Changing Models of Capitalism in Europe and the U.S. by Richard Deeg & Gregory Jackson

Author:Richard Deeg & Gregory Jackson [Deeg, Richard & Jackson, Gregory]
Language: eng
Format: epub
ISBN: 9780367739874
Google: -8L8zQEACAAJ
Goodreads: 55835386
Publisher: Routledge
Published: 2014-09-16T00:00:00+00:00

2. ITALIAN CAPITALISM IN THE LATE 1970S

The Italian institutional configuration at the end of the 1970s can be reasonably summarized in a few points.

Italy had a bank-centred financial system shaped by the 1936 banking law (similar to the contemporary Glass Steagall), separating short-term from medium-term lending and banks from industrial ownership. One peculiarity was that, as a result of widespread bank rescue programmes in the 1930s, large banks were publicly owned by the Institute for the Industrial Reconstruction (IRI), a state holding company, while local savings banks were in the hands of local government.

Moreover, Italy had a corporate governance system dominated by insiders (Deeg 2005a). This insider–outsider model of company governance (Aguilera and Jackson 2003) has been labelled family capitalism, as large non-state companies remained under the control of the entrepreneurs’ families. In fact, Mediobanca organized a ‘trust’ of intertwined shareholdings to protect the power position of a number of important families. The reduced transparency of the stock exchange made the position of minority shareholders quite weak. Consequently, domestic savers preferred to invest in treasury bonds (until the middle of 1990s), thereby facilitating the growth of government debt.

On the industrial side, state-controlled companies operated in many manufacturing and service sectors; they invested directly in high-tech production processes, public utilities and industrial activities in less developed areas to reduce the regional gap created by private business. This reinforced the role of a small number of large companies as powerful forces of economic growth from the 1950s to the 1970s. They also spearheaded the export-led growth trajectory that the government chose at the start of post-war development period (Fuà 1980; Graziani 1998). Large companies (private or state-owned) prevailed in the core oligopolistic sectors where trade unions were also strong.

The largest unions were linked to the major political parties, while a large number of small unions thrived in the public sector, and governing parties used them as a means of political control. This fragmentation of unions, and the propensity for conflict that stemmed from it, required the state to play an extensive role in managing industrial conflict. Though the government often involved industry associations and trade unions in the regulative processes of the economy, a neo-corporatist industrial relations system was never achieved, as attempts were inconsistent and weakly institutionalized (Ferrera and Gualmini 2004). Moreover, powerful trade unions ensured that relatively high wages were granted to unionized workers (also in real terms owing to the centrally agreed automatic adjustments to inflation), which induced large firms to adopt capital-intensive techniques. This created economies of scale and monopolistic positions for large firms which could also enjoy lower interest rates when borrowing from the banking system. A sort of ‘institutional equilibrium’ between high labour protection of medium- and large-firm employees and strong paternal management and concentrated ownership was therefore achieved (Belloc and Pagano 2010). This pulled the system towards a distribution of value added that was relatively favourable to labour (more than 80 per cent of gross domestic product [GDP] in the middle of the 1970s).

The employment

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