I

The IRI was created in 1933 as a means of rescuing large universal banks from default and breaking their ties with big business. The situation harked back to the period after World War I, when large banks – such as Banca Commerciale Italiana, Credito Italiano, Banco di Roma and Banca Italiana di ScontoFootnote ³ – concentrated their industrial loans on a reduced number of big firms that depended almost exclusively on their short- and long-term credit. In fact, the banks accumulated large shareholdings of financed firms, turning more or less into industrial holdings. At the same time, ‘friendly’ firms were invited to participate in the shareholders’ syndicates that controlled banks. Over time, the bank–industry symbiosis degenerated into what Raffaele Mattioli, a top banking manager, called ‘siamese twinship’ (Mattioli Reference Mattioli1962). When Alberto Beneduce first conceived the IRI in the early 1930s, his objective was to cut this Gordian knot that had brought top Italian banks to the verge of default. To do that, he embarked on a radical reform of industrial credit.

Beneduce's key role in the rescue of the banking system made him the most influential economic advisor of the fascist regime. Previously he had been a social reformer, a mason, and, above all, the right-hand man of Francesco Saverio Nitti, a statesman from the southern region of Basilicata who conceived state-promoted industrialization as the only way to reduce the socioeconomic gap between Italy's north and south. In 1911, Beneduce had collaborated with Nitti in the establishment of the Istituto Nazionale di Assicurazioni (INA) as a state monopoly of life insurance. Later on, Beneduce conceived and chaired new state-owned credit institutions – Consorzio di credito per le opere pubbliche (CREDIOP) and Istituto di credito per le opere di pubblica utilitá (ICIPU) – specialized in long-term credit for the construction of strategic large infrastructures and public utilities (Bonelli Reference Bonelli and Mortara1984). In 1926 Bonaldo Stringher, the governor of the Bank of Italy, and Giuseppe Volpi, the minister of finance, had invited Beneduce to assume the presidency of Bastogi, a holding company that exercised a crucial role in Italy's market for corporate control. His growing influence on economic policy-making was such that the foreign press maliciously dubbed him the ‘dictator’ of the Italian economy.

Beneduce harbored a real disdain for the top managers of the big universal banks, who in his view had betrayed the trust of their depositors, thus causing moral outrage to a ‘nation of savers’ (D'Antone Reference D'antone2011). In the IRI's first annual report in 1934, he portrayed the Istituto's key mission as a comprehensive ‘reorganization of credit’. The report explained that

These principles inspired the banking law of March 1936, which would provide the legal framework for Italy's credit system for the next half century. The key point was credit specialization. The state, via the IRI, assumed the losses of the three banks (now declared ‘banks of national interest’), became their only shareholder and limited their business to short-term credit. More room was also given to regional and local banks that were an essential source of external finance for the myriad of small and medium enterprises that formed the country's economic backbone. Medium and long-term credit for industrial investment was reserved for special institutions such as the Istituto Mobiliare Italiano (IMI) and IRI, whose funding rested not on deposits but on bonds issued in the domestic capital market (Cianci Reference Cianci1977). Furthermore, the Bank of Italy was relieved of the burden of banks’ non-performing loans, and converted into a modern central bank whose main role was to manage monetary policy and supervise credit institutions. This profound overhaul of the structure of the financial system brought Italy closer to the Anglo-Saxon world. For this challenging task, Beneduce could count on the valuable collaboration of Donato Menichella, an experienced manager of the Bank of Italy who had supervised the crisis of the Banca Italiana di Sconto in the early 1920s. In his role as managing director of the IRI, at the end of 1933 Menichella drafted the report that would provide the basis for a definite solution to the universal banking crisis, formalized in official agreements between the banks and the IRI in March 1934.

Even if the IRI was conceived as a temporary entity, with one division devoted to financing and the other focused on disinvestments, Beneduce quickly showed what he meant by ‘profoundly revolutionary measures’ to be applied with ‘totalitarian methods’. A telling example is Società Idroelettrica Piemontese (SIP), a company operating in both the electrical and telecommunication industries, with strong ties to Banca Commerciale and in a difficult financial situation due to overexpansion. For the reorganization of SIP, Beneduce relied on the advice of Oscar Sinigaglia, an engineer and entrepreneur who had successfully managed the rescue of Banco di Roma in the early 1920s. Sinigaglia, who was a renowned expert in the iron and steel sector and shared with Beneduce a commitment to the pursuit of the ‘national interest’, recommended a separation of electrical and telecommunication business, in close cooperation with private companies. In the summer of 1933 Beneduce summoned the nation's top business leaders – Giovanni Agnelli, Vittorio Cini, Giacinto Motta and Alberto Pirelli – to a meeting in which he invited them to assume a leading role in the national economy. ‘With this cooperation – he warned – Italy's top industrialists must show the government that not everything in the national economy has been destroyed and that the managerial class is still worthy of our consideration’ (Mucchetti Reference Mucchetti2003, pp. 187–213). However, given the limited amount of resources that private groups could commit, Beneduce followed Sinigaglia's recommendations (Amatori Reference Amatori2018): telephone activities were separated and reorganized under the supervision of a new holding company, Società Torinese Esercizi Telefonici (STET), controlled by the IRI and raising capital in financial markets. Bonds issued by the IRI on behalf of the holding company were guaranteed by the state and were easily placed with small investors who felt that their interests were protected, as the new top managers of STET and SIP (Ugo Bordoni, a physicist, and Giancarlo Vallauri, an electrical engineer, respectively) were renowned and independent experts in telecommunications.

II

Even if separated by almost 20 years, Menichella and Beneduce belonged to a generation who shared the key values of Italy's unification – the Risorgimento. Their patriotism and sincere commitment to ‘serving the nation’ had been reinforced by their experience in World War I, where both had served on the frontline. When the fascist regime waged war on Ethiopia in 1935, international sanctions and the policy of autarky announced by Mussolini created a ground favorable to a new phase of industrial deployment. By then, Beneduce had already drafted a ‘regulatory plan’ that put the IRI, which controlled strategic clusters of firms in capital-intensive industries, at the core of the autarkic conversion of the national economy. Beneduce's main concern was that, if the war effort was left exclusively to private entrepreneurs, the country could fall back into a reckless situation of intertwined interests between firms and banks. To be sure, the fact that the IRI had been converted into a permanent institution and had been entrusted the coordination of industrial management in the medium to long term increased its dependence on politics. To limit political interference, Beneduce made three strategic choices. First, the IRI would retain its first and foremost objective: the control of credit. Second, no economic activities would be nationalized; the IRI would maintain its legal status as a private institution and, where possible, would establish alliances with private firms. Third, the Corporazioni (the Fascist institutions that pretended to reconcile the interests of capital with those of labor) would be kept out of the IRI's activities, as far as strategic choices and management of the firms under IRI surveillance were concerned.

It was clear to IRI leaders which principles should guide their actions. First, as had happened in the case of SIP: sell but don't sell off. Private oligopolies, such as Fiat and Montecatini, had already tried to acquire competing firms under IRI control – such as Alfa Romeo and Terni's chemical business – at bargain prices. The IRI intended to adopt an anti-monopolistic strategy. Second: consider industries (not firms) as the unit of analysis and interventions. In an age of confused conglomerates like Ansaldo, Montecatini or Terni, this was a big step forward in the industrial culture of Italy. Terni was an emblematic case. Its principal business was electricity but for many years it had maintained open – at a loss – an iron and steel business that could be mobilized in wartime, giving Terni more leeway to lobby the government (Bonelli Reference Bonelli1975). In turn, top managers of Finsider (the IRI's financial holding company for the iron and steel sector) conceived ambitious plans for the modernization of heavy industry, and tried to convince the regime to go beyond the basic objectives of autarky by opening a large integrated cycle steel plant (Bonelli Reference Bonelli1982). Although Finsider's project was unsuccessful in the short run, it would play a major strategic role in relaunching Italian industries after World War II.

Finmare, another IRI holding company created in 1936 for financing the shipping industry – a strategic sector for a country like Italy, with a large volume of passenger and freight traffic (it ranked sixth in the world for quantity shipped) – was more successful. The sector was labor intensive, had an impact on many connected industries and contributed to the balance of payments via tourism. When the IRI intervened to overhaul and rationalize the industry, there existed nine companies; three-quarters of them had fallen under IRI control and accumulated huge losses in spite of generous government subsidies. Under Finmare, shipping business was consolidated into four companies, organized by regional specialization. Tirrenia, based in Naples, handled traffic to Libya, the circumnavigation of Italy and the western Mediterranean. Società Adriatica in Venice was entrusted with traffic between Italy, Egypt and the eastern Mediterranean as well as inside the Adriatic. Lloyd, based in Trieste, covered the routes to India, the Far East, Australia, the Dutch Indies, Eritrea and Somalia. Finally, Italia, based in Genoa, specialized in routes to the Americas (D'Antone Reference D'antone and Castronovo2012a). To modernize the country's obsolete fleet, the IRI decided to build 44 new ships in five years. The financing for this ambitious project was mostly secured by the issue of special bonds (IRI-Mare) successfully placed with more than 22,000 private investors, as well as savings banks, insurance companies and other banks. Paride Formentini, Finmare's managing director, with long experience as bank manager at Banco di Roma and chief financial officer at STET, knew how to organize a company based on tight control of costs and financial flows. He perfectly exemplified the IRI's third rule: entrust the companies to capable hands. The IRI's ‘capable hands’ were based on a new generation of managerial cohorts. They included: Oscar Sinigaglia; his disciple Agostino Rocca (the architect of plans for the modernization of the steel industry); Giuseppe Cenzato (who presided over the electrification plans for the south as head of Società Meridionale d'Elettricità); Francesco Giordani (an international authority in the field of electrochemistry, who replaced Beneduce as president of the IRI in 1939); Ugo Gobbato (former head of Fiat's plant at Lingotto, who became managing director of Alfa Romeo); Raffaele Mattioli (managing director of Banca Commerciale Italiana); and Guglielmo Reiss Romoli (an internationally renowned expert of corporate finance, who became head of the New York branch of Banca Commerciale). We should add to the list young economists like Pasquale Saraceno, Sergio Paronetto and Guido Carli (Ciriec 2013). By the end of 1936, a confidential report to the Minister of Finance, Thaon de Revel, on the IRI's consolidated financial position announced profits of 1 billion lire. In light of the extensive tasks that the IRI was preparing to take on, Beneduce ordered that 10 percent of profits be reinvested in training Italy's managers in both public as well as private sectors (D'Antone Reference D'antone and Castronovo2012a). With this decision (included in the royal decree of 24 May 1937 that ratified the IRI's transformation into a permanent entity), Beneduce had prepared the ‘capable hands’ required to manage the extensive industrial patrimony of a nation now at war.

III

In a letter sent in 1944 to Capt. Andrew M. Kamark (the economic expert of the US occupation army in Italy), Donato Menichella, the IRI's managing director since 1933, tried to explain what the Istituto represented for the Italian economy. In an effort to detach the IRI from fascist autarky, he insisted that its strategy did not include any plans for nationalization and was open to fruitful collaboration with private initiatives. The IRI, he explained, owned industrial concerns simply because in the early 1930s universal banks were their controlling shareholders and the state had to rescue depositors from a catastrophic crisis. Menichella went on to explain – with a grain of opportunism – that, since Italy lacked a strong class of financiers, the reprivatizaton of IRI firms could bring the country back to a similar bank–industry relationship. In fact, the IRI survived in the postwar political transition and in 1948 it was given a new statute. Under its new legal situation, the IRI was no longer obliged to pursue political objectives (as it was in the prewar statute of 1937), but its scope was also limited by the prohibition on the purchase of new activities. In line with its origins, the IRI was now defined as a ‘public financial entity’.

There is no doubt that the 1948 statute reflected the view of Menichella, who two years earlier had replaced Luigi Einaudi as governor of the Bank of Italy. From his new position Menichella carefully avoided discussing publicly the IRI's role in Italy's postwar development, but he took part in the meetings of the institute's top managers, as he still sat on its board. Menichella's ‘voice’ can be heard in the minutes of a meeting between the IRI's top managers (Giuseppe Paratore and Giovanni Malvezzi, and vice presidents Sinigaglia and Antonio Pesenti) and members of the IRI board, Cesare Merzagora (former Pirelli top manager and head of the economic commission of provisional governments) and Stefano Siglienti (IMI's managing director) in February 1947. Menichella especially criticized the IRI's pretensions to enjoy privileges over private companies. This went against his profound conviction that a ‘public entity’ should resist government pressures and that firms, public or private, should not expect special favors from the political power. Therefore, the IRI's activities were structured into a group of holding companies (possibly including a new one, Finmeccanica) for purely organizational reasons, but it should not try to expand and compete with private firms in industries, such as electricity or aviation, with many private entrepreneurs eager to enter. In addition, the IRI's holding companies should avoid asking for loans at favorable conditions from the Treasury; the risk was inadvertently to confirm the concerns expressed by senator Alfredo Frassati (former chief editor of the newspaper La Stampa and chairman of the private company Italgas) before the Commission for Economic Affairs of the Constitutional Assembly, who asserted that the ‘IRI represents the biggest offense possible as it can find any funding it needs at the price it wants’ (Amatori Reference Amatori and Amatori2013b, p. 11).

Menichella directed his criticism also at Oscar Sinigaglia's national plan for the iron and steel sector, insisting that leading private producers, such as Falck and Fiat, should be consulted. He also warned that putting the industrialization of the south at the core of the IRI's strategies would be a mistake, as ‘it would give the impression that the IRI intended to monopolize the Mezzogiorno's industries, attracting other thunderbolts (from politicians)’ (D'Antone Reference D'antone and Castronovo2012b). It is important to notice that both Beneduce and Menichella actually came from the south, but shared a realistic vision of the economy of the Mezzogiorno. In 1946 Menichella was among the founders of the Associazione per lo Sviluppo dell'Industria nel Mezzogiorno (SVIMEZ), a private association of economists and public technocrats for the promotion of industrial development of the south. He also personally drafted the text of the law for the creation in 1950 of the Cassa per il Mezzogiorno (CASMEZ), a public developmental agency in charge of devising and funding projects of public interest in southern Italy. As a governor of the Bank of Italy, Menichella pursued the policy priorities of his predecessor, Luigi Einaudi, ensuring the conditions that would allow a return of the Italian lira to external convertibility. That was a necessary precondition to win the support of international institutions, such as the World Bank, to whom the Italian government's investment plans for the south were submitted in search of funding after the end of the Marshall Plan. His approach to the ‘southern question’ responded to the principles of national interests. In fact, SVIMEZ plans focused on investment projects in infrastructures and public utilities (such as water and energy), which the Cassa should coordinate and finance, leaving their realizations to entrepreneurs with proven technical and scientific know-how.

Menichella's approach to the role of the Cassa was similar to Beneduce's attitude toward the special credit institutions he had created after World War I. This time, however, the stakes were much higher, as the plans involved international financial institutions (D'Antone Reference D'antone and Castronovo2012b). In the early 1950s, the IRI's future raised great concerns, as the benign neglect that had prevailed so far among political parties was winding down. And there were reasons to be worried. In October 1949 the socialist party filed a parliamentary motion warning about the ‘insufficient coordination between the various industrial and commercial firms subject to State control’ (Amatori Reference Amatori and Amatori2013b, p. 13). Time was ripe for some type of rationalization. In 1951, the centrist government of prime minister Alcide De Gasperi created an ad hoc interministerial committee. Chaired by Ugo La Malfa, leader of the small Republican party and a respected economist, the committee recommended a coordination mechanism to unify the control of firms belonging to the IRI group. From an organizational point of view, however, La Malfa believed that a system of central coordination was incompatible with the principle of managerial autonomy at firm level (Amatori Reference Amatori and Amatori2013b, pp. 12–15).

A few years later, in 1954, Menichella was even more disappointed by the report drafted by a special committee for the reform of the IRI's statute, chaired by Orio Giacchi, a Catholic jurist. The report emphasized a reduction of the economic gap between the north and the south as a priority for the definitive political unification of the country, and advocated the rise of a new generation of public managers to pursue this goal. The guiding text of the committee was the so-called Codice di Camaldoli (Code of Camaldoli), a document of economic planning drafted in 1943 by a group of Catholic intellectuals (among them Sergio Paronetto, a top manager at the IRI in the 1930s) strongly in favor of state intervention (Persico Reference Persico2013).

It is widely acknowledged that the decade 1945–55 was the IRI's golden age. In this period, the Istituto operated as an upside-down pyramid: firms with managerial autonomy at the top, sectoral holdings in the middle and the super-holding IRI at the bottom. The work of the Giacchi committee, by contrast, created a new chain of command, with the Ministry for State Shareholdings (created in 1956) and the super-holdings IRI and Ente Nazionale Idrocarburi (ENI, created in 1953) at the top, and individual companies at the bottom. This new hierarchy allowed the rise of the entrepreneurial state, an idea never endorsed by Beneduce or Menichella. Tellingly, the minority report in disagreement with the conclusions of the committee was signed by Paolo Baffi, chief economist of the Bank of Italy who represented the central bank on the committee (D'Antone Reference D'antone and Felisini2010).

IV

The leading personality in the new IRI devoted to the economic unification of the country was Pasquale Saraceno (D'Antone Reference D'antone2017). He had joined the IRI in 1934 as a brilliant company auditor with experience in bank management, and became a member of Beneduce's reduced staff. A fervent Catholic, in 1943 he participated in drafting the Code of Camaldoli and shared with its promoters the idea that overcoming the gap between north and south should be the primary mission of postwar ruling classes, and that the state should play a critical role in achieving that goal. He also saw state intervention as the defining moment that had kick-started the process of industrialization of the country in the nineteenth century. This reasoning was shared also by Aldo Moro, secretary general of the Christian Democrat Party from 1959 to 1963. Moro was amenable to backing a systematic plan of political, social and economic development that kept state-owned firms at the center. Saraceno became the ideologist of this project for a new entrepreneurial state. In his view, state-owned companies were not simply firms; they had also to fulfill social and political goals and their managers needed to demonstrate a special kind of entrepreneurship. For instance, the legislation of 1956–7 (which established the Ministry for State Shareholdings) obliged state-owned firms to earmark 40 percent of their new investments for initiatives based in the south. In exchange, they would have access to a special endowment funded by the state which would compensate them for the difference between the routine costs of management and the extra costs associated with the additional political and social goals set by the government. Saraceno called this ability to mitigate profit maximization with political-social objectives ‘economicità’.

He was also a strong advocate of national economic planning and offered a clear definition of its objectives. He believed that the structural imbalances of the Italian economy could be overcome only if economic policy went beyond purely indicative planning, as in the Schema decennale di sviluppo dell'economia italiana of 1954, also known as the Vanoni Plan (Saraceno Reference Saraceno1982). At the 1961 convention of the Christian Democrats in San Pellegrino, Saraceno delivered a key speech on market-oriented planning (D'Antone and Amatori Reference D'antone, Amatori, Giovagnoli and Persico2013). The following year Ugo La Malfa, now minister for the budget in the first center-left government, asked him to lead the National Commission on Economic Planning; the resulting report, published in 1963, was soon known as the ‘Saraceno Report’ (Amatori Reference Amatori and Felisini2017; Giulianelli Reference Giulianelli2019). However, it did not take long for Saraceno to become disillusioned. The nationalization of electrical utilities took over the IRI's electricity business and removed any entrepreneurial management from its electricity companies. In December 1963 Saraceno shared his concerns with Aldo Moro, who he felt had been unable to block the nationalization of electric power (D'Antone, Reference D'antone and Della Torre2019). Soon, he would also leave the Christian Democrat Party.

In the sixties Italy's party system shifted toward a form of ‘polarized pluralism’ (Sartori Reference Sartori1982), fragmenting into numerous factions but systematically excluding from ruling coalitions the biggest opposition party – the Communists – because of its continued ties with the USSR. In this sort of one-way spoil system, the IRI's managers felt like pawns in a game where their special skills were downplayed in favor of political maneuvering. In fact, the principle of economicità that Saraceno had endorsed engendered serious dangers, since ‘improper financial burdens’ were easily translated into ‘imprecise duties’ difficult to circumscribe. This heightened the risk that management would behave less responsibly than in the past.

Many years later, in 1975, Saraceno participated in a study group promoted by the University of Kiel on state interventions in the European economy. A by-product of his involvement was a short book in which he critically examined the Italian experience of state shareholdings. Unexpectedly, he turned down the preface that his mentor, Donato Menichella, had prepared. In his draft, Menichella emphasized the IRI's novelty, recalling its original focus on the reorganization of the credit system and the role that Saraceno had played in those years, only to later see his dedication overlooked.Footnote ⁵ Menichella was surprised by Saraceno's refusal. However, considering his harsh criticisms of the IRI's evolution and political control of state holdings, it was clear that their difference of opinions was less about the original contributions of the young Saraceno and more about how the history of the IRI should remain anchored to its original functions.

The postwar historical and political circumstances distanced Saraceno from Menichella's commitment to the IRI's origins and reshaped the policy of ‘competent pragmatism’ that he had inherited from the IRI's founders in favor of a new reformative vision of Christian inspiration. For the more mature Saraceno, the entrepreneurial state was at the origin as well as the center of the system of state shareholdings, and its policy objectives should include economic, technological, territorial and social development. Menichella's insistence failed to convince Saraceno to change his mind. The preface was never published and Saraceno's vision of state shareholdings as a key component of the history of industrial Italy continued to inspire his actions, even when the facts sometimes suggested otherwise. Saraceno died in 1991. One year later the state shareholdings system came to an end. The IRI, overwhelmed by gigantic debts, was transformed into a joint stock company managed by the Treasury and its companies began to be privatized.

V

In his seminal work on big business in Europe, Youssef Cassis discussed whether or not state-owned enterprises (SOEs) should be considered big business when the emphasis is on the substantive (Cassis Reference Cassis1997). He arrived at the conclusion that the answer is both ‘yes’ and ‘no’. ‘No’ because their prominent goal is not profitability but, rather, obedience to the commands of the political power. ‘Yes’ because they would fail to survive without a certain degree of entrepreneurial spirit and ability to compete in the market. Should the leading figures in the IRI's history be asked the same question, we would find Saraceno in the ‘no’ camp and Menichella in the ‘yes’ camp, with Beneduce in an intermediate position, as he wanted the IRI's companies to remain competitive but at the same time willing to set aside profitability when pressed to pursue patriotic goals.

Until just a few years ago, Saraceno's vision of the IRI as a rescuer from afar – from as early as the 1880s, with the direct involvement of an incipient entrepreneurial state in the steel sector and the promotion of the Terni concern – was widely shared by Italian historians. Recent research based on archival records, and a comprehensive reassessment of Beneduce and Menichella's writings and actions, favors a major revision of the historical role of the IRI as a manifestation of Italy's entrepreneurial state. These are the key takeaways for the historiography:

1. (a) the original aims of the IRI were to reform industrial credit and modernize corporate finance;

2. (b) the IRI became a permanent institution of Italian capitalism not because its leaders lacked confidence in private initiatives and markets. In the late 1930s, Beneduce and Menichella's choices were influenced by special historical circumstances – autarky and war – which were reminiscent of the spirit of industrial mobilization during World War I;

3. (c) while the IRI did intervene in the south in the 1930s, its action responded to objectives that were truly national. Before World War II, there had never been an IRI policy specifically designed for the economic development of the south.

The statute of 1948 defined the IRI as a ‘public financial entity’; this definition reflected very well the spirit and intentions of the IRI's founders. In his capacity as governor of the Bank of Italy, in the 1950s Menichella made sure that the IRI would work not as an arm of the entrepreneurial state but as an institution that, together with private companies, would contribute to Italy's competiveness and economic success. He opposed the creation of a ministry for state shareholdings and even more the obligation for state-owned companies to locate 40 percent of their investment in the south. In a similar vein, he expressed his disagreement with the decision to place Cassa per il Mezzogiorno under ministerial control. Only in the second half of the 1950s Italian did governments convert the IRI into an agent of a new entrepreneurial state that pursued economic, social and political goals. With hindsight, we can affirm that the IRI's story could have taken another direction.