The paper is aimed at providing an explanation of the functioning of the Italian industrial system, as well as of its performance compared to other industrial countries, that departs from the mainstream view. This is done by approaching the matter through a theoretical framework which – unlike the mainstream view, strictly grounded upon neoclassical supply-side macroeconomics and the logic of the economies of scale – pays attention, instead, to the theories of the firm and of industry behavior, which can help explain the structural elements and peculiarities of the national manufacturing model. The analysis shifts the analytical focus from supply to demand factors, and from the centrality attributed to scale-intensive sectors to the role that economies of specialization play in the creation of a dense network of connections among individual firms. It is argued that this is paralleled by choices of quality upgrading and product differentiation which contribute to the consolidation of market shares at the international level. In this perspective, several noteworthy findings emerge. In particular, it is shown that Italian manufacturing – either in terms of productivity (when properly measured) or in terms of the many indicators (usually neglected) that need to be considered in order to measure industrial performance – stands among the most competitive national manufacturing systems. The overall evidence calls for industrial policy measures consistent with the peculiarities of the Italian production system and emphasizes the principle of selectivity as to the institutional support for businesses.

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