Italian Imperialism in the Age of Liberal Capitalism, 1882 to 1934

Since the waning of the Renaissance, Italians debated how to overcome Italy’s increasing “peripheralization” in the world economy and its perceived “under-development” relative to its European peers.Footnote ¹⁹ The problem was taken up with new urgency by the newly unified Kingdom of Italy, whose leaders feared Italy might, again, come under the influence of a greater European power.Footnote ²⁰ They worried that Italy’s lack of heavy industrial plants and high rate of emigration would leave the nation without enough weapons or soldiers to defend itself.Footnote ²¹ On one side of the political spectrum, laissez-faire liberals argued that Italy should open up to the wider world and facilitate the exchange of goods and ideas; on the other, protectionists asserted that the newly independent state needed to be sheltered until it could engage with the wider world from a position of strength.Footnote ²² In both camps, some argued that Italy needed colonies to rival its European peers.Footnote ²³ In general, the Italian government took the middle road, protecting certain industries and tentatively expanding overseas, but always aiming to facilitate Italy’s participation in the global market.

In the decade after unification, the Italian government focused its limited financial resources on developing the Italian domestic economy by building railways that would unify the internal market and, they hoped, spur industrialization.Footnote ²⁴ Any overseas expansion was left to private initiative. Indeed, Italy had thriving communities of emigrants, known as coloni, in Argentina, Brazil, Egypt, Algeria, Tunisia, the United States, and elsewhere.Footnote ²⁵ These coloni promoted Italophilic policies, created businesses linking the metropole to these communities, imported goods from the Patria, and sent remittances back. Recognizing the material and geopolitical benefits of coloni, the state worked to strengthen their ties to Italy by, for example, establishing jus sanguinis citizenship, subsidizing Italian language newspapers, and providing banking services to emigrants.Footnote ²⁶ Between 1876 and 1913, emigrant remittances contributed an estimated 2.66% to Italy’s GDP on average and reduced Italy’s commercial deficit.Footnote ²⁷ In short, at virtually no cost to the state, Italian emigrants aided Italy’s balance of payments and facilitated its participation in the liberal capitalist global economy.

Italy also participated in the so-called “Scramble for Africa,” but limited the scope and cost of its colonial campaigns. Working as Britain’s junior partner, Italy cautiously advanced in the Horn of Africa, obtaining concessions and occupying garrisons and towns with a very small army in Somalia (1885–1908) and Eritrea (1882–1902).Footnote ²⁸ In 1895, believing the Ethiopian Empire was weak and divided, Italy invaded.Footnote ²⁹ At the time, Italy was facing an acute economic crisis, particularly affecting banks, construction, and heavy industry, in addition to violent unrest among southern Italy’s landless workers.Footnote ³⁰ The government argued the Ethiopian hinterland would increase the value of their Red Sea colonies, while Eritrea would give land to desperate southern peasants.Footnote ³¹ But Italian forces were routed at Adwa in 1896.Footnote ³² The war cost an estimated 191 million lire, or 2.7% of public expenditure, according to economic historian Giuseppe Maione.Footnote ³³ The backlash was fierce. Liberals concerned with Italy’s deficit talked of leasing Eritrea to King Leopold of Belgium or abandoning the Red Sea entirely.Footnote ³⁴ Ultimately, Italy kept the colonies, but limited public investment and encouraged capitalist enterprises, such as mining concessions and cash-crop plantations.Footnote ³⁵

While many continued to oppose conquering and colonizing overseas territories, by the turn of the century, a growing chorus of voices linked imperial expansion with Italy’s social and economic development.Footnote ³⁶ The nationalists, in particular, argued that imperial expansion alone would materially improve the lives of the Italian proletariat, coining the term “proletarian imperialism,” which Mussolini would later adopt.Footnote ³⁷ A wide array of Italian imperialists, politicians, and economists argued that Italy suffered from an “over-abundance of labor” and lacked primary materials, especially carbon-based fuels and the precious metals needed to buy them on the global market. Moreover, the peninsula’s small and impoverished internal market would never be able to invest in industrial firms and consume enough industrial products to sustain Italy’s major industrial firms, which had grown fat with state protection and extensive credit from Italian banks.Footnote ³⁸ To spur industrialization, some imperialists argued Italy needed to conquer territories overseas and establish colonies that could absorb Italy’s excess labor, furnish raw materials, and serve as markets for Italian manufacturers. Ultimately, expansion would produce credits for Italy’s balance of payments, thereby facilitating Italy’s participation in the liberal capitalist global economy.

The Ministry of Foreign Affairs began to actively support Italian enterprises attempting to obtain overseas concessions, focusing their efforts on the Balkans and Libya. Integral to this expansion was Venetian business mogul, Giuseppe Volpi, who had extensive contacts in the Ottoman territories, the Banco di Roma, and the Banca Commerciale. Working with the Banco di Roma and the Ministry of Foreign Affairs, Volpi purchased a concession for the port of Antivari in Montenegro, hoping to build a port and railway that would consume Italian steel and other industrial products, and give Italy privileged access to natural resources. Yet, Italian “industrial imperialism”—to use historian Richard Webster’s term—yielded little. In the Balkans, Italy had only a few shipping lines and moderate exports of Italian vehicles, synthetic fibers, and textiles. The most important concessions went to better-positioned French, Austrian, and German interests.Footnote ³⁹ Italian firms were more successful overseas when they partnered with British or French companies. For example, the Italian electro-chemical company, Montecatini, operated several phosphate mines in Tunisia, thanks to a deal brokered between the Banco Commerciale and the French bank Paribas.Footnote ⁴⁰ While industry’s imperial offensive was only moderately successful, imperialists and businessmen alike fostered hopes that Italian manufacturers would eventually find the right market overseas.Footnote ⁴¹

Italy tried to expand its borders- in the Italo-Turkish War (1911–1912) and the First World War (1914–1918). After advancing diplomatic claims to Libya for years, liberal Prime Minister Giovanni Giolitti ordered the invasion of Libya, hoping to capitalize on the Ottomans’ perceived weakness and the Libyan elites’ growing strength.Footnote ⁴² In 1912, Italy obtained formal rights to the Dodecanese Islands and Libya, but Libya was largely controlled by local elites (particularly, the Senusiyya).Footnote ⁴³ However, having already spent – Maione estimates – 1.2 billion lire (about 5% of public expenditure) on the war, the Italians made peace with the Libyan elites who were allowed to govern the interior.Footnote ⁴⁴ Likewise, the Italians tried to use the First World War to expand their territory. Before entering the war on the side of the Entente, Italy negotiated the secret Treaty of London, in which they were promised the “irredentist lands” in Dalmatia, Istria, Trentino, and the South Tyrol, a protectorate over Albania, and a share of the territories obtained from the Ottomans and Germans.Footnote ⁴⁵ Siding with the Entente also gave Italy grounds to relaunch its campaign against the Libyan resistance, as well as the Ottomans and Germans supporting them.Footnote ⁴⁶ In sum, from 1887 to 1919, Italian politicians, thus, strategically entered wars and markets, aiming to obtain colonies and spheres of influence that would better the terms on which they participated in the global economy, not to disrupt it.

Despite Mussolini’s revolutionary rhetoric, on economic policy he followed the playbook of his liberal predecessors for much of the 1920s. He worked to reintegrate a severely indebted Italy—public debt reached about 180% of GDP in 1921—into the global economy.Footnote ⁴⁷ Using systematic violence to suppress organized labor and the socialists in the name of harmony and productivity, he bought support and consent from large swathes of the military, the monarchy, the Catholic Church, and the Italian elite, especially the industrialists and financiers grouped in the Confederation of Italian Industry (hereafter, Confindustria). Indeed, the fascist takeover did little to encroach on the autonomy of Confindustria, which was even able to pressure the regime to act in its favor when needed.Footnote ⁴⁸ In the 1920s, Mussolini enacted several policies that the Confindustria had previously proposed.Footnote ⁴⁹ He appointed the Manchesterian Alberto de Stefani as Finance Minister (1922–25), followed by the Confindustria’s own man, Volpi (1925–28). His government consolidated several government agencies; reformed the tax code to encourage investment in business; established good working relationships with businessmen in Italy and the US; reduced Italy’s public debt to manageable levels; and tried to restore the gold standard and Italy’s credit overseas.Footnote ⁵⁰

His imperial policy, likewise, focused on exploiting Italy’s internationally recognized colonies at little expense. After the First World War, the liberal Italian state had set out to reconquer Libya, which they had all but lost control of during the war.Footnote ⁵¹ Beyond doubling down on this commitment, Mussolini set the Italian military on a genocidal campaign against the Senusiyya and the Libyan people to conquer Libya’s interior.Footnote ⁵² This, however, was not a departure from his liberal predecessors. For most of the 1920s, Mussolini conducted colonial policy on a shoestring, and average annual colonial expenditures were only 38% higher (FYs 1923–1924 to 1933–1934) than those of his liberal predecessor Giolitti (FYs 1896–1897 to 1922–1923).Footnote ⁵³ Between the “economic wars” the fascists waged at home and the colonial wars they prosecuted abroad, the fascist government spent its first decade angling, like their predecessors, to more advantageously position Italy in the global economy.Footnote ⁵⁴

By 1932, Mussolini had decided to abandon liberal capitalism and turn towards radical mercantilism, corporatism, and imperialism. The shocks to the world monetary order in the 1920s disabused the former socialist of whatever faith he had in free markets and international institutions. In periods of economic turmoil like the Great Depression, remittances dried up and Italian exports crumbled as the US, Britain, and, to a lesser extent, France retreated to imperial isolationism. Their immense empires provided them with essential resources, including fossil fuels and precious metals, and captive markets.Footnote ⁵⁵ In contrast, Italy struggled to maintain the gold bloc alongside a few European countries that, like Italy, depended on the global market for food, fuel, and other essentials. Mussolini was convinced that it would be impossible for Italy to survive—let alone thrive—among competing empires and unstable capitalist markets.Footnote ⁵⁶

The economic chaos of the Great Depression spurred the regime to embrace a decisively illiberal economic stimulus centered on the synergy of marrying state-owned enterprise to imperial conquest.Footnote ⁵⁷ In 1933, the regime created the state-shareholding company, the Institute for Industrial Reconstruction (hereafter, IRI), which took over stocks and assets of distressed Italian banks and companies. While many healthy firms were quickly reprivatized, IRI retained a significant share of firms deemed essential to national interest, especially defense-related firms, and “super-capitalist” firms that had an outsized impact on the financial system and economy. In economic sectors such as banking and finance, shipbuilding and maritime transport, heavy machinery, and defense, IRI’s leadership sought to create a mix of private firms and firms held in IRI’s portfolio (for example, Fiat remained private while IRI held on to Alfa Romeo) that allowed the state to influence these industries without eliminating private enterprise, as well as use their shares to issue long- and medium-term credit.Footnote ⁵⁸ A year later, Italy began preparations to invade Ethiopia, purchasing billions of lire of steel, arms, vehicles, and other services from firms whose shares were held by IRI. Hundreds of thousands of unemployed Italians were enlisted as soldiers and workers. The war’s anti-cyclical effects even led some economic historians, most recently Alessio Gagliardi, to suggest that the regime’s outsized expenditures in AOI could be understood as a kind of “colonial Keynesianism.”Footnote ⁵⁹ However, anti-cyclical stimulus did not imply that the regime intended to return to the liberal capitalist global economy that Keynesian economics ultimately aims to uphold.Footnote ⁶⁰ Indeed, their pure magnitude suggests that Mussolini did not intend to return to the liberal capitalist global economy. Instead, this stimulus directly channeled funds back towards the state, in that the regime monopolized savings, suppressed consumption, and the economic stimulus to industry provided by public investment went into IRI’s coffers. As the next section demonstrates, Mussolini broke with Italy’s past and the whole liberal capitalist order. He wanted to build a radical mercantilist, corporatist empire.

As Mussolini’s ideas of Italy’s Eurafrican empire took form in the 1930s, he studied maps much like the one below (Fig. 1), examining the distribution of Italian emigrants and companies across the Mediterranean and Italy’s central geographical position. According to the fascists, Italy had the material basis and the right - inherited from Rome - to govern the Mediterranean and the Red Sea.Footnote ⁶¹ Stretching from the Horn of Africa to the Balkans and perhaps as far west as Algeria, the regime would have areas of economic influence and settler colonies across which it would impose corporatist and racial hierarchies that would dictate labor, production, and consumption.Footnote ⁶² At the center were Italian demographic colonies—Libya, Eritrea, Italian Somaliland, and Ethiopia (Fig. 1)—which would be settled by hundreds of thousands of Italians. In these colonies, the government would be run entirely by Italian civil servants, who lived in European-style homes with their Italian wives, children, and household help. The center of life would be the main piazza, which—just like the ones in Italy—was to be flanked by the municipal government, the Casa del Fascio, a Catholic church, and a school. Italians would sit at the apex of this imperial hierarchy, while Africans would be relegated to the physical and mental peripheries of everyday life.Footnote ⁶³ In sum, Italy’s empire would enable Rome to control production and consumption across the empire, providing a variety of resources and markets, and labor to exploit.

Figure 1. Mussolini’s empire, c. 1937. Map by Isabelle Lewis.

“The Empire Is Swallowing Italy!”: Financing Fascist Imperial Expansion, 1934–1937

In 1934, Mussolini seized his chance to rapidly expand Italy’s empire. The League of Nations had barely responded to the Japanese invasion of Manchuria in 1931.Footnote ⁶⁴ Hitler’s rise gave the Italian dictator increased political leverage with the British and French governments, as they hoped he would keep Nazi Germany in check.Footnote ⁶⁵ Moreover, in these years, Italian and British anti-slavery societies publicly decried the persistence of slavery in Ethiopia, casting doubts about the legitimacy of Emperor Haylä Śellasé’s government and limiting its status as a sovereign nation.Footnote ⁶⁶ By 1935, both Britain and France privately conceded that they did not consider Ethiopia to be a true sovereign state and were willing to make various arrangements to divide up its territory and sovereignty to further their own regional interests and placate the Italians.Footnote ⁶⁷ Sensing a window of opportunity, Mussolini envisioned a lightning-fast campaign, seizing Ethiopia’s ample natural resources, settling Italians en masse, and creating an enormous market for Italian goods. With this empire, Italy would be more than self-sufficient; it would be strong and capable of dictating the terms of trade with its fellow empires. The question was how could Italy possibly afford it.

Italy’s capital shortage had also shaped how previous governments approached imperial expansion. Their cost-saving tactics, unsurprisingly, likely influenced Mussolini’s government when it devised “proletarian imperialism,” its strategy to finance the war by extracting capital, labor, and other resources from Africans and working- and middle-class Italians. One key lesson was the importance of obfuscation. Like Giolitti in 1911, Mussolini in 1935 authorized the State Accounting Office to doctor the accounts to make the public budget appear balanced.Footnote ⁶⁸ Hiding the expenditures and their effects on the Italian economy was essential to maintaining the fascists’ alliance with the more liberal members of their party and industrialists whose businesses relied on access to overseas markets, such as Pirelli, Agnelli, and the cotton manufacturers.

For the delicate task of managing the regime’s finances and overseas exchanges, Mussolini appointed Count Paolo Ignazio Maria Thaon di Revel as Finance Minister in January 1935 and, a month later, Felice Guarneri as Commissioner of Exchanges and Values (later, Undersecretary, then Minister).Footnote ⁶⁹ Thaon di Revel was a committed fascist since 1919, but also a Savoyard noble and the former Podestà of Turin. If Thaon di Revel was a fascist who could speak to Italian liberals, especially the Turinese industrialists, Guarneri was a liberal who understood that the fate of Italian industry, which he had long served at the Confindustria, now rested in the regime’s hands.Footnote ⁷⁰ The two were charged with raising the capital needed for the war, controlling the effects of the gross colonial expenses on the Italian economy, and ensuring Italy could continue to service its foreign debts and conduct essential business overseas. These tasks were made even more challenging by the sanctions imposed by the League of Nations in November 1935.Footnote ⁷¹

To raise the four to six billion lire the regime estimated were needed to conquer Ethiopia, Thaon di Revel turned to the typical instruments of public financing: bonds, taxes, and money creation.Footnote ⁷² The latter proved the most important, covering an estimated 30% of the public deficit in June 1937.Footnote ⁷³ Bonds and taxes raised some revenue but mostly served to mop up liquidity and place it in the state’s hands, thus eliminating inflation by suppressing consumption. The money financed military operations, infrastructure needed for the campaign, and various private firms whose services supported the invading army. Mussolini’s proletarian imperialism, like emigrant imperialism, depended on hundreds of thousands of under- and unemployed Italian men. However, unlike emigrant imperialism, their labor served the nation-state and was supervised by fascist party officials who would ensure a substantial portion of their earnings went back to the metropole. In addition, large public contracts for much of the work undertaken in AOI—from building to trucking to banking—were issued to industrial firms, many of which were held in IRI’s portfolio. Mussolini’s proletarian imperialism ‘solved’ Italy’s capital problem by aggressively suppressing consumption among the working class, while stimulating Italian industry and strengthening the mercantilist state’s hold over capital.

Bond manipulation served to maintain control over Italian savings capital and, whenever possible, squeeze additional capital out of working- and middle-class Italians, who held their savings in treasury bonds.Footnote ⁷⁴ Already in the 1920s, the regime forcibly converted short-term government bonds into long-term bonds, thus enabling the regime to monopolize savings capital.Footnote ⁷⁵ Again, in preparation for the war, in 1934, the regime gave bondholders only six days to object to the conversion of the Consolidated 5% bond, due in 1937, into a new bond with an interest rate slightly above 5% for the first three years, followed by a longer investment at 3.5%. Less than 2% of bondholders objected to the conversion in time, generating an amortizable loan of about 60 billion lire. A year later, new bonds issues drew few buyers. To salvage the bond market and raise revenue, in 1936 the regime offered to convert the Redeemable Bond—purchased at L. 80 with a nominal value of L. 100 but now valued at only L. 68 on the market —into a new bond of L.100 nominal value, if the bondholder paid L.15 in cash. With little alternative, most bondholders accepted the conversion, generating six billion lire net.Footnote ⁷⁶ While these bonds generated some revenue, they mostly allowed the state to monopolize savings capital and control inflation.Footnote ⁷⁷ Raising capital by restricting liquidity and suppressing consumption also led to wage compression among workers, as economic historians Vera Zamagni, Maria Gómez-León, and Giacomo Gabbuti demonstrated; the wages of industrial workers, in particular, declined or stagnated, even as industry flourished.Footnote ⁷⁸ Workers’ well-being, measured by any metric, fell substantially throughout the 1930s. For example, the number of under-nourished Italians grew from one in five in 1922 to one in three by 1938.Footnote ⁷⁹

As working-class tables grew more spartan, the property owners remained relatively unmolested.Footnote ⁸⁰ After 1936, Thaon di Revel studied various tax reforms to target the wealthy, but few were successfully introduced, such as a 10% withholding tax on the coupons of all private bearing securities and other taxes to limit the distribution of dividends. More serious reforms failed. Property owners decried the October 1936 special property tax as a “forced loan,” pressuring the regime to modify the measure to allow property holders to borrow the taxed amount from the bank, in effect, using the tax as cover for further money creation.Footnote ⁸¹ Consequently, the regime continued to rely primarily on indirect taxes, which disproportionately affected working-class consumers and increased inequality.Footnote ⁸²

By creating money, soaking up liquidity, and suppressing consumption, the regime financed military operations and multi-million-lire public contracts to Italian industrial firms, especially those in IRI’s portfolio, to supply and support the invading armies. The largest civil expense was road construction, which represented some 81% of public expenditure on civil projects (ca. 8,075 million lire).Footnote ⁸³ Most of the work was done by Italy’s premier road construction company, Puricelli. By 1936, the firm had been taken over by IRI and its leader, Piero Puricelli, was replaced with a man of IRI’s choice, suggesting it was more closely controlled than other firms in IRI’s portfolio.Footnote ⁸⁴ According to economic historian Gian Luca Podestà, Puricelli obtained 1.3 billion lire in public contracts to build roads in AOI between 1936 and 1940, putting the company in the black by 1939.Footnote ⁸⁵ By February 1939, the Italians had built or reinforced an estimated 3,352 km of road in AOI.Footnote ⁸⁶

All sorts of enterprises popped up to supply and service the advancing Italian military apparatus and the construction sites across the Horn. One of the largest was trucking, as everyone and everything had to be trucked from the low-lying Italian Red Sea ports to the Ethiopian high plains. Mid-sized trucking companies, like Gondrand Transports, saw the imperial project as a chance to make themselves a globally significant firm. Even very small companies like Gotti S.p.A. of Massa Lombardo, a company with only eight trucks, jumped at the opportunities offered by the imperial market flush with public money.Footnote ⁸⁷

The booming battlefront economy pulled Italy’s under- and unemployed workers to AOI. An estimated 330,000 Italian soldiers and militiamen, together with 100,000 militarized Italian workers, were in East Africa by late-Spring 1936.Footnote ⁸⁸ Many furloughed soldiers stayed. An estimated 102,548 Italians migrated to AOI in 1936 alone.Footnote ⁸⁹ By June 1937, an estimated 63,530 Italians were employed as roadworkers, alongside 43,720 “native” workers, and 10,680 Yemeni and Sudanese workers.Footnote ⁹⁰ Unskilled Italian workers could expect to make about ten times the daily wage of an equivalent African worker (ca. 1934–1936) and about twice what they earned in Italy. The differences were even greater for Italian skilled workers and professionals, who had ample opportunities as African workers were summarily removed from skilled positions and excluded from most forms of skilled work.Footnote ⁹¹

Although wages were high, Italian workers were subject to strict laws that, as in the metropole, suppressed their consumption and forced them to save. Formalizing earlier decrees, the late-1937 imperial labor law required workers to set aside between 8–15% of their earnings in a savings account, which their employer used to buy their ticket home and the employee could access only in Italy.Footnote ⁹² Additionally, workers were expected to send remittances back to Italy to support their families. Those who did not send remittances could find the police at their door!Footnote ⁹³ Between 1935 and 1938, these remittances amounted to 5.2 billion lire, about 1–2% of Italy’s GDP. While these were less than those Italy had received from emigrants (ca. 1.3 billion lire per year on average compared to 2.3 billion lire in 1929), they nevertheless contributed to the Italian metropolitan economy.Footnote ⁹⁴ Perhaps more important was the revenue they generated for the few Italian banks authorized to work in AOI, all of which were either public institutions (BNL, Banca d’Italia) or held in IRI’s portfolio (Banco di Roma).Footnote ⁹⁵ For example, the BNL’s Asmara branch became one of the bank’s most important, dealing with over 20 million lire daily and generating L. 900,000 in profits in the first half of 1936.Footnote ⁹⁶

This qualitative evidence is supported by industry indexes. Podestà shows, using 100 as a base for industrial production in 1929, that the general index rose by 19 points between 1934 and 1938, with particular gains in metallurgy (31 points), mechanical manufacturing (56 points), and the chemical industry (53 points between 1935-38).Footnote ⁹⁷ Moreover, new taxes encouraged Italian firms to invest their profits in expansion rather than distributing profits. For example, a tax created in September 1935 forbade firms from distributing dividends of over 6% of share value; in October 1936, it was replaced with a new progressive tax on dividends over 6%, except for profits generated in the colonies.Footnote ⁹⁸ The military campaign in AOI had been a boon to Italian industry.

Proletarian imperialism strengthened Italy’s many corporatist institutions and concentrated the regime’s hold over capital. In June 1937, IRI was formally converted from a temporary holdings firm into a permanent institution, whose industrial holdings and command over medium- and long-term credit could direct economic development and industrialization from the Alps to the Red Sea. Moreover, between 1934 and 1937, Mussolini used proletarian imperialism and IRI to prove that the state could use credit and paper money—rather than gold and overseas loans—to animate the economy, even during war.Footnote ⁹⁹ It was a trial that seemed to demonstrate that a corporatist, mercantilist Italy could survive.

But, as the war dragged on, Guarneri and Thaon di Revel grew increasingly concerned about Italy’s reserves and Italy’s difficulty accessing foreign markets.Footnote ¹⁰⁰ In October 1936, Guarneri and Thaon di Revel convinced Mussolini to devalue the lira under the guise of pegging it to the floating dollar. This devaluation of more than 40% would enable Italy to continue buying and selling on foreign markets.Footnote ¹⁰¹ Guarneri privately urged Mussolini to be cautious with the treasury reserves—as the liberal government had been—because Italy would need them to rejoin the global capitalist market.Footnote ¹⁰² Extending the Italian economy so far was a colossal risk.

And it did not pay off.

The war was neither lightning-fast nor conclusive. The Italians confronted a much stronger and more enduring resistance than they had anticipated. By early 1937, the Italians occupied only the main cities of Ethiopia and some of the hinterlands. The countryside was a stronghold for the Ethiopian resistance, which grew only stronger in response to the regime’s brutal attacks on the civilian population. The regions around Gondar, Lake Tana, and Addis Ababa were in continuous revolt (see Fig. 2).Footnote ¹⁰³

Not only did the war last longer than expected, but the cost ballooned. While more research is needed to establish exact expenditures, even Podestà’s conservative estimates show the regime far exceeded the estimated 2,400 million lire per year in expenditures (Table 1).Footnote ¹⁰⁴

Table 1 Funds Allocated for Extraordinary Military and Civil Expenditures in AOI, 1936–1940

Source: Podestà, Il mito dell’impero, 245–246, table 79. Figures are rounded.

Note: Current prices, in millions of lire.

Maione, in contrast, estimates the Italians spent in total 57,303 million lire (1935–40).Footnote ¹⁰⁵ By most estimates, the occupation and colonization of AOI amounted to about 25% of all public expenditure and between 10–12% of national income.Footnote ¹⁰⁶

The war was the most important factor in increasing these expenses. Roads were also costly, especially because the hastily built roads needed constant repairs.Footnote ¹⁰⁷ Moreover, Italy had to use its reserves to buy war matériel, including petroleum, and pay taxes and service fees at Djibouti in French Somaliland and the British-controlled Suez.Footnote ¹⁰⁸ And it was precisely here—the weakest point in the Italian economy—that the League of Nations’ economic sanctions hit the hardest.Footnote ¹⁰⁹

Figure 2. Roads and railroads in Italian East Africa, ca. 1940. Note that Galla is a pejorative term for Oromo peoples. Map by Isabelle Lewis.Footnote ¹¹⁰

While sanctions eased in 1936 and European powers had largely accepted Italy’s claims to Ethiopia by 1937, Ethiopians continued to resist the Italian occupation. Footnote ¹¹¹ As a result, agricultural output in the Horn of Africa diminished substantially due to the ongoing conflict, land seizures and failed agricultural experiments, and the number of Africans abandoning agriculture for wage work.Footnote ¹¹² At the same time, the Italian population of AOI grew by 3,000%, reaching almost 185,000 in 1940.Footnote ¹¹³ To support the army and this growing population, Italy exported foodstuffs, fabric, machinery, and fuel to AOI.Footnote ¹¹⁴ Some products, like petroleum, had to be imported and then re-exported to AOI.Footnote ¹¹⁵ In 1938, Italian exports to AOI totaled 2,447 million lire, an amount that dwarfed AOI’s exports, which amounted to 192 million lire, about 60% of which was to Italy.Footnote ¹¹⁶ The empire was a disaster for Italy’s commercial deficit, much to the alarm of certain members of the business community, such as Giovanni Agnelli of Fiat and Alberto Pirelli of the Pirelli [Tire] Company, who needed to source materials abroad.Footnote ¹¹⁷ In an alarmed missive to Mussolini, Guarneri declared that “the empire is swallowing Italy.”Footnote ¹¹⁸

Guarneri’s incensed letter on July 9, 1937 effectively convinced Mussolini that proletarian imperialism was uneconomic and now politically untenable. Even if a substantial portion of Italians’ earnings were returned to Italy in the form of savings or remittances, their labor and consumption in AOI was heavily subsidized by the state. Whatever economic stimulus was offered by increased employment was ultimately not worth the cost. So long as Italy had to import fuel, certain rules of the game had to be obeyed. Mussolini ordered the ministries engaged in the colonization—from the Ministry of War to the Minister of Corporations—to submit new, substantially reduced budgets.Footnote ¹¹⁹ By the end of the year, Mussolini replaced Viceroy Graziani and Minister of Italian Africa Alessandro Lessona, respectively, with the refined scion of the royal family, Duke Amedeo d’Aosta, and his trusty ally, the eternal quartermaster Attilio Teruzzi.Footnote ¹²⁰ The regime needed a radically different political economy to retain its fragile hold on the empire – and the Italian economy.

Big Business, Labor, and the “Normalization” of Italian East Africa, 1937–1940

Guarneri’s 1937 letter and the subsequent budget cuts inaugurated a new policy: “imperial autarchy” or “normalization.” Normalization implied the conclusion of the war and the replacement of the ad hoc enterprises of the battlefront economy with an organized planned economy that was self-sufficient and capable of supporting the metropolitan economy.Footnote ¹²¹ Like industrial imperialism, it would engage Italian industrialists, who were now wary of Italy’s increasing isolation in global markets, in the imperial project by directly linking industries that needed raw materials, like cotton, with an imperial supply and industries that needed markets, like automakers, with an imperial market. Unlike industrial imperialism, these enterprises would no longer depend on the whims of the global market, but their actions and profits would be coordinated as part of the regime’s “organic” plan. It was, in sum, Mussolini’s final assault on industrialists who still believed Italy needed to work within the liberal capitalist economy. He had to show them that the empire would replace foreign trade and that fascism’s mercantilist, corporatist empire would supersede global liberal capitalism.

Analyzing the trucking and cotton industry reveals how the regime pursued normalization, which aimed to reduce the cost of the occupation and increase the empire’s material benefits to Italian industry. In response to Guarneri’s July 1937 letter, Mussolini ordered Italian roadworkers replaced with local African workers.Footnote ¹²² By year’s end, 84,426 Italian workers had been repatriated. Mostly, they were replaced by low-wage, coerced, and unpaid African workers.Footnote ¹²³ Exploited labor was a step towards forcing colonial subjects to pay for the colonization.Footnote ¹²⁴ At the same time, the MAI created large concessions that consolidated and coopted smaller enterprises run by Italians or Africans. These concessions were offered to Italian industrial giants, such as Fiat, Montecatini, Ilva, and the Italian Cotton Institute (hereafter, ICI), a sales cartel that Italian cotton manufacturers were required to join. Like Fiat, the ICI was closely tied to Guarneri and the Confindustria.Footnote ¹²⁵ These firms began to operate in AOI primarily through società anonime miste, or juridically private companies that pooled public and private capital and expertise. With public financing, political support, and concessionary rights that limited competition and risk, even skeptical industrial firms began to expand their operations in AOI.Footnote ¹²⁶ These were the fascist regime’s next steps towards building an economically integrated empire that would thrive in a world after liberal capitalism’s collapse.

Trucking was perhaps the most important single industry in AOI in terms of the number of companies (1,236 firms, equivalent to 14% of all Italian firms in AOI) and total invested capital (1,676.6 million lire, equivalent to 44% of all Italian company capital in AOI). Moreover, it had a rippling effect across all other industries that relied upon trucking.Footnote ¹²⁷ With such demand for trucking during the war (1934–1936), truckers with their own trucks earned enormous gross payments—as much as L.25,000 for just two weeks of work—and were rumored to return home “millionaires.”Footnote ¹²⁸ Back in Italy, the automakers also reaped the benefits of this booming demand. At a time when the Italian auto industry only produced around one billion lire worth of vehicles per year, military contracts – amounting to 855 million lire worth of vehicles for Fiat – represented a significant stimulus to the industry, as economic historian Valerio Castronovo points out.Footnote ¹²⁹

Yet, the booming trucking industry was highly disorganized and inefficient. Most trucking companies were small or very small firms, such as Gotti S.p.A. whose Asmara office had only three trucks and a mechanic, that lacked the scale to operate efficiently.Footnote ¹³⁰ A blown-out tire or a broken axle could take weeks to repair, leaving contracts unfulfilled and operating costs high. As a result of these inefficiencies, trucking was both expensive and unreliable.Footnote ¹³¹ To overcome some of these problems, many trucking firms formed cooperatives, sometimes independently and sometimes at the behest of local officials.Footnote ¹³² But these cooperatives did not yield the price reductions or the hierarchical business models that the regime wanted.Footnote ¹³³ Truckers were vilified in the press, which held them solely responsible for the high cost of living in AOI and single-handedly retarding the colony’s development.Footnote ¹³⁴

Likewise, an imperial market dominated by small, scrappy firms on the brink of bankruptcy did not appear particularly promising to Italian automakers. Since the boom in military commissions, Italian automakers, like Agnelli at Fiat, were anxiously waiting for the bust.Footnote ¹³⁵ They had no hope for the Italian domestic market, populated by poor Italians who made do with bicycles, carts, and trains.Footnote ¹³⁶ While Agnelli had set his sights on overseas markets (especially in the British Empire), the invasion of Ethiopia and the League’s sanctions had raised production costs and cut Italian automakers out of potential markets.Footnote ¹³⁷ Safeguarding Fiat’s interests as best as he could, Agnelli worked closely with Guarneri, who obtained various import and export permits for the automaker.Footnote ¹³⁸ But undoubtedly Agnelli was one of the industrialists pressuring Guarneri to force Mussolini to abandon proletarian imperialism and open up the Italian economy again.

The imperial trucking and automotive industries were ripe for intervention. Reducing the cost and time of trucking would greatly impact the military and civil government’s operating costs in AOI, as they were the primary contractors. It would also reduce the cost of living and working more broadly, as everyone and everything was trucked. Moreover, reforming the trucking industry was an opportunity to engage Italian automakers in the imperial project. If successful, Mussolini could convince some of the staunchest advocates of opening Italy for trade that fascism’s mercantilist, corporatist empire would satisfy all their needs.

To this end, in August 1937, the MAI, Finance Ministry, and Fiat created the società anonima mista, the Italian Company [for] East African Transports, better known as CITAO to regulate and consolidate the trucking industry.Footnote ¹³⁹ In its initial charter, CITAO was given a monopoly over all transport along the most heavily trafficked routes of the empire (see Fig. 2).Footnote ¹⁴⁰ CITAO was also supposed to operate repair shops, depots for fuel and parts, parking lots, urban and inter-city busing, and postal services. This kind of vertical and horizontal integration promised to cut prices across the board by regulating the industry and making it more efficient. Moreover, it must have appealed to Agnelli, so enamored with American Fordism.Footnote ¹⁴¹ And Agnelli must have seen that the 1.7 million square kilometer territory, roughly six times the size of Italy, with only one significant railway, represented an enormous market akin to the United States for Ford. Partnering with CITAO would allow Fiat to take an active hand in the development of that market. Thus, when the Finance Ministry and MAI asked Agnelli to invest in CITAO, he agreed. The state put up four million lire, and Fiat contributed three million.Footnote ¹⁴² Fiat was soon joined by other firms in the auto industry, including Lancia, Pirelli, Alfa Romeo, and Breda. Other investors included the Banco di Roma, BNL, the Ministry of Communication, and the War Ministry. AOI’s regional governorates contributed capital and assets to the firm.Footnote ¹⁴³ Its capital reached 37 million lire by 1938.Footnote ¹⁴⁴

On the ground, it was soon clear that CITAO did not have the assets to fulfill all the functions foreseen in its charter. Moreover, the Viceroy Duke Amedeo d’Aosta, among others, argued that sweeping away the small truckers damaged the “good” fascist soldiers and workers who were supposed to benefit from Mussolini’s proletarian imperialism.Footnote ¹⁴⁵ Instead of dispensing with the small trucking firms, CITAO only took over bus lines and postal services. For all other ground transport, CITAO operated as a mediator between customers and trucking firms, inspecting vehicles, fixing contracts, setting fares, and establishing a timeframe for payment. In exchange, CITAO received a 4% commission.Footnote ¹⁴⁶ It also operated several large repair shops that were able to draw on the technical expertise of firms like Pirelli and Fiat, breakdown defunct vehicles into parts to be reused or recycled, and create large depots of spare parts, lubricants, and fuel. The repair shops reduced costs and contributed to industrial autarchy.Footnote ¹⁴⁷

The regime argued that CITAO performed an important public service by effectively lowering the cost of trucking in AOI. It had more resources and could operate at a greater scale—thus achieving important efficiencies—than the collection of small, disorganized trucking firms. Between July 1937, shortly before CITAO’s creation, and January 1939, price of trucking fell by an estimated 43%.Footnote ¹⁴⁸ Moreover, CITAO distributed almost 2.3 million lire in dividends in 1939–1940.Footnote ¹⁴⁹ By 1940, Fiat’s once-skeptical Agnelli had invested about 66 million lire in the transport sector in AOI.Footnote ¹⁵⁰ While Fiat’s leadership remained uncertain about the fascist regime, they certainly hoped there were profits to be made in Mussolini’s imperial project. At least, CITAO’s concessionary rights and the public financing extended convinced Fiat that it was a worthwhile investment.

CITAO’s profits and cost-savings, however, were not exclusively due to good management and organization. Rather, CITAO was able to generate profits and reduce costs by suppressing labor and wages. CITAO extended ample credit to the public sector, equivalent to 86 million lire to the military in October 1939.Footnote ¹⁵¹ To afford this credit extension, CITAO simply did not pay the trucking companies, which often were too small to cover the ongoing operating costs for months while awaiting payment.Footnote ¹⁵² In a sense, forcing small truckers to loan the state their money and labor was not so different from proletarian imperialism, which forced Italy’s working classes to loan the state money and labor to finance the war. The difference was that it had given the Italian auto industry—especially its leader Fiat—a stake in the development of Italy’s imperial market.

Like trucking, cotton cultivation was a small, disorganized production. Most Ethiopian households grew several small cotton plants. The indigenous varieties required no additional labor and were drought-resistant, perennial crops. Families spun the short-cotton fibers and wove whisper-thin cloth known as abugiadid, the basis of most Ethiopians’ clothing, including the traditional shamma. Raw, spun, or woven cotton was either consumed directly by the producers or sold on the market, thus providing families with diversified income sources. Yet, despite the quality of Ethiopian cotton, it was not commercially produced. In the late nineteenth and early twentieth century, Ethiopia imported increasing quantities of cotton, especially from Japan, despite both Emperors Menilek II and Haylä Śellasé’s attempts to increase production by creating concessions and introducing various fiscal incentives.Footnote ¹⁵³

Ethiopia’s cotton—or rather, potential to grow cotton in great quantities—was one of the many raw materials that Italian cotton manufacturers hoped to seize from the empire. Operating in one of Italy’s oldest and strongest industries that had historically benefited from state protectionism and was partially held in IRI’s portfolio, cotton manufacturers had been deeply engaged in the imperial market since the turn of the century.Footnote ¹⁵⁴ In particular, capitalist plantations in Somalia and Eritrea provided them with limited quantities of raw cotton, while Eritrea was increasingly important as a market for Italian cotton textiles.Footnote ¹⁵⁵ Thus, while cotton manufacturers, unlike the auto industry, were particularly integrated with and attuned to the Italian imperial market before the invasion of Ethiopia, they nevertheless, like the auto industry, were primarily oriented to the global market. In particular, cotton manufacturers imported some 94.5% of their raw cotton, according to Ethiopian historian Haile Larebo. With the invasion of Ethiopia in 1935, one of the fastest growing industries in Italy had to suddenly pivot to using synthetic fibers as economic sanctions and the regime’s tight control on overseas purchases limited their ability to purchase cotton.Footnote ¹⁵⁶ The empire, thus, held promise as both a source of raw cotton and a market for cotton manufactures.

Aiming to transform the Ethiopian cotton industry from small, disorganized household production to industrial production, the MAI collaborated with the ICI to create the società anonima mista, Italian Africa’s Cotton Corporation (hereafter, ECAI) in July 1937. Each contributed half of the founding capital.Footnote ¹⁵⁷ The ECAI was responsible for directing the long-term development of the cotton industry by studying cotton cultivation in Ethiopia, creating cotton districts that would be assigned to private concessionary firms, and working with private firms and the ministry to establish production quotas and prices.Footnote ¹⁵⁸

The ICI also founded the most important cotton concessionary firm in Ethiopia—the National Company for Ethiopian Cotton, known as Cotetio, in July 1936. Cotetio initially purchased concessionary rights for four of the seven total cotton districts the ECAI had created in Ethiopia, but soon after purchased the rights to operate the additional three, becoming a de facto monopoly (Fig. 3).Footnote ¹⁵⁹ Cotetio, thus, owned the rights to purchase all of the cotton produced by Ethiopian cultivators in these seven cotton districts—each measuring on average 500,000 hectares, according to Larebo—for the next twenty-five years. The concessionary contracts issued by the ECAI specified that Cotetio could not expropriate land from resident Ethiopian cultivators nor interfere with their cultivation of food and animal raising specified as “indispensable to the lives of these people.” Instead, Cotetio could only encourage Ethiopians to “volontar[ily]” cultivate more cotton.Footnote ¹⁶⁰

Figure 3. Cotetio’s Cotton Districts in AOI, c. 1939.

Thus, like CITAO, the ECAI and Cotetio functioned as intermediaries between small enterprises—in this case, small family farms with limited market orientation—and the wider imperial market. They too drew on the expertise and capital of the major metropolitan firms in the cotton manufacturing sector. In particular, engaging the ICI in cotton growing enterprises operated like a salve for an industry that had been so damaged by the war and the turn to autarchy, and perhaps the regime sought to appease these industrialists and show how they could return to ‘normal’ within the framework of imperial autarchy.

Yet, considering the dramatic change the ECAI wanted to undertake in cotton cultivation, it is unsurprising that Cotetio used both persuasion and coercion to increase cotton cultivation in its districts. According to Larebo, during the 1938–1939 season, Cotetio distributed pamphlets in Amharic, instructing cultivators how to obtain greater cotton yields and offered financial incentives to cultivators. Company representatives seized indigenous seeds, replacing them with American upland varieties whose longer fibers were suited to Italian textile machinery. However, American varieties were more labor-intensive than the indigenous varieties. As a result of Cotetios’s attempts to rationalize and increase cotton cultivation, Ethiopian cultivators dedicated less land and fewer working hours to their crops and herds. Food production in the cotton districts decreased so substantially that the colonial government intervened, establishing requirements for food production in the districts.Footnote ¹⁶¹ Yet, despite Cotetio’s persuasion and coercion, the 1,454 hectares of cotton in Cotetio’s districts produced only 64,000 kg of raw cotton.Footnote ¹⁶² Cotetio and its agricultural advisors blamed the low yields on African cultivators’ “laziness” and “congenital indolence,” although they also acknowledged instances of “open opposition.”Footnote ¹⁶³

To increase cotton production, Cotetio thus turned to increasing the scale of production and intensifying its management of Ethiopian cultivators. Working closely with the local residente (equivalent to district officer) and the local elites, Cotetio established large collective fields. They also fixed a minimum number of African laborers and working days that the local elites were supposed to supply to Cotetio’s field. For example, in the Soddu cotton district, local elites (“capi indigeni”) were supposed to require local cultivators to work in Cotetio’s field for three days per week. Any elites who resisted were “punished.”Footnote ¹⁶⁴ Likely, this unpaid, corvée labor was framed as a tax levied on the local population, just as Ethiopian imperial elites had required a certain number of working days for public works and on the lands of local imperial authorities or the palace.Footnote ¹⁶⁵ When workers did not arrive in the numbers that Cotetio had demanded, Cotetio’s managers screamed and threatened local elites but to no avail.Footnote ¹⁶⁶

They soon discovered that Cotetio was just one of many concessionary companies demanding African corvée labor. The local government demanded they work on roads, while the local gold and platinum mining concession demanded they work in the riverbeds. The competition among Italian firms for African labor gave Africans the leverage to demand greater remuneration and better working conditions.Footnote ¹⁶⁷ Responding with force, the Italians began to coerce Africans—sometimes at gunpoint—to work. But the local population, some of which had migrated for wage labor elsewhere in the Italian empire, was simply insufficient to meet the workforce demands of Italian companies.Footnote ¹⁶⁸ In regions with labor shortages, the state began to gather formerly enslaved people—who had no property and no place to go—into so-called “freedom villages,” where they were forced to work for Italian enterprises.Footnote ¹⁶⁹

These increasing demands for corvée African labor reveal a broader transformation in the financing of the fascist colonial project. Turning industries like cotton cultivation over to companies such as Cotetio, which was a product of the Italian cotton manufacturers and aimed to supply them with abundant, cheap cotton, naturally generated an impetus to reduce the cost of labor. Although certain industries remained reserves for skilled white labor such as trucking, Italian firms increasingly looked to African workers to provide low-cost, if not free, labor for their enterprises. A 1940 survey reports that about 750,000 Africans were employed in construction, road-building, and agriculture. More were recruited into the military and private businesses as well. Podestà estimates that over 1 million Africans were employed in the Italian colonial machine, about 10% of the African population.Footnote ¹⁷⁰ Forced, unpaid African labor became an important source of financing for the fascist imperial regime.

The Fascists’ Radical Mercantilist Capitalism

The fascists had always exalted the transformative power of war. In the “fascist war” —the occupation of Ethiopia—and the colonization of AOI, Mussolini aimed to forge new relationships among his subjects and between nations.Footnote ¹⁷¹ Abandoning the concepts of a society of self-sovereign individuals, balanced budgets, and liberal trade regimes, Mussolini aimed to build a new geopolitical bloc in the Mediterranean and Horn of Africa that could stand on equal footing with the British Empire, the United States, the Japanese Co-Prosperity Sphere, and the Soviet Union. Expanding Italy’s borders, concentrating the state’s power, and stimulating industry, all served to ensure that Italy would be strong and able to dictate the terms of its relations with these great blocs.

Mussolini’s mercantilist, corporatist variety of capitalism would resolve Italy’s so-called “under-development” by empowering the state, not by increasing the wealth and well-being of Italy’s subjects. Rather, the war and colonization project concretized a hierarchical society of corporations with the state at the apex, Italian elites in the middle, Italian workers below, and African subjects at the very bottom. To wage its imperial war, the regime suppressed the consumption of working- and middle-class Italians, increasing the differences in the lives and well-being of Italian workers and the elite. During the so-called “normalization” of AOI, Mussolini replaced unskilled Italian workers with African workers, who were forced to work in conditions of extreme privation, abuse, and coercion. Normalization also swept away small- and even medium-sized Italian and African enterprises—unquestionably riddled with inefficiencies—replacing them with large società anonima mista that enabled the regime to coordinate entire sectors of AOI’s economy.

In this process, many industrialists preserved their privileged place in corporatist Italy. As much as Mussolini may have resented certain Torinese industrialists like Agnelli, they were, to paraphrase historian Silvio Lanaro, Italy’s electric “wattmen”—masters of efficiently organizing resources and labor, integrating their enterprises, and building the machines of the future that Mussolini so admired.Footnote ¹⁷² Their status and power meant that Mussolini had to continually solicit their consent and support of all of his endeavors, even his decision to break with liberal capitalism and build a radical mercantilist empire.

Nevertheless, with the Great Depression and the regime’s colonization of Africa, Mussolini aimed to prove that the state could animate the entire economy—deciding where to direct investment, what could be done with profits, whose needs were to be subordinated, which people were to be outright abused. Such choices were justified at the highest levels of government as “national” interest. It was not a “proletarian empire” or a “civilizing mission” as the propagandists proclaimed. It was the bloody beginning of Mussolini’s radical mercantilist, corporatist, and racist new order.Footnote ¹⁷³

Ultimately, this article has sketched out general models of Italy’s colonial strategies by studying financing, expenditures, and enterprises. It has thus dealt with ideas and histories shaping how fascist policymakers and Italian elites imagined the future, as well as the divergence between those who imagined a future within a liberal capitalist global market and those who wanted to break with it. But, despite their clear differences, they shared a common way of thinking about Italy and the world. Like their risorgimentale forefathers, they were preoccupied with Italy’s “under-development” and other “problems.” Their ideas about the future were overshadowed by fears of Italy’s military weaknesses, its perceived lack of autonomy, and the supposed absence of modern industry. These fears and this conception of Italy as “underdeveloped” and a “second-rate power” long preceded Mussolini’s rule and continued long after it.