WHEN Italian automaker Fiat recently announced plans to invest $4.5 billion to build two production plants in southern Italy, the news was interpreted as an important sign of confidence in the country's troubled and lagging south. The company's plans were especially welcome when most other indicators from the half of Italian terrain and one-third of the population that make up the Mezzogiorno, or land of the midday sun, offer little cause for jubilation.
After decades of government intervention during which north-south discrepancies began to close, the last few years have seen a renewed widening of income and production gaps. Although the south has modernized tremendously since World War II, when much of it still lived in the Middle Ages, the industrialized north has grown even faster: Today the south's per capita productivity is just over 50 percent of the north's.
Unemployment in the south has soared to about three times the levels in the prosperous north, with 1 of 2 young people out of work. Capitalizing on the availability of idle youths, the Mafia and other regional organized-crime groups have extended their shadow to new regions in the south, specialists both in and out of government say.
Italy's regional discrepancies are more pronounced than those of any other industrialized country, the Organization of Economic Cooperation and Development (OECD) estimates. Concern is growing that the advent of a single European market and exposure to competition from other ``peripheral'' regions with lower wages could dig Italy's north-south divide even deeper over the coming decade.
``I am very disappointed in the results and worried about the future,'' says Pasquale Saraceno, president of Svimez, a research institute in Rome, and dean of Italy's specialists in southern issues. ``Frustrated young people don't accept such great differences in their own country, so many have turned to the Mafia.''
South has high jobless rate
Western Europe's tremendous development of the past 40 years is unlikely to continue at such a rate, he adds, making the prospects for reducing the south's unemployment very dim. ``That's why the situation seems so dark.''
The plight of the south also makes it an easy target for frustrated northerners who consider the country's lower half a dead weight, and who more and more are translating that frustration into regionalist political activity. Yet it doesn't take an antisouth northerner to make the case that minus the south, Italy's principal economic problems - a huge public deficit, high interest rates and inflation, and a widening trade gap - would be greatly reduced or even nonexistent.
The south is a much heavier importer of goods and services than the north, according to the OECD, although it produces only about 8 percent of Italian manufactured goods. In addition, four decades of heavy government spending in the south have added to Italy's huge debt, which is nearly equal to the country's annual gross domestic product.
Despite the region's traditional difficulties, many specialists say it is the relatively recent spread of organized crime through new regions of the south - coupled with its tightening grip on traditional areas of strength - that present the stiffest challenge to the Mezzogiorno.
Organized crime on rise
``Of course, the Mafia has always been around, but not in the drugs and the big money and in every corner of the region's life as it is now,'' says Flavia Salerno, chief spokeswoman for Italy's Agency for the Promotion of Development in the Mezzogiorno.
``Organized crime has taken advantage of the lack of employment for young people,'' she says. ``Their desperation makes involvement with the Mafia more acceptable.''
Italian officials describe 1990 as a particularly bloody year for crime-gang violence, with more than 1,000 killings. A troubling novelty: The use of minors to commit violence, and an accompanying increase in minors' violent deaths.
The Mafia's spread by way of the south's youth is in part an unanticipated result of a change in government spending policy in the south in the late 1970s. Until then, experts note, spending was focused on infrastructure and industrial development. At the same time, negotiated wages in the north were higher than in the south.
For the past decade, however, the government has cut back on direct investments, while increasing transfers to individuals: for disabilities, unemployment, retirement. Regional differences in negotiated wages were also scuttled for national negotiations. The result of these two changes is that southern young people now tend to stay home instead of migrating north for work.
The change in wage negotiations also means that labor costs in the south have increased, while productivity and the general ease of doing business in the south - availability of reliable infrastructure and telecommunications, for example - have not.
``Between costs and the Mafia, companies decided it wasn't worth setting up shop in the south,'' says Mrs. Salerno.
That is one reason Fiat's announcement was received with such fanfare.
``It's an important sign to other companies that have been fearful of going there,'' says Salerno. ``But it's not a goodwill gesture, they're expanding in the south because they can make money there.''
Fiat says Italy's south faired well against alternative sites studied in Spain, Turkey, and northern England. The company's studies will no doubt be looked over by some experts who fear that, as Europe's single market becomes reality, expanding Italian companies are increasingly likely to take their projects to countries like Spain, Portugal, Greece, and Ireland, where wages are lower and social conditions often better.
Others say such fears ignore the fact that Italy's south is no longer a backward monolith: Some regions, especially along the Adriatic, are still outside the Mafia's dominance and approaching national levels in productivity.
Bari is research center
Bari, a city on the coast at the heel of Italy's boot-shaped peninsula, is a recognized center of advanced research.
Following that example, a new government strategy is to encourage more research centers and high-tech business parks in the south. But even Bari, until recently considered clean of Mafia activity, witnessed more than 100 murders last year and will get a new anti-Mafia police unit this spring.
Most observers support the view that 1992 and the integration of Europe will have an overall positive effect on the south.
``Certainly a unifying Europe poses a certain risk of isolation for the Mezzogiorno,'' says Salerno.
``The good thing is that it will force the south to decide: either to break out of the traditions and way of doing things that have held it back,'' she says, ``or to become a backwater.''