chapter  13
21 Pages

Industrial Policy and the Nationalization of the Italian Electricity Sector in the Post-World War II Period

WithRENATO GIANNETTI

Historically, state ownership has been invoked for the supply of specifi c goods: public goods (defense), merit goods (health and education), or in order to achieve social equity goals, such as universal access to certain public services (utilities). Pleas for public ownership of an industrial sector came about as a by-product of the theory of imperfect markets (monopolies and oligopolies), a representation of market and fi rm behavior developed between economists and politicians in the 1920s and 1930s (Shakle 1967). According to this view, competition among producers is a wasteful process that restrains supply in order to maintain high prices, which leads to a monopolistic or an oligopolistic condition. State ownership is a way of overcoming this condition and of increasing supply. In the fi eld of networking sectors, such as electricity or communications, a specifi c version of monopoly theory has been advanced (see, e.g., Berg 1988). An industry is said to be a natural monopoly if multiple fi rms providing a good or a service are less effi cient (more costly to a nation and its economy) than would be the case if a single fi rm provided the self-same good or service. In the case of electricity, all companies provide the same product, the infrastructure required is immense, and the cost of adding one more customer is negligible. Adding one more customer may increase the company’s revenue and lowers the average cost of providing for the company’s customer base. As long as the average cost of serving customers is decreasing, the larger fi rm will serve the entire customer base more effi ciently. This fact represents the supply side of public ownership advantage, but economic theory, in the same period, also suggested that public investments had strong demand effects in terms of positive externalities. With regard to producers, the heavy investments required in the electricity supply sector would increase the demand for the products of the electromechanical industry and, more generally, contribute to enlarging the industrial matrix of a country and improve its economic growth. With regard to end users, ensuring the availability of the service to everyone would increase the demand for new consumer goods.