The Italian economy is generally included today as part of the “periphery” of Europe alongside other Mediterranean countries. This might give a correct picture of its relative economic position at the beginning of the twenty-first century, but it conceals the fact that Italy has played a central role in Europe for very long stretches of time over the last two millennia and a half. To understand Italy today one must keep in mind two historical strands: a far from brilliant present and the legacy of a glorious past, which lives not only in the immense artistic heritage concentrated in this very small country (300,000 square kilometres), but in its living scientists, businessmen, artists, sportsmen and in the very character of its people and its communities. Italy is a country of contrasts, hosting side by side examples of excellence and signs of retardation, in a social context that is capable of ensuring their unlikely coexistence.

The aim of this chapter is to highlight the most important components of this legacy from a past that has made Italy a unique place in the world: a country having experienced three quite different civilizations: Roman, the city-states/Renaissance, and the modern industrial age, alternating with two declines. In the first two civilizations, Italy was a leader, in the last a follower of only partial success. The Italian past is not simply a historical memory – it has left important marks on the urban, economic, cultural and social structure of the country that are visible today.

We have evidence of the presence of man in the Mediterranean peninsula, later called Italy, from the Paleolithic era (1.5 million years ago). Its position at the centre of the Mediterranean Sea made the Italian peninsula with its surrounding islands a crossroads for Indo-European peoples, mixing local inhabitants and newcomers and forming settlements. Among them, the Etruscans (who inhabited the region later called Tuscany) developed a sophisticated civilization between the eighth and sixth century bce along the Tyrrhenian part of Italy, federating several cities, including the villages that were later to form Rome.

If there is a place overflowing with history it is Italy. I do not mean simply a country with a long past – there are many other nations that share that distinction. Rather, history in Italy permeates and shapes the present and is living still in its cities, in its churches, palaces, banks; in its squares that host markets, religious celebrations, political gatherings, social and leisure activities; in its care for the landscape, both natural and artistic. A monastery vacated by friars can be turned into a hospital, then into a prison, then into a university building (as in Bologna), with a tireless effort to reinterpret monuments rather than discard them.

The relationship between economic activity and communities at a local and regional level is perhaps one of Italy’s most distinct and established characteristics. It has found many interpreters, such as the celebrated entrepreneur Adriano Olivetti and the economist Giacomo Becattini. Olivetti was as much a “civil” entrepreneur, a thinker and a promoter of culture, as he was a businessman. In his 1945 book, L’ordine politico delle Comunità (The Political Order of Communities) he argued that the entrepreneur’s role was to trigger the wider economic, social and cultural development of the region and community where its factory was located. He established the movement Community to promote these ideas and was even elected to parliament as a representative of that movement. Although his early death at the age of 59 did not allow him to consolidate either his company or his movement, the “humanistic” management that he exemplified is still alive today and has inspired many other entrepreneurs, who want to keep faith with this genius loci. Indeed, his legacy was recognized by Unesco in 2018, with Ivrea (Piedmont) – Olivetti’s city – becoming Italy’s latest world heritage site.

Becattini was the most coherent theorist of territory as the unit of inspiration for economic activity with a unique and non-replicable identity. His view of the market economy was as follows:

We are now in a position to illustrate quantitatively the evolution of the Italian economy over the period 1945–2016. Typically, it is not an easy exercise to piece together over a long period data published by national statistical offices (in Italy Istat, founded in 1926 by the statistician Corrado Gini). These data are constructed to produce short-term comparisons and, as a result of international agreements, the methods of construction of aggregates often change, making it difficult to compile long-run series. Fortunately, as part of the celebrations in 2011 of the one hundred and fiftieth anniversary of a unified Italy, both Istat and the historical office of the Bank of Italy have collected and homogenized existing historical series, precisely for the purpose of building up a coherent long-run analysis. In particular, the historical office of the Bank of Italy, which had already began to revise Italian GDP historical series at the time of its hundredth anniversary in 1993, decided to complete the task by producing a renewed and highly sophisticated 1861–2013 GDP series. In this chapter I will examine five key macroeconomic aspects of the Italian economy: 1) population and employment; 2) GDP, productivity and the movement of prices; 3) the foreign sector: exports, imports and the balance of payments; 4) the public sector: the budget, public debt and the welfare state; and 5) monetary policies. A final section will be devoted to institutions, which have only recently undergone measurement.

To keep the chapter manageable, I have not detailed in the tables each single year, but only those years marking watersheds or in need of specific explanations. The regional breakdown of the series is presented when relevant, using North-West (NW), including Piedmont, Liguria and Lombardy; North-East (NE), including Venetia, Friuli, Trentino-Alto Adige, Emilia-Romagna; Centre (C), including Tuscany, Marche, Umbria, Latium; and South (S), including all the remaining regions. International comparisons are used chiefly to highlight the current situation of Italy. An examination of the detailed features of the productive structure of the Italian economy is deferred to Chapter 4, while Chapters 5 and 6 will provide an analysis of two strategic dimensions: the human factor and the social factor. Here, in this chapter, one can find the aggregate picture.

This chapter examines in more detail the nature of capitalism in Italy and its distinctive features, in particular its strong manufacturing specialization in hundreds of niche areas in which many Italian SMEs are world leaders. The “made in Italy” brand, a synonym for high quality and advanced design, does not comprise only of fashion, but also of other sectors of industry, mostly metal-engineering (see Table 4.1). Traditional industry (textiles, clothing and leather) declined from 31.4 per cent of the labour force in 1951 to 13 per cent in 2011, while over the same period metal and engineering products have risen from 30.1 per cent to 42.8 per cent. The impact of this shift on value added (VA) is even greater and, as we shall see, the impact on exports is overwhelming.

Big business in Italy is not widespread, and today is largely made up of the legacy of state-owned enterprises (SOEs), partly privatized. Table 4.2 shows the great “de-concentration” of Italian industry after 1971. In the years of the economic miracle, one quarter of the labour force worked in companies with more than 500 employees, while today it is only 10 per cent. There were 241 firms with more than 1,000 employees in 1991, with an average number of workers equivalent to 3,228; in 2011 that figure had reduced to 176 with an average of 2,438 workers, totalling only a little over 400,000 workers. The only two sizes of firm to have substantially enlarged over time are the 10–19 employees and 20–49 employees, while those between 50 and 499 have fluctuated at around 30 per cent of the total. Today, the average size of a manufacturing firm in Italy is around 10 workers. We should qualify this statement by recognizing that Italian entrepreneurs often prefer to build groups of smallish enterprises that are formally autonomous, rather than seek to merge their labour force into one single unit. This has only become apparent after the approval of legislation in 1991 that obliges companies to have a consolidated budget, but even after 1991, there are plenty of groups inside which there are companies that remain unconsolidated, making it difficult to produce a precise quantitative analysis.

Fascism was a dictatorial regime that left its negative mark on the country’s culture, society and legislation, but it did not interrupt the process of industrialization, which was resumed immediately after the restoration of democracy, although the general conditions of Italy and the rest of Europe at the end of the Second World War were dismal. This chapter charts the evolution of the Italian economy in the period 1946–2016. I have broken down the period into five phases:

• 1. Reconstruction (1946–51). The birth of the republic and the integration of Italy within the international economy; administration of the Marshall Plan;

• 2. The economic miracle (1952–73). A period of rapid modernization;

• 3. The return of instability (1974–92). Economic growth continues, albeit more slowly; a period of political gridlock and the accumulation of a large amount of public debt; niche firms prosper;

• 4. Incomplete reforms (1993–2007). Continuing political turmoil and persistent high public debt levels; participation in the Eurozone places Italy on an slow and volatile economic path, despite the many reforms enacted and the resilience of Italian industry;

• 5. Italy and the global economic crisis (2008–16). One of the worst performers during the world financial crisis.

This chapter will familiarize the reader with the key events, both domestic and international, that have affected the Italian economy, while Chapters 3–5 will focus in detail on the macroeconomic, microeconomic and social analyses, providing quantitative illustrations.

RECONSTRUCTION, 1946–51

Major political and institutional changes took place in Italy immediately after the Second World War. A referendum was held on 2 June 1946 on whether to retain the monarchy, which had not supported democracy in Italy, or to introduce a republic. Support for a republic prevailed, however with a narrow margin of only 54 per cent of the votes. And for the first time women could exercise their right to vote, which had been acquired by decree during the war. The transition from monarchy to republic was peaceful and on 13 June the king left for Portugal. On the same day the referendum was held, Italians voted for 556 representatives of the newly created Constitutional Assembly, which, over 18 months, drafted the new constitution that came into force on 1 January 1948.

Social capital presents in Italy quite contrasting features. On one side, the country enjoys one of the lowest rates of homicide, suicide and imprisoned people in the world. We have already observed that the health of its people is among the best in the world, with life expectancy among the highest; moreover, Italy records a low level of alcohol consumption (the lowest in Europe), good and varied food (the famous “Mediterranean diet”), limited obesity, widespread home ownership, many opportunities for socially-based entertainment and leisure time; and a strong network of associations and NGOs. On the other side, the country has a very high level of corruption, high tax evasion and the widespread existence of organized crime. Let us begin with social and civic capital and its measurement.

SOCIAL AND CIVIC CAPITAL

The concepts of “social capital” and “civic virtues” as foundations for the economic flourishing of communities go back to the Italian city-states of the Middle Ages, when economic activity was justified by theologians if it aimed at the “common good” (“fare ricca la città” – to enrich the city) and they continued to be elaborated until a much narrower vision of economics prevailed in the nineteenth century in the Anglo-Saxon countries. Since then utilitarianism and self-interest have formed the basis of economic theory, but in Italy economic practice has maintained contact with some of the social roots of that original thinking. The reproposition of social capital as an important determinant of positive economic performance came firstly from the work of sociologists in the 1980s and 1990s (especially Pierre Bourdieu and Robert Putnam). Social capital was defined as the set of factors enabling people to act together effectively in pursuing shared aims and it was based on relationships of trust. There was also an effort to articulate social capital according to its different coverage in society: bonding, when trust and common endeavour is limited to family ties; bridging, when it is centred on local connections; linking, when the extension of connections is unlimited. Bonding social capital, generally, has been viewed negatively, because it can lock groups into sects or clans, and activate conflicts among groups and between groups and the rest of society. Indeed, mafia groups contain bonding social capital, which can hardly be considered valuable social capital.

The Italian economy today does not enjoy a good press and gets very poor ratings from international agencies. There are two main reasons for this. Over the short run, this has been a consequence of the world financial crisis, which has hit Italy much harder than other countries. In 2007, Italy’s per capita income was 107 (with the European Union average = 100), while France’s stood at 108, Germany’s at 117, the UK’s at 111, and Spain’s at 103. In 2016, the respective positions were: Italy 96, France 105, Germany 123, UK 108, Spain 92, which shows that only Germany, among the biggest of the EU countries, has overcome the crisis, while the other countries have lost percentage points, with Italy and Spain the most severely affected. This book will offer plenty of arguments to explain the grim performance of Italy since the crisis, while also explaining why Italy is still in the G7, why it is still one of the largest economies of the EU and still remains a major exporter of manufactured goods, despite having lost 25 per cent of its manufacturing production since the crisis, chiefly as a result of a major shrinking of its domestic market.

Secondly, and more profoundly, over the long-run the Italian economy has never fitted the standard US growth models based on big business, standardization, economies of scale and transnationalism. Although this lack of fit did not prevent the country from modernizing and growing, it did result in a vast underevaluation of the Italian economy by international bodies that often left Italy out of international comparisons or alternatively negatively commented upon, even when it performed well. Some years ago The Economist compared the Italian economy to the leaning tower of Pisa suggesting that it was always on the brink of falling to pieces. One could point out that Pisa’s tower has been standing for seven centuries, and was recently consolidated so that it cannot fall down, at least for the foreseeable future and can be safely visited by masses of people. However, the image of fragility is the one that circulates: Italy as a country that cannot be relied upon, because it is not “stable” or “sustainable”, both politically and economically.

We have already seen in Chapter 3 the basic demographic indicators for the country: a long life-expectancy, a very low fertility rate, an unsatisfactory rate of women employment and substantial immigration. In this chapter I will focus first on the family, beginning with its strong traditional role, before examining its changed composition, how it has fared in the face of economic crisis, and the position of women. I will then consider education and human capital, before discussing the issue of immigration, with special attention given to the recent migrant crisis and the resumption of Italian emigration abroad.

FAMILY, AGE AND GENDER

Italy has shared the “nuclear” form of the family since the Middle Ages, with a propensity to retain very strong family ties. These ties can tend towards nepotism and even to amoral familism, however, in its positive version family ties have guaranteed a network of support and friendship that has lasted to this very day, although the situation of the Italian family is today very different with 58 per cent of “households” comprising one or two people and only 6 per cent having more than four members.

Over a third of households have a family head over 65 years of age. When we take into account that Italy has 3 million seriously disabled people (2.2 million over 65 years of age) and only 2 million receive state assistance, and only 22 per cent of children under the age of three attend preschool, it is easy to understand that the majority of families are engaged in the care of children and old people. Some resort to private help, although there is no clear information about the size of that help. In 2016 the Italian National Agency for Pension Schemes (INPS) reported 900,000 people enrolled as home helpers whose social contributions are paid by families, but it is well-known that there are an additional 600,000 “badanti” (caregivers to old people in their houses), mostly Eastern European migrants, who do not have an official contract of employment, plus an unknown number of child-minders who look after small children when parents are at work.