This is a history of the economy of Italy. For more information on historical, cultural, demographic and sociological developments in Italy, see the chronological era articles in the template to the right. For more information on specific political and governmental regimes in Italy, see the Kingdom and Fascist regime articles. The economic history of pre-unitarian Italy traces the economic and social changes of the Italian territory from Roman times to the unification of Italy (1860).
Until the end of the 16th century, Italy was highly prosperous relative to other parts of Europe. From the end of the 16th century, Italy stagnated relative to other parts of Europe. Italy remained a leading European economy until the first half of the 19th century when it was overtaken by France and Germany. At the time of Italian unification, Italy's GDP per capita was about half of that of Britain. By the 1980s, Italy had similar GDP per capita as Great Britain. Since the mid-1990s, the Italian economy has declined in both relative and absolute terms, as well as experienced a decline in aggregate productivity.
Within Italy, the South and North diverge considerably in terms of economic fortune. The divergence began to emerge in the 15th century and gradually enlarged over the subsequent centuries.
From ancient Rome to Middle Ages
In Roman times, the Italian Peninsula had a higher population density and economic prosperity than the rest of Europe and the Mediterranean Basin, especially during the 1st and 2nd centuries. Beginning in the 3rd century CE, the Roman Empire began to decline, and so did the Italian territory and its cities.
During the early Middle Ages (7th–9th centuries), the economy was in a depressed, semi-subsistence state, gravitating around feudal centers. Beginning in the 10th century, the Italian population and economy began to grow again, along with urban centers. Extensive trade networks developed over time, linking Italian centers to a network of relations from Asia to northern Europe. These centers of manufacturing, financial, mercantile and cultural activities made the Italian economy more prosperous than other European countries..
The arrival of the Black Death in the mid-1300s decimated the population, but it was soon followed by an economic revival. This growth produced a prosperous Renaissance economy that was advanced compared to European countries. Italy's leading sectors were textiles (woollen and silk workmanship, widely exported), banking services, and maritime transport.
Renaissance
The Italian Renaissance was remarkable in economic development. Venice and Genoa were the trade pioneers, first as maritime republics and then as regional states, followed by Milan, Florence, and the rest of northern Italy. Some reasons for their early development are the relative military safety of Venetian lagoons, the high population density and the institutional structure which inspired entrepreneurs. The Republic of Venice was the first real international financial center, which slowly emerged from the 9th century to its peak in the 14th century. Tradeable bonds as a commonly used type of security, were invented by the Italian city-states (such as Venice and Genoa) of the late medieval and early Renaissance periods.
17th–middle 19th century After 1600 Italy experienced an economic catastrophe. In 1600 Northern and Central Italy comprised one of the most advanced industrial areas of Europe. There was an exceptionally high standard of living. By 1870 Italy was an economically backward and depressed area; its industrial structure had almost collapsed, its population was too high for its resources, its economy had become primarily agricultural. Wars, political fractionalization, limited fiscal capacity and the shift of world trade to north-western Europe and the Americas were key factors.Carlo M. Cipolla, "The Decline of Italy: The Case of a Fully Matured Economy." abFZxxxx Economic History Review 5#2 1952, pp. 178–187. online
1861–1918
The economic history of Italy after 1861 can be divided in three main phases: an initial period of struggle after the unification of the country, characterised by high emigration and stagnant growth; a central period of robust catch-up from the 1890s to the 1980s, interrupted by the Great Depression of the 1930s and the two world wars; and a final period of sluggish growth that has been exacerbated by a double-dip recession following the 2008 global financial crush, and from which the country is slowly reemerging only in recent years.
Age of Industrialisation
Prior to unification, the economy of the many Italian statelets was overwhelmingly agrarian; however, the agricultural surplus produced what historians call a "pre-industrial" transformation in North-western Italy starting from the 1820s, that led to a diffuse, if mostly artisanal, concentration of manufacturing activities, especially in Piedmont-Sardinia under the liberal rule of the Count of Cavour.
After the birth of the unified Kingdom of Italy in 1861, there was a deep consciousness in the ruling class of the new country's backwardness, given that the per capita GDP expressed in PPS terms was roughly half of that of Britain and about 25% less than that of France and Germany. During the 1860s and 1870s, the manufacturing activity was backward and small-scale, while the oversized agrarian sector was the backbone of the national economy. The country lacked large coal and iron deposits and the population was largely illiterate. In the 1880s, a severe farm crisis led to the introduction of more modern farming techniques in the Po Valley, while from 1878 to 1887 protectionist policies were introduced with the aim to establish a heavy industry base. Some large steel and iron works soon clustered around areas of high hydropower potential, notably the Alpine foothills and Umbria in central Italy, while Turin and Milan led a textile, chemical, engineering and banking boom and Genoa captured civil and military shipbuilding.
However, the diffusion of industrialisation that characterised the northwestern area of the country largely excluded Venetia and, especially, the South. The resulting Italian diaspora involved 29 million Italians (10.2 million of whom returned) between 1860 and 1985 and 9 million permanently left of 14 million who emigrated between 1876 and 1914 two-thirds of whom were men; by many scholars it is considered the biggest mass migration of contemporary times. During the Great War, the still frail Italian state successfully fought a modern war, being able of arming and training some 5 million recruits. But this result came at a terrible cost: by the end of the war, Italy had lost 700,000 soldiers and had a ballooning sovereign debt amounting to billions of lira.
The agrarian crisis and the Italian diaspora
The unification of Italy in 1861–70 broke down the feudal land system that had survived in the south since the Middle Ages, especially where land had been the inalienable property of aristocrats, religious bodies, or the king. The breakdown of feudalism, however, and redistribution of land did not necessarily lead to small farmers in the south winding up with land of their own or land they could work and profit from. Many remained landless, and plots grew smaller and smaller and thus more and more unproductive as land was subdivided among heirs. The Italian diaspora did not affect all regions of the nation equally, principally low income agricultural areas with a high proportion of small peasant land holdings. In the second phase of emigration (1900 to World War I) most emigrants were from the south and most of them were from rural areas, driven off the land by inefficient land management policies. Robert Foerster, in Italian Emigration of our Times (1919) says, " [Emigration has been]…well nigh expulsion; it has been exodus, in the sense of depopulation; it has been characteristically permanent.Cited in ".
Mezzadria, a form of sharefarming where tenant families obtained a plot to work on from an owner and kept a reasonable share of the profits, was more prevalent in central Italy, which is one of the reasons why there was less emigration from that part of Italy. Although owning land was the basic yardstick of wealth, farming in the south was socially despised. People did not invest in agricultural equipment but in such things as low-risk state bonds.
Southern question
In the decades following the unification of Italy, the northern regions of the country, Lombardy, Piedmont and Liguria in particular, began a process of industrialization and economic development while the southern regions remained behind. At the time of the unification of the country, there was a shortage of entrepreneurs in the south, with landowners who were often absent from their farms as they lived permanently in the city, leaving the management of their funds to managers, who were not encouraged by the owners to make the agricultural estates to the maximum. Landowners invested not in agricultural equipment, but in such things as low-risk state bonds.
In southern Italy, the unification of the country broke down the feudal land system, which had survived in the south since the Middle Ages, especially where land had been the inalienable property of aristocrats, religious bodies or the king. The breakdown of feudalism, however, and redistribution of land did not necessarily lead to small farmers in the south winding up with land of their own or land they could work and make profit from. Many remained landless, and plots grew smaller and smaller and so less and less productive, as land was subdivided among heirs.
This gap between northern and southern Italy, called "southern question", was also induced by the region-specific policies selected by the post-unitary governments. For example, the 1887 protectionist reform, instead of safeguarding the arboriculture sectors crushed by 1880s fall in prices, shielded the Po Valley wheat breeding and those Northern textile and manufacturing industries that had survived the liberal years due to state intervention. A similar logic guided the assignment of monopoly rights in the steamboat construction and navigation sectors and, above all, the public spending in the railway sector, which represented 53% of the 1861–1911 total.
The resources necessary to finance the public spending effort were obtained through highly unbalanced land property taxes. This affected the savings available for investment in growth sectors, which also lacked a developed banking system. Given the inability of the government to estimate the land profitability, especially because of the huge differences among the regional cadasters, this policy irreparably induced large regional discrepancies. This policy destroyed the relationship between the central state and the Southern population by unchaining first a civil war called Brigandage, which brought about 20,000 victims by 1864 and the militarization of the area, and then favouring emigration, especially from 1892 to 1921.
After the rise of Benito Mussolini, the "Iron Prefect" Cesare Mori tried to defeat the already powerful criminal organizations flourishing in the South with some degree of success. Fascist policy aimed at the creation of an Italian Empire and Southern Italian ports were strategic for all commerce towards the colonies. With the invasion of Southern Italy during World War II, the Allies restored the authority of the mafia families, lost during the Fascist period, and used their influence to maintain public order.