BUSINESS WATCH

Mussolini’s corporate legacy

Peter C. Newman November 23 1987
BUSINESS WATCH

Mussolini’s corporate legacy

Peter C. Newman November 23 1987

Mussolini’s corporate legacy

BUSINESS WATCH

Peter C. Newman

If anyone symbolizes Italy’s economic miracle, it must be Romano Prodi, a pudgy former university professor who heads an anonymous-sounding commercial complex named the Institute for Industrial Reconstruction. Although scarcely known outside Italy, IRI is the largest non-oil company outside the United States, ranking third among Fortune magazine’s parade of 500 foreign industrial giants, just behind Royal Dutch/Shell and British Petroleum.

Revenues from the 1,078 companies that comprise the cumbersome conglomerate last year exceeded $40 billion from such disparate sources as the world’s third-largest steel plant, threequarters of Italy’s shipbuilding capacity, the country’s telephone system, four of its richest banks, factories making everything from chocolates and ketchup to burglar alarms, and Alitalia, the national airline. That bewildering corporate goulash is a legacy from the Depression of the 1930s when, under the guise of national socialism, Benito Mussolini folded most of the country’s bankrupt industries and financial institutions into several state-owned trusts, IRI being the largest and most diversified among them. IRI remains government-controlled (reporting to parliament through a ministry for state holdings), and Romano Prodi has not only managed to make the huge complex profitable (a net of $274 million in 1986), he is now busy

privatizing it.

When Prodi took over the faltering giant in 1982, IRI was losing $2.5 billion a year, staggering under a $30-billion debt load, and its annual borrowings amounted to 12 per cent of all new debts assumed by Italian companies and households. Prodi had been a professor of industrial organization at the University of Bologna, having graduated in law and served as a research assistant at the London School of Economics. He later spent a year as president of the Maserati autoworks and eventually moved into active politics, becoming minister of industry in 1978 in one of Giulio Andreotti’s shortlived governments. In 1982 his fellow Christian Democrats put him in charge of the IRI complex, which was then on the edge of collapse. Since then he has been running the company

This is one of a series of columns on Italy ’s dramatic economic recovery.

as if he owned it and, recently, was appointed to a second four-year term.

Prodi has defied Italy’s taboo against layoffs by reducing IRl’s labor force to 470,000 now from 543,000 in 1982, and he has replaced three-quarters of the company’s executives. He has modernized obsolete plants and pegged salaries and advancement to performance instead of political connections. Prodi persuaded IRl’s unions to accept job cuts, mainly through pa-

tient consultation (unusual in Italian labor relations), and reduced hours lost through strikes by one-fifth in the process.

Prodi was recently named Italy’s leading business executive in a poll of industrialists and financiers in LEspresso, a leading weekly newsmagazine. There is continual speculation that he may be drafted back into the troubled Christian Democrat party as a future leader and possible prime minister.

But Prodi says that he is having too much fun where he is. “Even though I taught industrial organization, this is the first time I’ve had a chance to apply it,” he told me during an interview at his headquarters on Rome’s Via Véneto. “Eventually, I will go back into my teaching job at the University of Bologna, where I will be able to write some dandy case studies. Meanwhile, I intend to speed up the privatization process, taking some risks along the way, because IRI needs more equilibrium in its profit position.”

Prodi is expanding his company’s reach into world markets, particularly Europe, “IRI was started by necessity,” he said. “Now we can achieve something by intelligence, and we should not continue to own any operations that can be run better by the private sector.” Prodi’s biggest problem is the money-losing Finsider SpA, the antiquated IRI steel complex that lost $587 million in the first half of 1987.

The main reason Prodi has become such a popular Italian icon is that he has broken the stranglehold of the country’s business establishment over industrial ownership. He did it by using the Milan exchange to float about $4 billion worth of stock in such IRI companies as Alitalia, then applying the funds to reduce corporate debt. He has spun off about 20 companies, including Alfa Romeo, IRl’s car-building subsidiary, which was sold earlier this year to Fiat for $1.1 billion.

The hidden agenda driving Prodi and other enlightened Italian businessmen is that the European Community plans to remove all trade barriers among its 12 member nations by 1992. They say that Italy can prosper under such an arrangement only by harnessing the competitive energies of private enterprise. But for many observers, the process is not moving nearly fast enough.

For his part, Daniele Kraus, general manager of the powerful Entrepreneurial Association of Lombardy, told me: “Prices are not a function of costs in this country because there is still far too much politics and public-sector involvement in the economy. The privatization process is much too slow. A truly industrial society cannot compromise; it lives by the marketplace. Politics functions along behavioral lines where nothing is definite, everything is negotiable.” That battle between bureaucracy and free enterprise will decide Italy’s future.