Fascist response to the Great Depression

Question 1

How did the GD impact Italy?

Answer 1

Hit Italy very hard starting in 1931

Question 2

How did the banks respond to the fact that industry struggled as a result of the GD?

Answer 2

As industries came close to failure they were bought out by the banks in a largely illusionary bail out – the assets used to fund the purchases were largely worthless

Question 3

What did this lead to?

Answer 3

This led to a financial crisis peaking in 1932 and subsequent government intervention

Question 4

How did Italian banks suffer?

Answer 4

After the bankruptcy of the Austrian ‘Kredit Anstalt’ in May 1931, Italian banks followed, with the bankruptcy of the ‘Banco di Milano’, the ‘Credito Italiano’ and the ‘Banca Commerciale’.

Question 5

What three institutions did the state create in response to these problems?

Answer 5

To support them the state created three institutions funded by the Italian Treasury, with the first being the Sofindit in October 1931 (with a capital of 500 million lira), which bought back the industrial shares owned by the Banca Commerciale and other establishments in trouble

In November 1831 the IMI (capital of 500 million lira) was also created and it issued 5 1.5 billion lira in state obligations as reimbursables in a period of 10 years. This new capital was leant to private industry for a length of 10 years. This meant that they gave 7.5 billion in stimulus to big companies to keep them afloat.

The Institute for Industrial Reconstruction (IRI) formed in January 1933 and took control of the bank owned companies, suddenly giving Italy the largest industrial sector in Europe that used government linked companies

Question 6

Give some examples of the IRI aiding industry

Answer 6

At the end of 1933, it saved the Hydroelectric Society of Piedmont, whose shares had fallen from 250 liras to 20 liras – with in September 1934, the Ansaldo trust was again reconstituted under the authority of the IRI, with a capital of 750 million lira

Although the fascist state did not nationalise any company, they did take control of private companies through the GLC

Question 7

What did M brag shortly after the creation of the IRI?

Answer 7

Not long after the creation of the IRI, Mussolini bragged in a 1934 speech to the Chamber of Deputies that ‘three quarters of the Italian economy, industrial and agricultural, is in the hands of the state.

According to Mussolini, the IRI ‘became the owner not only of the three most important Italian banks, which were clearly too big to fail, but also of the lion’s share of the Italian industries’

Question 8

What M’s economic policies in response to the GD later be described as?

Answer 8

Mussolini’s economic policies during this period would later be described as ‘economic dirigisme’ an economic system where the state has the power to direct economic production and allocation of resources

Question 9

Why can M’s response be seen as increasing state power at the expense of helping the people?

Answer 9

Although there were economic issues within the country, the approaches used in addressing them in the fascist era included political intervention measures, which ultimately could not effectively solve the strife. An already bad situation ended up being worse since the solutions presented were largely an attempt to increase political power rather than helping the affected citizens. These measures played a critical role in aggravating the conditions of Italy during the depression.

Question 10

Give a statistic to show how much this response increased state power?

Answer 10

By 1939, Fascist Italy had attained the highest level of state ownership in the world economy apart from the USSR

The Italian state ‘controlled over 4/5 of Italy’s shipping and shipbuilding, ¾ of its pig iron production and almost half of steel’

Question 11

Evaluate the success of the IRI

Answer 11

The IRI did rather well with its new responsibilities – restructuring, modernising and rationalising as much as it could. It was a significant factor in post-1945 development

Question 12

Give some statistics that indicate that the regime failed to help Italy recover following the GD

Answer 12

it took the Italian economy until 1955 to recover 1930 production levels – a position that was only 60% better than 1913

Question 13

Why was Italy’s dependence on US loans so negative?

Answer 13

Italy received a lot of help from the US in loans, which were affected by the world wide slump

Industrial and partner banks suffered from the consequential loss of demand

Question 14

What were the two main indicators of government intervention?

Answer 14

Government intervention increased – the IMI was set up to aid banks while the IRI aided industry

Question 15

How did the IRI increase state control?

Answer 15

It bought up shares held by banks and re-organised companies to maintain production

The state owned 70% of iron production, 45% of steel production, 80% of naval construction and the entire telephone industry

Question 16

What did the government do to prevent inflation?

Answer 16

The government helped further by price fixing and imposing wage cuts

Question 17

What did the regime do to help with the unemployment crisis?

Answer 17

There were increased public works, reduction in the working day, a lifting on emigration and extensions of welfare

Question 18

Why can it be said that M did well compared to other leaders?

Answer 18

They weren’t as hard hit and the government’s reaction may be the reason that Mussolini was one of the few inter-war European leaders to not lose office

Question 19

Why can the IRI be described as a body that attempted to salvage rather than grow the economy?

Answer 19

The IRI took over many loss-making industries that the private sector would not invest in. The IRI was mostly concerned with rescuing existing industries through cartelisation, rather than creating new ones

Question 20

Why was there inequality in terms of how the economy was stimulated?

Answer 20

The industries that benefitted most were the big cartels, based in the northern industrial triangle. There was much less help for smaller firms and the south

Question 21

What does it remain difficult to assess?

Answer 21

Overall, it remains difficult to assess how seriously the Italian economy was affected by the depression and how well the fascist regime coped with the consequences

Question 22

How did Italy compare favourably to other European countries and what is the caveat to this?

Answer 22

Comparisons with other countries indicate that there was lower unemployment in Italy and that there were less dramatic fluctuations in production. On the other hand, Italy was starting from a lower economic base

Question 23

Why can we say that most industry benefitted from the response?

Answer 23

Most industry benefitted from supportive government policies, and the growth of large firms and cartels continued. Newer industries, such as chemicals and synthetic fibres, grew particularly well

Question 24

What were the major firms at the time?

Answer 24

The major firms at the time were Fiat for cars, Montecatini for chemicals, Pirelli for rubber and IVLA for steel

Question 25

Why was the way the regime dealt with the banking crisis limited?

Answer 25

In terms of banks, government assistance geared towards preserving the existing structuring rather than pursuing efficient reorganisation

Question 26

List the main consequences of the GD for Italy

Answer 26

Large number of companies collapsed

Car production fell by 50%

Unemployment went from half a million in 1928 to 2 million by 1933

Industry and their partner banks suffered due to a collapse in demand

Question 27

List the responsive actions taken by the regime

Answer 27

The democratic governments to the west were reluctant to help out the struggling private sector as their traditional laissez faire economic philosophy regarded this as reckless as it might plunge the government into serious debt

The regime had no such worries…

It introduced public works schemes, notably the building of motorways and hydroelectric power plants, which had the positive effect of putting many of the unemployed back to work

The state did much to avoid the banking collapse that had occurred in Germany and the USA in particular…

Banks had given loans to industry that now could not be repaid. They therefore found themselves without enough money to repay their investors. The fascist state simply bailed out the banks

A result of this intervention was the creation of the Insitute for Industrial Reconstruction (IRI) in 1933. Many banks had major shareholdings in Italian companies and when the banks were bailed out, the IRI took control of these shareholdings. It also took over shares of companies that were struggling, rather than just allowing them to collapse

The consequence of this was that the state, in the guise of the IRI, became the major shareholder and thus the effective owner of many major Italian companies

The IRI also took on the responsibility of giving out loans to industry, which had previously been the role of the banks

It also attempted to promote some of the latest managerial techniques

It was only intended to be a temporary body to help private industry through the depression, but it became permanent in 1937 with extended powers to take over private firms

By 1939, it controlled 75% of pig iron production, 45% of steel production, 90% of ship building and 20% of Italian industry overall

Setting up the IRI bypassed the structure of the corporate state, showing just how unimportant it really was to M

The regime claimed that the corporate state protected Italians from the slump that was being endured by other European countries

The corporate system was actually largely irrelevant in terms of how Italy weathered the GD

Question 28

List the successes of the fascist response

Answer 28

Public works schemes put a lot of the unemployed back into work. This then had the effect of increasing the amount of money in circulation, which, in turn, stimulated demand and created more jobs, creating a kind of virtuous cycle

Stepping in the bail out the banks prevented the banking collapse that had occurred in other countries

M’s success is proven by the fact that he was only one of two leaders to remain in their post following the depression

The IRI also succeeded in successfully promoting some of the latest managerial techniques

The fascist response allowed Italy to whether the depression better than its democratic neighbours

As a result, many said that FDR took inspiration from M when launching his New Deal

The IRI reorganised the companies it took over to maintain production

The IRI shows how fascist economic policy could be pragmatic and useful

The IRI was an effective hospital service for existing firms

The government helped industry by encouraging price fixing, cartels and further wage cuts

Increased public works, reductions in the working day to help share out work, a lifting of the ban on emigration and the extensions of welfare helped reduce some of the misery caused by the depression

Although none of the government’s regime were particularly impressive in and of themselves, they did cumulatively help prevent the large scale unrest and turmoil that was present elsewhere

M was one of the few European rulers who did not lose office during the GD

Question 29

List the failures of the response

Answer 29

The regime’s measures placed an enormous burden on the taxpayer

Unable to avoid the effects of the depression completely. However, in fairness, no Western European countries did

The regime had made Italy vulnerable by relying on US investment from 1924-5 onwards, as much of this money was withdrawn following the depression

Farmers were unable to diversify from wheat due the Battle for Grain and therefore suffered due to the collapse in grain prices

For all its successes, the IRI did not attempt any broader policies of rationalisation (organising things in the most efficient way possible) which may have benefitted the economy further

While introducing price fixing, cartels and wage cuts might have helped industry, it did not help workers and consumers