No, he wasn't. Of course he wasn't.
I am totally in favor of making fun of dictators; it's a good sport. And ridicule is a good measure to balance the grandiose image of themselves they strove to establish. But it shouldn't affect our perception to the point of really believing they were ridicule.
To properly address the matter of Mussolini's supposed incompetence – one matter I have in fact never encountered in serious literature, because in fact the very idea that the one man who most strongly held control of Italy since the time of the Caesars would be some sort of egregious moron is... not very serious – one should probably consider one specific instance. Absent that, I'll try to cover some generalities.
It is obvious that Mussolini had flaws, as most ordinary political figures do, and a few times his flaws of character actually served well his extraordinary ambitions. His overconfidence, his lack personal political values, his exceedingly elastic ideology, the belief that he would eventually be right; all those assisted him in his jump from socialist leader to interventionist, in his rise to power, in his handling of the first major political crisis following the murder of Giacomo Matteotti. But they would not have helped him without a deep understanding of the inner political workings of the Italian system – society perhaps no, that Mussolini seemed to rely too much on the myths of the Great War and the ideas of individual renovation.
While history eventually disproved his assumption, as far as the Italian politics went, Mussolini's quip that “he was never wrong” stood unchallenged until 1943. But here you have it: Mussolini's politics was just the small politics, the agreements, the table talks, the “circling maneuvers”. A tactical advantage turning into a strategic limitation. As the Duke of Cesarò, one of Mussolini's first ministries, wrote a few years later: No matter how despicable his methods are and miserable his opinion of the world and its inhabitants and their dignity, there is in him a dream of greatness. ... But is this dream coming true? Is Mussolini a man who can be really called great? ... He lacks the main, central virtue: faith in truth, in justice, in the strength that's in every good thing for the fact itself that it is good. ... You can't call strong a Head of State who does not face people, but destroys them with traps, with compromise, taking advantage of their good faith; and does not even face situations, struggling to overcome them with wide maneuvers. He has not faith in men, no faith in the Nation, no faith in the right way. ... The goal may be good, but lacks any ethical content.
In the long term, what was Mussolini's goal? The “new man” was such an empty thing to long for. And in Mussolini's mind, confidence in his own judgment seems to have grown hand in hand with his disillusionment towards others. His ministries first, set apart once no longer useful – even masters of the fascist ideology like Alfredo Rocco and Giovanni Gentile – the members of the Grand Council then, his secretaries, his son in law; all clamoring for attention, power, rewards. All too inadequate, too small to stand in Mussolini's shadow. Men complaining that “the boss does not listen anymore”.
Maybe if Mussolini had listened he would have saved himself a few mistakes.
There is a common – and rather disingenuous – narrative; that Mussolini was doing fine, until the war, until the racial laws, until the alliance with Germany. It mirrors somewhat the common feeling of the Italian population at the time; the idea that Mussolini wasn't that bad until he started messing around with that Hitler guy. That was a mistake.
Except it wasn't – not in the sense you call buying the extra-large pack of salted caramel peanuts and eating them all right away. What's a mistake for a healthy person becomes evidence of their disorder when it's a systematic occurrence. And cant' be fixed with the “just don't do that” prescription. In a similar manner, Mussolini's choice – whether we agree with them or not – were the result of the actual evolution of the fascist system, a system that by its own nature allowed one man a large and almost unconstrained amount of decision power. It's not surprising that Mussolini's thoughts weighted so much on the Italian politics during fascism. But it's not surprising that those choices were made at all.
It should not surprise that a system that reacted to the economical crisis enhancing an already established tradition of state committal and direct ingerence in the heavy industry sector, that had increased its measure of public works without finding any actual lasting economic relief, that had been involved already in two major conflicts in the 1930s would look at war as a realistic possibility. And in fact Mussolini shared this point of view, claiming already in the mid thirties that an European war was unavoidable and that Italy could not sit that one out. Fascism had been born as a movement as heir to the interventionist faction during the Great War – were those men who had praised war as the true beginning of the new man going to waste the chance of completing that process?
Even the choices which were most controversial at the time – that on the other hand there was some enthusiasm mixed with concern over war at first – like the racial legislation, were not the result of an abstract decision. Mussolini did not wake up one day asking himself: “shall I persecute the Jews or not?”. We can actually trace his thoughts and reflections over the possibility of a “racial policy” to the inception of the Ethiopian conquest. And while antisemitism wasn't one of the defining ideological cores of fascism, there was at least enough support to introduce and develop the legislation, the enforce it (albeit mildly at first), there were people to write papers over the issue, physicians to publish “scientific” studies.
It is much more appropriate – and rewarding – to look at the outcome of a political system as a result of the inner workings of that system, an evolution of its features, rather than a mistake. This look reveals us something while the “mistake” narrative seems to assume that the system was alien to itself, like a machinery whose cogs were all working free, of their own volition.
There is another element frequently paired with the “mistake” narrative. One that probably deserves its own answer and that I have begun to refer to as the “Pinky and the Brain” narrative of WW2.
It is easier to seek absolution for incompetence than it is for malice. You can't really save the Fascist Regime, unless you attribute its failure to exceptional blunders. War time cartoons and comics liked to paint Mussolini as the bumbling sidekick of Hitler – I suppose some of that is still out there – but that picture is rather far from the truth. Mussolini wasn't a fool. He was in fact a rather competent man, an exceptionally skilled politician, an efficient speaker and writer albeit not a man of vast culture or deep thinking, with a few major and eventually damning limitations; his actions and decisions shaped the Italian history in a decisive way. But they were neither arbitrary nor mistakes. They might have been very wrong but they weren't accidents.