among most other countries in Western Europe. One of the most decisive factors in
establishing its pattern of industrial development in the period after the Second World
War was the role played by one of fascism’s ‘leftovers’, namely, the State Participation
System. Banks, of course, financed industrial growth in the boom after the First World
War (see banking and credit system). In an early example of a ‘bubble economy’, banks
took equity in productive enterprises as collateral for loans, but when the depression
forced firms into bankruptcy, Italian banks were left holding these companies’ paper.
When the banks themselves were threatened with failure, the Italian state, under
Mussolini’s Fascist dictatorship, nationalized several important banks (in the name of
national interest), and therefore found itself as the ‘owner’ of a considerable industrial
base. These holdings were organized and reorganized under IRI (the Institute for
Industrial Reconstruction) and its various financial holding companies. Originally viewed
as temporary institutions, these soon became permanent. IRI usually organized its
financial holding companies by type of enterprise. After 1945, these enterprises played a
vital, and in some cases decisive, role in Italy’s reconstruction and its emergence as a
worldclass industrial economy.
The process of late industrialization in Italy had two other important contributors to its
industrial patrimony. On the one hand, a series of entrepreneurs, mostly from the
northwestern regions, founded large firms in a broad spectrum of sectors that to this day
continue to be dominated by family capital. The Fiat motor company of the Agnelli
family, Pirelli rubber and tyres, Olivetti office machinery and electronics are the best
known. The appearance of these firms guaranteed that Italy’s growing internal market
would be provided with modern goods. On the other hand, the north-eastern and central
regions of Italy came to be dominated by a patchwork of small to medium-sized
enterprises that developed around textiles, clothing, and footwear as well as in precision
machining operations and mini-mills in the steel sector. An important characteristic of the
small to medium-sized firms was that their growth depended on exports in highly
competitive world markets. In the reconstruction period following the Second World
War, the three mainstays of Italian industrialization came together. The state participation
sector provided valuable input into both of the other ‘pillars’ of Italian industry, thus
laying the groundwork for the country’s ‘economic miracle’ and its continued growth to
become, by the end of the 1980s, the world’s fifth largest economy.
From its very beginnings, however, industrialization was not evenly distributed across
Italy’s regions (King, 1986). Early recognition of the disadvantages to the South that
either resulted from, or were exacerbated by, the unification process led to national
inquiries and state attempts to address the problem. It was not until the early 1950s,
however, that systematic efforts were undertaken to close the gap in productivity and
living standards between the two Italics. The most significant programmes, under the
auspices of the Cassa per il Mezzogiorno (Southern Development Fund) followed a
tripartite logic. First, they called for the establishment of infrastructures that would lay
the groundwork for industrial development. Next, incentives and subsidies designed to
encourage plant and factory location in the South were implemented. Finally, state
participation firms were required to locate specific percentages of new and total
investments in the depressed regions. One of the consequences of these initiatives was
that the South found itself with a considerable proportion of Italy’s heavy and/or capital-
intensive industries (such as steel and petrochemicals). Unfortunately, the South also had
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