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REPORT
NATIONAL ECONOMIC PLAN
OFFICE OF
AGENCY
current intelligence
ITALY'3 NATIONAL ECONOMIC Viu'.H
The dolays and frustrations which narked the three-year process olraft national economic plan for Italy illustrate the continuing difficulty of achieving consensus on important within Premier Moro's center-left government. While there is general agreement on the needlan toore rational development of Italy's economy, there is wide disagreement on what the plan should contain. The progressiveof the coalition ts stressing baste social and economic reform. ore equitable distribution of the national income aimed atstill-widespread poverty in Italy. right-wing critics, however, fear thaton reform will deter productive investments. In order to get some action, the cabinet maynot to ask Parliament to vote the economic plan into law. Instead, it will probablyeneral endorsement of the document and then try to enact its separate proposals individually.
Economic and HOCroblems
Tbe draft Ptve-Year Economic Program was approved by thelast January. The cabinet now Is reviewing recommendations submitted by the National and Labor Council, anbody composed of leading labor. Industry, and governmentes.
This plan might bave been ready for presentationanuary IMS, the original deadline, had not the Horo government been obliged to devote ita main energies ln the months following Its formation to seriousof inflationary pressureritical balance-or-payments deficit. Conservative forces
argued, and the Socialists in the government reluctantly agreed, that the question of basic reforms would be held ln abeyance while prioritywas given to the critical economic situation. Although the country's finances havesubstantially sinceeneral businesscontinues.
The plan represents a first systematic approach to achieving the structural reforms that are prerequisite to rationaldevelopment over the long term. The areas of structural delect in the Italian economy include: deficient transport facilities, lagging agricultural production, an inadequatesystem, an antiquated retail system, an outdated serial
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EXCERPTS FIIOM ECONOMIC POtlCY AGREEMENT AMONG THE FOUR PARTIES OF THE MORO GOVERNMENT IN ITAtV (Approved
The Parties unanimously declareey *eek to achieve,olicy of economic programing, the elimination of continuing territorial, sectoral, and income distributionat -all ca rhe elimination of mojor deficiencies in our country'! sociol foci lilies, thusrogresel advance toward the permanent objective* of economicpolicy: full employment, widespread prosperity,ise In the standard of living.
This policy will also hove to assure, together with the highest possible rote of economicetter coordlna'lon of this process, so thot the notion's problem* will be faced and solved in the brood* it perspective on the basis of priorities of their respective importance ond urgency.
conomic policy shall be olmed isof ot perpetuating the present social ond economic structure, but ol effecting changes deemed useful to the community's betl Interests.thus assumes the function of on instrument which,ynamic and cohereni view of society, will makehoughtful choice of the objectives of socioeconomic prog-ressoint effort to ochleve these objectives through the liming, means and instruments required.
The Porties recognize the Importance, for the success of such action, of the active ond responsible contribution of oil factor* of production including labor, and re^mpheeire that lhe cooperation required be carried out ir. conformity with the principles which lie ol the foundation of our democratic society.
he forties confirm their will to atsuie entrepreneurs of lhe stability of lhe basic economic system, to Ihot the toller will not be forced lo run risks other ihon those Inherentarket economy. Within lhe framework of (he Government's agreed program, (Hedo
Finally, the Parties believeolicy of programing will achieve belter results the more our economy reroJro the charocteriftict of on open system. Therefore, Inas an irreversible choice the repudiation of protectionist ond oulorchlc policies, they ogree on lhe need to develop International economic cooperation further toward increasing the integration of our notional market into lhe intemolionoi morket.
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system, an admittedly unfair tax system. Insufficient scientific and technologlra 1and the lack of urban planning. The notoriouslybureaucracyajor psychological as well ashandicap in the solution of these problems.
One of the major objectives is to harmonize private and Investment, as well as the regional development plana, with the general alms of the national economic plan. rimary lsftue here is the future role of state-owned Industriesprobably account for as much asercent ol Italy's GNP. Business circles have been apprehensive that the new plan might iavor the public sector and modify the role of the free market mechanism to their Government leaders have repeatedly sought to thta apprehension bythat there is no intention to enlarge the public economic sector significantly.
Earlier Plans
Teaplte the problemsIn preparing the proposal, Italy Is notexperience In economic Sixteen majorplans have been attempted for underdeveloped regions and for particular economic sectors. Tho moat successful of these Is associated with the Caaaa per ll Mezzoglorno (Fund for thestablished0 to modernize southern Italy, Sicily, and Sardinia. In January, the Moro cabinetraft
bill to extend this plan lor anotherears andincrease its budget. The only attempt to establish adevelopment plan, was an Ill-fated effort launched3 by then Budget Minister Venonl.
The multiplicity ofprograms and the lack of clear delineation ofresponsibilities have ledureaucratic tangle among tne ministries andcharged with Implementation of the various plans as well as to heavy competition forin Italy's thin, relatively underdeveloped capital market.
Inational Economic Planning Commissionof representatives of government, industry, and laborasic fact-finding mission as the first phase of workomprehensive. plan for the entire Government guidelines called for planning to combine the standard objectives ofpollcy--growth, fullbalance of payments equllIbrlum.and priceith consideration of Italy's special needs for improveddistribution andof structural differences among regions, economic sectors, and levels or society.
The political involved in establishing the relative importance andof sucb problem areas aa agriculture, urban planning, education, science, andtraining complicated the
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italy
GROSS NATIONAL PRODUCT
18D
55 56 37 36 59 60 61 63 63 4
mtata
SELECTED ECONOMIC INDEXES
conmissioitask. Nevertheless, soon after the formation of the tii's i Moro governmenteport Listing the general alms and objectivesational economic plan was released,tudy that spelled out the guiding economic principles to be lollowed was also published.
These efforts resulted finally in the formulationlan, but It was discarded at the time the first iloro fell in The present draft, prepared under the direction of Socialist Dudget minister Pleraccini,center-left accord on the textlan and reflects an evolving public consensus in favor of the concept of national planning.
The Pive-Year Program
The dralt plan projects an annual rate of economic growthercent during the five-year period. Total public and private fixed investment during that period Is expected to be approximatelyercent of GNP. Anercent rise Inproductionercent rise In agricultural output is forecast, while the target for consumptionercent average annual Increase.
Although4 growth was well below these projected rates, the goalsto be realistic as long-term projections from previous Italian experience. However, with business in continuinggrowth5 willcertainly Jail below the average and the slowdown Inrecovery may continue
The process ofplan objectives and private industry goals will Involveconsultation between government and bualness asis for these discussions the planning authorities will, under the present draft program,powered to request industrial associations to provide on development plans in various sectors and to ask large firms for information on their long-run Investment programs.
In implementing the plan the government doea not Intend to impose binding commitments on individual business concerns. It will, however, influence their decisions to expand or contract operations through Its actions in such fields aspolicy, public works, and aid to underdeveloped regions. The plan Is thus an Instrument for guiding The economy, not for coercing it. The target figures will be subject toreadjustment, if revisions seem warranted by changes In political or economic
The Next Step
The recommendations of the National Economic and Labor Council ntail some <le-emphasls of allocations toexample, education and low-cost housingIncreasing the resources
ITALY: PERCENT OF GNP EXPENDED FOR PUBLIC SERVICES AND ECONOMIC INFRASTRUCTURE
%
and health
post, and telecommunications
and public works
9 plan
(gnp totalillion)
redominantly lor notional defenw, internal teeuriiy. and icieniific ana Technical
available for directlyinvestments ln industry and agriculture. esult, planning officials Davethat some increases may have to be made in the volume of planned investments inIndustry at the expense of public services and socialparticularly in the South. The cabinet is not legally bound to adopt CNEL's recommendations, but, in practice, the council's stature requires that its advice be accepted in Some form.
The CNBL recommendations bave been exploited by thefor political ends.CNEL's opinion was given, Italy's largest laborthe Communist-dominated CGIL, expressed "fundamental disagreement" with features of the plan. CGIL'r basicare that the program is not oriented to eventual greater state control over the direction of the economy and that thepolicy" is toohat wage hikes are tied toln productivity, COIL'S position points up the dilemma which faces the cabinet into strike an acceptable compromise between labor and management.
The government expects to present toill to expand the Budget Ministry,It responsible for planning. This, however, may be watered down as certain cabinet nembers assert their political Interests against the transfer offrom their ministries to tbe Budget Ministry. ecently
established "Committee offor Economico be presided over by the premier, is to have over-allfor supervisingof the plan.
Planning Hurdles
The objective of Italian economic planners is ahigh rate of growth the Inflationary Impact of excessive increases In wages and consumer expenditures. The anti-inflationary efforta politically awkward "incomes policy" that wouldlabor's demands for more rapid improvement of living standards. Treasury Minister Colombo has stressed that the economic program requiresand proportion with respect to the interrelationship ofIvlty,wages, and profits."
All of Italy's major trade confederations bave sharply criticized the incomes policy in its present form. CGIL, at Its late March congress,Budget Minister Pierac-clnl when he defended thedespite the efforts of his fellow Socialists to play down the incomes policy issue In favoreneral statement of support for the planhole.
The Communist majority was delighted with the chance toop Socialist Party spokesmanolicy Issue wblch obliged him to seem to supportover labor.
The government now isilemma over the degree of control It should exert through
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plan. Tbebility to enforce variouswith respect to both labor and management, appears to have beenuccession ol drafts to the point where the present version has been described simplyven so the government is still on the defensive against charges that the plan is "authoritarian" or "imperative."
Conclusions
In general, businessmen accent the concept ol national planning, but their finalwill not be determinedthe definitive plan has been presented to Parliament, Busl-
earlier apprehension that the government wouldominant role in the economy seem* to have been overcome.
Labor leaders have long pressedational economic plan for some time but their support will be tempered by their opposition to theincomes policy. Thegeneral of ConfIndustrie (the Italian equivalentational association ofrecently pointed out,that as the incomesis an integral part of the present draft, it would befor labor to reject the policy without undertaking the
"quiteask ofan entirely dLfferent plan,
The government'8 ability to modernize Its own operation and rerorm publicwill probably proveto the success of the plan. The bureaucracy is poorly equipped, however, by training ortoundertake nationalplanning. It will be rurther hampered by the lack of reliable statistical tools and knowledgeable technicians. Ln the plan'showever, may belessing In disguise as lt should enable the coalition tolexible approach toas they arise rather than force it to make manyunpalatable decisions at the outset. On the other hand, imprecision could serveationalization for future gov -ornnent inactivity.
Despite cabinet agreement on the over-all plan,within and between the coalition parties continue over certain provisions and thepoints at Issue will emerge more clearly during theparliamentary debates. Their solution will hinge on theof cabinet leaders toompromise to meet the minimum demands of powerful factions within the major coalition
Original document.
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