Italy is a country with many small businesses but too few entrepreneurs -- the kind of ambitious owners who aim to grow their businesses rapidly and generate substantial wealth for themselves, their investors and their community.

Partly this is a reflection of the European disease, where growing beyond a micro-business automatically brings a union into play, along with the full complement of stifling government regulations and taxes.

And in part, it is a cultural artifact in a country with two ideological traditions, one Catholic and the other Marxist, both of which viewed private enterprise with suspicion and frowned on the accumulation of capital wealth.

But in Turin's case, the city has both benefited and suffered from the two royal families that have ruled it for centuries. As the capital of northern Italy, Turin was a city of courtiers, soldiers and bureaucrats happy to leave business largely to the more ambitious but less cultured traders of Milan. But after the capital moved to Rome with the unification of Italy in the mid-19th century, the House of Savoy gave way to the House of Agnelli, which turned Fiat into Italy's biggest and most successful company and Turin into the country's industrial capital.

During its heyday, Fiat was the Italian auto industry, with more than half of the market at home and a booming export business throughout Europe. Its massive Mirafiori plant here employed 60,000 workers, many of them recruited from impoverished southern Italy, with even more employed by a vast network of suppliers clustered around the city. Just as the government protected Fiat from competition, Fiat gave the government social peace through generous union contracts. When Alfa Romeo and Ferrari got into trouble, they were quietly steered toward Fiat rather than being allowed to fall into foreign hands. And when Fiat got into trouble, the government found a way to bail it out.

The effect of all this help and protection was to render Fiat uncompetitive when Italy opened to Europe and the world in the 1990s. Fiat's domestic market share has fallen to around 20 percent, and its export markets have shriveled. Employment today at Mirafiori is 15,000, and few of those employees even work a full week. Suppliers, who once relied comfortably and profitably on Fiat for about 70 percent of their business, now find themselves without the money, technology, scale or marketing know-how to compete elsewhere for new customers. Industrial production in the region has declined for 16 consecutive quarters.

It remains a hotly debated question here whether an independent Fiat can survive, or whether it will fall into the hands of its bank lenders. But with the company's decline and the death of Gianni Agnelli, the last of the family patriarchs, the business and political elite has decided that Turin must "shed its skin," as one banker here put it, and reinvent itself once again. Already, the successful bid to host next winter's Olympics has catalyzed a $5 billion public works program that has reduced unemployment to around 6 percent -- a triumph in European terms. "But once the Olympics is finished, we could be in real trouble," said Guiseppe Russo, an economist at the local university who is working on a new economic strategy for the city. The head of a small business association here acknowledged that half of his members are probably losing money.

As it happens, Turin did manage to turn out a number of world-class, fast-growing companies that can provide the base of a new economy. They include Pininfarina, a hot auto design company that produces small numbers of expensive sports cars such as Maserati, and food processors like chocolate maker Ferrero and coffee roaster Lavazza. BasicNet -- which hit it big years ago with its "Jesus Jeans" -- designs and markets a great line of sportswear through a global network of affiliates. Turin's aerospace industry is helping to make the engine for the next fleet of U.S. presidential helicopters, while the Azimut-Benetti Group supplies mega-yachts to the world's super-rich.

Many of these companies play to Italy's traditional strengths in stylish design and high-quality production, commanding the kind of premium prices that can support the high labor costs in Europe. And while it will never be on a par with Venice or Rome, Turin's fine food, graceful architecture and proximity to the mountains and wine-growing region offer a potential for international tourism.

But taken together, these niche markets won't add up to enough jobs and income to compensate for the decline of Fiat and the local auto industry. That will require Turin's small and medium-sized manufacturers to overcome their natural modesty and insularity and develop the ambition to reach beyond their traditional local markets and local customers.

"I know personally of many excellent companies here that will have to be closed if they don't start thinking that the world is a bigger place," said Alberto Del Poz, a young engineer whose 70-person company now makes millions of metal housings for the auto industry, based on an idea he had while still at Turin Polytech. Learning English, attending international trade shows, forming joint ventures, raising capital to invest in new product development, even just using the Internet for market research -- all of these, says Del Poz, remain on the to-do list for most businesses here.

"We have a lot of strengths here, but our problem is that too many refrain from playing the game," said Marco Boglione, who took BasicNet public in 1999 and now boasts $400 million in sales. Boglione is talking about Turin, but he might as well be talking about all of Western Europe. "What we need is a new mentality. We need to learn to be entrepreneurs again."

In Turin, Italy, Fiat's workforce has shrunk to 15,000.