Created: 2/8/1963

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ha* more thanowned Industrialr ,i- than any otMr

western European country. These firos employsod account for about on* fifth of the value of the groan national product. Thehas hitherto playedassive role la shaping their policies and managing their. Despite political opposition and resistance froa the entrenched managements, however, tba Fanfani* recently begun efforts to bring these anterprises under closer executive direction ln tha interacts of national eco-noalc planning.

Developments ofate-Owned Sector

The Italian Governmentooat of Its large and complex aeteorlt of holdings, not by leglalatlva action, but through financial rescueduring the depression of the. At that tine It established the Inatltute for Industrialt'llhannel for advance-lag cash to tho largebankK--wblcb were thestockholders ln major lndustries--ln exchange for tbe industrial securities hold by the banks. The large banks also held most of their own stock, through controlled holding companies, and these too were taken over by IBI. The government'samounted to nationalization-was enthusiastically supported by the industrialists and tho bankers, vbo were thus balled out by the taxpayer.

Successive Italiansince acrid war II have maintained their industrial empire, justifying this as "directly related to tbe procaaa of removing imbalances in the economic and social structure of the country." Despite the

sise of the state firms and their Importance ln various essential sectors of thehowever, the conceptarket economy has not been abandoned. This is In part reflected ln the form of tba government'a partlclpatloo. Shereas the transportation and moat of tbe communications facilities are directlyby the cabinet ministries concerned, the government's participation la the Indus-trlalenterprlses is through the ownership of equity shares which, sinceave all been heldinistry of State Holdings.

As specified in tho enabling legislation, that ministry's principal function is to "pro-vldwover-all direction andthe economic activities of tho firms under ItsIt ass not intended, nor has it developed, that the ministry should directly manage the business activities offirms. The law further provides that the activities of the ministry ore to bewith the governmeat's over-all economic policiestanding committee coaposed of the prime minlater and the principal economic ministries.

With tbe exception ofminor industrial interests, all of thecompanies for which the Ministry of Statea responsible now are grouped according to the type ofproduced or mervlce rendered undorozen very large holding companies. These companies are themselves subsidiaries of and directed by the two giant holdingIRi and the National Hydrocarbons Agency (EKI). hird corporation, Ihe newly established Electric Energy Agsncyill be under tho supervision of the Ministry for Industry and Commerce.





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state-owned enterprises are, on tha whole. efficiently rua businesses. The present (onrEMm baa attributed to thea such of tbe credit for Italy's high econostc growth rate, pointing out tbat in general they have expanded production faster thaa flrww Id tbe private sector. t la expected that Btate-owned rirna will invest overillion ln tbe econoay.

Institute for Industrialtrue tIon

IRI la by far the largest financial holding group ln Italy. According to its offlelal reportssets of theand banking concerns under Its control amounted to5illion for tbe Industrialillion for toe "banks of nationalnd the balanceother aaaeta.



Its six subsidiary holding companies, tba institute by law supervises flraei wholly or partially government-owned whichubstantial percentage of Italy's basic industrial output. Mr dmby mi are estimated to account forercent of Italian shipbuilding and to produco more thanercent of Italy's total output of pig iron,ercent of Its steel, andercent or more of its ball bearings, as wellower but still significant percentage of the output of many other industries. Notable other examples are thoseproducing railroadmachine tools, precision Instruments. electro-mechanical products, and cement. Illoapleta monopoly ln Radio-Televlalone Itallana (RAI-TV) and ln the national telephone system and airline. IRI's control over Italy's throe largeot banks and its substantial stock interests in many others facilitate implementationational credit poller.

Although the government had been criticized ln the past for subsidizing IRIthat turned out to be uneconomic, tho company's performance in this reepect appears to have The precise path by which government funds flow Into stste enterprises is very difficult to chart because of the complex methods employed in extending financial sld and because "write-offs" have been fairly common. According to the minister for state holdings, state contributions to the various capital endowments of all state firms (including Oil) probably amount to about 8of their total financial requirements

Mational Hydrocarbons Agency

veloped, with the full support of the government. Into one of the most dynamic and controversial enterprises ln Europe. The agency hasajor factor ln the national economic recovery, and most Italians regard Mattelational hero who enhanced the country's prestige. Through Its five subsidiary holding companies, ENI managesfirms concerned with the exploration, production, and marketing of petrochemicalas well as many firms which produce equipment related to this industry. ESI operating cospanlsa and their subsidiaries have worldwide interestsa nultibilllon-dollar industrial and commercial empire,

Mattel's death ln October posed questions as yet unresolved regarding tbe course of future Italian petroleum policies. The situation Is furtherby the fact that many aspects of EHI operations were known only to Mattel. On several recent occaalons. tha govarnment has expressed Its firm Intention of continuing Mattel'soil policies la full. Certain of theserade agreement with the Soviet Union, have gonerated considerable criticism outside of Italy. Moreover, bis financial arrangements grantingarger share of oil profits than bad been customary In International practice elicited the animosity of other companion.

rangenon the agre

A recent indication of tbe government's determination to follcw Mattel policies was tho agreement signed last month between tbe government of tbe Congo andubsidiary AGIP for the construction andthereon refinery. Mattel's innovation,apital provision ar-t, Is provided for in amwnt,

under the leadership of the late Enrico Mattel, de-

the government's intentions. It sees* unlikely that CHI's activities can be maintained in the long run as aggressively and as brilliantly under tho leadership of another individual.

Although Marcello Boldrlnipromptly appointed to succeed as EMI president, there vasconsiderable wrangling between Christian Democratic leaders over the selection, and his appointment, which expires onarch, will probably not be ronewed. It Is doubtful ln any event that the ultimate successor will be able totbe politicalwielded byinancial angel to various political parties andprobably was the most powerful individual ln Italy.

Extent of Government Control

The government asserts that the state firms havea "fundamental function tn the field of programeddevelopment." As provided by law,7 they have tunneled close toercent of their nsw investments into the economically depressed south, which private capital has tended to shun. It is planned that state firms will7 billion to this area2 and

In most respects, however, tbe government does not exert executive control over the state-owned enterprises, the large IRI subsidiaries and KM have enjoyed almost complote latitude in running their corporatesnd the criteria for their activities have normally been strictly businessratlons rather than the national interest. Although financial reports on each of the state enterprises are submitted to Parliament as required by law, these are usually fragmentary and apparently often deliberately distorted.

A recent example of the near-complete Independence whichenterprises nave Is shown by the proposal for Italian assistance through the state-owned Alitalia airline ln the developmentomali airllno--

project considered to be of considerable political importsnce to Rome. The government, although it did not know olther thela of Alitalia's offer to the Somalis or Its negotiating position, was prepared to make up any deficit

If Alitalia decided" toin the project.

industrialists in the statemajorignificant political force. Although this derives partly from the patronage and financial resources available to them, mors significantly it comes through default. The government--an "absenteeoes not normally Intervene tothose business activities of stste-osned firms which might have International political implications and, in fact,these as contributing to the general economic welfare.

Pressures for Change

For purposes of national reconstruction aod reform,tbe government Is trying toreater degree of direction over tho state-owned enterprises. Public planning functions, ln wblcb state firms willsy role, nave been brought under the recentlyNational Economic Planning Board, which is scheduled to submit its preliminarythis month. Tbe government also plans "some rs-organlzatlon" of the Ministry of State Holdings. Thishas been billedove to gst more efficient management of tbe various stats-owned companies and to "assure that their activities conform 1th the objectives of the govern-

nent's economic program.



efforts to gain Increased control will be resisted by the entrenched state Managers and others who argue that tbls will stifleInitiative. The lack of an expert staff tothe activities of the state rimandicap.

This resistanceop-levellast month on tbe role of state-owned fires In attaln-lng the objectives of snplan, mi's president, while conceding the value of over-all planning, emphasised that public organizations must continue to operate on the same business basis as private firms. Socialist Party (PSI) Deputy Biccardo Lombardl, who Isthe probable successor to party leader Pletro Hennl and is the party's expert oa economic matters, responded tbat the time has come for state firms to modify their operating methods. He asserted tbey mlgbt be aesigned objectiveseneral development plan which might not permit profitable operations.

Opposition to change also coaes partly from privatewhich control several of tbe most Important fields of tbe economy) such as theand automotive Industries. Conservative opinion generally Is opposed primarily out of fear of Increased publicin the privatewhich they feel would adversely affect their business interests. There Is realamong some conservatives tbat any extension ofcontrol is fundamentally harmful to the democraticof private enterprise.

However, there is no evidence tbat those groups are exerting any serious pressure to return government enterprises

to private ownership. Instead, they are concentrating on efforts to bring down the government la Ihe belief that it is theof policies inimical to their loterests.

The Issue was drawn still more sharply by theln December of most of the firms producing electric energy. The firms affected, together with those slready owned by tbe government, produce roughly three quarters of the country's total output of electric energy. The measure was bitterly opposed by private industrialists and business circles generally on the ground that it lacks economic or social justification. Right-wing circles are also alarmed because passage of this bill was tbe principal requirement laid down by the PSI as part of the price of its acquiescence in the formation of the present government.

Except for that froa tbewho recentlyall for nationalization of the sugar, cement, and chemical Industries, there are no pressures at present for additionalmeasures, and tbe Panfanl government has no plans for any.

Fanfanl's Christian Democrats, at their national council meetlnK laat summer,esolution that tbey would not consider any further nationalization proposals, and the parlies to the right of the ChrlHtlan Democrats are also opposed. Although the backbone of the PSl's economic program is state supervision and regulation of all phases of economic activity and the parly's long-rangeis the eventualof state costrol overparty secretary Nennl and other PSI leaders havethat the party does not Intend to propose further nationalisationong time." Ua*ifTiAL)

8 Feb9 "I

Original document.

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