How Italy Went from Rubble to Riches After World War II

Once the dust settled from World War II, Italy was in tatters after coming out on the losing end of this devastating conflict. As the nation was left in total ruins, it also had to put up with high unemployment and inflation. Not exactly a recipe for robust economic growth.

Like the other countries who were members of the losing Axis side, Italy would be occupied by foreigner military units. Initially, it had to rely on foreign aid programs such as the Marshall Plan to get back on its feet. Italian leaders also recognized the geopolitical importance of the Mediterranean country and made the pragmatic decision of aligning itself with the West against the Soviet Union during the Cold War.

This opened up the country to foreign investment from countries such as the United States. Other external events such as the Korean War (1950–1953) helped boost demand for metal and other manufactured products. This turned out to be a boon for Italy, especially its northern regions that had a solid industrial base. From there, Italy’s manufacturing sector would be re-invigorated.

In addition, the creation of the European Common Market, of which Italy was a founding member, facilitated even more foreign investment and allowed the country to fully tap into its export sector. Against this historical backdrop, combined with a relatively large and cheap labor pool, Italy was able to quickly get back on its feet and become one of the world’s most impressive economic recovery stories.

From 1951 to 1963, Italy enjoyed a whopping 5.8% average GDP growth rate. Similarly, between 1964 and 1973, Italy boasted a 5% average growth rate. Indeed, Italy went through a brief hiccup during the “Hot Autumn” of 1969–1970 when workers organized mass strikes in factories and industrial centers across Northern Italy demanding better working conditions and compensation.

According to some estimates, there were north of 440 hours of strikes in Northern Italy during this period. Eventually the labor disputes cooled off and the Italian economy would go back to its usual course. Though the relief was temporary. Due to the West largely backing Israel during the Yom Kippur War, a coalition of Arab petro-states, led by Saudi Arabia, launched an oil embargo. As a result of this oil embargo, countries like Italy faced acute energy problems throughout the latter half of the 1970s. Gas prices were going through the roof and many people saw their livelihoods totally rocked by this energy shock.

Oil prices eventually stabilized towards the end of the decade, though Italy could never match the meteoric growth that it experienced in the first decades after World War II. Nevertheless, Italy’s growth story in the post-World War II era remains impressive upon scrutiny.

In the present, Italy finds itself in pretty rough shape owing to high levels of debt, bad demographics, and unstable political environment. As the Italian workforce ages, its current welfare system will likely implode, and a massive socio-economic crisis could pop off. This could create a domino effect of economic collapses across the Europe Union. Pretty bleak stuff….

You see, a country’s economic fortune can change substantially in a few decades. Broader macro trends and even the capricious nature of domestic politics can drastically alter a nation’s economic fate.

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