Academic journal article The European Journal of Comparative Economics

Virtuous and Vicious Circles: Lessons for Current European Policies from Italian Post-War Development

Academic journal article The European Journal of Comparative Economics

Virtuous and Vicious Circles: Lessons for Current European Policies from Italian Post-War Development

Article excerpt

1. Introduction

Italy entered, after the end of WW2, a period of unprecedented economic and employment growth, high productivity and real income increases meriting claims for an "economic miracle". In 1957 it joined the European Economic Community as an equal partner and the third largest economy among the original six EEC member states. In the early and later 1970s, like much of the rest of the West, it was hit by the OPEC oil prices of 1973 and 1979. Its competitiveness then was qualified by entry into the European Monetary System before being hit by the European financial crisis at the beginning of 1990s and again by the deflationary reaction to the financial crisis of 2007-2008. Since when the optimism of the post-war miracle period has given rise to increased pessimism concerning the 'European Project'.

So what went right, what has gone wrong and how can European policy makers "learn up"?

In seeking to inform such issues, the paper starts with analysis of key factors in the post-war Italian economy. It then outlines similarities and differences with other European and advanced global economies, of which one is the degree to which the thirty years of post-war Italian growth was enabled in large part by investment recovery. The industrial recovery in the first decades occurred mainly in the "First" Italy of the then deemed "Industrial Triangle" of Milan, Turin and Genoa, being enabled by labour outflow from the "Second Italy" of the Italian South, and only later in the "Third Italy" of Veneto, Emilia Romagna, Tuscany, Marche and Umbria.

Thus, in Italy, real incomes grew with large investment from 1953 until 1963 and productivity exceeded wage increases, and encouraged Keynes's "animal spirits" among Italian entrepreneurs.

Such "virtuous circle" effects (Myrdal, 1957) were matched by others including dynamic industrial districts.

None of which, with only some exceptions, now is the case. Since the debt and deficit conditions of Maastricht (and then of the Stability and Growth Pact) have depressed the "animal spirits" of private sector entrepreneurs in Italy, while the state holding companies, which also were drivers of the initial post-war Italian economic recovery, stopped to be crucial actors in economic development, rather a "vicious circle" syndrome has occurred.

The paper, in the first part, analyses the economic dynamics in the different phases of Italian development and underlines the role of selected crucial variables for long-term economic transformation.

Then it introduces a comparative analysis with other European and great Western countries to identify similarities and differences in structural terms, especially to evaluate the outcomes and the consistency of economic policies in Europe in the last decades.

Special emphasis is put on the performance divide between monetary and financial variables and real economic variables, which could explain the lasting of some structural differences among European economies. This should clarify the issue of short-term and long-term objectives in economic policies, helping the discussion and the evaluation of choices of economic goals to be pursued by introducing consistent and alternative economic policies in Europe.

2.Italian Economic Development since the Post-War Period

2.1.The Phases of Economic Development

Great transformations occurred in the Italian economic structure in the last 60 years after the post-war economic recovery. Throughout this long period of time, different phases of economic development unfolded, underpinned by different production organisation models and with different paces of change.

There is clearly a major difference between the first period, till the beginning of 1970s, with a high growth rate and "virtuous circle" effects and the last 30 years with low growth rates and an even weaker economic transformation change. As for the other advanced economies, the OPEC oil price increases of 1973 and 1979 represented a major shock and in Italy's case marked a great divide between these two long periods. …

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