Istituto Per La Ricostruzione Industriale

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Istituto Per La Ricostruzione Industriale

Via Veneto, 89
00187 Roma
(06) 47271

State-controlled Holding Company
January, 1933
Employees: 472,000
Sales: L 27.159 trillion (US$16.195 billion)
Market Value: L27.159 trillion (US$16.195 billion)
Stock Index: Milan

In 1933 the foreign and domestic markets of hundreds of major Italian companies had been destroyed by the difficult economic conditions of a world-wide Depression. These companies were unable to repay debts they owed to major Italian banks and, in turn, threatened the country with the collapse of its banking system. In order to free the banks from the burden of these debts, the Italian government established the Istituto per la Ricostruzione Industriale to buy out these debts from the banks. It was regarded as an emergency measure to save the Italian banking system.

IRI was originally organized into two sections, the Sezione Smobilizzi Industriali, for managing state-owned shares of private companies, and the Sezione Finanziamenti Industriali, for providing additional long-term industrial financing. A limited economic recovery in 1934 and 1935 resulted in the dissolution of the finance section and the assumption of its duties by a large credit institute called IMI.

During the period from 1933 to 1936, IRI disposed of almost half of the assests it purchased. However, it remained in control of Italys three most important commercial banks, including Banca Commerciale Italiana, Credito Italiano, and Banco di Roma. During this time IRI became closely tied to the Fascist regime of Benito Mussolini. The directors of IRI, Alberto Beneduce, Francesco Giordani and Donato Menichella, convinced Mussolini to continue state sponsorship of IRI. In 1937 it was declared a permanent agency.

In order to reduce the costs of administration, IRI created semi-autonomous sub-holding companies called finanziarie to manage all the companys interests in a specific industry. It created STET in 1933 to operate the telephone interests, Finmare in 1936 to manage shipping, a new finanziaria for it in 1952 called Finelettrica. SIP and Finsider in 1937 for iron and steel.

Holdings and activities which the Fascists had no interest in maintaining were eliminated from the IRI portfolio. IRIs interests in electrical utilities, textiles, agriculture and real estate were sold along with numerous foreign investments. The companys interests in steel, shipping and engineering (the primary sectors of the Italian military/industrial complex) doubled from 26% of total holdings to 54%. Gradually, IRI was transformed into a mechanism for achieving the Fascist regimes goals of economic autarky and military mobilization.

The Fascist government under Mussolini exercised expansionist state policies which resulted in the annexation of Albania and the colonization of sections of Somalia, Ethiopia and Libya. Fascist Italys military adventurism, social policies and opposition to Bolshevism made it a natural ally of Nazi Germany and Imperial Japan. When the second world war began, Italy became a member of the Axis. In 1943 the country was occupied by German troops who were sent by Hitler to defend Italy against Allied attacks on what Churchill termed Europes soft underbelly.

As a result of these allied attacks IRIs substantial merchant shipping properties were completely destroyed. The companys pig iron plants, most of which were located in the Mediterranean combat zone, were heavily bombed. Southern Italy, where most of the companys electrical, telephone and heavy engineering assets were located, was the area most exposed to Allied attacks. By the end of the war IRI was almost completely destroyed.

After the war IRI came under the control of the Allied Control Commission. It was investigated for criminal activities during the war and later cleared. It was originally planned that IRI would be broken up and sold to private investors, but weak capital markets and the companys complete state of ruin forced the company to remain intact. CIR (the Comitato Interministrale per la Ricostruzione) was given overall responsibility for IRI in April of 1946. However, the period from 1945 to 1948 for IRI was described as one of organizational chaos, with no plan for reconstruction.

IRI had a difficult time generating capital for reinvestment. During the war IRI deliberately employed an excessive number of people to avoid their conscription or deportation to Germany. After the war the company was prevented from laying off workers by labor unions and socialist political organizations. These restrictions slowed the conversion of IRIs shipyards to civilian shipbuilding because it was obligated to continue diverting funds from capital investments to pay employees for whom no work could be found. Overemployment slowed the companys recovery and delayed Italys postwar reconstruction.

In 1948 IRI was placed under the control of the Italian governments Council of Ministers and given new statutes. A new finanziaria called Finmeccanica was created that year to manage the companys engineering subsidiaries. In addition, a campaign was initiated to diversify geographically the companys employment centers which were concentrated in Genoa, Naples, Trieste and Milan.

IRI re-entered the electrical utility business and created (Società Idroelettrica Piemonte), a subsidiary of Finelettrica, controlled a company called RAI which operated the Italian radio broadcasting system. In 1952 IRI took direct control of 75% of RAI, leaving the remainder for SIP. Television services were introduced two years later.

In 1955 the Italian government was faced with a shortage of capital for the construction of roads. It was decided that the construction and operation of selected motorways (or autostrade) should be turned over to private investors. Shortly afterwards IRI was awarded a concession for the Autostrade del Sole between Milan and Naples. The following year IRI established the Società Concessioni e Costruzioni Autostrade to manage the Autostrade del Sole and subsequent IRI motorways.

The government ordered IRI to take over the operations of a bankrupt textile company called Manifatture Cotoniere Meridionali in 1956. IRI was given instructions to aid and reorganize MCM, which was the largest cotton concern in southern Italy. The acquisition marked IRIs return to the textile industry.

In 1957 the Italian government forced two Italian telephone companies, TETI and SET, to sell a majority of their shares to IRI, which through STET controlled Italys other three telephone companies. The following year control was transferred to STET, which in 1964 merged all five telephone companies into SIP (Società Italiana per lEsercizio Telefonico). Also in 1957, IRI took control of the Italian national airline Alitalia, which was established in 1946 by the Italian government, British European Airways and TWA. The companys shipbuilding assets, recovered during the late 1950s, were placed under the control of a sixth IRI financiaria called Fincantieri.

IRI increased its involvement in the national autostrade system during 1966. A subsidiary called Infrasud was created to manage the system of alternate highways around Naples and various other urban infrastructure ventures in southern Italy. The following year Infrasud and a number of other infrastructure interests were placed under the control of a new IRI subsidiary called Italstate (Società Italiana per la Infrastrutture e lAssetto del Territoria). Italstate was a consulting agency organized like a finanziaria.

In 1957 the Italian parliament passed a law which dictated that state holding groups locate 60% of investments in new industrial enterprises in southern Italy. In observance of the law, IRI located its new steel mill at Taranto in southeastern Italy. In 1959 IRI took over the financially troubled shipyard at Taranto. The company made several more investments in the underdeveloped south, well beyond that stipulated by the law.

In the early 1960s IRI carried out a rationalization, reducing employment and closing down some less profitable enterprises. However, pressure from unions and local governments prevented IRI from completing its goal of a more complete reduction in the companys size. From this point IRI ceased to be a state-run hospital for sick firms and was transformed into an operating company.

During the early 1960s the Italian government became increasingly interested in central planning. As a result, in December of 1962, it nationalized the Italian electrical industry and placed it under the authority of a statecontrolled company called ENEL (Ente Nazionale di Energia Elettrica). The capital which IRI received from the government as compensation for its electric companies was turned over to SIP for modernization of the companys telephone sector.

IRIs shipbuilding, iron and steel, and maritime industries entered a period of prolonged financial crises during the 1970s. Italian heavy industry in general lost its ability to compete with foreign manufacturers, particularly the Japanese. An additional financial burden was created when the Italian government instituted anti-inflationary economic policies which prevented IRI from making necessary tariff adjustments for its telecommunications, air transport and autostrade sectors. The government also ordered IRI to take over several ailing subsidiaries from the dissolved EGAM (Ente Gestione Aziende Minerarie).

IRIs unique corporate personality was based on the idea: make state industries profitable and the private sector will invest. As IRI went further into debt, private investors became less willing to hold shares of either IRI or its subsidiaries. The Italian government was forced to purchase substantial amounts of IRI stock in order to keep private investors interested and to maintain the companys level of capitalization.

The IRI Group, or Gruppo, reported losses in 1974 of 68 billion lire. In the following two years the company lost 385 and 445 billion more. The worst year, however, was 1980, during which IRI posted a 2.4 trillion lire loss. In an attempt to forestall further decapitalization in 1981, IRI issued a quarter billion dollars in convertible bonds to the public.

Romano Prodi was elected president of the company by the board of directors in 1982. Prodi presented an intricate plan for IRIs recovery. The plan included reorganizing failing IRI companies and concentrating their resources to create new and more efficient companies. Financially troubled subsidiaries whose product lines were unrelated to IRIs other activities were to be sold. Prodi proposed that IRI and its subsidiaries offer more stock shares to the public to increase the involvement of private capital. Finally, on the managerial level, operational costs were to be more closely monitored and contained.

Prodis plan also included a reduction in the companys work force, which was larger than the Italian army. The employee role was reduced from almost 600,000 to 472,000 in 1985. During this period IRI increased its expenditures for research and development from $400 million to over $800 million.

The program to elicit greater participation from private shareholders continued through 1986. 18 IRI Group companies were listed on the Milan Stock Exchange. Despite the divestment of several subsidiaries (including the sale of Alfa Romea to Fiat in 1986), IRI remained in control of over 400 companies worldwide. The companys considerable foreign holdings reflect on IRI policy which considers internationalization as an instrument for growth.

Gruppo IRI is the largest company and the largest employer in Italy. The Finsider subsidiary is the third largest producer of steel in the world (after Nippon Steel and USX), and accounts for 55% of all Italian steel production. Another IRI company, Fincantieri, is responsible for 70% of Italys shipbuilding output. Finmare accounts for 21% of Italian shipping volume and SIP controls 82% of Italian telecommunication traffic. Forty-five percent of the countrys toll highways are operated by Autostrade. Alitalia, the airline subsidiary, covers 91% of the countrys commercial air transportation. Selenia and Aeritalia control 55% of the Italian aerospace industry.

A number of large banks, including Banca Commerciale Italiana, Credito Italiano, Banco di Roma and Banco di Santo Spirito, are part of the IRI Group. Together they form the largest banking concern in Europe and account for 20% of Italys total national lendings.

IRI was created as a government agency to reform and reorganize failing Italian companies. It has been transformed into a successful operating company under the direction of a centralized management bureau. While it is still government-controlled, substantial infusions of private capital into IRI have given it a unique new character. IRIs management board is almost completely divorced from the Italian government; its decisions are not subject to government approval.

Principal Subsidiaries

Banco Commerciale Italiana (65.5%); Credito Italiano (68.1%); Banco di Roma (80.6%); Banco di Santo Spirito (95%); Mediobanco (54.6%); Credito Fondiario (78.9%); Banco di Chiavari (69.9%) Cofiri; SIFA (51%); Finsider; Finmeccanica; STET (84.6%); SIP (70.3%); Italcable (51.3%); Sirti (46.4%); Fincantieri; Italstate; SME (64.4%); Alivar (94%); Ansaldo Trasporti (75%); Dalmine (81.9%); Finmare; Alitalia (77.8%); Aeritalia (84%); Autostrade (87.1%); Cementir (50.1%); Sifa (47.2%) Sofin; RAI; Finsiel; SPI.

Further Reading

The State as Entrepreneur: New Dimensions for Public Enterprise: The IRI State edited by Stuart Holland, London, Weidenfeld and Nicolson, 1972.