ITALY is heir to great traditions, for she has been a leader in art, philosophy and indeed all fields of culture throughout the centuries. But the industrial revolution came to her late and found her poorly supplied with the natural resources essential for the development of a modern economy. As a result, she occupies a paradoxical place in modern history--a highly civilized nation, indispensable to the Western World, yet socially, economically and politically one of the "borderline" countries where the battle between democracy and everything that is antidemocratic is a touch-and-go affair. Like the countries of the Far East, she is vulnerable to the Communist experiment, and she needs help if the forces of democracy are to prevail.

Italy's fundamental problem is still what it was at the time of national unification--a problem of glaring contrasts. The manifestations of a long-standing culture stand beside the evidences of long-lasting poverty. On the one hand are such progressive provinces as Piedmont and Lombardy; on the other, the island of Sardinia and the Lucania portrayed in the novel "Christ Stopped at Eboli." The north is now heavily industrialized. There are efficient mechanized farms, railways and shipping lines with international ramifications, enterprising businessmen, workers with high technical training--and also with a heritage of acute class consciousness. The south has a backward agricultural economy, communications are lacking, towns and villages are isolated; there are masses of unskilled laborers and listless upper and middle classes whose members rely on government subsidies and government jobs. Vast inequalities of income make for the existence of two very different Italys, both in one political body. This state of things, handed down from the last century, has been aggravated by the destructions of two world wars and the great increase in population which has made itself especially felt since 1921, the last year of mass emigration. (In 1913 alone, some 870,000 persons emigrated.)

In southern Italy in 1950 the average individual income was no more than $115 a year. There were seven automobiles and 35 radios to every thousand inhabitants and a correspondingly low consumption of food and expenditure for clothing and for fertilizers to grow food. In the north there were 131.4 industrial workers to every thousand inhabitants in 1938 and 133.4 in 1951, while in the south the number went down from 46 per thousand to 40, thereby worsening a situation that was already bad enough. As a result, 17,000,000 south Italians do not constitute a domestic market that anywhere near corresponds to their numbers. Their extreme poverty and lack of skill at any particular trade mean widespread unemployment and the multiplication of petty middlemen, whose profits prevent any increase of consumption.

The Fascist régime attempted to satisfy aspirations for a solid, modern economy by denying the need for its existence, by making a great fuss over unsolved problems and throwing dust in people's eyes with the slogans of nationalism. The democratic government of today cannot hope to evade the issue. The last war, the military occupation, the breakup of the Fascist state and the ravages of inflation have made the contrast between the two Italys more obvious and made the people on both sides more aware of their differences. Once upon a time, in the poorer regions, the presence of petty government officials and representatives of the Church was sufficient to keep things calm. But now there is an open demand for a wider participation in the benefits of modern life.

These are the circumstances under which democracy and Communism are in conflict, each of them championing its own solution to the age-old Italian problem. The democratic aim is to provide government aid to improve conditions in the depressed areas sufficiently to enable a healthy private enterprise to take over. Communism repudiates the more complex free society and claims as its goal equalitarianism in which the simplest and most obvious needs of the people will be the common denominator. To this end it offers the hopelessly poor a new dogmatic faith which satisfies their instinctive desire to revolt against social injustice. The natural search for companionship in misery, the sharing of the same drab lower-class existence, the understanding so quickly kindled among those whose common inheritance is stark need--all these things are used by the Communist Party under the ideological mantle of "unity of the working class." And the Communists are not the only ones working against a democratic solution. In the backward zones, the parasitic neo-Fascist group has attached itself to the parasitic social structure, playing upon the inferiority complex of the lower middle class and offering in compensation vaguely heroic ideals and the mirage of nationalistic expansion.

Improvement of living conditions in the depressed areas is not the only challenge that Italian democracy has had to face. Postwar readjustment was a monumental problem. Housing, roads, railways, equipment of every kind, as well as the very structure of the government itself, had to be rebuilt from the ground up; the framework of everyday life had to be restored before other tasks could be tackled. And in the immediate postwar period the Italian national economy had to free itself from the restrictions of enforced self-sufficiency, imposed first by Fascism and then by war, and to fit itself into the pattern of world trade. Moreover, it soon became plain that Italy shares with the rest of the West the task of contributing to the military defenses of the Western community and of working toward greater economic and political unity--an obligation which required the sacrifice of immediate advantages for an eventual greater gain.

These three tasks--social reform, economic adjustment and cooperation with the other nations of Western Europe--laid a heavy program before the Italian republic which came into being after a crisis more profound than most other Western nations have experienced. And the government was called upon to carry them out under the attack from totalitarians of both the right and the left within the country. The fact of capital importance is that work has begun.

II

Italian democrats have sometimes been reproached for the slowness with which they attacked the social, economic and political problems of the new nation. But these problems are complex and, as a result of 20 years of Fascism in which Italy lived in a vacuum, her leaders had to get their bearings through the actual exercise of political power. The groundwork for social reform was laid in the postwar battle to stem inflation. Until the people's purchasing power was restored, through the safeguarding of their savings and other capital, no further steps were possible. Thanks to the credit policy, the battle against inflation was won by the end of 1947, though defenses had to be maintained against those who still found it easier to let prices and wages spiral than to face painful financial realities. The eternal disproportion between the country's natural resources and its population, and the presence of 2,000,000 unemployed, were a constant temptation to over-produce, or to swell the budget with public works regardless of the limits of the national income. In maintaining a stable currency under the shock of international disturbances, Italy did better than might have been expected in view of her frail economic structure. Neither the devaluation of the pound sterling nor the outbreak of hostilities in Korea shook the lira or destroyed the stability of prices. And the measures taken fitted well with the necessities of domestic business development and the new efforts at European economic coöperation. Popular confidence in the government's ability to hold the line against inflation resulted in an increase in savings, which helped provide funds for increased governmental needs and for private investment.

The Marshall Plan afforded strong support in this struggle to attain monetary stability, and opened the way to reforms in the backward areas which were to be the most characteristic expressions of the new democratic action. Toward the end of 1949, it became clear that a strictly orthodox balanced budget would never allow for an attack on the real causes of backwardness and depression, and the government began to appropriate money for land reform and large-scale investment in the southern part of the country. First and most important were investments in projects designed to lay a foundation for subsequent private enterprise--reclamation and irrigation schemes, aqueducts, roads and the creation of new rural settlements.

Land reform or redistribution, and the creation of a new credit agency, known as the Cassa del Mezzogiorno, were major steps, typical of the government policy not only on account of the instruments to which they gave rise, but also because they dealt with the most conspicuous problem of a whole region--inefficient use of the land. The Cassa del Mezzogiorno was established in 1950 on principles which students of the southern economy have always held to be indispensable for effective results there: special legislation, powers of independent action, and funds for a longterm program. The Cassa has staked out 112 distinct areas, with a total of 10,000,000 acres, in which it proposes to triple the annual output and the number of peasants that these areas can support. Another 10,000,000 acres of mountain land are also to be reclaimed. And provisions have been made to follow up this program of reclamation with a plan to improve privately-owned land by means of capital subsidies and credit on easy 3 percent terms; the lack of funds has been a severe obstacle to all previous attempts to reclaim the soil.

During the ten years of its expected existence, the Cassa will spend 750 billion liras on public works and 560 billions on private projects; since some of the latter will be repaid, the total expense to the government will be 870 billion. The mountain-land project will cost another 400 billion liras. Other projects are the irrigation of 1,000,000 acres, the building of a network of 1,000 miles of roads, the supplying of water to 1,628 villages which have insufficient water or none, and the improvement of 232 mountain basins, amounting to 9,300 acres. Recently the Cassa has also made a plan to spend an additional 280 billion liras mostly on railway construction, which will facilitate exchanges between the markets of north and south.

The aim of land reform is to create conditions permitting steady employment, and the agencies empowered to carry it out have proposed measures which provide for the expropriation and redistribution of 1,700,000 acres to tens of thousands of peasant families. These families will receive not only land, but houses, livestock, tractors and other agricultural machines. Today, two years after the first steps taken to revive the south, the productivity of the land taken over by the peasants is steadily increasing. There has also been a constant rise of employment, accompanied by a diminishing outlay by the Cassa del Mezzogiorno, whose maximum expenditure was 10 billion liras a month. In the years 1950 and 1951 industrial production rose by 26.6 percent, a truly remarkable figure in view of the fact that the annual increase during the years 1932-38 averaged only 4.7 percent. And the government's investment policy has cushioned the setback of export industries by the creation of new domestic purchasing power, notably the textile industry, which has been able to place within Italy a large part of the output it was unable to sell abroad.

Of course, the whole recovery program for the south hinges upon financial backing, and this depends not only upon what the government can afford, but also upon the money made available by international trade. The outlay in the depressed areas makes for tightness in the balance of payments. If the country can cope with that problem, then progress will continue to be rapid, but if not, the continuing struggle to maintain a stable currency will slow down the program. The money invested in agriculture can bring a return only if there is increased consumption by a unified European market. Italy is producing more fruit and vegetables, and if certain other European countries pursue a protectionist policy, then the whole program in south Italy will have been in vain. Here, as in other particulars, Italy's interests go hand in hand with the trend toward European integration.

III

So far, fortunately, the defense of the lira and the program of recovery in the south have been accompanied by an increase of foreign trade. The circumstances of foreign trade have never been favorable for Italy, for she has few raw materials and a lack of some of the most important foodstuffs. She must buy these things, but other countries can, if they have to, go without her chief exports of textiles and garden produce.

Italian trade benefited from the trend toward inter-European coöperation and the loosening of tariff restrictions, which unfortunately recently began to reverse itself. In the good year of 1951, Italian foreign trade amounted to $3,700,000--a rise of 80 percent in exports and 50 percent in imports, with due allowance for the difference in the rate of exchange. Without this gain, the economic picture would have been dark, and in view of the increase of population it would have been impossible to maintain the national income on a level with that of prewar days. Even so, there is a large excess of imports over exports. Without the invisible elements of the balance of payments (the rental of shipping facilities, tourist expenditures and emigrants' remittances) and without Marshall Plan aid, Italy would not have been able to put her financial house in order, much less to inaugurate a program of recovery in the south or build up her military defenses.

The questions of Italy's trade balance, and of the international balance of payments, cannot be understood unless a distinction is made between the possibilities of trade within the dollar area and outside it. In the course of 1951 the divergence between the two was especially pronounced. Beginning with May of that year, Italy piled up credits equivalent to $205,300,000 within the European Payments Union, an amount larger than that assigned to her. But she had to pay out in the same year $714,600,000 in actual dollars, from receipts of $364,700,000; in fact, with the inclusion of some pending business, her deficit came to $326,000,000. It is obvious that a credit balance within the European Payments Union, even if used to the full, cannot purchase certain goods which must be bought in the dollar area, since the two sectors are economically and monetarily separate one from the other.

It is important to note what use Italy made of her European credits. She did not hold onto them and continue to regulate her import trade, but kept faith with the program of multilateral European coöperation by freeing of all restrictions 98 percent of her imports from the other member countries. In this way, Italy was, to be sure, able to obtain certain supplies which she could otherwise not have afforded at the time when the programs of southern reclamation and national defense were draining her finances. But she contributed to the functioning of the mechanism of European economic unity, which cannot work unless creditor nations foster the trade of their debtors, as in the brief history of the Payments Union they have not always done. Through this policy Italy wanted to do her share in staving off a threatening crisis of French franc and pound sterling payments. That crisis came to a head, however, and Italy's exports to France and Britain were reduced by some 56 to 60 percent. Even so, Italy has continued her policy of unrestricted imports in order to help these two debtor nations and also to make good use of her credits during a period of heavy government expenses at home. Unfortunately, a crisis of the Italian export industry has followed, wiping out some of the gains made in the south.

Meanwhile, there remains the problem of making up for the deficit in the dollar area. It cannot be done through an increase of imports from the area of the European Payments Union, for, as noted above, the two sectors do not touch one another and any increase is a stopgap conditioned by new restrictions on the pound and franc. Italy cannot solve her economic and social problems unless she lays out a twofold foreign trade policy. First, within the European Payments Union, she must continue to ease import restrictions in spite of the curtailment of her own exports. But she must ask the debtor nations to make a more equitable division of the sacrifices they impose upon their creditors, and must ask the other creditors to follow the Italian example of letting down tariff bars. Second, within the dollar area, Italy must meet--and gain assistance in meeting--the threat which a continued deficit brings to the program of reform and reclamation in the south.

The trade deficit which was $384,000,000 in the first half of 1951 came to $640,000,000 in the corresponding period of 1952, a sum greater than the deficit of $489,000,000 for the whole previous year. Of course, a healthy financial relationship with other countries does not depend entirely upon trade; it must be measured also in terms of currency valuation and the balance of payments. Nevertheless, the tendency is a disquieting one. In spite of the aid furnished by the United States, reserves have been lessened by $32,100,000. And while this aid is in the process of diminishing, the pressure of the southern investment upon the balance of payments increases.

The national budget, too, is expanding beyond the point of safety. When one realizes that even with 200 billion liras of aid, only 300 billion out of the expected 500 billion can be covered, it is plain that the breaking-point is near. And the Treasury, which according to figures from last June had to face liabilities of 335 billion liras, has an equally serious problem. Although there was an increase of receipts, the step-up of government investments caused disbursements to mount, and they will be accelerated by the outlays for national defense and the program of rehabilitation in the south. The expected deficit in the national budget for 1952-53 will have disproportionately strong repercussions upon the Treasury.

With government expenses steadily increasing, there is little hope that receipts can come near to covering them in the near future. The tax reform, and improvements in the machinery of tax collection now being carried out, will bring new income to the government, but the reform calls for a new civic conscience which only time can develop. No miracles are to be expected from this source. Neither the currency situation inherent in the balance of payments nor the long-range results to be gained from tax reform can bear the weight of the program of economic transformation without adequate coöperation from abroad.

In order to understand completely the need for this coöperation, we must recall the premises upon which the large investment in the depressed areas was made. The purpose of the effort was to create new sources of wealth--to set up a better balance in the economy whereby a large group of people who at present can neither produce, consume nor save will eventually be able to contribute to the national income. Such a program does not bear fruit immediately. Any plan to raise the standard of living must take social as well as economic needs into account; purchasing power must be developed before there is greater productivity. This process is just the opposite of that of increasing production, and then purchasing power, through the investment of private capital; private capital can play its rôle in Italy only after the structure of society has been radically changed.

Other parts of the government's investments have gone into public works, such as roads and schools, of which the population enjoys free use, or into projects which take a long time to complete and yield very little return, such as land reclamation and water supply. There can be no comparison with the investment of money in an industrial area, furnished with modern equipment and ready to do specialized work. Thus, in France, the Monnet Plan for industrial development was carried out within the expected term of five years, while Italy's scheme to revive the south will take 12 years at least. Experience has proved that in Italy time must be allowed for discussion and emendation of plans if they are to be carried out efficiently. In the depressed areas Italy is starting from scratch.

With the small capital at her disposal, the country could never have undertaken a long-range program of the sort had it not belonged to an international community held together by bonds of mutual aid. And on the other hand, Italy cannot play an effective part in this community unless her social and economic conditions are brought up to the level of those in the rest of the Western World and her capacities boosted to enable her to solve the problems which have so long held her back. In the last analysis, a definite stabilization of the purchasing power of the lira and of the balance of payments depends upon elimination of the weaknesses in the nation's economic organism. Without an increase in the national income, there can be no increase in savings or tax yield; the budget will remain in permanent deficit, and, in order to avoid inflation, the standard of living will have to be very low. In that event, it will be impossible to keep up the volume of exports; and imports, in their turn, will have to be restricted. There will be an end to the liberal tariff policy which has been Italy's contribution to European economic union.

In short, international coöperation is the most important factor in Italy's social and economic revival. Once there is a grasp of this truth, which was at the heart of all the late Count Sforza's political thinking and action, any difficulties that develop will serve as incentives to greater coöperation instead of less; there will be no more playing with Fascist notions of self-sufficiency. To be helpful to Italy, coöperation must be expressed in terms of economic aid. Whatever the foreign policy of the United States may be, the Italian people hope that America will remember that Italy is in the peculiar position of being a highly advanced nation, yet one afflicted with vast depressed areas.

IV

The effort to make over these depressed areas is fundamental in the financial and economic policy of Italy's democratic government. The plan is great and complex, and the amount of money involved is large. For years Italy's economic life will be affected by the vicissitudes of this program. Ultimate success hinges upon a solid currency, a steady influx of capital, and--very importantly--political stability. The political stability necessary to carry out the plans, as well as to fulfill Italy's Atlantic Pact obligations, can be assured only by coöperation among the four democratic parties that make up the present government majority: the Christian Democrats, Social Democrats, Liberals and Republicans. And the reverse is also true--that is, the continued cohesion of these four parties depends on the working out of the plan.

The precarious balance of the Italian parties calls for sustained effort from Italian democrats. In their attempt to improve the nation's economic and social structure, they have to combat the vested interests which are opposed to any change and also the extremists on the other wing who would begin by destroying everything. For the moment, they have to reckon with the loss of right-wing support; and they cannot hope to win the support of the masses until the undertaking has begun to benefit them. The government is now fiercely criticized, yet much time must pass before the profound modifications which it seeks can be achieved. The recent electoral campaign for administrative offices brought into relief the tactics of the opposition on both sides. The Communists sought to undermine the Social Democrats and Republicans, while the monarchists and neo-Fascists leveled their attacks especially upon the Christian Democrats.

The Communist effort, as the leaders of the Party have more or less explicitly stated, is to keep a grip on its revolutionary followers among the industrial workers in the northern cities, and at the same time to raise up an ultra-radical following in the south. The Party hopes that discontent will drive the electorate to embrace its ideology. As to the other side, Italians who respect democracy feel that a right-wing opposition, legitimate enough in principle, should find some way of expressing itself other than in the slogans of the Fascist past. In short, the democratic forces of Italy are engaged in a life-and-death battle. They can go on with their gigantic enterprise of reconstruction only if the enterprise itself comes to fruition. That is another way of saying that continuity of Italian national policy and continuity of the policy of the international community are interdependent.

Italy is today in the process of shifting to a new political and economic balance. It is a time of crisis, with all the dangers that the word connotes. Italy could take any one of three paths: a return to the benighted conditions of the past, a plunge into the Communist experiment, or a gradual raising of standards of living accompanied by a consolidation of the democratic regime. A definitive choice in any of these three directions would have immediate effects upon the other Western nations. With the cooperation of the free world, Italy can win her battle and create internal unity. The agreement reached by the democratic parties in preparation for the coming elections bears witness to their possibilities for vigorous, intelligent effort. The continuation of the battle against poverty will ensure their success.

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