Eh.net Book Review: The Oxford Handbook of the Italian Economy since Unification

Published by EH.Net (October 2015)

Gianni Toniolo, editor, The Oxford Handbook of the Italian Economy since Unification. New York: Oxford University Press, 2013. xiv + 785 pp. $170 (cloth), ISBN: 978-0-19-993669-4.

Reviewed for EH.Net by Leandro Prados de la Escosura, Department of Social Sciences, Universidad Carlos III.

In addition to being a leading scholar of the economic history of modern Italy, Gianni Toniolo has been throughout his career an outstanding citizen. He has had a leading role in debates on Italy’s economic performance since the 1970s — initially as an active member of the new generation of distinguished economic historians that challenged and renovated the conventional narrative. More recently, he has led a new generation of young economists and economic historians in a major revision of Italian economic history that focuses on standards of living and income distribution.

The Oxford Handbook, a most ambitious re-interpretative project in modern European economic history, is the latest proof of Toniolo’s good citizenship. The purpose of this collective effort is assessing Italian long run economic performance within an international perspective. A common element in the contributions to the volume is addressing historical issues from a present day’s perspective and emphasizing its policy dimensions. This feature differentiates the volume from conventional economic history texts. The wide variety of issues considered does not harm the volume’s unity. In addition, the book is well written and accessible to the non-technical reader.

The volume is divided into five parts: aggregate growth and policy; sources of growth and welfare; international competitiveness; firms, banks, and the state; and the regional divide. For each topic within each of the five sections, the editor has chosen two or three specialists, usually an international scholar in the field and an Italian economist or economic historian. Such a bold idea proves to be a success. An excellent quantitative appendix, that includes a new set of GDP estimates from the output and expenditure sides, together with new series of labor quantity, capital stock and total factor productivity, completes the volume.

Part I on aggregate growth and policy represents, perhaps, the most ambitious interpretative section of the volume. It starts with a thoughtful introduction by the editor that constitutes a good guide for the rest of the volume. In contrast to the relative decline during the Early Modern era, Italy experienced sustained growth and catching up to the leading economies for most of the twentieth century, separating two phases (pre-1896 and post-1992) of sluggish performance and falling behind. The process of international convergence was accompanied by internal divergence between north and south. The introduction is followed by Harold James and Kevin O’Rourke’s assessment of Italy’s performance during the first globalization and its subsequent backlash, in which they stress pre-World War II capital scarcity and highlight the specificity of interwar industrial policy under the lead of state-owned industrial conglomerate IRI. Then, Andrea Boltho compares Italy to Germany and Japan, countries defeated in World War II and great successes in the postwar, which slowed down significantly at the turn of the century. Lack of major reforms during the reconstruction years, administrative inefficiencies, permanent conflict in industrial relations, and the gap between North and South are pointed out as Italy’s distinctive elements. Nicholas Crafts and Marco Magnani carry out a path-breaking interpretation of Italy’s catching up during the Golden Age and lagging behind since 1992. Their main argument is that institutions and policy choices that allow success in a far-from-frontier economy differ from those required for a close-to-frontier economy. Thus, Italy successfully performed as a far-from-frontier economy in the so-called age of Fordist manufacturing within a stable context of growing export demand, diffusion of U.S. technology, and high investment opportunities, with regulation, industrial policy, government intervention, and undervalued exchange rates as the main policy instruments. As Italy got closer to the technological frontier, factor and product markets’ flexibility and human and intangible capital accumulation became central to growth opportunities and Italy fell short of achieving them, as the delayed diffusion of information and communications technologies confirms. In the closing paper, Marcello de Cecco provides an original insight on how major issues in Italian economic performance were addressed by foreign scholars in which dualism receives particular attention.

Part II on sources of growth and welfare represents the most empirical section of the volume and provides a quantitative background for the rest of the volume’s contributions. It opens with a major contribution by Alberto Baffigi (that represents a collective endeavor) to produce a new set of historical national accounts with homogeneous GDP series from the supply and demand sides, at current and constant prices, over one hundred and fifty years. In the next chapter, Stephen Broadberry, Claire Giordano and Francesco Zollino compute new series of capital and labor and combine them with Baffigi’s new GDP series to draw trends in labor and total factor productivity (TFP) that place Italy in comparative perspective. Their analysis of the sources of growth reveals that during 1913-1993, TFP drove labor productivity growth (in which structural change played a relevant part) especially during growth accelerations. However, up to 1913 and, then, since 1993, factor accumulation dominated long-run growth. Italy appears to have come full circle. Andrea Brandolini and Giovanni Vecchi address standards of living in a comprehensive way to conclude that modern economic growth in Italy was compatible with substantial achievements in human development and the eradication of extreme poverty. The evolution of Italy’s educational system is addressed in Giuseppe Bertola and Paolo Sestito’s essay. They find that insufficient education levels (in both quantity and quality) represent a much more relevant obstacle for growth and catching up in today’s advanced Italian economy than during the Golden Age. In their assessment of emigration, Matteo Gomelli and Cormac Ó Gráda stress the positive self-selection of migrants and the favorable impact of migration on living standards and growth, as well as on reducing regional discrepancies. Lastly, Luigi Guiso and Paolo Pinotti use the enfranchisement of 1912 to investigate whether civic capital had an effect on democratization. After enfranchisement, electoral turnout declined but more in the South than in the North, which was more civic-capital intense. From this finding they conclude that formal democratization had a lower impact in the South as lower civic capital reduced political participation and, hence, did not contribute to closing the North-South gap.

Part III focuses on the international competitiveness of the Italian economy. It starts with a complete survey of the evolution of comparative advantage by Giovanni Federico and Nikolaus Wolf who emphasize the association between economic growth and export performance. They stress the dynamic role of manufacturing exports from World War I to 1980, when low-tech exports dominated and competitiveness declined, especially during the last two decades. Virginia di Nino, Barry Eichengreen, and Massimo Sbracia show that Italy’s currency was mostly undervalued between unification and the 1990s, after which it became overvalued. Undervaluation stimulated growth through export expansion and a more efficient resource allocation. Federico Barbiellini Amidei, John Catwell, and Anna Spadavecchia, who investigate technological innovation, highlight the major role played by international transfers of technology. Italy creatively adopted foreign technology, as industries’ innovation was driven more by engineering and design than by R&D. Since the 1990s, imports of foreign disembodied technology slowed down while R&D expenditure lagged behind advanced countries deepening the gap. A most informative chapter on the emergence and expansion of Italian multinationals by Fabrizio Onida, Giuseppe Berta, and Mario Perugini closes Part III.

The theme of Part IV is how firms and industries evolved and what the role played in it by banks and public policies. Franco Amatori, Matteo Bugamelli, and Andrea Colli assess how firms reacted to different technological paradigms in a global economy. During the first three-fourths of the twentieth century, industry, especially small and medium-size firms, performed satisfactorily. However, in the latest phase of globalization, small-size firms were unable to take full advantage of the information and communication technology, while suffered increasing competition from emerging countries. Inability to manage social conflict and to create a modern institutional framework seems to underlie Italy’s disappointing performance during the last two decades. The impact of credit allocation on growth and efficiency since World War II is at the core of Stefano Battilossi, Alfredo Gigliobianco, and Giuseppe Marinelli’s essay. They find a contribution of Italian banks to economic growth up to 1970, while overregulation and financial repression — a result of policies socially motivated and serving vested political interests — had a negative impact between the 1970s and mid-1990s. Liberalization had a positive effect on the banking system that responded to growth opportunities and directed credit towards promising industries. Banks, thus, should not be blamed for Italy’s current structural problems. In their chapter, Fabrizio Balassone, Maura Francese, and Angelo Pace find support for the hypothesis of a negative association between public debt and growth over the long run through a reduction in capital accumulation. Nonetheless, unlike the experience of the late nineteenth and early twentieth century, reducing public debt from 1995 to 2007 did not have a positive effect on growth. Delayed fiscal consolidation and the size of public expenditure and deficits appear as the explanation. In this section’s closing paper, Magda Bianco and Giulio Napolitano address the impact of public administration on the efficiency of the Italian economy.

In Part V, dedicated to the regional divide, Giovanni Iuzzolino, Guido Pellegrini, and Gianfranco Viesti focus on the changes in regional convergence of GDP per head since unification and find a declining North-South gap between the late nineteenth and mid-twentieth century that gave way to its increase during the Golden Age, to be followed by a reduction that has stabilized since the 1980s. In human development terms, however, the divergence partially closed over time. Brian A’Hearn and Anthony Venables investigate, in turn, the role of internal geography and foreign trade patterns in regional disparities showing that location of natural advantage and access to domestic and international markets favored the North over time, rejecting the hypothesis of an inverted-U pattern of regional inequality. Water abundance permitted intensive agriculture after unification; largely inward-looking industrialization in the early twentieth century also gave advantage to the North with its larger and more sophisticated markets. In the post-World War II era agglomeration in the North facilitated its access to European Community markets.

I cannot refrain from adding some succinct remarks after reading such a fascinating volume. As regards the quantitative part, it needs to be said that Baffigi’s chapter would by itself justify the volume. However, the way the new series are presented is a bit disappointing. One misses the presentation of long-run trends in GDP and GDP per head and the contribution due to supply and demand components.

In the excellent chapter by Broadberry, Giordano and Zollino it seems surprising that human capital is not considered independently. This decision implies that in the estimates any potential contribution of labor quality is included in the residual, rendering TFP estimates an upper bound of its actual magnitude. In turn, using full time equivalent workers (FTE) fails to take into account the decline in hours worked per employed worker that probably results in a downward bias in labor productivity levels and growth.

Some additional questions emerge. Are broad capital accumulation and efficiency gains, complementary or alternative? Does TFP growth follow capital accumulation? Should it be concluded that Italy exhausted its catching-up potential as it got closer the technological frontier? Other national experiences, such as Korea’s, tend to suggest otherwise.

On the contentious issue of inequality, the Italian historical experience appears of great interest. A’Hearn and Venables do not find confirmation for the hypothesis of an inverted-U pattern of regional inequality. Such a finding is consistent with the results for personal income distribution by Brandolini and Vecchi. This coincidence suggests a possible association between them as differences in average incomes between rich and poor regions will be most probably an element in overall inequality and would explain, perhaps, the absence of a Kuznets curve in Italy.

As the reader will realize, the long journey through this lengthy book is worth pursuing. Italian and European economic history is better and more thoughtful after the appearance of The Oxford Handbook of the Italian Economy.

Leandro Prados de la Escosura is the author of “Economic Freedom in the Long Run: Evidence from OECD Countries (1850-2007),” Economic History Review (forthcoming).

Copyright (c) 2015 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator @ eh.net). Published by EH.Net (October 2015). All EH.Net reviews are archived at http://eh.net/book-reviews/.

Anuncios