Economy of Italy under fascism

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Benito Mussolini

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The economy of Italy under Fascism refers to the economy in Italy between 1922 and 1943 when the Fascists were in control. Italy had emerged from World War I in a poor and weakened condition. An unpopular and costly conflict had been borne by an underdeveloped country. Post-war there was inflation, massive debts and an extended depression. By 1920 the economy was in a massive convulsion — mass unemployment, food shortages, strikes, etc. This conflagration of viewpoints can be exemplified by the "Two Red Years".

Fascist economic policy

Benito Mussolini came to power in 1922 under a parliamentary structured coalition until the National Fascist party seized control and ushered in a one-party dictatorship by early 1925. Before the dictatorship era, Mussolini tried to transform the country's economy along fascist ideology, at least on paper. In fact he was not an economic radical, nor sought a free-hand in the economy. The National Fascist Party held a minority faction of only three positions in the cabinet, excluding Mussolini,[1] providing other political parties the ability to be more independent. During the coalition period, Mussolini appointed a classical liberal economist from the Center Party, Alberto De Stefani, to Italy’s Minister of Finance, who advancing economic liberalism, along with minor privatization. Before his dismissal in 1925, Stefani “simplified the tax code, cut taxes, curbed spending, liberalized trade restrictions and abolished rent controls,” where the Italian economy grew more than 20 presented under his influence.[2]

To proponents of the first view, Mussolini did have a clear economic agenda, both long and short-term, from the beginning of his rule. The government had two main objectives — to modernize the economy, and to remedy the country's lack of strategic resources.

Before the removal of Alberto De Stefani, Mussolini's administration pushed the modern capitalistic sector in the service of the state, intervening directly as needed to create a collaboration between the industrialists, the workers, and the state. The government moved toward resolving class conflicts in favour of corporatism. In the short term the government worked to reform the widely abused tax system, dispose of inefficient state-owned industry, cut government costs, and introduce tariffs to protect the new industries. But theses polices ended after Mussolini took dictatorial controls and terminated the coalition.

The lack of industrial resources, especially the key ingredients of the industrial revolution, was countered by the intensive development of the available domestic sources and by aggressive commercial policies — searching for particular raw material trade deals, or attempting strategic colonization.

Although a disciple of the French Marxist Georges Sorel and the main leader of the Italian Socialist Party in his early years, Mussolini abandoned the theory of class struggle for class collaboration. Fascist syndicalists turned to economic collaboration of the classes to create a “productivist” posture where “a proletariat of producers” would be critical to the “conception of revolutionary politics” and social revolution.[3] Since Italy’s economy was generally undeveloped with little industrialization, Fascists and revolutionary syndicalists, such as Angelo Oliviero Olivetti, argued that Italian working class could not have the requisite numbers or consciousness “to make revolution.”[4] They instead followed Karl Marx's admonition that a nation required “full maturation of capitalism as the precondition for socialist realization.”[5] Under this interpretation, especially those expounded by Sergio Panunzio, a major theoretician of Italian Fascism, “Syndicalists were productivists, rather than distributionists.”[6] Fascists intellectuals were determined to foster economic development in order for a syndicalist economy to “attain its productive maximum” that was identified as crucial to “socialist revolution.”[7]

Structural Deficit, Public Works and Social Welfare

Referring to the economics of John Maynard Keynes as “useful introduction to fascist economics,” Mussolini spent Italy into a structural deficit that grew exponentially.[8] In Mussolini’s first year as Prime Minister in 1922, Italy’s national debt stood at 93 billion lire. By 1934, Italian historian Gaetano Salvemini, estimated Italy’s national debt had risen to 148,646,000,000 lire.[9] The New York Times put Italy’s national debt as 405,823,000,000 lire in 1943.[10]

A former school teacher, Mussolini’s spending on the public sector, schools and infrastructure was considered extravagant. Mussolini “instituted a programme of public works hitherto unrivalled in modern Europe. Bridges, canals and roads were built, hospitals and schools, railway stations and orphanages; swamps were drained and land reclaimed, forests were planted and universities were endowed.”[11] As for the scope and spending on social welfare programs, Italian fascism “compared favorably with the more advanced European nations and in some respect was more progressive.”[12] When New York city politician Grover Aloysius Whalen asked Mussolini about the meaning behind Italian Fascism in 1939, the reply was: “It is like your New Deal!”[13]

First steps

The Fascist government began its reign in an insecure position. Coming to power in 1922, after the March on Rome, it was a minority government until the 1923 Acerbo Law and the 1924 elections, and it took until 1925, after the assassination of Giacomo Matteotti, to establish itself securely as a dictatorship.

Economic policy in the first few years was largely classical liberal, with the Ministry of Finance controlled by the old liberal Alberto De Stefani. The government undertook a low-key laissez-faire program — the tax system was restructured (February 1925 law, 23 June 1927 decree-law, etc.), there were attempts to attract foreign investment and establish trade agreements, and efforts were made to balance the budget and cut subsidies. The 10% tax on capital invested in banking and industrial sectors was repealed, while the tax on directors and administrators of anonymous companies (SA) was cut down by half. All foreign capital was exonerated of taxes, while the luxury tax was also repealed.[14] Mussolini also opposed municipalization of enterprises.[14]

The 19 April 1923 law transferred life insurance to private enterprise, repealing the 1912 law which had created a State Institute for insurances and which had envisioned construction of state monopoly ten years later.[15] Furthermore, a 19 November 1922 decree suppressed the Commission on War Profits, while the 20 August 1923 law suppressed the inheritance tax inside the family circle.[14]

There was a general emphasis on what has been called productivism — national economic growth as a means of social regeneration and wider assertion of national importance.

Up until 1925 the country enjoyed modest growth but structural weaknesses increased inflation and the currency slowly fell (1922 L90 to £1, 1925 L145 to £1). In 1925 there was a great increase in speculation and short runs against the lira. The levels of capital movement became so great the government attempted to intervene. De Stefani was sacked, his program side-tracked, and the Fascist government became more involved in the economy in step with the increased security of their power.

In 1925, the Italian state abandoned its monopoly on telephones' infrastructure, while the state production of matches was handed over to a private "Consortium of matches' productors."[15]

Furthermore, various banking and industrial companies were financially supported by the state. One of Mussolini's first acts was to fund the metallurgical trust Ansaldo to the height of 400 millions Lire. Following the deflation crisis which started in 1926, banks such as the Banco di Roma, the Banco di Napoli or the Banco di Sicilia were also assisted by the state.[16] In 1924, the Unione Radiofonica Italiana (URI) was formed by private entrepreneurs and part of the Marconi group, and granted the same year a monopoly of radio broadcasts. URI became the RAI after the war.

Firmer intervention

The lira continued to decline into 1926. It can be argued that this was not a bad thing for Italy, since it resulted in cheaper and more competitive exports and more expensive imports. Politically however the declining lira was disliked. Mussolini apparently saw it as "a virility issue"; the decline was an attack on his prestige. In the Pesaro Speech of August 18, 1926, he began the "Battle for the Lira". Mussolini made a number of strong pronouncements and set his position of returning the lira to its 1922 level, "Quota 90." This policy was implemented through an extended deflation of the economy; the country rejoined the gold standard, the money supply was reduced, and interest rates were raised. This action produced a sharp recession, which Mussolini took up as a sign of his assertion of power over "troublesome elements" - a slap to both capitalist speculators and trade unions.

On a wider scale the Fascist economic policy pushed the country towards the "corporative state", an effort which lasted well into the war. The idea was to create a national community where the interests of all parts of the economy were integrated into a class-transcending unity. Some see the move to corporatism in two phases. First the workers were brought to heel over 1925-27. Initially the non-fascist trade unions and later (less forcefully) the fascist trade unions were nationalized by Mussolini’s administration, and placed under state ownership, conforming to Vladimir Lenin’s earlier policies to eliminate independent labor unions in the Soviet Union.[17] [18] Under this labor policy, Fascist Italy enacted laws to make union membership compulsory for all workers.[19] This was a difficult stage - the trade unions were a significant component of Italian fascism, from its radical syndicalist roots, and they were also a major force in Italian industry. The changes were embodied in two key developments. The Pact of the Vidoni Palace in 1925 brought the fascist trade unions and major industries together, creating an agreement for the industrialists to only recognise certain unions and so marginalise the non-fascist and socialist trade unions. The Syndical Laws of 1926 (sometimes called the Rocco Laws, after Alfredo Rocco) took this agreement a step further; in each industrial sector there could be only one trade union and employers organisation. Labour had previously been united under Edmondo Rossoni, giving him a substantial amount of power even after the syndical laws, causing both the industrialists and Mussolini himself to resent him. Thereby, he was dismissed in 1928 and Mussolini took over his position as well.[20]

Only these syndicates could negotiate agreements, with the government acting as an 'umpire'. The laws made both strikes and lock-outs illegal and took the final step of outlawing non-fascist trade unions. Despite strict regimentation, the labour syndicates had the power to negotiate collective contracts (uniform wages and benefits for all firms within an entire economic sector).[21] Firms which broke contracts were usually able to get away with it due to the enormous bureaucracy and difficulty there was in solving labour disputes, primarily due to the significant influence the industrialists had over labour affairs.

Employer syndicates were given a considerable amount of power as well. Membership within these associations was compulsory, and the leaders had the power to control and regulate production practices, distribution, expansion and other factors with their members. The controls generally favoured larger enterprises over small producers - who were dismayed by the fact that they'd lost a significant amount of individual autonomy.[21]

Since the syndical laws kept capital and labour separate, Mussolini and other party members continued to reassure the public that this was merely a stop-gap, and that all associations would be integrated into the corporate state at a later stage.

The corporative phase

These legal and structural changes led into the second phase, the corporative phase, from 1927. The Labour Charter of 1927 confirmed the importance of private initiative in organising the economy, while still reserving the right for state intervention, most notably in the supposedly complete fascist control of worker hiring. In 1930 the National Council of Corporations was established; it was for representatives of all levels of the twenty-two key elements of the economy to meet and resolve problems. In practice it was an enormous bureaucracy of committees, that while consolidating the potential powers of the state resulted in a cumbersome and inefficient system of patronage and obstructionism. One consequence of the Council was the fact that trade unions held little to no representation whereas organized business, specifically organized industry (CGII), was able to gain a foothold over its competitors.

A key effect that the Council had on the economy was the rapid increase in cartels, especially the law passed in 1932 allowing the government to mandate cartelization. The dispute was sparked when several industrial firms refused CGII orders to cartelize, prompting the government to step in. Since the corporations cut across all sectors of production, mutual agreements and cartelization was a natural reaction. Hence in 1937, over two-thirds of cartels authorized by the state, many of which crossed sectors of the economy, had started after the founding of the Council, resulting in the noticeable increase in commercial-industrial cartelization. Cartels generally undermined the corporative agencies that were meant to ensure they operated according to Fascist principles and in the national interest, but the heads were able to show that cartel representatives had total control over the individual firms in the distribution of resources, prices, salaries and construction. Businessmen usually argued in favour of 'collective self-regulation' being within Fascist ideological lines when forming cartels, subtly undermining corporative principles.[21]

Government intervention in industry was very uneven; large programs started but with little overarching direction. Intervention began with the "Battle of the Grain" in 1925 when the government intervened following the poor harvest to subsidise domestic growers and limit foreign imports by increasing taxes. This reduced competition and created, or sustained, widespread inefficiencies. According to historian Denis Mack Smith (1981), "Success in this battle was... another illusory propaganda victory won at the expense of the Italian economy in general and consumers in particular" and "Those who gained were the owners of the Latifondia and the propertied classes in general... his policy conferred a heavy subsidy on the Latifondisti".[22]

Larger programs began in the 1930s with the Bonifica Integrale land reclamation program (or so-called "Battle for Land"), which was employing over 78,000 people by 1933; the Mezzogiorno policies to modernise southern Italy and attack the Mafia - per capita income in the south was still 40% below that of the north; the electrification of the railways and similar transport programs; hydroelectrical projects; the chemical industry; automobiles; and steel. There was also limited takeover of strategic areas, notably oil with the creation of AGIP.

The Great Depression

The worldwide depression of the early 1930s hit Italy very hard starting in 1931. As industries came close to failure they were bought out by the banks in a largely illusionary bail-out - the assets used to fund the purchases were largely worthless. This led to a financial crisis peaking in 1932 and major government intervention. After the bankruptcy of the Austrian Kredit Anstalt in May 1931, Italian banks followed, with the bankruptcy of the Banco di Milano, the Credito Italiano and the Banca Commerciale. To support them, the state created three institutions funded by the Italian Treasure: the Sofindit in October 1931 (with a capital of 500 million liras), which bought back all the industrial shares owned by the Banca Commerciale and other establishments in trouble. In November 1931 the Imi (capital of 500 million liras) was also created, and it issued five and one-half billion liras in state obligations, as reimbursables in a period of ten years. This new capital was lent to private industry for a maximum period of ten years.

Finally, the Industrial Reconstruction Institute (IRI) was formed in January 1933 and took control of the bank-owned companies, suddenly giving Italy the largest industrial sector in Europe which made use of government-linked companies (GLC). It saved at the end of 1933 the Hydroelectric Society of Piemont, which shares had fallen from 250 liras to 20 liras, while in September 1934, the Ansaldo trust was again reconstituted under the authority of the IRI, with a capital of 750 million liras. Despite this taking of control of private companies through (GLC), the Fascist state did not nationalize any company.[16]

Not long after the creation of the Institute of Industrial Reconstruction (IRI), Mussolini boasted in a 1934 speech to his Chamber of Deputies that “Three-fourths of Italian economy, industrial and agricultural, is in the hands of the state.".[23][24] As Italy continued to nationalization its economy, the IRI “became the owner not only of the three most important Italian banks, which were clearly too big to fail, but also of the lion’s share of the Italian industries.”[25]

During this period, Mussolini identified his economic policies with “state capitalism” and “state socialism,” which later was described as “economic dirigisme,” an economic system where the state has the power to direct economic production and allocation of resources.[26]

By 1939, Fascist Italy attained the highest rate of state–ownership of an economy in the world other than the Soviet Union.[27] where the Italian state “controlled over four-fifths of Italy’s shipping and shipbuilding, three-quarters of its pig iron production and almost half that of steel.”[28]

IRI did rather well with its new responsibilities - restructuring, modernising and rationalising as much as it could. It was a significant factor in post-1945 development. But it took the Italian economy until 1955 to recover the manufacturing levels of 1930 - a position that was only 60% better than that of 1913.

After the Depression

There is no evidence that Italy's standard of living, which is lowest of the major powers, has been raised one jot or tittle since Il Duce came to power.
 Life, 9 May 1938[29]

As Mussolini's ambitions grew domestic policy was subsumed by foreign policy, especially the push for autarky after the 1935 invasion of Abyssinia and subsequent trade embargoes. The push for independence from foreign strategic materials was expensive, ineffective, and economically wasteful. It was achieved by a massive increase in public debt, tight exchange controls, and the exchange of economic dynamism for stability.

Available economic indices supportive from Mussolini's efforts. Recovery from the post-war slag had begun before Mussolini came to power and continuing growth rates were comparatively weaker. In 1929-39 the Italian economy grew by 16%, roughly half the growth rate of the earlier liberal period. Annual rates were 0.5% lower than pre-war rates and the annual rate of growth of value was 1% lower. Despite the efforts directed at industry, agriculture was still the largest sector of the economy in 1938 and only a third of total national income was derived from industry. Agriculture still employed 48% of the working population in 1936 (56% 1921), while industrial employment had grown only 4% over the period of fascist rule (24% 1921, 28% 1936) and there was more growth in traditional than in modern industries. The rate of gross investment actually fell under Mussolini and the move from consumer to investment goods was low compared to the other militaristic economies.

Attempts to modernise agriculture were also ineffective. Land reclamation and the concentration on grains came at the expense of other crops, producing very expensive subsidised wheat while cutting more viable and economically rewarding efforts. Most evidence suggests that rural poverty and insecurity increased under fascism and their efforts failed markedly to create a modern, rational, agricultural system.

In the late 1930s the economy was still too underdeveloped to sustain the demands of a modern militaristic regime. Raw material production was underutilised and finished military equipment was limited in quantity and too often in quality. Despite a minimum of 10% of GDP, almost a third of government expenditure, being directed towards the armed services from the 1930s the country was "spectacularly weak". Notably the investment in the early 1930s left the services obsolete by 1940, especially the army. The expenditure on conflicts from 1935 onwards (for instance commitment to the Spanish Civil War, 1936-1939, as well as the Italy-Albania war, 1939) meant little stockpiling for the much greater conflict ahead (the Second World War, 1940-1945 in the Kingdom of Italy).

See also


  1. Howard M. Sachar, The Assassination of Europe 1918-1942: A Political History, University Press of Toronto Press, 2015, p. 48
  2. Jim Powell, “The Economic Leadership Secrets of Benito Mussolini,” Forbes, Feb. 22, 2012. Source:
  3. A. James Gregor, Italian Fascism and Developmental Dictatorship, Princeton: NJ, Princeton University Press, 1979, pp. 59-60
  4. A. James Gregor, Italian Fascism and Developmental Dictatorship, Princeton: NJ, Princeton University Press, 1979, p. 55
  5. A. James Gregor, Italian Fascism and Developmental Dictatorship, Princeton: NJ, Princeton University Press, 1979, p. 59
  6. A. James Gregor, Italian Fascism and Developmental Dictatorship, Princeton: NJ, Princeton University Press, 1979, p. 60
  7. A. James Gregor, Italian Fascism and Developmental Dictatorship, Princeton: NJ, Princeton University Press, 1979, pp. 60-61
  8. James Strachey Barnes, Universal Aspects of Fascism, Williams and Norgate, London: UK, (1928) pp. 113-114
  9. John T. Flynn, As We Go Marching, New York: NY, Doubleday and Company, Inc., 1944, p. 51. Also see “Twelve Years of Fascist Finance,” by Dr. Gaetano Salvemini Foreign Affairs, April 1935, Vol. 13, No. 3, p. 463
  10. John T. Flynn, As We Go Marching, New York: NY, Doubleday and Company, Inc., 1944, p. 50. See New York Times, Aug. 8, 1943
  11. Christopher Hibbert, Benito Mussolini: A Biography, Geneva: Switzerland, Heron Books, 1962, p. 56
  12. A. James Gregor, Italian Fascism and Developmental Dictatorship, Princeton: NJ, Princeton University Press, 1979, p. 263
  13. Grover Aloysius Whalen, Mr. New York: The Autobiography of Grover A. Whalen, G.P. Putnam’s Sons, 1955, p. 188
  14. 1 2 3 Daniel Guérin, Fascism and Big Business, Chapter IX, Second section, p.193 in the 1999 Syllepse Editions
  15. 1 2 Daniel Guérin, Fascism and Big Business, Chapter IX, First section, p.191 in the 1999 Syllepse Editions
  16. 1 2 Daniel Guérin, Fascism and Big Business, Chapter IX, Fifth section, p.197 in the 1999 Syllepse Editions
  17. Samuel Gompers and William English Walling, Out of Their Own Mouths: A Revelation and an Indictment of Sovietism, New York: NY, E.P Dutton and Company, 1921, p. 76.
  18. Edmund Clingan, Introduction to Modern Western Civilization, Bloomington: IN, iUnivere, 2011, p. 207
  19. Gaetano Salvemini, The Fate of Trade Unions Under Fascism, Chap. 3: "Italian Trade Unions Under Fascism", 1937, p. 35
  20. Roland Sarti, Fascism and the Industrial Leadership in Italy, 1919-40: A Study in the Expansion of Private Power Under Fascism, 1968
  21. 1 2 3 Sarti, 1968
  22. Denis Mack Smith (1981), Mussolini.
  23. Gianni Toniolo, editor, The Oxford Handbook of the Italian Economy Since Unification, Oxford: UK, Oxford University Press, 2013, p. 59; Mussolini’s speech to the Chamber of Deputies was on May 26, 1934
  24. Carl Schmidt, The Corporate State in Action, London: Victor Gollancz Ltd., 1939, pp. 153–76
  25. Costanza A. Russo, “Bank Nationalizations of the 1930s in Italy: The IRI Formula”, Theoretical Inquiries in Law, Vol. 13:407 (2012), p. 408
  26. Iván T. Berend, An Economic History of Twentieth-Century Europe, New York: NY, Cambridge University Press, 2006, p. 93
  27. Patricia Knight, Mussolini and Fascism: Questions and Analysis in History, New York: Routledge, 2003, p. 65
  28. Martin Horn, Mussolini and Fascist Italy, 2nd edition, New York: NY, Routledge, 1991, p. 26
  29. "Fascism / Inside Italy there is also "The Corporate State"". Life. 1938-05-09. p. 31. Retrieved November 29, 2011.

Further reading

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