In 1930 the Great Depression affected the Italian financial sector, seriously disrupting credit lines and making it difficult for companies to obtain loans. The Fascist regime led by Benito Mussolini, fearing a credit crunch with subsequent mass dismissals and a wave of social unrest, started to take over the banks' stakes in large industrial companies (such as steel, weapons and chemicals). At the same time, Mussolini tried to inject capital into failing businesses. Although initially conceived as a temporary measure, IRI continued to operate throughout the period of the Fascist regime and well beyond. Although IRI was not intended to carry out real nationalizations, it became the de facto owner and operator of a large number of major banks and companies. By January 1934, the IRI reported that it controlled “48.5 percent of the share capital of Italy,” and a few months later acquired the capital of the banks themselves, prompting Mussolini to declare on May 26, 1934 to Italy’s Chamber of Deputies that “Three-fourths of Italian economy, industrial and agricultural, is in the hands of the state.” By 1939 the IRI and other government agencies “controlled over four-fifths of Italy’s shipping and shipbuilding, three-quarters of its pig iron production and almost half that of steel.” Political Historian Martin Blinkhorn noted that “This level of state intervention greatly surpassed that in Nazi Germany, giving Italy a public sector second only to that of Stalin’s Russia.”
After the war, the survival of the Institute was uncertain, as it had been created more as a temporary solution than to meet long-tem goals. But it proved difficult for the state to make the large investments needed for private companies that would only yield returns in the long term. So IRI retained the structure it had under fascism. Only after 1950 was IRI's function better defined: a new thrust was instigated by Oscar Sinigaglia, who, planning to increase the production capacity of the Italian steel industry, formed an alliance with private industry. This gave IRI the new role of developing the industrial infrastructure of the country, not by means of individual investments, but by an unwritten division of labour. Examples were the development of the steel industry and the telephone network and the construction of the Autostrada del Sole, which began in 1956.
The Italian economy grew rapidly in the 1960s, the IRI was one of the protagonists of the "Italian economic miracle". Other European countries, particularly the British Labour government, saw the "IRI formula" as a positive example of state intervention in the economy, better than the simple "nationalization" because it allowed for cooperation between public and private capital. Many companies had both kinds of capital. Many in the IRI group remained publicly traded, and corporate bonds issued by the Institute to fund their companies were heavily subscribed.
At the head of IRI were leading members of the Christian Democracy party, such as Giuseppe Petrilli, president of the Institute from 1960 to 1979. In his writings, Petrilli developed a theory that emphasized the positive effects of the "IRI formula". Across IRI, companies were used for social purposes, and the state had to bear the costs and inefficiencies generated by their investments. IRI did not always follow normal commercial practices, but invested in the interests of the community, even uneconomically and to the extent of generating "improper charges".
Critical of these welfare-oriented practices was the second President of the Italian Republic, the Liberal Luigi Einaudi, who said: "A public company, if not based on economic criteria, tends to a hospice type of charity." Since the objectives of the state were to develop the southern economy and to maintain full employment, the IRI had to concentrate its investments in the south and to develop jobs in their companies. Petrilli's position reflected those, already widespread in Christian Democracy, that sought a "third way" between liberalism and communism; IRI's mixed system of state-owned enterprises seemed to achieve this hybrid between the two polarised systems.