S. J. Woolf (ed) THE NATURE OF FASCISM

 

Chapter 8 Did a fascist economic system exist ?

 

No comparative study exists of fascist economic systems. Nor is this surprising. For one can legitimately doubt whether it is appropriate to use so distinctive a term as `system' when discussing fascist economics. Capitalist systems have evolved over a long period, and embody a broad, albeit loose, set of convictions. Communist economic systems are based upon an explicit corpus of theory, which underlies the conscious, practical aim of transforming the pre‑existing capitalist economy. Both systems posses a recognizable physiognomy. But what of fascism? The regimes could not point to secular trends, as could capitalism, from which to deduce a characteristic form of economy. Nor, in the economic field, could fascism lay claim to any serious theoretical basis or to any outstanding economic theoreticians. Were fascist economics, consequently, anything more than a series of improvisations, of responses to particular and immediate problems? Were not the economic actions of any single fascist regime (such as in Italy or Spain) so contradictory as to make it difficult to speak of a coherent and consistent economic policy in one country, let alone of a more general system?

Nor do the difficulties end here. For any discussion of a fascist economic system presupposes that the countries under discussion can legitimately be described as fascist. Historians and social scientists differ, and are likely to continue to differ, in their definitions of what constitutes fascism. The varieties of fascism are notorious, and are reflected in the political attitudes,

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the social structure, the psychological behaviour of the regimes. Moreover, even if one leaves aside these considerable practical differences, fascist regimes ‑ by their very emphasis on their national roots ‑ would seem to deny any internationally shared philosophy such as underlies (explicitly or implicitly) capitalist or communist economic systems.

The purpose of this paper is to test the validity of these assumptions. I am concerned basically with two questions. First, is it possible to identify through an examination of the economics of fascist regimes, sufficiently distinctive features to speak of a fascist economic system? This question requires not merely an examination of economic policies, but an assessment of whether the effect of these policies was, or seemed likely to be, sufficiently incisive to modify, more or less radically, the existing economic structure, and so justify its description as a new economic system. Secondly, if it is possible to speak of a fascist economic system, can this concept be employed usefully as a conceptual tool to identify whether a regime may correctly be described as fascist? Strictly speaking, of course, only Italy could be described as fascist. But few historians or political scientists, thinking in terms of the conditions which gave rise to fascism or the political structure created by the regimes, would regard the word as inappropriate for Hitler's Germany, Franco's Spain or Salazar's Portugal. Some sociologists would extend the term further, to include Perbn's Argentina, on the basis of the class structure and mass reactions underlying and conditioning the regime. If regimes can be defined as fascist according to the concepts of sociologists and political scientists, can they not also be so defined in terms of their economic systems? To test this hypothesis, I have chosen for my enquiry five regimes of a politically authoritarian character. Two of these ‑ fascist Italy and nazi Germany ‑ would be accepted as fascist according to most criteria; the third ‑ the Japanese military regime of the 1930s offers considerable evidence for the description of fascist, not least in economic terms; the final two ‑ Brazil under Vargas and Argentina under Peron ‑ represent a test case of the extent to which the concept of a fascist economic system might be 120

applicable. Because of the particular characteristics of the two South American states, I shall reserve discussion of their economic problems and policies until I have completed my examination of the three former countries.

Italy, Germany, Japan: the problems confronting the regimes

When Mussolini, Hitler and the Japanese militarists seized power, they were faced by economic problems created partly by the specific character of the previous economic development of the individual countries, and partly by the unsettled conditions of the international economy after the first world war. In other words, they inherited structural problems peculiar to their own countries, and were confronted by conjunctural problems common to all countries between the wars.

There is little need to spend many words on the demographic problems facing Italy, Germany and Japan, for they hardly differed from those of other major countries in the late nineteenth and early twentieth century. All three countries were subject to pressure from rising populations. The increase in agricultural production failed to keep pace with the rise in population, except in Japan until the 1920s. In consequence, Germany and Italy, as later Japan, were forced to import growing quantities of foodstuffs. The rate of increase of employment also grew more slowly than that of the population in Italy and Japan, although the problem only really affected Germany in the 1920s. Emigration had formed a major outlet for this excess population, particularly in Italy, but also in Germany in the late nineteenth century. Only in Japan was emigration of no importance before the late 1930s. But in the 1920s and 1930s this outlet was checked by the United States' restrictions on immigration and by the effects of the depression.(1)

1 ISTAT, Sommario di statistiche storiche italiane (Rome, 1958), pp. 39, 65, 106, 159; G. H. Hildebrand, Growth and structure in the economy of modern Italy (Cambridge, Mass.), 1965, pp. 131‑3; W. W. Lockwood, The economic development of Japan (Princeton, 1954), pp. 86‑9, 155‑8; K. Ohkawa and H. Rosovsky `A century of Japanese economic growth' in W. W. Lockwood (ed.), The State and economic enterprise (Princeton, 1965), p. 189; S. Sawada, `Innovation in Japanese agriculture, 1880‑1935' in Lockwood, The State, cit., p. 344.

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It is of more importance to note certain aspects of the previous industrialization experienced by all three countries. It would not be unfair to state that by 1914 only Germany was fully industrialized, although Italy and Japan were industrializing rapidly; for the industrial sector ‑ excluding the tertiary sector ‑ in these two countries employed under twenty‑five per cent of the economically active population and contributed under thirty per cent to the national product.(1) But more important for the purposes of the present enquiry are certain consequences of the process of industrialization. In the first place, the comparative time‑lag and consequently greater rapidity of the process of industrialization, the sources and methods of capital formation and the pressure on the labour market all contributed to create a distorted pattern of economic growth. A dualistic economy developed, containing an advanced modern industrial sector with a high rate of productivity and relatively high wages, and a backward traditional sector with a low rate of productivity and low wages. The capital intensity of the advanced sector tended to accentuate the crowding of labour in the traditional industrial and commercial sectors. This was notably true of Italy and Japan by the 1920s, but can also be seen in Germany by a comparison of the numbers of small and large enterprises: in 1925 for every enterprise employing fifty people there were forty‑six enterprises with only one to three employees.(2) In the second place, the state had played a major part in the process of industrialization.(3)

1 In Italy only 24%. of the economically active population was employed in the secondary sector in 1921; while the same sector's proportion of GNP in 1915 was only 28 (Sommario, cit., p. 213). In Japan the corresponding employment figure was 21 %, while the secondary sector's share of NNP was, very approximately, 28 % (Lockwood, cit., pp. 135, 465).

2 In 1925 there were 1,506,266 enterprises with one to three employees, and 1,901,379 with up to fifty employees, compared to 32,857 with over fifty employees. By 1933 the contrast was even sharper and showed the diminution in number of both the large and medium‑size enterprises: 1,582,552 with one to three employees; and 19,472 with over fifty employees. W. Woytinski, The social consequences of the economic depression (Geneva, 1936), p. 238.

3 Guillebaud, The economic recovery of Germany (London, 1939), p. 275; G. Stolper, The German economy 1870 to the present day (London, 1967), pp. 21‑3, 30, 74, 142.

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Public expenditure had proved an important factor in early industrialization; the state had intervened directly in certain sectors of the economy (iron and steel in Italy and Japan) and state assistance in the form of tariffs, subsidies, guaranteed order and even salvaging of `sick' industries had aided a private sector growing rapidly but also unstably (partly, at least, because of speculative activities). Thirdly, this particular form of growth had led to a concentration of economic power in extremely small groups, a concentration accentuated by the close ties between industry and the banks. These groups maintained firm ties with the administration, were able to exert pressure on the government and were accustomed to close collaboration with the state in the direction of economic affairs.

These were the long‑term `national' or structural problems inherited by Mussolini, Hitler and the Japanese military. The short‑term, international problems were of particular gravity. After a brief initial boom in 1919, a slump set in 1920, reaching its lowest point in mid‑1923, with recovery only in 1925. The following four years were of notable prosperity: world production of foodstuffs and raw materials increased by eleven per cent and world trade by nineteen per cent, with an increase in world manufactures of twenty‑six per cent. But the fall in agricultural prices during these years prepared the ground for the spectacular American crash of 1929, which immediately reverberated throughout the world. Recovery began late in 1932 and continued until 1937, when a short boom was followed by further decline in 1938. The 1930s were marked by large‑scale unemployment and widespread uncertainty over prices and international trade.(1)

For the countries we are concerned with, two main problems can be identified: unemployment and the dependence on foreign trade. Registered unemployment in Italy was over 400,000 in 1922 and reached its peak with over one million in 1932 and 1933; when the statistics ended in 1935 there were still over 750,000 unemployed. But these were undoubtedly underestimates which took no account of unregistered unemployment

1. W. A. Lewis, Economic survey 1919‑1939 (London, 1949), passim. 

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and of underemployment, particularly widespread in agriculture. In Germany there were nearly two million unemployed in 1929 and over six million in 1932 and 1933. In Japan an official figure of 320,000 unemployed was given in 1930, but unofficial estimates run to one million or more; an indication of the gravity of the crisis is offered by the increase of employment in the already overcrowded agricultural sector by 2‑2 per cent in the decade 1923‑7 to 1933‑7.(1)

The slump was of particular gravity in Italy, Germany and Japan because of their dependence on foreign trade. Italy's exports were based in good part on finished products (particularly textiles), fruit and wine, while she was dependent on imports of iron, coal, raw cotton, machines, wheat and fatstuffs. Her exports between‑1915 and 1924 were equivalent to an average ten per cent of national income, while her imports averaged twenty-five per cent in the same years. With the slump Italy's index of industrial production fell from 100 in 1929 to 67 in 1932. The German economy was dependent on foreign capital to a particular degree because of the obligation to pay reparations; the brief industrial boom of the mid‑1920s was financed to an extraordinary degree by short‑term foreign loans. Although capital movements need to be considered separately from current accounts in foreign trade, in Germany the latter were immediately dependent on the former. In 1929 exports represented nineteen per cent of national income in Germany, while imports together with reparation payments amounted to twenty‑one per cent. The depression led to withdrawals of foreign capital, inducing the German government to adopt a policy of savage deflation. The industrial production index fell from 100 in 1929 to 53 in 1932. Japanese economic growth, although virtually independent of foreign capital, was also highly dependent on foreign trade, importing raw materials and exporting raw and finished silk, cotton yarn, cotton fabrics and tea. In 1930 exports represented 17‑5 per cent of gross national product and imports

1. Confederazione Generale dell'Industria Italiana, Annuario statistico del lavoro (Rome, 1950); Statistisches Jahrbuch, 1934; Guillebaud, cit., p. 46; Lockwood, cit., p. 47 n.; Sawada, cit., p. 344.

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twenty‑four per cent; by the time of the slump Japan was particularly tied to the United States market, which bought forty-three per cent of her total exports. Although industrial production only fell by eight per cent in the worst year, 1931, prices and wages fell far more than in other countries.(1)

It would be correct to observe that the high dependence on foreign trade, which reflected the degree of integration of the domestic economies within the world economy, was not particular to the three countries under discussion. One consequence of this dependence was also general: the influence of foreign trade on the stability of internal prices, because of the close relationships between world prices, exchange rates and the domestic prices of the major countries. The greater the importance of foreign trade in the country's economy, the more vulnerable the economy to cyclical movements of world trade. The return to the gold standard, which aimed at free convertibility through stable exchange rates, accentuated this tie between international and domestic prices. But one of its effects was to diminish the influence or control of governments over the direction of the economy, by making them acutely sensitive to fluctuations in the foreign value of the national currency which, in moments of crisis, were likely to exert upward pressure on internal prices. This was one of the major problems facing Mussolini in the mid‑1920s; it was this relationship which underlay the decision of both the Bruning and the Wakatsuki governments to deflate.

1 G. Tagliacarne, `La bilancia internazionale dei pagamenti dell'Italia nel primo centenario dell'unita' in L'economia italiana dal 1861 al 1961 (Milan, 1961), p. 358; Statistisches Jahrbuch, 1934 pp. 196, 501; 1937, pp. 533‑4; Woytinski, cit., p. 91; Ohkawa, cit., p. 90; Lockwood, cit., p. 315.

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Given the traditional, closely knit framework of international trade, based on over three‑quarters of a century of free trade and free convertibility, the `normal' reaction to depression was deflation followed by a policy of public works.

However, it is also necessary to note that Japan and Italy were more seriously affected by a deterioration of the terms of trade than most European countries. They were not so seriously affected as countries wholly dependent on primary produce exports. But they were heavily committed to textile and silk exports, which ‑ like foodstuffs ‑ suffered from a crisis of over­production.'

The economic aims of the regimes

Capitalist countries deflated with the depression and then slowly and painfully, by a policy of `priming the pump' through public expenditure, began to revive domestic demand and contribute to a partial restoration of the traditional pattern of international trade. What of the three countries we have described as fascist? To answer this question, it is of relevance to bear in mind not only the actual policies, but also what might be called, some­what pretentiously, the economic philosophy of fascism.

1 Terms of trade (1927=100):

 

	1933	1937
USA	1378	1289
Germany	1392	1143
UK	1223	1073
Italy	97-0	67-7
Japan	81 .9	60-5
Brazil		52-0

 

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C. Clark, Conditions of economic progress (London, 1940), p. 456. For Brazil, C. Furtado, The economic growth of Brazil (Berkeley, 1963), p. 219.

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The economic clauses of the original fascist programmes can probably not be regarded as representing the majority opinion of movements as composite as fascism. It would be more accurate to say that they were representative of the radical elements within the early movements. Nevertheless, the reforming zeal expressed in these statements survived as an undercurrent within the various movements and was periodically seized upon by the regimes to justify certain decisions, particularly in the field of labour relations, or to browbeat opposition by the threat of more radical action. The programmes were extremely anti­capitalist and nationalist. The Italian fascist manifesto of 1919 demanded a heavy capital levy, a punitive tax on war profits, minimum wage rates, workers' participation in industrial man­agement, confiscation of ecclesiastical property and the handing over of uncultivated land to peasants' co‑operatives. The nazi programme of 1920 was similar, demanding the abolition of un­earned income, confiscation of war profits, nationalization of trusts, land reform for `national needs', and the strengthening of a `healthy middle class'. Kita Ikki, in his General outline of measures for the reconstruction of Japan (1919), which had considerable influence on the young Japanese nationalists and army officers of the 1920s and 1930s, insisted on the restriction of individual, private property, state confiscation of surplus pro­perty, the nationalization of major industries, and land reform to strengthen smallholdings.

A deep mistrust of `big capital' permeates the economic philosophy of these early fascists. But distinctions were made. According to the nazis there was a difference between `rapa­cious', or financial and commercial capital, and `creative', or industrial capital. The Italian fascists distinguished between the `productive' and the `parasitic' bourgeoisie. Capital which could be seen to be involved in physical production was legitimate; money which merely created more money was not; but even `legitimate' capital was not acceptable beyond a certain point, presumably because it then entered the category of `rapacious' capital and also because it become potentially independent of the national interest. This is not the place for a discussion of the revolutionary syndicalist origins of such ideas. What is of inter­est is that the corollary to this anti‑capitalism was not undue affection for the industrial worker (indeed, Kita Ikki expressed the widespread Japanese contempt for the urban proletariat), but strong concern for the small man, the petty bourgeois and

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peasant landholder, the artisan and small proprietor. This was backed up, particularly in the Japanese case, by a more generic exaltation of the economic virtues and moral attributes of a healthy countryside ‑ unaccompanied, one may observe, by any large‑scale or concrete proposals for reform of the structure of land‑ownership.

All these claims were qualified by the assertion of the suprem­acy of the national interest. Fascism arose in all countries as an anti‑socialist movement, and continually reiterated its deter­mination to replace class conflict by class collaboration in the national interest. But if this belief was initially and primarily directed against the socialists, it was developed during the de­pression (mainly in Italy) as an alternative and superior philo­sophy to liberal capitalism. In fact, by the 1930s the `national interest' had acquired specific connotations. It meant economic strength, independence in the world, military power. These in turn implied insulation from cyclical trade movements and the achievement of rapid economic growth. Not for nothing was the word `productivity' so popular in Italian fascist speeches of the 1920s, while the term Leistung was exploited by the nazis.

These aims go far towards explaining why fascist economic policies in the 1930s differed from those of liberal capitalist countries. State regulation of aspects of the traditional capitalist pattern of free market forces existed, of course, in most capitalist countries before fascism was even heard of, and became far more extensive during the 1930s. But faith in the traditional image of a free trade economy, in which the functions of the state were to be severely limited, remained the characteristic of the inter­war years: only after the second world war was the permanency of `state capitalism', the need for regulations, the `mixed' economy recognized as an inevitable and necessary feature of modern capitalism. Hence the philosophy underlying capitalist economic policies in the 1930s was a desire to return to and restore the `normal'‑ i.e. the free trade ‑ pattern of economic life. The gaols were clearly different from those of fascist states. But as the desire for economic growth grew stronger in fascist countries, protection for the small man became more difficult

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DID A FASCIST ECONOMIC SYSTEM EXIST

and was ultimately conceived of as relating only to the agricultural sector; and even there it played a subordinate part. In the industrial sphere the fascist regimes found themselves faced by the indisputable fact that large units of production were capable of greater expansion and were more competitive than small units. Moreover, the existence of large private industrial complexes could only be challenged by massive direct state intervention in the economy, and then at the risk of considerable upheaval and loss of skilled management personnel. Even then, the close connections between the commercial banks and the industrial complexes in Italy and Japan (though less so in Germany after the bank collapse of 1931) would have made it difficult effectively to combat the predominating influence of the complexes. Thus, despite the sporadic protests of the fascist left wings against big capital and absentee landowners, the regimes rapidly abandoned any attempt radically to change the existing structure of economic power, and endeavoured instead to turn this structure to the service of their politically motivated econ­omic aims. It is now necessary to examine their policies in order to assess whether their cumulative effect so altered the structure as to create a new economic system.

The economic policies of the regimes

The most revealing contrast between the fascist and the capitalist economies was the speed of recovery from the depression and the direction this recovery assumed. It was a recovery based on easy credit and inflationary finance. This naturally had few inflationary repercussions on the cost of living so long as unemployment and unused productive capacity existed.(1) But ‑ more interesting ‑ the same policies then continued. Our concern is not so much with the fact of the recovery ‑ by 1933 most countries were beginning to pull out of the slump ‑ as with the methods employed. In England, France and the United States economic policy was based on the belief that governments

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1  Although in Germany the lack of foreign exchange led to shortages and certain inflationary pressures, despite the existence of unused capacity.

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needed to intervene, but should then withdraw once private investment regained courage ‑ although in practice the governments did not always withdraw. Indeed, in one field in the USA ‑ that of anti‑trust legislation ‑ the government had no intention of withdrawing (Tennessee Valley Authority). But this could almost be regarded as the exception that proved the rule, for it was not very different in kind from the earlier interventions in public services (e.g. railways, gas lighting). Hence the reaction to the depression was basically traditional. Beside such measures as public works programmes, import controls to protect industry, or output restrictions and government purchase of agricultural produce, policy was aimed either at boosting demand by imposing minimum wages; or at reviving investment by the reduction of interest rates or the encouragement of higher profits through restrictions on competition; or at boosting demand and profits simultaneously, as was the purpose of the American National Industrial Recovery Act. Once the pump had been primed and confidence in the level of future profits restored, government was to withdraw.

In Germany and Japan there was no attempt to withdraw. Economic growth was not to depend on business confidence, but was to be stimulated and controlled continuously by government action. The consequences of this were manifold and implied increasing state intervention and the creation of a 'national' economy insulated from world trends. These policies can be regarded as characterizing the entire period of the nazi and Japanese regimes. But in Italy a similar policy was only adopted at a second stage and less effectively. Early Italian fascists had followed a relatively free trade policy, concerned to balance payments and attract foreign capital. Even after the first economics minister, De' Stefani, was dismissed with the currency crisis of 1925, the predominant concern for the exchange rate remained, culminating in Mussolini's stabilization of the lira at an inflated rate in December 1927. Traditional deflationary measures were thus adopted in Italy before the onset of the depression and the unusually long period of deflation ‑ from which Italy only began to emerge late in 1934 ‑ left its mark on

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the subsequent rate and type of growth. As we shall see, many of the characteristics of the nazi and Japanese economy are to be found in fascist Italy. But one of the basic factors which gave rise to these characteristics ‑ controlled inflationary growth, conceived of in a closed, national context ‑ was for long missing in Italy. The later, relative failure of the Italian fascist government to acquire effective control over the direction of the economy can correctly be ascribed to the power of restricted economic groups. But it is arguable that these groups were able to consolidate their independence from effective control because of the traditional liberal‑capitalist respect for private business manifested in the early years of the fascist government.

Reflation of the economy ‑ that is, of production and output by monetary means implied control over the banking system (or, at least, strong influence, accompanied by a basic identity of views shared by government and private banks) and effective direction of the capital market. Previous experience of inflation had inhibited Bruning from adopting an easy credit policy, as it inhibited the French governments during the depression, and it seems clear that only the collapse of the German banks in 1931 and the extraordinarily widespread impact of the depression gave Hitler the means and the possibility of engaging upon so great an expansion of the volume of money and credit in circulation. Although the circulation of money only increased from 5‑4 milliard RM in 1933 to 6‑7 milliard in 1937, banking credit rose from 2518 milliard RM in 1933 to 4268 milliard in 1937, or 80 milliard RM more than in the last boom year, 1928. A similar policy of credit expansion, which however could be directly related to previous economic policy, was followed in Japan after the abandonment of the gold standard in 1931.(1) Expansion of credit was accompanied by deficit financing, not only to recover from the depression, but subsequently to maintain the pace of rearmament: the German Reich debt increased from 

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1 Guillebaud, cit., pp. 127‑8, 277; Lockwood, cit., pp. 512‑21. In Italy monetary circulation fell from 22‑2 milliard lire in 1925 to 15‑3 milliard in 1934; only in 1938 did it pass the 1925 level with 22.5 milliard lire, then rising rapidly to 35‑4 milliard by 1940, and with the wartime inflationary spiral to 389.8 milliard in 1945. (Sommario, cit., p. 163.)

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 12 milliard RM in 1933 to 43 milliard in 1939; the Japanese national debt rose from 6 milliard yen in 1931 to 11‑9 milliard in 1937; in Italy, once a similar policy was adopted, the public debt rose from 1022 milliard lire in 1934 to 1458 milliard in 1939.(1)

In isolation, such a widespread increase in credit and public expenditure would have created inflation without necessarily ensuring a commensurate expansion of production. Control of the capital market was the necessary complement to ensure industrial expansion. Nazi Germany once more offers the most effective example of control. Flight of capital abroad was checked by exchange controls; credit institutions were used by the government to absorb the public debt: towards the end of the war seventy per cent of banking assets were held in the form of government securities, compared to twenty per cent before 1933; the raising of capital by issues to the private market was subjected to control and rarely permitted; firms were encouraged to plough back their profits by prohibiting the distribution of greater dividends than six per cent (or in some cases eight per cent) and by obliging them to lend to the government all non-invested excess reserves. Finally, control over the total volume of investment was transformed into control over the direction of investment into desired channels by subjecting all large bank loans to government review and by making ministerial approval the condition for all new construction or expansion of plant.(2)

In Japan, rigid control of this nature only emerged in 1937. Until then foreign exchange was not controlled, while the banking system was used to exert only a general control over investment. But in 1937 government approval was made obligatory for all large capital outlay or for the creation of new companies of a certain size. In Italy, some controls over the construction of new industrial plant were imposed already in 1927; they were

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1 Stolper, cit., pp. 146‑8; E. B. Schumpeter (ed.), The industrialization of Japan and Manchukuo, 1930‑1940 (New York, 1940), p. 16; S. B. Clough, The economic history of modern Italy (New York, 1964), p. 259.

2 Guillebaud, cit., pp. 93‑6, 125‑34, 213‑17; T. Balogh, `The National economy of Germany', Economic Journal, September 1938; M. Wolfe, `The development of Nazi monetary policy', Journal of Economic History, Dec. 1955.

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extended to all new plant by 1933. However, these measures were initially directed more towards checking excess production and protecting a `healthy' countryside by locating factories outside big cities than towards controlling the direction of investment. Exchange control was imposed in 1934.1

Credit expansion and control of capital were accompanied by measures to keep consumption at a low level. Increased employment naturally created a larger wage‑bill. But the destruction of the trade unions made it easier to reduce wages. In Italy average daily real wages have been calculated as falling from index (1913 =100) 1236 in 1922 to 116 in 1929, recovering with the sharp price falls during the depression to a peak of 1242 in 1934, but falling rapidly again during the years of industrial expansion to 1005 in 1938. The figures, because they represent a national average, hide the undoubtedly greater fall of agricultural wages and of wages in the south. In Japan, real urban wages fell from index (1914=100) 161 in 1930 to 111 in 1940, although agricultural real wages, which had fallen in the 1920s, held steady or even rose slightly. In Germany, where the greatest attention was paid to workers' conditions, average real weekly wages, which had fallen during the slump from index (1936= 100) 1022 in 1928 to 88‑5 in 1932, rose to 1030 in 1937 and 1075 in 1938. But even this increase was not allowed to play its full effect, as restrictions on consumer goods production and imports held consumption low. In Germany, although personal consumption certainly rose until the war, wages and salaries fell as a proportion of national income from sixty‑four per cent in 1932 (sixty‑two per cent in 1928) to fifty‑seven per cent in 1938. In Japan, personal consumption, which remained steady until the war, fell as a proportion of GNP from sixty‑nine per cent in 1930 to forty‑nine per cent in 1939. In Italy personal consumption remained lower than in Japan through the 1930s.2

1 Lockwood, cit., pp. 517‑21; Clough, cit., pp. 248‑9; R. Romeo, Breve storia della grande industria in Italia (Bologna, 1963), pp. 158‑60.

2. C. Vannutelli, `Occupazione a salari dal 1861 al 1961' in L'economia italiana, cit., p. 570; Sommario, cit., p. 211; A. H. Gleason, `Economic growth and consumption in Japan' in Lockwood, The State, cit., pp. 416‑23, 435‑6; Ohkawa, cit., p. 90; Stolper, cit., p. 151; Guillebaud, cit., pp. 187‑212; M. K. Bennett, `International disparities in consumption level', American Economic Review, vol. 41 (1951), p. 643.

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In these circumstances, it was not surprising that investment ran at a relatively high rate and that industrial production rose rapidly. In Germany gross investment, which had represented eighteen per cent of national income in 1928 and had fallen to nine per cent in 1932, rose to twenty‑three per cent by 1937. In Japan, capital investment rose from an average of eighteen per cent of GNP in the 1920s to an average of twenty‑five per cent in the 1930s. Only in Italy did gross investment fail to rise: from an annual average of 19‑8 per cent of GNP during the years 1925‑9, it fell to fifteen per cent in 1933, and only averaged 19‑9 per cent in 1936‑40. In Germany production rose from index 100 in 1928 to 129 in 1937 for investment goods and to 104 for consumer goods. In Japan production rose from index 100 in 1930 to 211 by 1937 for investment goods and to 145 for consumer goods. In Italy manufacturing goods production rose from index 88 in 1928 to 100 in 1938.1 The Italian figures clearly reflect the intensity of the previous deflation. For it should be noted that the capital for investment was raised domestically in all three countries. There was unquestionably little choice, given the breakdown of the international capital market with the depression. But even had it proved possible, one can doubt whether the fascist regimes would have availed themselves of foreign loans, for it would have run counter to the entire philosophy of the closed economy. In Germany and Japan business profits rose notably and were ploughed back in investment. In Italy foreign capital had been attracted until 1927; in subsequent years, even though the profits of certain favoured industries were very high, savings proved inadequate.

The machinery required for the economic policies I have outlined meant increasing state intervention in the economy. As I have mentioned earlier, intervention in itself was not new, and  

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1. Guillebaud, cit., pp. 205, 275; H. Rosovsky, `Capital formation in pre‑war Japan: current findings and future problems' in C. D. Cowan, The economic development of China and Japan (London, 1964), pp. 207‑10; Lewis, cit., p. 120; Sommario, cit., pp. 212, 221; Indagine statistica sullo sviluppo del reddito nazionale dell'Italia dal 1861 al 1956 (Rome, 1957), p. 246; Romeo, cit., p. 214.

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indeed after the second world war was to be regarded as a necessary attribute of modern capitalist development. The pace of state intervention was also accelerated to counter the disastrous effects of the depression. It is evident that many of the measures adopted by the fascist regimes could be paralleled by analogous measures taken by capitalist countries in the 1930s. Nevertheless, the overall range of measures, as well as certain specific types of intervention, clearly differentiated the fascist from the ordinary capitalist economies by the eve of the second world war.

The governments in Italy, Germany and Japan had little desire to nationalize industries, for ideological as well as political reasons: `state socialism' carried direct overtones of marxism and socialist party propaganda. The policy of the regimes was rather to leave the industrial sector in private hands and ensure that it acted in accordance with national `needs'. But direct intervention and public possession of certain productive processes proved increasingly necessary, sometimes (as in Italy) to maintain the stability of the industrial system, but usually to develop branches of industry where the private sector was unwilling to risk capital, or which seemed crucial for purposes of rearmament. In Italy the Industrial Reconstruction Institute (IRI) was created unwillingly by the government in 1933 because of the threat of collapse of a large proportion of the banking system, which in turn controlled a considerable sector of heavy industry. But the state deliberately intervened to set up companies to search for and exploit oil and gas deposits or develop synthetic materials (AGIP, ANIC, Ente Nazionale Cellulosa). Similarly, in Germany the government was responsible for the decision to build the Hermann Goering Iron Ore Works, because of the reluctance of private industry to risk exploiting the low‑grade ore in the Salzgitter district. On the other hand, the government's investment in the chemical industry increased mainly after 1936, when the private sector's willingness to develop the substitute products required by the nazis in the drive towards autarchy seemed inadequate. In Japan, National Policy Companies (SNR) were created, but only during the drive

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towards the `New Economic Structure'. Perhaps only Japan offered an important example of an attempt to industrialize directly, deliberately excluding the private sector: the develop­ment of Manchuria, where the Kwantung army undertook economic activities on a greater scale than the German SS. But even in this instance the private financial oligarchy was brought in.

A consequence of this readiness to leave the private sector intact, but under control, was to accumulate the existing cartel­listic tendencies. Acceptance, or even encouragement of cartels was not, of course, unique to these countries; clamorous ex­amples can be found in capitalist countries in the 1930s as governments tried to restrict production. The Italian law creat­ing cartels and the similar German and Japanese laws of the early 1930s can be paralleled by the American National Industry Recovery Act. The purpose of these laws was often initially to assist the small industrialists by holding prices and reorganizing the structure of various sectors, particularly of light industry. At first the cartels were not as effective as had been expected, partly no doubt because they were only formed towards or at the end of the depression. But gradually, either because of their utility as instruments to control foreign trade (Japan), or because of their crucial importance for autarchy and rearmament, they tended to favour the large groups. In Italy this hierarchical economic structure was even theorized by Alfredo Rocco as the necessary counterpart to the political hierarchy of fascism. It is clear that a similar tendency in favour of the big groups resulted from the concentration on production goods industries. But it should also be noted that, in more general terms, the relatively greater protection accorded to heavy industry and the mechan­ism of import controls tended to increase the disparity between the bib complexes and the small firms. When the prices of foreign Supplies rose, it was the small firms which absorbed the shock. The dualism of the economy, already so marked in Italy and Japan, increased; as industrial concentration developed, em­ployment in services and commerce became more crowded, their productivity grew less rapidly and the wage structure spread

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wider. Even in Germany there was a wide difference between agricultural and industrial wages; in Japan the ratio of wage rates between the shipbuilding and silk industries was 6 :1; in Italy a series of decrees were passed to check the pressure on the labour market by prohibiting internal migration.

The new tensions created by this form of economic develop­ment required increasing regulation, on the one hand, of the labour market, and on the other, of the supply of goods. Cor­porativism was vaunted by Mussolini as his answer to the crisis of capitalism. It was, of course, not a new idea and in various forms had been discussed in many countries, including England, in the 1920s. Although it was primarily in Italy (and partially in Spain and Portugal) that corporativism received such ample and grandiose theoretical justifications, it was utilized in one manner or another by all the fascist regimes. The compulsory organiza­tion of industry by categories and the attempted elimination of the opposed interests of capital and labour were unique to fascism, a deliberate contrast to the class concept accepted by both capitalism and communist Russia. It was, in a sense, a development of the practice of collective bargaining and could lead to the imposition of minimum wage rates, weekly hours, differential wage structures, social insurance or family allow­ances, though there is little evidence of this in Japan by the later 1930s. But it was an arbitrary extension of collective bargaining, which prohibited strikes and imposed obligatory state arbitra­tion of wage disputes. Its hypocrisy as a defence of the worker in Italy is notorious. If any feature of fascist economics was ever regarded as wholly distinctive by contemporaries, it was this brutal destruction of the independent trade unions and the obligatory reintegration of the workers within the corporations. Like certain other aspects of fascist economies, this attempt to control incomes has reappeared since the second world war as one facet of social‑democratic planning. But under fascism obligatory control was a necessary part of the system. Restric­tions on the mobility of labour were imposed (although only as late as 1938 in Germany), but the allocation of economic priorities only emerged in the last stage, and they were by no

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means effectively put into practice. Control of labour, however, was a less impelling problem in Italy and Japan, where there was an excess, than in Germany, where the scarcity of labour acted as a serious bottleneck.

But corporativism served, with varying degrees of efficiency, as a method of controlling the economy. For, ultimately, it controlled not only the workers, but the industrialists. The public contract was probably the most effective instrument of control. But the National Economic Chamber and the category groups in Germany, like the manufacturers' guilds and industrial control associations in Japan, extended state control to every aspect of industrial and commercial activity, to a degree unheard of in capitalist countries except during the emergencies of the two world wars.

Control of the supply of goods was the other field which required increasing regulation. It meant, above all, total regulation of foreign trade. In many ways this was easier to achieve than control over internal supply and demand, for foreign exchange and imports could be regulated with greater certainty. Foreign exchange control, import licences, tariff barriers, export subsidies, bilateral agreements were all mechanisms utilized by capitalist countries in their attempt to combat the depression. But in these countries they were conceived of as unfortunate and temporary measures which could be withdrawn once the `normal' pattern of international trade resumed. In fascist countries, in contrast, they were necessary measures to snap the links between the national economies and the world, to insulate the national economies ‑ and, above all, domestic prices ‑ from cyclical movements. They were the essential preliminary to and complement of autarchy. The various types of control were certainly not introduced according to a preconceived blueprint, or as a matter of principle. They were created to solve particular problems. But the overall economic policy ‑ because it represented a sharp breakaway from the traditional international framework of domestic economies ‑not only made controls more necessary, but removed any inhibitions about introducing them. The sharp contrast between the German and Japanese

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experiences did not reflect so much a difference of end as the degree of previous dependence on the international economy.

In Germany imports fell from 14 milliard RM in 1928 to 4‑5 milliard RM between 1933 and 1938, and exports fell correspondingly. Foreign trade became purely bilateral, based on the notorious clearing and barter agreements and subsidized exports. The effect was to shift the geographical areas of Germany's trade increasingly from the industrial countries to south‑east Europe and Latin America. But although Germany never became wholly self‑sufficient, relying particularly on foreign supplies of iron ore, oil and fatstuffs, it succeeded in cutting itself off from the world and maintaining a high rate of expansion based on internal demand. Indeed, the territorial expansion of Germany at the end of the 1930s and the employment of its military strength to impose favourable trade arrangements on the weak south‑east European states were, in a sense, only an extension of the same policy: the creation of a closed economy.'(1)

In Japan a similar solution was inconceivable, because of the country's total dependence on foreign raw materials for its intermediary processing industries. The response to the slump was to increase exports, despite the deteriorating terms of trade: aided by an ultimately sixty‑five per cent devaluation of the yen, the volume of exports was doubled between 1930 and 1936. But, as in Germany, exports ceased to be regarded as a prime exogenous factor in economic growth and were increasingly conceived of as an element subordinated to the rapid development of domestic heavy industry. In other words, international trade and the free currency exchanges of the world monetary system were being exploited to create a national economy. Indeed, because this exploitation proved increasingly difficult, Japan turned towards her empire. The aim of emancipating south‑east Asia from the Western world was transformed into the imperialist concept of the `Great East Asia Co‑Prosperity Sphere', which subjected and geared the economy of the colonies directly to the needs of Japan. Although exports rose from 17‑5 per cent of GNP in 1930 to 23‑8 per cent by 1939, over a third of this was now absorbed by

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 1 Stolper, cit., p. 145; Guillebaud, cit., pp. 61‑72, 98‑100, 148‑53, 286.

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the empire, which also provided nearly a third of Japan's diminished imports. The creation of the empire was the logical development of the conviction that the country needed to isolate itself from the world. Belief in Lebensraum undoubtedly played its part, although in practice it hardly proved a solution (most of the two million Japanese who had emigrated to overseas territories by 1941 were white‑collar).' The cost of capital investment was probably higher than the returns, especially as purchasing power in the colonies remained too low to offer an adequate substitute market for exports. But the empire formed an essential part in the plan to achieve independence within a closed economy.

The same motivations and mechanisms characterized Italy's attitude towards foreign trade. Exchange controls, import licences, increased tariffs, clearing, barter and bilateral arrangements were imposed; a single agency (Cogefag) was set up in 1935 to co‑ordinate the purchase and stockpiling of war materials, although the armed forces remained autonomous (as in Germany) until 1943. Imports which had averaged over 23 milliard lire between 1925 and 1929 dropped to 6 milliard lire in 1936, the year of sanctions, and remained low at an average of 12 milliard lire between 1937 and 1940.2 Autarchy accompanied the move towards an empire, although both proved notably inadequate. Italy's imperialist foreign policy must certainly be explained primarily in political terms of power and glory. But the belief in Lebensraum to solve the problems of unemployment and the economic potential of the empire undoubtedly formed part of the illusion. Italy's dependence on foreign supplies may have been less than Japan's, but her industrial base was far smaller. In consequence, her attempts to achieve isolation proved far less successful.

Three consequences of this drive towards self‑sufficiency may be noted. First, the effect on internal production. In the industrial sphere there was a significant displacement of the relative importance of the various sectors in favour of production goods.

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1 Lockwood, cit., pp. 64‑70, 152‑9, 528‑39; Ohkawa, cit., p. 90.

2 Sommario, cit., p. 152.

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We have already noted the rapidity of expansion of heavy industry in Germany and Japan. In Italy, the value‑added index (1921‑5=100) of iron, steel and allied industries rose by 1936‑40 to 150 and of chemical industries to 257, compared to 129 for consumption goods industries.(1) In the agricultural sphere, there took place a great drive to increase production and achieve self‑sufficiency. In Italy the much publicized `battle of wheat' pushed up production by nearly two‑thirds; in Japan widespread employment of chemical fertilizers pushed up production by seven per cent in the decade 1923‑7 to 1933‑7; in Germany potato and sugar beet production rose between 1933 and 1938 by nearly twenty per cent and one hundred per cent respectively. But limits were imposed to attainable increases in productivity both by the ideological concern for the small farmer and the refusal to interfere with the structure of landownership and create larger units. Indeed, it should be noted that the expansion of crops had a negative effect on the expansion of livestock holdings.(2)

A second inevitable consequence of the drive towards self-sufficiency was price control. The German Food Estate and boards, the Italian policy of agricultural stockpiling, Japanese price control, all formed part of the same machinery, although only in Germany was total control achieved over agricultural distribution. In the industrial sphere, although regulation of consumption goods prices would appear to have been for the most part achieved by the outbreak of the war, control of distribution would seem to have been far less effective because of the cumbersome nature of the official machinery and the undergrowth of pressure groups which increasingly took shape to lay conflicting claims on limited sources of supplies.

The growing weight of bureaucratic machinery was the third

1 Indagine, cit., pp. 214‑16. For Germany and Japan, see above, p. 134.

2 Sommario, cit., pp. 106, 113‑14; Sawada, cit., pp. 348‑9; Stolper, cit., p. 138. In Germany the number of hogs fell from 24,014 in 1933 to 23,567 in 1938 and of cattle from 19,811 to 19,434. In Italy the number of cattle killed rose from 2,070,000 in the decade 1921‑30 to 2,182,000 in the decade 1931‑40, but the number of sheep stock killed fell from 7,866,000 to 6,496,000. I have no figures for Japan.

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The growing weight of bureaucratic machinery was the third consequence of the development of the new economies. A net­work of departments, agencies, associations and guilds had been created, which controlled, but also hampered, the workings of the economy. Nor was the machinery internally coherent. For it contained within itself a multitude of autonomous bodies, often created around single personalities. In countries like nazi Germany and fascist Italy where the repository of effective national power was still, to a great extent, local interest groups and where the party overlapped with the organs of the state, influence or the need to repay support often weighed more heavily than national economic assessments. There can be no doubt that the machinery moved the economy but, as war drew nearer, its creaks grew louder.

The fascist economic system

What conclusions can be drawn? With the perspective of time, it is easy to see how many aspects of fascist economics are to be found in capitalist economies since the second world war. Even if a longer time‑scale is not employed, it can still be claimed that fascist economic policies were not so different from those of Soviet Russia in the same period. To enable one to speak of a distinctive fascist economic system, these contemporaneous and chronologically later similarities of other economic systems cannot be ignored.

In terms of contemporary experiences, there seems to me little doubt that the economic policies of Italy, Germany and Japan differed notably from those of the capitalist countries in the 1930s because their aims ‑ a closed economy and domestic growth through expansion of heavy industry ‑ were so radically different. Soviet Russia also possessed a closed economy, with domestic, heavy industrial expansion. But at least two funda­mental differences existed. Firstly, in the fascist countries no attempt was made to nationalize the means of production, although their governments went a considerable way towards nationalizing distribution. Secondly, control over labour, which lay at the basis of fascist policies, was exercised in a hierarchical

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and brutally authoritarian manner, which cannot be compared meaningfully to the Russian experience. Totalitarianism of the right and left has little significance in economic terms.

Thus if the perspective is limited to the interwar period, fas­cist economies display an accumulation of distinctive elements. Money, credit, investment, production, distribution, foreign trade, prices and wages were all controlled. The state intervened directly, to a varying extent, in the economy. The power of economic groups remained, and had indeed increased, but ‑ in the words of a student of Japan ‑ these cartels now formed `instruments of national policy'. The links with the outside world had been snapped by a state trading monopoly. In conse­quence, the profit motives of individual transactions in foreign trade, which characterized capitalist economies, had been sub­ordinated to a limited concern with the overall balance of pay­ments. Exporting ceased to represent an end in itself, but was regarded primarily as a means of financing vital imports; if necessary, exports were encouraged by subsidies. The drive to­wards an empire was a logical consequence, in order to offer a substitute for the world market. Internally, an `irrational' sys­tem of costs and prices prevailed, because of the insulation from the international market, and because of the insensitivity of prices towards supply and demand. Quantity targets of production became a more important criterion than profits or cost reduc­tion. By the outbreak of war the impact of fascist policies on the previously existing economic structures had been sufficiently incisive to enable one to speak of a fascist economic system, distinct from contemporaneous capitalist or communist systems.

Given a longer perspective, this distinctiveness certainly dim­inishes. State intervention, high public expenditure (both mili­tary and civilian), redistribution of wealth, monetary regulations, incomes policies, are all increasingly prominent and more or less permanent features of our present‑day capitalist systems. Fascist economies, in many basic respects, are certainly capitalist econ­omies. In marxist terms, it could even be maintained (as has Sweezy) that fascist economies are typical of a type of develop­ment of capitalism in its `final phase'. In this perspective the fact

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that incomes were transferred in favour of the wealthy classes, and not (as in the welfare state) in favour of the poorer sectors of society, becomes a less significant distinction. But if one adopts so broad a categorization, it is essential to note the intermediary nature of the fascist economic system as one stage (though not, of course, the only possible stage) of capitalist development. For in no full sense was the fascist economy a `planned' economy ‑ a further distinction from the Russian economy. It was a closed, centrally controlled economy, which could be regarded as effectively planning investment, production and wages and less effectively distribution and prices. Where it failed most significantly was in manpower planning. In Italy and Japan before the war this might not be regarded as a major failure, given the existence of a large reserve of labour (although with the rearmament drive it most probably created bottlenecks in the supply of skilled labour). But in Germany it was a significant failure already before the war, attributable to the very nature of the machinery which worked against co‑ordination at the highest level. Indeed, the bureaucratic machinery set up in the three countries, because of both its personalistic character and its heaviness, worked against a fully rational, planned economy.

 

I have deliberately limited my inquiry to the period before the outbreak of war, because the impact of `total' war inevitably transformed the character of the economies. Even if one accepts that these economies were increasingly geared to preparation for war, one can legitimately enquire whether ‑ even if war had not occurred ‑ this type of development could have continued indefinitely without a major crisis. In economic terms, the major weakness was that inflationary pressures were continually growing. The elasticity curve of the public sector could not rise indefinitely. The dualism of the economies was accentuated increasingly. Within the advanced, heavy industrial sector it needed very little for inflation to break out of the elaborate network of controls, particularly in view of the uncoordinated nature of these controls. But the most serious reason why it seems implausible that the system could have continued to

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develop indefinitely was the relationship of political to economic power. It should be remembered that these systems were not created according to a blueprint, but grew up in an ad hoc manner, initially as a response to the depression, but also to achieve independence and growth. Only in the final stage, when they had been linked to an armaments drive, could any overall plan be noted. But even then there was a sharp contradiction between the political and the economic aims, a contradiction reflected in the lack of top‑level co‑ordination in a centrally controlled economy. The political motivations which underlay the entire reshaping of the economies were ultimately contradictory to the continued expansion of these economies. For the political aim was imperialist expansion by aggression, while the economies of the fascist countries were geared to rearmament, but not to total war. Yet once the economies had been distorted by the deliberate emphasis on rearmament, and its necessary complement, autarchy, it became ever more difficult to think in terms of conversion to peacetime activities because of the immediate effect on employment. A series of conflicts arose at different levels. It is enough to point to the contradiction between the encouragement of population growth and the contemporaneous policy decision to concentrate on capital intensive production goods industries.

Fascist economies collapsed during the war. A posteriori, it is easy to see that these closed economies could not succeed in war, not so much because of lack of capital equipment (although this was to a large extent the position in Italy), nor even so much because of the shortage of labour (although this was a major concern in Germany). They could not succeed because of their ultimate dependence on essential foreign raw materials. It has frequently been noted that their productive capacities could not stand comparison with those of the USA, England and Russia. But the remarkable reserves of capacity which emerged in the war years in Germany and Japan point to the only conceivable reconciliation of the political and economic systems: a rapid, successful war. If Germany had stopped before attacking Russia and if Japan had not bombed Pearl Harbour, the rearmament 

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drive and the type of economic system might have claimed success. For the area of the closed economy would have been expanded, new resources of labour and raw materials would have been conquered, and this type of economic system could presumably have continued to develop.

 Did Vargas and Peron create fascist economic systems?

Was such a system created elsewhere, in countries which in other respects might be described as possessing a fascist regime? The policies of Vargas in Brazil (1930‑45) and Peron in Argentina (1943‑55) provide a test case.

A rapidly rising population characterized Brazil throughout the twentieth century and Argentina until the great depression. Nevertheless, it is difficult to speak of population pressure on food supplies, except possibly at certain moments in north‑east Brazil. Pressure on the labour market is also less meaningful. In Argentina, which had reached a reasonable level of industrialization (by 1940‑4 only thirty‑three per cent of the economically active population was employed in agriculture), immigration had been checked during the depression and the population only increased slowly. In Brazil, where only twenty per cent of the population lived in cities in 1930, the classic dualism of an undeveloped economy meant that the concept of a money‑wage structure had little significance, except for the urban employed and the workers on the coffee plantations. Wages could be kept low by the existence of a subsistence economy alongside a developing economy. Moreover, the recent character of industrialization provided a cushion against long‑term unemployment: in moments of economic slump there was a flowback of labour to the non‑monetary sector.

Argentinian industrialization, although the most advanced in South America in 1945, was still closely tied to agriculture. Only twenty‑eight per cent of the population was employed in industry, as compared to thirty‑nine per cent in commerce, finance, transport and government. Industry was based on consumption goods, particularly on processing industries. The entire economy was

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geared to its meat and grain exports, although with the depression and the war exports had fallen as a proportion of GNP from 21 ‑9 per cent in 1930‑4 to thirteen per cent in 1940‑4.(1) Hence the great landowners, the estancieros, represented a considerable force in the economy, although of limited political power, at least to judge by Peron's ability to over‑ride their protests.

The Brazilian economy, to a higher degree than the Argentinian, was dependent on its exports, above all of coffee which constituted seventy per cent of its total exports in the decade 1921‑30 and still thirty‑six per cent in 1945. The agricultural export sector possessed notable economic and political influence, and was closely connected to commercial groups in the cities engaged in foreign trade. Coffee planters had succeeded in expanding production since the early twentieth century, despite a growing crisis of over‑production, by a system of government purchase and stockpiling of surpluses.(2) The collapse of the coffee market made the planters more determined to exert pressure on the government; but the catastrophic nature of the collapse left them basically at the mercy of government policies because of lack of alternatives. The domestic economies of both Brazil and Argentina were hence dominated by a need to balance payments, which was accentuated by their traditional dependence on foreign capital investment. The international exchange rate of their currencies fluctuated violently, according to foreign estimates of the country's prospects. A fall in exports depressed the external value of the national currency, thus increasing import prices and reducing the import quantum, until a new equilibrium was achieved. Because of this close connection between the international and the domestic economy, deficit financing on the internal side would normally lead to immediate inflation, while even if sufficient foreign capital entered the country, it would not necessarily check deficit financing.

This situation is obviously radically different from that of the

1 Argentine collection, St Antony's College, Oxford; T. R. Fillol, Social factors in economic development. The Argentine case (Boston, 1961), pp. 47‑53.

2 Furtado, cit., pp. 185‑213; G. Wythe, `Brazil: Trends in industrial development' in S. Kuznets et al. (ed.), Economic growth: Brazil, India, Japan (Durham N.C.), 1955, p. 76; H. Spiegel, The Brazilian economy (Philadelphia, 1949), p. 123.

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countries we have so far considered. There was insufficient domestic capital formation to cushion the effect of adverse trade balances on the currency reserves; nor was internal demand sufficient ‑ because of the low level of purchasing power (in Brazil) and the inadequate communications which would have created a truly national market (in both countries) ‑ to offer an alternative market to exports, as in Japan or even, to some extent, in Italy.

The policies of Vargas and Peron set out to transform the economy. In both countries the policies were based on a credo of economic nationalism, a determination to free themselves from dependence on foreign capital and the fluctuations of foreign trade, accompanied by the conviction of the military that a large‑scale policy of industrialization was vital for purposes of defence. Liberal laissez‑faire arguments that Brazil and Argentina were `natural' primary product exporting countries collapsed with the depression. The validity of a policy of industrialization was apparently never discussed per se, but was regarded as the inevitable alternative to the liberal economic philosophy which had failed. By the beginning of the 1940s, the military in Brazil committed Vargas irrevocably to a policy of heavy industrialization. Peron represented the army when he stated in his 1943 manifesto for independence that Argentina should become the Germany of South America."

The policies of Vargas and Peron moved in three basic directions. In the first place, a series of regulations and stimulants were created in the form of foreign exchange and credit controls, tariffs, import quotas, tax concessions and government direction of bank loans. In Argentina agricultural prices were fixed by a state trading monopoly (IAPA).

In the second place, the state intervened increasingly in the economy, limiting or expropriating foreign investments in public services and the exploitation of mineral resources; and encouraging the development of industries by preferential customs rates, loans, direct public investment and the creation of mixed

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1 T. E. Skidmore, Politics in Brazil, 1930‑1964 (Oxford, 1967), pp. 45‑7. The text of Peron's manifesto can be found in G. Pendle, Argentina (London), 1961.

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corporations. The Brazilian constitution of 1937 and the Argentinian constitution of 1948 were explicit in their limitations of foreign investment in sectors of `national importance' and in legalizing state control of the economy, although it should be noted that Vargas never attempted to exclude foreign capital in Peron's doctrinaire manner, and indeed made large American loans the condition of Brazil's entry into the war against Germany. A formalized structure of controls, with the inevitable accompaniment of a large bureaucracy, only finally emerged in Brazil with full‑scale war mobilization under Joao Alberto, whereas it was created by Peron at the outset with his Five Year Plan and National Economic Council under Miranda. But state economic intervention existed far earlier in Brazil and, as in Argentina, spread into a variety of industrial sectors, from iron and steel, aluminium and copper factories, alkali processing, aircraft and truck engine production, to railways, shipping, public utilities and the exploitation of oil and petroleum resources.

The third directive of government policy was to organize labour relations. The Brazilian constitution of 1937 stated clearly its intent to create a 'corporative organisation of the national economy'. Although no formal corporative structure was enacted in Argentina ‑ 1945 was hardly an opportune moment ‑ the recognition of single unions for each industry and region achieved a similar result. In contrast to Italy and Japan, labour legislation in Brazil and especially in Argentina was initially of benefit to the industrial workers: the creation of minimum wage rates and social welfare measures at first proved effective, although the increasing inflationary pressure ‑ to which wage rises contributed ‑ subsequently cancelled out the benefits."

To what extent were the policies of Vargas and Peron successful? Did they create a new system? Can they be described, in economic terms, as fascist?

1 In Brazil the cost of living index (1829=100) rose from 993 in 1930 to 3193 in 1945; average real wages in the transforming industry fell from index 100 in 1937 to 83 by 1945. O. Onody, A inflacao brasileira (1820‑1958) (Rio de Janeiro, 1960), pp. 118‑19, 262‑3. In Argentina the cost of living index rose from 100 in 1943 to 260 by 1949 and 650 by 1952. J. Villaneuva, The Inflationary process in Argentina 1943‑60, Documento de Trabajo, Instituto Torcuato Di Tella (Buenos Aeres, 1966), p. 7. 

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The spectacular inflationary spirals which marked the downfall of Vargas and Peron would seem the clearest evidence of the failure of their policies. They marked an inability to maintain a rapid process of industrialization, while contemporaneously compressing consumption and controlling wages. In this respect they differed notably from the fascist economies we discussed earlier. Industrial production increased significantly: in Brazil from an index of 100 in 1925‑9 to 178 in 1940‑4; in Argentina from an index of 100 in 1945 to 131 in 1948, with a final increase after the crisis years, to 144 in 1955.1 But the process of industrialization remained far more vulnerable than in Germany, Japan or even Italy.

For neither Brazil nor Argentina was able to emancipate itself from dependence on foreign trade. The national economies were insufficiently developed to provide the necessary capital to finance capitally intensive heavy industries; there was no cushion of currency reserves, as they were run down in Brazil by the depression and in Argentina by Peron's dogmatic acquisition of foreign‑owned utilities. The margin of non‑essential imports was, at the best of times, limited because it was so closely tied to the value of exports; the industrialization policies increased pressure on imports by the demands for machinery and raw materials. Hence the need to maintain exports, both to increase the volume of capital for investment and to acquire foreign capital equipment. In Brazil, at first, the government's decision to continue coffee stockpiling inadvertently solved the problem by preventing a sharp deflation, maintaining internal demand, and inducing a switch of capital from coffee plantations to the industrial sector. The rapid growth of consumer goods, and especially of the textile industries, was the result: cotton production, which represented only ten per cent of the value of coffee production in 1929, rose to fifty per cent by 1934; cotton exports rose from 3‑4 per cent of total exports in 1921‑30 to

1 Onody, cit., pp. 234‑7, 243; Wythe, cit., p. 70; United Nations, Economic Survey of Latin America (New York, 1957), pp. 127‑32. Base year for Argentina changed to 1945.

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14‑3 per cent in 1931‑40.1 But by the mid‑1930s, when idle productive capacity no longer existed and import controls were temporarily raised, a new balance of payments crisis arose. In Argentina the deliberate neglect of agriculture left Peron without foreign reserves and throttled his ambitious policy of industrial expansion by 1949. Development of consumer goods industries, while a natural policy which permitted an initial rapid growth, left Brazil and Argentina dependent on the import of capital goods equipment and raw materials and failed to generate an adequate formation of capital without increasing public expenditure. Although the resources of the banking system and government agencies (IAPA, social insurances) were employed to cover part of this expenditure, the growing deficit was only hidden by the increase of currency in circulation. Wage increases increased the rapidity of the inflationary spiral.

The basic weakness in both countries was the inadequacy of the domestic market to support a self‑sustaining policy of industrialization. In this, they differed fundamentally from Germany, Japan or Italy. Vargas and Peron failed to create a fascist economic system. Indeed, apart from a disputable question of style, there was virtually nothing in their policies which was novel in South America. The same measures of controls and stimulants, of direct and indirect government economic activities, of attempted regulation and protection of labour can be found in most other South American states, and in some ‑ such as Mexico ‑ achieving far greater success. But the very failure of Vargas and Peron raises the question of the pre‑conditions necessary to create a fascist economic system. It would seem legitimate to conclude that without a relatively broad industrial base, and above all a large heavy industrial complex, together with a relatively advanced degree of internal demand, a closed national economy cannot be created. If this is so, a fascist economic system was unattainable by countries which had not achieved a certain degree of industrialization, although in other respects they might qualify as `fascist'.

1 Furtado, cit., pp. 213‑19; Wythe, cit., p. 76; S. J. Stein, The Brazilian cotton manufact