Portugal’s economic stagnation: genetics or disease?! (1/2)

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Not that I am any kind of expert to have a say on what is troubling Portugal’s economy that keeps it from displaying any kind of meaningful economic growth since the start of the new millennium. One thing’s for granted, the country’s wealth creation had stalled much before the economic crisis that erupted almost six years ago. So why can’t Portugal leave this incapacitating lethargy behind? Might we be looking at something (or a set of factors) so entangled in Portugal’s DNA that make it impossible to suppress or are we contemplating something fixable like a disease that with the right prescription can be cured?

Much has been said and written about this conundrum both by reliable pundits as much as by less educated commentators. Strikingly the core from which stems the majority of the symptoms of Portugal’s malaise keeps being overlooked. I’ve extensive and intensively mentioned this causality time and again on this blog (here is an example) but this article that has come to my attention a few weeks ago sums it up pretty neatly. However it fails to give credit to the rightful bunch who’s leeching the country (my emphasis).

As Matt Yglesias of Slate points out, most of southern Europe, Portugal included, suffers from too much corruption and regulation. Businesses choose to stay small, because it makes sense to just deal with people you personally trust when you can’t reliably appeal to the authorities sans-kickbackBusinesses can stay small, because the laws make it hard to get big and achieve economies-of-scale. It’s a mom-and-pop nightmare of low productivity.

That’s a tad shy of naming the far reaching tentacles of the “not-too-fit-designation-of” political parties that since the of the end of the dictatorship rule in 1974 have been parasitizing Portugal.

Let’s go back almost 40 years to the time when people couldn’t express their thoughts and barely could sneeze without becoming suspicious of some kind of conspiracy to overthrow the regime. Back then, Portugal which had spent almost 50 years on a stranglehold, was one of the poorest countries in Western Europe: it lacked structural infrastructures, had an under-educated population (and high illiteracy ratings), most of it was making their living out of a rudimentary and low productivity agriculture, hovering around the poverty threshold, with limited access to medical care and with no retirement benefits. Meanwhile, democracy sets in along with a myriad of political parties.

At the early stages of the new era, with the benefit of hindsight, one can concede that all the time locked up inside a hermetic regime could lead to a number rash decisions. The rush unleashed throughout the troubled years post-revolution, arising from over a generation time of frustration accretion, made things easy to the blossoming political parties. In spite of their ill-preparation and total lack of experience they just had to promise they would provide anything that improved the people’s poor standard of living. If any party argued that the transition to democracy had to be smoothed out or that it wasn’t realistic to deliver so much “perks” in such a short period of time it would be gone as soon as it finished its statement. If instead a political party had overcommitted itself no harm would be done since the people would have accomplished something that never had dreamed of a few years before. In other words at this juncture these puerile political parties bore little to none accountability and just had to pamper the once repressed Portuguese people. Nevertheless the IMF was called twice to help clean up the mess of such a reckless public finances’ management.

Time went by and that uneasiness for freedom started to fade. From mid-80’s things started to calm down and the country eventually would stabilize enough to successfully apply to join the European Economic Community (EEC) in 1986. From then on millions of Deutsche Marks, French Francs, British Pounds, you name it, started to pour into Portugal’s economy for the sake of European economic convergence. Soon after the state started to relinquish its key sector enterprises (banks, utilities, oil refiners, telecoms, etc.) and suddenly Portugal was flooded by a torrent of money and on top of that witnessing its credit ratings skyrocketing. Meanwhile during the 90’s the number and influence of political parties began to consolidate and 2 major political powerhouses emerged: Socialist Party (PS) and Social-Democrats Party (PSD). If in the early steps of this modern-age democracy politicians had it easy due to social unrest the run-up to the noughties was a walk in the park thanks to the EEC massive money outpouring and privatizations!

Everybody was so overwhelmed with such a windfall and with the substantial improvement of the standard of living that no one bothered to question whatever high-profile economic and strategic decisions were being made in the political backstage. Would Portugal be able to support a generous – almost overnight assembled – welfare state with wide benefits inspired in the northern European countries in spite of its inability to curb tax evasion? Was it sustainable to suddenly build a dense and high quality network of highways, stage a World Exposition and a football European Cup of Nations out of the blue? Would it make any difference to run large current account imbalances year after year?! What about those persistent public works’ budgetary slippages?! Who cared?! Portugal belonged to the rich countries club anyway and could easily plug those deficits with any amount of easily available funding.

It was this abundance setting and the consolidation of the prominence of 2 political parties that allowed the sprawl of its growing ranks through every public office seat, not to mention managerial positions among civil servants. Let’s say that in civil service affiliation or membership matters a great deal even to hire an ordinary employee. Their influence is such that the 2 organizations tacitly share not only board seats in every state owned enterprise but also in previously privatized companies. Go figure…

While society turned a blind eye to these two political parties backstage maneuvering they have completely seized power. This can hardly take anyone by surprise, specially after almost 40 years alternating in power, either in parliament or in any remote town hall (with one or two exceptions). No matter how bad they had performed during their term one party would always (and still does) succeed the other like some sort of intermittent monarchy. They didn’t (and still don’t) try to do better than the predecessor because they always resort to the blame game. They do it over and over again as an amused electorate keeps settling with this despicable display. And elections?! A mere formality. An opportunity to organize state funded rallies (how convenient and disgraceful) filled with flamboyant, yet demagogic speeches, with a lot of finger and flag waving packed with blindfolded people who generally is rewarded with a  cheesy dinner.

If you think I’m being too harsh and/or vague let’s stop for a moment to weigh in some evidences to support my standpoint.

(to be continued…)


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