ITALY: ECONOMIC IMPACT OF A LARGER COMMUNIST ROLE

• Document Type: FOIA
• Keywords: ITALIAN POLITICAL
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 0005657901
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 7
• Document Creation Date: June 24, 2015
• Document Release Date: June 29, 2011
• Case Number: F-2011-01174
• Publication Date: December 27, 1977

APPROVED FOR RELEASED
DATE: 06-14-2011
(b)(1)
27 December 1977 (b)(3)
Italy: Economic Impact of a Larger
Comunist Role
From an economic perspective, the most likely form
of greater Communist involvement in the Italian government --
i.e., participation in the parliamentary majority -- probably
would not create a situation more unstable than the present
governing formula. Voting with the majority in parliament.
is not likely to
decisionmaking.
established last
holds veto power
of economics and
gain the party much greater say in economic
Under the terms of the "programmatic accord"
July, the PCI already is consulted on, and
over, all major legislation in the fields
public order. For the Party, the main,
impact of entering the parliamentary majority is probably
symbolic. Such a step in Italy traditionally signals that
a party is qualified to enter the cabinet and would be
interpreted by PCI rank-and-file'as a promise of greater
governmental concessions later on. As long as they retained
firm control of the economic ministries and the Bank of
Italy, the Christian Democrats would remain dominant in
economic policy formulation.
NW 31503
System Doc. ID: 23700486 - Page 14
 The international financial community is unlikely
to react adversely to PCI participation in the governing
majority, a key factor since short-term indebtedness to.
foreign banks amounts to about $7 billion. Bankers would
continue to set limits on their exposure based on the surety
of their investment and relative rates of return. These
in turn depend on the effectiveness of government policies
in improving the trade accounts and defending. the lira,. as
well as governmental attitudes toward foreign property
rights. The government's present policies probably would
not be undermined by an increase in the PCI role. The
commitment of the PCI to austerity is strong, and admission
of the Party to the parliamentary majority would enhance the
ability of PCI leaders to sell austerity to the Party base.
Moreover, the Communists have repeatedly denied that they
intend to expropriate foreign investment or declare a
moratorium on debt repayments. Many businessmen would prefer
to see the PCI being gradually admitted to the governing
process rather than risk the chaos that could result should
the Party stop cooperating with the Andreotti government
and exert its influence with labor in a negative manner.
NW 31503
System Doc. ID: 23700486 - Page 18
 YQ ~
.~74r1 ~ t14 n
Even if the PCI were to win a greater governmental
role than we think likely namely, formal coalition
status with the Christian Democrats -- we would not expect
an abrupt break with past economic policies. Although the
Party has a definite plan of medium-term objectives, it
would be flexible in implementation, ready to modify ideological
preferences in order to gain political advantage. (See the
attached discussion of these objectives.) The Party would
use the promise of future reform to justify continued
collaboration with democratic parties to its membership.
Greater PCI participation in the government should
not represent an imminent threat to EC policies or institu-
tions. The Party supports EC integration, seeing a united
Europe as an important counterbalance to both US and Soviet
influence. While Party economists have advocated protec-
tionist trade policies in the past, more recent Party
documents reject this approach. The PCI demands a radical
reform of the EC's Common Agricultural Policy for the benefit
of Italian agriculture but would be unlikely to press this
issue is doing so would disrupt the European Community.
NW 31503
System Doc. ID: 23700486 - Page 19
 ::?I/ 1 tJ 1~:I L1 L:
lTALYs COMMUNISTS LAY OUT ECONOMIC OBJECTIVES
The Italian Communist Party (PCI), hoping to improve its credentials as a
potential governing party, recently issued its medium-term economic plan after
months of intense intraparty debate. A recent decline in the Christian Democrats'
resistence to PCI participation in government gives the document particular
significance.
Secretary General Berlinguer had ordered Communist theoreticians to come up
with a statement of objectives that would pacify party. members restless over PCI
support of the current austerity program. The party leaders see no short-run
alternative to austerity and advance the plan as a follow-on program that would bring
about stable economic growth and social progress. The plan offers outsiders the best
opportunity to assess PCI policy positions since the 1976 election campaign. Perhaps
Its. most striking features are a reemphasis on domestic economic planning and a shift
away from protectionist'measures earlier favored by party economists.
The plan sets out PCI "maximum objectives" for a peri od of about five years. PCI
leaders argue that the medium-term focus is realistic, given Italy's economic situation:
this leaves vague their long-term objectives for the "grand transformation" of Italian
society. They apparently hope this approach will answer critics who demand that the
party disavow allegiance to Soviet style plans for control of the society.
Reaction to the plan has been mixed. The relatively nondoctrinaire tone of the
document probably has contributed to a growing impression in' Italy that' the
Communists are moving away from the classic Marxist-Leninist model. Still, many
Christian Democrats have been critical. Deputy Secretary Galloni, for example, has
criticized the plan for inherent "duplicity" and has predicted that its implementation
would mean the end of the free market in Italy.
What the Plan Says
A voluminous and turgid document, the medium-term plan is divided into two
parts. The first, shorter section defines the political arrangements and cultural
attitudes the PCI considers prerequisite to extracting Italy from its economic
NW31503
System Doc. ID: 23700486 - Page 20
 difficulties. In particular, the plan urges an end to the longstanding "discrimination
against the left" and admission of all parties to the governing process. The second
section, which contains the core of the program, is a litany of more or less specific
proposals. It advances the party's Ideas for economic planning. public finance,
agriculture, labor and industrial policies, and relations with the Third World and the
European Community. -
The Communists tout comprehensive economic planning as the fundamental
solution to Italy's economic problems and belittle Rome's past efforts at indicative
planning. Yet their program expresses the objective of "upgrading" and "rechannel-
ing" the activities of the free market rather than supplanting it. The Communists
would substitute their own social priorities for what they regard as the chaotic patterns
of the market Their proposed system of planning would control large-scale industry
more closely than medium- and small-scale industry or agriculture. The Communists
say they would develop and impose economic plans through the legislative mecha-
nism, with the regional authorities playing a major role. Unlike their French
counterparts, they do not call for outright nationalization of industry. In some
undefined way, the bureaucracy would use "levers of direct and indirect public
intervention" to ensure that economic units follow plan directives. The Communists.
foresee worker surveillance playing an important role in policing business behavior.
Labor and industrial policies are intertwined. The PCI favors government
intervention to assure that investment promotes both import substitution and job
growth. Its program recommends that investment be directed into labor-intensive
service activities rather than into the capital-intensive manufacturing sector. To foster
job creation in the backward South, the Communists propose a freeze on job levels in
cities to the north. They recommend a shift in favor of take-home pay at the expense
of fringe benefits and social insurance. The PCI would enhance labor mobility
through special assistance to people between jobs. The program includes closer
supervision of state corporations to promote efficient operation and tight control of
multinationals. More broadly, the Communists advocate government review of pricing
decisions.. . .
The medium-term plan advocates greater investment in agriculture, reactivation
of fallow land, and.replacement of small family farming units with -cooperative-
arrangements. Communist economists hope to raise farm production and reduce
Italy's large trade deficits in food, which they regard as a drag on industrial growth.
According to the program, the Common Agricultural Policy of the European
Community has exposed Italian agriculture to damaging competition from other EC
members and is the main obstacle to Italian self-sufficiency in food. The PCI demands
"a profound change in the mechanism on which EC policy rests."
NW 31503
System Doc. ID: 23700486 - Page 21
 Regarding foreign economic policy, the PCI plan flatly rules out protectionism.
The Communists express concern that integration of the European Community has
slowed and attribute this to the different balance-of-payments performances of the
member states. As a remedy, they suggest joint management of EC members' foreign ii1
exchange reserves. The PCI proposes that the European Community develop greater
cooperation and exchange with Third World and Communist countries. In North-
South relations, the Communists advocate commodity stabilization pacts, debt relief
for the poorest nations, and trade concessions to LDCs.
In the area of public finance, the medium-term plan strikes a rather conserva-
tive note, stressing measures aimed at reducing budget deficits. It states that deficit
financing should be restricted to capital projects. The PCI recommends greater effort
against tax evasion, higher and more progressive taxes on income and wealth, and
curbs on public spending. To hold down outlays, the Communists would abolish
certain agencies that have been prime patronage vehicles for the Christian Democrats
and put a freeze on the hiring of administrators. The PCI would lower payroll.taxes
for social insurance, making up the revenue loss with heavier direct taxation. They
would reduce the present large deficits in the social insurance system by scaling down
health benefits, imposing some charges for medical services, and tightening up the
policing of claims for disability pensions.
Evaluation
The most controversial part of the medium-term plan-and the one that
prompted the attack by the Deputy Secretary of the Christian Democrats-is the
section on economic planning. The call for governmental control of the economy is
broader and more strident in the new plan than in earlier PCI pronouncements. The
Communists would use economic planning to divert resources away from activities
shown by the market to be more efficient and into activities to which the PCI assigns
higher priority. To this end, the Communists seek greater government influence over
pricing, employment decisions, credit allocation, and, most especially, investment
In treating labor and industrial policy, the plan follows earlier PCI documents In
steering clear of the delicate issue of wage reform, especially modification of the wage.,
indexation system or any admission that inflation and unemployment might be
exacerbated by rapid wage increases. The plan merely exhorts workers to be more
productive and offers a vague promise of voluntary wage restraint once the grand
transformation has been achieved.
PCI agricultural policy is misguided in its focus on self-sufficiency in food. In a
country with such poor agriculture, self-sufficiency can be achieved only through a
NW 31503
System Doc. ID: 23700486 - Page 22
 wasteful propping up of the farm sector. The Communists fail to recognize that one of
the main benefits of Italian membership in the European Community has been the
elimination of small, inefficient farms, which has (reed labor for more productive
employment. Basically, the PCI has carried forward its past, opposition to the Common
Agricultural Policy.
The medium-term plan seems to ignore potential gains from trade. The
Communists not only urge autarky in agriculture but also press for expansion of '
import substitution industries to the exclusion of export industries. Yet they plump for
EC integration, apparently believing that a stronger, more unified Europe would /"
counterbalance both US and Soviet influence. The suggestion that EC members pool
their foreign exchange reserves is impractical at best, so long as the different countries
show wide variation in their payments balances. PCI rejection of general protectionist
measures is a sharp turnabout; after the lira crisis of early 1976, the Communists
strongly endorsed import quotas and exchange controls. Improvement in Italys
balance of payments or a more realistic assessment of its vulnerability in any trade war
may have prompted the change.
PCI recommendations for public finance are largely directed towards the central
government, where the Christian Democrats have been dominant. Paradoxically, the
greatest progress toward reduction of deficit spending has been at this level. As in
earlier PCI statements, little is said about the escalating deficit spending of regional
and municipal governments, many of which are Communist controlled. Communist
suggestions for refinancing and tightening up the social security and health systems
would be inadequate to make the systems solvent.
rn ^ rT
~ r r-rra-~
NW 31503
System Doc. ID: 23700486 - Page 23