Portugal’s economic stagnation: genetics or disease?!

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-kickback. Businesses 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.

Well, it’s indisputable that the political parties, namely PS and PSD, hold the monopoly of political agenda setting in Portugal. These are the 2 entities who effectively run the country. As stressed before the great majority of public office duties, not mention big companies boardrooms, has been filled with people affiliated with these parties so what track record do they have to boast about?!

Let’s put it in simple terms: an overly indebted country with a feeble over burdened economy with taxes and a myriad of levies, over reliant on imports and held hostage by anti-patriotic and rogue vested interests. There’s more: income inequality is among the greatest in developed world and productivity is racing to the bottom. But isn’t life any better since the end of the dictatorship regimen? Of course it is. Quite a lot, indeed! However if it wasn’t for the tonnes of money coming from the EEC and the over easy access to funding markets nothing much would be accomplished. Which is the same as saying that a lot of money was misspent, misused or simply stolen. Again from the above mentioned article (my emphasis).

It’s an economic whodunit without any clear culprits [yeah, right!]. Yes, Portugal has real structural problems (which we’ll get to), but so do Spain and Greece, neither of which slumped before the slump. For his part,[Ricardo] Reis [Columbia University professor] speculates that Portugal’s immature financial sector is to blame: it misallocated the foreign capital that poured in to low productivity, non-tradable sectors like wholesale and retail trade. In other words, it wasted money on things that never had a chance of paying off.  

“Easy unearned money corrupts” could be one’s reading but remind me who has been at the helm all these years?! I have a better reading: make things happen with current easy and plentiful money is a no-brainer. The same isn’t truth when that easiness vanishes, like recently has been the case, and therefore, once again “dial IMF for help”.

Now, let’s turn our attention to some loose ends to mull over. But first, from the very same article (my emphasis):

Of course, Portugal still has to fix its structural problems. This can often feel like a hand-wavey catchall, but, among other things, it means making it easier to fire permanent workers who are very much so; making it easier to start and expand a business; and making it easier to enforce contracts.

  • Does anyone profit from laws that prevent companies to increase their scale?! The economy certainly doesn’t given that it restrains competition and consequently caps productivity growth. Who wouldn’t want competition? Large companies with strong interests in Portugal (national or foreign)?! Is that why they hire people strongly linked to the prominent political parties, chiefly those that have already had a governmental role?!
  • Why is there too much regulation?! Is it warranted?! Is it why there are so many bureaucrats?! Is that also why bureaucracy takes ages to produce an outcome?! How can businessmen unblock any unnerving bureaucratic issue?! Any clues? If bureaucracy were to be curtailed would bureaucrats be fired?!
  • Why are courts of law so clogged?! Is it for the excess of regulation on the Procedure’s Code?! Is that why do they take eternity to issue a verdict on high profile cases involving public figures and most of all members of political parties (especially PS and PSD)?! Some of them even lapse. And what to say about the lacking of convictions on white-collar crimes that are strongly linked to the most prominent parties?! Who writes and approves this codes/regulations?! Coincidences?!
  • Why are there permanent workers in civil service?! And why do they, on average, have higher wages than the rest of the economy?! And can someone explain to me why do they have extensive social benefits unlike the rest?! And why have the civil servants ranks increased exponentially since democracy’s green shoots (until 2010) to the point that they could stumble in each other’s?!?!?! It sure doesn’t help productivity nor Portugal’s fiscal deficit woes!  Why don’t they fire them outright?! Would the dominant political parties treat this issue as very delicate from the re-election point of view?! Using the same argument: why are there 308 town halls and 4269 (give or take) “village halls”?!?!?! Who are they employing?! Why don’t they downsize them right away!?!?!?
  • Why do political parties (all of them) ward off any attempt of creating new political forces or independent candidacies to any public office seat?! It has become clear that political parties are not much of competition lovers, but is it why their runs to any public office seat are state funded and independent ones not?! Is it why they are exempt of VAT and others don’t?! Is it why they always keep it down when it comes to talk about their funding sources?!
  • Are these political parties that polarizing to recruit the brightest and sharpest of the individuals?! If so, why is Portugal so marred with perennial structural problems that successive governments fail to address!?

And the most fat of these loose ends…


It has become clear that Portugal effectively is ill. If its economy isn’t growing and is not showing any signs of improvement is sick! Nonetheless, after a pertinent diagnosis one can relate it with the strange bodies found in Portugal’s gut that obviously don’t share the same DNA. This parasites – roundworms maybe – are leaching its host to its anemic condition. With these organizations running the show there a too many uncalled-for middlemen who are always seeking ways to get a piece of the action and have no regrets to get better off at the expense of everybody else. Right now these parasites are seriously imperiling Portugal’s future. They better be stopped or at least contained!

Fool/fail us once, shame on them. Fool/fail us twice, shame on us…


One thought on “Portugal’s economic stagnation: genetics or disease?!

  1. “”Permanent” job security for civil servants is consecrated in the Greek constitution, an effort to prevent political interference in the functioning of institutions. Critics of the arrangement say that one result, as politicians through the years have doled out government jobs in return for support, is a civil service swollen with unqualified workers very difficult to remove.” – replace Greek by Portuguese and the same applies to our history.


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