The Politics of Inflation and Disinflation: the Italian Case

As written by John Goldthorpe economic problems are “to an important degree epiphenomenal.” “Social divisions and antagonisms” will be found “at the root of what are experienced as economic problems”. The origins of the 1970s inflation cannot be explained simply as a mistaken management of the monetary aggregates. Neither as the product of exogenous factors, such as the soaring oil price. Nor the disinflation process can be viewed as a technical, apolitical matter. They were instead closely connected to the social and political relations of the time. So, in order to grasp the real significance of the inflationary phenomenon in the long 1970s, that is the decade or so that starts with the “world revolution” of 1968 and ends with the monetarist (counter-)revolution, we have to look at the connections between it and the broader social and political circumstances. The basic trait of the 1970s was a strong push towards the extension of the confines of democracy across all areas of society, from workplace to home. Inflation was strictly linked to this radical turn of democracy, as “the easy answer to the tensions of growth”. In this perspective, the curbing of inflation required two alternative conditions: either for capitalist societies to adjust to the radical changes brought about by what Michał Kalecki called “the political consequences of full employment”; or a stabilization effort, that is – in Charles Maier’s words –the restoring of “the overlapping hierarchies of power, wealth, and status that can be loosely termed ‘capitalist’”: In a certain sense Italy represented the litmus test for this alternative. Not only because Italian inflation, with the British one, was the highest among the advanced capitalist countries. Also because Italy represented maybe the most clear-cut example of the enlarging and deepening of the democratic space that characterized the long 1970s. Usually Italian inflation in the 1970s has been explained as a consequence of the oil shocks and as the inevitable result of the devaluation of the lira. As far as the latter causal link is concerned, there is little or no correlation between the acceleration of inflation and the devaluation. Indeed, in the Italian case inflation was largely the offspring both of the social conflict and of a particular vision of the national development. Italian authorities essentially aimed at preserving the Italian model of growth based on exports and a low cost of manpower. When the latter resulted impossible to achieve, due to workers’ resistance, inflation ensued. Inflation was at the same time the effect and the “cure” for class conflict. On the one hand, the high levels of inflation, coupled with devaluation, permitted to defend the profit rate, and on the other, they weakened the labour movement and pushed the trade unions to a reconsideration of their strategy, eventually leading them to adhere to the stabilizing effort based on a mix of deflation (cut of labour cost and of public expenditures) and expansionist measures in support of firms (expansion of credit, subsidies). As such, the disinflationary strategy was much more a function of the national social relations than an imposition from outside. The Italian authorities adapted the external constraint to their own views and used it to legitimate and strengthen a national strategy.