ISTITUTO PER LA RICOSTRUZIONE INDUSTRIALE

Istituto per la Ricostruzione Industriale: translation

Institute for Industrial Reconstruction(IRI)

For most of the latter half of the 20th century, the state holding company, IRI, held a central position in the Italian economy. The company was set up in 1933, as the Fascist administration struggled to rescue the country’s financial system from the huge losses the principal investment banks had incurred lending to Depression-hit manufacturing firms. In essence, the state bailed the banks out and was left with a ragbag of industrial companies whose activities included steel, shipbuilding, electricity generation, and telephones. The initial goal was to restore IRI’s component parts back into private ownership as soon as their profitability warranted it, but in 1937 the regime’s increasingly belligerent foreign policy goals led it to desire greater control over economic production, and IRI, with the cooperation of the industrial elite, was thus used to coordinate the Italian state’s (somewhat inefficient) transition to a war economy.

After the war, IRI’s member firms employed almost 100,000 people and faced immense problems readjusting to a peacetime economy. After a decade of drift, the Italian government acted, establishing, in December 1956, the Ministry for State Participation in Industry, which created a three-tier system of control for state-owned businesses. The bottom, operating tier was occupied by individual joint-stock companies, which were grouped into enti di gestione (management structures) answerable to the ministry and wholly owned by it. The enti di gestione, of which IRI was the biggest, were supposed to be run as ongoing economic concerns, with the government providing strategic direction. In particular, from 1957 onward, IRI was directed to spend at least 40 percent of its capital investment budget in southern Italy.

IRI itself was divided into six main societa finanziarie (financial holding companies).These controlled the company’s telephone, shipping, engineering, shipbuilding, steel, and electricity generation activities. In addition, the company controlled a number of banks, the state television service, and the national airline, Alitalia. By the early 1960s, IRI controlled nearly 7 percent of total manufacturing output, and its largest subsidiary, Finsider, the steel company, had become one of the highest producing steel corporations in the world. The early 1960s were the high point of IRI’s success. Gradually, the shortcomings of state-controlled enterprises everywhere began to take a toll on the institution’s efficiency. Investment decisions were too often taken for political reasons; layoffs were avoided; overgenerous pension, job security, and fringe benefit rights were awarded to the workforce; bureaucratic empire building took place; and strategic decision making, which required broad ministerial, union, and managerial consensus, was slow and unresponsive to changes in market demand. By 1982, when Romano Prodi took over as chairman of the company, IRI was losing 3 trillion lire every year and had 35 trillion lire of accumulated debt. Prodi imposed a measure of financial discipline and attempted to solve the debt problem by asset sales, but his plans swiftly ran into political opposition. In 1986, Prodi wanted to sell off the Alfa Romeo car firm to the American carmaker Ford, but the government intervened and forced him to sell the company to FIATinstead. When Prodi’s political backer, Ciriaco De Mita, was forced from power in 1989, the privatization program was halted completely, and Prodi lost his job. The European Union (EU) has succeeded, however, where Prodi failed. The need to meet EU guidelines has led to significant privatizations since 1992, notably in the telecom sector, although skeptical Italian economists claim that not enough has been done to liberate the newly privatized firms from political control.

See alsoEconomic Miracle; Economy; European Integration; Olive Tree Coalition.