Parmalat: the decadence of Italian capitalism

At the end of last year, the Italian multinational company Parmalat collapsed like a house of cards after its management had admitted to falsifying the accounts for a period of at least 14 years. We cannot understand what happened if we see it merely in terms of personal greed. It is not simply a question of greed. The crisis of Parmalat flows from the deep crisis of the Italian economy.

As Marxists, we always explain that the capitalist class, in the period of its own historical decay, will do anything to maintain its power and privileges. But sometimes, the things the bosses do leaves even the most experienced Marxists astonished.

At the end of last year, the Italian multinational company Parmalat collapsed like a house of cards after its management had admitted to falsifying the accounts for a period of at least 14 years. They did this in order to cover up the heavy losses that its affiliates in South and North America had been making.

Parmalat is one of the biggest dairy companies in the world, with over 140 plants and 36,000 employees worldwide. During the 1980s it succeeded in expanding its market - or so it seemed - in Brazil, Argentina, Venezuela, Ecuador, Nicaragua, and many other countries in Latin America. They were even selling a lot of powdered milk to Cuba. In reality the whole things was a fiction. Now we know that this "success" was based on a colossal amount of debts (the estimated figure has already reached 10 billion euros).

The Parmalat management created a number of subsidiaries in offshore centres (more than 250 of them!) in order to allow a flow of money within the group to proceed freely. They used all kinds of fraudulent methods, included low-tech ones such as producing fake documents with a photocopier, in order to hide the truth. All this while they were sinking under a rising tide of debts. As the expansion of Parmalat was faltering, this multinational company tried to cover this up with more and more acquisitions. It was helped in this strategy by credits which were generously handed out by the biggest world bank. This strategy only succeeded in creating a colossal amount of unpaid credits and bonds.

Of course, now the bourgeois press is attacking Tanzi, the boss of Parmalat, who until yesterday had been a darling of the media, a fervent Christian, the "human face" of Italian crony capitalism. They now present this man as a bad guy, a corrupt, greedy, incompetent individual who cheated for his benefit and so on. Of course Tanzi is corrupt, and greedy, and incompetent. But this makes him no different from any of the other capitalists worthy of that name. The question that this scandal raises is not how Parmalat succeeded for so long in cheating practically everybody (or, as is more probable, how he was helped by them in this fraud), from the auditors, to the biggest US investment banks, to the government authorities, because at the end of the day, they are all on the same side. The real question is: why did this industrial giant, one of the most respected companies in Italy, decide to take this road? We cannot understand it if we see merely in terms of personal greed. It is not simply a question of greed. The crisis of Parmalat flows from the deep crisis of the Italian economy.

When Italy joined the euro, we explained that the Italian bourgeoisie was putting itself in a very uncomfortable position. For decades, devaluation had been the main weapon of the Italian capitalist against the more advanced economies of Germany and other European countries. During the 1970s, there was an intense class struggle in Italy. The workers could have taken power. The Italian capitalist system was on the brink of collapse. The bourgeoisie played for time by allowing the State debt to grow massively. They made concessions in an attempt to hold the workers back. Obviously their idea was to give today and take back tomorrow, with interest. Since the early 1980s the bourgeois in Italy have been clawing back the concessions they made in the 1970s. The Italian economy has been paying the price for this exponential growth of the state deficit for more than ten years now.

Since joining the euro, with no possibility of devaluing its currency, and forced to comply with a fiscal policy that consists of constant cuts, the Italian economy has been going nowhere. Now the chickens are coming home to roost. Without its classical weapon of devaluation, and finding itself under attack from the advanced economies on the one side and the competition of China and the other "developing" countries on the other, Italian industry has been taking one battering after another. They had the illusion that the unprecedented number of privatisations over the last 15 years, the largest in any western country in such a short period, could somehow kick-start some form of so-called "popular" capitalism and thus strengthen the position of the old classical families of Italian capitalism. But this idea is dead in the water. In the meantime, any growth of large-scale homegrown capitalist enterprises has been negligible. One example gives us an idea of how negligible this has been. About 20 of the top 30 companies quoted on the MIB30 (the index of the most important companies listed on the Italian stock exchange) are former state owned enterprises or companies that were created from former state owned companies. In fact, the top 6 companies on the Italian stock exchange are former state enterprises. This gives you an idea of the scale of the capitalist looting of former public assets that has taken place in Italy.

In the last 18 months we have had at least 3 serious industrial crises: Fiat (the last surviving carmaker in Italy), Cirio (a food multinational) and now Parmalat. These crises are due to a number of reasons and all of them have different characteristics, but ultimately they can be reduced to this: those Italian corporations that have tried to expand abroad have been heavily defeated. Parmalat is the clearest case of all. Fraud, falsified accounting etc., over a period of more than 10 years were used to hide their disastrous attempts to carve out market shares on the American continent. Parmalat was one of the few truly Italian multinational companies, although it remained Lilliputian on a world scale compared to those of other advanced capitalist countries (Italy has fewer multinational companies than Canada, Holland or Australia, all countries which have an economy far smaller than that of Italy). Now Parmalat has collapsed. It may be broken up and sold piece by piece to big multinationals like Nestle or Unilever. Whatever happens it is doomed. Italian multinationals, like Fiat, or Cirio, and now Parmalat, have either been sold off to bigger companies or are in the process of being broken up. And while this is happening, foreign multinationals are doing their shopping in Italy, looking for companies to buy up on the cheap.

The clearest demonstration of the fact that Italian industry is in a deep crisis is shown by the fact that it loses market shares during both recessions and booms. In a recent paper published by the Bank of Italy we read the following:

"Italian exports as a share of world exports, between 1995 and 2002, have diminished from 4,5 to 3,6%. In 2002 the contribution of foreign trade to economic growth was negative, -0,7%. Italian industry is overall scarcely contributing to the world market of high tech products. Although in recent years the composition of exports has slightly improved in favour of more high tech production, in these sectors the country has lost market shares" (Banca d'Italia, "Sintesi delle note sull'andamento delle regioni italiane nel 2002", 2003)

So Italy has lost one fifth of its world market share in just seven years. This is clearly unsustainable. The trend is even worse as far as trade in the euro area is concerned. Between 1991 and 2002, the weight of exports towards the euro area as a percentage of the total Italian foreign trade fell from 55 to 45%.

These developments mark the end of the so-called "piccolo è bello" (small is beautiful). For decades, the bourgeois experts lectured us on the benefits of having small-scale companies. These were supposed to be better and more flexible, with their freedom to fire, to evade taxes, to keep unions at bay, etc. But now the reality of the world market has spoken. The widespread productive fragmentation of Italian industry is a dead weight that is costing Italian capitalism far too much. The minor role played by Italian capitalism in the high tech market is the result of scarce resources, both public and private, that are dedicated Research and Development (R&D) activities. For instance, in 2000 Italian R&D expenditure was 1,1% of GDP against the 1,9% EU average. The private sector is now paying for the small average size of its companies, while the public sector has been debilitated by privatisations. In spite of ten years of ferocious anti-worker economic policies, the public debt has only been reduced from 120 to 105% of GDP. At this speed, in order to go below the Maastricht target of 60% of GDP it would take more then 30 years to achieve. In any case, Italian capitalism does not have this time to improve its position in the face of foreign competition. Indeed, three years of the euro have been enough to push it over the edge and into a deep crisis. It is not that the Italian ruling class has sat idly by without doing anything. They have been very successful in introducing many counter-reforms, such as the widespread introduction of casual labour. But these successes are no way near enough to what they really need, since even bigger counter-reforms have been introduced by their foreign competitors. Thus they are forced to continue their onslaught against the Italian working class, something which is causing social and political instability in the country as the workers mobilise to resist these attacks.

Another crushing demonstration of the deep and ongoing decline of Italian industry is seen in the fact that the Italian bourgeoisie has proven incapable of eliminating the historical underdevelopment of the "Mezzogiorno" (the South). In 2002 per capita GDP in the south was only 58% of that of the rest of the country, less than what it was 30 years ago! In fact, the relationship between the south and north has gone back to post-war levels.

The complete lack of an all-encompassing and overall policy on the part of the various governments that have been in power over the last ten years – a phenomenon which also affects the Confindustria, the employers' association - is merely a reflection of the fact that the big capitalists have no strategy whatsoever to overcome the crisis their system is in. The Italian bourgeoisie is becoming more and more impatient and considers that the only way out is to attack workers' rights, the welfare state, wage levels. That is the path they have disastrously followed so far.

The Berlusconi government represents this need of the bosses to attack the working class. But it also embodies their desire to get rid of any rules that capitalism may have given itself in the past, during those long periods of sustained growth when it was able to present its respectable face to the masses. Another wing of the bourgeoisie however, is worried at these developments, and sees all this as the end of their old dream to link Italy to German capitalism and hence to modernize Italian industry. Therefore they carried out some actions against the Berlusconi government. Both the President of the Republic, Ciampi, and the Governor of the Bank of Italy have been involved in these actions. For example Ciampi refused to put his signature to a Bill that Berlusconi needed to save one of his TV channels. This conflicts between different wings of the bourgeoisie are going to get worse, especially when the workers' struggle begin to be more intense. As Lenin pointed out, a split within the ruling class is the first indication of the beginnings of a revolutionary crisis in society.

The capitalists are getting worried and are looking around impatiently for a new "saviour". This second Berlusconi government (the first was over ten years ago) has been very profitable for them, but it is not enough. Their dilemma is that so far there has been no other viable alternative. This explains the twists and turns that we can read about in the bourgeois press. Sometimes sheer pessimism comes to the surface. For example, in a recent article, Giuseppe Turani, one of the most famous and notoriously optimistic economic analysts in the press, wrote, "this is a dying, if not already dead, capitalism, that has nothing left to say... a capitalism that no longer knows where it is going, one that has arrived at a dead end" (La Repubblica, 28.12.2003).

This is frightening enough for them. But it is not enough to underline self-satisfyingly that the bourgeois intellectuals are worried about their own system. We have to offer an alternative. First of all, an alternative is needed for those thousands of workers whose jobs are at risk, who have had to use up their savings to survive during every crisis of the system. Secondly, any "market" solution (whether to sell off the crisis-ridden companies in one piece or to break them up) means big profits for some multinationals but painful cuts for the workers. We have to reject this "solution". Of course, the reformist leaders are saying that the problem lies in the crony nature of Italian capitalism, in the fact that the market cannot work efficiently and so on. If this were true, then we would be seeing huge numbers of managers in jail. There is no "clean", "modern" capitalism that can be presented as an alternative to crony capitalism. That is the way the system works. In all capitalist countries we see the same story. First and foremost among these is the United States. Yes, they have bigger companies but all that means is that they have bigger and more capable fraudsters. The problem is to be found in the market itself. These big multinationals firms and banks have the power to dispose at their will of entire countries and continents. The combined assets of the first ten international banks are now bigger than any economy, the US included. In fact, they can do whatever they want, everywhere. That's the problem. You can jail or even shoot, if you wish, an individual corrupt manager or boss, but that will not eradicate the problem as it is the whole capitalist system that is at fault.

These scandals are not the exception, but only the tip of the iceberg. There is only one solution to these repeated crises: to nationalise without compensation these companies under democratic workers' control and management. As companies like Parmalat have plants in dozens of countries, this means, concretely, the need for a coordination of the workers on a world scale. This is precisely the task of the working class in the 21st century, to rebuild society on a world scale. This process can be set in motion by calling for the opening the books of the se companies. Workers should have access to all the accounts of these companies in order to assess the real situation. We can already hear our bourgeois friends, inside and outside the labour movement, explaining to us that these accounting procedures are very complicated, and only "specialists" can deal with them, and so on. But we have seen how "competent" your so-called specialists were in the case of Parmalat (and we might add Enron, WorldCom and many others). It is time the workers were given a chance to run society. They would know how to use the huge resources of these companies to the benefit of ordinary working people.