of the sector (b) It combines two parameters, namely, the importance of the sector in the local area (b1) and the importance of the sector at national level (b2). The parameter b1 is defined as: b1 = [Da (j) (Pi) / D (Pi)] ≥ 0.05 where: Da(j) (Pi) is the number of employees in the industrial sector (j) with a relevant specialisation (a) in the province (Pi); D (Pi) is the number of total industrial employees (D) in the province (Pi).

Small firms and local production systems

165

The parameter b2 is composed of two sub-parameters, defined as: b2.1 = [Da1 (j) (Pi) / D (j) (I)] ≥ arithmetic mean of [D (j) (Pi=1,2,3. . .n) / D (j) (I)] where: Da(j) (Pi) is the number of employees in the industrial sector (j) with relevant specialisation (a) in the province (Pi); D (j) (I) is the number of employees in the industrial sector (j) in Italy; [D (j) (Pi=1,2,3. . .n) / D (j) (I)] is the set of the measures [D (j) (Pi) / D (j) (I)] relative to all Italian provinces. b2.2 = [Da (j) (Pi) / D (j) (I)] ≥ [D (Pi) / D (I)]*1.2 where: Da (j) (Pi) is the number of employees in the industrial sector (j) with relevant specialisation (a) in the province (Pi); D (j) (I) is the number of employees in the industrial sector (j) in Italy; D (Pi) is the total number of industrial employees (D) of the province (Pi); D (I) is the total number of industrial employees in Italy. The algorithm is not finished, as we have now to identify the local industrial systems based upon: (3) Dominant role of small enterprises (s) In order to identify this, we have to select two other parameters that take into accounts the size of national industrial productive activities as a whole (s1) and in the various sectors (s2). They are defined as: s1 = [Da (j) (Pi) / Ua (j) (Pi)] ≤ [D (I) / U (I)]*2 where: Da (j) (Pi) is the number of employees in the industrial sector (j) with relevant specialisation (a) in the province (Pi); Ua (j) (Pi) is the number of enterprises in the industrial sector (j) with relevant specialisation (a) in the province (Pi); D (I) is the total number of industrial employees in Italy; U (I) is the total number of enterprises in Italy. s2 = [Da (j) (Pi) / Ua (j) (Pi)] / [D (j) (I) / U (j) (I)] ≤ 2.5

166

Forms of enterprise in 20th century Italy

where: Da (j) (Pi) is the number of employees in the industrial sector (j) with relevant specialisation (a) in the province (Pi); Ua (j) (Pi) is the number of enterprises in the industrial sector (j) with relevant specialisation (a) in the province (Pi); D (j) (I) is the number of employees in the industrial sector (j) in Italy; U (j) (I) is the number of enterprises in the industrial sector (j) in Italy. The result of the algorithm described above applied to the census data is reported in Table 7.2. The selection of sectors and provinces is then used as a guide to browse the extensive source of information constituted by the annual reports of the Chambers of Commerce of each province.13

7.3

THE ‘GIOLITTIAN’ TAKE-OFF

According to Table 7.2, in 1911, we can observe that, in all the three regions taken into consideration, there is a relatively large number of local industrial systems of small enterprises (LISSE)14 in various sectors. In the region of Lombardy, there are seven LISSE, three in the province of Pavia (‘Food’, ‘Clothing’ and ‘Leather’), two in the province of Brescia (‘Steel’ and ‘Other metals’ industries), one in Cremona (‘Food’), and one in Milan (‘Furniture and other manufacturing industries’). In Tuscany, the province of Florence stands out with four LISSE (‘Leather’, ‘Wood’, ‘Glass, concrete and stones’ and ‘Furniture and other industries’). The province of Lucca has two LISSE (‘Other extractive industries’ and ‘Paper’), while the province of Massa and Carrara has one (‘Other extractive industries’). In the southern region of Campania, the province of Caserta has three LISSE (‘Food’, ‘Clothing’ and ‘Leather’), two the province of Naples (‘Leather’ and ‘Furniture and other industries’) and that of Salerno (‘Food’ and ‘Leather’). In a period known for the emergence of large-size industries (Bonelli, 1975; Romeo, 1991; Amatori, 1999) and for the process of mechanisation, the clusters of small firms appear to be expanding and prosperous. Small firms took part in this process of mechanisation, but did not change their nature or their form of organisation. The adoption of steam and, in particular, of electrical engines, placed the clusters of firms that used them on a different level than artisan producers, but this did not necessarily mean a radical change in the way firms already interacted with each other. In the case of hat producers, for example, a few firms employed steam engines and mechanical presses in the 1880s,

167

Sondrio Varesea

15, 18, 19

Pavia

18, 19

36

36

Milano

15

18, 28, 36

1927

15

15

27, 28

1911

20

36

15

15

36

29

1937

29, 36 29

15

15

28, 36

29

1951

14

29, 36 29

20

15

28, 36

28, 29

1961

Pistoiab Siena

Pisa

Massa–C.

Lucca

Livorno

Grosseto

Arezzo Firenze

Tuscany

14, 21 14

19, 20, 26, 36

1911

14, 26 20, 26

26

19, 20, 26

1927

26

26

17, 18, 26

1937

26

26

26

17, 19, 26

1951

14

14, 26 14, 26 19, 26

17, 19, 26

Salerno

Napoli

Casertac

Avellino Benevento

15, 19

15, 18, 19 19, 36

15, 19, 20, 28 15

–

15, 2

15, 19

–

15, 19, 28, 36 15, 19

20

18, 19

1961 Campania 1911 1927 1937 1951 1961

Types of LISSE in Lombardy, Tuscany and Campania (1911–61)d

Mantova

Cremona

Como

Bergamo Brescia

Lombardy

Table 7.2

168

(continued)

Source:

Authors’ elaboration on industrial censuses.

Notes: a The province of Varese was created in 1927 by merging two boroughs of the province of Como and Milan. Data for the province of Varese in 1911 is calculated with the weight of the province in the total of the Lombardy region in 1927. For the purposes of the calculation, it is assumed that the province was half in the province of Como and half in that of Milan. b The province of Pistoia was created in 1927 by assembling various boroughs. Data are calculated using the process described in note (a). c The province of Caserta experienced several administrative changes during the Fascist period. The changes in the size of the province led to the choice of not investigating the sub-sector split for the censuses in 1927 and 1937. d Industrial Classification Categories (ATECO 1991): C Mining and quarrying: 10 Mining of coal and lignite, extraction of peat, 11 Extraction of crude petroleum and natural gas, 12 Mining of uranium and thorium ores, 13 Mining of metal ores, 14 Other mining and quarrying D Manufacturing industries: 15 Food products and beverages, 16 Tobacco products, 17 Textiles, 18 Cloth, 19 Tanning and dressing of leather, manufacture of luggage, handbags, saddlery, 20 Wood products, 21 Paper products, 22 Publishing, 23 Manufacture of chemicals and chemical products, 24 Energy, 25 Rubber and plastic, 26 Glass, concrete and stones, 27 Iron and steel industry, 28 Metallurgy 29 Mechanical instruments 30 Office equipment 31 Non-specific electrical machinery and apparatus 32 Radio, television and communication equipment and apparatus 33 Medical, precision and optical instruments, watches and clocks, 34 Motor vehicles, trailers and semi-trailers, 35 Other transport equipment, 36 Non-specific furniture; manufacturing, 37 Recycling, E Utilities: 40 Electricity and gas 41 Water supply F Construction: 45 Construction industry

Table 7.2

Small firms and local production systems

169

increasing the production capacity to much higher levels than artisan production, but the use of technology did not change the traditional organisation of hat production. On the contrary, it actually fostered the adoption of the putting-out system as the mechanical processing was applied only to the modelling, colouring and finishing of the product, while domestic workers and small firms were in charge of other phases of production. The census of 1911 provides us with a picture of the economic conditions of Italy, in which the LISSE are frequently linked with the typical form of ‘rural industry’,15 in that they either adopted some basic technology and engines or did not. The countryside supplied the small enterprises with raw materials and with their labour force, which was often in excess of the demand of the productive agriculture.16 The use of the domestic labour force, especially female, was a characteristic of many local systems of small firms and also a characteristic of cross-industries, which implies that it was largely independent of the type of production (Colli 1999). The reasons for the dominance of the putting-out system in the LISSE are various, and they include the flexibility of the labour force, a production process that can be split into various simple phases, a labour market in need of remunerative, but flexible, activities, and the low capital requirement in some of the phases of the production process. One of the most representative cases of local systems of small firms that adopted the putting-out form of organisation is probably the production of straw hats in the province of Florence, in Tuscany (Pescarolo & Ravenni, 1991). The importance of the sector is such that it explains two of the four LISSE of the province of Florence.17 In 1884, the province of Florence estimated the number of hats exported to be around 5 million, and the number of straw twists produced to be 12–15 million. In 1900, about 84 000 people were employed in firms operating in the sector, many of whom were domestic workers.18 The peasants that produced the special grain, known as march grain, needed for the straw, sold it to a middleman, the fattorino, who issued it to domestic workers to convert into twisted straws. It is only at this stage that proper firms entered the scene. The fattorino sold the twisted straws to local entrepreneurs who had the machinery to bleach, clean, and divide them in order to pass them on to the colouring, modelling and finishing phases. The system was so specialised that the Chamber of Commerce author reports that domestic workers were remunerated for the exclusive task of checking the twisted straws for imperfections on the peaks of the hats (Camera di Commercio di Firenze 1907). This system went over the provincial borders and reached other provinces, such as Arezzo, even though the production here was not large enough to meet the requirements of our algorithm. In Arezzo, the twisting of straw was mainly an activity of the poor areas and the output was later

170

Forms of enterprise in 20th century Italy

finished in manufacturing firms of other provinces. The domestic work of twisting straws, but sometimes also of making straw shells for flasks or even modelling hats, was complementary to other agriculture work. Women are described as working on twisting straw ‘on rainy days, in the evening or while looking after livestock’ (Camera di Commercio di Arezzo 1902: 17). The interrelationship between agriculture and LISSE is also evident in the food industries, as the two sectors clearly have a strong link in the goods that they produce or process. In a mainly agricultural country such as Italy at the beginning of the 20th century, the processing of agricultural products into manufactured goods provided a natural opportunity to evaluate and develop the agricultural sector. This phenomenon was widespread all over Italy, from the almost feudal southern Italy, to the reign of crop-sharing in Tuscany, to the large entrepreneurial agricultural activities in the North. Most of the provinces of the region of Campania show systems of manufacturing production in which agricultural products were transformed into manufactured goods by a large number of small firms. In the south, these systems were created around the production of tomatoes. Again, the LISSE were not limited to one province, but extended to the neighbouring provinces of Naples, such as Salerno, which were characterised by a large number of small firms producing canned tomatoes and preserves. The production was initially more polarised: the province of Salerno specialised in the production of tomatoes, while the province of Naples transformed them into canned products. In time, Salerno developed its own manufacturing system and became a competitor of Naples (Camera di Commercio di Salerno, 1931, 1936; Camera di Commercio di Napoli 1931, 1936). With regard to tomatoes, the production of pasta originated with a system in which the provinces around Naples produced the basic agricultural product, and, in Naples, the main city and shipping centre of the region, the raw material was processed into manufactured goods. An abundance of small firms, about 430 in the province of Salerno, mainly using hydroelectric energy, worked together with larger firms. About 16 mills, which ran for 24 hours a day, were able to produce about 6000 hundredweight of flour per day, most of which was transformed into pasta and then exported (Camera di Commercio di Salerno, 1931: 247). In the relatively rich region of Lombardy, in the north, the specialisation in food production was the result, as in the south, of the processing of the local agricultural production, which, in this case, consisted of rice. In the province of Mantua, almost all the workers of the food industry were employed in the processing of the rice. Manufacturing capacity was greater than the supply of raw material and raw rice was imported

Small firms and local production systems

171

from other provinces and processed in Mantua. The top quality rice was exported while the other qualities were distributed within the country for domestic consumption. Other activities included flour mills and pasta production, and the production of sugar from chards, while the tomato production and fruit preserves were experiencing a decline (Camera di Commercio di Mantova, 1936: 82–96). The nearby province of Cremona claimed the same success in exporting processed rice, and, like Mantua, started importing it to process it internally. Besides rice, Cremona had a long tradition of artisan confectionery production, the most typical of which was the torrone, which was famous in international markets (Camera di Commercio di Cremona, 1936, 132–3). The putting-out system was not a peculiarity of manufacturing activities which were based upon processing agricultural raw materials, but was widely adopted in other sectors, as in the case of the Florentine LISSE in the production of clay bricks, majolica and glass. The furniture production in the province of Milan and Como19 is another example of this type of industrial organisation not originating from any type of local resources. Two LISSE of the province of Naples are exceptions to the dominance of traditional productive structures. ‘Leather’ was the result of the intensive production of gloves, while ‘Furniture and other industries’ was the result of the large production of furniture, furnishings and the manufacturing of coral objects. All of these activities were characterised by an urban labour force, organised as labour workers, small firms, and artisan producers (Colli 1999: 788–9). In 1929, the production of gloves in the province of Naples accounted for more than 2 million pairs, but declined to 762 000 pairs in 1931 because it lost the British and American markets. In 1933, there were only 70 firms with about 700 employees, a quite small share in a scenario of about 300 artisan producers with about 10 000 employees. The artisan production was considered in negative terms by the Chamber of Commerce report, as it meant technological backwardness and poor quality. Indeed, one major threat to the sector was the bad reputation provided by domestic glove producers, especially in terms of colouring and refining (Camera di Commercio di Napoli, 1931, 1936). One of the main characteristics of many of these local systems of small firms was that most of the output was sold to foreign markets (Colli, 1999: 794–5). All over the country, it is possible to observe sectors with fairly high levels of product specialisation and with a strong predominance of small firms, such as pottery and flour production, but they mainly refer to local markets. The local dimension of their trade did not allow them to reach the thresholds adopted for this study, in order to be recognised as the main local systems of small firms with high sector specialisation. In the simplest Smithian terms, the high level of specialisation obtained by

172

Forms of enterprise in 20th century Italy

certain systems could be achieved only through the larger dimension of international trade. Thus, whole areas of the province of Florence could dedicate their energy to the production of straw hats only because they had access to international markets – such as the USA and Britain – which could absorb them. Similarly, the wool production in Prato, the gold production in Arezzo, or production of torrone in Cremona, would not have been possible if there had not been international markets for the goods. In order to gain access to international markets, two main conditions had to be fulfilled. First, firms had to have access to services that allowed them to deliver the goods. Second, international trade had to be open. The first condition, namely, the availability of trade services, favoured those areas that had easy access to long-distance transportation services, in particular naval ports and, later on, railway networks. It is not surprising that many systems of small firms, even those that are too small to be captured by our quantitative methodology, were extremely close to a port. A notable example is the coral production of Leghorn (Livorno). Here, there was no link whatsoever with local agricultural production as all the raw materials were imported from outside, mainly from Sicily, Sardinia, Spain, Algeria and Japan. The coral was processed in small firms. After the processing, the output was once again despatched by sea to reach the British Indies, Russia, Siberia, Austria, Egypt, and some regions in America, or was sent to Japan20 (Camera di Commercio di Livorno, 1902: 23). A similar organisation can be observed in the coral and glove production in Naples. The period between 1911 and 1927 is a time of consolidation and development of Italian industry despite the economic slowdown experienced after World War I (Castronovo, 1980). Nevertheless, the continuation of the adoption of some technological processes had a cumulative effect, especially for small firms. One example of this process is the creation of a comprehensive network of distribution of electricity. The consequence of this was an intensification of the process of the transformation of artisan producers into small firms with a technological level mainly based upon the possibility of buying and using small electric engines at a reasonable price (Ministero di Agricoltura, Industria e Commercio, 1916). The size of this boom can be inferred, albeit with some approximation, from Table 7.3. The second factor that contributed to shape the picture which emerges from the census in 1927 is the beginning of the negative wave of both international and national trade. In 1927, the Florentine and Neapolitan LISSE of ‘Furniture and other industries’ disappeared as a result of the difficulties of placing the straw hats and the coral on their usual foreign

173

62 878

259 751 308 3466

238 676

989

4727

1927

15 358

1911

3174

988

297 344

26 048

1937

4512

2074

183 688

47 079

1951

Non-electrical engines (thousand Hp)

Powera to activate machinery (thousand Hp)

Mining and quarrying Manufacturing industries Food and beverages Tobacco products Tanning and dressing of leather; manufacture of luggage, handbags, saddlery

Sectorsb

Table 7.3

6421

1361

55 623

11 492

1911

36 839

3976

334 645

83 351

1927 373 269

1951

62 956

7311

141 049

12 530

649 613 1 309 709

174 323

1937

Electrical engines (thousand Hp)

58

58

19

43

91

93

56

57

95

88

69

87

97

86

88

89

1911 1927 1937 1951

Rate of electrificationc %

174

1927

100 297 24 319

77 231 145 267

41 187

40 676

43 644

38 372

2952

19 948 30 708 253 0

92 741 959

1937

25 357 41 277 519 48

25 849 29 025 1068 20

105 958 132 221 4837 2768

1911

18 897

52 610

229 430

24 349 28 132 2201 451

0 1569

1951

Non-electrical engines (thousand Hp)

(continued)

Textile Cloth and furniture Wood products Paper products Publishing Photo-phonocinematographic industries Metallurgic industries Mechanical industries Non-metalliferous minerals transformation industries

Sectorsb

Table 7.3

28 131

102 812

34 698

26 371 20 087 8639 141

145 723 7565

1911

198 597

480 165

413 453

121 214 83 426 23 070 3679

509 630 28 334

1927

359 040

1 191 610

883 005

190 036 188 638 41 935 5689

673 717 23 015

1937

707 917

2 051 792

1 562 994

516 735 391 746 73 692 5192

1 213 209 39 722

1951

Electrical engines (thousand Hp)

42

70

31

50 41 89 88

58 61

83

92

74

83 67 98 99

79 91

92

98

90

90 86 99 100

88 96

97

97

87

95 93 97 92

100 96

1911 1927 1937 1951

Rate of electrificationc %

175

32 148 44 715

747 812

21 915

8705

26 509 176 670

642 771 1 040 031

142 1907

0 6796

158 664

42 167

78 916

20 982

75 449

7657

1 658 1025

50 873

Source:

Chiaventi (1987).

270 595

70 946

32 094 22 372

154 563

1 405 766 585 727 2 870 947

711 963

35 475

1 979 2196

59 159

Note: a For further details, see Chiaventi (1987). b Classification based upon that of the Industrial Census of 1951. c Ratio between electrical engines HP and the power to activate the machinery.

Chemical industries Rubber industries Other manufacturing industries Construction industry Electric energy, gas and water supply Total 720 559

278 464

195 953 45 542

1 199 551

5 394 130 10 839 623

113 288

127 001

71 062 25 330

606 563

48

74

47

93 61

71

73

60

76

100 77

66

88

72

80

100 93

93

88

50

89

99 95

95

176

Forms of enterprise in 20th century Italy

markets which occurred from the middle of the 1920s when the Italian Lire was revalued. Other LISSE emerged, such as those in ‘Clothing’ and ‘Furniture and other industries’ in the province of Brescia, but they have been interpreted as an outcome, usually temporary, of World War I and of the post-war period. However, the consolidation of three other new LISSE in the sector of ‘Glass, concrete and stones’ in the Tuscan provinces of Lucca, Massa Carrara and Pisa is the effect of a more radical development of the production chain of marble extraction. Marble production in Tuscany, another case of a link between local natural resources and the emergence of a LISSE, is an interesting example of the trans-provincial local system. The number of firms that specialised in the processing of marble spread from its centre, the province of Massa Carrara, to the neighbouring province of Lucca. In the former province, at the beginning of the 20th century, there were more than 500 quarries with more than 500 000 employees surrounded by many workshops and sawmills. The need for specific tools fostered the proliferation of small firms with a few employees, engines and mechanical tools to move the marble, to cut, shape, clean, and polish it, rather than a network of domestic artisan producers. The people employed in the processing and finishing of marble products were so many and so diffused throughout the small villages and within the whole province that ‘it was impossible to count them’ (Camera di Commercio di Massa Carrara, 1929). The neighbouring province of Lucca was a natural continuation of the marble system with most of the numerous workshops situated in the villages that bordered on the province. The northern coastal towns of the province of Lucca were crowded with small firms that transformed the marble into goods. Not only were there sawmills, the most important of which had two engines and various mechanical tools to produce pieces for mosaics, there were also workshops for the production of sculpture and architectural pieces (Camera di Commercio di Lucca, 1900: 7).

7.4

THE ‘GREAT CRISIS’, AUTARKY AND WAR

The 1930s were characterised by a slowdown of international trade with higher trade barriers and more trade restrictions, which inevitably had an impact on the production of secondary consumer goods. In Italy, during the inter-war period, the traditional sectors were severely hit by a combination of the reduction of international trade, a slowdown in the internal markets, and by policies, mainly monetary policies, aimed at favouring major industries and based upon the contraction of private consumption

Small firms and local production systems

Table 7.4

177

LISSE per region and change from previous census, 1911–61

Region

1911

1927

1937

1951

1961

N° Change N° Change N° Change N° Change N° Change of of of of of LISSE LISSE LISSE LISSE LISSE Lombardy Tuscany Campania Total Source:

7 7 7 21

– – – –

8 8 5 21

+1 +1 −2 =

6 5 4 15

−2 −3 −1 −6

8 6 6 20

+2 +1 +2 +5

10 10 3 23

+2 +4 −3 +3

Authors’ elaboration from industrial censuses.

(Toniolo, 1980; Gualerni, 1982). The result was that the export-oriented sectors suffered, most of which were based upon the activity of numerous small producers. The crisis of light production continued up to the second half of the 1930s (Capanna & Messori, 1940). Between 1931 and 1936, the export of straw hats declined from about 250 to 50 million Italian Lire of value per year, while the export of gloves and leather goods declined from 123 to 13 million Italian Lire per year (Banca d’Italia, 1938). The changed economic and trade conditions contributed to explain the transformations in the LISSE of Lombardy, Tuscany and Campania, observed in the census of 1937 (Table 7.2). In Lombardy, the most evident transformations were in the province of Brescia, which lost two LISSE from the previous census. There were important changes also in the province of Pavia, where two LISSE disappeared in the ‘Clothing’ and ‘Leather’ sectors. The decline of the clothing sector is linked to the fate of felt production, while the leather production disappeared from the map as the size of the firms in the production of shoes in the area of Vigevano increased.21 The production of furniture in the province of Milan survived, and it actually doubled in the province of Como. These two LISSE were a real local and inter-provincial system based in the geographical area of Brianza. In Tuscany, there were a variety of outcomes. In the province of Florence, the decline of hat production was irreversible and both the related LISSE disappear. In this case, the crisis of the 1930s hit an industry already facing problems in keeping pace with the changing fashion in internal and foreign markets. During the inter-war period, the custom of men wearing hats rapidly declined and thus the whole sector was confined to the production of hats for women. Moreover, a change of materials occurred when straw went out of fashion. Some of the companies were able to substitute a surrogate for straw, but the problems did not end there. The real problem was international competition that was now able to offer either cheaper prices

178

Forms of enterprise in 20th century Italy

or famous brands. Florentine hats could not compete with either of them, and the structures of production were too big, with too many independent actors involved to be rapidly changed (Camera di Commercio di Firenze, 1932). The result was that, after the crisis, orders increased, but Florentine hats were too expensive to meet market requirements. Thus began the long and uninterrupted period of decline that led to the death of the Florentine hat industry after World War II (Unioncamere, 1964: 1107). The LISSE in leather production also faced a crisis and disappeared in census of 1937. Despite this, the province of Florence shows two new LISSE in the ‘Textile’ and ‘Clothing’ sectors. The first is linked to the autarky policy and to the resulting decline in importation. The production of wool in Prato (in the province of Florence) in the 1930s was characterised by a few large firms surrounded by a myriad of small firms which specialised in one production phase or in trading wool. The closure of importation had positive effects on the demand for wool from Prato and fostered expansion, especially of small firms (Colli 1999: 808–9). The emergence of the LISSE in the clothing industry in Florence is partially linked to these trends as it is the result of the transformation of the skills of the labour force that had been formed during the golden age of hat production.22 In the region of Campania, the province of Naples lost two LISSE, while Salerno gained one in the production of wood.23 Despite the lower impact of economic and trade conditions on food production, the final balance of the period 1927–37 in the three regions is of a loss of six LISSE.

7.5

BETWEEN POST-WAR AND THE ‘GOLDEN AGE’

The end of World War II left the Italian industrial structure in ruins: industrial production in 1945 was about 70 per cent lower than in 1938 (Daneo, 1975). The programme of international aid, in particular the UNRRA (United Nations Relief Rehabilitation), helped the country to find its way out of the hardest periods of crisis. From 1948, the European Recovery Program (ERP) played a role in the swift recovery of industrial production, which, by 1950, had already reached and surpassed the prewar levels. While the programmes of international aid and the monetary stability plans applied by the government of the new Italian republic were factors which encouraged growth for the most advanced sectors (Zamagni, 1990), such as the automotive, chemical and steel industries, the process of trade liberalisation particularly helped the sectors mainly based upon the activities of small firms (Graziani, 1998: 58–61). The effect was an increasing number of LISSE, as revealed by the census

Small firms and local production systems

179

of 1951, especially in Lombardy and Campania, which jumped from 6 to 9 and from 4 to 6, respectively. In Lombardy, a metallurgic LISSE emerged in the province of Como, and two mechanical LISSE emerged in the provinces of Milan and Pavia. The mechanical industry in the province of Milan was the second largest sector in the area. In 1927, there were already 6785 firms operating in this sector, with almost 90 000 employees.24 The sector did not suffer from the prevailing trade conditions, as it became strongly linked with state and army commissions. The whole sector grew, especially because of the war in Africa, which provided large commissions for the production of airplanes and armaments. After World War II, the nearby provinces developed a similar specialisation in the mechanical engineering industry, and the size of firms tended to increase (Unioncamere, 1964: 243). In the province of Brescia in the 1960s, 55 per cent of the total of manufacturing workers were employed in the mechanical engineering industry, with 15 firms and more than 14 000 employees. This sector was growing with the development of the real estate industry, and, from 1956 to 1964, production had increased four times. The link is manifest in the fact that they mainly produced the reinforcement bars for reinforced concrete, an item produced in many small firms located in Val Sabbia, Pisogne, Val Trompia and Brescia. The machinery sector in the province of Brescia was even bigger with over 1000 firms and more than 28 000 employees in the production of non-electric machinery and metallic carpentry, 48 firms and almost 2000 employees in the production of electrical machinery, 114 firms for the production of precision machinery, almost 3000 firms, with more than 10 000 employees, in mechanical workshops, and another 60 firms in the production of means of transportation. The size of the first category was, in large part, due to the production of armaments, a tradition of the province, which made up to 95 per cent of the national production of light arms. There were 15 firms, with over 3000 employees, producing arms in the province, most of which were concentrated in Valle Trompia. The artisan production of arms accounted for 399 firms and almost 2000 employees, excluding the large number of domestic workers (Unioncamere, 1964: 262). In the 1960s, especially in the north of the country, the housing boom and the flow of immigration seemed to constitute a new chance for the prosperity of the LISSE. Not only did they foster the further development of mechanical production, but they also fostered various timber industries as the production of industrial timber products and wood housefurnishings, such as window shutters and wooden floors, and of furniture in the province of Milan and in Cantù and Marino Monzese (province

180

Forms of enterprise in 20th century Italy

of Como) (Unioncamere, 1964: 287–90). The latter was reckoned to have become particularly competitive and successful thanks to the creation of permanent exhibition centres. The census of 1961 catches the effects of the exceptional economic growth experienced by the country in the previous decade. Among other factors, the process of economic growth was nourished by the expansion of the Italian internal market (Graziani, 1998: 59). Furthermore, the increasing number and increasing success of small firms was supported by a tax system which was advantageous for small enterprises with lower taxation and employers’ contributions, as well as welfare benefits at reduced premiums and assistance measures such as soft loans, services and promotional initiatives by state agencies. Nevertheless, for the first time, there was a radical change in the pattern of the evolution and localisation of the LISSE in the various regions. If, in Lombardy and Tuscany, there was an increasing number of LISSE, the southern region of Campania lost half of its LISSE.25 Some of the sectors became marginal in the overall Italian productive structure, especially the production of furniture, while in other sectors, such as food production, the major firms partially substituted the large number of small producers that had characterised the first half of the century. In contrast, the traditional wool production in the area of Prato flourished with over 7000 small firms and about 45 000 employees without changing its nature. Most of the production was exported, accounting for more than 44 per cent of total national wool export. Wool firms in Prato worked under sub-contract and they mainly consisted of medium, small and very small firms, each of them specialising in one single phase of the production process (spinning, weaving, colouring, finishing, etc.). The commissioners were called impannatori and they were typical merchant-entrepreneurs who took care of the organisation of the whole production process without having any machinery of their own. The district of Prato grew swiftly during the 1960s and investments increased many times in a few years (Unioncamere 1964: 1171). After the crisis of the 1930s, the province of Florence regained the LISSE in ‘Leather production’. This was a system mainly located in the municipality of Santa Croce sull’Arno. At the beginning of the century, the leather industry had employed about 1000 people in about 90 firms, which, in many cases, had one or two steam engines. The leather was partially local and partially from South America, Asia, Africa, Germany and Russia. In the 1960s, the geographical location of the production was still the same, and it accounted for 511 firms and 4644 employees. The post World War II growth was quite exceptional with an 81 per cent growth in the number of firms and a 121.5 per cent increase in the number of

Small firms and local production systems

181

employees in the decade 1951–61. The main products were luggage and bags, and they were mainly exported or sold to tourists in the centre of Florence (Unioncamere, 1964: 1109).

7.6

CONCLUSIONS

The analysis above is based upon a huge amount of data and qualitative information, hitherto never adopted for similar purposes. This preliminary observation of the first results has the merit of assessing several findings and hypotheses. First of all, it shows that it is necessary to look at the local systems of production in a very long-term perspective, and not as the result of the relatively recent crisis in the Italian ‘large corporation’. The analysis also offers the advantage of mapping the local systems of production in a homogeneous and both quantitative and qualitative way. This means that it is able to provide tools to differentiate the large local systems with a huge impact on the socio-economic scenario, from the thousands of speciality production centres. Having done this, the study proposes an interpretation of the map and of the evolution of the local systems of small firms by combining both quantitative and qualitative analyses. The first conclusion we can draw is that Italian economic development does not simply coincide with the diffusion of the large enterprises. The fast growth of Italian industrial production during the period 1895–1913 is characterised by the multiplication of the local systems of small enterprises of which those highlighted by the analyses of the census data in 1911 (see Table 7.2) are only a small part. In very broad terms, these early local systems of small enterprises can be considered to be a first generation of what would later be called the Italian industrial district. Their main feature was a strong link with agricultural production at the beginning of the 20th century, which diminished over time. The links between agriculture and manufacturing production are: in terms of products, the production of raw material and the processing of raw material; in terms of labour-sharing, that people employed in agriculture used their inactive time for manufacturing production; and, in terms of the production chain, an intensive agriculture production which required a large supply of intermediary manufactured goods. Natural resources were generally very important, even if they are not agricultural resources, as in the case of marble near the coast of Tuscany. In addition, most of the early local systems of production were characterised by the use of basic technology, especially electrical engines, and by the adoption of the putting-out system. The second generation of industrial districts was composed of the local systems of small enterprises born in the first half of the 20th century.

182

Forms of enterprise in 20th century Italy

The dramatic events and the difficult national and international situation of the time contributed to create a change of direction for the demographic profile of the industrial district, which was characterised, among other things, by the observed rapid decline of their number (see Table 7.4). This is to be expected, when we consider that, between 1914 and 1945, the ‘climate of peace and expansion of international trade and consumption goods that is necessary for the flourishing of industrial districts’ (Grandi, 2007: 56–7) was severely threatened. In this chapter, the main explanatory factor of such change appears to be the trend of international trade. Throughout the period 1900–1960, the LISSE were strongly export-oriented and the international trade situation could determine their death or survival. The clearest illustration of this is probably the crisis of the 1930s, when all the export-oriented sectors based upon the activity of small enterprises were severely hurt by the introduction of import duties in most countries, and by the consequent slowdown of international trade. The contraction of international trade meant, for example, that the contraction of the export of Florentine straw hats was worsened by the change in fashion trends. In the case of Naples, in contrast, the import duty ad valorem introduced by Great Britain, one of the main importers, was itself sufficient to generate a deep crisis in the sector. However, an opposite trend can be observed, for example, in the immediate aftermath of World War I, when the devaluation of the Italian currency fostered the export of national production and discouraged the import of foreign goods (Capanna & Messori, 1940: 57). The inter-war period was clearly the most difficult one for most of the LISSE, many of which were not able to survive at all. Local systems of production based upon small enterprises are observable in every region taken into consideration from the first industrial census onward. All of them show similar movements and demographic trends, at least up to the 1950s, when many industrial districts in Campania start to suffer and even disappear. This means that the geographical setting of industrial districts in the north–centre of the country appears to be a relatively recent phenomenon. The industrial districts in Campania were left without the energy needed to take part in the ‘Italian economic boom’ (De Benedetti, 2001), were incapable of evolving in terms of products and business organisation, and were not able to overcome a phase of ‘specialisation without development’ (Amin, 1989). The continuity of a number of current industrial districts in Tuscany and Lombardy with the clusters of small firms developed during the second half of the 19th century and during the inter-war period is much feebler in the case of Campania. The emergence of industrial districts of the 1980s and 1990s in Campania, as in other southern regions (Viesti, 2000), is largely a new phenomenon in

Small firms and local production systems

183

which the state policies of industrial aid certainly played a fundamental role (Spadavecchia, 2005).

NOTES *

1.

2. 3. 4. 5. 6. 7. 8.

9.

10. 11. 12.

13.

Albeit this chapter is the result of a joint effort, Mario Perugini wrote paragraphs 7.1, 7.2 and 7.6 and was also responsible for the construction of the database and the algorithms while Valentina Romei wrote paragraphs 7.3, 7.4 and 7.5 and carried out the analysis of annual reports of Chambers of Commerce. We wish to thank Mario Mjuoia for his useful comments. The usual disclaimer applies. The Italian industrial district, according to the famous definition given by Becattini (1991: 58–59), is ‘a socio-geographic entity characterised by the co-existence of a community of people and firms in a limited geographical territory’. A very interesting overview of the increasing importance of small firms in theoretical debate of the last 30 years is presented in Conti and Sforzi (1997). See also Becattini (2000). Comprehensive bibliographies on processes of local industrialisation and on the role of small firms in Italy are available in Fuà & Zacchia (1983), Becattini (1989) and Becattini et al. (2001). The first census on manufacturing activities goes back to the aftermath of the proclamation of the Kingdom of Italy. However, it was only after 1911 that industrial and population censuses became systematic and regular in Italy. See, for example, Bellandi (1999). For the period before the World War I, but based upon qualitative sources, see Colli (1999). They represent special geographical areas that include a number of municipalities in which the flux of daily commuters between home and workplace is highly concentrated within the borders of the area. It was possible to adopt and develop this methodology because the commuters’ data have been collected in National Censuses since 1971. The legal entity of the Province represents a geographical and administrative area that consists of various boroughs and which, together with other provinces, composes a Region. The main qualitative source of information analysed in this chapter is the works of the provincial Chambers of Commerce. In particular, we studied the ‘Research into the economic condition of Italian provinces’ – a title that varies over time and across provinces – which each province was supposed to compile every year since the proclamation of the Kingdom of Italy. Since the use of ‘areas of local labour market’ was not possible, it has been necessary to adopt the province as a geographical analysis unit. The data of the first five National Censuses of Industry (years 1911, 1927, 1937, 1951, 1961) have been standardised by using a reclassification methodology based upon Industrial Classification ATECOISTAT 1991. This methodology has been developed by Federico (2006). An idea of the importance of these three regions for Italian industry is given by the data of Table 7.1. See note 8. It is clear that the use of any parameter, such as the use of quantitative thresholds, which are aimed at identifying the local systems of small enterprises, is a personal choice made by the authors. As such, it can be subject to criticism and reviews. Despite this, we believe that they are useful tools in order to reach our aims. Different criteria would probably change the scenario in terms of the cases included or excluded, but it is unlikely that they would lead to a radically different picture. Part of the reason why they are so rarely used in economic analysis is because there are very few places that gather them all.

184 14. 15. 16. 17.

18. 19.

20. 21. 22.

23.

24. 25.

Forms of enterprise in 20th century Italy In this chapter, we referred to LISSE, rather than to ‘industrial district’, because the latter is now associated with a system of enterprises, a ‘district community’ and institutions that link the two with each other (Becattini 1991). The ‘small rural enterprises’ are defined as those that process raw materials directly coming from agricultural production and which match our algorithm regarding dimensional and specialisation limits. For a survey of the history of Italian agriculture as a whole see Federico (1994b). The two LISSE emerging from one type of production is explained by the standardisation based on the 1991 classification. According to this classification, straw production is accounted partially in the category ‘wood’ and partially in the category ‘furniture and other industries’. This is an example of the advantages of a mixed methodology. The industrial census reported a smaller number of people employed in the sector as they did not include temporary/seasonal workers or not-declared workers. The wood employed for the production of furniture that originated the LISSE of the province of Milan in the analogous sector was imported and was distributed by merchant-entrepreneurs to peasants, who transformed it. The merchant-entrepreneur returned later to collect the final product. For a more complete story of the system, see Colli (1999: 777–9). This was actually a system of local production that was too small to be captured by the algorithm used in this chapter. However, it is useful to confirm the importance of international trade for the early industrial clusters. The shoe industry was important in the province throughout the whole period, as demonstrated by the specialisation index and by the importance index. Nevertheless, it is not captured by our algorithm because it does not meet the threshold for size (s2). From the legacy of straw-hat production, a large number of different types of clothing production emerges. In the hills surrounding Florence, a number of small firms, based upon a large use of domestic labour, produced knitwear (Prato, Empoli and Signa), socks (Fucecchio), umbrellas (Figline Valdarno), gloves (Firenze and Borgo San Lorenzo) and raincoats, accounting for more than 50 per cent of national raincoat production (Unioncamere 1964: 1108). See also Lungonelli (1997). Contrary to most of the provinces that show a high concentration of timber producers who generally produce furniture, in the province of Salerno over 1700 firms with over 3500 employees were mainly employed in the production of agricultural equipment, especially sticks for tomato plants, tomato boxes, and barrels for wine (Camera di Commercio di Salerno, 1936: 262). In the 1930s, the majority of employees were involved in the production of the means of transportation, repair workshops, electrical machinery, health equipment, precision tools, iron goods, kitchen goods, arms and agricultural machinery. The LISSE of leather in the province of Naples survived throughout the period, but with significant changes. In the 1960s, there were 106 firms producing gloves. Domestic workers seem to have almost disappeared as the only mention of domestic labour refers to the production of laces, embroidery, trimmings and knitting works. The Naples production of gloves was still relevant in terms of specialisation and contribution to national production as 85 per cent of all gloves exported from Italy were produced in the province of Naples (Unioncamere 1964: 1320).

8.

Public utilities in the 20th century* Simone Fari and Andrea Giuntini

8.1

INTRODUCTION

The phenomenon of municipalisation becomes real in the management of public utilities. A general look into the structural frame and the dynamics of this sector is fitting in order to understand its role in the present situation of the Italian economy. One of the main goals of this research is to give the municipalisation phenomenon, on the one hand, an adequate dimension in Italian economic history, and, on the other, to show the changes in the economy, which this country is currently undergoing. Municipal companies hold a particular position in the history of 20thcentury enterprises in Italy. Although they completely and legitimately belong to this century-long historical event, they have to be separated from other events for many reasons. This is why they need a tailor-made analysis, which also keeps in mind their qualitative and quantitative aspects. There are many external factors which have influenced their history, and which, for other enterprises, have less relevance. Such a statement can be applied to many fields: most of all, as this study will show, there are two fields which are worth particular consideration: on the one hand, there is the legislative and institutional field, while, on the other, there is the field of governance. The history of municipalisation in Italy can be read as a long journey from the public to the private sphere, from a monopolistic situation to the success of market principles. This does not mean that we should undermine the role played in the whole event by the public manager who, on the contrary, is given the maximum attention in the working field. From such a point of view, this study emphasises the competitive dynamics that existed between the world of municipalisation and that of private enterprise, and points out the setting on the market, the budgetary aspects, the policy of tariffs, the strategies and the restraints to their rise, the evolution of company organisation and assignments, the simultaneous management of services – all issues which represent one of the hardest cores in the studies on municipalisation and municipal enterprises.

185

186

Forms of enterprise in 20th century Italy

The road to the slow modernisation of Italian society also goes through the phenomenon of municipalisation, and the two terms coincide in many aspects. This chapter tries to visualise some of the chronological unwinding, which is key to the relationship between the diffusion of municipalisation and the growth of society. We realise that municipalisation has the shape of a progressive movement from a peripheral local economy towards the centre of the Italian and also the international economy, thanks to successive changes which placed the most successful municipal enterprises among the top companies. In time, the sector of city services becomes a significant part of the economic system. From this point of view, too, the differences from other enterprises, both public and private, are absolutely striking. Last, but not least, another point must be considered: municipalisation in Italy consisted of a multitude of local histories, each with its own identity and history. Notwithstanding this, such a fragmentation emerges within a national picture which shares economic, social, institutional and legislative references. The first results of this research offer a significant contribution, which is also due to knowledge about these local histories. On the one hand, Italian historiography has considered municipalisation from a mainly political point of view, still adhering to the tradition of research on municipal trading and on catholic municipalism (Sapelli 1986). From this point of view, studies using and investigating such an approach have focused their attention mainly on municipalisation from within the political and administrative battles of the political parties (Fondazione Micheletti 1990; Balzani and Raggi 2002). On the other hand, general economic topics have been underlined in order to offer a contribution to the history of the modernisation of both the Italian economy and society. Many researchers have co-operated in the more recent growth in these studies: urban historians, who are the main scholars of municipalisation historiography, historians of administration and institutions, historians dealing with local history and those studying the growing branch of the professions, and economy and business historians, who pay particular attention to the performances of companies and enterprises and to the concrete results obtained by municipal management (Battilossi 2001). Historically speaking, although the first studies on municipalisation date back to the 1950s, we cannot forget the stimulus that the crisis of the sector in the 1970s represents for the studies. This crisis strongly shook the role of the state, even in local bodies, its efficiency and its capability to manage the economy. In most cases, the studies have been enhanced by the debate, and have tried to answer questions regarding the efficiency

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and convenience of this particular form of municipal participation in the economy. Municipal enterprises constitute a research field which cannot be separated from the field relating to municipal governance. Municipal government is a privileged place which reveals the ability of the local ruling classes to run the collective local resources. One of the characteristics of the history of Italian municipalities in the 20th century is, in fact, the updating of the overall economic strategies upon the basis of the management of infrastructure and network services. In this situation, municipal companies played a key role as an instrument of economic and political power in the hands of municipalities. When drafting organic programmes for offering services to citizens, the municipalities chose municipal companies, which, therefore, played a very important role within the overall strategic plan managed by the municipality, a role which was co-ordinated with other economic activities. Among the intermediate institutions, the municipalities were, in the main, the only institutions to manage local development personally, acting and operating on the development and promoting an equitable distribution of basic resources, keeping economic democracy at a local level in view. For the municipalities, managing municipal companies was an unmissable chance to gain a place in the political relations between local bodies and the state. Thus, with regard to economic protagonism and progress, the role of the municipalities was perfectly represented by the history of municipal companies. The central points of the continuous interaction between public needs and private tendencies are to be found in the complex inter-relationship between the municipal authority and the main industrial subject which was linked to that authority, in an endless mixture of political and economic elements. There is a continuous interaction between local political history and national political history, in which both the specific problems of the single territories and the great debates on market rules and on the management of the economy play the same important role. The construction of this theme reflects the necessity to highlight this tight knot which was created in a historical perspective. The second topic is represented by technological innovation. In the cities, many new ways for technological development were tried out, which played a crucial role in the innovation process. The sector of city technical networks experienced particularly important changes and is therefore a fundamental object of analysis with regard to this rapidly transforming environment. The background of the history of municipal companies can only be found in the cities. Their increasingly complex functioning needed new methods, procedures and techniques for the physical and functional

188

Forms of enterprise in 20th century Italy

reorganisation of urban systems. The production of advanced technology changed the urban space and reshaped opportunities (for example, economic) and the ability of people to respond to such changes. This chapter, after presenting the description of the sources and illustrations of the methodology used for the analysis (Section 8.2), follows a chronological itinerary in Italian historiography (Section 8.3). A preceding period of laws of municipalisation existed in 1903, which can also be organically included in the history of municipalisation. The distinct eras, in which the negotiations took place, were chosen both with regard to the divisions of general history (Fascism in 1922, the end of the war in 1945, and the oil crisis in 1973) as well as moments within the history of Italian municipalisation (the two laws of 1903 and of 1990). Section 8.4 provides some final remarks.

8.2

SOURCES AND METHODOLOGY

This study is a complete analysis of the phenomenon of municipalisation over the century, and it pays particular attention to both the quantities and the performances which the various sectors show at company level in the different periods under examination. This research follows three main directions. Firstly, we carefully analyse the scattered, but conspicuous, existing historiography, promoting a wide systematisation towards a synthesis never tried before. The case studies offered by the considered topic, which have greatly increased in the last 25 years, give a positive first result, and, for the first time, help us to begin a comparative work, which is an indispensable element to identify Italian history within the continental events, giving these case studies a national significance, and taking the different local experiences into account. A second guideline is the analysis of documents, for example, the huge amount of specialised literature produced through the whole of the 20th century; the analysis of the wide production of the periodicals and magazines of the sector is equally important. This second phase also includes the identification of the most important volumes that relate the proceedings of the many moments in which the institutional protagonists of the sector reflected together upon the subject: municipalisation Confederations, national federations, local companies, associations, political parties, chambers of commerce, all of which made their contribution to widen the literature on municipalisation, offering historians a lot of essential data and information. Finally, a third approach is the systematic compiling of a data register of municipalisation. This means that we mapped 730 companies covering

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the whole national territory and a wide range of information for the 20th century. The result is the creation of a register of municipal enterprises on a national scale. The register includes the biographic files of 730 Italian municipal companies operating throughout the 20th century all around Italy. Each file includes information on the life of the company, particularly: (1) name; (2) registered office; (3) covered territory; (4) sector of operation; and (5) date of formation. Primary sources used for drawing up this register are the Annals of municipal companies published by CISPEL (Confederazione Italiana dei Servizi Pubblici degli Enti Locali) until 1958. Further biographic information has been drawn from different sources (archives and local press), all published during the 20th century. The creation of the database allows two important goals to be reached: (1) the elaboration of a scientific instrument for deeper study of municipalised Italian factories; and (2) the acquisition of empirical data with which the results obtained from the bibliographic analysis can be examined. The data contained in the biographic files cover the whole of the 20th century, and it was possible to carry out deeper statistical analysis for the post Second World War period. The related information for the preceding period would not allow us to reach statistically reliable results. In order to simplify the results and to make our study uniform with other studies of 20th-century companies, figures and tables include benchmark years and geographic macro-areas. We used the preferred benchmark years in the literature of companies’ history: 1952, 1960, 1971, 1983 and 1993. Moreover, instead of using the regional division of the register, we examine the results by considering the following geographic areas: (1) North-Western (Aosta valley, Piedmont, Liguria, Lombardy), (2) NorthEastern (Veneto, Trentino Alto Adige, Friuli Venezia Giulia, Emilia Romagna), (3) Central (Tuscany, Marche, Lazio, Umbria, Abruzzo and Molise), (4) Southern (Campania, Calabria, Basilicata and Puglia), and (5) Islands (Sicily and Sardinia).

8.3

PERIODISATION

8.3.1

Before Municipalisation

Between the mid-19th century and the Second World War, European cities experienced great changes, with different rhythms and modalities (Millward 2005). Demographic movements, town planning explosions, a greater level of consumption, different typologies of the new users, and the

190

Forms of enterprise in 20th century Italy

shared way of living and experiencing the urban environment are but some of the most striking phenomena that changed the shape of cities and the organisation of life inside them. The cities themselves were the very centre of the success of industrial society or, from another point of view, of mass society (Giuntini et al. 2004). Starting from the 1880s, the collective equipment of the city had clearly assumed the strategic characteristics that were able to determine political action. The renewed impulse at local level as far as municipal entrepreneurship is concerned, was one of the most important facts of this period, in which many historians have recognised the ‘take-off’ of the Italian economy (Fenoaltea 1982). In these years, a new concept of public service starts, which was to develop fully during the first 15 years of the 20th century. This new idea is the fruition of all the changes that the cities had experienced in the preceding period: from pre-urban to the development of hygienic structures, passing through demographic rises and denser transport networks (Calabi 1980). In other words, the municipalities created a new way of management and a new relationship with their citizens within an overall picture which helped to make the municipality a privileged place where a new way of managing a growing social complexity could be found. It was not an easy process, and involved problems of many different kinds. First of all, we have to consider the difficult adoption of complex laws in order to fulfil such actions, the mobilisation of private capital, the use of external qualified experts if there were no suitable internal technicians, and also the definition of new laws and cultural principles which were able to regulate the limits of public intervention. These are all elements, which, during this period, could not be found easily or cheaply in Italy. Moreover, entrepreneurial ability was difficult to find: in other words, the municipalities were simply not up to the task of facing the new duties, and this incapability was the principal cause of the many failures. Local bodies had to redefine tasks, assignments and powers under the pressure of the real needs of urban communities, but also under the pressure of the ever-greater force of the political and bureaucratic classes, whose influence was growing. Municipal institutions represented one of the typical places in which the leading classes entered, became stronger and acted to safeguard their class interests, while maintaining their leadership of the whole of civil society. Public interest combined with typical private criteria and, thus, the municipalities assumed the character of a centaur: on the one hand, their economic actions were those typical of private entrepreneurs, while, on the other, their public role in society heavily influenced the municipalities to follow the ideals of public interest. This ambiguity explains the peculiar

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status of municipal companies: they were able to do better than private companies, thanks to their public nature; nevertheless, they had limits (for example, territory) which jeopardised their profitability. A qualified technical and economically motivated management was subject to continuous political control, which made for a difficult balance between public and private interests. 8.3.2

The Beginnings (1903–22)

The 20th century provided a completely new age for services and urban infrastructure. The masses has become protagonists in Europe and requested greater and more complex urban services that had not been necessary until then. The new, hectic rhythm of city life dictated the terms of the transformation of urban services. As users of urban services profoundly changed their tastes, improving and widening them, the municipalities had to take the same direction. In this period, Italian services and infrastructure experienced profound and continuous changes which ultimately improved the quality of life. Activeness at local level reaches its apex with municipalisation, which allowed the municipalities to operate with a stricter and wider influence. Approved in 1903, the Municipalisation Act was an instrument which could be profitably used by a very wide range of subjects, from small and local municipal companies, up to big companies with thousands of workers. This law added value to urban services in terms of reference and actuation models, making a sufficiently flexible form of administration management available (Franco 1982a, 1982b; Rugge 1984, 1985, 1986, 1990). The golden age of municipalisation was between 1903 and 1914: most took place in Northern Italy, less in Central Italy, while less occurred in Southern Italy, as the biographical files in the database show. The process enabled municipalities to take important economic opportunities in managing urban public services with a company-like hand (Berselli et al. 1988). 8.3.3

Fascism (1922–45)

From the 1920s, the management of urban services entered an extremely controversial period. On the one hand, budget problems, which most Italian municipalities had to face, prevented them from reinforcing their entrepreneurial role. On the other, private companies were unwilling to take a strong position, as their direct participation in the sector rarely brought them good earnings (Bigatti et al. 1997). For this reason, the end of the concessions of public services to private

192

Forms of enterprise in 20th century Italy

companies did not give rise to a rush for municipalisation. On the contrary, during the early 1920s, there were many cases of de-municipalisation, particularly with regard to gas, one of the most profit-bearing sectors, which was the most damaged by the First World War. Historiography has reflected on the attitude of Fascism to local authorities and the phenomenon of municipalisation, without making a definite interpretation. This embarrassment on the part of historians is clearly influenced by Mussolini’s intentionally contradictory statements on public services managed by the municipalities. There was probably no pre-arranged strategy, although the Fascist policy on municipalisation did follow a precise logic, which was characterised by a concentrated attack by commercial electric companies against municipal electric companies at the end of the war. Local administrations offered strong resistance against private attacks, and were helped by the improvement of local budgets once the crisis following the First World War I was over. The history of municipalisation in this period looks like an endless swing between the defence against the abuse of political power suffered by municipal companies, and the attempts of private societies to incorporate such companies. The municipal companies of major cities, such as Rome, Turin and Milan, but also those managed by big and small municipalities in Northern Italy, were clearly attractive because of their large number of potential users. Liberalist-born Fascism used this debate against municipalisation in order to limit local authorities (Bolchini 1994). In fact, Fascism had been against municipalisation from the very beginning. For example, in 1923 Fascism asked for the winding up of municipal companies with unsatisfying economic results. It was clearly a hostile signal. The ideological weight of such a demand was clear. Although Fascism was strongly against any socialist legacy, this document was the sign of its strong concern regarding the situation of local finance. Municipalisation’s similarity with Bolshevik collectivism could not but cause a strong rejection. The attack on public intervention resulted in the winding up of dozens of municipal companies in the electric and gas sectors, but the 1920s also saw some public companies turning into municipal companies.1 Fascism tried to force the management of municipal companies to adhere to the new regime. Such a negative situation also saw the first development of mixed companies, in which different services lived together.2 The institution of municipalisation was not cancelled, but it was regulated in 1925. In the following year, the juridical personality of the National Fascist Federation of Municipal Industrial Companies (Federazione Nazionale Fascista delle Aziende Industriali Municipalizzate) was recognised for the purpose of drawing up collective wage agreements.

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It should be remembered that the Federation of Italian Municipal Companies (Federazione Aziende Municipalizzate d’Italia) had shown some vitality in 1924 and became the National Fascist Federation of Municipal Industrial Companies (Federazione Nazionale Fascista Delle Aziende Industriali Municipalizzate) three years later.3 The Federation was divided into four internal groups: electricity, gas, water and different services, and represented the will to survive, without being able to mount an effective defence against the general trend imposed by the government. The 1930s are, to a certain degree, a sleepy phase in the history of municipalisation. The destiny of municipal companies was very uncertain. The unavoidable collision between municipal and private electric companies caused instability, but, in general, municipalisation survived. In 1935, the Federation of Italian Municipal Companies included 76 electric companies, 38 gas companies, 37 aqueducts and 22 others, listed as other companies. Yet, municipalisation could not avoid a certain inactivity. Municipalisation defended the positions acquired with great difficulty, and boosted its own level of efficiency in order to save itself. Giving municipalisation an identity automatically justified its existence, in a period which was not favourable to the Italian economy. This would also be part of the new general economic project which, because of the crisis, would cause state intervention into the economy. In the 1930s, the target was reached: municipal companies were still economically efficient and nothing remained of the actual or presumed idea of socialist municipalisation. However, the municipal companies had lost their role inside the Italian economy. 8.3.4

From the Democratic Rebirth to the Energy Crisis (1945–73)

The second post-war period saw a strong and incisive enlargement of the range of municipalisation and a strengthening of the already existing situation. Table 8.1 shows how 41.5 per cent of registered municipalised companies in the database was instituted in the period of 1945–73. In the re-won democracy, municipalisation could show the country how much it was still necessary. In March 1947, a decision was taken to establish the Confederation of Municipalisation (Confederazione della Municipalizzazione), with the other three affiliated member (gas and water, electricity and transport), to promote the ideals and organisational characteristics of municipalisation. The main aims of the newborn Confederation were to strengthen and expand municipalisation to more services, and also to transform all the services internally managed by the municipalities into special companies. From this moment, a new phenomenon began, which was to emerge as the key point of the new world of urban services: the management of more

194

Table 8.1

Forms of enterprise in 20th century Italy

Distribution of dates of start of municipal firms

Date of start

Number of firms

% firms

Before 1903 1903–22 1922–45 1945–73 After 1973 Total

5 53 31 243 253 585

0.9 9.1 5.3 41.5 43.2

services by the same company, a trend which would later be the leading one. Although there was a strong legislative continuity between the pre- and the post-war period, once the control by the oppressive Fascist regime had ended, municipalisation started again with a completely new spirit in the new democratic Italy. Public services saw strong growth of the municipalisation sector, because of the growing number of users, and also, due to the municipalisation of private companies. This was an encouraging trend, albeit mainly caused by internal and marginal factors, following no planning and with no idea of reinforcing a model of local public enterprise that complied with the recovery of democratic autonomy (Varni 1999). As far as the cities were concerned, the second post-war period was one of wide and quick transformation of the system of housing settlements and an alteration of the whole structure of the city. One of the most interesting elements in the history of municipalisation in this period was the rapid growth of some big cities, caused by massive migration from the countryside and from Southern Italy. Population growth required a new organisation of urban services, and this created problems for municipal companies, which had to face a considerable growth of the number of private customers (Castronovo et al. 1987). In these years, there is still a privileged relationship between public services and the territory within the city limits. This explains the leading role of the municipal authorities, which reached the maximum of their ability to influence the various services between the 1950s and the 1960s, after which their influence declined. With the advent of democracy, municipalities were able to change the local governance. This transformation can be best seen in the richest areas of the country, in the areas where municipalisation was deeply rooted, and in the areas where the left-wing parties ruled. From 1945 onwards, municipal governments experienced a considerable

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growth of their role, and network services represented one of the most effective and strategic forms of action. Starting from 1945, as Table 8.2 and Figure 8.1 show, network activities (aqueducts, gas, electricity and public transport) increased in percentage, unlike traditional activities such as the public slaughterhouse, wholesale markets, municipal dairies, funeral parlours, looking after green public areas, and all those in the ‘other’ category. Municipal action covers all activities in city life, with opportunities for entrepreneurship, which had already appeared in municipalisation processes. It was a real interventionist orientation, which would become the mainstay and the constitution of municipal activities as far as the management of municipal companies was concerned. Municipal assignments went beyond regulation functions, outlining a strong relationship between the activity of the Town Council and the private needs which the administration could satisfy. The leading trend of the first democratic councils was to give local bodies, appointed with new duties, an unlimited obligation towards citizens’ problems. The final goal was to reach a harmonious economic development, which was able to limit or even remove disparities. The municipalities assumed the role of the leader of the development, arranging the conditions for private enterprises, which were, therefore, linked to the municipalities through an extremely important functional relationship (Bolchini 1989). This programme also included urban services, particularly networked technical infrastructures, such as gas distribution services, which were among the primary elements for the recovery and the successive development of the cities. We can easily find the mark of a completely Keynesian policy, bringing councils directly into the field of productive investments. 8.3.5

The Oil Crisis and the Successive Changes (1973–90)

The service sector, after the oil crisis of 1973, completely changed its direction. The energy crisis hit municipal activities hard, and the system of electric municipal companies suffered the crisis in a particularly weak moment. A new way of managing emerged: public companies began to be managed in the same way as private companies, with a direct relationship between costs and profits, which put an end to state interventions to pay off the debts of public subjects. Henceforth, the most important aspect became the economic result of public action, in its double role of effectiveness (compliance with requested results) and efficiency (less expensive use of resources). A separation between the political and the operative phases was achieved, that is, between those who had to decide what the basic services for the population were, and the provisions determining their supply, and those who were to produce and distribute them (Bolchini 1989).

196

Table 8.2

Forms of enterprise in 20th century Italy

Geographical and sector distribution of Italian public utilities

Sector

Geographical areas

Water

Central Islands Southern North-Western North-Eastern

1960

1971

1983

1993

1 1 6 3 11

11 5 4 29 22 71

14 6 5 38 33 96

25 6 8 55 31 125

28 6 10 57 37 138

1 1

5 1 1 12 15 34

6 2 1 13 16 38

7 2 1 14 16 40

8 2 1 15 20 46

1 2 2 5

3 2 2 18 15 40

4 2 3 27 21 57

17 2 4 39 18 80

18 2 5 40 26 91

1

4

1 1

1 13 5 23

6 2 9 22 10 49

16 2 14 37 18 87

20 2 15 38 26 101

8 3 4 12 11 38

14 8 9 18 14 63

21 13 20 33 25 112

26 13 24 35 25 123

Total (Other)

1 2 2 10

9 2 6 20 15 52

20 3 10 46 30 109

38 4 14 66 35 157

44 4 14 74 40 176

Total

34

258

412

601

675

Total (Water) Energy

Central Islands Southern North-Western North-Eastern

Total (Energy) Gas

Central Islands Southern North-Western North-Eastern

Total (Gas) Health and sanitation

Central Islands Southern North-Western North-Eastern

Total (Health and sanitation) Public transport

3 Central Islands Southern North-Western North-Eastern

Total (Public transport) Other

1952

Central Islands Southern North-Western North-Eastern

2 1 1 4 5

Public utilities in the 20th century

197

35.0 30.0 25.0 Water Energy Gas Health Transport Other

20.0 15.0 10.0 5.0 0 1952

Figure 8.1

1960

1971

1982

1993

Sectoral distribution of Italian public utilities, 1952–93

This change brought many consequences, some of which were longlasting. Managers of public services became regulators. In sectors supplying public utility services, monopolies almost disappeared, forcing companies to adopt commercial policies, which were quite unknown to them before. Municipal companies felt constrained by the straitjacket of the 1925 Act, which was still valid, and urged that the institution be reformed. The debate on a new law on local authorities deeply involved the world of municipalisation. The main problem was the increasing difficulty of finding money. The heavy restrictions on obtaining credit lines that local bodies had to suffer after 1973 created a difficult situation for municipal companies. There was a growth in the number of restructuring plans to reduce expenses and enhance energy-saving behaviour, and ever-stricter criteria of efficiency, productivity and elimination of waste were introduced. These three elements became basic passwords. Planning became even more important, and was seen as a structured process with precise procedures which were strictly connected with the problem of money collection. The evolution of regulations in the 1980s opened new development scenarios. There were new possibilities of planning and financial independence, unknown until then, thanks to the possibility of re-investing revenues (thus reducing the importance of paid-up capital as a financing source) and the fact that councils gave up a quota of yearly profits from the companies. New ideas changed the overall scenario. People started to talk about the quality of life, the reduction of pollution, consumer protection, the

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Forms of enterprise in 20th century Italy

Table 8.3

Distribution of municipalised companies, 1952–93

Main Town Province Total

1952

1960

1971

1983

1993

15 19 34

136 122 258

210 202 412

289 312 601

332 343 675

45.0 40.0 35.0 30.0

Central Island Southern North-Western North-Eastern

25.0 20.0 15.0 10.0 5.0 0 1952

Figure 8.2

1960

1971

1982

1993

Regional distribution of Italian public utilities, 1952–93

renovation of old buildings, and cities that were suitable for humans to live in. There was a strengthening of the trend that had already appeared before the autumn of 1973, to enlarge the range of municipal intervention to a wider dimension, beyond that of the city, by co-ordinating action with the regions, too. The 1970s and the 1980s showed the need to programme infrastructure and services on a wider area than that of urban territory, and the oil crisis speeded up this process, giving municipal companies a regional dimension. The planning, financing and realising of projects needed wider areas which allowed network inter-connection and economies of scale. These pressures led to the complete unification of municipal companies dealing with different types of services, which was a common choice after the energy crisis. This crisis enhanced the adoption of multipurpose solutions, which were considered to be more flexible and sensitive. These tendencies were also shown by the increase in the number of municipalised companies after 1973 (Table 8.3) and by the ever increasing importance acquired by highly technological activities (gas and electricity), above all, in the north of Italy (Table 8.2 and Figures 8.1, 8.2). The 1980s represented the final decline of the model of municipalisation

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that had emerged in previous years, and required a strong change in the way of thinking. Each municipality or town council had to reconsider its model of managing energy and environmental services, as such services required more and more complex technology. The level of professional skills grew by necessity, as well as the level of investments and of optimum sizes of municipal companies, and competition was introduced in service markets, which had long been managed as a monopoly. However, this did not mean that the role of municipalities came to an end: on the contrary, it gained an important strategic value, which turned into an ability to manage, lead and control the companies. Everywhere there was pressure to enlarge the private range of services to the detriment of the public range, which, together with the progressive internationalisation, was considered to require greater and greater efficiency, with the ability to enlarge market dimensions and to dismantle the monopolies of some of the public companies. In many cases, this put public companies in difficulty when such skills were not available to them. It should also be remembered that technological innovation always goes in the same direction, driving companies to tougher and tougher competition, which jeopardises public companies that are slow to adapt to the innovations and changes. Last, but not least, the European Union was clearly hostile to monopolies and favoured free entry to the market and free competition (Termini 2004). 8.3.6

The Developments in Recent Years (1990 Onwards)

Municipal companies have changed greatly at the turn of the century. From the 1990s onwards, they began a profound transformation: monopolies were dismantled, and municipal companies set sail on the high seas of market competition, experiencing an adjustment of their place on the market and of their physiognomy (Quadrio Curzio and Fortis 2000b). Municipalisation has been the experimentation field par excellence, where new formulae and combinations can be tested in order to influence the evolution of enterprises. Probably the most interesting case with regard to the experimentation of liberalisation and privatisation processes is the sector of public utility services. This is the sector in which the relations between state and market are rebuilt, even more so than the industrial sector. The challenge in these years is the attempt to combine social issues, always present in the background of these companies, and business issues. In 1990, the Law on Local Authorities was passed, which laid the basis for the new form of legislative reference framework and included

200

Forms of enterprise in 20th century Italy

the need for changes, which introduced many important innovations in the management of public services, definitively changing ownership and management, and initiating a truly important period as far as the shape of enterprises was concerned. Municipal companies were the leading actors. The process of surpassing the archetype of the municipal company becoming an enterprise was completed (Valotti 1996). The Law considered the azienda speciale (special company) to be the most suitable legal and administrative form for managing services. It was directed towards the rationalisation and the revision of management strategies and instruments, thus indicating a range of privatisation solutions. In all cases, the local body was the one to decide whether to privatise or not, and was also responsible for the protection of consumers and for securing the continuity and universality of services. The possibility of extending services to wider areas than the city allowed for the creation of consortia and similar companies based upon agreements among the various local and regional administrations. With such a transformation, there is not just one model to follow, as the model is made up of many innovative solutions. Municipal companies are overflowing with liberalisation and privatisation processes, and their new configurations set them free from the municipal control, without leaving them alone. The management of public services followed the path of the conversion into business, in which the operating policy choices were still made by the politicians, but the economic policy choices were not: they were the domain of a new generation of public managers, who had to demonstrate the efficiency and effectiveness of the new municipal bodies. At the end of the day, the future of municipal companies was still inspired by the public spirit and by the still existing social vocation, but was also inspired by economic criteria which were typical of private management. In general, the rules of liberalisation aim to separate political responsibility and the management of services (Solimene 2002). Public management still had policy, programming and control functions, while managing functions were assigned to corporations which could also be publicly owned and which were chosen through tenders. Traditional public management through public bodies and special companies had to be abandoned, as a public company producing services was conditioned by a multitude of interests (government parties, public administrators at all levels, unions, bureaucracy, etc.), which led to contrasting goals. The regulation of public services exploited this conflict of goals, promoting competition as a way of achieving both market efficiency and consumer protection. Liberalisation presented municipal companies with extremely interesting opportunities, and, at the same time, exposed them to severe risks. On the one hand, the emancipation from the strict limits imposed by the law

Public utilities in the 20th century

201

on nationalisation allowed local companies to make relevant acquisitions in their field. They could now make agreements with suppliers, which were the basis for obtaining supplies at a fair price, and could consider managing other city and regional distribution networks. Partnerships with other private or public companies and bodies allowed them to enlarge their range of action into other territories than their original ones. It is easy to see why, bearing this increasingly tough competition in mind, major companies prepared themselves and turned into public limited companies. With the new opportunities came all the market risks: customers were no longer guaranteed, and from now on, would have to be continuously won, especially industrial customers (Vaccà 2002). Multi-service strategy is a response to this situation, and is connected both to the opportunities to diversify services and to the knowledge of both the territory and the customers. Multi-purpose companies can exploit both economies of scope and those of range of action, connected with the share of commercial, administrative services and network management technical services, including economies of scale, for the indivisibility of some of their costs. The greatest savings were made by the sharing of employees and customers. Long-term contracts with customers allowed information on their needs and a convenient relationship with them, as well as assistance schemes and varied payment facilities for different services. The old idea of a municipal company close to the citizens was no longer valid and did not suit the new role of these companies. Services, in fact, were transforming generic consumers into real customers, thanks to a real marketing logic. Consumers had not been listened to before, but now the customer-based approach was fundamental. Customer profiles were also checked for individual requirements, in order to build relationships and offer appropriate services. In the same way, in order to protect new consumers, public service charters were published, which included the rights of service users and the service supply standards. This path has led to the admission of some major newborn multi-utilities to the stock exchange. The first one was Amga from Genoa, in 1996, followed by other companies, generally based in cities or towns, which merged later on with other companies from other cities and territories. It is still a dynamic situation, the development of which cannot be foreseen. Taking the turnover into account, the sector of public services amounts to 4.3 per cent of GNP in the year 2002, which is the equivalent of 103 billion Euros. Local public services amount to about 19–20 per cent of the whole sector of public services. The sector growth rate exceeds the average rate of the national economy by more than 10 points, taking the period 1998–2002 into account. The added value of local public services is lower than that of the public services (about 18 per cent) but its growth,

202

Forms of enterprise in 20th century Italy

in that five-year period, is higher than the national economy (+19% versus +17%), whereas the added value of national public services grows by only 6 per cent. Investments have grown by 10 points more than the national average in public services and by 20 points in local public services. The employment rate has slightly reduced in national public services, whereas local public utilities have experienced a slight increase. As far as employment rate is concerned, local public services cover 25 per cent of the total amount of national services. This higher vitality depends on the start of liberalisation and privatisation processes in the sector, where the most important element in later years has been the assignment of some municipality partnerships in enterprises, after the transformation of the municipal companies into private companies (Vaccà 2002). Data reveals that 68 per cent of the capital of these companies is totally owned by municipalities, whereas in the remaining cases local bodies actually own the majority. In the early 21st century, aggregations among utilities have been at the centre of attention, and sometimes they have built up companies of national dimension. The year 2003 registered 274 aggregation operations among local public enterprises, 187 strategic agreements, 29 fusions and 14 tenders to acquire shares. As far as productivity is concerned, the comparison is favourable to local public service enterprises: utilities’ ROE reaches 6.1 per cent versus an average of Mediobanca samples amounting to 4.2 per cent. The relationship added value/production value for utilities ranges between 35 per cent and 40 per cent, whereas the Mediobanca sample levels to 26 per cent.

8.4

CONCLUSIONS

In a few pages, we have tried to explain the events related to the development of municipalisation and how municipalised businesses work over a long period. The ultimate goal is to build a model for Italian municipal companies, and this is what the research has strived for, even though there is still a long way to go. The research line we have outlined is the only one suitable to rebuild the national scenario for municipal companies. For this, both research and theoretical examination have been indispensable. Some of the aspects presented here appear to stand out. First of all, the transformations inside the municipalisation sector reflect and at the same time feed the various phases of general and Italian economic history in particular. Second, the ever-growing weight of the municipalisation sector in the Italian economy is decisively concentrated in a very limited area of

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the country. Thirdly, the experience of multi-purpose activity with an everincreasing technological element must be highlighted. In view of the fragmentariness, piecemeal stages and lack of a general vision of governance in the sector, it must be underlined that the development of municipalisation has been far from an organized project, and therefore it is still characterized by a high level of dispersion, which is only partially compensated by the concentration processes of the last few years. Looking through a magnifying glass, the results of this study lend themselves to many uses according to the type of research carried out. As a final analysis, what we have considered and discussed here does not allow us to find a fixed way of action for municipal companies as a whole, with a historical view, but helps to find an interpretation of the facts.

NOTES *

We wish to thank Gian Carlo Cainarca for his useful comments. The essay is a result of a collaboration betwen the two authors. However, while Simione Fari is the author of paragraph 82, Andrea Giuntini is the author of paragraph 83. 1. The municipalised workshops of Livorno, Lodi, Lendinara and Reggio Emilia (in which water and gas services were jointly managed), of Rovigo, Saronno and Voltri, to mention just some of the main ones, had already ended up in private hands. In contrast, Genoa, Verona and Monza passed into public hands. 2. Foggia, Gorizia, Imola, Pola (privatised in 1927), Seregno, Trieste, Vercelli and Voghera. 3. The two newspapers, which were Fascist in that period (see below), were witness to the fact that both the difficulty and the ability to oppose the Fascist regime were carried out by the Federation of Municipalised Companies in Italy: from 1926, ‘La municipalizzazione in Italia’ and from the following year, the newspaper which replaced it, ‘Le industrie municipalizzate’.

9.

Industrial policy and artisan firms (1930s–1970s)* Giuseppe Maria Longoni and Alberto Rinaldi

9.1

INTRODUCTION

One of the main differences between Italy and the other major industrial countries concerns the average size of firms. In the 1990s, a remarkable 58 per cent of employees in the Italian manufacturing sector worked in companies with fewer than 50 employees – and 26 per cent in micro-firms with fewer than 10 employees. In contrast, the corresponding figures were only 18 and 4 per cent in the US, 20 and 6 per cent in the UK, 12 and 5 per cent in Germany, 31 and 5 per cent in France, and 47 and 18 per cent in Japan (Giannetti & Vasta 2005). Some economists identify the reason for the prominent role played by small and medium-sized enterprises (SMEs) in Italy with the events of the 1970s, when the crisis of Fordism and mass production, manufacturing decentralisation and the growth of industrial districts spread industrialisation from the north-west towards the north-eastern and central regions (NECRs) of the country (Brusco & Paba 1997; Bellandi 1999). Historical research, on the other hand, seeks the long-term roots of the predominance of SMEs in Italy. Cafagna (1989) and Federico (1994a) stress the historically dualistic nature of Italian industry, emphasising the dynamic role of SMEs in traditional sectors, and demonstrating their ability to exploit the comparative advantage of a country with very easy access to labour. These authors underscore the ability of SMEs to maintain their competitive advantage without requiring any form of state intervention, while larger companies operating in oligopolistic sectors with high capital intensity were able to survive only thanks to the state subsidies. This dualistic vision that highlights the existence of two separate components in Italian industry has recently been criticised by Colli (2002a) and by Bolchini (2003), who stress the inter-relations that developed between large and small enterprises and the consequent benefits which they brought for the flexibility and efficiency of the whole system. The revision of the role of SMEs in Italy’s economic history has also 204

Industrial policy and artisan firms

205

led to a revision of the role of the state. If government policies for SMEs were, in the view of Becattini (1998), either non-existent or insufficient with regard to those adopted for large companies, Weiss (1988), Carnevali (2005), and Spadavecchia (2005) argue that the Italian state played a central role in fostering the post Second World War advancement of SMEs, while Piore & Sabel (1984) and Arrighetti & Seravalli (1997) held that regional and local institutions, rather than the central government, were relevant in the development of Italian SMEs. This chapter focuses on government policies for artisanship (i.e., for the smallest firms), from 1945 to the 1970s. In 1972, a law transferred most of the competencies with regard to artisan policy to the newly constituted regional governments, thereby marking a major institutional break. This chapter is structured as follows: Section 9.2 contains various quantitative data concerning the extension of artisan enterprise in Italy between 1937 and 1981. Sections 9.3 and 9.4 examine artisan associations and their demands. Section 9.5 addresses the role of small companies in the analyses of the two major Italian political parties: the Christian Democrat Party (DC)1 and the Italian Communist Party (PCI).2 Sections 9.6 and 9.7 investigate the initial measures adopted to aid artisan firms in the years immediately after the Second World War. Section 9.8 deals with the Artisan Act of 1956, which defined the legal framework of artisan firms in Italy. Sections 9.9 to 9.13 discuss the policies adopted in relation to artisan firms subsequent to the approval of the Artisan Act. Finally, Section 9.14 makes some closing remarks.

9.2

QUANTITATIVE DATA ON ARTISAN FIRMS

The industrial census of 1937–39 revealed the presence of 815 438 artisan firms in Italy, with 1 243 407 employees (Table 9.1), identified upon the basis of a list of professions established in 1934. Artisan firms accounted for 25.6 per cent of the total number of employees recorded by the census. These firms were prevalent in the sectors of health and social work (84.1 per cent of employees in the sector), clothing and fashion wear (79.7 per cent of employees), tanning, leather and footwear (67.9 per cent of employees) and wood and furniture (63.5 per cent of employees). The next census, conducted in 1951, defined artisan firms as enterprises ‘having a single local facility, engaged in the production of capital goods or the provision of common or artistic services . . . whose proprietor is continuously engaged in the work process or . . . in the training of apprentices’. This definition made it impossible to make a distinction between artisan firms and micro-firms in which, as in artisan firms, the proprietor

206

Forms of enterprise in 20th century Italy

Table 9.1

Artisan firms and employees (1937–81)

Industry

1937–39

Food and beverage Metallurgy Mechanical engineering Non-metal minerals Paper and printing Tanning, leather and footwear Wood and furniture Textiles Apparel and fashion wear Chemicals and rubber Other manufacturing Manufacturing Agriculture, forestry and fishing Mining and quarrying Energy, gas, and water supply Construction Transport Business services Health and social work Total Note: Source:

1951

Firms

Employees

(a)

Firms

Employees

(a)

59 135 ... 95 493

120 761 ... 171 676

21.0 ... 20.3

40 650 198 107 942

80 367 538 177 740

19.7 0.4 19.3

13 025 ... 121 058

29 319 ... 146 305

14.2 ... 67.9

10 439 4614 93 492

22 117 11 417 121 998

11.0 8.4 61.0

115 504 27 627 165 881

180 104 36 498 246 202

63.5 5.8 79.7

101 121 29 869 123 833

164 614 41 917 191 261

56.3 6.5 76.6

... ... 597 723 ...

... ... 930 865 ...

... ... 26.7 ...

3892 7010 523 060 ...

7890 12 608 832 467 ...

3.5 23.8 23.9 ...

... ...

... ...

... ...

... ...

... ...

... ...

49 253 106 725 ... 61 737

78 615 136 011 ... 97 916

14.1 24.7 ... 84.1

14 850 47 759 ... 65 038

31 075 62 570 ... 99 913

5.9 12.0 ... 71.1

815 438

1 243 407

25.6

650 707

1 026 025

21.9

(a) Percentage of artisan firms on total employment of the sector. Istat, Censimenti industriali, 1937–39, 1951, 1961, 1971, 1981.

works as described above, because there was no mention of the capital employed, the type of manufacturing work carried out (series production or limited runs), or the degree of dependence on customers (Zamagni 1979). The number of firms had fallen to 650 707 (−20.2%), the number of employees was down to 1 026 025 (−17.5%), while the percentage of employees in artisan firms with regard to the total number of employees included in the census had dropped to 21.9 per cent. The difficulties encountered in recording artisan firms were not overcome even in the subsequent censuses of 1961, 1971, and 1981. In 1961, a total of 746 246 firms were recorded out of the 916 912 firms enrolled at the end of the year in the provincial registers created at the Chambers of

Industrial policy and artisan firms

1961

207

1971

1981

Firms

Employees

(a)

Firms

Employees

(a)

Firms

Employees

(a)

64 959 500 134 901

165 090 2967 357 762

40.8 1.6 25.6

34 362 1513 183 037

96 094 6457 480 042

25.3 2.6 25.2

37 006 907 259 220

108 815 3622 672 121

26.0 1.7 26.7

12 279 7 518 63 828

45 257 30 594 103 445

14.2 19.1 46.1

15 258 11 050 38 733

57 285 41 608 83 870

17.3 17.8 36.6

17 128 17 067 38 892

60 747 59 440 103 124

18.0 21.1 34.6

96 968 36 070 113 376

222 645 76 832 211 203

58.7 13.0 62.3

90 882 40 640 91 205

206 713 97 462 164 455

52.1 18.0 39.5

101 790 46 751 69 776

240 742 115 646 163 454

53.2 23.4 36.0

5 017 10 931 546 347 ...

14 087 27 900 1 257 782 ...

4.4 22.9 28.2 ...

6947 20 136 533 763 16 826

17 390 66 668 1 318 044 37 097

4.3 33.3 24.9 33.1

16 114 22 498 627 149 12 163

49 201 58 868 1 635 780 22 533

9.5 51.2 26.8 12.9

3 117 ...

11 837 ...

13.5 ...

2333 ...

8854 ...

12.4 ...

2485 12

9922 55

18.0 0.0

31 195 66 891 ... 98 696

127 513 113 540 ... 176 233

13.9 15.3 ... 73.8

105 883 79 240 ... 139 377

304 225 119 027 ... 229 496

30.5 13.3 ... 50.5

261 112 113 841 2298 161 650

617 866 167 612 4521 261 603

51.8 14.6 3.0 65.1

746 246

1 686 905

26.2

877 422

2 016 743

25.7

1 180 710

2 719 892

28.8

Commerce. In 1971, with 877 422 firms recorded in the census, the total number of firms enrolled in the provincial registers was 1 231 525, while, in 1981, the census recorded 1 180 710 firms, as compared to 1 447 902 concerns enrolled in the provincial registers.3 In any event, the 1951–81 period saw a steady expansion of artisanship: according to the census data, the number of concerns had grown by 81 per cent and the number of employees by 165 per cent, from 1 026 025 to 2 719 892 people, accounting for nearly 30 per cent of total employees in 1981. Some sectors, such as textiles, mechanical engineering, the processing of non-metal minerals, paper and printing, building construction, transport and health and social work grew steadily during the entire 1951–81 period.

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Forms of enterprise in 20th century Italy

Others, including the food sector, wood and furniture, and chemicals and rubber showed growth from 1951 to 1961, followed by a decline during the next decade, and by a new upsurge from 1971 to 1981. Clothing and fashion wear grew slightly from 1951 to 1961 and then dropped in the next two decades, while the tanning, leather and footwear sector reflected a constant decline over the 1951–71 period, which was followed by a period of expansion from 1971 to 1981. Overall, this period reflected a radical transformation of Italian artisan activities. On the one hand, there was a significant downturn in traditional business activities (tailors, joiners, smiths, shoemakers, etc.), characterised by the production ‘by hand and made-to-measure’ ranges of goods that modern industry was able to provide at more competitive terms. On the other hand, a series of activities that were complementary to the operations of large industrial concerns emerged, such as machining and subcontracting work in many areas of mechanical engineering, clothing and fashion wear, and woodworking sectors and the crafts industry, building construction, transport, repair services, and health and social work, for which demand was soaring (Pescosolido 1982).

9.3

ARTISAN ASSOCIATIONS

Up to the middle of the 1920s, Italian artisan firms relied on a very insubstantial organisation, structured around trade communities on a strictly local basis. Only in 1926 was an independent National Federation of Artisans (NFA) created. Within the NFA, artisans were grouped into 42 craft trade communities and 26 usual trade communities (Zamagni 1979). The creation of corporations in 19344 was accompanied by a restructuring of the system of representation of economic interests into four primary categories: agriculture, industry, commerce, and financing and insurance. Against this background, the NFA was annexed to the Confindustria, the association dominated by the larger firms (Maraffi 1994). The corporative system was abolished after the fall of the Fascist regime. The fascist associations were dismantled and freedom of association was re-introduced. This allowed artisans to break away from the Confindustria and set up their own independent organisations. Consequently, four nationwide associations were set up between the end of 1944 and the start of 1945. Attempts to create a single national organisation of Italian artisans failed in 1946. In the second half of the same year, there was a split that led to the emergence of two major category confederations: the CNA (National Confederation of Artisan Firms), which was present almost exclusively in the north, and the CGAI (General Confederation of Italian

Industrial policy and artisan firms

209

Artisan Firms), which was active primarily in central and southern Italy (Pesole 1997). A split of the CGAI in 1948 led to the creation of a third organisation, CIA (Italian Confederation of Artisan Firms), which also attracted the membership of several local associations that had severed their ties with the CNA, while other local associations, including those of Milan, preferred to retain their independence. This state of affairs was accompanied by a barrage of reciprocal accusations: the CIA was targeted because of its alliance with the DC (Christian Democrat Party), the CGAI because of its alliance with the Confindustria, and the CNA because of its ties with left-wing political parties. The CGAI and the CIA merged in 1954, resulting in the creation of the CGIA (Italian General Confederation of Artisan Firms), which, from that time on, consolidated its status as the most representative trade organisation in Italy, although it proved unable to topple the supremacy of the CNA in Italy’s traditionally left-wing stronghold regions (Simoncini 1981). The creation of separate and independent artisan organisations was due to two main motives. On the one hand, the specific nature of the interests to be represented, which were hard to reconcile with the interests of big industrial players, and, on the other, the political vision of the two main Italian parties, the DC and the PCI (Italian Communist Party) – and, albeit to a lesser extent, of the PSI (Italian Socialist Party) and the PSDI (Italian Social Democratic Party) – which were keen to establish themselves as the popular parties of the new democratic political system, were deeply rooted in the community and wished to establish solid ties with broad sectors of the middle classes. The nature of the interests in question justified the emergence of a form of artisan representation that was independent from the Confindustria, while the strategy of the political parties explains the existence of several artisan associations in competition with each other (Maraffi 1994).

9.4

THE DEMANDS OF THE ARTISANS

Apart from ideological clashes, the major practical divergence between the CGIA and the CNA concerned relations with the trade unions. The CGIA was in favour of contractual articulation down to individual level, while the CNA was more interested in building an independent collective bargaining area for the artisan sector (Lagala 1992). In contrast, the demands presented to the government were very similar (Coppa 1976; Pesole 1997). In particular, from immediately after the Second World War, the two confederations lobbied the government for a policy with regard to artisan firms based upon:

210

1.

2.

9.5

Forms of enterprise in 20th century Italy

Facilitations and exemptions: ● tax relief concessions (on turnover tax and general income tax) and insurance contributions relief (for family allowances and apprentice artisans); ● the creation of a welfare system for artisans in the form of a public system of compulsory insurance (for sickness, invalidity and old age) with a ratio between benefits and contributions that was to be higher than that offered by private insurance companies to industrial entrepreneurs; Substitutive factors: ● provision – by specific government agencies – of services and business promotion initiatives that artisan firms, because of their small size, were unable to perform or denied access to on the market at conditions that were comparable to those available to large companies: ● access to credit; ● commercial promotion; ● technical, design and artistic assistance; ● vocational training.

ARTISAN FIRMS IN THE ANALYSES OF THE DC AND THE PCI

After the Second World War, a favourable view with regard to SMEs was expressed by all the Italian political parties, headed by the two largest ones: the DC and the PCI. The major governing party, the DC, had a social project that awarded positive value to the petite bourgeoisie, seeking to swell their ranks and thereby extend the ideals of economic independence – small firms, skilled craftsmen – throughout society. In emphasising the role of small ownership, the DC was heir to the very problem that had eventually urged Catholics into the political arena: the struggle to deflect the proletariat from the attractions of socialism. This ‘great labour question’, as Leo XIII defined it in the Rerum Novarum of 1891, ‘cannot be solved save by assuming, as a principle, that private ownership must be held sacred and inviolable. The law should, therefore, promote ownership, and its policy should be to induce as many people as possible to become owners’ (cited in Camp 1969: 84). Thus, at the heart of the DC’s analysis, the solutions brought to bear on the labour problem centred on the diffusion of property. In the view of the DC, the small producer was the very symbol of integral society: he was

Industrial policy and artisan firms

211

both employer and labourer; he worked alongside his or her assistants and related to them in a highly personal way. Consequently, in the small firm, the organisation of work was ‘more human’, the worker’s dignity ‘better protected, the sense of responsibility and collaboration more keenly developed’. If large firms engendered the class struggle, the smaller units fostered solidarity, thus transcending the capital–labour divide (DC 1968: 246). Moreover, the analysis of the DC was influenced by the views of the Catholic economists of the early 20th century, who had stressed the economic rationality of small firms (Toniolo 1951). The DC never regarded technological progress as a prerogative of the large factory, but maintained that its benefits could also be exploited by small firms (Weiss 1988). The major opposition party, the PCI, set out its small-firm policy in the immediate post-war years and further developed it at its 8th Congress in 1956 (Togliatti 1964; PCI 1957). According to the PCI, large enterprises are the most efficient way of organising production, but, in some circumstances – and the Italian case was one of them – it may lead to monopoly or oligopoly: both of them tend to limit production in order to maximise profits. Small firms are not – contrary to the DC’s thinking – a ‘type’ of enterprise, by their very nature different from large concerns. Moreover, small firms are not economically efficient. They are, instead, the first stage in the life cycle of capitalist firms, which must either grow or eventually fail. In either case, the presence of small firms opposes the tendency to economic stagnation which stems from the predominance of monopolies. Thus, the expansion of small firms must be encouraged because it facilitates an increase in production, employment and wages, and therefore provides an improvement in the living standards of the working class. This reasoning was intertwined with other considerations regarding the need for the PCI to distract the middle classes from the influence of rightwing forces in order to avoid a possible return to an authoritarian regime. On this basis, small entrepreneurs should become ‘strategic allies’ of the working class (Brusco & Pezzini 1990).

9.6 9.6.1

THE FIRST PROVISIONS FOR ARTISAN FIRMS Tax Relief and National Insurance Discounts

In the first decade after the Second World War, the Italian government decided on a series of measures for artisans. First of all, the rate of turnover tax was reduced from 4 per cent to 1 per cent. With regard to general income tax, prior to the Second World War, artisans were included among recipients of mixed income of capital and labour (class B); in 1946, the

212

Forms of enterprise in 20th century Italy

Ministry of Finance decided on the classification of artisan activities in the categories of income from independent professional work (class C-1), which was subject to lower tax rates, provided the following conditions were fulfilled within the firm (Lionetti 1965): that the income was obtained mainly from the work of the proprietor and his workforce and not from the capital employed; the number of employees were not greater than four, including family members, plus two apprentices.

● ●

Since 1948, artisan employers could also pay lower contributions for family allowances for their workers (13 per cent as opposed to 22.5 per cent for industrial firms). For this purpose, a company was considered to be artisan if it met the following requirements (Gualtierotti 1977): participation by the proprietor in the manual work performed within the company; the exercise of one of the activities included in a specific list prepared by the Ministry of Labour; the number of employees limited, no more than five, or no more than three, depending on the type of activity performed, excluding apprentices and members of the family.

● ● ●

This definition of an artisan enterprise was confirmed also by a law of 1955, which exonerated artisan firms from the obligation of paying national insurance contributions for apprentices, which were instead provided by the state (Pesole 1997). 9.6.2

The Creation of Artigiancassa

1947 saw the creation of Artigiancassa (the Artisan Bank), with an endowment fund of 500 million Italian Lire, of which half was provided by the State and 50 million Italian Lire each by the following five banks: Istituto di Credito delle Casse di Risparmio Italiane, Istituto Centrale delle Banche Popolari, Monte dei Paschi di Siena, Banco di Napoli and Banco di Sicilia. Artigiancassa was created in order to provide credit for artisan firms, either directly or through the banks participating in the capital, and started its activities in 1948 after having solved three key matters (Baccini 2002): 1.

Identification of the pool of beneficiaries of loans. For this purpose, an artisan firm was defined as ‘based mainly on labour and oriented towards the production of goods’, the cost of which should

Industrial policy and artisan firms

2. 3.

213

be ‘composed in a significant percentage by the work employed to produce them’. This definition automatically excluded service activities and the repair of products; The type of credit to be disbursed, which it was decided could be both working capital and capital equipment loans; The collateral required for the granting of loans, which were divided into personal securities for operations of working credit, and real securities for capital equipment loans.

From 1948 to 1952, Artigiancassa disbursed 6705 loans for a total of 4.7 billion Italian Lire, 90 per cent of which were medium term. The loans were granted to only 1 per cent of the approximately 650 000 artisan concerns recorded by the 1951 census. And nearly half of the transactions concerned companies located in the Lazio region, home to only 5.3 per cent of Italy’s artisan firms, while Artigiancassa’s loans were almost non-existent in northern Italian regions, where artisan firms were far more numerous (Baccini 2002). The problems that emerged in the first five years of activity resulted in the need for a reform of the Artigiancassa in 1952. The reform established the abandonment of the concept of a specialised national institution for lending to artisan firms, prohibiting Artigiancassa from granting new loans. Artigiancassa was transformed into a re-discount institute for the banks participating in the endowment fund and all the credit societies, savings banks, and rural and artisan banks, which were thenceforth authorised to grant medium-term capital equipment loans to artisan firms. In contrast, commercial loans were excluded from the facilitations. In the application of the law, at this point, artisan firms were considered to be those concerns that resulted as such in relation to the terms of the 1948 decree concerning family allowances. Artigiancassa’s endowment fund was increased to 5500 million Italian Lire by means of a government allocation of 5000 million Lire. In addition, a fund of 1500 million Italian Lire was created at Artigiancassa – disbursed in the measure of 300 million Lire each year for five years – for state grants for interest relief on loans to support artisan firms, disbursed by the authorised banks. The reform introduced four important changes with regard to the previous system (Parrillo 1959): 1.

a broader credit offering. The soft loans for artisan firms could now be distributed through a network of banks reaching all parts of Italy, which amounted to 5201 branches in 1954 (66.2 per cent of total bank branches);

214

2.

3.

4.

9.7

Forms of enterprise in 20th century Italy

direct responsibility of the banks involved, which assumed the legal title and risk of the loans subject to the facilitations managed by Artigiancassa; the entry of these banks, involved in the disbursal of short-term loans, into the circuit of medium-term credit. This was a first and important departure from the rule of separation between commercial credit and industrial credit, as ratified by the 1936 banking law; to reconcile the authorisation awarded to these banks to grant medium-term loans to artisan firms with their requirements for liquidity, Artigiancassa was utilised to release frozen assets through re-discounting operations.

ENAPI, ARTISAN PRODUCT MARKETEXHIBITION, INIASA

Enapi, the national agency for artisan firms and small businesses, had been operating since 1919 in the field of technical, commercial and artistic consultancy. Prior to the Second World War, this organisation had at its disposal a good level of technical equipment and a nationwide network of branches provided by the NFA’s provincial headquarters. In 1950, to aid the recovery of the activities of Enapi, the state grant was increased from 2.4 to 60 million Italian Lire (Camera dei Deputati 1960), with these increased funds making it possible to create a dedicated pavilion for artisan activities in the main Italian trade fair (the Milan exhibition) right from the first fairs of the post-war years (Longoni 1987). In the area of commercial promotion, from 1931, the international market-exhibition of artisan products was held in Florence. This event presented the best of artisan production in Italy, as selected by experts specifically designated by the NFA. The organisation of the marketexhibition improved through time, to the point at which the 1940 event hosted 60 thematic presentations plus numerous competitions. After a suspension because of the war, the exhibition was reopened in 1947. From 1950, the exhibition was awarded an annual government grant of 15 million Italian Lire. In the field of vocational training, Iniasa (the national body for vocational training in the artisan sector) was set up in 1952. By the mid-1960s, Iniasa had opened 124 vocational training centres that offered many courses, including courses for technical draughtsmen, fittersassemblers, lathe operators, maintenance fitters, radio and television repair technicians, and electricians (Zamagni 1979).

Industrial policy and artisan firms

9.8

215

THE 1956 ARTISAN ACT

We have seen that, in 1926, artisans had been classified in 42 communities of craft trades and 26 communities of usual trades. This provision was repealed with the downfall of the Fascist regime, thereby leaving Italy without any form of legal code governing artisan activities. This legislative vacuum was only partially filled by the provisions concerning general income tax in 1946 and family allowances in 1948. However, a comprehensive law on the judicial status of artisan firms was approved only in 1956, voted in by all political parties, after overcoming the resistance of the MPs linked to the Confindustria and to the trade unions. The 1956 Act established an extension of the legal definition of an artisan firm that was unequalled in Europe. Specifically, an artisan firm: ●

● ● ●

●

Had to be organised and function with the professional work, including manual labour, of the proprietor or the members of the proprietor’s family; Could have employees: if no series work was undertaken: up to ten employees (including family members) plus ten apprentices; if series production work was undertaken or the company provided transport services: up to five employees (including family members) plus five apprentices; if the company operated in the sector of artistic work, traditional work, or tailored clothing: no limit on the number of employees, but a maximum of 20 apprentices.

Thus, the 1956 Act defined artisanship not as a professional category, but as a legal regime, the membership of which entitled the proprietor to a wide variety of benefits. Unlike the German and French legislation, in which the artisan qualification was defined upon the basis of lists of trade activities, the 1956 Italian law defined artisan enterprise upon the basis of a maximum number of persons employed. Furthermore, the Italian system was the only system in Europe in which the prospective artisan required no certification of expertise, thus ensuring ease of entry to the sector. An approach based upon the de-limitation of the size of artisan firms was preferred because it would facilitate the multiplication of small firms rather than their growth in size and concentration.5 However, the law retained the proviso that the criteria that it established for the definition of an artisan company could not be applied for purposes of tax regulations or with reference to family allowances, which continued to be governed by the previous legislation.

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Forms of enterprise in 20th century Italy

The reason why it took 11 years from the end of the Second World War to pass the Artisan Act lies in a change in the DC’s policy, which was a consequence of the poor results achieved by the party at the 1953 general election. According to the new leader, Amintore Fanfani, the lacklustre election result was mainly due to the organisational weakness of the party and the fact that it was poorly rooted in Italian society. In order to muster its forces, the party would have to maximise its penetration in civil society, breaking away from its dependence on its traditional backers – the Catholic organisations, the traditional southern Italian clientele and the Confindustria – which restricted the level of support available from other social strata. Thus, the DC had to find the ability to stand on its own feet from an organisational standpoint, seeking less binding sources of finance, and reducing the level of conditioning by traditional power structures (Mattina 1991). In this scenario, the party became more willing both to accept the demands of artisan associations and to find ways of strengthening their organisational structure. The adoption of particularly generous criteria for the recognition of the status of artisan firm was a measure that served to strengthen artisan associations, by extending their potential membership. In effect, in the presence of associations which specialised in representing the interests of artisans, extensively located throughout the whole of Italy and securely linked with the political parties that supported the new facilitated regime for artisan enterprise, membership of the Confindustria became far less attractive for micro businesses (Maraffi 1994).

9.9

THE WAIVING OF CLAUSES OF THE ARTISAN ACT

The passing of the Artisan Act was welcomed by the artisan associations (Pesole 1997). However, they went on to lobby law-makers to waive the clauses concerning tax and social security regulations in such a way that the definition of an artisan firm could be applied across the board to all effects and purposes. Acceptance of this demand was slow in coming, because wariness in granting excessive facilitations to industrial companies that could be included in the ranks of the entities which benefited from the legislation for artisan firms was diffused among parliamentary groups. This is why the clause concerning family allowances was waived only in 1965, while the clause regarding general income tax was waived only partially in 1968 with the specific creation of a new definition of an artisan firm, which was

Industrial policy and artisan firms

217

broader than that of the 1946 decree, but more restrictive than that of the 1956 Artisan Act. This law was abrogated by the tax reform of 1974, which removed all differences between artisan entrepreneurs and other businessmen (Gualtierotti 1977).

9.10

OBLIGATORY HEALTH INSURANCE

In 1956, a few months after enactment of the Artisan Act, the legislator agreed to another of the principles for which artisan associations were lobbying: obligatory health insurance.6 This provision ratified the creation, in all Italian provinces, of a mutual sickness fund for the proprietors of artisan firms, as defined by the Artisan Act, and the members of their families. In addition, a national federation of mutual funds for artisans was set up (Federmutue), with the attribution of regulatory and co-ordinative functions with regard to the activities of the provincial mutual funds. Artisans were granted hospital, specialist (diagnostic and treatment) and obstetric assistance, although generic and pharmaceutical assistance were excluded. The following provisions were then passed in order to meet the costs stemming from the application of this law: ● ●

●

an annual government contribution of 1500 Italian Lire for each person covered by the fund; an annual contribution of 1000 Italian Lire to be paid by each assisted person, of which 700 Italian Lire was for the provincial mutual fund and 300 Italian Lire to be paid to Federmutue for the creation of a national solidarity fund to be divided among the individual provinces; a possible supplementary amount for each artisan, to be decided by the provincial mutual fund, taking account of the economic capacity of individual artisan firms, to cover any higher costs of the health assistance offered.

In the following years, the state contribution was gradually increased. At the end of the 1960s the amount had risen to 3000 Italian Lire per assisted person, plus the 1675 million Italian Lire paid directly to the Federmutue (Gualtierotti 1977). The number of assisted persons increased steadily from 1 461 000 in 1957 (Istat 1960: Table 141) to 4 463 000 in 1977 (Istat 1979: Table 55) when artisan firm proprietors joined the newly created national health system and the provincial mutual funds were abolished.

218

9.11

Forms of enterprise in 20th century Italy

OBLIGATORY INSURANCE FOR INVALIDITY, OLD AGE AND WIDOWHOOD

In 1959, artisans and the members of their families were also granted obligatory insurance for invalidity, old age, and widowhood. The minimum monthly pension was set at 5000 Italian Lire, an amount that was lower than that of blue-collar workers. The minimum pension age was set at 65 for men and 60 for women, compared to the 60 years of age for other categories. The management costs were to be met by the contributions of the insured parties (600 Italian Lire per month) plus the aid of the state, in the amount of 2.5 billion Italian Lire. In the 1960s, in response to pressure exerted by the artisan associations, minimum pension amounts were gradually increased, reaching 13 200 Italian Lire per month in 1968, while the state contribution was increased to 4 billion Lire annually. In addition, the contributions of the insured parties increased, reaching 1 200 Italian Lire per month in 1965 (Gualtierotti 1977). The number of pensions paid out increased steadily: from 32 517 in 1960 (Istat 1963: Table 114) to 610 652 in 1981 (Istat 1985: Table 17).

9.12

ARTIGIANCASSA: 1953–81

The enactment of the 1956 Artisan Act was followed by a series of provisions that extended the operative assignments of Artigiancassa. A law passed in the same year provided for: ●

●

●

an extension of the credit facilitations for the formation of the stocks of raw materials and products required for the firm’s production cycle, which could not exceed 20 per cent of the loan agreed for capital equipment, or the value of plant;7 authorisation was also granted to allow private banks to work with Artigiancassa. With this measure, the entire Italian banking system was authorised to grant soft loans to artisan firms; the extension of the maximum duration of the re-discount applied by Artigiancassa from two to five years, freeing banks still further from the risks associated with frozen assets.

A subsequent law of 1958 increased the endowment fund of Artigiancassa from 5500 to 10 500 million Italian Lire. Moreover, this law established that the net profits resulting from the financial statements of Artigiancassa, after deducting a rate of 20 per cent to be allocated to the reserve fund,

Industrial policy and artisan firms

219

were to be disbursed to the banks participating in the endowment fund, up to an amount equivalent to 4 per cent of the stake held by each of them. In this manner, from 1958 onwards, the state was awarded a dividend on its stake in the endowment fund, which was destined to integrate the interest relief grant fund. This measure was extremely important because it established the interest relief grant fund upon a permanent basis, while the 1952 law had financed it for only five years (Parrillo 1959). Over the following 12 years, there were a further five state allocations into the endowment fund, which stood at 103.5 billion Italian Lire in 1971. These were integrated by 12 allocations to the interest relief fund, for a total of 200 billion Italian Lire. With regard to loan value, the maximum amount of each loan was initially set at 5 million Italian Lire to then be increased to 10 million in 1966 and to 15 million in 1971, in line with rising costs of installation and equipment. These provisions were integrated in 1964, by the creation of a central guarantee fund at Artigiancassa – fed by a state allocation of 1.4 billion Italian Lire – which facilitated loans in the absence of sufficient securities covering up to 70 per cent of individual bank loans. There were a further three allocations between 1966 and 1969, bringing the fund up to 7.65 billion Italian Lire (Baccini 2002). Overall, from 1953 to 1971, Artigiancassa assisted 207 777 artisans with subsidised credit worth 786 billion Italian Lire, about 30 per cent of which also benefited from the discounting operation (Table 9.2). The proportion of artisans benefiting from soft loans over the period was just above 14 per cent of the artisans registered with the provincial Chambers of Commerce. Both in absolute terms and in relation to the size of its artisan sector, the NECRs benefited most from state support: by 1971, this area accounted for 41 per cent of all concerns and almost 60 per cent of beneficiaries. Firms located in the Northwest were also favoured in loan distribution (27 per cent of concerns and 32 per cent of beneficiaries) whilst the backward South was clearly penalised (32 per cent of concerns and only 9 per cent of beneficiaries). Thus, there is a clear correlation between the areas receiving the largest proportion of loans and the regions in which small firms flourished and multiplied (Weiss 1988). In the 1972–81 period, there were a further seven state allocations into the endowment fund, which stood at 853.5 billion Italian Lire in 1981. These were integrated by 11 allocations to the interest relief fund, for a total of 1825 billion Italian Lire, and by five allocations to the central guarantee fund for a total of 4.5 billion Italian Lire, bringing the fund up to 12.2 billion Italian Lire. The maximum amount of each loan was increased to 25 million Italian Lire in 1975 and to 60 million in 1978, in line

220

Forms of enterprise in 20th century Italy

Table 9.2

1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Source:

Loans granted by Artigiancassa, 1953–81 (millions of Italian Lire) Subsidised loans

Discounted loans

State guaranteed loans

No.

Amount

No.

Amount

No.

Amount

270 1 836 2 658 2 966 4 393 6 483 7 900 10 532 15 069 15 396 14 682 12 398 8 699 5 572 18 494 24 263 19 625 16 525 20 016 25 969 40 540 17 796 30 983 47 052 52 290 49 447 54 095 79 065 61 475

416 2 804 4 288 4 763 7 330 12 036 16 451 25 189 38 994 42 156 45 137 38 787 27 073 17 905 70 652 120 009 104 330 92 631 114 591 182 549 312 197 148 745 319 574 605 985 683 126 659 085 735 616 1 246 976 1 327 831

172 822 1 870 1 751 3 294 4 023 3 696 5 048 2 458 3 592 4 454 3 368 5 413 2 315 5 373 5 039 3 298 2 837 4 668 3 911 3 989 3 437 6 898 8 688 9 336 6 841 8 014 13 151 16 679

257 1 274 2 961 2 825 5 414 7 284 7 424 12 099 5 671 8 888 12 629 9 862 16 356 7 169 20 992 24 198 17 095 16 069 26 416 26 467 31 783 30 596 64 793 105 743 128 354 97 310 116 393 197 015 344 817

55 665 1 634 1 944 1 387 1 684 2 323 4 494 2 386 4 007 6 399 7 773 8 116 8 531 11 186 9 416

144 2 756 8 648 11 215 8 732 11 031 17 909 37 462 21 496 43 385 83 671 106 119 117 821 128 107 190 039 216 958

Baccini (2002: Table A.7).

with rising costs of machinery and of a rate of inflation in double figures (Baccini 2002). The increased state funding enabled Artigiancassa to expand its activity considerably: from 1972 to 1981, it granted 485 712 new soft loans (more than twice as much as in the 1953–71 period) amounting to 6 222 billion Italian Lire (eight times as much as in the 1953–71 period), one sixth of

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221

which also benefited from the discounting operation. If, in the 1962–71 period, Artigiancassa had granted an average of 15 567 loans per year, in the 1972–81 period, the loans trebled to 48 571. According to the provincial registers created at the Chambers of Commerce, between 1961 and 1971, the number of artisan concerns increased by 314 613 units. In the same period, Artigiancassa granted 155 670 loans. Thus, the number of loans – a proxy of the firms financed – was equivalent to 50 per cent of the overall sectoral growth in this period. For the 1971–81 period, the proportion was much higher: the sector grew by 216 377 units while the number of loans granted increased, as we have seen, to 485 712, which is equivalent to 225 per cent of total sectoral growth for the decade. As a result, the proportion of artisan firms that had benefited from one or more soft loans jumped from just above 14 per cent in 1971 to 46 per cent in 1981. However, in the 1970s, firms located in the centre-north – and especially in the NECRs – continued to receive a larger proportion of funds than their southern counterparts, even though the gap had diminished at the end of the decade (Baccini, 2002).

9.13

ENAPI AND THE ARTISAN PRODUCT MARKET-EXHIBITION: 1950–81

The 60 million Italian Lire yearly state grant decided in 1950 was soon found to be insufficient to relaunch Enapi. At the end of the 1950s, the agency had fully funded office in just 14 provinces out of 92; in six provinces, Enapi merely had an office with token remuneration of 25 000 Italian Lire per month, in 15 provinces it had offices with no form of remuneration, while it had no offices at all in the remaining 57 provinces (Camera dei Deputati 1960). In relation to this situation, Parliament voted in 1960 to increase the annual state grant from 60 to 300 million Italian Lire. The new resources were mainly employed to strengthen the agency’s peripheral organisation by creating regional centres and a mobile training centre which was to be used to deliver assistance to artisans nationwide by means of direct visits to their workshops. The result was a significant increase in the development of the agency in the mid-1960s. Beneficiary firms of the technical assistance service – principally for technical testing of machinery and building works – increased from 10 860 in 1962, to 17 992 in 1964. In contrast, commercial assistance involved 1950 firms in 1962, and 8867 in 1964: in this year, the service was offered to 1247 exhibitors at international trade fairs and exhibitions, and

222

Forms of enterprise in 20th century Italy

2403 exhibitors at Italian trade fairs and exhibitions, while a further 4438 companies were placed in contact with foreign businesses. In addition, collection centres were set up for artisan company products in Modena and Cosenza, and showrooms in Munich, Paris, Montreal and Zurich. Lastly, design and artistic assistance was provided for 2100 companies in 1962 and 4864 in 1964. Enapi developed a collaboration with CNR (the Italian National Research Council), which, in 1967, had resulted in the opening of a research centre for the ceramics sector in Faenza, while similar initiatives were being developed for the textiles, wood, metals and marble sectors (Senato della Repubblica n.d.; Lionetti 1965). In 1967, the annual state grant to Enapi was increased to 600 million Italian Lire. This extra funding enabled the agency to speed up its programmes, which concerned applied research, the design of shared services for groups of companies, the development of the most suitable urban planning solutions for artisan firm settling, and incentives for the creation of models and prototypes by artisan companies (Camera dei Deputati 1967). In 1972, the annual state grant to Enapi was increased to 1200 million Italian Lire (Camera dei Deputati 1973), but, in 1978, the agency was closed down as a consequence of the transfer of most competencies on artisan policy to the regional governments. On another tack, as already stated, the artisan production marketexhibition had re-opened in Florence in 1947, drawing some 600 exhibitors. In the following years, the event evolved significantly and it opened its doors to international markets as from 1952. The pavilions were extended and renovated, with the result that, in 1958, the number of exhibitors had increased to 2230, including many foreign companies (Camera dei Deputati 1958). In 1967, the market-exhibition drew 3400 exhibitors from 37 countries. To facilitate further development of the event, it was decided to transfer it to a new, larger site on the outskirts of the city in 1973. However, the construction of the new pavilions and the annexed service facilities took many years and was completed only at the end of the 1970s (Camera dei Deputati 1977).

9.14

CONCLUSIONS

This chapter argues – in opposition to Becattini (1998) and in agreement with Weiss (1988) – that the Italian state carried out an artisanship policy on a scale that was unparalleled in Europe. This policy was based upon the provision, on the one hand, of lower tax, and employers’ contributions and

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welfare benefits at reduced premiums, and, on the other, of ‘substitutive factors’: soft loans, services and promotional initiatives by state agencies. However, we diverge from Weiss’s view that government action on behalf of artisans was not in response to the demands of pressure groups, but was independently conceived and conducted by the biggest governing party – the DC – as a coherent implementation of its ideologically based social project, which aimed at extending small ownership in the country. In contrast, we argue – in accordance with Arrighetti & Seravalli (1997) – that the action of artisan associations played an important role in shaping the actual scope of artisan policy. In fact, as already stated, it took some 11 years from the end of the Second World War for the Artisan Act to be passed, and even afterwards the effective extent of the facilitations to be granted to the artisan sector was still the subject of discussion. It follows that, rather than a pre-ordained policy of the DC, the chain of events involved a gradual extension of regulations that assisted the sector in response to the insistent demands from the artisan associations, with the government always taking care to enlist the parliamentary support of the main opposition party (PCI). Some scholars (e.g., Baccini 2002) have observed that, contrary to other European countries, Italian artisanship policy did not foster the growth of firms, but, instead, provided incentives to remain small, since it was a condition in order to qualify for state benefits not to exceed the size-limits established by the Artisan Act. They have suggested the presence of a relationship between the prevalence of SMEs in the Italian economy and the presence of an articulated system of state facilitations for small companies. We hold that artisan policy had a twofold effect: partly protecting a stratum of marginal firms and partly fostering the modernisation of a segment of artisan firms. In fact, several facilitations – such as state participation in national insurance contributions on the hiring of apprentices and obligatory insurance for sickness and invalidity, old age and surviving dependents – were made available to all artisans without distinction, while others – those concerning general income tax and family allowances – were explicitly reserved for smaller and, presumably, more disadvantaged businesses. These can therefore be considered as measures aimed principally at defending a stratum of small firms. On the other hand, the provision of ‘substitutive factors’ was selective and served to stimulate innovation. These include the soft loans of Artigiancassa, which, until 1971, were awarded to just 14 per cent of artisans. The majority of these loans were disbursed in the more developed areas of the country, specifically the NECRs, where small businesses were particularly dynamic, while only a minimum proportion were allocated

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to the backward South, which had a significant concentration of small marginal concerns. In the 1970s, Artigiancassa’s loan provision became more extensive, reaching 46 per cent of Italy’s artisan firms active in 1981, but also in this decade the centre-north was clearly favoured in credit disbursement. Likewise, only a minority of artisan firms, selected from among those that presented the best possibilities for development, benefited from the promotion services provided by Enapi and the Florence market-exhibition.

NOTES *

1.

2.

3. 4.

5.

6. 7.

We wish to thank Claudio Pavese, Chris Phillips, Anna Spadavecchia and the participants in the session ‘Competition and the State’ of the 2007 ABH and CHORD Conference for their helpful comments. This work was jointly planned by the authors, and the following division should be considered for official purposes only: Giuseppe M. Longoni is responsible for Sections 9.1 to 9.5 and Alberto Rinaldi for the remainder. The DC was founded in 1942. The party was, in part, a revival of the Catholic Italian People’s Party created in 1919 but declared illegal by the Fascist regime in 1925. From 1944 to 1947, the DC joined a national unity government with the other anti-Fascist parties, but broke with its left-wing coalition partners in 1947. From 1948 to 1993, the DC was the largest party in parliament, governing in successive coalitions with the smaller Liberal (PLI), Republican (PRI), and Social-Democratic parties (PSDI), and, after 1963, with the Socialist Party (PSI). In the early 1990s, the DC came to grief with the enormous corruption scandal Tangentopoli, and, in 1993, returned to its original name, the Italian People’s Party, which was defeated by Berlusconi’s party Forza Italia in the general election in 1994. The PCI was founded in 1921; five years later, it was outlawed by the Fascist regime. From 1944 to 1947, it joined a national unity government with the other anti-Fascist parties. After the Second World War, it became the main opposition party in Italy, attracting the support of about one-third of voters in the 1970s. At that time, the PCI was also the largest Communist party in the western world. In 1991, the PCI disbanded to form the Democratici di Sinistra (Democratic Party of the Left), with membership in the Socialist International, while more radical members left the party to form the Rifondazione Comunista Italiana (the Communist Refoundation Party). The lower number of artisans censused in relation to those registered with the Chambers of Commerce suggests that many artisans worked at home. Being without business premises – the criterion of census taking – they escaped tabulation (Barberis 1980). The most important economic reform of the Fascist regime was the formation of the corporative system, according to which both employers and employees of the same trade were brought by law under one confederation: the ‘corporation’. In 1934, 22 corporations were formed. The government’s representatives also participated in the corporations, and provided accident, unemployment and health insurance to workers and helped to settle labour disputes. Both workers’ strikes and employers’ lockouts were forbidden. In contrast, the 1953 German Artisan Act imposed no size limitation but specified obligatory training and qualifications for those desiring to be registered as artisans. Such measures were clearly aimed at limiting newcomers to the area of artisanship (Weiss 1988). Up to that time, there existed only voluntary forms of insurance operating in accordance with the model of mutual benefit associations (Pesole 1997). This figure was increased to 30 per cent in 1964.

PART III

In search of an identity: struggling with the context

10.

‘Leaping frogs’ in the demography of manufacturing firms (1911–71)* Lucia Castellucci and Renato Giannetti

10.1

INTRODUCTION

In business and economic history, there are basically two traditions of research on the dynamics of industrial firms. The first one emphasises the role of ‘clusters of technological innovations’ (henceforth CTI) which ‘punctuate’ the time arrow of economic history, as in Schumpeter (1939). According to this tradition, early in the history of an industry, when the technological cluster starts, uncertainty is very high while barriers to entry are very low, and new firms are the major innovators and the key factor in industrial evolution. Later, as the industry develops and eventually matures, according to a ‘technological trajectory’, economies of scale, learning curves, barriers to entry and financial resources become important in the competitive process (Chandler 1990; Freeman & Louça 2001). According to this tradition, start-ups and faster-growing entrants are more innovative, and tend to grow rapidly and to be persistent during the life-cycle of the technologies which they adopt. In contrast, the second research tradition emphasises the role of market competition between new entrants and incumbents as the key factor of the creative ‘innovation and destruction’ mechanism which continuously reshuffles the leading firms (Bartelsman et al., 2004). This tradition of research supports the idea of the unstable, transitory nature of the leading firms, and describes this dynamic as ‘leaping frog competition’ (henceforth LFC) (Sutton 2002). Both the research traditions emphasise that new firms grow rapidly, but this points to rather different features. In the case of the CTI traditions, new firms enter new markets thanks to their capacity to exploit technological advantages, and the life-cycle or the trajectory of the technology involved, select the more adept technological advantages, and grow, consolidate in the market and persist. According to the LFC tradition, new firms enter new or older markets and they prevail according to their capacity to generate profits by competing with incumbent firms in specific markets via new products or processes. 227

228

Forms of enterprise in 20th century Italy

In the historiography of Italian firms, the dynamics of industrial evolution has generally been described according to a CTI view. Technology is the crucial dynamic factor of industrial evolution and of economic growth, but the Italian firms have not been able to consolidate their growth. The observed turbulence of big firms, for example, is described as a tara d’origine (hereditary defect) instead of a Schumpeterian process of creative destruction. For example, the cases of Perrone (Ansaldo), Bondi (Ilva) and Gualino (Snia), between the two World Wars, those of the homines novi of the mechanical and household consumer goods production (Borghi, Zanussi, etc.), in the age of the ‘economic miracle’ in the 1950s and 1960s, the unsuccessful innovators of the 1980s (Gardini, De Benedetti, Schimberni, etc.), the ‘brave captains’ (Colaninno, Gnutti, etc.) in the wave of liberalisation in the 1990s, have all, most often, been described as shrewd and forward financiers – ready to seize the speculative opportunities of markets, but equally ready to withdraw in front of the difficulties rising from managing complex organisations – rather than entrepreneurs with a Schumpeterian flavour (Valli 1977; Castronovo 1980; Amatori & Colli 1999; Giannetti & Vasta 2006). Only the more recent literature more akin to the LFC approach is less critical, particularly for what concerns the medium-sized firms of the Made in Italy marque (Quadrio Curzio & Fortis 2000a; Colli 2002b; Coltorti, 2006): these firms operate often in traditional sectors, are young, rapidly growing firms, are not particularly innovative in the CTI sense, but compete successfully in the markets that they enter. The purpose of this chapter is, firstly, to identify the Italian ‘leaping frogs’ (hereinafter LF) – i.e., the firms which expand more in specific periods of Italian history – and, secondly, to verify if they show the stylised features of the CTI tradition or of the LFC tradition, in general, or in any historical phase. This paper is organised as follows. In Section 10.2 we introduce the definition of LF and Sections 10.3–10.10 illustrate the variables used for the analysis. Section 10.11 provides a classification of LF based on cluster analysis. Finally, in Section 10.12, we present conclusions.

10.2

THE ‘LEAPING FROG’ FIRMS

This section deals with the Italian LFs by using a sample chosen from the Imita.db.1 It is made up by a sample of 90 manufacturing firms which show a high rate of growth – by classes of assets – in four stages of the Italian economic history (1911–20, 1921–36, 1950–63, 1964–71), traditionally adopted by the Italian economic historians.

The demography of manufacturing firms

229

The chapter takes into account nine variables (survival and size of firms after the leap; age; sector to which the firm belongs; technological intensity; maturity of product; profit (i.e., ROE, or rate of Return On Equity); concentration; ownership (public or private, and if a business group owns the firm). In the first part, we compare them with the population of firms in the complete data set and, secondly, we use cluster analysis to identify eventual similarities among LFs. In order to identify the LFs, we adopt a methodology already used in another work on Italian firms (Giannetti & Velucchi 2006), which provides a classification of the firms in eight size classes, in which the size variable is represented by total assets. The main characteristic of the above-defined classes is that each contains 12.5 per cent of the firms, in which the extremes of the interval for each class changes from one period to another, because of the changes that intervene in the distribution of the firms. Upon the basis of this classification, the number of ‘leaps’ made by the firms which survive each stage has been calculated; it is defined as the difference of the class that it belongs to in the first and last year of each period. The number of leaps (LP) has been determined in a proportional manner, compared to the total number of firms surviving each period, which differs very much from phase to phase: 378 in 1911–20, 594 in 1921–36, 1173 in the period 1950–63, and 2823 in 1964–71. Afterwards, we drew respectively 10, 15, 30 and 35 firms from each of the four periods, equivalent to 2.5 per cent of the survivors in the first three phases, and to 1.5 per cent of the fourth. In order to identify the 90 LFs for each period, the firms with the highest number of leaps were then examined: more than two leaps in the period 1911–20; from four to six leaps in the period 1921–36; and from five to seven leaps in the two final periods 1950–63 and 1964–71. This difference in the lower limit depends on the remarkable variety in the number of leaps made by each firm within each period. The analysis of the mobility between the initial and final year of each stage shows that the leaps backwards or the permanence within the same class (negative leaps or none) are quite frequent in 1911–20, where they represent 94.4 per cent of the total; they diminish notably in 1921–36 (32.5 per cent), and between 1950 and 1963, when they reach the minimum share of 14.1 per cent and then rise again to 44.1 per cent from 1964 to 1971. Within the group of LFs, in order to select a pre-established number for every stage, the changes in assets between the first and final year of every period have also been considered. With regard to the first, third and fourth period, the classification by number of leaps substantially coincides with the one obtained upon the basis of the rate of the change of assets; this allows us to select, as LFs, all the firms that showed a greater number of leaps and a higher rate of change of assets. For the period 1921–36, however, we made a choice between firms, comparing the number of leaps

230

Forms of enterprise in 20th century Italy

by size classes and change of assets, both in relative and absolute terms. Therefore all the eight firms that carried out six leaps in the period were selected, six being the highest number in that stage. To complete the 15 LFs selected for this phase, six firms with five leaps were also taken into account. Furthermore, a firm that registered four leaps was also included, instead of a firm which registered five, because both the absolute and the relative change of the assets of this firm were much higher. It registered four leaps, from the fourth to the eighth size class, i.e., classes with wider intervals compared to the first ones. This marked difference in relative and absolute change of assets means that this firm was more dynamic, both compared to the firm which carried out five leaps, and to the other two firms showing four leaps.

10.3

THE TURBULENCE OF THE LFS

The first variable that we evaluate in order to answer the question of whether the dynamics of the Italian LFs can be explained mainly by a CTI approach or by the LFC one, is represented by their turbulence. In the CTI representation, the stage of rapid growth should lead to the stabilisation of the LF, while, in the LFC representation, the mechanism of ‘creative destruction’ should show not only cases of stabilisation, but also cases of size decrease or of the exit of the LF firms from the market. Among the LFs of the first period (1911–20), 60 per cent continue to grow, by one or two size classes, after the ‘leap’ stage, but 40 per cent of the firms did not survive before the end of the following period. In the next phase (1921–36), the situation is rather different: the majority of firms (53.3 per cent) survived, maintaining the same size class of the leap period; 6.7 per cent of firms continue to grow, moving on to a higher size; 26.7 per cent of the firms decreased by one or two classes, while only 13.3 per cent of the firms did not survive at all. Compared to the previous period, the LFs survive longer, but, in the Table 10.1 Phase 1911–20 1921–36 1950–63 1964–71 Total

Size mobility of the ‘leaping frogs’: number of leaps Average number of leaps 2.8 5.5 6.2 6.0 5.6

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231

meantime, are unable to maintain their growth. In the third period (1950– 63), 50 per cent of the LFs maintain the position compared to the period in which they ‘leaped’, 6.7 per cent went up one size class; 16.6 per cent decreased by one size class, but, compared to the previous period, mortality doubles: 26.7 per cent of LF disappear before 1971. The mortality of LFs increased even more in the fourth phase, with 65.7 percent of LFs not surviving in 1982. So, generally speaking, we can observe high turbulence among LFs: on average, about 50 per cent of the LFs exit, according to a process of a LFC type.

10.4

THE AGE OF THE LF

Age is one of the features generally taken into consideration to investigate the dynamics of firms, according to the hypothesis – common to CTI and LFC – that young firms are more able to exploit specific competitive advantages and grow more (Table 10.2). In the first period, the average age of an LF is around four years and the firms are young. Only one exceeded 10 years, the Fabbriche Riunite Gallettine Biscuits e Affini. In the two central periods, the average age of the LF is between 12 and 13 years, but the distribution appears to be relatively polarised; for example, between 1921 and 1936, UTET was 68 years old, Cotonificio Udinese, 38 years old, Fabbriche Riunite, 29, Amido Glucosio Destrina and Bergomi 16 years, while the other ones are less than 10 years old. In the phase 1950–63, 17 firms are more than 10 years old, the majority of them being between 10 and 20 years old. This means that LF firms, during this phase, leap probably thanks to the high rate of the aggregate economic growth of the period. We can furthermore observe how the rise of the average age in the second and third period is accompanied by a higher number of ‘stable’ firms, which survive and maintain the same size class in the phase following Table 10.2 Phase 1911–20 1921–36 1950–63 1964–71

‘Leaping Frogs’: average age Average age 4.4 12.5 12.7 3.7

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Forms of enterprise in 20th century Italy

the ‘leap’. In the second phase, the LFs aged over 10 years and stable are: UTET, Cotonificio Udinese, Fabbriche Riunite Amido Glucosio Destrina and Bergomi; in the third one, they are San Quirico Industria Petrolifera, ICIC, SIR, FIAM, ORI, Guigoz and Aspera.

10.5

THE SECTORAL COMPOSITION

The sectoral distribution of firms is the third variable that we consider. According to a CTI approach, the successful firms are usually in the emerging, new industrial sectors; this condition is not crucial in the LFC tradition, in which new firms have higher potential growth due to their ability to compete independently from the novelty of the sector which they enter. In order to check this feature, we compare the sector which the LFs belong to in the final year of each stage, with the sectoral composition of the manufacturing sector as a whole (10.3). The LFs of the first stage (1911–20) were mainly in food (40 per cent) and chemicals (30 per cent), while the remaining LFs were equally distributed (10 per cent) among electrical equipment, cars and other means of transport. Considering the whole manufacturing sector, these sectors cover, 17.9 per cent and 12.8 per cent respectively. The larger share of food in the LFs, in comparison with the manufacturing sector, is coherent with a CTI approach, because the large share of food is due to a firm in the sugar sector (Saccarifera Genovese), which had a major business feature: high scale, managerial organisation and publicly arranged cartel organisation. The composition of ‘leaping’ in this phase was, therefore, coherent with the representation of it as ‘the Second Industrial Revolution’, characterised by science-based sectors, such as chemicals and electricity, and by large firms. In the second period, the composition of the LFs is more akin to the manufacturing sector as a whole. Among the LFs, the foods category maintains the highest share, followed by textiles and by other means of transport (both at 13.3 per cent). The other LFs are distributed among six sectors: leather, publishing, chemicals, non-metallic minerals, metallurgy, and electrical equipment (all at 6.7 per cent). In this period, the weight of the food sector is also mainly due to one firm, Anonima Cereali, which possessed features similar to those of the sugar sector already observed in the earlier stage. In this phase, the LFs still have a high share, albeit smaller than in the previous phase, in the new sectors, in comparison with the manufacturing sector as a whole, as they do in other means of transport.

233

Foods products and beverages Textile Wearing apparel Tanning and dressing of leather, bags and footwear Manufacture of wood and wood products Pulp, paper and paper products Publishing and printing Coke and refined petroleum products Chemicals and chemical products

17.9 19.0 2.1 2.5 2.0 2.5 3.4 0.5 12.8

0.0 0.0 0.0 0.0 0.0 0.0 0.0 30.0

Manufacturing firms

40.0

LF

1920

6.7

6.7 0.0

0.0

0.0

13.3 0.0 6.7

33.3

LF

13.5

3.7 2.2

3.2

1.4

19.7 2.2 2.2

15.6

Manufacturing firms

1936

13.3

3.3 3.3

0.0

6.7

10.0 0.0 0.0

16.7

LF

12.2

3.5 2.4

4.4

2.0

11.4 2.0 1.6

13.3

Manufacturing firms

1963

14.3

0.0 0.0

2.9

0.0

8.6 2.9 2.9

14.3

LF

‘Leaping frogs’ by sector: sector distribution compared to total manufacturing firms (%)

Manufacturing sectors

Table 10.3

11.5

3.3 1.9

3.4

2.0

9.8 2.9 1.2

12.1

Manufacturing firms

1971

234

(continued)

Rubber and plastic products Non-metallic mineral products Basic metals Fabricated metal products Machinery and equipment Electrical machinery and apparatus n.e.c. Radio, television and communication equipment Medical, precision and optical instruments Motor vehicles, trailers and semi-trailers Other transport equipment Total

Manufacturing sectors

Table 10.3

0.0 8.9 6.1 4.3 2.8 3.1 0.3 0.5 1.6 7.3 –

0.0 0.0 0.0 10.0 0.0 0.0 10.0

10.0 100.0

Manufacturing firms

0.0 0.0

LF

1920

13.3 100.0

0.0

0.0

0.0

0.0 6.7 0.0 6.7

0.0 6.7

LF

3.6 –

1.1

1.7

0.7

5.2 4.5 4.1 3.3

0.6 9.2

Manufacturing firms

1936

0.0 100.0

0.0

0.0

3.3

3.3 6.7 20.0 10.0

0.0 3.3

LF

2.0 –

1.5

1.7

1.5

5.2 6.7 10.3 3.9

3.0 9.1

Manufacturing firms

1963

8.6 100.0

2.9

0.0

5.7

2.9 5.7 17.1 2.9

2.9 5.7

LF

1.9 –

1.9

1.3

1.6

4.7 8.0 11.5 3.7

3.8 10.4

Manufacturing firms

1971

The demography of manufacturing firms

235

In the third phase (1950–63), the major difference between the sectoral composition of the LFs and the manufacturing industry as a whole is in the machinery and equipment sector (20 per cent vs 10.3 per cent), in the electrical machinery and non-classified apparatus (10.0 per cent vs 3.9 per cent), and in the radio, television and communication equipment (3.3 per cent vs 1.5 per cent). These features clearly show the diffusion of the new products and mass production organisation in Italian industry. For example, Techint (machinery and equipment sector), established by an Italian public manager of the 1930s, Agostino Rocca, entered foreign markets from the very beginning, specialising in machinery trading and design, as well as in the assembly of industrial plants, especially in South America (Argentina, Brasil, Mexico, Peru, Bolivia, etc.) and in the US. In this group of LFs in the mechanical sector, there are other examples of innovating LFs, such as Fabbrica Milanese Conduttori, which specialised in the production and selling of cables; this firm grew fast after the Second World War, becoming a leader in the world cables market during the 1970s. Another case of an innovative LF in this phase is Telettra, a firm producing radio, television and communication equipment: Telettra was mainly oriented towards the domestic market for the design and the production of radio and electronic components essentially due to the demand from the public telephone network, SIP. This public commitment allowed Telettra to enter the market of telecommunication and to compete with the major foreign firms that had dominated the Italian market since the 1920s (Siemens, ITT & Ericsson). In the last phase (1964–71), the LFs again show a concentration in the mechanical sector, which was already observed during the previous period. Even the difference in ‘other means of transport’, 8.6 per cent compared to 1.9 per cent of the whole manufacturing sector, is to be noted. This result depended mainly on state intervention, which characterised this phase of Italian economic growth. The LFs of this sector were Cantieri Orlando, Ferrosud and Elicotteri Meridionali. Cantieri Orlando, established in 1963, arose from a firm, originally established in 1865, which operated in the wider context of the Italian shipbuilding sector in the early 1960s, which was in crisis. The state bailed out this firm, establishing a new company, which inherited the shipbuilding plant in Leghorn (Livorno). Ferrosud and Elicotteri Meridionali were established thanks to the public intervention in favour of Southern Italy, which strongly characterised this phase of economic policy: Ferrosud was a state-owned firm, while, in the case of Elicotteri Meridionali, it was the Cassa per il Mezzogiorno – a public agency established in 1951 to promote economic growth in Southern Italy – which, in order to incentivise private investments there, financed a private firm of the sector, Agusta, to build a new establishment in Frosinone, Lazio.

236

10.6

Forms of enterprise in 20th century Italy

THE MATURITY OF THE PRODUCT

The maturity of a product is represented as the sum of entering and exiting firms per sector (Audretsch 1997).2 This calculation allows us to distinguish a ‘formative stage’ of the sector from a ‘mature’ one, according to the classification in Table 10.4.3 If the sector is in its formative stage, there is more space to exploit its ‘potential’ by the new firms entering the market, and, vice versa, there is less space if the sector is already mature. Up to the Second World War, the LF firms were mainly within the mature sectors, compared to the whole manufacturing sector. The situation is partially different in the post-war period, when two new tendencies were observed. The first one depended on the fact that the majority of the sectors became mature during the phase 1950–63. The second one shows the prevalence of sectors in formative stages among the LFs in comparison to all manufacturing in 1950 (66.7 per cent compared to 53.61 per cent) and in 1964 (11.4 per cent compared to 8.4 per cent), i.e., the LFs specialise in new products, such as consumer goods, which were rapidly being diffused in this phase of Italian economic growth. For example, in 1950, they included Fabbrica Milanese Conduttori and OMR in the electrical machinery sector, Telettra and Italelettronica in the radio, television and communication equipment; in the fourth phase, DEA and Microel in radio, television and communication equipment. Table 10.4

Years

1911 1920 1921 1936 1950 1963 1964 1971

Life-cycle of sectors: ‘leaping frogs’ compared to total manufacturing firms (years at the beginning and at the end of each phase) Formation stage sectors

Mature stage sectors

LF

Manufacturing firms

LF

Manufacturing firms

60.0 60.0 40.0 26.7 66.7 3.3 11.4 8.6

82.8 82.1 56.9 52.9 53.6 8.1 8.4 8.3

40.0 40.0 60.0 73.3 33.3 96.7 88.6 91.4

17.2 17.9 43.1 47.1 46.4 91.9 91.6 91.7

Total

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

The demography of manufacturing firms

10.7

237

THE TECHNOLOGICAL INTENSITY

The technological intensity is a crucial variable in order to explain a rapid growth of the size of a firm in the CTI approach, because the more innovative sectors are assumed to have a higher economic potential.4 This requisite is not so crucial for the LFC point of view. With regard to the technological intensity of the sectors, the attribution of a low, medium or high-tech level has been drawn by distinguishing two stages: before and after the Second World War. The variable has been built up according to the classification adopted by the OECD, conveniently adapted for our sample (Hatzichronoglou 1997). We report the variable for the final year of each phase. Generally, the LF firms prevail in technology intensive sectors in comparison to the manufacturing sector as a whole. This variable was particularly high at the end of the first period. For example, they include three LFs belonging to the chemical sector, one of the leading sectors of the Second Industrial Revolution: Goldenberg, Officine elettrochimiche Dr Rossi and Sanitaria. During the second phase, the difference between the LFs and the manufacturing sector as a whole decreases strongly, then it goes up again in 1963 and 1971. In 1963, the high-technology LFs are again in the chemical sector (Antibiotoci Lepetit, SIR, SISAS, SICS), in the electrical machinery sector (Italelettronica, Fabbrica Milanese Conduttori and Manuli) and in the radio, television and communication equipment sector (Telettra). In 1971, there are eleven LFs in the high-tech sectors: five in the chemicals (Ajinomoto Insud, Farmaceutici Italiani Derivati, Imperial Chemical Industries Italia, Lepetit Sud, Sardoil), two in radio, television and communication equipment (DEA and Microel), three in other transport equipment (Cantieri Orlando, Elicotteri Meridionali and Ferrosud), and Table 10.5

Technological intensity of sectors: ‘leaping frogs’ compared to total manufacturing firms at the end of each phase

Years

Technological level: low

1920 1936 1963 1971

Technological level: medium

Technological level: high

LF

Manufacturing firms

LF

Manufacturing firms

LF

Manufacturing firms

40.0 60.0 36.7 31.4

49.5 48.1 38.45 35.0

0.0 13.3 36.7 37.1

24.9 27.8 41.64 46.1

60.0 26.7 26.7 31.4

25.6 24.1 19.91 18.9

238

Forms of enterprise in 20th century Italy

Meridionale Cavi in the electrical machinery sector. At the end of 1971, the LFs have a 31.4 per cent share of high-tech firms, in comparison with 18.9 per cent of the whole manufacturing sector.

10.8

PROFITABILITY

In CTI research tradition, new firms in new sectors are more profitable because they exploit absolute technological advantages due to their novelty. According to LFC tradition, however, profitability depends essentially on the capacity to compete in a specific market, independently of technological intensity. It is rather difficult to obtain appropriate measures of profit, and it is much more difficult to calculate profit in a historical perspective; here, ROE (rate of return on equity) is adopted.5 Generally, the majority of the LFs (64.4 per cent) show an average ROE higher than the corresponding sector as a whole. This percentage declines within each period, especially after the Second World War. The percentage of LFs with a higher average ROE, compared to the corresponding sector as a whole, is 90 per cent in the first period, and 80 per cent in the second period. For example, in the first phase, two of the four LFs of the food sector show a marked difference (more than four points) in the average ROE compared to whole sector (Fabbriche Riunite Gallettine and Saccarifera Genovese); in the chemical sector, the differences are even higher for Sanitaria and Goldenberg (12.2 and 7.8 points, respectively). In the second phase, the difference remains high in the food sector (between 13.9 and 4.1) except for the Società Anonima Cereali (0.6). During the second phase, it is UTET (publishing and printing sector) that shows the highest difference (16.4). In the following two periods, the number of LFs with a ROE higher than the average of the sector decreases. This percentage is 60 per cent for the period 1950–63, and it decreases in the fourth period, when it is 54.3 per cent. In the third period, it is worth noting that the LFs of the Table 10.6 Phase 1911–20 1921–36 1950–63 1964–71

Average return on equity and standard deviation in each phase LF ROE: average

LF ROE: SD

11.9 2.6 1.3 −12.0

9.2 8.4 13.1 22.8

The demography of manufacturing firms

239

chemical sector show a worse performance in terms of average ROE compared to the whole sector: only two of the five chemical LFs show a positive difference (SISAS and ICIC), while two of them have a negative one (SIR and SICS), and one has nearly the same ROE as the whole sector (Antibiotici Lepetit). Among the LFs of the food sector, three of the four LFs show average ROE lower than the whole sector (SAGA, Guigoz and Centrale del Latte di Torino). The same happens for textiles, with two of the three LFs showing a lower average ROE than the whole textile sector (Cotonificio Oliva and Filande e Tessiture Costa). As to the fourth period, the presence of some less profitable state-owned enterprises among the LFs contributes to the decrease of the LFs with a higher level of profitability. Apart from the sectors that they belong to, the four state-owned firms show a negative average ROE, which is always lower than the ROE of their manufacturing sector (Frigodaunia, Ajinomoto Insud, Cantieri Orlando and Ferrosud). This depends mainly on the fact that these firms arose from firms in the same sector which had been bailed out by state intervention.

10.9

SECTORAL CONCENTRATION

The concentration of a market evaluates the barriers to the entry of new firms in a market. A positive relationship between the competitiveness of a market (sector) and the number of entering firms is expected in both traditions, but is more important in LFC. Generally speaking, the LFs are mainly, in all the historical phases considered, in competitive sectors. With regard to the first phase, a large part of the LFs (70 per cent) is in two competitive sectors (foods: Ligure per la lavorazione della latta, Talmone, Galletine Biscuits e Affini, Saccarifera Genovese; chemicals: Sanitaria, Goldenberg and Officine Elettrochimiche Dr Rossi); the remaining 30 per cent are in semi-competitive or monopolistic sectors (cars: SCAT; other means of transport: Bacini e Scali Napoletani; medical, precision and optical equipment: Galileo). In the following phase, too, the majority of the LFs are in competitive sectors: foods (Caffè Franck, Galbani, Arrigoni, Amido Glucosio e Destrina; textiles (Cotonificio Udinese and Lanificio Cangioli; publishing (UTET; non-metallic minerals: SCIC) with a share of 73 per cent in 1921, and 66.7 per cent in 1936. In 1950, the share of LFs operating in competitive sectors decreases, compared to the previous phase (43 per cent), but, at the end of the period, it grows by up to 80 per cent, mainly thanks to the fact that some sectors became competitive (timber and furniture, metallurgy, electrical equipment, precision equipment, and radio and television equipment). The last

240

Forms of enterprise in 20th century Italy

phase shows more stable market conditions between the initial and final year, and only ‘other means of transport’ changes from a monopolistic to a semi-competitive market. Thus, the share of LFs in competitive sectors remains high and stable (68.6 per cent), while only 17 per cent of the LFs is in the monopolistic sectors (iron metallurgy, rubber and plastic, cars and other means of transport) in 1964, and 18.6 per cent in 1971. Among the LFs in monopolistic sectors in the fourth period, we find GSI (basic metals), Valeo (motor vehicles), Cantieri Orlando, Elicotteri Meridionali and Ferrosud (other transport equipment). As will be considered in the next paragraph, two of the latter three LFs are state-owned firms.

10.10

OWNERSHIP AND GROUPS

Ownership is very important in order to describe the LFs. According to the CTI approach, for example, LFs are expected to be started by independent innovative entrepreneurs who eventually consolidate their ownership and governance in a managerial-arranged company during their life-cycle. Ownership is only one of the possible causes of leadership for the LFC tradition. During the first phase the number of LFs owned by a group goes up from 40 per cent to 80 per cent; two of them are in food sector (Talmone and Saccarifera Genovese), and two in chemicals (Goldenberg and Elettrochimiche Rossi); all belonged to a group both at the start and the end of the period. In the second phase, the firms owned by a group increased from 40 per cent in 1921, to 86.7 per cent in 1936. Most of these belong to a group from the start to the end of the period: for example, the textile industry Cotonificio Udinese and four food enterprises (Galbani, Arrigoni, Società anonima Cereali, Caffè Franck). In the third phase, the share of the LFs owned by a group is very high at the start of the period, and grows from 73.3 per cent in 1950 to 80 per cent in 1963. There are only four firms which are not in a group, either at the start or at the end Table 10.7 Phase 1911–20 1921–36 1950–63 1964–71 Total

‘Leaping frogs’ belonging to groups (%) Beginning of the phase

End of the phase

40.0 40.0 73.3 2.9 36.7

80.0 86.7 80.0 85.7 83.3

The demography of manufacturing firms

241

of the ‘leap’ period: ORI, FIAM, Fabbrica Milanese Conduttori and Italelettronica. During the last phase, the number of LFs belonging to a group increases again, going from about 3 per cent in 1964 to 85.7 per cent in 1971.6 In 1971, among the twenty firms owned by a group, there were three in the food sector (Frigodaunia, Birra Henmed, Salumificio Milano), all the textile firms (Leonardo Da Vinci, Ausatex, Ermion), all the chemical firms (Ajinimoto, Lepetit Sud, Fidia, Sardoil, Imperial Chemical Industries), and two in the other means of transport sector (Ferrosud and Cantieri Orlando). In the Italian experience, generally, the LF firms are not independent firms, although the large majority belonged to a group from the start of the ‘leap’ phase. This may suggest that the LF firms can expand even as a diversification policy of already existent groups in vertically integrated sectors or in new sectors. For example, in the first phase, Fabbrica Chimica Goldberg (called Arenella at the start) expanded thanks to German investments in the Italian chemical sector in order to exploit local resources (calcium citrate); Chemische Fabrik Winkel Vormals Goldberg controlled it, and had a share even in Baller, a Sicilian export company. Another case of group-link from the very start, in the first phase, can be found in the chemical sector, with Officine elettrochimiche Dr Rossi, which was established in 1910 by another firm owned by Dr Rossi, joining the larger Lepetit group. It is also worth underlining that the role of the groups often increases during the ‘leap’ phase of the firms. This is coherent with the hypothesis of consolidation along the life-cycle of the firm as in the CTI approach. For example, among the LFs in the food sector of the first phase, in 1924, Gallettine Biscuits and Michele Talmone, with other food firms producing sweets and chocolate, came under the control of Unica (Unione Nazionale Industria Cioccolato e Affini), a holding established by Riccardo Gualino, in order to consolidate its position in the Italian market. A similar case is that of Saccarifera Genovese, established by Federico Schiaffino in 1911: in 1918, it became Saccarifera Lombarda and came under the control of the Eridania group. Antibiotici Lepetit is another example in the chemical sector in the third phase: in 1966, it came under the control of Ledoga, which later became Lepetit Group Spa. Becoming linked to an existing group sometimes followed the leap phase and was due to a group strategy which aimed at entering new markets. For example, Telettra grew steadily during the 1960s and the 1970s, and in 1968 entered into partnership with Fiat in order to obtain new resources to enable it to grow; Fiat, on its side, was pursuing a diversification strategy, by entering into an innovative and fast growing sector.

242

Forms of enterprise in 20th century Italy

With regard to the ownership of the firms, in the ‘leaping’ phase, they are mainly private. In the first and second phase, there are no publicowned firms, while a public-owned firm is found in the third phase: Centrale del Latte di Torino; and four in the fourth phase: Ajinomoto Insud, Ferrosud, Frigodaunia and Cantieri Orlando. There are 35 familyowned LFs during their ‘leap’ phase (38.9 per cent):7 they represent at least 40 per cent of the total in each phase – respectively, 40 per cent in the first one, and 46.6 per cent in the second and third ones – with the exception of the fourth phase, where they are only 28.6 per cent of the total. Among them, in the second phase, there is Galbani (food sector), established by Egidio Galbani, and Moto Guzzi (other transport sector), founded and managed by Carlo Guzzi and Emanuele Parodi. In the third phase, there is Manifattura Valle Brembana (textile sector), which grew under the control of the Polli family, Telettra, founded by Virgilio Floriani, and Manuli, established by Dardanio Manuli. Zanussi Grandi Impianti is an example of the fourth phase. The firm was founded in 1916 by Antonio Zanussi, and, in 1958 a new company was established, still controlled by members of the Zanussi family.

10.11

THE CLUSTER ANALYSIS

In this section, the existence of common features within the ‘leaping frogs’ is investigated with the use of the cluster analysis. Clustering is a multivariate analysis which measures the homogeneity of a set of elements on a given set of characteristics. In this case, the analysis application is intended to underline the common features of the 90 LFs and to give a precise and concise picture of their activity. The clustering analysis is based upon the 90 ‘leaping frogs’. The characteristics considered are: age, profitability (ROE), and financial lever (indebtedness rate).8 With regard to age, we expect, both in CTI and in LFC, younger firms to have more competitive capacities and to be more capable of increasing their growth, compared to more consolidated firms. The profitability and the indebtedness are variables of the firms’ performances: the former gives information on the firm’s ability to cover its costs, the latter gives information on the firms’ resorting to external funding. The CTI tradition, as stated above, expects the profitability to be higher for LFs due to their novelty (new product; learning process in production, etc.) during the phase of leap, while LFC expects higher profits from competition. With regard to indebtedness, CTI expects stronger indebtedness to finance new products or processes than LFC, which expects the LFs to finance themselves by their growth. For the last two variables, we consider

The demography of manufacturing firms

243

L2 dissimilarity measure

39.035

0 Dendrogram for continous cluster analysis

Figure 10.1

Dendrogram: results of the cluster analysis on 90 ‘leaping frogs’

the average of the period in which each firm shows its greatest increase in size. A graphical representation of successive levels of dissimilarity among the LFs is given in a dendrogram (Figure 10.1).9 The figure shows the clustering of the firms, given a certain level of similarity in their characteristics. The higher the level of the dissimilarity measure, the lower the similarity of the firms, and the lower the probability that they belong to the same cluster.10 Figure 10.1 shows the dendrogram of the whole set of characteristics. Fixing a fairly low level of dissimilarity, we can isolate five clusters and eight singletons. Among them, the largest cluster includes sixty-nine firms. This will be called Cluster 1; the remaining clusters are made up of four smaller clusters and eight singletons, which are not discussed here because they are not of interest for the purposes of this chapter Before considering the three variables that characterise the group of 69 firms, it is useful to notice how these reflect the distribution in the periods covered (Table 10.8). Cluster 1 includes all the firms in the first period and among 67 per cent and 80 per cent of the firms of the other three periods. The firms of the first period, in particular, are slightly over-represented, while the firms of the third period are slightly under-represented. Concerning the age, the firms of Cluster 1 are very young (4.9 years old

244

Forms of enterprise in 20th century Italy

Table 10.8 Phase 1911–20 1921–36 1950–63 1964–71 Total

‘Leaping frogs’ by cluster

Cluster Cluster Cluster Cluster Cluster Cluster Singleton Total 1 2 3 4 5 6 firms 14.5 15.9 29.0 40.6 100.0

Table 10.9

0.0 25.0 75.0 0.0 100.0

0.0 0.0 0.0 100.0 100.0

Cluster 2 Cluster 3 Cluster 4 Cluster 5 Cluster 6 Total

0.0 0.0 100.0 0.0 100.0

0.0 50.0 50.0 0.0 100.0

0.0 25.0 37.5 37.5 100.0

11.1 16.7 33.3 38.9 100.0

‘Leaping frogs’ by cluster: average and standard deviation of age

Cluster Cluster 1

0.0 0.0 50.0 50.0 100.0

Age Average SD Average SD Average SD Average SD Average SD Average SD Average SD

4.9 5.1 20.8 4.4 2.0 0.0 6.0 5.7 18.5 3.5 41.0 4.2 8.2 10.9

on average), a value rather below the average of the entire group of the 90 LFs, equivalent to 8.2 years.11 Besides their young age, the firms of the Cluster 1 present an average profitability equivalent to 0.50 per cent, while a negative average ROE value of −2.5 per cent12 is detected in the whole sample. The average indebtedness is equivalent to 58.6 per cent, slightly lower than the average of the 90 LFs (60.5 per cent). The three variables do not allow us to assess clearly which theoretical hypothesis explains the major cluster of the Italian LFs better. Age is, in fact, important for both of them, and the indebtedness is very close to that of the complete sample. Profitability is also relevant, because the major cluster shows a better performance, according to the CTI expectations.

The demography of manufacturing firms

Table 10.10

‘Leaping frogs’ by cluster: average and standard deviation of ROE

Cluster

ROE

Cluster 1

Average SD Average SD Average SD Average SD Average SD Average SD Average SD

Cluster 2 Cluster 3 Cluster 4 Cluster 5 Cluster 6 Total

Table 10.11

Cluster 2 Cluster 3 Cluster 4 Cluster 5 Cluster 6 Total

10.12

0.5 10.7 6.2 2.2 −35.2 2.7 −27.3 1.0 −16.6 1.7 10.1 9.6 −2.5 16.3

‘Leaping frogs’ by cluster: average and standard deviation of indebtedness rate

Cluster Cluster 1

245

Indebtedness rate (%) Average SD Average SD Average SD Average SD Average SD Average SD Average SD

58.6 16.8 57.0 3.8 90.9 4.0 60.3 0.5 79.8 5.4 77.9 1.0 60.5 17.5

CONCLUSIONS

The aim of this chapter is to verify whether the Italian LFs show CTI or LFC features, and whether general features characterise these firms in all phases of Italian economic history considered in the light of nine variables:

246

Forms of enterprise in 20th century Italy

survival and size of firms after the leap; age; the sector to which the firms belonged; technological intensity; the maturity of the product; profit (i.e., ROE, or rate of Return On Equity); concentration; and ownership (public or private, and whether the firm is owned by a business group) With regard to the turbulence, a downward mobility is often observed and up to 50 per cent of the LFs exit in the period after the leap. Usually, they do not consolidate their trajectory, and show a feature which is more akin to the creative destruction explanation than to the CTI explanation. Generally, it is the young firms which usually leap, but a partial exception is shown by the LFs of the third period (1950–63), when some already existing firms were able to enter the new markets which accompanied the diffusion of mass production and organisation. With regard to the sectoral specialisation, the growing number of LFs in the mechanical sector and electric appliances, especially during the post-war phases, is coherent with the CTI approach. The mechanical sector is crucial in the diffusion of mass production, which characterised this phase of the Italian economy. With regard to technological intensity, the LFs show, in all phases, a marked prevalence in the sectors characterised by high technological intensity, which confirms that new firms in high-tech sectors have a major chance to grow. With regard to sectoral concentration, the LFs are, in all the phases, mainly present in the more competitive sectors, thus confirming that the lack of barriers to entry favoured the firms with higher growth. With regard to profitability, LFs were generally more able to generate profit; this evidence, combined with the prevalence of high-tech sectors, seems to support the CTI explanation. With regard to ownership, the Italian LFs often reveal group links from the start of the ‘leap’ stage, as well as the expansion of the group during the ‘leap’ stage of the single firms. This is probably the Italian way to consolidate the LFs, according to their technological trajectory. The ownership was mainly private, and the firms were very often owned by a family, especially in the third phase. Finally, the cluster analysis confirms that the larger cluster of the LFs shows younger firms that were able to achieve higher profits. These results support the hypothesis that the Italian LFs of the period show mainly CTI features: they are more high-tech than total manufacturing, they are new firms, and they are more profitable. However, they do reveal two contrasting features: firstly, they show a high mortality rate in the period after the leap, or often show a reduction of size after the leap; secondly, a large diffusion of the group organisation is present from the start. Both of these features seem to confirm that the Italian LFs evolved according to the CTI explanation, but that ownership and governance (family and group organisation) depended strongly on the local institutional environment.

The demography of manufacturing firms

247

NOTES * 1. 2.

3. 4. 5.

6.

7.

8. 9.

10. 11. 12.

We wish to thank Stefano Breschi for comments and criticisms. The usual disclaimer applies. For a description of the database Imita.db, see Vasta (2006c). Maturity of the sector of origin is considered by referring to the initial and final year of the different stages; passing from the formation state to maturity within each sector can take place within each of the four phases (especially during the second and third stage), changing significantly the balance among the two components. For details on the statistical techniques adopted, see Giannetti & Velucchi (2006). The sectoral features obviously should be integrated with the number of patents held by every single firm; unfortunately this information is not available, due to the difficulties of obtaining it from United States Patent and Trademark Office. The items included in the original database do not allow us to distinguish the capital actually invested in the individual administration, and we also lacked information on the capital actually paid by the shareholders, the flow of reserves and on other reserve funds. As a consequence, the solution has been to adopt the ROE, which indicates an overall description of profitability of the firm, calculated as the relationship between net profits and capital. Furthermore, the value of the ROE has been brought to an interval between +/− 100%. In this case, only the mechanical firm Zanussi had stable links with groups from the start to the end of the period, but the very low value of firms with links at the start of the period was partly caused by the gaps in the archives employed, which did not allow a complete verification. The criteria to identify a family-owned firm is the same adopted in Giannetti & Vasta (in this volume); a firm can be considered to be family-owned if, on its board of directors, there are: (i) at least three people with the same surname; (ii) at least two people with the same surname, of whom at least one holds a position on the board as chairman, vice-chairman or chief executive officer; (iii) at least one person whose surname is included in the name of the firm itself, and who holds a position on the board as chairman, vice-chairman or chief executive officer. Qualitative information was added in order to check this feature of LFs. The indebtedness rate has been calculated as the ratio between the total of debts and the capital invested. The calculation of the profitability indicator and the decision to employ ROE has already been mentioned in note 5). The clustering has been obtained using the hierarchical method with the criterion of the complete link (the closeness among groups is measured by the most distant components within the group) and measuring their homogeneity (the dissimilarity) with the Euclidian distance. Data has been standardised in order to homogenise the variables used. The result is a dendrogram showing the aggregation of the 90 firms in groups according to growing levels of dissimilarity. The level of dissimilarity chosen to identify the groups is equivalent to less than a fourth of the maximum level of dissimilarity which runs among the 90 firms. Moreover, the other minor clusters in four out of five cases were above the average age of the biggest cluster. In Clusters 2, 3, and 4, the average ROE was negative, while, in the other two, it was significantly higher than the biggest cluster.

11.

The medium-sized manufacturing enterprise (1927–81)* Fabio Lavista

11.1

INTRODUCTION

The evolution of the Italian economy until the Second World War led to a dualistic industrial structure, determined by a small group of public and private large-sized enterprises, which operated in the capital-intensive basic sectors, and a large number of small-sized firms, which autonomously grew, developing more traditional labour-intensive activities, which were scarcely influenced by either the public policies or the decisions of the main national financial centres.1 Even the subsequent developments, during the years of the so-called Italian Economic Miracle, did not radically change this distribution: at the beginning of the 1960s, the industrial structure of Italy still shared some characteristics with those of under-developed countries. In particular, it was possible to register a significant delay in the process of dimensional convergence towards large-scale production which, in contrast, was common to other European countries (Fuà 1977; Barbetta 1989). During the 1970s, the situation radically changed both at national and at international level, but not in the direction hoped for by the advocates of the dimensional growth. Throughout this decade, in fact, a series of exogenous and endogenous shocks – the former, associated with the technological transformations, with the petroleum crises (which mainly penalised the energy-intensive sectors), with the increasing integration of the markets, and the equally sudden increase in macro-economic instability; the latter with the gradual tightening of the work factor and the progressive saturation of the internal market – favoured the crisis of public enterprises and the withdrawal of the large private enterprises,2 thus simultaneously promoting the re-emergence of more traditional sectors through the action of smaller enterprises. However, these smaller enterprises were able to succeed in containing pressure from foreign manufacturers over the years by concentrating on the higher segments of the very sectors in which they operated (Traù 1999a; De Nardis & Traù 2005). 248

The medium-sized manufacturing enterprise

249

The latter process is believed to have particularly intensified after the beginning of the 21st century. In order to face the competition from the new countries emerging in traditional sectors during this period, the smallsized and, in particular, the medium-sized enterprises seem to have opted for the delocalisation of part of their production to these countries and for entry in the intermediate goods sector, of which the so-called Made in Italy supply chain is in need (De Arcangelis & Ferri 2005; Ferri & Ventura 2007). They would then move on towards re-specialisation and vertical integration, a process in which the enterprises operating in the district areas seemed to play a fundamental role.3 Taking account of the data from the industrial censuses for 1971, 1981, 1991 and 2001 – contained in Table 11.1 – it is clear how, given a general decline in the importance of larger sized firms, there was an increase between 1971 and 2001 within the manufacturing sector in the presence of units belonging to the smaller-sized category of enterprises, in terms of the number of firms and of employees. In particular, the group of companies that employ 50 to 500 persons – as we will see, the range around which the definitions of medium-sized enterprise revolves – after having registered a fairly positive growth over the decade 1971–81 (+7.9 % in terms of the number of enterprises, and +7.8% in terms of the number of persons) and, in line with what also occurred with other size categories, a considerable drop in this trend over the subsequent decade (−14.3% in terms of the number of enterprises and −16.6% in terms of the number of persons), resumed its growth between 1991 and 2001, especially with regard to the number of enterprises (+2.7%, compared to a more limited increase of 0.5% in the number of persons). This variation is even more significant within an overall context of a diminishing of both production units and of persons employed in the manufacturing sector: if the percentage incidence of medium-sized enterprises on the whole number of Italian manufacturing firms changed only by 0.1 percentage points between 1991 and 2001, their percentage incidence in terms of persons employed rose by 2.1 points in the same decade, while the large-sized enterprises registered a decrease from 19.8 per cent to 16.3 per cent. Within this framework of the growing importance of small- and medium-sized enterprises (SMEs) and of the reversal of the size evolution pattern of national industry, it is not only a question of the growth of the number of firms belonging to the middle-sized category of enterprises, as much as of the registering of a particular vitality from the economic viewpoint on the part of some of these enterprises. According to some recent surveys, within the vaster whole of medium-sized enterprises, there are, in fact, some sub-categories of firms which, being financially solid, achieved increases in their turnover and export levels between the end of

250

Source:

5 862 347

2 705 514 1 622 774

1 534 059

5 187 675

2 014 050 1 505 743

1 667 882

1 042 247

2 866 138 1 354 170

5 262 555

632

540 197 11 505

552 334

1991

Istat

Manufacturing total 1–49 employees 50–499 employees 500 or more employees

Employees

838

576 752 13 424

476 747 12 436

844

591 014

1981

490 027

1971

Number

799 997

2 733 491 1 361 308

4 894 796

579

530 487 11 810

542 876

2001

−8.0

34.3 7.8

13.0

−0.7

21.0 7.9

20.6

1971–81

−32.1

5.9 −16.6

−10.2

−24.6

−6.3 −14.3

−6.5

1981–91

−23.2

−4.6 0.5

−7.0

−8.4

−1.8 2.7

−1.7

1991–01

Percentage changes

32.2

38.8 29.0

100.0

0.2

97.3 2.5

100.0

1971

26.2

46.2 27.7

100.0

0.1

97.6 2.3

100.0

1981

19.8

54.5 25.7

100.0

0.1

97.8 2.1

100.0

1991

16.3

55.8 27.8

100.0

0.1

97.7 2.2

100.0

2001

Percentage incidence

Manufacturing enterprises by category of employees, number, percentage changes and percentage incidence on manufacturing total

Manufacturing total 1–49 employees 50–499 employees 500 or more employees

Enterprises

Table 11.1

The medium-sized manufacturing enterprise

251

the 1990s and the first half of the subsequent decade, which were generally greater than those of the larger-sized enterprises. These firms operate mainly in the manufacture of goods for persons or for the home, or in the food sector, and are very often closely connected with the various districts present within the territory (Ufficio Studi Mediobanca and Centro Studi Unioncamere 2006; Coltorti 2006). Basing themselves upon a more selective definition of medium-sized enterprise, other studies have focused their attention upon different groups of firms, operating in various industrial sectors, which have a strong tendency towards internationalisation in common; a body of medium-, large-sized enterprises, active on international markets, which are often organised as a group within a holding, as the result of the forming of hierarchies within the industrial districts, and which, in recent years, have registered very positive results in terms of growth in size and economic performance. Various analyses started to refer to these medium-sized enterprises as the new protagonists of the Italian industry or as the ‘fourth capitalism’,4 in both cases considering these pocket multinational enterprises as a valuable resource to favour a positive result for the start-of-themillennium metamorphosis of the Italian economy (Berta 2004: 1–42). The above-mentioned studies partly challenge the traditional vision of the dimensional evolution of Italian industry, backdating the roots of the so-called fourth capitalism to the decades before the 1970s. This paper, using a serial homogeneous source, which allows us to identify the single enterprises, aims to analyse the developments of Italian medium-sized manufacturing firms in the long term, trying to understand if their growth is linked to their sectorial specialisation, to the adoption of a particular technological regime or to their own particular history; if – in other words – the medium-sized enterprises have some common characteristics that could justify their positioning into an intermediate size category or if their evolution is to be related to their specific reaction to the transformation of the external environment. The paper copes with the thorny issue of the definition of medium-sized enterprise, a problem – as we will see – that exists at both national and international level (Sections 11.2 and 11.3). Section 11.4 describes the solution adopted here and the chosen data source, and presents the results of the analysis. Finally in Section 11.5 some brief conclusions are introduced.

11.2

DEFINING THE MEDIUM-SIZED ENTERPRISE

Recently, institutions such as the Organisation for Economic Co-operation and Development (OECD) and the World Bank, after stressing for many

252

Forms of enterprise in 20th century Italy

years the importance of support for SMEs as a central factor in the process of the growth of under-developed countries, as well as of more advanced countries, asked themselves if the numerical increase in SMEs does actually have a direct effect on the rate of economic growth.5 If it is true that, at the beginning of 2000, in the countries belonging to the OECD, SMEs represented around 95 per cent of enterprises, and provided employment quotas of about 60–70 per cent of total employment,6 a recent survey sponsored by the World Bank Development Research Group seems to question the relationship of cause and effect between the growth of the group of smaller enterprises and the processes for creating and developing job opportunities. Other institutional factors, such as low barriers to entering and exiting the market, effective protection of property rights, and an efficient bargaining system seem to have had a greater effect on the rate of growth than the distribution of enterprises according to size; these factors pertain to the environment within which economic operators act and affect both SMEs and large enterprises.7 In this regard, it may be useful to try to perform a long-term analysis of the role played by medium-sized enterprises in the processes of economic growth, in order to assess whether their contribution has maintained constant characteristics, or whether, vice versa, their emergence is linked to phases of transition in the economic life of a country and to its repositioning within the framework of international competition, as the studies mentioned in the introduction would seem to suggest. In order to be able to undertake such a study, in the long-term, a problem is posed, as a first step: the almost total lack of univocality in the definitions of the mediumsized enterprise that have been provided each time by historical, economic or sociological research. In some ways, it seems possible to identify the phenomenon, imprecisely, only by means of a process of exclusion: medium is something that is not excessively large, nor too small. Above all, it is very difficult to separate the phenomenon of the medium-sized enterprise as such from the vaster, and more researched phenomenon of the ‘small and medium-sized enterprises’, considered as a whole. Besides, deeper problems of definition arise from trying to set up inter-temporal comparisons, in addition to the intersectorial and international comparisons. By taking account only of the more recent studies, among those cited previously with regard to Italy, it is easy to note a general lack of agreement in providing a univocal definition of medium-sized enterprise, or – even before that – the impossibility of even reaching an agreement concerning the parameters to be used for defining the size categories. Therefore, some have considered the medium-sized enterprise to be a company that

The medium-sized manufacturing enterprise

253

has between 251 and 1000 employees and that has an annual turnover of between 50 and 1000 billion Italian Lire (Corbetta 2000: 31–32), others have raised the minimum threshold for a medium-sized enterprise to 500 employees and have set the maximum net consolidated turnover limit at 1.5 billion Euro (Colli 2002b: 27), and others still, who, by crossing the definition of medium-sized enterprise used by the American Small Business Administration with that of the European Union,8 have considered medium-sized enterprises to be those companies that employ from 50 to 499 persons, while, at the same time, achieving turnovers of between 13 and 290 million Euro (Ufficio Studi Mediobanca and Centro Studi Unioncamere 2006: VIII). The differences in the choice of measuring units certainly reflect the diverse objectives that are at the basis of the studies mentioned; it is necessary to note, however, how these differences9 also reflect a general lack of homogeneity in the definitions of SMEs applied by the institutions in charge of implementing policies in support of the same SMEs. If, in a recent recommendation, cited above, the European Community invited the Union’s Member States to standardise their statistics by defining SMEs as companies that employ between 50 and 249 persons and have an annual income of between 10 and 50 million Euro, and total assets of between 10 and 43 million Euro, this does not mean that the practices of the various countries have immediately been adapted to the recommendation. Most of all, enormous differences continue to exist between the definition adopted by the EU, and, as a result, by Italy with the Decreto Ministeriale (DM) of 18 April 2005,10 and the definitions in use in other geographical areas. In particular, considerable differences exist – sometimes within the same country – between the legal definition and the statistical one, the latter normally being based only upon the number of employees, or, at most, on the combination, the number of employees and the turnover.11 The problem is so complex and serious, for the direct repercussions that it has on the incisiveness of the economic policies, that the standardisation of the statistical criteria applied in order to study and, in particular, to compare the evolution of SMEs has been one of the main topics of the international meetings organised on the subject over the last years (OECD 2003a and OECD 2003b). One should consider that, of the 76 countries that were included in the World Bank study cited earlier, many of which are not adherents of the OECD, only 21 agree on the common threshold for SMEs of 250 employees, while all the others applied a threshold that varied between 100 and 500 employees, thus confirming how much the definition of industrial size categories depends not only on economic and technological elements, but also on the social, cultural and political factors in each country.12

254

Forms of enterprise in 20th century Italy

The same standard for identifying SMEs proposed by the European Community in its most recent recommendations (50–249 employees), in its attempt to harmonise the definitions in use in countries with industrial structures even radically different from each other, by a deliberate political choice, ends up by squeezing, for example, the medium-sized enterprises into the smaller-sized ones.13 The dependence of such classifications on precise political choices results in their operational ineffectiveness at the analytical level, and this is probably very true for most of the national and international legislative provisions. The aspects for which there is most agreement are the qualitative features of medium-sized enterprises. Using the three studies on Italy previously mentioned as a reference, it is possible to note how, albeit with different emphasis, all three studies agree on some peculiarities concerning medium-sized enterprises: their relationship with the surrounding territory, which is often an industrial district; the prevalence of family ownership, and the almost complete overlapping of the family institution with the company; specialisation or, at most, diversification in sectors that are strongly correlated with each other; the capacity to give rise to effective innovative processes; self-financing as the preferred channel for finding resources; and lastly, the strong tendency to act in international markets. These features probably describe only a part of the medium-sized enterprises, i.e., those which have made medium size the key to their success; those which, by taking advantage of the general trend to contain the vertical integration of the manufacturing activity that characterised Italian industry during the latter post-war period and by exploiting the processes of de-verticalisation which started in the mid-seventies (Arrighetti & Seravalli 1997; Arrighetti 1999), succeeded in finding a competitive advantage in their relatively limited size, first at national level, and then internationally. Without any doubt, the body of medium-sized enterprises should also include those companies for which medium-size instead represents a limit, those companies that have difficulty in growing and whose lack of growth can compromise the position that a country has achieved within certain industrial specialisation.

11.3

A STATISTICAL DEFINITION OF MEDIUMSIZED ENTERPRISE

The review of literature does not allow us, therefore, to obtain a commonly shared and acceptable definition of the medium-sized enterprise. As

The medium-sized manufacturing enterprise

255

we have seen, generally speaking, ‘mediumness’ is made to coincide with a number of employees, which varies around a minimum number of 50 and a maximum number of 500. But often this type of measurement is then corrected with economic indicators that are difficult to use within the long term, except by making arbitrary choices for their constant re-definition by working backwards.14 To this must then be added the effectively scarce availability of documentary sources that would make it possible to isolate the medium-sized enterprise upon the basis of pre-established parameters, whatever these might be. Most of the Italian studies mentioned previously are based upon the use of industrial census-taking, but, in addition to presenting a well-known series of standardisation problems, this method does not permit an identification of the legal bodies over the entire course of the 20th century, because different units of measure were selected in the years 1911, 1927 and 1937.15 Moreover, by their very nature, industrial censuses do not provide information on the identity of the single companies and, therefore, they do not allow a reconstruction of the companies’ evolution over the years. In an attempt to evaluate the role of the medium-sized enterprises in the evolution of Italian industry during the 20th century, it was decided to use a different source, Imita.db. This source indicates the financial statements of all the joint-stock companies (located in Italy), which, at the closing of the last balance before publication of the single volumes – on average, every two or three years – presented a share capital higher than a given threshold which varied each year (Table 11.2).16 Since it was not possible to establish a univocal definition of mediumsized enterprise, which could be adapted to the various periods that we intended to consider, it was decided to identify the medium-sized enterprise by analysing the distribution of the given sample; this solution undoubtedly presents some problems in terms of the strong dependence of medium-sized enterprises, as a whole, on the forms of this distribution, but is one which, nevertheless, seems to make it possible to reach some sort of conclusion, not so much with regard to the evolution of medium-sized enterprises on the whole in terms of numerical consistency and sectorial distribution, as to the dynamics of the whole over the decades, and, indirectly as to their actual role in the transformation processes of the manufacturing industry.17 Before it was possible to act in this connection, it was necessary to standardise the available sample. In the case of the years considered, 1927, 1936, 1952, 1960, 1971 and 1981,18 the thresholds are those indicated in Table 11.3. In order to be able to utilise all six benchmarks, it would have been necessary to conduct the survey by standardising the years in advance with the highest threshold (1981). However, by doing this, in some cases, in

256

Forms of enterprise in 20th century Italy

Table 11.2

Comparison of companies in the Imita.db sample and total Italian companies (without sectoral distinction)

Year

Sample

Total Italian

N. of companies

Share capital (in thousand Italian Lire)

N. of companies

Share capital (in thousand Italian Lire)

1911 1913 1921 1927 1936 1952 1960 1972

787 1241 3072 4464 4227 6162 6352 11 783

4 039 199 4 490 169 19 451 854 38 487 906 41 645 840 1 878 898 878 5 826 246 000 12 402 701 000

2386 3069 6191 13 201 19 353 24 006 34 199 45 089

5 363 459 5 642 965 20 350 537 42 253 478 44 805 429 1 926 081 969 5 997 365 113 13 398 886 160

Sources:

Imita.db and Vasta (2006c).

Table 11.3

1927 1936 1952 1960 1971 1981

Sample/Total Italian Comp. Capital % % 27.8 40.4 49.6 33.8 21.8 25.7 18.6 26.1

75.3 79.6 95.6 91.1 92.9 97.6 97.1 92.6

Imita.db share capital thresholds in benchmark years and number of enterprises according to different share capital thresholds

Share capital thresholds in current Italian Lire

Share capital thresholds in 1970 Italian Lire

Number of enterprises according to Imita.db thresholds

Number of enterprises according to 1936 threshold

Number of enterprises according to 1981 threshold

1 000 000 1 000 000 10 000 000 50 000 000 100 000 000 2 000 000 000

92 131 900 118 012 700 18 053 000 73 165 000 95 240 000 453 400 000

1901 1748 2915 3222 5592 2791

1387 1594 811 2200 4524 2736

560 614 304 762 1806 2415

particular 1952, the number of enterprises would have been considerably reduced by the kind of data distribution in the sample. Therefore, it was decided to exclude 1981 initially from the processing and to analyse only the years 1927, 1936, 1960 and 1971 (using the 1936 threshold). A test was later performed on the years 1960, 1971 and 1981 (this time including the 1981 threshold) and, as will be stated later, it was possible to note a certain consistency in the results.

The medium-sized manufacturing enterprise

257

Once the enterprises below the pre-established share capital threshold were eliminated (the result of this operation is indicated in Table 11.3), with the financial statements of the remaining firms, it was decided to classify the companies according to size, making use of the total assets, one of the items indicated in the literature as a possible indicator of size.19 In Figure 11.1, it is possible to see the curves described by the assets (at 1970 prices) for the different years; as can be clearly noted, the various distributions are all considerably asymmetrical, with a positively distorted tail. The median always occupies values that are much lower than the mean, below which a highly significant number of firms are located. The differences between the first two curves, that of 1927 and of 1936, and the subsequent ones, are justified by the greater presence of companies with relatively low total assets during these two years, as compared with the subsequent years. This element is in line with the descriptions of the industrial structure that can be found in some sources shortly after the time interval considered, as, for example, the Report of the Economic Commission to the Italian Constituent Assembly which, according to the results of the pre-war censuses and of the first surveys taken after the war, underlined the existence of a structure that was polarised between a very limited core of large-sized enterprises and a large number of small and very small-sized companies (Ministero per la Costituente 1947). In view of, on the one hand, the fact that the Imita.db database censuses cover only joint-stock companies, which are generally larger in size than those with a different legal nature, and, on the other hand, the existence of share capital thresholds established by the same source and the inclusion of additional limits to standardise the data from the various years, it was decided to choose a definition of medium-sized enterprise which, instead of fluctuating around an arithmetical mean (which, as seen, generally positions itself far above the median), makes the same median its highest limit, without defining a lower one. This lower limit, in fact, corresponds to the share capital thresholds stated previously. It was decided to consider as ‘medium-sized’ every enterprise that presented total assets having a value below the median of the medians of the assets of all the years considered, i.e., the median for the year 1960. According to this definition, the medium-sized enterprises were: 1051 in 1927, 1171 in 1936, 322 in 1952, 1100 in 1960 and 2091 in 1971 (Table 11.4).

11.4

THE DYNAMICS OF MEDIUM-SIZED ENTERPRISE

The number of enterprises considered as medium-sized, or, at least, the total percentage of these, is clearly affected in a direct manner both by the

258

Forms of enterprise in 20th century Italy Year 1927

0.01

Year 1952

0.01

0.008

0.008

0.006

0.006

0.004

0.004

0.002

0.002 0

0 0

50

100

150

200

250

Year 1936

0.01

0

300

50

0.008

0.006

0.006

0.004

0.004

0.002

0.002

150

200

250

300

250

300

Year 1960

0.01

0.008

100

0

0 0

50

100

150

200

250

0

300

Year 1927 Mean 204.3, Mean square deviation 712.6, Coefficient of variation 3.5, Index of skewness 14.7, Index of kurtosis 273.0, Median 67.7, Interquartile class 119.1, Standard interquartile class 1.8, Index of quartile skewness 0.5, Index of octyl kurtosis 2.0.

50

100

150

200

Year 1971

0.01 0.008 0.006 0.004 0.002 0 0

50

100 150 200 250 300

Year 1936 Mean 278.5, Mean square deviation 1036.2, Coefficient of variation 3.7, Index of skewness 11.5, Index of kurtosis 179.7, Median 67.6, Interquartile class 138.1, Standard interquartile class 2.0, Index of quartile skewness 0.5, Index of octyl kurtosis 2.3. Year 1952 Mean 891.6, Mean square deviation 3311.5, Coefficient of variation 3.7, Index of skewness 11.2, Index of kurtosis 158.3, Median 227.9, Interquartile class 469.5, Standard interquartile class 2.1, Index of quartile skewness 0.5, Index of octyl kurtosis 2.0. Year 1960 Mean 776.8, Mean square deviation 4426.1, Coefficient of variation 5.7, Index of skewness 19.5, Index of kurtosis 464.9, Median 159.3, Interquartile class 315.9, Standard interquartile class 1.9, Index of quartile skewness 0.5, Index of octyl kurtosis 2.2. Year 1971 Mean 913.8, Mean square deviation 7410.8, Coefficient of variation 8.1, Index of skewness 29.8, Index of kurtosis 1014.5, Median 177.3, Interquartile class 340.4, Standard interquartile class 1.9, Index of quartile skewness 0.5, Index of octyl kurtosis 2.2. Note:

* The value of assets are expressed in tens of thousands (Italian Lire 1970).

Figure 11.1

Distribution of total assets in benchmark years and relative describer indices*

The medium-sized manufacturing enterprise

Table 11.4

Total enterprises (1936 threshold) and medium enterprises by benchmark year

Total enterprises Total medium enterprises Percentage on total

Table 11.5

259

1927

1936

1952

1960

1971

1 387 1 051

1 594 1 171

811 322

2 199 1 100

4 524 2 091

75.8

73.5

39.7

50.0

46.2

Incidence of medium enterprises by type of industry, 1927–71*

Total enterprises in light industry Total enterprises in heavy industry Total medium enterprises in light industry Total medium enterprises in heavy industry Light industry: medium enterprise ratio/total Heavy industry: medium enterprise ratio/total

1927

1936

1952

1960

1971

711 676 552

760 834 573

329 482 148

841 1 358 452

1 524 3 000 780

499

598

174

648

1 311

0.8

0.8

0.5

0.5

0.5

0.7

0.7

0.4

0.5

0.4

Note: * The Ateco 1991 divisions 15, 16, 17, 18, 19, 20, 22 and 36 (Table 11.6) were considered light industry; all the others were considered heavy industry; on this distinction, see Federico (2006).

methods used to construct the samples and by the definition that has been adopted, and therefore, it can say very little or nothing about the actual weight of medium-sized enterprises in the universe of the manufacturing industry. However, the medium-sized enterprise’s tendency to concentrate on light industry seems to be confirmed. For four of the five years considered, the incidence of medium-sized enterprises is greater in the more traditional sectors characterised by manufacturing with a low capital rate, in which – according to studies mentioned in this chapter – many mediumsized companies still operate today (Table 11.5). But the differences are not so perceptible, and so it seems legitimate to doubt the existence of a close correlation between medium-size and technological systems. This impression also seems to be confirmed by an analysis of the distribution by sector of the companies that remained mediumsized during the years considered, defining as such the companies that fall within the subset de-limited by the median of the medians of total assets

260

Table 11.6

Forms of enterprise in 20th century Italy

Enterprises that remain medium-sized for more than three consecutive benchmark years, 1927–71

Ateco 1991 divisions

15 Food 16 Tobacco 17 Textiles 18 Clothing 19 Hide and leather 20 Wood 21 Paper 22 Publishing 23 Energy products 24 Chemical 25 Rubber and plastic 26 Glass, cement and bricks 27 Steel and iron industry 28 Metallurgy 29 Mechanical devices 30 Office machines 31 Electrical appliances 32 Radio and TV appliances 33 Precision instruments 34 Automobile industry 35 Other transport means 36 Furniture and similar 37 Materials recovery and recycling Total

No. of Percentage enterprises on total

Sectoral distribution of the entire sample (%) 1927

1936

1952

1960

19 0 20 2 4 5 2 4 0 27 0 15

14.8 0.0 15.6 1.6 3.1 3.9 1.6 3.1 0.0 21.1 0.0 11.7

17.6 0.1 21.6 2.2 1.8 1.3 2.4 3.6 0.9 12.9 0.5 9.6

15.7 0.2 20.3 2.3 2.2 1.3 3.3 3.8 2.3 13.3 0.6 9.5

14.2 0.2 18.9 0.6 1.6 1.7 3.7 2.0 4.2 13.8 1.4 6.5

14.7 0.2 14.0 1.5 1.6 1.7 3.8 3.2 3.4 12.8 2.2 7.7

8

6.3

5.1

5.3

7.9

5.5

5 5 0 2

3.9 3.9 0.0 1.6

4.3 3.5 0.1 2.8

4.3 3.7 0.3 3.1

3.6 5.2 0.4 3.8

5.5 8.4 0.4 4.2

0

0.0

0.2

0.4

1.4

1.9

2

1.6

0.7

1.6

2.0

1.8

1

0.8

1.5

1.1

1.5

1.6

2

1.6

4.2

3.6

4.2

2.5

5

3.9

3.1

1.9

1.4

1.4

0

0.0

0.0

0.0

0.0

0.0

128

100.0

100.0

100.0

100.0

100.0

for at least three consecutive benchmark years (Table 11.6). Together with the significant presence of these companies in the foods and beverages industries, and in the textile industries, a high number of medium-sized enterprises is also registered in the chemical products (including synthetic

The medium-sized manufacturing enterprise

261

and artificial fabrics) manufacturing sectors, and in the manufacturing of non-metal minerals processing products; a distribution which seems to have less to do with the technological and economic characteristics of the sectors considered than with the distribution of the total number of enterprises in the various sectors: the four divisions mentioned are, in fact, those that were represented most in all the benchmark years. It is not so much the distribution in the various sectors of the enterprises which remain medium-sized that is significant, as much as the very small number of these enterprises: there are only 128. Very few companies, therefore, seem to have found their optimal size in the medium-size category, and, at the same time, this seems to confirm the persistence of a strongly polarised industrial structure. The analysis of the dynamics of medium-sized enterprises shown in Table 11.7 tends towards this conclusion. For all the time intervals considered, the entry and exit rates of enterprises in and out of the mediumsize category are very high. For each period considered, the percentage of enterprises that ceased to be medium-sized was always much higher than 50 per cent of all the medium-sized enterprises that existed in the first year. Similarly, a number of entries equal to more than 50 per cent of all medium-sized enterprises that existed in that year was recorded for each benchmark year. During each interval, therefore, there is a considerable renewal of the whole of medium-sized enterprises, which is definitely unstable. Moreover, by analysing the provenance and destination of the companies which respectively enter and exit from the whole, it seems possible to conclude that, in most cases, the medium-sized enterprises are just smaller-sized companies that manage to increase their size scale by taking advantage of a favourable economic trend. However, in the large majority of cases, the increase is followed by a decline in activities, which brings the medium-sized enterprises back into the small-sized category.20 The only exception seems to be the interval from 1952 to 1960, during which ‘only’ 37.3 per cent of enterprises went out of the medium-sized category because of a decrease in size. Perhaps this datum could be explained by the concurrence of the interval with the so-called Italian Economic Miracle. The considerable unruliness around size categories from the year 1927 to 1971 is re-created in a very similar form if we consider the other three benchmark years indicated previously: 1961, 1971 and 1981, utilizing, in this case, the share capital threshold for the year 1981 (Table 11.8).21 Naturally, enterprises are different, as the threshold is higher (the two constructed samples have only one enterprise in common), but the behaviour of the enterprises appears to be the same. The sectorial distribution is similar, both for the enterprises as a whole and for those considered to be of medium size (Table 11.9); similarly, the number of enterprises that

262

Table 11.7

Forms of enterprise in 20th century Italy

Dynamics of medium-sized enterprises, 1927–71 1927–36

1926–52

1952–60

1960–71

Enterprises that remain mediumsized Total medium-sized enterprises at start of interval Enterprises that remain mediumsized Total percentage of medium-sized enterprises at start of interval

1051

1171

322

1100

484

119

110

258

46.1

10.2

34.2

23.5

Enterprises going out Total medium-sized enterprises at start of interval Total enterprises going out Total percentage of medium-sized enterprises at start of interval Outgoing due to increase in size Total percentage of outgoing enterprises Outgoing due to decrease in size Total percentage of outgoing enterprises

1051

1171

322

1100

567 54.0

1052 89.8

212 65.8

842 76.6

96 16.9

74 7.0

133 62.7

354 42.0

471 83.1

978 93.0

79 37.3

488 58.0

Enterprises coming in Total medium-sized enterprises at end of interval Total enterprises coming in Total percentage of medium-sized enterprises at end of interval Incoming due to increase in size Total percentage of incoming enterprises Incoming due to decrease in size Total percentage of incoming enterprises

1171

322

1100

2091

687 58.7

203 63.0

990 90.0

1833 87.7

669 97.4

181 89.2

984 99.4

1803 98.4

18 2.6

22 10.8

6 0.6

30 1.6

remain within the medium-size range is low (in this case, those that remain of medium-size for two consecutive benchmark years – Table 11.10).22 The dynamics of enterprises is also similar: here, the percentage of enterprises that entered and exited the group of medium-sized enterprises during each time interval is actually higher than 90 per cent of the total, with the

The medium-sized manufacturing enterprise

Table 11.8

Total enterprises (1981 threshold) and medium-sized enterprises per benchmark year 1960

Total enterprises Total medium-sized enterprises Total percentage

Table 11.9

263

762 337 44.2

1971

1981

1 806 903 50.0

2 415 1 315 54.5

Incidence of medium-sized enterprises by type of industry 1960–81*

Total enterprises in light industry Total enterprises in heavy industry Total medium-sized enterprises in light industry Total medium-sized enterprises in heavy industry Light industry: medium enterprise ratio / total Heavy industry: medium enterprise ratio / total

1960

1971

1981

258 504 131 206 0.5 0.4

544 1262 318 585 0.6 0.5

751 1664 477 838 0.6 0.5

Note: * The Ateco 1991 divisions 15, 16, 17, 18, 19, 20, 22 and 36 (Table 11.6) were considered light industry; all the others were considered heavy industry; on this distinction, see Federico (2006).

exception of the 1960–70 interval, in which the percentage of enterprises that went out of the group was, however, very high (Table 11.11). Most of all, it is possible to note how most of the companies follow that ‘smallsized enterprise – medium-sized enterprise – small-sized enterprise’ pattern previously identified. In the two intervals 1960–71 and 1971–81, almost all of the enterprises entering the medium-sized group came from the smallersized categories, while – for those exiting the group – if 42.8 per cent of companies is registered as exiting the group in the interval 1960–71, due to a size increase, during the crisis of the 1970s, a significant percentage (91.1 per cent) of medium-sized businesses which existed at the beginning of the decade experienced a regression in terms of size. This tendency seems to have also manifested itself in subsequent years: attempts were made, as far as possible, to follow, by means of the Aida data bank (the database of the Dutch Bureau van Dijk, which censuses over 200 000 Italian companies with turnovers that exceed 500 000 Euro) the life cycle of the 2415 enterprises that were present in the dataset in the year 1981, while being well aware of the limits involved in performing a mere comparison on the basis of the corporate names of the enterprises. The above-cited parameters were selected in order to standardise the

264

Table 11.10

Forms of enterprise in 20th century Italy

Enterprises that remain medium-sized for more than two consecutive benchmark years (1960–81)

Ateco 1991 Divisions

15 Food 16 Tobacco 17 Textiles 18 Clothing 19 Hide and leather 20 Wood 21 Paper 22 Publishing 23 Energy products 24 Chemical 25 Rubber and plastic 26 Glass, cement and bricks 27 Steel and iron industry 28 Metallurgy 29 Mechanical devices 30 Office machines 31 Electrical appliances 32 Radio and TV appliances 33 Precision instruments 34 Automobile industry 35 Other transport means 36 Furniture and similar 37 Materials recovery and recycling Total

No. of Percentage enterprises on total

31 0 18 3 2 4 11 6 3 15 9 16 5 5 10 0 4 1 3 1 3 2 0

20.4 0.0 11.8 2.0 1.3 2.6 7.2 4.0 2.0 9.9 5.9 10.5 3.3 3.3 6.6 0.0 2.6 0.7 2.0 0.7 2.0 1.3 0.0

152

100.0

Sectoral distribution of the entire sample (%) 1960

1971

1981

14.04 0.13 14.44 0.26 1.18 1.05 5.25 2.23 6.04 14.04 2.10 7.35 7.35 2.62 6.69 0.66 3.94 2.62 1.71 1.57 4.20 0.52 0.00

11.68 0.17 9.91 1.72 1.16 1.33 3.93 2.55 3.38 14.78 3.16 8.25 5.70 5.87 11.13 0.55 4.04 2.27 1.33 2.71 2.77 1.61 0.00

10.56 0.12 9.86 2.40 1.16 1.99 2.77 1.90 2.36 9.90 3.89 10.77 7.58 5.88 13.04 0.41 3.60 1.61 1.24 2.69 2.98 3.11 0.17

100.0

100.0

100.0

information contained in the two data banks, firstly, extracting the 4032 joint-stock companies which, in 2001, had a share capital greater than the Imita.db threshold for the year 1981 (453 400 000 Italian Lire at 1970 prices). Then, all the enterprises with total assets lower than the median for the year 1971 (5 245 562 Italian Lire, still at 1970 prices) were considered as medium-sized enterprises, for a total of 1638 companies. Of these 1638, only 102 already existed in 1981 and, more specifically, only 72 belonged to the medium-sized category (5.5 per cent of the 1315 mediumsized enterprises of the year 1981); the other 30 were enterprises that had, instead, reduced their size over the 20-year period.23 Even if account is taken of the existence of the 90 companies (6.8

The medium-sized manufacturing enterprise

Table 11.11

265

Dynamics of medium-sized enterprises (1960–81) 1960–71

1971–81

337 75 22.3

903 83 9.2

337 262 77.7

903 820 90.8

112 42.8 150 57.3

73 8.9 747 91.1

903 828 91.7

1 315 1 232 93.7

823 99.4 5 0.6

1 207 98.0 25 2.0

Enterprises that remain medium-sized Total medium-sized enterprises at start of interval Enterprises that remain medium-sized Total percentage of medium-sized enterprises at start of interval Enterprises going out Total medium-sized enterprises at start of interval Total enterprises going out Total percentage of medium-sized enterprises at start of interval Going out due to increase in size Total percentage of outgoing enterprises Going out due to decrease in size Total percentage of outgoing enterprises Enterprises coming in Total medium-sized enterprises at end of interval Total incoming enterprises Total percentage of medium-sized enterprises at end of interval Coming in due to increase in size Total percentage of incoming enterprises Coming in due to decrease in size Total percentage of incoming enterprises

per cent of the medium-sized enterprises of 1981) which had gone from medium-sized to large-sized, within a general context of high company mortality (out of a total of 2415 businesses which existed in 1981, only 192 of these could be traced in 2001), the difficulty of Italian enterprises in consolidating their size structure seems to be confirmed.

11.5

CONCLUSIONS

The analysis of the data provided by Notizie Statistiche, supplemented with those by the Aida data bank on the distribution of Italian mediumsized enterprises at the beginning of the new millennium, suggests that ‘mediumness’ is a passing condition; very few enterprises seem, in fact, to have found their optimal size status within the middle-sized enterprise

266

Forms of enterprise in 20th century Italy

group. Likewise, the smaller-sized enterprises seem to suffer from a certain incapacity to grow: after having become medium-sized enterprises, in most cases, they go back to being small. ‘Mediumness’ as a passing condition and incapacity to grow also seem, on the other hand, to be found in more recent studies on medium-sized firms, making it possible to register considerable disorderliness in size categories. The cited Mediobanca and Unioncamere study, which considers a time-span that goes from 1998 to 2003, demonstrated, for example, that the increase in the medium-sized enterprise by 517 units during those five years (from 3370 companies in 1998 to 3887 in 2003) resulted from the balance between 2113 incoming enterprises and 1596 outgoing enterprises. Moreover, within the same period considered, if 1981 small-sized firms became medium-sized ones, 1014 medium-sized businesses went the opposite way, while only 348 succeeded in achieving a size increase (Ufficio Studi Mediobanca and Centro Studi Unioncamere 2006). The analysis certainly would require further confirmation and investigation over the long term, as well as the finding of other sources that could make it possible to understand better the consequences caused after 1981 – the last year available in Notizie Statistiche – by the reversal of the size evolution pattern discussed at the beginning of the paper. In particular, it would be necessary to deepen the question of whether a correlation between size and performance subsists or not, and, moreover, to find sources that could allow a correct evaluation of the incidence of the groups of enterprises in the Italian industrial structure.24 Unfortunately, the information provided by the source adopted here does not support such examinations, notwithstanding the fact that it allows us to conclude that medium size and, moreover, the shift from one size category to another, seems to be more related to the evolution of the single enterprise, or, at least, to the transformations of the external economical and institutional environment, rather than to the peculiarities of the industrial sector in which it operates. The emergence of the so-called fourth capitalism seems, from this perspective, to be related to the capability of some enterprises, or groups of enterprises, to adapt themselves to the new environment set by the progressive modification of the productive specialisation of Italian industry. It seems to be the result of successful processes of re-specialisation and vertical integration, while the numerous failures recorded during the years appear to be aborted attempts to follow the same pattern by less dynamic enterprises. As suggested by recent surveys on the latest evolution of the international performances of Italian enterprises, the modification mentioned above is not over yet (Barba Navaretti et al. 2007); as a consequence, the dimensional

The medium-sized manufacturing enterprise

267

increase will also be one of the main problems that medium-sized enterprises will have to deal with in the future. Somehow, it seems that it will be possible – in the next few years – to measure, precisely in this field, the capacity of the fourth capitalism to sustain the model of specialisation that has affirmed itself over the past decades (Onida 2004; De Nardis & Traù 2005).

NOTES * 1. 2. 3.

4. 5.

6. 7. 8.

9.

10. 11.

I wish to thank Lucio Barabesi and Michelangelo Vasta for precious support in setting up the statistical methodology, and Luigi Orsenigo for comments and criticisms. The usual disclaimer applies. See Bonelli (1978) and Cafagna (1989); for a survey on the different interpretation of the Italian development, see Giannetti & Vasta (2006: 1–14). On the Italian industrial structure during the 20th century, see Federico (2006). On the ‘crisis’ of the Italian industrial system, see Gallino (2003) and Berta (2001). With regard to the course of development of industrial districts, see Brusco & Paba (1997); on the recent transformations of the industrial districts and their need to restructure themselves around larger-sized enterprises, or around groups of small- or mediumsized companies, compare Brioschi & Cainelli (2001), Colli (2002a) and Cainelli & Zoboli (2004). More in general, with regard to the new strategies of transnational coordination which SMEs must implement as a consequence of the internationalization processes, see Roth (1992) and Sekai (2002). See Censis and Istituto Guglielmo Tagliacarne (1995); Turani (1996) Balloni & Jacobucci (2001); and Colli (2002b). More generally, with regard to the possible interpretations of the role of medium-sized enterprises, see Miata & Nesci (1998). As to the debate on these topics within the OECD, see Schreyer (1996); OECD (2000a); Audretsch & Thurik (2001) and the two background papers OECD (2004a) and OECD (2004b). With regard to the debate within the World Bank, in addition to the documents cited below, see World Bank (1994). See OECD (2000b); as to the role of SMEs in economically advanced countries, see Audretsch (2000). See Ayyagari et al. (2003); Beck et al. (2003) and Levine (2005). Note that the institutional factors that are related to the rise in growth rates are also those to which the increase in the size of enterprises is often attributed (Kumar et al. 2001). The American Small Business Administration, which makes no distinction between small- and medium-sized enterprises and which applies only one parameter, considers 500 employees as the maximum threshold for SMEs, while the EU established in May 2003 that it considers a medium-sized enterprise to be a company that employs between 50 and 249 persons and that has an annual turnover and total assets of between 10 and 50 million Euro and 10 and 43 million Euros, respectively. With regard to EU policies in favour of SMEs, see Pezzini & Di Cesare (2003). The brief explanation given is certainly not exhaustive of the possible combinations of variables applied to define the medium-sized enterprise; to limit consultation to two other Italian examples that are relatively less recent, see Guerci (1998), profits of between 50 and 1000 billion ITL, and Butera (1998), between 100 and 500 employees, legal status of joint-stock company, share capital of between 5 and 10 billion ITL. See Decreto del Ministero delle Attività Produttive of 18 April 2005, in G.U. n. 238 of 12 October 2005. Consider, for example, the case of France and Finland, which apply a statistical definition based only on the number of employees, in addition to the EU Recommendation. For a survey of the definition problems within the OECD, see OECD (2004c).

268 12.

13.

14.

15.

16.

17. 18.

19.

20.

Forms of enterprise in 20th century Italy Compare Ayyagari et al. (2003). With specific regard to Italy’s case, one should consider the legislation in favour of the Southern regions in the post Second World War period, where, when speaking of small- and medium-sized companies, the definition was clearly left to the explicit intentions of the legislator: often the distinction was based in fact merely and exclusively on the level of investments, which was precisely the variable that the law intended to promote. Consider, for example, the fact that among the reasons for supporting such a classification, in one of the first recommendations of the European Union which proposed a maximum threshold of 250 employees, one read that ‘the threshold of 250 employees reflects . . . more significantly the reality of a SME’, in view of the fact that ‘enterprises with 250–500 employees not only very often hold very strong positions in their respective markets, but they also have very solid management structures in terms of production, sales, marketing, research and personnel management, clearly distinguishing them from medium-sized enterprises that do not exceed 250 employees’ (European Commission Recommendation 96/280/CE). As we have seen, over time, recourse has been made to the most diverse measuring tools. As early as 1966 an EEC study (1966: 15) already listed possible units of measure (in addition, naturally, to the number of employees), among which: gross profit, added value, net unit profit, share capital, net assets, production capacity, turnover and the importance of the market in which the enterprise operated. It should be noted, however, that definition of the size categories only on the basis of number of employees actually poses considerable problems when one wishes to make long-term comparisons, and this is mainly due to the different technology regimes that exist in the various periods considered. This is a problem, especially when one wishes to compare production sectors that are radically different from each other. Throughout the entire century, the only comparisons that were possible, starting from the number of employees, were those regarding the size of the establishments; compare, for example, Bolchini (2003). Concerning the problems posed by the use of Italian censuses, see Chiaventi (1987), Cainelli & Stampini (1999a, 1999b) and Federico (2006). Table 11.2 indicates the sample’s degree of representativeness. For a more detailed description of the source see Vasta (2006c). With regard to the decision to conduct the survey only on joint-stock companies, we point out that this mainly depends on the impossibility of obtaining similar documentation on other types of companies; it does not stem from the conviction that the phenomenon of the ‘medium-sized enterprise’ can concern only this type of enterprise. It also appears legitimate, at the least, to doubt that this particular legal form is a reliable indicator of the stability of a company. On this last point, see, for example, Saita et al. (1998). Regarding a further attempt to statistically analyse the size distribution of Italian industry using the entropic mean, see Jalla (1980). These are the benchmark years indicated in the same Imita.db, and they are well suited for describing the phenomenon over the long term, precisely because of their placement during the century: before the crisis of the early 1930s (1927), before and after the Second World War (1936 and 1952), before the reversals of the positive post-war economic trend in the 1960s (1960), before the great upheavals of the 1970s (1971), and at the start of the next decade (1981). Initially, an attempt was made to correlate the information regarding the number of employees – which the source indicates in an incomplete manner – with that pertinent to the total assets, in order to define a ratio scale between the two sizes. This method proved to be impracticable because, even though there was a strong overall correlation between the number of employees and the total assets, it was noted that this ratio fell short in the smaller-sized categories, and this was probably due to the fact that, in order to launch and keep an activity running, a certain number of fixed assets are necessary, regardless of the actual number of employees. Since it was decided to consider any enterprise that was below the assets’ median of medians as a medium-sized company, it is impossible to know whether the going out

The medium-sized manufacturing enterprise

21. 22. 23. 24.

269

from the whole because of a decrease in size leads to the company’s re-entry into the group of small-sized enterprises or to the company’s closing down. With this capital threshold, the assets’ median of medians corresponds to that of 1970, and is equal to 5 245 562 000 Italian Lire. In the three years considered, these were only 152. It should be kept in mind, however, that due to the structure of the datasets utilised, it is impossible to distinguish between the actual cessation of activity and the reduction of size below the established threshold. The latter issue seems the most important: the large presence of groups of enterprises in Italy, created in order to guarantee the stability of the governance systems, in recent years led someone to speak about the end of the traditional dualism of the industrial structure; besides the cited works on fourth capitalism, see Balconi et al. (1998). On the same topic, see also Brioschi et al. (1990).

PART IV

Cooperation: the importance of networking

12.

Co-operatives (1951–2001)* Patrizia Battilani and Vera Zamagni

12.1

INTRODUCTION

The history of the Italian co-operative movement differs in certain important respects from that of other countries. First and foremost, it was never organised as a neutral, apolitical, non-religious movement as would have been the case had it conformed to the recommendations of the International Co-operative Alliance (ICA), which has always fought to keep co-operative organisations ideologically neutral in order to avoid any discrimination against the movement. The deep-rooted propensity towards co-operation that has characterised substantial sections of the Italian population has led not only to a plurality of inspirational ideals in the co-operative movement, but also to the formation of separate umbrella organisations (Fornasari & Zamagni, 1997). The first co-operatives to emerge, during the second half of the 19th century, were a spin-off of the Friendly Societies. These early cooperatives were mainly of a liberal character and were strongly influenced by the ideals of Giuseppe Mazzini. A second group of co-operatives materialised with the advent of Italian socialism (and later communism), while a third group emerged from the social commitment of the Catholic church, as symbolised and promoted by Pope Leo XIII in his famous encyclical on the condition of the working classes, Rerum Novarum, published in 1891.1 The variegated nature of the co-operative movement in Italy has undoubtedly been one of the factors that has guaranteed its survival to this day, uninterrupted even under Fascism, thanks also to the support the co-operative movement received from the various different governments and local administrations.2 This multiplicity of ideals and the wealth of theoretical and practical proposals that the movement has been able to offer (Battilani, 2005a) lies at the basis of a second characteristic of the Italian co-operative movement, namely, its deep entrenchment across Italy. As we shall shortly see, co-operation is stronger in certain areas than in others (with the two regions Trentino and Emilia-Romagna at the top), but this is due to the

273

274

Forms of enterprise in 20th century Italy

diverse entrepreneurial potential and opportunities to be found within the given geographical areas, rather than to a lack of co-operative traditions as such. In other words, Italy does not have the equivalent of the Basque Country’s Mondragon, where all local economic undertakings are of a co-operative nature, thus making it a unique enclave within Spain; on the contrary, Italian co-operative enterprises are territorially widespread and interspersed with other forms of enterprises. A third characteristic of Italian co-operation is also of note: that is, the strong sharing of ideals among the co-operatives belonging to each umbrella organisation3 leads them to form networks (groups and consortia4) which co-ordinate their actions tightly. These networks may be of a horizontal (local), vertical (sectorial) or complementary nature, and they have often provided the opportunity for mergers that have created larger co-operative corporations (Menzani & Zamagni, 2010). This, in turn, has led to the expansion of co-operatives and to the strengthening of production processes, which has generated synergies capable of increasing both productivity and competitiveness. We will devote an entire section to this topic. These three characteristics have enabled the Italian co-operative movement to grow in the fashion of a limestone river: in other words, the stream is continuously flowing but emerges into the open only at certain times. In fact, although Italian co-operatives have experienced various ups and downs since the mid-19th century, they have never disappeared altogether (Zangheri et al., 1987). However, only since the 1970s has it become a surprisingly important player in the economy of the country. This chapter offers, first and foremost, a quantitative analysis of this latter phase of the development of the Italian co-operative movement, which has seen its transformation from a marginal to a powerful player in the nation’s economic context (Section 12.2); it will then attempt to identify the main causes of this radical transformation and to reflect upon the challenges that lie ahead (Sections 12.3 and 12.4). Section 12.5 provides some final remarks.

12.2

A QUANTITATIVE SURVEY BY REGIONS AND SECTORS

A statistical study by Eurostat (2001) carried out a comparison of the presence of co-operative enterprises in European countries, which, in our opinion, seriously understated the importance of co-operatives, but remains, however, the only one available at the times of writing. In Table 12.1, where we have reported the most relevant data (which do not cover

Co-operatives

Table 12.1

275

Economic profile of co-operative enterprises in some European countries, 1998 (%)

Denmark Spain France Portugal Finland Sweden Switzerland Italy*

No. of firms

Employment

Turnover

1.7 0.9 0.6 0.2 0.5 2.7 0.9 1.4

3.0 2.3 n.a 0.9 1.8 1.8 3.6 5.8

9.3 n.a. n.a 1.4 3.0 2.3 n.a. 4.4

Note: * The number of firms comes from the Register of enterprises for 2005; employment is from the Istat 2001 census and turnover is an estimate of the Tagliacarne Institute for 2003. Source:

Eurostat (2001).

the UK or Germany), it can be seen that Italy stands out as the country in which co-operatives are economically important, rivalling Denmark. Given that the success of the Italian co-operative movement is the result of an evolution since the 1970s, it is worth offering a detailed analysis precisely of this recent period, during which not only the overall share of employment in co-operatives out of the total has substantially increased, but so has that of the largest co-operative corporations, which today account for 10 per cent of all the enterprises with more than 500 employees existing in Italy. To start with, we have constructed Table 12.2, which compares Istat data with the data collected by a research group which was formed in Bologna in 2004 with the aim of building up a new database of co-operative firms, derived from the official collection of the balance sheets of all joint stock companies (co-ops included).5 Details of the construction of this new database will be published separately (Battilani, 2009), but what has to be noticed here is that it was possible to process data only for two benchmark years, 1951 and 1981, due to the large number of records to be collected. In what follows, we will be using Istat data to produce a long-term picture of the evolution of employment in co-operative firms,6 and the new database (called Busc-Battilani) to inspect co-ops in the two benchmark years from the point of view of their assets, an exercise that will be carried out in Section 12.3. This will allow us to develop arguments concerning the evolution of the financial strategies of co-ops. At the end of the Second World War, there was a rush to create cooperatives in various fields, which increased the number of those already

276

Forms of enterprise in 20th century Italy

Table 12.2

The number of co-operative enterprises according to different sources, 1951–2005

Year

Istat censuses No.

1951 1961 1971 1981 1991 2001 2005

10 782 12 229 10 744 19 900 35 646 53 393

% employment %

0.7 0.6 0.5 0.7 1.1 1.2

137 885 192 008 207 477 362 435 584 322 935 239

No. from the General Register of j.s.c.

No. from No. from Register Buscof co-ops Battilani*

2.0 2.2 1.9 2.8 4.0 5.8

8581

50 370

70 212

62 253

Note: * if we exclude housing co-ops, the number is reduced to 6 734 in 1951 and to 25 055 in 1981. Sources: Istat for the first four columns (social co-ops were too few to be included up to 1981 and housing co-ops with no employees are not included); the General Register of joint stock companies is kept by the Union of Italian Chambers of Commerce, which only after 2000 has produced reports on co-operatives; the figure in column 5 comes from the Second Report on co-operative enterprises, published in 2006; the Register of co-ops has been made compulsory by the 2003 reform of company law, and among other things it records which co-operatives display a predominant feature of mutuality (58 236 co-ops out of 62 253 in 2005).

in existence (probably over 10 000 inherited from the Fascist period). This was the result of both a spontaneous effort by the population to produce employment opportunities and to meet basic needs and of a deliberate strategy on the part of those who had been engaged in the Resistance movement to associate themselves in solidaristic business activities. Often, however, this rush to produce co-ops ended up in businesses without strong economic foundations, which survived only for a short time, but it allowed the co-operative movement to recover its strength and organisation, through the reconstitution of the two historical umbrella organisations, the Lega Nazionale delle cooperative (later Legacoop, originated in 1886 and rebuilt in 1946, of socialist inspiration) and the Confederazione Cooperativa Italiana (later Confcooperative, which originated in 1919 and was rebuilt in 1945, of Catholic inspiration).7 These organisations recreated not only their national apparatuses, but also their local branches, which presided over local strategies. In 1951, when the post-war emergency period was over, the most widespread type of co-ops in existence were consumer co-ops, farmers and building/housing co-ops; their number is uncertain, but we can estimate

Co-operatives

Table 12.3

277

Sectoral distribution of co-operative employees and total assets (%) Total assets

Farming and fishing Manufacturing and utilities Construction industry Commerce Other services Social co-ops Other Total Employees (no.)

Employment

1951

1981

1951

19

19

na

61

50

8

7

3 4 1 4 100

8 3 3 10 100

1971

1981

1991

2001

16

9

5

4

16

21

25

19

9

28

16

16

11

6

30 12 12 14 8 26 35 37 46 57 0 0 0 5 16 0 0 0 0 0 100 100 100 100 100 137 884 207 477 362 435 584 322 935 239

Source: Busc-Battilani database for total assets (credit unions and insurance companies are excluded) and Istat censuses for employees.

that it was close to 15 000 (including housing co-ops and credit unions). In the case of consumer co-ops, the main reason for their growth was that it was a business with a low requirement of capital and skills; in the case of farmers and building co-ops, these were precisely the sectors in which there was an abundance of generally not highly skilled workers. In the countryside, in particular, co-ops were formed among farmers (both small landowners, sharecroppers and simple labourers), which often included the processing of crops and other agricultural products, with particular reference to dairy and wine production (see Table 12.3). This confirmed the view that co-operatives specialised in high labour-intensive and low capital-intensive sectors, remaining businesses characterised by a small or, at the most, albeit in a few cases, medium size. The largest and most capitalised co-ops were the credit unions (but not the rural banks, which, at the time, were exceedingly small). This was a situation compatible with the theory developed by Hansmann (1996), that cooperatives are present in a sector when they are capable of minimizing the transaction costs. Hansmann maintains that the efficient allocation of property rights stems from the minimisation of total transaction costs, which are the sum of the costs of contracting for stakeholders who establish a contractual

278

Forms of enterprise in 20th century Italy

relationship with the firm and the costs of ownership for the stakeholders who own property rights in the firm. The most significant costs associated with the exercise of ownership can conveniently be subdivided into three categories: monitoring costs, collective decision-making costs, and riskbearing costs. In particular, the process of collective decision-making can involve high transaction costs in the presence of heterogeneous interests, because individuals are strongly motivated to form coalitions so as to shift the benefits to their advantage. Consequently, substantial efforts may be required to form and break such coalitions. On the other hand, even where patrons diverge considerably in their interests, the costs associated with collective decision-making may be low if there is some simple criterion for balancing their interests. To sum up, co-operatives are likely to emerge where employees’ tasks are standardised and homogeneous, firms need a relatively small amount of capital, and investments are not firm-specific, as was the case with the sectors quoted above. The territorial distribution of co-ops in 1951 is very similar to the one prevailing before the First World War (Table 12.4), with three ‘capitals’ – Lombardy (North-West), Trentino and Emilia-Romagna (North-East) Table 12.4

Trends in the geographical distribution of the number of cooperative enterprises, with employees and total assets (% of total)

North-West

North-East

Emilia-Romagna

Centre

South

no. of co-ops employees total assets no. of co-ops employees total assets no. of co-ops employees total assets no. of co-ops employees total assets no. of co-ops employees total assets

1951

1971

1981

2001

35 31 15 31 33 63 14 19 41 21 21 17 13 14 3

20 24 ... 36 40 ... 16 26 ... 13 17 ... 15 19 ...

18 21 19 29 38 40 15 26 30 16 18 24 22 24 17

21 28 ... 17 32 ... 8 18 ... 20 19 ... 35 21 ...

Source: Number of co-ops and employment come from Istat censuses (social cooperatives are excluded); total assets come from the new data bank Busc-Battilani (credit unions and insurance companies are excluded).

Co-operatives

279

– and three other regions with substantial presence of co-ops – the Veneto (North-East), Tuscany (Centre) and Piedmont (North-West). The changes produced by the two world wars and Fascism seem irrelevant to the longterm trend of the territorial diffusion of co-ops,8 although, in 1951, liberal co-ops were fewer and the hegemonic control by the communists of the ‘red’ co-ops was greater. To understand the pattern of the territorial presence of co-ops, we must resort to the literature that has tried to explain the pre-First World War situation. Some authors have referred to the presence of communitarian traditions connected with the exploitation of woods and pasturelands in Trentino and the Veneto (Leonardi, 1982; Casari, 2007) or to the necessity to unite to control the water levels in low territories crossed by substantial rivers such as those present in Emilia-Romagna or parts of the Veneto and Lombardy (Cazzola, 1987 and 1997). Other scholars have insisted on cultural elements, underlining the value of solidaristic institutions inherited from the ancien regime (thus moving causes much further back in time), because this legacy motivated people to find solutions to the new challenges created by industrialisation in the direction of maintaining solidaristic relations in new forms (Trentino, Lombardy, Emilia-Romagna) (Zamagni, 2000). Finally, the freedom of association and the self-help attitude have been considered as important factors that increased the readiness of certain areas to devise solutions to the current problems from below rather than relying on state intervention (Piedmont, Tuscany), a point of view that goes a long way towards explaining a contrariis why co-operation was not widespread in the South, where there was no freedom of association until the unification of the country (Marucco, 1981; Zamagni et al., 2004; Battilani, 2005a) (Table 12.5). In the years 1951–71, the co-operative movement experienced a long period of economic stagnation, coupled, however, with a slow revision of the approach to business which produced a more open adoption of the Table 12.5

Geographical distribution of social co-ops employees in 2001

North-West North-East Centre South Sicily & Sardinia Total Source:

Number

%

47 208 42 216 30 869 15 944 13 910 149 147

31.7 28.3 20.7 10.0 9.3 100.0

ISTAT, Census of the Non-Profit Sector, 2002.

280

Forms of enterprise in 20th century Italy

Table 12.6

Average number of employees per firm according to the different legal forms of enterprise, 1951–2001

Non-profit enterprises Corporations joint stock companies partnerships Co-operatives Non-social co-ops Social co-ops Total Source:

1951

1961

1971

1981

1991

2001

2.3 24.5 59.2 9.4 12.8 12.8 – 4.2

2.6 25.6 83.6 11.2 15.7 15.7 – 4.6

2.3 23.4 71.4 10.0 19.3 19.3 – 4.6

2.1 14.5 37.6 6.0 18.2 18.2 – 4.4

1.9 9.8 22.1 4.6 16.4 16.2 21.3 4.2

1.6 7.8 14.3 3.7 17.5 16.5 26.3 3.9

Istat censuses.

predominant market rules (Menzani, 2006 for Emilia-Romagna). It was only after the first oil crisis in the middle of the 1970s that a new phase began, with a strengthening of the co-operative movement and the creation of a new wave of co-ops. A north–south divide persisted, but with a novelty: in the Centre and North, and especially in Emilia-Romagna, Tuscany, Trentino, the Veneto and Lombardy, co-ops experienced a strengthening of their economic basis, with a substantial increase in the capital invested. As can be appreciated from Table 12.6, co-ops did not share the fragmentation of the Italian productive system after the 1970s, which brought about a marked decline in the average size of firms. On the contrary, they more or less maintained the ‘much larger than average’ size already attained in the 1970s, but the surprising evolution was that of the largest co-ops, which formed groups of ever increasing size (see Table 12.7). The available histories of the major consumer co-ops, of the Granarolo group, of the Camst group and of the largest consortium of building co-ops Ccc show upward spurts in size as a result of numerous mergers and of organisational restructuring (Fabbri, 1994; Zamagni, 2002; Bertagnoni, 2004; Zamagni et al., 2004). The flourishing of northern co-ops had a bandwagon effect in the South, where there was a budding of new co-ops so widespread as to give rise to the expression ‘second co-operative rebirth’, but the new co-ops remain, to this very day, small and weak. The gap between North and South in the field of co-operatives, therefore, assumed a new shape: it was no longer characterised by the lack of co-ops in the South, but by their economic weakness due to their persistent small size as against the growing size and the improved performance of northern co-ops. It is now time to discuss the main factors which caused the evolution we have portrayed.

Co-operatives

Table 12.7

281

Italy’s largest co-operatives in 2004 (>500 employees) No. of coTurnover Employees ops (in millions of Euros)

Manufacturing Food & drink manufacturing Construction industry Large-scale retailing COOP CONAD Others Services Integrated services Catering Logistics Other Services Finance§ Total

No. of members*

20 17

6738 5201

27 453 20 606

75 480 75 000

15 27 11 9 7 43 27 4 5 4 3 105

5189 23 807 11 011 6300 6496 3453 1973 1082 159 239 . . .. 39 187

16 661 94 128 49 394 26 259 18 475 120 024 55 913 21 849 3712 2450 36 100 258 266

8000 5 500 404 5 507 000 3527 3877 826 072 18 605 20 806 2010 10 427 774 224 6 409 956

Notes: * In some cases, members are second level co-operatives, and thus the figure is only indicative. § Consisting of two insurance companies, one of which (Unipol) is the third largest insurance company in Italy, and of the credit unions system composed of 440 banks with 3499 branches (11.2% of the total number of bank branches in Italy) and with deposits representing 8.4% of total savings in Italy. Source: From co-operatives’ balance sheets. With the exception of a few co-ops belonging to the umbrella organisation Confcooperative, most of these co-ops are members of Legacoop. The survey is not complete, but covers at least 85% of the total.

12.3

REASONS FOR SUCCESS: THE GRADUAL OVERCOMING OF CAPITAL CONSTRAINTS

Among the factors that made the consolidation of co-operatives possible, a strategic role was played by the overcoming of capital constraints. The literature on co-operative enterprises had traditionally identified under-capitalisation as one of the typical weaknesses of co-ops. In this connection, we can mention the contribution by Furubotn & Pejovich (1970), who underlined the inadequate capitalisation of co-operatives, which limited their growth potential; this was due to the lack of a market for co-operative shares, from which the expected future flows

282

Forms of enterprise in 20th century Italy

Table 12.8

Co-operatives equity/assets ratio in 1951 and 1981

Sectors

Equity/assets % co-ops Equity/assets % co-ops ratio 1951 at a loss 1951 ratio 1981 at a loss 1981

Farming Fishing Crafts Manufacturing Utilities Workers’ co-ops Housing’ co-ops Consumers’ co-ops Other services Total

0.29 0.45 0.21 0.31 0.39 0.27 0.29 0.26 0.32 0.30

13 20 20 21 8 20 28 12 15 17

0.14 0.22 0.20 0.15 0.19 0.18 0.19 0.21 0.20 0.19

19 20 27 28 16 28 22 22 27 23

Note: The sectoral ratios are simple averages of the ratios of co-operatives belonging to the sector. Source:

Busc-Battilani database.

of profits could increase their value for the shareholders. According to this approach, the members tend to privilege strategies that maximise returns over the short term of their expected presence in the cooperative, because they are in no position to cash the capital gains on the shares when they leave. The works by Ward and Vanek reached similar conclusions that the members tended to keep investments low, because the target of co-operatives was to maximise the income of the working members and keep as low as possible the returns to capital (Ward, 1958; Vanek, 1975 and 1977). With the help of Table 12.8, we analyse the link between corporate finance and the growth of co-operative enterprises between 1951 and 1981.9 In 1951, at the end of the period of post-war re-organisation, co-operatives were in general small and showed a satisfactory equity ratio, reaching 0.30 on average. Co-operatives with the lowest ratio were those of craftsmen, workers and consumers’ co-operatives. In 1981, the equity/assets ratio worsened considerably in most sectors, and the share of co-operatives with an operating loss increased. If the figures are disaggregated by regions it can be seen that the regions with fewer co-operatives running at a loss are those with the lowest equity/assets ratio. We can advance the following explanation: expansion of the co-operatives could take place in this period only through an increase in debt, but this was an option only open to the co-ops that were trustworthy (namely, the co-ops which showed a better performance).

Co-operatives

Table 12.9

283

Share of member loans on the total liabilities of the major consumers’ co-ops, 1980–2002

Year

% member loans

1980 1985 1990 1995 2000 2002

42 51 52 51 53 55

Source:

Zamagni et al. (2004).

This severe worsening of the financial situation of co-operatives is no doubt at the basis of the strategies that the umbrella organisations of the co-operative movement put in place starting in the late 1970s, in particular, mergers and consortia, to be strengthened by increased capitalisation. To achieve this aim, the co-operative movement tried to obtain more favourable legislation which could improve the capitalisation of co-operatives through different means. The first bill approved was the ‘small reform’ (law 127 17/2/1971), which recognised loans to members as a crucial element to increase capital available to co-ops and granted incentives (Zamagni et al., 2004). The sector in which loans to members became more widespread was that of the consumer co-ops, given the very large number of members. As the history of the Coop shows (see Section 12.4), the substantial investments made in the 1980s and 1990s, which allowed the Coop to become the Italian leader in retail distribution, were largely financed through members’ loans (see Table 12.9). Even more important was the bill approved in 1977, which allowed undistributed profits set aside in indivisible reserves not to be subject to the corporate tax, a measure that increased self-finance considerably. To give evidence of the long-term impact of this strategy aimed at capitalising co-ops, we can quote a survey published at the end of the 1990s by the Central Office of the Chambers of Commerce. The survey covered co-operatives belonging to Confcooperative and monitored changes in the decade 1987–96 (Caselli 1998). In this period, the average size of the cooperatives surveyed doubled (in terms of employees) and the equity/assets ratio improved, passing from 12 per cent to 18 per cent, while net assets doubled and total capital trebled. The degree of coverage of investments by net assets remained inferior to that in capitalist enterprises, in spite of the improvements, but the members of co-operatives contributed to the funding of their enterprises through other channels, such as loans. We

284

Forms of enterprise in 20th century Italy

can therefore conclude that the members of co-ops ended up supplying, directly or indirectly, more funds to their enterprises than capitalist entrepreneurs. A similar study was carried out in 2000 by the research unit of Legacoop, covering the evolution of their associate member co-operatives in the preceding two decades (Centro Studi Legacoop, 2001). The results were similar to that of Confcooperative: in the 20 years covered by the survey, the average size of co-ops doubled and the equity/assets ratio jumped from 10 per cent to 25 per cent. In March 1983 a new bill was passed (law no. 72, known as the Visentini law, after the name of the minister who produced it), which granted cooperatives the permission to own fully or to have a majority stake in a capitalist corporation. This allowed the largest co-operatives to attract capital from the market in a variety of ways, including being quoted on the stock exchange. Another step in the direction of multiplying the financial resources for co-operatives was provided by law 59, approved in 1992, which allowed co-operatives to have members who only supplied capital (socio sovventore) and to issue special preferred shares (azioni di partecipazione cooperativa). The use of these instruments was crucial for the creation of large co-operative groups and modified the typical cooperative networks, as will be argued in the next section. Before turning to this, we present two examples in order to show how these new financial instruments were used to support long-term growth: the Granarolo group and the Manutencoop group. Granarolo was a consortium producing dairy products; its plants, machinery and brands were owned partly by the consortium and partly by the milk producing co-operatives that had formed the consortium. In 1991, they created a joint stock company with the same name, to which they transferred the assets of the consortium and the cooperatives in 1993. This became the company designing the strategic marketing and productive lines for the entire group. The original co-operatives were gathered in a single consortium which took the name of Granlatte in 1998 and became the owner of the joint stock company, together with a second consortium called Cooperlat, which joined in 1999. In this way, it was possible to resort to more substantial bank loans and to issue bonds, without the traditional disadvantages produced by the co-operative legal form. It was also possible to plan the quotation of Granarolo on the stock exchange, a target that had not yet been reached before 2010 for a variety of reasons, but was still aimed for. On the whole, at the end of the first decade of the 21st century, the group is articulated on four levels, of which the second is made up of the two co-operative consortia, which, directly or indirectly, own 11 companies. The group maintains its co-operative character, because 68 per cent of the milk processed by it comes from its member co-operatives. In

Co-operatives

285

2004, Banca Intesa, one of the largest Italian banks, acquired 19.8 per cent of the capital of Granarolo (Bertagnoni, 2004). Even more atypical is the group structure set in place by Manutencoop, which, in 2003, created the joint stock company Manutencoop Facility Management, to which it progressively conferred the assets of the facility management division of the original co-operative, including the participating companies (among which Roma Multiservizi), whilst retaining majority control (the other 25 per cent of the total capital is in the hands of private equity funds). The Manutencoop group is now composed of the original co-operative that directly controls three joint stock companies, one of which controls another seven joint stock companies. In this case, too, as with Granarolo, there are plans to quote the largest of the joint stock companies of the group on the stock exchange. However, for Manutencoop, it is more difficult to adhere to its original co-operative mission, as it has only 700 members (of whom one-third are suppliers of capital only, according to law 59/92) over around 12 000 employees. We can conclude that one of the key reasons that explains the expansion of co-operatives was finance: in the 1970s and 1980s, growth was mainly financed by member loans and undistributed profits set aside as indivisible reserves, while, in the 1990s, the most dynamic co-operatives found additional financial resources through the formation of groups within which a substantial amount of joint stock companies were created.10

12.4

REASONS FOR SUCCESS: NETWORKS

Beside finance, there is another important reason for the flourishing of co-operative enterprises in the latest decades, and this is the formation of networks. Since the vast majority of today’s large-scale co-operatives are members of Legacoop, a more detailed analysis of the strategies adopted by this umbrella organisation in the building up of tight and multiple networks can illustrate the point. Most of the results presented here stem from Zamagni & Felice (2006), aimed at reconstructing the evolution of Legacoop from the late, 1970s to the beginning of the 21st century, a period in which the turnover produced by its member co-operatives trebled (at constant prices) and the number of people employed more than doubled. There were two periods of sustained growth during this time: the decade between the end of the 1970s and the end of the 1980s, and the decade between the mid-1990s and the mid-2000s. The five-year period in between (1990–95) saw the agricultural, housing and building cooperatives of Legacoop in some difficulty, which proved, however, only

286

Forms of enterprise in 20th century Italy

to be temporary. The former period of co-operative growth was characterised by an extremely lively Italian economic performance in general, in spite of the oil crises. During the latter decade, on the other hand, the Legacoop performance (and the entire Italian co-operative movement performance) counteracted the overall trend of the Italian economy: whereas the latter experienced years of virtual stagnation and productive fragmentation, especially from 2005 to the end of the decade, co-operatives have substantially expanded and increased their size, as we have seen above. An analysis of profitability per categories of turnover which could be conducted only for the period 1992–2004, reveals interesting features: while Legacoop co-operatives with a turnover of less than 500 000 euros nearly always made losses, co-operatives in the higher turnover categories, in contrast, were constantly profitable. In particular, co-operatives with a turnover of more than 200 million euros (the number of which rose from 22 to 35 during the period) saw their profitability more than doubled, which was especially true for those with a turnover of between 500 million and one billion euros (their numbers rose from 6 to 13). This observation clearly shows that co-operatives grew in size once they decided to compete in the market effectively. We can thus hypothesise that Italy’s co-operatives were led out of marginality by two movements: the first from the late 1970s to the early 1980s focused upon the general consolidation of individual co-operatives, with expansion based upon mergers and the creation of networks (in general, consortia) on a limited geographical scale. Many of the difficulties that followed, such as the Mani Pulite (Clean Hands) trials,11 which paralysed the building industry, were of an exogenous nature, and contributed towards reinforcing in the co-operatives the belief that ‘big is beautiful’, because the larger co-operatives were perceived as having an advantage in terms of profitability, organisation, market and lobbying power. The second wave of growth saw the formation, in various ways, of ‘co-operative groups’, thus reinforcing the previous trend towards the creation of complex networks of co-operative and non-cooperative undertakings. In some sectors, large-scale co-operatives began to perform the role of aggregator and co-ordinator of the small and medium-sized co-operative and non-cooperative enterprises situated within their geographical areas. This was achieved by various means: through the explicit creation of groups, through the influence exercised in certain sectors and areas, and through the launching of consortia on a national scale. A good example of this is represented by the consumers’ co-operatives, dominated by Legacoop. There are two Legacoop organisations currently operating within this sector. The first is the ANCC, which in 2004 organised 160 Coop-brand consumers’ co-operatives (of which the top

Co-operatives

287

nine account for 90 per cent of total turnover) through a single wholesale structure – Coop Italia. This, in turn, brought together other groups of consumers’ co-operatives and retailers’ co-operatives, which were not members of Legacoop (Sait, Sigma and Despar), plus some small capitalist chains (for example, Il Gigante) in a common wholesale company ‘Centrale Italiana’, which achieved a turnover (2005–06) amounting to 23 per cent of the entire turnover of Italy’s large-scale retailing sector. The second Legacoop organisation within the retailing sector is the ANCD, which organises consortia of co-operatives of retailers (including primarily CONAD and other smaller brands) with a turnover (2005–06) that accounts for 12.2 per cent of the total turnover of large-scale retailing, and some 3000 sales outlets. In February 2006, CONAD set up the very first co-operative based upon European law – Copernic – jointly with the Belgian chain Coruyt (the third largest in Belgium), the Swiss Coop (the second largest in Switzerland), the French chain E. Leclerc (the leading hypermarket chain in France), and the German Rewe Group (Germany’s second largest chain). Copernic boasts a turnover of 96 billion euros and 17 500 sales outlets. Taken as a whole, then, the Legacoop directly organises more than one-third of Italy’s large-scale retailing activity, and this share is constantly growing. In 1977, the two organisations (ANCC and ANCD) accounted for 21 per cent of the Legacoop’s turnover; by 2004, this share had risen to 40 per cent. The previously mentioned detailed study of consumers’ coops (Zamagni et al., 2004; Battilani, 2005b) reveals that there was an initial turningpoint in the 1970s; faced with numerous company crises and management problems caused by high inflation, some of the largest co-operatives chose to strengthen their performance by accelerating the modernisation of their sales outlets (supermarkets) through mergers and the adoption of a more professional approach to marketing. This resulted in the concentration on the use of the sole brand Coop and the resort to advertising (not used before). A number of prerequisites for expansion had already been established beforehand, such as the foundation in 1967 of Coop Italia, the wholesale co-operative serving the system, and the creation of local consortia (Battilani, 1999). However, it was not until the 1970s that the decisions in favour of consolidation became irreversible, and only at the end of this decade did turnover begin to increase rapidly. In 1983, there were still some 600 consumers’ co-operatives, the top nine of which accounted for a 65 per cent share of total turnover. Ten years later, this number had fallen to 300, and the top nine then accounted for 78 per cent of total turnover. The second turning-point came in the 1990s, when the major co-operatives’ decision to focus on the hypermarket option was widely shared (the number of co-operative hypermarkets rising

288

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from 5 in 1988 to 67 in 2003), and turnover grew accordingly.12 This leap in the size of sales outlets was basically possible thanks to the widespread use of member loans, which, on average, provided 50 per cent of the necessary capital. The process of concentration of the nine leading co-operatives is still ongoing, as witnessed by the creation of three agencies (North-West, Adriatic and Tyrrhenian) each providing shared services to three large co-operatives and other smaller ones. A similar trend can be detected in the construction sector, where individual co-operatives have, indeed, been strengthened, but where, more importantly, a national consortium has been set up. This is the sector in which local-area consortia had already been created at the beginning of the 20th century, but where the biggest step forward was taken in 1978 with the merger of the powerful consortia from Bologna (founded in 1912), Modena (1914) and Ferrara (1945), under the name of Ccc (Consorzio Cooperative Costruzioni). Following this merger, the Ccc strengthened its role as business promoter and service provider, and its operational range increasingly extended beyond the areas of the original consortia. At this point, a project was drawn up to unite all the consortia present in the other Italian regions with the Ccc (by far the largest), in order to create a national consortium for the overall coordination of the Legacoop’s strategy within the construction industry, an objective which was achieved in 1990 (Fabbri, 1994). The final step consisted of the incorporation of Acam (Consorzio Nazionale cooperative approvvigionamenti – the National Consortium of Building Suppliers Co-operatives), which is the consortium that brings together the many co-operatives servicing the construction industry (Ccc, 2002). The Ccc currently has 230 member co-operatives, employing a total of some 20 000 workers, and, with a turnover of 3500 million euros, it is leader in the construction industry in Italy. More recently, the services sector has witnessed the creation of groups. The largest of these is Manutencoop, with a turnover of approximately 500 million euros, as we have seen before. A national consortium – CNS – has also been created. Set up in 1977, but only really operative from the second half of the 1980s onwards, it brings together more than 200 co-operatives operating in the following sectors: facility management, transport, porterage, custodial and cleaning services, ecology, catering, and tourismcultural services. The governance of this consortium has never been easy, and was often paralysed by internal conflicts between the larger and the smaller co-ops. A stable equilibrium was finally reached in 1998 and this spurred a sustained growth of its turnover, passing at constant 2004 prices from 161 million Euros in 1999 to 384 million in 2004. This growth has been supported by the contracting out of services which is increasingly practiced by private corporations as well as by public authorities. But

Co-operatives

289

it has also been the result of the comparative advantage that a consortium has in producing integrated services (facility management), implying the use of different specialisations and the co-ordination of different co-operatives. Moreover, CNS becomes the single responsible body in contracts, which simplifies the relationship of the smaller co-operatives with the buyers of their services. It must be noted, however, that the total turnover of the co-operatives participating in CNS is 2.5 billion Euros, as against the approximately 400 million Euros intermediated by CNS, and this is due to the fact that the larger co-operatives normally still work on their own (Battilani & Bertagnoni 2008). Co-ordination operations have proven more complicated in the food and farming sector where, while there has been a growth in average company size as a result of mergers, the creation of co-operative groups for specific areas of production is only a very recent development. The largest group affiliated to Legacoop can be found in the dairy sector (Granlatte-Granarolo,13 with a turnover of 900 million euros), as we have seen above, but there are large co-operative groups present in Parmesan cheese production (Granterre), wine (GIV), fruit and vegetables (Apofruit Italia), large-scale crops, their by-products and services (Progeo), and meat (Unipeg). The other co-operative umbrella organisation, Confcooperative, is also very much present in this sector, in the form of a number of very large co-operative groups such as Conserve Italia (with a turnover of around 800 million euros). No complete study has yet been done of the cooperative presence within this sector, where co-operation, more than the capitalistic enterprises, is preserving Italy’s competitive capacity against the overbearing presence of the multinationals, as is also the case in largescale retailing and in catering with Camst (Zamagni 2002). Another area where a form of overall system governance has been developed is that of the credit unions, which also belong to Confcooperative. This area witnessed an acceleration in the concentration and growth of co-operatives during the 1990s, and, at the end of the first decade of the 21st century, the credit unions stemming out of the original very small rural banks represent 8.4 per cent of total deposits in Italy. The degree of autonomy of the 440 co-operatives is still high, although the National Federation of Italian Credit Unions has organised a tight network of centralised services. In general, the Confcooperative’s degree of concentration and compactness is not as great as that of the Legacoop, resulting in just a few large-scale co-operatives concentrated mainly in the food and farming sector. The Confcooperative has, however, an extremely strong national consortium (CGM) grouping together 79 local consortia of social cooperatives providing personal services: these consortia are constituted by a total of 1200 social co-operatives with 40 000 employees, and they boast a

290

Forms of enterprise in 20th century Italy

turnover of around 1 billion euros (Centro Studi CGM, 2005). Legacoop, to date, has a large number of social co-operatives (1500 in total, employing some 55 000 people with a turnover of 1.8 billion euros), and has set up a national association (Legacoopsociali), but its consortia are still of a smaller size and of a more limited functionality. The system governance that emerges from the above could be analysed using the model proposed by Giovannetti (2002), summarised in Table 12.10. Giovannetti criticises the use for co-operatives of the well-known transactional approach as applied to individual isolated companies, because this approach employs the concept of externality in order to make room for all that is excluded by the calculation of efficiency done in the standard way. In the co-operative world, in contrast, externalities are substantially internalised by ‘inter-cooperative’ instruments involving the creation of consortia, of sectoral and local associations, of co-operative groups and co-operative umbrella organisations, which guarantee growth at increasing returns.

12.5

CONCLUSIONS

During the 19th century, all the major economists were very interested in the co-operative idea (Zamagni & Zamagni, 2010). For example, in the 3rd edition of his Principles of Political Economy, John Stuart Mill stated that: the form of association . . . which if mankind continue to improve, must be expected in the end to predominate, is not that which can exist between a capitalist as chief, and work-people without a voice in the management, but the association of the labourers themselves on terms of equality, collectively owning the capital with which they carry on their operations, and working under managers elected and removable by themselves. (IV.7.21)

However, economic democracy has proved to be even more difficult to achieve than its political counterpart, since it requires the love of freedom and the ability to self-govern, and, as a result, has been superseded by hierarchical, autocratic corporations, in which workers are paced by machinery and are governed by a top-down organisational approach, in exchange for a guaranteed wage. Through the benefits of scale and scope economies, the hierarchical corporation has strengthened its position; however, it nowadays shows major drawbacks, above all, in the service sector, where output is highly customised, requiring an intrinsic motivation and a propensity to creativity on the part of workers, two elements that are not easily activated in hierarchical corporations. This has led

Co-operatives

Table 12.10

291

Governance in the co-operative system

Corporate purpose

Nature of the agreement

Class

Collective resources

Type of co-op

Production of various goods and services

Direct involvement of members

Cooperatives of production and labour

Equipment and machinery, plant, skills, goodwill, market relations

Workers co-ops, social co-ops and professional services co-ops

Technical assistance, job acquisition, guarantees against bank loans, etc

Involvement in the management and utilisation of certain resources made available for shared use

Network hubs

Creation of process funds, guarantee funds, service funds; construction of innovative and commercial strategies

Consortia, second-level co-ops, guarantee coops, service co-ops

Purchasing goods and services on behalf of members; purchasing, building and management of property

Production of goods and services for common use, with limited direct involvement of members who delegate management

Agencies and mutual aid societies

Formation of teams specialised in: seeking opportunities and works management; the purchasing of goods and quality control; the creation of and control of club goods

Estate agents, housing coops, consumers’ co-ops, management co-ops, co-operative insurance companies

Source:

Giovannetti (2002).

292

Forms of enterprise in 20th century Italy

many to rethink the role of co-operatives. Today, the prerequisites exist for co-operatives to recover appeal, even at the theoretical level (Mazzoli & Zamagni 2005), although the capitalist corporations’ power is such that it is not easy to counter. In the case of Italy, it could be claimed that the capitalist sector’s failure in the past to achieve the power retained in other countries as a result of the excessive fragmentation and the small size of firms has left the cooperatives with more room for consolidation. Co-operatives have been able to exploit this opportunity and have, in various fields, followed a virtuous path to growth, via the strengthening of company performance as a result of mergers, on the one hand, and of the creation of vast, complex co-operative networks on the other. The state has aided this process in the form of legislative measures designed to facilitate the capitalisation of cooperatives and the formation of their networks. Clearly, the governance of large co-operative undertakings and groups including not only co-ops but also joint stock companies is not an easy task. There are no pre-established models, although there are some examples abroad; nor can the large-scale capitalist corporation models be easily copied, as the co-operatives must work within the framework of economic democracy, with a multitude of stakeholders to serve. The major challenge currently facing co-operatives in Italy (and elsewhere) is precisely that of finding a suitable form of large-scale cooperative governance. Another important challenge is represented by the globalisation of the economy, which makes it imperative for the cooperative movement to find ways of going beyond its ‘national’ borders towards the creation of genuinely international co-op networks.

NOTES * 1. 2. 3. 4.

5.

We wish to thank Enrico Giovannetti for comments and criticism. The usual disclaimer applies. The three sources of inspiration of the Italian co-operative movement have often been represented by the colours of the Italian flag: green (the liberal co-ops), red (the leftist co-ops) and white (the catholic co-ops). The first Italian political party to have no ties with the co-operative movement has been Forza Italia, founded in 1993 by Berlusconi. A description of the four existing co-operative umbrella organisations can be found on the website, www.movimentocooperativo.it, which we created, covering the Italian co-operative movement, with sections in English. There are various forms of consortia, but they are all characterised by the fact that the co-operatives belonging to them are administratively and financially independent. In general, they share the services offered to the consortium’s members and they enjoy common strategic advertising and work procurement. After the initial years in which co-ops’ balance sheets were collected at the end of all other joint stock companies’ balance sheets and published in the official bulletin,

Co-operatives

6. 7.

8. 9.

10. 11. 12. 13.

293

Busa, a special issue of that bulletin (Busc) was devoted to the co-operative societies incorporated as limited companies. It must be noted that housing co-operatives are generally not included in Istat, as they have an irrelevant impact on employment. The other two existing smaller umbrella organisations are AGCI (General Association of Italian Cooperatives), originated in 1952 from a splitting out of Legacoop of most of the non-socialist and non-communist members, and Unci (National Union of Italian Co-operatives), created in 1975 from a splinter group of Confcooperative. Note that the development of co-ops under Fascism is an under-researched topic, which has only recently attracted some attention. There are three ratios that can be calculated to measure solvency. These are: (1) debt/ assets ratio, (2) equity/assets ratio, and (3) debt/equity ratio. The debt/assets ratio is a risk measure that indicates how much of total assets is lent by creditors. The equity/ assets ratio shows how much of the company’s assets is owned by the shareholders. Given that debt + equity = assets, the ratios of debt/assets and equity/assets are complements of each other. In other words, D/A + E/A must be = 1 (i.e., the lender’s stake and the owner’s stake equal the total company assets). The debt/equity ratio is another measure of financial risk. If one ratio is known, the other two ratios can be calculated directly without any additional information. There is only one important exception to this periodisation and it is the creation of the insurance company of Legacoop, Unipol, as a joint stock company already in 1963, quoted on the stock exchange in 1986. It was an investigation by magistrates in Milan into widespread corruption in public tenders. An unpublished study of the CONAD supermarket chain reveals that co-operation among retailers, too, experienced a jump in size in the 1990s with the advent of the hypermarkets. This group unites both ‘red’ (left-wing) and ‘white’ (Catholic) co-operatives.

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Index Abramovitz, Moses 2, 130 Acemoglu, Daron 1 Acocella, Nicola 102 Affinito, Massimiliano 53 Aganin, Alexander 44, 69 Aharoni, Yair 54 Alzona, Gianluigi 53 Amatori, Franco 3, 10, 28, 52–3, 87, 135, 139, 141, 166, 228 Amin, Ash 182 Amsden, Alice H. 26, 54 Antonelli, Cristiano 13 Arrighetti, Alessandro 14, 54, 68, 86, 205, 223, 254 Audretsch, David B. 236, 267 Ayyagari, Meghana 267–8 Baccini, Alberto 212–13, 219–21, 223 Baffi, Paolo 115 Balassa, Bela 51, 128 Balconi, Margherita 53, 146, 269 Balloni, Valeriano 267 Balzani, Roberto 186 Barba Navaretti, Giorgio 266 Barberis, Corrado 224 Barbetta, Gian Paolo 248 Barbiellini Amidei, Federico 13 Barca, Fabrizio 46, 52–3, 133–5, 139, 141 Bargigli, Leonardo 85 Bartelsman, Eric 227 Barucci, Emilio 53 Battilani, Patrizia 16, 27, 127, 273, 275, 279, 287, 289 Battilossi, Stefano 186 Baumol, William J. 1 Becattini, Giacomo 14, 183, 205, 222 Beck, Thorsten 132, 267 Belfanti, Carlo Marco 161 Bellandi, Marco 161, 183, 204 Bellini, Nicola 135

Bergman, Giulio 126 Berle, Adolf Augustus 27, 85 Berlusconi, Silvio 224, 292 Berselli, Aldo 191 Berta, Giuseppe 251, 267 Bertagnoni, Giuliana 280, 285, 289 Bertini, Giorgio 54 Bertrand, Marianne 57, 86 Bianchi, Marcello 139 Bianco, Magda 139 Bigatti, Giorgio 191 Bigazzi, Duccio 122–3, 131 Birdsall, Nancy 54 Biscaini-Cotula, Anna Maria 146 Bognetti, Giuseppe 54, 68, 86 Bolchini, Piero 192, 195, 204, 268 Bondi, Massimo 228 Bonelli, Franco 52, 166, 267 Bottiglieri, Bruno 35, 119, 127, 130 Bova, Francesca 89–90, 93 Brioschi, Francesco 139, 141, 267, 269 Brusco, Sebastiano 161–2, 204, 211, 267 Butera, Federico 267 Cafagna, Luciano 14, 204, 267 Cainelli, Giulio 267–8 Calabi, Donatella 190 Camp, Richard L. 210 Campilli, Pietro 126 Capanna, Alberto 177, 182 Carli, Guido 148 Carnevali, Francesca 152, 205 Carreras, Albert 28 Casari, Marco 279 Caselli, Guido 283 Cassis, Youssef 28 Castellucci, Lucia 15 Castronovo, Valerio 119, 127, 130, 172, 194, 228 Cavazza, Fabio 53 Cazzola, Franco 279

323

324

Forms of enterprise in 20th century Italy

Chandler Jr., Alfred D. 3, 10, 25, 27–8, 40, 227 Chiaventi, Roberto 175, 268 Chick, Martin 53 Churchill, Winston 130 Ciocca, Pierluigi 139, 146 Ciullo, Laura 91 Clifton, Judith 53–4 Colajanni, Napoleone 141 Colaninno, Roberto 228 Colli, Andrea, 11, 16, 43, 53, 87, 161, 169, 171, 178, 183–4, 204, 228, 253, 267 Coltorti, Fulvio 141, 146, 148, 228, 251 Confalonieri, Antonio 52 Conte, Leandro 13 Conti, Giuseppe 13, 147 Conti, Sergio 183 Coppa, Giorgio 209 Corbetta, Guido 253 Costa, Angelo 115, 120, 123–4, 126–7, 129–30 Cotula, Franco 139 Craveri, Piero 130 Cuccia, Enrico 127, 131

Fabbri, Fabio 280, 288 Fagerberg, Jan 2 Fanfani, Amintore 216 Fari, Simone 14 Fauri, Francesca 12, 125–8, 131 Federico, Giovanni 27, 44, 161, 183–4, 204, 259, 263, 267–8 Feigenbaum, Harvey 53 Felice, Emanuele 285 Fenoaltea, Stefano 190 Ferri, Giovanni 249 Fisman, Raymond 139 Floriani, Virgilio 242 Fodor, Giorgio 115 Fornasari, Massimo 273 Fortis, Marco 36, 199, 228 Franco, Rossella 191 Franko, Lawrence G. 101 Frasca, Francesco M. 148 Freeman, Chris 2, 10, 40, 46, 50, 227 Fuà, Giorgio 183, 248 Furubotn, Eirik 281–2

Daneo, Camillo 178 Dayton, M. Leon 131 De Arcangelis, Giuseppe 249 De Benedetti, Augusto 182 De Benedetti, Carlo 228 De Cecco, Marcello 53, 134, 161 De Gasperi, Alcide 114, 130 De Grazia, Victoria 102 De Nardis, Sergio 248, 267 Deaton, Angus 40 Del Buttero, Anna 93, 101 Demirgüç-Kunt, Asli 132 Di Cesare, Michele 267 Di Martino, Paolo 11 Djelic, Marie Laure 102 Donovan, Robert J. 116 Doria, Marco 130 Dosi, Giovanni 131 Dumoulin, Michel 89, 91 Dunning, John H. 87

Galbani, Egidio 242 Galimberti, Claudia 163 Gallino, Luciano 30, 267 Gardini, Raul 228 Gerschenkron, Alexander 1, 26, 53 Giannetti, Renato 6, 10, 12, 15, 27–8, 42, 44, 48, 54–5, 142, 158, 204, 228–9, 247, 267 Gigliobianco, Alfredo 148 Gille, Bertrand 89 Giovannetti, Enrico 290–91 Giuntini, Andrea 14, 190 Gnutti, Emilio 228 Goldstein, Andrea 9 Grandi, Alberto 182 Graubard, Stephen 53 Graziani, Augusto 178, 180 Grossman, Sanford 133 Gualerni, Gualberto 177 Gualino, Riccardo 228, 241 Gualtierotti, Pietro 212, 217–18 Guerci, Carlo 267 Guzzi, Carlo 242

Easterly, William 130 Eichengreen, Barry 116 Einaudi, Luigi 114–15

Hall, Peter A. 1 Haltiwanger, John 26 Hannah, Leslie 28

Index Hansmann, Henry 277 Harrison, Bennett 36 Hart, Oliver 133 Hatzichronoglou, Thomas 237 Heertje, Arnold 113 Hertner, Peter 89, 109 Hikino, Takashi 3, 10 Jacoboni, Attilio 115 Jacobucci, Donato 267 Jalla, Ermanno 268 Johnson, Shane 132 Jones, Geoffrey 87 Jones, Joseph M. 130 Kindelberger, Charles P. 116 Kumar, Krishna 267 La Malfa, Ugo 125–6 La Porta, Rafael 1, 56–7, 85 Lagala, Canio 209 Lamoreaux, Naomi R. 4 Landes, David S. 1 Langlois, Richard N. 4 Lanthier, Pierre 53 Lavista, Fabio 15 Leo XIII 210, 273 Leonardi, Andrea 279 Levine, Ross 132, 267 Link, Albert N. 123 Lionetti, Stefano 212, 222 Litan, Robert E. 1 Lombardo, Giorgio 124–5 Longoni, Giuseppe Maria 14, 214, 224 Louçã, Francisco 2, 10, 28, 41, 46, 50, 227 Love, Inessa 139 Lundvall, Bengt-Ake 2 Lungonelli, Michele 184 Maccabelli, Terenzio 161 Maddison, Angus 1 Maione, Giuseppe 114 Malerba, Franco 2, 113 Mantegazza, Amilcare 109 Manuli, Dardanio 242 Maraffi, Marco 208–209, 216 Marchi, Alves 139 Marchionatti, Roberto 139 Marotta, Giuseppe 148

Martinez Lopez, Alberte 91 Marucco, Dora 279 Mattei, Enrico 84, 128 Mattina, Liborio 127, 216 Mayer, Colin 137 Mayer, Michael 1, 43 Mazzini, Giuseppe 273 Mazzoli, Enea 292 Means, Gardiner C. 27, 85 Megginson, William 53 Mendonça, Sandro 28, 41 Menzani, Tito 274, 280 Merrett, David T. 50 Merusi, Fabio 134 Messori, Ottavio 177, 182 Miata, Alessandra 267 Mill, John Stuart 290 Miller, Merton 132 Millward, Robert 54, 189 Modigliani, Franco 132 Moore, John 133 Morck, Randall K. 1, 56 Mortara, Alberto 68, 86 Mowery, David C. 2 Mucchetti, Massimo 54 Mullainathan, Sendhil 57, 86 Mussolini, Benito 192 Nakamura, Leonard 132 Napoli, Isabella 130 Nellis, John 54 Nelson, Richard R. 2 Nesci, Francesco 267 Netter, Jeffry 53 Nitti, Francesco Saverio 89, 111 North, Douglass C. 1 Nuti, Fabio 161 Olson, Mancur 129 Onida, Fabrizio 267 Orsenigo, Luigi 113 Ortona, Egidio 130 Osti, Gian Lupo 53, 146, 152 Paba, Sergio 161–2, 204, 267 Pagano, Marco 44, 139 Paolazzi, Luca 163 Parodi, Emanuele 242 Parrillo, Francesco 213, 219 Pasinetti, Luigi 131

325

326

Forms of enterprise in 20th century Italy

Pastorelli, Sabrina 12, 54 Patel, Pari 25, 41 Pavan, Robert J.106 Pavitt, Keith 25, 41, 46, 50–51 Pejovich, Steve 281–2 Pella, Giuseppe 125 Pellegrini, Guido 35 Perez, Carlota 26 Perlman, Mark 113 Perrone, Ferdinando Maria 228 Perugini, Mario 14 Pescarolo, Alessandra 169 Pescosolido, Guido 208 Pesole, Dino 209, 212, 216, 224 Petri, Rolf 53 Petrini, Francesco 126 Pezzini, Antonello 267 Pezzini, Mario 211 Pierobon, Federico 53 Piluso, Giandomenico 13, 131, 141, 147 Piore, Michael J. 205 Piscitello, Lucia 9 Pomeranz, Kenneth 1 Pontolillo, Vincenzo 146 Posner, Michael V. 53–4, 152 Quadrio Curzio, Alberto 36, 199, 228 Raff, Daniel M. 4 Raggi, Andrea 186 Rajan, Raghuram 132, 139 Ravenni, Gian Bruno 169 Ricciardi, Ferruccio 54 Rinaldi, Alberto 14, 85, 224 Rocca, Agostino 235 Rodrick, Dani 54 Romei, Valentina 14 Romeo, Rosario 166 Rosenberg, Nathan 112 Roth, Kendall 267 Rugge, Fabio 191 Sabel, Charles F. 205 Saita, Massimo 268 Saletnich, Enrico 54 Salvati, Michele 35 Sapelli, Giulio 53, 129, 152, 186 Saraceno, Pasquale 69, 135

Sartori, Romolo 54 Sassi, Olinto Mario 131 Sbrana, Filippo 127 Schiaffino, Federico 241 Schimberni, Mario 228 Schramm, Carl J. 1 Schreyer, Paul 267 Schumpeter, Joseph A. 227 Scranton, Philip 4 Segreto, Luciano 114 Sekai, Kentaro 267 Seravalli, Gilberto 14, 205, 223, 254 Sforzi, Fabio 162, 183 Shleifer, Andrei 53 Short, Robert P. 53 Siciliano, Giovanni 139 Siglienti, Sergio 130 Simoncini, Franco 209 Soete, Luc 2, 10, 40, 50 Solimene, Laura 200 Soskice, David 1 Spadavecchia, Anna 183, 205 Spagnolo, Carlo 54, 68, 86 Stampini, Marco 268 Steil, Benn 2 Stiglitz, Joseph 53–4 Sutton, John 6, 26, 227 Tafunell, Xavier 28 Tarchiani, Alberto 114 Temin, Peter 4 Termini, Valeria 199 Thurik, Roy 267 Tirole, Jean 158 Togliatti, Palmiro 211 Toninelli, Pier Angelo 11, 27, 43, 52–3, 85, 135, 158 Toniolo, Gianni 129, 177, 211 Traù, Fabrizio 248, 267 Trento, Sandro 52–3, 134–5, 141 Trezzi, Luigi 117 Turani, Giuseppe 267 Vaccà, Sergio 201–202 Valletta, Vittorio 122, 127 Valli, Vittorio 228 Valotti, Giovanni 200 Van der Wee, Herman 53 Vanek, Jaroslav 282 Varni, Angelo 194

Index Vasta, Michelangelo 6, 10–11, 13, 27–8, 35–6, 39, 42–3, 50, 55, 85–6, 88, 142, 158, 204, 228, 247, 256, 267–8 Velucchi, Margherita 42, 229, 247 Ventura, Marco 249 Viesti, Gianfranco 163, 182 Ville, Simon 50 Volpin, Paolo 44, 69 Ward, Benjamin 282 Wardley, Peter 28 Weiss, Linda 205, 211, 219, 222–4 Wellisz, Stanislaw H. 122 Wexler, Imanuel 116 White, Lawrence 27, 61, 137 Whitley, Richard 1–2

327

Whittington, Richard 1, 43 Wilkins, Mira 89, 92–3 Woolf, Stuart J. 53–4, 152 Yosha, Oved 132 Zacchia, Carlo 183 Zadeh, Lotfi Asker 5 Zamagni, Stefano 290, 292 Zamagni, Vera 16, 27, 89, 112, 127, 178, 206, 208, 214, 273–4, 279–80, 283, 285, 287, 289–90 Zanetti, Giovanni 53 Zangheri, Renato 274 Zanussi, Antonio 242 Zingales, Luigi 132, 139 Zoboli, Roberto 267