Portugal - Revolutionary Change in the Economy

More about the Economy of Portugal.

Nationalization

The reorganization of the MFA coordinating committee in March 1975 brought into prominence a group of Marxist-oriented officers who, in league with the General Confederation of Portuguese Workers-National Intersindical (Confedera��o Geral dos Trabalhadores Portugueses-Intersindical Nacional--CGTP-IN), the communist-dominated trade union confederation known as Intersindical prior to 1977, sought the radical transformation of the nation's social system and political economy. Abandoning its moderate-reformist posture, the MFA leadership set out on a course of sweeping nationalizations and land expropriations. During the balance of that year, the government nationalized all Portuguese-owned capital in the banking, insurance, petrochemical, fertilizer, tobacco, cement, and wood pulp sectors of the economy, as well as the Portuguese iron and steel company, the major breweries, the large shipping lines, most public transport, two of the three principal shipyards, core companies of the Companhia Uni�o Fabril (CUF) conglomerate, the radio and TV networks (except that of the Roman Catholic Church), and important companies in the glass, mining, fishing, and agricultural sectors. Because of the key role of the domestic banks as holders of stock, the government indirectly acquired equity positions in hundreds of other firms. An Institute for State Participation was created to deal with the many disparate (often tiny) enterprises in which the state had thus obtained a majority shareholding. Another 300 small to medium enterprises came under public management as the government "intervened" to rescue them from bankruptcy following their takeover by workers or abandonment by management.

Although foreign direct investment was statutorily exempted from nationalization, many foreign-controlled enterprises curtailed or ceased operation because of costly forced labor settlements or worker takeovers. The combination of revolutionary policies and negative business climate brought about a sharp reversal in the trend of direct investment inflows from abroad.

A study by the economists Maria Belmira Martins and Jos� Chaves Rosa showed that a total of 244 private enterprises were directly nationalized during the sixteen-month interval from March 14, 1975 to July 29, 1976. Nationalization was followed by the consolidation of the several private firms in each industry into state monopolies. As an example, Quimigal, the chemical and fertilizer entity, represented a merger of five firms. Four large companies were integrated to form the national oil company, Petroleos de Portugal (Petrogal). Portucel brought together five pulp and paper companies. The fourteen private electric power enterprises were joined into a single power generation and transmission monopoly, Electricidade de Portugal (EDP). With the nationalization and amalgamation of the three tobacco firms under Tabaqueira, the state gained complete control of this industry. The several breweries and beer distribution companies were integrated into two state firms, Central de Cervejas (Centralcer) and Unicer; and a single state enterprise, Rodoviaria, was created by joining the ninety-three nationalized trucking and bus lines. The forty-seven cement plants, formerly controlled by the Champalimaud interests, were integrated into Cimentos de Portugal (Cimpor). The government also acquired a dominant position in the export-oriented shipbuilding and ship repair industry. Former private monopolies retained their company designations following nationalization. Included among these were the iron and steel company, Siderurgia Nacional; the railway, Caminhos de Ferro Portugueses (CP); and the national airline, Transportes A�reos Portugueses (TAP).

Unlike other sectors, where existing private firms were typically consolidated into state monopolies, the commercial banking system and insurance industry were left with a degree of competition. By 1979 the number of domestic commercial banks was reduced from fifteen to nine. Notwithstanding their public status, the remaining banks competed with each other and retained their individual identities and certain differences in their activities.

Before the revolution, private enterprise ownership dominated the Portuguese economy to a degree unmatched in other West European countries. Only a handful of wholly owned or majority owned state entities existed; these included the post office, the armaments industry, and the ports, as well as the National Development Bank and Caixa Geral de Dep�sitos, the largest savings bank. The Portuguese government held minority interests in TAP, the national airline; in Siderurgia Nacional, the integrated steel mill; and in oil refining and oil marketing firms. The railroads, two colonial banks, and the Bank of Portugal were majority privately owned but publicly administered. Finally, although privately owned, the tobacco companies and Radio Marconi were operated under government concessions.

Two years after the military coup, the enlarged public sector accounted for 47 percent of the country's gross fixed capital formation (GFCF), 30 percent of total value added (VA), and 24 percent of employment. These shares should be compared with 10 percent of GFCF, 9 percent of VA, and 13 percent of employment for the traditional public sector of 1973. Expansion of the public sector since the revolution is particularly noteworthy in heavy manufacturing; in public services, including electricity, gas, transport and communications; and in banking and insurance. Further, according to the Institute for State Participation, these figures did not include private enterprises under temporary state intervention, private enterprises with minority state participation (less than 50 percent of the common stock), or worker-managed firms and agricultural collectives.

The Brain Drain

Compounding the problem of massive nationalizations was the heavy drain of managerial and technical expertise away from the public enterprises. The income-leveling measures of the MFA revolutionary regime, together with the "antifascist" purges in factories, offices, and large agricultural estates, induced an exodus of human capital, mainly to Brazil. This loss of managers, technicians, and business people inspired a popular Lisbon saying, "Portugal used to send its legs to Brazil, but now we are sending our heads."

Notwithstanding the concentration of the means of production in the hands of a small number of family-based financial-industrial groups, Portuguese business culture permitted a surprising upward mobility of educated individuals with middle-class backgrounds into professional management careers. Before the Revolution of 1974, the largest, most technologically advanced (and most recently organized) firms offered the greatest opportunity for management careers based on merit rather than on accident of birth.

A detailed analysis of Portugal's loss of managerial resources is contained in Harry M. Makler's follow-up surveys of 306 enterprises, conducted in July 1976, and again in June 1977. His study makes clear that nationalization was greater in the modern, large, technically advanced industries than in the traditional industries such as textiles, apparel, and construction. In small enterprises (fifty to ninety-nine employees), only 15 percent of the industrialists had quit as compared with 43 percent in the larger. In the giant firms (1,000 or more employees), more than half had quit. Makler's calculations show that the higher the socioeconomic class origin, the greater the likelihood that the industrialist had left the firm. He also notes that "the more upwardly mobile also were more likely to have quit than those who were downwardly socially mobile." Significantly, a much larger percentage of professional managers (52 percent) compared with owners of production (i.e., founders--18 percent, heirs--21 percent, and owner-managers--32 percent) had left their enterprises.

The constitution of 1976 confirmed the large and interventionist role of the state in the economy. Its Marxist character before the 1989 revisions was revealed in a number of its articles, which pointed to a "classless society" and the "socialization of the means of production" and proclaimed all nationalizations made after April 25, 1974 as "irreversible conquests of the working classes." The constitution also defined new power relationships between labor and management, with a strong bias in labor's favor. All regulations with reference to layoffs, including collective redundancy, were circumscribed by Article 53.

Revolutionary change

The military coup of April 1974, which ousted the long-lived authoritarian Salazar-Caetano regime, was rapidly transformed into a social revolution that profoundly recast Portugal's political and economic systems. The revolutionary leadership undercut the old elite's economic base by nationalizing the banks and most of the country's heavy and medium-sized industries; expropriating landed estates in the central and southern regions; and giving independence to Angola, Mozambique, and other colonies. The last action dismantled the web of economic relationships, known as the Escudo Area, through which metropolitan Portugal was linked to its "overseas provinces."

In the brief period between the collapse of the old regime in April 1974 and the abortive leftist coup of November 1975, a variety of economic models were proposed for Portugal by the provisional Armed Forces Movement (Movimento das For�as Armadas-- MFA) governments, including the West European, Yugoslav, and Albanian models. In the early months following the military coup, the new Portuguese government's economic orientation could be described as moderate-reformist. The regime's Economic and Social Program published on May 15, 1974, made no provision for largescale nationalization of industry or agriculture. The program simply provided for the "adoption of new measures of government intervention in the basic sectors of the economy and particularly in the sectors of national interest, without prejudice to the legitimate interest of private enterprise"; argued for "reform of the tax system so as to rationalize it and ease the tax burden on less well-off groups, with a view of a fairer distribution of income"; recommended measures "to stimulate agriculture and gradual reform of the land tenure system"; and, within the sphere of social policy, favored introduction of "a minimum wage to be progressively extended to all sectors of activity."

The initial moderate-reformist policies reflected the views of General Ant�nio de Sp�nola, who was chosen by the MFA to lead the coup and to serve as the country's president. Sp�nola, the celebrated war hero, favored the establishment of civil liberties and the creation of democratic institutions. He also advocated rapid improvement of living standards, a modernized financial structure, and eventual Portuguese participation in the EC--objectives laid down in an economic plan he commissioned from Erik Lundberg of the World Bank. Sp�nola's view on the economy and the pace of decolonization diverged from those of the Coordinating Committee of the MFA, most of whose members were prepared to end completely the Portuguese presence in Africa and to expand substantially the scope of the public sector. By the early autumn of 1974, events both within and outside Portugal favored the course chosen by the MFA coordinating committee. Unable to stop the leftward drift of the country, Sp�nola resigned in September 1974.

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