Cotton and tariffs in Italy

«The Economist», 4 febbraio 1911, pp. 211-212

The crisis in the Italian cotton industry is a striking instance of the ultimate mischief of Protection to the economical development of Italy and her trade. The cotton spinning, weaving, and printing industries were highly favoured by the “Tariff Reform” of 1887, and now enjoy high Protection. According to the calculations of the British Board of Trade (Fiscal Memorandum Cd. 2337), the average incidence ad valorem of the import duties levied in Italy on British cotton manufactures in 1902 was as follows:

This is the measure of the protection as it affects the foreign exporter. From the point of view of the Italian consumer, Signor Giretti in his paper read before the International Free-trade Congress of 1908 in London estimated the yearly tax imposed upon the Italian people, and especially upon the poorest, by the protection of the cotton industry at not less than 100 million lire. The purpose of the “Tariff Reform” was, of course, to shut foreign manufacturers out of the Italian market, for the benefit of the Italian cotton manufacturer. In this object it has partly succeeded. The effect of the policy of high Protection upon imports is shown by the following figures:

The figures for 1909 are:

The artificial aid thus given by the State was for a time accompanied by a development of the manufacture of cotton goods in Italy. Capital was attracted into the industry by the prospect of inflated profits. Old plants were extended and improved. A great many new concerns were started, some well organised, some not. The total number of spindles rose from 900,000 in 1880 to about 4,500,000; that of looms from 30,000 to 120,000. These facts have been adduced by the Italian Protectionists as a triumphant proof of the success of their policy. It is doubtful how far the ultimate cause of the increase in production of manufactures was due to the tariff, and how far it was due to the abnormal growth in the accumulated capital of the country during recent years, which leads it to seek new outlets. But one thing is quite certain, the home consumption has not increased in proportion to increased production of yarn and piece goods, and the Italian cotton manufacturers are faced with the necessity of finding an outlet for their regular excess of production.

During the years of good trade, in which the world’s demand was increasing, they succeded with relative ease in exporting a considerable quantity of yarn and piece goods.

These exports were mostly to the Levant and South America. The record looks good enough, but as a matter of fact, the export trade has been carried on at prices which do not cover the high cost of the protected production. The alternative of going on short time would result, however, in even greater loss than dumping the exports. Italian manufacturers, moreover, are determined, whatever else may happen, that the price in the home market shall never fall below the highest point of the monopoly price. Experience shows that this means that the Italian consumer has always to pay the Manchester prices plus transport, plus the full amount of the Italian import duties.

Since the crisis which has prevailed during the last few years in the cotton trade through the increased cost of the raw material, Italian exports of manufactures have become more and more unremunerative. It must be remembered that the swollen prices of raw cotton are the more resented by the Italian manufacturers, because they have been allured by Protection to specialise in the coarsest sorts of manufactures. An instructive proof of this fact is that the Italian spinning industry works at a yearly average of 44 kilos of raw cotton per spindle; roughly, a figure a little less than three times the average in the British industry with its growing specialisation in fine counts. Even extensive dumping abroad, in order to maintain prices in the home market, has not availed to keep the mills on full time. Authoritative calculations show that 1,200,000 spindles have been out of work for the whole of this year. Notwithstanding this enormous reduction of output, the situation of the Italian cotton industry remains very discouraging. No improvement seems possible under present conditions, while the price of raw cotton continues at its present level, and under the existing fiscal régime. The opinion is gaining ground, however, and not only among consumers, that it is this régime which is the cause of the mischief, and that the best remedy for the crisis is in another and a real Tariff Reform. Protection has caused over-production, increased prices for Italians, reduced purchasing power, and a ruinous export trade at unprofitable rates. Free-trade would increase the purchasing power in the Italian consumers, and diminish the cost of production to Italian producers. Protection has failed, it is said, let us go back to Free-trade. But the majority of Italian cotton manufacturers are not ready for this reform. Their only idea is to tread the beaten track of monopoly still further, appealing to Government for a higher Protection still, and still greater facilities for extortion from the Italian people.

Meanwhile, the clamour against fiscal imposts grows ever stronger in other directions. Consumers’ associations are active, but the retailers are more active still. The Druggists’ Society of Milan and Lombardy affords an example. It called a mass meeting on December 26th to protest against the import tax on sugars, and issued the following manifesto:

The druggists of Milan and Lombardy, having held a special meeting on December 11, 1910, for the purpose of discussing the unjustifiable increase in the price of sugar, and of effecting a remedy for the same, give notice to all the citizens that this increase has been promoted by the National Refineries, which have combined together in a trust, which, not paying the protectionist tax of 30 lire per quintal, is in this way privileged. These refineries have raised the price of foreign refined sugars by another 10 lire per quintal, regulating their contracts in such form as to upset the whole of business. They, the druggists, are now deliberating as to means of reducing sugars to their proper value, and the nomination of a commission for the purchase of foreign sugar. Meanwhile they thank all the economic associations of Italy that are agitating for the same purpose, and appeal energetically to the Government for the abolition of the existing Protectionist tax on sugar, which, if it was justified at a time when the Italian sugar industry was of early growth, is now so no longer, in as much as the industry is in a sufficiently flourishing condition.

This agitation against the tariff amongst retailers should be of special interest as a caution to those engaged in similar commercial occupations elsewhere. Italian retail traders do not often co-operate as a class; competition is too keen, and jealousies too bitter. But the oppression of tariffs is forcing them to unite against the common enemy.