So here I am, kind of late! The short answer is that it has to do with how Italy industrialized and later liberalized in the 1980s and 1990s. I’ve been digging through a bunch of materials, so I’ll be happy to answer follow-ups if anything doesn’t add up (it very well might not!). But also, keep in mind that the historiographic narrative on this topic has changed very rapidly in the past few years: While in the past, the narrative focused on the development of competitive small and medium enterprises in Italy, in recent years the narrative has shifted to focus on the inability of large and diversified conglomerates to emerge.

Let’s start by clarifying that the Emilia region is a node of mostly highly specialized, small-and-medium enterprises focusing on niche industrial production, but it is not the only one of its kind in Italy. There are similar nodes all over the center-north of Italy, notably in the northeast (at one point in the past twenty years, nearly one-fourth of Italian exports was produced in the adjoining provinces of Treviso, Venice, and Padua) as well as in the triangle formed by Varese and Bergamo in Milan’s northern hinterland. There are also numerous smaller nodes all over the center-north specialized in highly specific industries, which range from leather working in northern Tuscany, to robotics and machine parts in the province of Trento. The South, while widely known to not be vibrant in modern economic terms, also has a few small industrial nodes of its own, particularly focused on producing textiles in and near Naples.

Indeed, perhaps uniquely in Europe, the Italian economy is distinctly characterized by small-and-medium sized enterprises - some more competitive, some less competitive. Why is this the case?

Well, let’s start with the fact that Italy was a late industrializer and not a particularly effective industrializer. Put simply, the process by which artisanal modes of production and cottage industry evolved to form industrial production just didn’t happen organically in Italy. Sure, there were some early industrial entrepreneurs here and there, but by and large a lot of early Italian industry was really developed by foreign capitalists looking for new markets to invest in. And these capitals only started arriving in the later 19th century, by which time industrial goods from the rest of Europe had already captured a large segment in the Italian market. Thus the pre-Second World War economy in Italy was very much an ecosystem primarily made of small farmers or sharecroppers, artisans, shopkeepers, and a small bourgeois professional class with large overlap with the landlord class (so fundamentally offering professional services to each other as a side gig to rent collection) with an industrialist-entrepreneurial class that was so small as to be negligible in some places (and also overlapping with landlords, a thing which some contemporary commentators, even on the far left like Gramsci, would ascribe as the cause of the bourgeois-capitalists' inability to drive a cohesive national discourse) .

The Italy which had to rebuild its economy after the Second World War was a country whose few large industrial conglomerates were state-owned via the Finance Ministry’s holding company (the Istituto di Ricostruzione Italiana, or IRI) leaving little room for privately owned companies to grow into (especially as the state-owned companies were the primary recipients of Marshall Plan aid). For those small enterprises which might wish to grow, there were few tools to support that growth: Italy also had a fragmented and poorly developed financial sector, with complicated investment laws discouraging the entry of foreign capital, and the IRI held a controlling stake in two institutions providing corporate and investment banking services, IMI and BCI (Istituto Mobiliare Italiano and Banca Commerciale Italiana, respectively) again crowding out other actors (the only real private sector competitor, Mediobanca, had been formed somewhat haphazardly at the direction of some entrepreneurs coordinating with politicians to round up capital largely coming from the country’s consumer savings banks). Lastly, the IRI ownership in industry wasn’t always clear-cut, and instead featured complex networks of holding companies which could even feature co-ownerships not only between IRI-owned enterprises, but also between these enterprises and local entrepreneurs. This practice immobilized private capital which could have been re-invested elsewhere (especially when these IRI ownership stakes arrived “to the rescue,” as they often did after the 1960s) and ultimately dis-incentivized working towards something like an eventual listing on the stock exchange, thus in the process keeping the investment ecosystem weak. All these factors contributed to impeding capital accumulation, keeping non state-sponsored firms small.

But the IRI system wouldn't last. Needless to say, Italian economic policy developed a strange relationship with the IRI. The institution did draw in the country’s best and brightest, contributing to the social narrative around the development of a “Classe Dirigente,” a social category which could be translated as “Executive Class,” but which in Italian at the time had connotations of a civic-minded group of people (at the end of the day they were public sector employees, after all) who were “Directing” the economy. Thus while the IRI had been initially envisioned as a temporary crutch for the economy (although, importantly, never with a clear endgame in mind) national political leaders became comfortable expanding the IRI’s purview as the 1960s progressed and the world economy began accumulating malaise: the IRI was directed to enter into the capital of everything from industrial pastry production (Motta and Alemagna) to hotels (Aerhotel, itself a convoluted story) while political pressure saw heavy industries directed to invest in high-unemployment areas regardless of actual need to expand capacity or the existence supporting infrastructure (e.g. developing the Alfasud, a compact automobile produced in the province of Naples, or the founding of steelworks in the city of Taranto).

While the Italian economy had shown signs of slowing down over the course of the 1960s, it would only be put to the test in the 1970s Oil Crisis, the first large post-Second World War economic shock. We don’t have to get into the mechanics of how a supply shock works, but suffice it to say that while other western economies generally tried to liberalize capital flows to stimulate investment and quickly redirect supply chains, Italian decision-makers instead chose to leverage the IMI and IRI to prop up troubled companies with loans and capital investments, while the central bank devalued the currency to keep exports competitive. This did safeguard Italian economic productivity into the 1970s, but it did nothing for long-term competitively and enshrined the precedent whereby the IRI and IMI were no longer tasked with providing provide financing for expansion, research, or development (as they had done in the 1950s) but were instead responsible for keeping up these large industrial conglomerates alive.

So what did this all mean for the small-and-medium enterprises? I’m about to breach the word count, so I’ll have to continue below.