[An updated version of this article can be found at Fascism in the 2nd edition.]
The best example of a fascist economy is the regime of Italian dictator Benito Mussolini. Holding that liberalism (by which he meant freedom and free markets) had "reached the end of its historical function," Mussolini wrote: "To Fascism the world is not this material world, as it appears on the surface, where Man is an individual separated from all others and left to himself.... Fascism affirms the State as the true reality of the individual."
This collectivism is captured in the word fascism, which comes from the Latin fasces, meaning a bundle of rods with an axe in it. In economics, fascism was seen as a third way between laissez-faire capitalism and communism. Fascist thought acknowledged the roles of private property and the profit motive as legitimate incentives for productivity—provided that they did not conflict with the interests of the state.
Fascism in Italy grew out of two other movements: syndicalism and nationalism. The syndicalists believed that economic life should be governed by groups representing the workers in various industries and crafts. The nationalists, angered by Italy's treatment after World War I, combined the idea of class struggle with that of national struggle. Italy was a proletarian nation, they said, and to win a greater share of the world's wealth, all of Italy's classes must unite. Mussolini was a syndicalist who turned nationalist during World War I.
From 1922 to 1925, Mussolini's regime pursued a laissez-faire economic policy under the liberal finance minister Alberto De Stefani. De Stefani reduced taxes, regulations, and trade restrictions and allowed businesses to compete with one another. But his opposition to protectionism and business subsidies alienated some industrial leaders, and De Stefani was eventually forced to resign. After Mussolini consolidated his dictatorship in 1925, Italy entered a new phase. Mussolini, like many leaders at this time, believed that economies did not operate constructively without supervision by the government. Foreshadowing events in Nazi Germany, and to some extent in New Deal America, Mussolini began a program of massive deficit spending, public works, and eventually, militarism.
Mussolini's fascism took another step at this time with the advent of the Corporative State, a supposedly pragmatic arrangement under which economic decisions were made by councils composed of workers and employers who represented trades and industries. By this device the presumed economic rivalry between employers and employees was to be resolved, preventing the class struggle from undermining the national struggle. In the Corporative State, for example, strikes would be illegal and labor disputes would be mediated by a state agency.
Theoretically, the fascist economy was to be guided by a complex network of employer, worker, and jointly run organizations representing crafts and industries at the local, provincial, and national levels. At the summit of this network was the National Council of Corporations. But although syndicalism and corporativism had a place in fascist ideology and were critical to building a consensus in support of the regime, the council did little to steer the economy. The real decisions were made by state agencies such as the Institute for Industrial Reconstruction (Istituto per la Ricosstruzione Industriale, or IRI), mediating among interest groups.
Beginning in 1929, in preparation for achieving the "glories" of war, the Italian government used protectionist measures to turn the economy toward autarchy, or economic self-sufficiency. The autarchic policies were intensified in the following years because of both the depression and the economic sanctions that other countries imposed on Italy after it invaded Ethiopia. Mussolini decreed that government bureaus must buy only Italian products, and he increased tariffs on all imports in 1931. The sanctions following the invasion of Ethiopia spurred Italy in 1935 to increase tariffs again, stiffen import quotas, and toughen its embargo on industrial goods.
Mussolini also eliminated the ability of business to make independent decisions: the government controlled all prices and wages, and firms in any industry could be forced into a cartel when the majority voted for it. The well-connected heads of big business had a hand in making policy, but most smaller businessmen were effectively turned into state employees contending with corrupt bureaucracies. They acquiesced, hoping that the restrictions would be temporary. Land being fundamental to the nation, the fascist state regimented agriculture even more fully, dictating crops, breaking up farms, and threatening expropriation to enforce its commands.
Banking also came under extraordinary control. As Italy's industrial and banking system sank under the weight of depression and regulation, and as unemployment rose, the government set up public works programs and took control over decisions about building and expanding factories. The government created the Istituto Mobiliare in 1931 to control credit, and the IRI later acquired all shares held by banks in industrial, agricultural, and real estate enterprises.
The image of a strong leader taking direct charge of an economy during hard times fascinated observers abroad. Italy was one of the places that Franklin Roosevelt looked to for ideas in 1933. Roosevelt's National Recovery Act (NRA) attempted to cartelize the American economy just as Mussolini had cartelized Italy's. Under the NRA Roosevelt established industry-wide boards with the power to set and enforce prices, wages, and other terms of employment, production, and distribution for all companies in an industry. Through the Agricultural Adjustment Act the government exercised similar control over farmers. Interestingly, Mussolini viewed Roosevelt's New Deal as "boldly... interventionist in the field of economics." Hitler's nazism also shared many features with Italian fascism, including the syndicalist front. Nazism, too, featured complete government control of industry, agriculture, finance, and investment.
As World War II approached, the signs of fascism's failure in Italy were palpable: per capita private consumption had dropped to below 1929 levels, and Italian industrial production between 1929 and 1939 had increased by only 15 percent, lower than the rates for other Western European countries. Labor productivity was low and production costs were uncompetitive. The fault lay in the shift of economic decision-making from entrepreneurs to government bureaucrats, and in the allocation of resources by decree rather than by free markets. Mussolini designed his system to cater to the needs of the state, not of consumers. In the end, it served neither.
Sheldon Richman is the editor of Ideas on Liberty and is a senior fellow with the Future of Freedom Foundation. He is a lecturer and author of articles on the New Deal era, American foreign policy, and international trade.
Basch, Ernst. The Fascist: His State and His Mind. 1937.
Flynn, John T. As We Go Marching. 1944. Reprint. 1973.
Laqueur, Walter, ed. Fascism: A Reader's Guide. 1978.
Mussolini, Benito. Fascism: Doctrine and Institutions. 1935. Reprint. 1968.
Pitigliani, Fauto. The Italian Corporative State. 1934.
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