The Italian bourses (III)

Industrials and Banks

«The Economist», 29 Agosto 1908, pp. 394-396

Another very interesting group is composed of the sugar industry, of the grinding of cereals, and of mines, foundries, iron and steel, and engineering works, &c. These three groups are, perhaps, the most conspicuous example in Italy of industries which are both protected and receive Governmental favours. The most scandalous instance is, perhaps, the sugar works. In a preceding number of the Economist a regret was expressed that the Italian Government should keep up the price of salt to 40 centesimi (about 4d) per kilogramme. But what can be said about sugar, which is burdened with exorbitant taxes which do not go exclusively to the benefit of the State, but partly to the producers of sugar? These are the taxes with which sugar is burdened in Italy:

Even supposing that all the protective duty does not go into the pockets of the manufacturers, they own that they gain from 15 to 20 lire per quintale of sugar produced. With an average production of one million quintali this makes a tribute of 15 to 20 millions of lire per annum exacted by the 32 manufactories of sugar existing in Italy from the Italian consumers. And because a clause in the Convention of Brussels would oblige the Government to reduce the protective duty to a maximum of 5.50 and 6 lire per quintale as soon as Italy became an exporting nation, the 32 sugar manufactories have joined together into a Sugar Union, which is a genuine trust, with the object of limiting the production a little below the quantity required for internal consumption at the present prices. And hence the Italian consumer pays for sugar retail 1.50 lire the kilogramme, and consumes little more than 3 kilogrammes a head, less even than is consumed in Turkey. To return to our subject, the scandalous protection enjoyed by the sugar industry, and the hight profits made by it caused the shares to rise on the Stock Exchange, and by the beginning of 1905 for every 100 lire of nominal price the shares were worth 213 lire, and in September they had got up to 249 lire. This was excessive capitalisation, given the possibility of the import duties being reduced, and with them the profits; and it was only natural that the prices should fall again in June, 1908, to 157.23 lire for every nominal 100 lire (in July, 1908, to 145.12 per cent.).

The industry of grinding cereals is another case of unjust and scandalous protection. Wheat from abroad pays an import duty of 7.50 lire the quintale on entering Italy. This is, anyhow, a very high duty which increases the cost of living beyond measure for the benefit of land owners. But the harm done is still greater, because foreign flour, which ought in proportion to be charged a duty of 10.15 lire, pays instead 12.30 lire. And thus the consumer of flour pays a protective duty of 10.15 lire per quintale to the owners of corn land, and another 2.15 lire to the millers. The protection granted to land owners keeps up the value of their corn land; the protection given to the millers made the price of the shares of joint stock companies for milling go up from 100, the nominal price, to 231.21 in January, 1905, to 230.43 in September, and made it possible for the promoters to reap golden profits by selling the shares to the worthy public. Here, too, the precarious profits due to protection could not allow of such high capitalisation, and they were also reduced by the rivalry of new producers and by bad administration. Hence it is true that the actual price has at the end of June, 1908, come down to 102.72 per cent, of the nominal price (at the end of July to 98.06).

In the group of mines, foundries, iron and steel engineering works, &c, the profits in the past and those gained to-day are due partly to protective import duties which are very high, partly to the supplying of iron-plates, cannons, and ships for the army and the navy, and lastly to the pressing demands of the State Railway department, which was obliged after July 1, 1905 (the date when the railways passed over from the private companies to the State) to make large purchases of railway materials. These causes made the price of the shares go up from 100 lire nominally, to 235.54 lire actually in September, 1905. But, after that, the drop was continuous, so that the shares on June 30, 1908, were no longer worth more than 140 lire for every nominal 100 lire (at the end of July 132.86).

It must be acknowledged that this drop was due to the campaign initiated by Signor Ferri, editor of the socialist paper, the Avanti, of Rome, against the serious abuses in the administration of the military marine, which was paying, for example, exorbitant prices to the Steel Works Company of Terni, for iron plates for men of war. Signor Ferri made the mistake of giving a prominently socialistic character to his struggle against malversation in the military marine, and of mixing up with his criticisms of the administration of the marine personal attacks on Admiral Bettolo, Minister of Marine at the time. Hence the Tribunal at Rome had to sentence him to prison, thought the Chamber of Deputies would not allow the sentence to be carried out.

But the seed scattered by him fell on good ground. Parliament nominated a commission of enquiry, which revealed abuses and suggested the appropriate remedies; public opinion woke up, and the newspapers, with the great Conservative paper of Milan, the Corriere delta Sera, at their head, insisted firmly on the necessity of carrying out the conclusions of the commission of inquiry. Today the Government pays more reasonable prices for its iron plates, and the profits of the companies who supply them, though smaller, are more likely to last.

The other groups do not offer features of much interest. The price of the shares of companies dealing with immoveable property varies a good deal (132.48 per cent, in March, 1906, 85.05 per cent, in October, 1907, and 103.25 per cent, in June, 1908). This, after all, is quite natural, as the undertakings in question are risky with distant returns, and aim at raising the value of large, badly cultivated estates, and at building houses in big cities. The group of railways, tramways, and navigation stands rather low (it went down uninterruptedly from 139.39 per cent, in September, 1905, to 113.57 per cent, in June, 1908). But this drop is easy to understand, because, after 1905, the three large railway companies (the Mediterranean, Adriatic and Sicilian), which used to work the railways now belonging to the State found themselves, so to speak, with an unoccupied capital of 460 million lire; and the two first, instead of contenting themselves with taking every year from the State treasury the stipulated annuities – a course which would have given the shares almost the character of debentures guaranteed by the State – preferred to take part in private companies, specially in metal and machinery works. This decision, which was much criticised by certain people as only serving to keep the directors and employees in their present position, whereas, otherwise, they would have become practically unnecessary, has undoubtedly contributed to give a character of uncertainty to their shares, and to reduce their value. This group is also affected by the world-wide crisis from which maritime navigation is suffering, which has forced Italian companies to lower the fares for emigrants to and from America in order to meet the competition of the German navigation companies.

The shares, however, of the companies for spinning and weaving wool, cotton, hemp, silk waste, &c, keep at a fairly high level. The actual price, which was 139.79 per cent, of the nominal price in January, 1905, rose to 154.17 per cent, in November, 1906, and now (June, 1908) it stands at 142.10 per cent. There had been very litde speculation in the shares, and so they did not fall sensibly. This is, indeed, a protected industry, and there are even export duties, as, for example, on silk waste, which are very hard on silk spinners. But it is necessary to acknowledge that in many instances the manufacturing spinners and weavers have made striking advances in technique, and that they could today, without difficulty, give up a large part of their protection without suffering sensibly. This is the reason why the actual prices of their shares seem, as a rule, fairly stable; another reason is that the promoters did not attempt to sell their shares to the public at high prices in order to buy them back afterwards at a low rate after the crisis.

A last word on the banks. With the exception of the powerful and well-managed Banca d’ltalia, which is the chief Italian joint-stock bank of issue (the two other banks of issue, the Banco di Napoli and the Banco di Sicilia, are public banks administered by delegates from the State and the Southern and Sicilian provinces), and the Istituto Italiano di Credito Fondiario, which is concerned exclusively with mortgages on lands and houses, the other banks included in this group are almost all of the German as opposed to the English type. They are, that is to say, not only concerned with deposits, discounts, and anticipations, but they help manufacturers to set up in business, they underwrite shares in order to place them at a premium among their clients, and they take an active part in speculations on the Stock Exchange. They are almost forced to do this by the keen competition they meet with in their search for good commercial paper to discount, from the savings banks and the popular banks. It must be remembered that there exists in Italy the Cassa Depositi e Prestiti, which is really a great State bank, which receives by means of the Post Office Savings Banks about 1,500,000,000 lire of deposits and lends it to the State railways, to provinces and to towns. In this way, the issue of debentures of provinces and towns is almost entirely taken away from the ordinary banks. The savings banks which are autonomous (that is independent of the State) received at the end of 1906 1,957,579,047 lire of deposits, and today the deposits are close upon 2,200,000,000 lire. If we add to this the capital of the savings banks (the only savings bank of the Lombard provinces, perhaps the biggest in the world, has a capital of 100 million lire in addition to 700 million lire of deposit), and also the capital, the reserves and the deposits of the popular banks, we see how it is that savings banks and popular banks are successful in competing with the ordinary joint-stock banks for discounting good commercial paper. These latter, therefore, in order to make high profits, have to engage in risky operations of industrial credit and in speculations on the Stock Exchange, which is an important cause of the instability of their shares.

This brief survey of the changes in the quotations of Italian shares has shown that the rise which appeared in 1905 and in 1906 was largely artificial. Nothing, therefore, was more natural than that there should be a reaction in 1907, and that this should continue into the first six months of 1908. An improvement can only come when the inheritance of the past is swept away, and confidence can be felt in a natural and lasting prosperity of industry and commerce.

Not everybody in Italy is persuaded of this truth. Many speculators on the Stock Exchange, accustomed to gain large sums easily by playing with the rise, and many imprudent and greedy capitalists who have seen the price of the shares they bought in their folly go down, cry out against the black band of bears, and call for Government measures. The Government has sent the police into the houses of certain well-known “bears”, and has begun criminal proceedings for stock jobbing at Genoa, Milan and Turin. Further, it has presented to Parliament a Bill about Stock Exchanges containing most severe restrictive rules. It is probable that the criminal proceedings will not come to anything owing to the difficulty of proving offences of this nature, and, at most, they will serve to persuade the capitalists, who were foolish enough to let themselves be fleeced of their money, that the blame rests with the “bears”, and not with their own blindness and greed. The effects, however, of the Stock Exchange Bill if approved by Parliament, will not be so innocent. Side by side with certain good proposals, notably those for reducing the taxes for Stock Exchanges contracts, it contains other proposals which will hinder and limit beyond measure the work of the operators on the Stock Exchange, honest and dishonest alike. It seems a strange thing that the Italian Government should have set itself to ape the German legislator after he had recognised the necessity of reforming his disastrous Stock Exchange law. But public opinion, which is made up by incompetent people, called on the Government to do something, and it is no wonder that to satisfy the clamour of the market place it should be unable to find anything better to propose to Parliament than prohibitions and inquisitions on a vast scale.