1In this paper I propose to examine the impact of the Marshall Plan on the Italian steel industry from the angle of investment policy. Primarily on the basis of US archival evidence, I will explore the reaction of the EC A to the investment projects for which the Italian steel firms, in particular the State-owned IRI-Finsider, were demanding financial assistance. In the first section particular attention is devoted to the debate inside the Italian steel industry and, in this context, the so-called Sinigaglia Plan is examined at some length. The following section focuses on the negotiations between Finsider and the ECA conducted, both in Rome and in Washington, between 1948 and the end of 1949. Their main issue was the loan which Finsider was demanding in order to modernize their plant and, in particular, to install a continuous hot-strip mill. Some of the matters discussed were, therefore, of a fairly technical nature, but it will be apparent that what was really at stake was the pattern of Italy’s postwar industrial Reconstruction. In order to better understand the American approach to this question, a number of brief preliminary considerations will be made on the shape of ECA policy both in respect to the Italian economy as well as on the reconstruction of the European steel industry. Lastly, in the third section, some statistical information on the impact of the Marshall Plan on the Italian steel industry will be provided, with the view of reaching a preliminary conclusion on its long term impact.

I. The sinigaglia plan

2The Italian steel industry had made its start at the beginning of the Twentieth century. In the wake of the country’s industrialization it, thereafter, developed fairly rapidly to reach an output of approximately 2 million yearly tons of steel by 1929. A protracted experience of government subsidies and protection seemed to culminate in the Thirties when the industry was partitioned into two sectors, one falling under State ownership, the other remaining in private hands. As a result of the Great Depression, in fact, the Government was forced to step in to salvage the mixed banks, which had previously financed and managed a large section of the industry. It subsequently entrusted the shares so acquired to a newly formed holding company, Finsider, which acted as a subdivision of the larger industrial and financial conglomerate, the IRI (Istituto di Ricostruzione Industriale).

3Different opinions have been expressed on the nature of the State-owned sector. It has been pointed out that Finsider’s companies were still guided by market criteria and that their managers largely came from the private sector ; on the other hand, it cannot be denied that they enjoyed special links with the government, benefiting, among other things, from frequent and often substantial injections of cash. At least part of the literature has, therefore, acknowledged that, under the umbrella of IRI, a powerful and independent-minded State technocracy was forged, with very definite views on how the steel industry should develop and on the role it should play in the country’s overall industrial strategy1.

4Alongside the State sector, roughly one half of the industry remained in private hands. It comprised a small number of large and medium-sized steel producers, as well as a few big engineering firms which had moved upstream into steel production, mainly to provide for their own needs, and finally large numbers both of small producers of electrical steel and of steel refiners. Prominent among private industrialists were the Falcks, who owned a number of steel mills mainly in the Milan area, and who enjoyed a position of leadership, particularly in Northern Italy, inside the steel industrialists’ association. The Falcks were very much part of the established industrial elite, which also comprised the producers of electricity, as well as textile, chemical and other manufacturers. Next to AFL Falck (Acciaierie e Ferriere Lombarde Falck) the main Firm in importance was Fiat of Turin, a company which followed an ambitious strategy aimed at increasing its market share for sheet, in order to be able to step up production of cars and other vehicles. Ultimately, as we shall see, this was to bring her in conflict with the restrictive outlook of the private steel cartel2.

5There were important differences between the State-owned industry and the private companies both in location patterns and in the use of raw materials. The core of the State-owned sector essentially consisted of a very small number of large steel making centres, located along the Tyrrhenian coast and conceived as integrated plants, that is to say running the entire cycle of steel making operations from the smelting of coke and iron ore in blast furnaces to the refining of pig iron in converters or open hearth furnaces, up to the finishing operations by rolling mills. Two of such plants, Piombino and Bagnoli, operated throughout the Thirties, while a third one was under construction at Cornigliano, near Genua, and was completed in 1942, only to be, shortly afterwards, dismantled and partly carried away by the Germans, when they retreated in front of the Allied forces’ advance. Finsider also controlled a number of other firms such as Terni, specializing in armament’s production, and Dalmine, producing unwelded tubes. A common characteristic of these firms was that they depended heavily on government orders. They also catered for the demand coming from the industries located in the South, many of which also belonged to the State sector3.

6Private producers relied on a different technique : in their plants, by way of both open hearth and electric furnaces, they reprocessed the scrap which they imported from other mills or from abroad. All of their plant was located in the North-West, which is to say in Lombardy and Piedmont, the smaller producers clustering in the Pre-Alpine valleys, where they were able to exploit a cheap and plentiful supply of hydroelectric energy. On the whole this kind of steel production was very much a regional affair, benefiting from being close to the steel users. Part of the output consisted of high quality and special steel, which, again, was of particular importance to the specialized mechanical productions of Northern Italy4.

7The division of labour inside the industry, however, was not entirely clear-cut, since, for example, private firms were able to produce steel in sufficient quantities to cater for larger orders, which might have been best seen as Finsider’s preserve. The opposite was also true, so that some degree of conflict between the two sides over market shares and investment polices was inevitable. Because of the plans for rationalizing the whole sector which IRI’s technocrats started pushing forward, with the backing of the government, in the late Thirties, the dispute was bound to become more serious.

8The arguments of the two sides were well rehearsed. According to the private firms, whose concerns were usually voiced by the Falck family, electrical steel production enjoyed important advantages, such as being able to exploit plentiful electricity supplies and a skilled, comparatively cheap, labour force. It was wrong, therefore, to waste resources on large scale production of basic steel, in which Northern European producers were bound to enjoy a considerable comparative advantage, especially in so far as raw material costs were concerned. Italian firms should concentrate in turning out high quality steel, while importing the cheaper ranges, namely long and heavy products in standardized shapes, with a view, if necessary, to reprocess them in their mills5.

9The managers of Finsider, on the other hand, thought that what had always hampered the Italian steel industry was an excessive number of plants together with an insufficient degree of specialization and a fragmented market. The primary answer to this was, in their view, to compel electrical producers to do what they were best equipped for, that is special steel, while, on the other hand, preventing them from engaging in the manufacture of pig iron and semifinished products, for which the coastal integrated plants were better suited.

10Oscar Sinigaglia – an experienced steel industrialist, who, after playing an important role inside IRI during the early Thirties, had been put aside by the regime apparently because of his Jewish origins – became the most forceful advocate of these views, after he was appointed at the head of Finsider in 1945. He stressed the advantages of having just a few big steel plants by the sea, pointing out that they could be supplied, at a reasonable cost, with the best available raw materials. Productivity gains were to be secured by rationalizing production, which meant closing most of the existing mills and concentrating operations in the most efficient ones, each of which would be equipped to turn out only a limited number of products. This, in turn, meant overcoming the fragmentation of the market for steel shapes, by forcing a degree of standardization and streamlining commercial arrangements – the very thing private firms wished to avoid, since it would have deprived them of the shelter offered by the domestic cartel6.

11To carry through such a radical restructuring clearly Sinigaglia needed the official backing of the government. He also needed to have a precise idea on how to reorganize the State sector. The difficulty of his task was increased by the fact that, whereas the electrical steel makers in the North had emerged from the war practically unscathed, severe damage had been wrought, both by Allied bombardments and by German dismantling, to Finsider’s big coastal plants. As a result, private producers were better placed to meet the immediate postwar upsurge in demand. Concurrently, on the international scene, there was much interest in keeping the Italian market open for French and Belgian exports, especially of rail and bar, a fact that became apparent during the talks held during 1948 and 1949 with a view to forging an international cartel7.

12Nevertheless the State sector held some valuable cards, which Sinigaglia was able to play very effectively. According to his plan, Finsider would concentrate on rebuilding and modernizing the 3 main coastal centres : of these, Bagnoli would produce bar and other shapes needed for the mechanical and construction industries of the Centre and the South of Italy, Piombino would specialize on rail products and other long shapes, whereas Cornigliano would develop a substantial capacity for thin sheet, by installing a hot-strip mill of American design. Furthermore, Sinigaglia envisaged the closure of much obsolete plant. This would bring about a considerable reduction of the total labour force in the industry, which, given the high level of unemployment at the time, was not a very popular prescription. Sinigaglia, however, was prepared to pay the price, in view of the fact that, by modernizing the steel industry, one would be able to foster the expansion of the mechanical industry. To put it in his own terms, production of « ships, wagons, boilers, machine tools, metal shapes » was to be stepped up and made reliant on a reorganized « strong and healthy steel industry8 ». Like other IRI strategists, he saw the capital goods’ sector as playing a major role both in supplying exports especially to the newly industrializing Third World countries, and in meeting an increase in domestic demand.

13By 1948 the Sinigaglia Plan had been officially approved by the CIR (Comitato Interministeriale per la Ricostruzione), a governmental body charged to scrutinize State-led investment plans. In fact there is evidence to suggest that Finsider had already started to act upon it in 1947. This, incidentally, raises the question of who was really in charge of the country’s economic policy : the free traders, « liberali », like Einaudi, who believed in balancing the budget and in encouraging private investment, or the more interventionists elements, calling for an increased role of the public sector ? It is a fact that the government took the decision to proceed with the full reinstatement of the IRI in the summer of 1947, amid signs of an increasingly dirigiste inclination especially in many quarters of the Christian Democratic party. The parties of the Left, whose influence was still considerable, also lent their support to IRFs plans, perceiving them as a way of weakening the power of private industrialists and of encouraging industrial growth9.

14None of these domestic developments, however, was really decisive, given that the crucial question for Finsider was to secure the approval of the ERP Administration authorities. It was not merely a question of being granted the necessary loans – important as that might have been. Clearly a major restructuring of steel plant carried with it important political and diplomatic implications, and it could not have been attempted without a form of prior international recognition, especially in so far as it affected the European markets for raw materials, and finished steel. Equally essential for Finsider was to gain access to American technology and know-how, not only because they were cut off from their traditional suppliers in Germany, but also because they were interested in catching up with the important new developments in sheet technology, which were known to have occurred in the US in the course of the interwar period.

15The main breakthroughs had been the hot-strip continuous rolling mill, which was first developed in the Twenties and the cold reduction process for the production of coils, introduced during the second half of the Thirties. Formerly all wide sheet had been rolled through hand sheet mills – a very laborious and time consuming process which, while useful in meeting small orders to be built on specification, became totally inadequate when the pace of demand for light-flat rolled products started to pick up. The new automatic mills, therefore, were clearly a case of an innovation originated by a shift on the demand side, given the fact that they were only profitable when operated on a very large scale.

16The strip mill, which could be of a semi-continuous or continuous type depending on the existence or not of a reversing stand, was based on the principle of sending the sheet through successive pairs of mills, which would increasingly whittle down its gauge and determine its size, turning it into a long strip. The cold reduction process then allowed the strip to be further reduced in thickness and extended in length, by feeding it through a series of rolls at room temperature and finally winding it around a coiler.

17The result were coils, possessing previously unknown deep drawing qualities, which made them invaluable to car manufacturers. In fact automobile bodies could at this point be made entirely of steel. Cold reduced tinplate, moreover, because of its superior chemical qualities, helped the canning industry to move into new markets. In short, the production of consumer durables was greatly enhanced by these innovations and, by 1935, thin flat products, such as sheet, tinplate etc, made up about 40 % of total US steel demand. Consequently, at the beginning of World War II, there were, in the US, 28 hot-strip continuous mills, with a capacity of about 15 million tons, to which was added the even greater capacity of the cold reducing facilities10.

18Very little of this, except for some initial development in Britain, had reached Europe by 1945, so that it is not surprising that, in the immediate postwar years, many Western European steel producers, from France, Britain, Austria, Belgium and Italy, should have queued up to acquire the new technology. It is worth insisting on the fact that the crucial incentive to move into the field was provided by the projected scale of the market, for, the new mills being very expensive, the older manual types, which were more flexible – in that they could handle the entire range of sheet gauges and widths, and meet delivery schedules more rapidly –, were still largely preferable whenever small orders, coming from well connected local businesses, were involved. This was precisely the kind of argument that the private producers in Northern Italy were making when they advised against proceeding with the objectives of the Sinigaglia Plan. On the other hand, if the market for automobiles was going to expand in a short time to « American » levels, then Finsider would have been justified in bidding for the new technology.

19Clearly some optimism was in order, given that the consumption of thin flat products was still extremely low in Italy as indeed in the rest of Europe, compared to the US, where it accounted for over 45 % of apparent steel consumption (the equivalent figures for Western Europe and Italy being respectively of around 25 % and 20 %). There was also reason to believe that the faltering growth of the Thirties had generated a vast backlog in the demand for consumer durables11. Even so, the adoption of the new technology presented considerable risks and it could hardly have taken place without the initiative of a few leading firms, both sufficiently experienced and well placed in the market.

20In Italy such a role was played by Fiat, which, already in the Thirties, had engaged in discussions with Ford about plans to start mass production of standardized cheap car models. After the war, Vittorio Valletta, the company’s dynamic managing director, made no mystery of his very high expectations on future consumption levels. A very interesting market was provided, in his view, by the lower-income middle class, eventually to be joined by Northern Italy’s working class. As early as 1947, therefore. Fiat began negotiating a joint venture with Finsider, whereby it would undertake to buy a sizeable share of the strip produced in Cornigliano, provided it could acquire it at a price equivalent to its production cost. Along these lines a formal understanding was finalized in 195212.

21It is worth pointing out that, by joining forces with Finsider, Fiat was opening a significant breach in the private producers’ front, since most firms continued to resist IRI’s strategy, and were intent in further developing their capacity, with the view, of supplying a specialized, essentially quality-oriented market. To this effect they were also asking for considerable loans from the ERP, in which undertaking, as we shall see, they were to enjoy considerable success. Their deep suspicion of the operations of the State-owned sector was inspired, among other things, by their desire to keep control of pricing policies and to reestablish international connections along familiar cartel-like lines. Moreover, they were fully supported by Confindustria, the private industrialists’ association, which consistently opposed the Sinigaglia Plan.

22In other words, Sinigaglia was in no lack of domestic opponents and they were all eager to seize on what they thought were the weak points of his strategy. His first major test came when he had to present his case to the American Administration.

II. Finsider’s loan and the ega

23From the American perspective, the Sinigaglia Plan was bound to raise some embarrassing questions. First of all, it was the plan of a State-owned holding company, with a clear ambition to dominate the Italian steel market. This, clearly, did not augur well with the more laissez-faire-minded elements of the American Administration. Another consideration which must have been in the minds of many people, was that Finsider, and for that matter the whole of IRI, had constituted the backbone of the military effort of the Fascist regime. Although, however, this might have been a source of some embarrassment for the Italians in the first post-war years, somewhat later, especially after the outbreak of the Korean War, the situation was actually reversed and American aid started flowing precisely to those Finsider companies, which retained the capacity for armament’s steel production.

24Finally there was the fact that Finsider’s management’s outlook was, as we have said, essentially an expansionist one, and it was open to question whether they were seriously committed to achieving greater competitiveness through lower prices. This might have deterred the Americans, in view of their often stated goal of liberalising the European market and integrating the European economies. Connected to this, of course, was the question of whether the Italian holding company’s projects were technically sound.

25Lobbying on the part of Finsider, however, was rendered easier by the fact that fundamental differences were opening up inside the EGA, especially between the Washington headquarters and the Rome Mission. Basically it was a dispute between a Newdeal keynesian-oriented and an orthodox, free trade approach, and it focused on the problem of investment and on the best use to which Marshall Plan aid should be put13. The ECA Administrator, Paul Hoffmann, for example, had wasted no time in emphasizing the need for the Italian government to step up the « volume of public investment » and an official statement of policy in July 1948 warned about the « hesitation and confusion of Italy’s economic policy14 ».

26It was a view shared by Richard Bissell, ECA’s Assistant Deputy Administrator and propounded with particular alacrity by Van B. Cleveland, who acted as a liaison between Washington and the ECA Mission in Rome. Their concerns were made public, in an extended form, by the so called « Country Study » on Italy issued in early 1949, one of main assumptions of which was that total investment in Italy was inadequate, in view of existing idle resources, comprising both manpower and poorly exploited industrial capacity. Given the apparent failure of private investment, it was argued necessary to increase the level of State investment15.

27The ECA Newdealers were, in fact, prepared to acknowledge that many Italian industries were owned, or otherwise controlled, by the State and that, under the current circumstances, their privatization would have been unrealistic. The point was well addressed in a letter written by Bissell to Zellerbach in April 1949, just at the time when the ECA was deciding on the loans to the Italian steel companies :

28« To the extent – wrote Bissell – we have a direct interest in the question of whether the steel plants under Finsider should eventually wind up under private rather than government management, that interest is secondary and rather long range. Presumably, if more investment needs to be channelled into these publicly controlled industries, we would not oppose such investment policies simply on the grounds that they are publicly controlled16 ».

29David Zellerbach, however, strongly disagreed. A prominent California industrialist who had been appointed chief of the Italian ECA Mission, he believed that public investment in Italy was already running too high, with the effect of crowding out private firms from the capital market. Moreover, to urge the Italian Government to step up expenditure, was, in his view, to be asking for trouble, given that the Italian bureaucracy had shown the utmost inefficiency in coping with even the most modest outlay of funds. This, by the way, was a concern shared by the Newdealers, who had gone to great length in the « Country Study » in prescribing fiscal reform and improvements to the central planning machinery. Zellerbach, however, simply believed that one should encourage the Italians to cut the budget deficit, promote savings and liberalize credit policy, so that market forces would be able to do their job in restoring higher levels of activity. In this he was very much in tune, with many high ranking Italian businessmen17.

30There is every evidence that this dispute rumbled on inside the ECA at least until the Korean War. Also, the argument the Americans were having between themselves broadly reflected divisions inside Italian leading circles. The Minister for the Treasury, Pella, as well as Menichella, who was Governor of the Bank of Italy, were strong advocates of financial and monetary stability, and they showed it by committing a substantial share of Counterpart Funds to the Treasury reserves. Their policies, however, were challenged by members belonging to the left of the government coalition, as well as by parties in opposition, who called for increased government spending.

31As for IRI’s technocrats, many of whom were well connected inside the Christian Democratic Party, they were substantially in agreement with the longer term prescriptions on investment which were contained in the « Country Study ». In fact there is every evidence that they were taking the necessary steps towards implementing a number of ambitious plans of their own. When it came to fiscal and monetary policies, however, they showed a considerable degree of caution. This might have been, to take a point already made by Vera Zamagni, because they thought the Country Study did not adequately stress the difference between short and long term investment18. Its recommendations, in other words, were based on a set of keynesian assumptions, which, while appropriate for a fully developed economy undergoing a temporary slow down, were thought to be infit for a country like Italy, which was still largely backward and suffered from severe regional imbalances. Stepping up public expenditure was thus likely to generate bottlenecks, which would result in balance of payments deficits and inflation. This is why, incidentally, Iri’s strategists together with most other policy makers, chose to regard unemployment as structural, rather than cyclical, so that their only, rather stark, prescription for putting an end to it was to recommend emigration on a large scale. Over the longer term, however, Iri’s strategists thought it essential to widen the country’s industrial base, by a sustained rate of investment over the years.

32It should also be pointed out that all the statistical evidence shows that the rate of investment in industry had already recovered by 1946, nor did it seem to suffer unduly as a result of the anti-inflationary credit squeeze engineered by Einaudi in 194719. In this respect, therefore, the EGA planners’ concerns over the insufficient level of capital formation were possibly somewhat exaggerated, although they were right to point out that there was a large potential for industrial growth.

33On the Italian side, in conclusion, there was some degree of consensus over the need for a prudent fiscal policy in the short term, and on the need to encourage private savings. The State-owned sector, in particular, since its creation in the Thirties had heavily relied on State-guaranteed long term debentures, bearing a particular attraction for small and medium scale savers. On the longer term issue, on the other hand, some kind of agreement seems to have been reached in the course of 1948, whereby the State technocrats in charge of industrial holdings had obtained a free hand to pursue modernization and expansion. This was not, perhaps, the ideal of a planned economy : nonetheless, it went some way in meeting the agenda of the EGA Newdealers.

34While the Sinigaglia Plan was undoubtedly striving to bring Italian steel capacity up to date, it was more difficult to claim that it represented a step forward in the direction of a more open and competitive market. Nor was it conceived with a view to reaching a rational division of labour among European producers. By deciding to endorse it, as we shall see, the ECA were making an important statement on the actual nature of their operations.

35A fundamental attack on the thrust of ECA’s steel investment policy was carried out, in front of the US Senate, in the early months of 1950 by a Staff Report of the Joint Committee on Foreign Economic Cooperation, also called the « Watchdog Committee » because of its role in monitoring the ERP program. The report criticized the piecemeal approach which had led the ECA to approve most of the plans presented by individual countries, without any prior attempt to establish selective criteria for the whole of Western Europe. Because of the need of economies of scale especially for the continuous strip mills, it would have been more appropriate to locate the plants only in the areas with the best productivity record and not to help rebuild steel industries, such as the Italian and Austrian ones, whose costs were thought to be high and whose origins were regarded as being of a « political » nature. In fact, according to this body of congressional opinion, what the ERP should have been doing was to aid those countries in eliminating their steel making facilities20.

36These objections undoubtedly went to the heart of the ECA policy dilemma, raising yet again the need for an integrated program, a « master plan », the hope for which, however, had been dashed by the opposition shown by the Europeans to any fundamental reassessment of their national priorities. In fact it has been argued, recently by Milward, that the US Administration had lost that particular battle already in the course of the CEEC Paris conference in the summer of 1947, and that the ECA, despite the persistent rhetoric on European « integration », had been confined to a much narrower mandate, consisting essentially in screening aid on a country by country basis21.

37Responding to the objections raised on the floor of the Congress, the ECA representatives sought to present their case as convincingly as they could. Their primary objective, they said, was to achieve dollar viability for each European country, whereas European unification and integration had to take second place, in view of the difficulties encountered and the necessity « to recognize certain political and national patterns »22 that could not be changed, if not in the very long term.

38Nor in fact, it was said, was the Administration committed to a supranational organization charged with coordinating investment, for it had long since recognized that such an approach was unrealistic, and would only have served the purpose of hindering capital formation. On the other hand, the plans that had been approved, and in particular the Italian ones, had been screened with a view of bringing down the costs of production, thereby enabling the elimination of protective barriers and State subsidies. At the same time, by expanding national capacity, they were designed to make a substantial contribution to the balance of payments, especially in eliminating the dollar gap.

39Responding to objections specifically aimed at the Italian steel program, Zellerbach, in fact, claimed that it was not « an expansion program at all », but just « a modernization program, which we expect will make the Italian steel industry competitive with other European industries on a delivered cost of steel in Italy23 ». Italy would, he said, still need to import a lot of steel, especially heavy shapes, and moreover, it could not be denied that a certain amount of steel capacity was needed to supply the mechanical industry, which was both the most important labour employer and the highest export-earning sector in manufacturing industry.

40It appears, therefore, that the ECA was increasingly falling back on some of the arguments which had been put forth by the Italians themselves, in particular by Finsider (although in Zellerbach’s approach there was a hint of the outlook entertained by the private industrialists, especially when he referred to the need for imports of heavy shapes). Clearly there was a fallacy in their claim of seeking viability, since the best way of reducing the dependence of the Italians on the dollar zone would have been to encourage them to seek supplies of sheet from other European producers, rather than to allow them to buy all the new equipment in the US24. Moreover, to endorse Finsider’s plans might have been thought of as unwise from the point of view of ECA’s wider commitment to liberalization and fair trade as it became apparent only a few months later during the Schuman Plan negotiations that the Italians were bargaining to maintain protective barriers, such as tariffs, subsidies and quotas, and were striving to gain privileged access to raw materials, in particular to French North African iron ore25.

41The success of Finsider’s application should, therefore, be considered as a crucial event. It materialized during the second half of 1949 after a complex and controversial negotiation conducted in different stages both in Rome and Washington. Although it is not possible here to cover the talks in any detail, the essential facts deserve to be told.

42The first application on the part of Finsider was made to the International Bank for Reconstruction and Development, also known as the World Bank, as early as August 1947. It requested a very large loan and insisted on the need to concentrate production in the 3 coastal plants, of which one, Cornigliano, would specialize in producing hot-strip, and, to this effect, was to be allowed to set up a continuous rolling mill. Because the plant of Cornigliano needed to be rebuilt and because the finishing equipment was very expensive, this part of Finsider’s project appeared from the start to be the most financially demanding. Sinigaglia backed his claim by showing that Fiat had promised to purchase an important share of Cornigliano’s output of hot-strip and indeed was demanding permission to install a cold reducing mill to reprocess it. Furthermore Fiat, who had herself ordered, as early as 1940, a strip mill in Germany from the engineering firm Demag (Demag Aktiengesellschaft Duisbang), had recently passed the order over to Finsider.

43This business of the German mill remained, at least in this initial phase, rather a mystery, for nobody seemed to be certain whether it had been actually built nor what its real cost was likely to be, or whether its technology was up do date and fully compatible with the other equipment that Finsider was requesting. Later on, as we shall see, these mysteries were dissipated but, for the time being, it suited Sinigaglia to show that he already possessed one essential ingredient for his final concoction26.

44It proved that he badly needed all the support he could get, for the first reactions of his lenders-to-be were far from favourable. The World Bank commissioned a report to the steel expert Wayne Rembert who, after carefully sifting all the evidence, concluded that there seemed to be no economic ground for rebuilding the plant at Cornigliano, and that, therefore, Finsider’s investment should concentrate on the remaining two coastal locations, Piombino and Bagnoli. Rembert, moreover, seemed very reluctant to concede that Italy should have any capacity for thin sheet at all, but finally he acknowledged that, since the strip mill was already in existence, it should be set up in Piombino27.

45The picture, however, was rapidly changing given that, by the end of 1948, it was becoming apparent that the World Bank would soon be passing over to the EGA the task of handling the European steel loans. This is not to imply that the first reactions of the EGA were any more favourable to Sinigaglia. Quite the contrary : during the first few weeks of 1949, consultations were held in the Rome EGA mission in the course of which preference was given to the applications by the Falcks and by the small electrical producers.

46The line taken by Zellerbach and his advisors was that it « would not be prudent » to proceed with the Finsider Plan as submitted at this time, for it was, in their view, based on anti-economic and monopolistic assumptions and « overtly ambitious ». Instead « there should be an expansion of existing steel works, with particular consideration to electric furnaces producing quality steel, and their subsidiary departments ». The independent steel producers were believed to be much more flexible and cost effective and they were likely « to do a far better job for Italy than would be done under the proposed huge expansion » of the State sector. Very little consideration was given, on the other hand, to the link between Fiat’s need for coils and Finsider’s planned new mill28.

47Luckily for Sinigaglia, however, such a conclusion was unsatisfactory to many people in Washington as well as to the EGA Paris Office, whose Iron and Steel Section was charged with giving its own technical assessment. The Paris experts, in particular, argued that there was a permanent shortage of scrap and that, therefore, there were definite limitations on what could be achieved by electrical production. Some reconstruction of basic blast furnace capacity appeared to them to be essential and they thought that it could best be accomplished by the integrated coastal plants, backed by State financial assistance, provided that they be prudently managed and that their investment program be kept sufficiently conservative. In other words, at this crucial stage when formal loan applications were being submitted, there was every evidence that a middle-ground position was about to prevail in the EGA, which meant that Sinigaglia’s plans would indeed have survived, but probably the cost of being considerably whittled down29.

48The stakes, however, were far too high for the matter to be settled so soon. The Sinigaglia Plan had, by this stage, received the official endorsement of the Italian government and its advocates had by no means played all their cards. The battle, in other words, was joined and the Italians proceeded to move on two fronts. Firstly, they fielded a request for the installation of a new strip mill to the OEEC, whose Steel Committee approved it at the beginning of March 194930. This recommendation did not have a binding nature as far as the EGA was concerned, but it nonetheless carried considerable weight. The fact that the OEEC was ready to support the request should not perhaps come as a surprise, since that body was essentially conceived to accommodate the national interests of its participants. Furthermore, given that so many countries were planning to install continuous mills with American assistance, it seemed hardly wise for any of them to object to the Italian request, since it might have brought about an unwelcome retribution.

49The second step came just a few days after the OEEC ruling, when Finsider, through the intermediary of the IMI – the investment bank which was entrusted with administering foreign loans – presented a formal request for a loan of 24.6 million dollars based on the original version of their plan, which of course comprised the installation of the strip mill in Cornigliano31.

50At this point, because of the approval of the OEEC and the opinions expressed by the ECA in Paris, Zellerbach, who had wished to reject Finsider’s demand for a continuous sheet mill altogether, was faced with the likelihood of being overruled. He tried to regain some ground, by suggesting to Washington that they should indeed authorize the procurement of a strip mill, but should not assign it to Finsider32. Presumably he was trying to offer a last chance to AFL Falck or to another of the larger private companies.

51Three months later, in the late spring, the position, as far as Washington was concerned, was that Finsider should be allowed to rebuild two coastal integrated centres, at Bagnoli and Piombino, and to install their strip mill in one of them, preferably in the latter. Finsider’s engineers, the most active of whom were Ferreri and Marchesi, still claimed that a substantial part of the new mill was lying ready to be collected at Demag’s plant in Germany, and that having been constructed according to US specifications, so that it could easily be integrated with the rest of the equipment, which was to be ordered in America.

52This, however, proved to be untrue and it emerged that Demag was nowhere near having completed the order. Furthermore, their equipment, although originally copied from an American mill, appeared to have been substantially modified, so that Arthur McKee, the construction engineers, who acted on Finsider’s behalf in the United States, did not know very well what to do with it. What is more, neither Demag – who apparently had very little experience in the field of flat product technology – nor Armco, the big US steel conglomerate which provided technical assistance to Finsider regarding sheet production, were prepared to take any responsibility for its installation33.

53Far from offering their excuses, for what was undoubtedly a poor showing, Finsider now simply moved on to ask the ECA in Washington to forget about Demag and give them permission to acquire a brand new 80-inch mill – the largest and most expensive that was available in the States. It was finally dawning upon the ECA staff that Italians had used the German option merely to push through their claim to a strip mill. Nor had Finsider given up on the question of the 3 plants ; nor, indeed, had they accepted to work inside the framework of a national steel output of 2,5 million yearly tons, which had been set out by the Rembert report, and was acceptable to the ECA. In the words of Langdon Simons, chief of the ECA Iron and Steel Division in Washington : « Finsider, apparently, are determined to rebuild Cornigliano like hell and water and they keep bringing it into the picture in spite of the recommendations previously made and accepted34. »

54Washington, however, did not have a mandate to impose a restrictive policy, and was, therefore, vulnerable to such aggressive tactics. As for Zellerbach, by this time he was deprived of any real influence, mainly, it seems, because of his differences with senior members of the Administration.

55Just at the same time as the question of the hot-strip mill was coming to a head, Fiat’s plans were being examined by the ECA and, in the event, it became clear that the Newdealers, like Bissell and Van B. Cleveland, were very much in charge of the Italian program. In a number of meetings held with Valletta at the end of June 1949, the Americans, after having fully endorsed Fiat’s plans to engage in large scale production of small and medium-sized cars, proceeded to advise the Italian government to lower taxes on gasoline and introduce other measures favouring the car industry. The argument was that, in order to be successful, Fiat’s plans had to be backed up by economic policies « which will lead to an expansion of production and consumption within Italy35 »,

56To engage in an official reprimand of a foreign government on behalf of one of its own firms, was undoubtedly quite an uncommon step even for the ECA and, it proved that Valletta had found the way to one of their soft spots. Moreover, considering that Fiat intended to buy her coils from Finsider, it would have been hardly possible, at this point, to turn down Sinigaglia. Not surprisingly, therefore, the ECA accepted Finsider’s terms. During the month of July, another brief assessment was made on the prospects for the Italian market for sheet, at the end of which, after McKee had fully supported Finsider’s arguments, the ECA decided to grant a loan for the purchase of an 80 inch semi-continuous mill36.

57On the final question of whether the coastal plants should be two or three, two further reports, commissioned by the ECA to McKee and Armco, once again came down squarely on Finsider’s side37. By this time Sinigaglia’s position had become so strong that all that Zellerbach could do was to try to put up a last ditch stand. He received the support of Rembert (now working for the ECA), who had always thought that Finsider’s plans, though not wholly unjustified, were far too grand.

58Rembert, believed that the assessments made by the Armco and McKee engineers were incorrect in their assumption that Finsider could be restricted to a share of the market compatible with the interests of the private steel companies. Nor did he believe that the calculations of comparative costs of production really showed that it would be cheaper to make strip at Cornigliano than at Piombino. He could not, however, deny that the most important market for flat products was likely to be in the North of Italy, so that there did seem to be an advantage in locating production facilities nearer to the Po Valley38. In fact, when Zellerbach raised the point one last time with Sinigaglia, he received the curt reply that Finsider had never really thought much of the Piombino plant and that, had it not been for fear of causing unnecessary dislocation, they would have closed it altogether and concentrated their efforts on Cornigliano ! And, sure enough, they were granted final permission from the ECA to install the strip mill in Cornigliano on the 15 of November 194939.

59How far were the consultants really expressing an independent judgement must remain open to question. It was in fact known that Arthur McKee had a stake in the sale of the machinery to the Italians, while Armco had signed long-term advisory and consultancy contracts with Finsider, involving the licensing of various of their own processes, for which they claimed an initial fee plus royalties on final sales. No wonder, therefore, that both companies were prepared to endorse Finsider and, in fact, it appears that they heavily relied for their assessments on figures provided by the Italians themselves. Nonetheless their advice was taken extremely seriously in Washington, raising the wider question of the extent to which corporate networks were able to shape the Marshall aid program.40

60In retrospect, it appears, however, that the decisive element to swing the argument in Finsider’s favour was their dogged confidence in the rise of demand. Without it no amount of lobbying nor of government support would have been enough to overcome the technical arguments of the sceptics (there is always a case to be made in favour or against an investment plan, irrespective of its merits) and the interests of private producers. After all Finsider’s past record was not very convincing and, as we shall see in the following section, they were asking for very large sums of money. The American Administration, on the other hand, was not committed to any firm view on the reconstruction of the European steel industry. Many ECA administrators, however, were enthusiastic advocates of modernization and expansion and consequently tended to endorse those, whom they thought of as dynamic industrialists, such as Sinigaglia and Valletta, irrespective of whether they belonged to the State or private sector.

III. The impact of the Marshall Plan

61Table 1 attempts to give a comprehensive picture of the amount of loans channelled into the Italian steel industry as a result of US postwar aid. It therefore includes Export Import Bank credits, which were finalized in 1947, before the Marshall Plan had started. The conditions of those loans were very similar to the ERP ones, that is to say they were granted on a 25 year basis, and guaranteed by IMI, at a rate of interest of 5,5 % – a vast improvement on the current rate of about 9 to 10 %.

62The Counterpart Fund instalments were, on the other hand, allocated by the Italian Government, after having obtained the assent of the ECA. The table shows that all of them went to companies in the State sector : the largest share to Finsider and the rest to Cogne, which was a firm directly owned by the Ministry of Finance (and therefore not part of IRI-Finsider), which operated in the Valle d’Aosta and specialized in high quality electrical steel for the construction of armament.

63The dollar loans listed in the first column from the left in Table 1 were given under the « Industrial Projects » scheme, according to a procedure established by the ECA, whereby the country of the firm requesting the loan – in Italy this procedure was accomplished by the IMI – had to present a detailed economic justification for the proposed investment. This would then be examined by the ECA in Washington, after prior consultation with the Rome and Paris missions as well as with the OEEC. The procedure, as was revealed by our previous narrative, was rather complex and the smaller requests, involving loans of less than 1 million dollars, did not come under it and were allowed to go forward much more rapidly. In any case, Italian firms ended up by securing a significant share of the total of large loans granted to the iron and steel sector of all countries touched by the Marshall Plan : they were granted 54.9 million dollars out of a total of 206.7 million dollars, and, in this respect they were preceded only by the French, who got 75.5 million dollars. However, if one considers the ratio between the capital which was lent and the capacity of the recipient industry, the Italian steel industry was the greater beneficiary41.

64An assessment of the investment effort of the main European steel producers is contained in Table 2. The figures relate to investment which was actually being carried out as of January 1, 1953, and in the Italian case, since rebuilding of plant had started rather late, we can safely estimate that it covered a very substantial part of entire postwar investment. It will appear that scale of the effort, amounting to nearly 250 million dollars, was considerable. To better estimate, however, the productivity of the capital invested it would be necessary to distinguish between mere replacement investment, rounding out investment (adding new capacity to old mills) and « green field » or new investment, such as Cornigliano. The quality of the data, however, does not enable us to go that far.

65To what extent did the Marshall Plan contribute to the total investment effort ? By comparing the general totals of table 1 and the overall estimate of postwar investment, one reaches the conclusion that external loans connected with the ERP accounted for roughly 40 % of the total capital formation of the industry. In any case, the evidence is ^Jthat, whereas the larger part of the American loans went to the State-owned sector, they were of far more importance to private companies, inasmuch as they covered a larger share of their total investment, for some of the smaller firms reaching well above 50 %. Table 3, on the other hand, which gives a breakdown both of external financing and of actual yearly capital outlays until 1953 for Finsider, puts the share of ERP and Eximbank loans on total borrowing for that company at approximately one fourth.

66To further appreciate the impact of the Marshall loans it is necessary to bear in mind their destination to the different companies as shown in Table 1. It will soon appear that a large proportion of the total was connected to the purchase of machinery for the production of thin flat products. We already know, in fact, that the loan given to Finsider for Cornigliano involved the purchase and installation of a hot-strip mill. The single largest share of Cornigliano’s output of sheet (around 40 %) was to be delivered to Turin where Fiat would reprocess it in her new ERP-financed cold reduction mill. The rest of Cornigliano’s strip would be shipped down the Tyrrhenian coast to reach three more companies : Terni, belonging to the Finsider group, La Magona (next to Piombino) and CMI, a firm belonging to the Falck group and located near Naples. Loans were granted to each of the three firms to install new cold rolling equipment : a cold rolling mill for tinplate for the canning industry (with a capacity of approximately 35.000 tons) at CMI, a similar piece of equipment for La Magona and a mill for the production of magnetic sheet for the electrical industry at Terni, with a capacity of 25.000 tons a year. Taking all these projects together and considering that the breakdown for each company reveals that a very large share of the dollars went for the purchase of the rolling equipment, we reach the conclusion that somewhere between 50 and 60 % of the total ERP credit was channelled into modernizing sheet and tinplate facilities42.

67Where did the rest go ? Sizeable loans went to Finsider-Bagnoli and to AFL Falck of Milan. In the former case it was designed for the purchase of a continuous mill for the production of billets and rods, while in the latter it financed new electric furnaces, and a variety of other finishing equipment (among which a cold reducing mill costing about 1 million dollars). The other loans seemed to be spread out widely among a variety of smaller companies, many of which were electrical producers, concentrating on special steel. A number of these loans were extended in 1951 and 1952, when the MSA had succeeded the ECA, which meant that they benefited companies – such as Ilssa Viola, Redaelli and Sisma engaged in steel armament’s production43.

68A provisional conclusion on the impact of the Marshall Plan, therefore, must be that :

1. it made a significant contribution to the investment effort of the Italian steel industry in the Reconstruction ;
2. it allowed Cornigliano to become the leading firm in the market for thin flat products, thereby establishing the newly formed alliance between Fiat and Finsider at the forefront of Italian manufacturing industry ;
3. it allowed many small private producers to reequip themselves and thus participate in the rapid growth of electric steel taking place during the Fifties. The Sinigaglia Plan, therefore, attained only partial success in reorganizing the industry, which also meant that the feud between State-owned and private firms dragged on.

Table 1 Dollar Aid, Counterpart Funds and Other Dollar Loans committed to the Italian Iron and Steel Industry, 1947-1954

Table 3 FINSIDER 1948-1953 : Total borrowing and actual yearly investment outlays and related capacities (millions of lira and 1000 tons)