Can Putin Survive?
The Lessons of the Soviet Collapse
AT the peak of Nazi power in 1941, when the Axis governments were still entertaining well-founded hopes of victory, five leading Italian economists published, in Italy, a postwar economic program for that country. It is a prophetic document. Its conclusions, stating clearly some of the fundamental issues confronting the nation, may well serve to introduce a discussion of the problems of Italy's economic reconstruction.
The main reasons for the deepening economic malady which had overtaken Italy during the last 15 years, said these five economists, were two: (1) disregard of international trade as a chief source of economic strength for Italy; (2) the policy of self-sufficiency which had led to the development of costly and unprofitable enterprises and to the suppression of undertakings which did not fit into a preconceived framework of power and privilege.
Italy had been forced to wear the heavy garment of total control, they boldly continued. Fresh energies had been kept from poaching upon the private hunting grounds of big vested interests. They cited the Fascist law which regulated the establishment of new industrial plants as a typical illustration of how the protection of an alleged public interest is transformed into the furtherance of monopolistic privileges. That law allowed no publicity for the proceedings of the committee which passed upon applications for permission to open new factories. Obviously the public interest could be protected solely through the most careful scrutiny of the committee's deliberations. And the law required the committee to give no reason and present no documentary evidence to justify whatever decision was reached.
Economists throughout the world will agree, they continued, that the complex economic structure of a modern industrial society does require a large measure of state intervention. The decisive question is what type of public economic control shall be imposed. Is it to be the judicial type, which places in the hands of independent public servants the enforcement of clearly defined standards of private conduct? Or is it to be the political type, with decisions made following the dictates of changing pressure groups and interests? The choice of the latter type of control by Fascism had blocked sound economic development in Italy.
All this must go, they concluded, if Italy is to resume her forward development. Her national economy must be in harmony with the laws of her past economic growth and with the need for international coöperation. An open economic system must take the place of autarchy. Italy must look beyond an integrated German-inspired and German-dominated continental system. She must look beyond the oceans to fulfill her economic rôle and to attain the satisfaction of her most pressing national needs. The German plan of Grossraumwirtschaft is unhistorical and unrealizable. Its designs are based on the industrial preponderance of one country. It does violence to the vital interests of individual nations and to the larger truths of the interdependence of the world community. No nation will ever freely suspend its own way of life and hold in abeyance its natural productive abilities. To force it to do so not only violates the principle of human freedom but also denies the right of every people to develop its economic life in harmony with its traditions, possibilities and inclinations.
The views thus summarized reflect a tendency which we may presume will be very strong in Italy after the war. They lead to the rejection both of the Fascist policy of self-sufficiency and of the suggestion that the solution of Italy's economic problems may be found primarily within some kind of European framework. Italy's economic health cannot be restored by the creation of regional groupings. It depends upon the reëstablishment of a truly free and stable international economic system.
The solution of specific Italian problems must be examined in the light of the economic and financial conditions which Italy must fulfill as a country defeated in war, and of the systematic destruction to which she is being subjected by the Germans.
Neither factor can now be measured exactly. The full armistice terms signed on September 29 include political, economic and financial clauses. They have not been revealed. And, of course, no one can estimate the damage which German troops will be able to inflict upon the country. The figure of 20 billion lire given in August 1943 by the new Minister of Finance in the Badoglio Government represented the estimate of the damage caused by Allied bombings. This figure will have to be multiplied several times to reach the total of war damages. But it may be permissible to assume that the conditions imposed by the United Nations take into account the need for a full and balanced economic recovery of the country. And however great the impairment of the physical plant, there will be powerful economic and moral factors to speed up recovery: the rapidity with which it is possible today to restore destroyed capital goods, the reborn faith in a tolerably safe and stable future which, one must hope, will accompany the triumph of the United Nations, and the inherent strength of the social structure of the Italian people.
Currency and price problems come first. Fascism went down ignominiously, not to the thunder of the guns of its non-existent defenders, but to the thunder of the printing presses. Toward the end of the régime, circulation of currency was going up at the rate of 10 billion lire a month. It had been less than 20 in 1939 and about 16 in 1935. By August 1943 it amounted to approximately 100 billion lire. As a result of currency inflation, the breakdown of price controls, the scarcity of goods and uncertainty about the future, prices increased between 300 and 400 percent from 1935 to 1943. Black market prices, of course, went far higher.
The problem of stabilization has a domestic and an international aspect. The elimination of political fear and uncertainty within Italy will do away with the greatest single cause for the increase in prices. There will be no need for any marked deflationary policy; and even "a moderate amount of new inflation, a few more billions of currency in circulation, could, if used to create credit in an atmosphere of confidence, promote employment and the combination of inactive productive elements to create income and facilitate recovery." [i] Italy's future productive capacity and the loss of purchasing power suffered by the other leading currencies of the world in the past five years should be taken into consideration in fixing the value of the lira. The stability of the rate will depend upon the soundness of Italy's internal economic policies and of her international economic relationships. Obviously, it will be necessary for Italy to participate in any plan of international monetary stabilization. It may be surmised that Italy would most favor a plan which guaranteed the equality in principle of participating countries. Italy would hope that the plan did not make substantial capital contributions a requisite for a voice in the management. She would hope also that any restrictions on national sovereignty which the plan entailed would be the result of deliberate political decisions and not just of economic pacts based upon such factors as gold and foreign trade.
Even while these policies are being debated and the first attempts being made to carry them out, Italy will be faced by the problem of raw materials. The Fascist program of self-sufficiency began with agriculture and was extended to industry; but it left the basic deficiencies in coal, copper, cotton, fats, oil and lumber unchanged. All these will be needed in great quantities. And there will be a demand for machine tools and other equipment to remedy the destruction wrought by the Nazis.
When the fighting stops, Italy will not be in a position to offer much in the way of finished products to pay for these commodities. But she will have a surplus of manpower which the United Nations might usefully employ, either in Italy, or in other parts of Europe, or throughout the Mediterranean basin and Africa. There will still be a manpower shortage in those early postwar days. Military occupation will continue for long periods in many parts of the world, and problems of supply, maintenance, repair and shipping will still be acute. Italy can use her manpower to help repair the damage which the Fascist régime inflicted upon peaceful neighbors and to begin paying for the raw materials she will need to restore her own economy.
Promotion of Italy's internal stability and of the interests of the United Nations both suggest that raw materials for the textile and allied industries should come first. Normal economic conditions can be restored in Italy to a notable degree through the relatively simple process of calling these industries back to life. They are more important to Italy than to any other large country, and they suffered more than any other industry from Fascist economic policies. In 1938, nearly 1,500,000 people were working in the textile and clothing industries, which include the leather industry -- about 20 percent of the sum total of the population over ten years of age gainfully employed in industry plus those employed in transportation, communication, trade, credit and insurance. These textile industries will not be faced by any serious problem of conversion. Their workers will not have to be retrained, and they are distributed in thousands of small establishments, in precisely those regions where the repercussions of the transition from war to peace will be the greatest. A revival of the textile and allied industries will provide a firm foundation to any program of economic rehabilitation in Italy.
Only moderate amounts of cotton and of wool will be required to get them going. And that is not the major issue. After the first year, when very urgent domestic needs will have to be met, the Italian textile industry will again look abroad. It has always been an exporting industry. For the 11 years ending in 1938, it accounted for more than one-third of all Italian exports, even though the silk industry was suffering from Japanese and artificial silk competition during most of this period. Cotton and woolen textiles, artificial fibers, silk, hemp, and linen goods went from Italy to practically every market in the world. In many of these markets Italian exports met with increased tariffs, quotas and other trade restrictions -- the familiar prewar story. Substantial relief will be afforded if postwar years see a movement for a freer exchange of goods among nations.
Silk is a special problem. Mulberry trees by the millions were cut down in Italy in recent years, partly because Japanese silk was cutting heavily into the Italian export trade, partly because the Fascist policy of autarchy offered artificial inducement to grow wheat. To rebuild silk production in Italy will not be easy, but it can be done. It could be done rather quickly if there were good foreign markets for silk. The United States is the greatest consumer of silk in the world, having used from 50 to 70 million pounds a year before the war; and the United States can probably absorb a far greater proportion of Italian silk than in the past, if Japanese silk continues to be shut off. An increase in American consumption of Italian raw silk, let us say from 1 to 5 million pounds -- a vitally important increase for Italy -- would perhaps be feasible, even allowing for greater Chinese exports and for wider use of new artificial fibers.
A new general colonial settlement, with a wider acceptance of the principle of trusteeship, might have an important bearing on the question of Italian exports. Under it the policy of the Open Door, which has received halting and partial recognition in the past, and of free trade for all mandates, colonies and protectorates might be extended to benefit the entire colonial world. This would be a development of great significance for Italy. In the past her markets in colonial lands were important to her; and they could assume an even greater significance in the future.
It might be thought foolish to expect victorious nations to forego privileges and rights in order to improve the position of a defeated enemy. But there is a growing feeling throughout the world that the old period of colonial empires has ended and that we are on the threshold of fresh developments in this sphere. May not nations which have not hitherto shared largely in the benefits of trade in colonial areas be admitted to that trade?
These questions of economic policy cannot be solved until after certain political issues have been decided. If the United Nations wish a democratic Italy to use her strategic situation in the heart of the Mediterranean to help maintain the peace of the world, then it is to the general advantage that Italy be economically strengthened. In that event the desirability of the economic policies listed above should be obvious. They represent the steps by which Italy's industrial system can be detached from the autarchic conceptions of Fascism. They would strengthen the industrial groups inside Italy which have always been most liberal and internationally minded.
The question of population pressure is outstanding among long-range Italian economic problems. Italy's population has been increasing steadily. Today it may be estimated at some 46,000,000, or over 10 percent more than the population of France. But the problem of over-population is not so great as it appeared 20 years ago. The rate of increase is becoming less rapid. The net surplus of births over deaths has been sharply reduced. It is only a little more than one-half what it was some 15 years ago. A yearly population increase of a quarter of a million indicates the continued vitality of the Italian people and not the existence of an unmanageable problem. And the need for manpower to fill the gaps caused by the present conflict and to help in the task of reconstruction will be such that no great issue of over-population could arise for several years.
Within the limits noted, however, a population problem does exist, and it must find at least a partial solution outside the boundaries of Italy. There is no need to speculate on the likelihood of drastic changes in United States immigration laws or on the desirability of mass emigration to northern Australia. Europe, and some Latin American countries, will probably present adequate opportunities for Italian emigration. An understanding with France could offer most of the needed relief, and it is indeed gratifying to observe that, according to some of her most responsible spokesmen, France realizes the need for a sound immigration policy. "When France is free again," André Istel has written, "a carefully considered liberal immigration policy would be the most speedy and effective method for increasing the French population. Population is the most vital French problem. The solution of it requires a coördinated plan of economic and legislative measures to increase natality, improve public health and favor immigration."[ii]
A full Franco-Italian understanding is one of the bases of European stability. Nothing will strengthen the bonds between the two countries more than the help which can be given to France by Italian farmers and traders who come to settle on French metropolitan or African territories. It goes without saying that no attempt should be made to continue the privileges which Italian emigrants enjoyed until recently in Tunisia. Fascism had transformed those privileges into aggressive weapons, and in any case they have no place in the postwar world. If mandated territories and colonies are to be administered by international bodies, those territories may offer some possibilities for the absorption of surplus Italian population. Emigration of that kind would also satisfy any legitimate claim of the Italian people to share, in the degree justified by its numbers and technical abilities, in the work of developing the African continent.
Italy is a peasant country and the problems connected with the land are of fundamental importance in any plan of reconstruction. Practically everybody agrees by now that no sweeping solution of the "agrarian question" can be found. No simple piece of legislation decreeing that the land be turned over to the peasants can solve the problem; and the upsetting of the delicately balanced agriculture of the plains of Lombardy and of the sharecropper farms of Tuscany and Piedmont would be a serious mistake. A continued use of the century-old instrument of land reclamation offers the best way of meeting the problems of land improvement and redistribution which wait to be solved in many regions. Properly used, it is the best method of establishing the peasant more firmly and equitably on the land. And it is more than the drying-up of swampland. As conceived today, it implies providing for all the technical and social arrangements necessary to profitable agricultural operations. The process is a complex one, as Don Sturzo noted in the April issue of FOREIGN AFFAIRS, "involving a real attempt at internal colonization."
Land reclamation has been going on for many centuries, and some of the most fertile and most highly developed parts of the country, such as the plains of Lombardy, are reclaimed land. But the task at hand is still huge. Out of a total of 77.5 million acres of land surface in Italy, no less than 42.2 million acres were declared by the 1928 Land Reclamation Act to need new or additional government-promoted permanent improvements. Of this total, 22.7 million acres were included within the boundaries of reclamation projects, and 19.5 million within those of mountain reconditioning projects. Ten years later, in 1938, work was in progress on 7.6 million acres. Public improvement had been completed on 4.25 million acres, while all public as well as private improvements had been completed on 2.25 million acres. Work had still to be started on 28.1 million acres.
There cannot be any doubt as to the advantages of land reclamation. In the hands of a democratic government it is the most flexible and useful instrument of agrarian reform. It diffuses direct peasant ownership. It strengthens farmers' marketing coöperatives. And it is an effective means of combating unemployment. It is one of the "must" enterprises of the resurgent Italy. At the rate of one million acres of improved land per year, it will continue for a generation. Its total cost will not be prohibitive and will be amply repaid not only in terms of increased production and government tax revenues, but in terms of social stability and human happiness and welfare. Once the phase of government-sponsored improvements is over, the farmers themselves will take up the endless task of adding to the productivity of the land, just as the farmers of the Lodigiano are today still increasing the value of the lands around the Muzza irrigation canal, which the communes of Lombardy first opened in 1220. And the land reclamation program will provide a splendid opportunity for coöperation between Italy and the United States through exchange of technical and other information, through American sale of heavy equipment for reclamation purposes and through greater Italian exports of specialized agricultural commodities such as hemp, wines and olive oil.
Land reclamation is the major positive agriculture task of postwar Italy. Untangling the results of the unhappy Fascist experiment with wheat growing is the chief negative one. Under Fascism, at a fairly large cost, Italy attempted to attain self-sufficiency in the production of wheat. Although important results were achieved, the attempt failed. Only in three unusually favorable years, 1937-39, did Italy produce enough to meet her needs. In the ten years from 1930 to 1939 production averaged 266 million bushels per year, or 10 percent less than the country's normal requirements.
Total land under wheat cultivation is excessive. There is some reason to believe that the actual increase in land under wheat may be slightly in excess of the 5 percent increase officially recorded between 1909-13 and 1938. With the effective increase in that period equal to perhaps 9 or 10 percent, prewar wheat acreage amounted to a little more than 13,000,000 acres. Since 1940, one million additional acres have been devoted to wheat. In several southern regions, such as Puglie, and in Sicily and Sardinia, "dust bowl" conditions either exist or will soon appear. Too much pasture land has been ploughed and too much emphasis has been placed on crops, such as wheat, which impoverish the soil. Wool and meat production have suffered.
A normal domestic price structure would be a partial remedy; it would automatically eliminate many high-cost producers. All incentives which have been offered farmers to stimulate wheat production should be dropped and the policy abandoned. The program which seeks to promote better cultivation methods and the adoption of better seed varieties should be strengthened. Farmers should be encouraged to plant soil-protecting crops. The Tennessee Valley Authority program of distribution of phosphatic fertilizers is a model for this. The response of Italian farmers to such a program would undoubtedly be very favorable.
How large a reduction in acreage could be achieved? At a rough guess it might come to 15 to 20 percent, equivalent to a drop from 14 to 11.5 million acres. That would bring the total acreage given to wheat down about to the pre-1914 average. It is possible that in coming years the wheat acreage might increase again, taking into account probably future developments in Italy. One of these will be the increased number of small peasant-owners, as a result of a more intensive policy of land reclamation, leading for instance to the breaking up of the Sicilian latifundia. In all likelihood it will prove impossible to persuade these peasants not to grow some wheat on their own land; but the amount can perhaps be held down if they perceive that other crops will bring them more money. This readjustment in wheat acreage will lead to much needed changes in the diet of the Italian people. It will encourage crops better adapted to Italian soil. This program will be facilitated by the fact that almost every serious agricultural expert in Italy has in recent years considered the one-sidedness of the Fascist wheat policies a mistake and has condemned as undesirable for Italian economy the concomitant sharp decrease in the number of livestock.
In the field of Italy's economic relations with other nations, it has sometimes been argued that raw materials which she needs to reconstitute her economy, including oil, coal, cotton, rubber, iron and tin, should be made available to Italy from a United Nations pool, not in the degree that she is able to pay for them but according to her reasonable peacetime needs. Before the collapse of the Fascist régime this proposal might have deserved some consideration as a weapon of psychological warfare against the enemy. As a solution of Italy's actual postwar economic problems its merits are not apparent. It seems to be based on some of the old fallacies concerning the balance of international payments. Fascist theorizers used to point to Italy's declining gold reserves as the final proof that in a world divided between haves and have-nots Italy was reduced to a slow economic strangulation. They were unaware that even official government documents published during the Fascist era had refuted their thesis.[iii]
The reserves of the Bank of Italy decreased from 12.1 billion lire on January 1, 1928, to 5.8 billion lire on December 31, 1934. But the decrease was not due to the deficit in the trade balance. If other influences had not intervened, the gold reserves might even have increased. During the period 1928-1934 Italy's trade balance showed a deficit of approximately 26 billion lire; but revenues from freight and shipping services, tourist trade and emigrant remittances, during the same period, mounted to almost 25 billion lire.
Knowing this, the Governor of the Bank of Italy, in his 1935 report, properly ascribed the reason for the decrease in the reserves of the Bank of Italy to the investment of capital abroad, attracted by the greater net yield of foreign investments. The word net deserves our attention. In that cryptic word the Governor summed up the difference in risk between investments in free countries and in a totalitarian country.
The conclusion is unavoidable that under a free régime the causes which played havoc with Italy's economy would largely disappear and that, after a while, Italy would be able to buy and pay for all the raw materials and other commodities needed for the normal operations of her economic machine. No system, however benevolent, based on the curious idea of "buying" the peace of the world, is needed.
The program of the International Reconstruction Bank contains, on the other hand, the promise of international coöperation and planning in fields where such action is really needed. In the reconstruction and expansion of Italy's electrical industry, for example, the Bank would probably play a vital rôle. The task would not merely be that of rebuilding ruined power plants or of increasing the output of energy. It would also include flood control and reforestation, land improvement and the welfare of the human beings who live on that land. Some have smiled at the thought of a TVA for the Danube. But actually the world needs scores of TVA's, and Italy will look with an anxious eye for measures of international coöperation which will facilitate the gradual solution of those postwar problems which no nation alone can hope to master.
The issue is not one of national self-reliance versus an international WPA. It does not present a choice between private competitive enterprise and collective endeavor. These clean-cut distinctions, so dear to the heart of the dogmatic theorist, are today largely meaningless. We need both approaches, in varying measures, according to circumstances. Their correct use will be the true mark of statesmanship.
Italy will also be dependent upon new trade treaties which will permit a rational and full employment of her productive capacities. She needs stability in the prices of the raw materials upon which her industries are based. She will unquestionably be eager to coöperate with whatever international agencies are working toward those objectives. Italy will lower her own tariff barriers. With the disappearance of the high fever of nationalism and with the hope of steadier international prices, her high wheat tariff should largely disappear. There is good reason to hope that under a democratic government much can be accomplished to put Italy's industry on a competitive international basis and to open Italy's markets to foreign goods.
Under a democratic government, Italy's international economic rôle will be constructive. Italy is a small nation, and she is not a one-commodity importer or exporter. She is not an important debtor or creditor. Her traditions make her very much a member of the international community. Reborn to new political life, she will be a stabilizing rather than an upsetting influence in world affairs.
[i] Luigi Einaudi, "Ma non occorrono decenni," Giornale d'Italia, August 22, 1943.
[ii] André Istel, "The Reconstruction of France," FOREIGN AFFAIRS, October 1943, p. 116.
[iii] Cf. the 1935 report of the Governor of the Bank of Italy, Signor Azzolini.