The political economy of Portugal's old regime: Growth and change preceding the 1974 revolution

World Development Vol. 7, pp. 799-811 Pergamon Press Ltd. 1979. Printed in Great Britain

The Political Economy of Portugal’s Old Regime: Growth and Change Preceding the 1974 Revolution ERIC N. BAKLANOFF * University of Alabama

Summary. - For 40~1, from 1928 to 1968, Antonio Sa.lazar’s doctrines were to shape the Portuguese destiny. Under his authoritarian regime the political economy was cast into a quasitraditional mold combing two salient features - extensive state control and predominantly private ownership of the means of production. Nevertheless, under the pressure of circumstances, Salazar in the early 1960s opted for a more open development strategy, including a sigmficant role for direct foreign investment. The liberalization of the Portuguese economy war given further impetus under Premier Marcello Caetano (1968-1974), and as a result the country underwent a period of accelerated growth and structural change. Still, on the eve of the 1974 revolution, Portugal faced major economic problems associated with concentration of political and economic power in the ‘40 families’ oligarchy and the burdensome defence of the African territories.

The Portuguese corporate state which had endured for nearly half a century collapsed like a house of cards in the wake of the April 1974 coup. Led by the Armed Forces Movement, the revolution shattered the traditional Portuguese world so carefully structured by the late Premier Antonio Salazar (1928-l 968) and his successor, Premier Marcel0 Caetano (1968-I 974).’ The revolutionary leadership undercut the old elite’s economic base by: (a) nationalizing or expropriating the banking sector, heavy industry, public services, and landed estates in the central and southern regions;(b) authorizing a single confederation of trade unions, Intersindical, dominated by the Portuguese Communist Party; and (c) giving independence to Angola, Mozambique and other colonies. The latter measure dismantled the pattern of economic relationships, known as the Escudo area, through which Metropolitan Portugal was linked to its ‘overaeas provinces’. The nationalizations and revolutionary income redistribution measures, together with the ‘anti-Fascist’ purges in offices, factories and landed estates, induced an outflow of ‘human capital’. By the end of 1975, an estimated 80,000 professionals, skilled workers, technicians, and businessmen had left Portugal for Brazil alone.2 After some

799

traumatic events, including an aborted Communist bid for power, the Portuguese political system became stabilized as a representative, constitutional democracy. It is important to remember, however, that preceding this momentous political transformation, Portugal experienced an extended period of accelerated economic growth and structural change. Consequently, in a brief time span, the Iberian economy crossed over the arbitrary threshold that divides the ‘less developed’ from the ‘more developed’ countries. The scope of this paper encompasses the significant economic policy changes that occurred in Portugal between 1960 and 1973 and the impacts of these changes on resource allocation, international economic relations, and growth. 1. THE CORPORATE

STATE

The political and financial excesses of the Portuguese Republic ( 19 lo- 1926) provoked a strong domestic reaction that culminated in a virtually uncontested military coup. Unable to solve the nation’s international financial crisis, the new military government, headed by President Antonio Carmona, called on Antonio

800

WORLD DEVELOPMENT

de Oliveira Salazar to take over the Ministry of Finance in 1928 and in 1932 to assume the premiership of Portugal. At the time of his appointment as Finance Minister, Salazar held the Chair of Economics at Coimbra University and was considered to be the most distinguished authority on inflation in the country. Reluctant to leave the classroom, Salazar stipulated his terms for reentering public life - complete budgetary control - and these were accepted fully by the government. For 40 yr, from 1928 to 1968, Antonio Salazar’s political and economic doctrines were to shape the Portuguese destiny. Richard Pattee describes the professor’s mental set as it would be carried into public action: Sahuar has never promised Portugal anything but hard work, rectitude, tenacity, and the kind of daily homework in economics that he imposed on his students at Cohnbra. Salazar is fast and foremost an extremely competent housekeeper and he has conceived of Portugal as a menage which was in dire need of being put in order lest it fall apart.3 At the bottom of the Great Depression, Salazar promulgated the Constitution of 1933 which laid down the principles for a New State. A Portuguese variant of corporatism, the New State rested on Roman Catholic social theory, with its emphasis on a ‘corporate form of social life’ as well as on Lusitanian integralism, a political doctrine that opposed the positivism, egalitarianism, and atheism associated with the French Revolution.4 The New State resembled European fascism only superficially. Significantly, Salazar purged the Portuguese fascist elements in 1934 and specifically denounced the National Syndicahsts as ‘inspired by certain foreign models’.5 He declared his opposition to all the ‘grand heresies’ of the contemporary world, including nazism as well as communism and materialism. In his writings, including his Doctine and Actior~,~ he emphasized the fundamental distinction between the Catholic corporatism of the New State and fascism - a ‘pagan Caesar&m’ that does not recognize moral or juridical limits.’ As the English historian, H. R. Trevor-Roper, makes clear, it is important to distinguish two social and political systems that in his words, ‘the opportunism of politicians and muddled thinking journalists have constantly confused’.8 He contrasts the traditional ‘clerical conservatism’ (such as the corporate states of Spain and Portugal) with fascism proper: ‘the cult of force, contemptuous of religious and traditional ideas, the self-assertion of an inflamed lower midd$e class in a weakened industrial society. . . .

Salazar avoided Portugal’s direct involvement in World War II but granted base facilities in the Azores to the Americans and the British. After the war, despite the authoritarian character of the regime, Portugal was invited to participate in the Marshall Plan and to become a charter member of NATO. The regime denied the Portuguese citizen the right to choose his leaders and the other freedoms associated with constitutional democracies: freedom of speech and assembly, and the right to form independent trade unions. Under the Portugues.e corporate state, employers and workers were organized in guilds and syndicates, respectively, in commerce, industry, banking and transport. Similar organ izations existed for farmers, rural labourers, and fisherman. The guilds and syndicates were required to negotiate collective labour contracts governing wages, hours, and working conditions. Disputes over such matters were referred to the .govemment’s labour tribunals for settlement, and the tribunals’ decisions were binding on both parties. Strikes and lay-offs were prohibited and labour’s relative bargaining position was weak. A system of industrial licensing (condicionamenro industrial), introduced by law in 193 1, required prior authorization by the state for setting up or relocating an industrial plant.” In addition, investment in machinery and equipment designed to increase industrial capacity also required government approval. Discretionary powers of government officials in licensing industrial investment often strengthening the monopolistic position of existing firms, led to misallocation of capital resources, gave rise to claims of grave irregularities, and deterred investment by foreign enterprise in the domestic economy. The corporative framework within which the Portuguese economy evolved combined two salient characteristics: extensive state management and predominantly private ownership of the means of production. Leading fmanciers and industrialists accepted extensive bureaucratic controls in return for assurances of minimal public ownership of economic enterprises and certain monopolistic (or restricted competition) privileges. There existed a close and mutuallybeneficial relationship between high-ranking public officials and the country’s leading business groups. rr The largest companies often hired former cabinet ministers and other high government officials; most large private firms had government representatives on their boards of directors. Until the early 196Os, Salazar’s fiscal policy was guided by the principles of financial

THE POLITICAL ECONOMYOF PORTUGAL’S OLD REGIME orthodoxy. From the 1930s until 1960, the government budget typically showed a current account surplus which was used mainly for investment in the public sector. Moderate economic growth during the 1950s (GDP increased by a little over 4% per annum) was associated with rapid accumulation of gold and foreign exchange reserves and an official aversion to external debt. In short, the political economy of Portugal was operating substantially below its growth potential. In the late 195Os, Portugal shared certain common features with the less developed, semiindustrialized nations of Mediterranean Europe and Latin America: a relatively low per capita income (estimated at under $300 per year), low worker productivity, a predominance of unskilled workers, a large fraction of the labour force in agriculture and other primary activities, and comparative technological backwardness. The system of land tenure was anachronistic, very large estates in the south-central region coexisted with peasant farming2 in minute, fragmented plots in the north. The small farms were typically owner-operated, the proprietor’s families clustering in villages. Absentee landownership characterized the latifundio system, with day-today operations in the hands of estate managers. Because of the high concentration of ownership in the southcentral provinces, over half of the country’s agricultuml labour force in 1970 consisted of wageearning rural workers with no land, no house, and whose standard of living was extemely 10w.r~ With some notable exceptions, industry was characterized by a multitude of small family firms using obsolete equipment and almost handicraft methods of production; sectoral studies underlined the striking absence of medium-sized fums.r4 Parts of the financial institutional structure did not correspond to modem requirements; there were major gaps in the provision of medium- and long-term credit.

2. ECONOMIC LIBERALIZATION ‘WINDS OF CHANGE’

AND THE

The outbreak of guerilla warfare in Angola in 196 1, Portuguese Guinea in 1963, and Mozambique in 1964 forced Premier Salazar to modify his introverted economic posture. Salazar reasoned that to preserve Portugal’s ‘multiracial, pluricontinental’ state, it was necessary to accelerate economic development

801

both in the metropole and in the ‘overseas provinces’. As economist Xavier Pintado observed: ‘Behind the facade of social and political immob&m under the loosening grip of an aged Salazar, Portugal knew deep and lasting changes during the 196Os’.” His decision to step up the rate of development in the face of mounting defense expenditures led him reluctantly to seek outside assistance in the form of credits and direct investment. Against the opposition of protectionist interests, Salazar’s young minister of economy, Luis Teixeira Pinto, succeeded in bringing about some liberalization of the industrial licensing system. The last years of the Salazar era witnessed the creation of important privately-organized ventures, including an integrated iron and steel mill, a modem ship repair and shipbuilding complex, vehicle assembly plants, oil refineries, petrochemical plants, pulp and paper mills, and electronic plants. Beyond military measures, the official Portuguese response to the ‘winds of change’ in the African terrltories16 was to (1) accelerate their economic development and (2) integrate them with the metropole through population transfers and the creation of free trade and a common currency - the ‘escudo area’. These measures bore rich fruit, particularly in Angola. In 1974, before becoming an independent nation, Angola attained a GNP level of nearly $3 biIlion and a per capita income of about $500 - a noteworthy accomplishment for Sub-Saharan Africa. Under the old regime. Portugal’s private sector was dominated by some 40 great families.” These industrial dynasties were allied by marriage with the large, traditional landowning families of the nobility, who held most of the arable land in the southern part of the country in great estates. Many of these dynasties had business interests in Portuguese Africa, from which they profited considerably. Significantly, representatives of companies owned by these families accounted for the majority membership in the Corporate Chamber, a political advisory body. The high concentration of wealth among the 40 families was in part supported by a fiscal system characterized by low-to-moderate tax rates on income and inheritance. the maximum For example, effective rate on parent-to-child inheritance was only 12.5%. Within this elite group, the top 10 families owned all the important commercial banks, which in turn controlled a disproportionate share of the national economy. Because bank officials were often members of the boards of directors of borrowing firms,

802

WORLD DEVELOPMENT

the influence of the large banks extended to a host of commercial, industrial and service enterprises. During the earlier Salazar period, social status was determined by birth, that is, by ascription. With the rapid advance of industry and the growth of cities, new channels of upward mobility were opened. Harry Makler’s study of the industrial elite revealed that the typical businessman (manager or owner of a large firm) was drawn from a middle-class background.” The great majority of these elite managers or entrepreneurs were sons of businessmen or professionals and were highly educated. During the period of accelerating growth, the industrial elite gamed in power and prestige; the landed gentry by comparison was losing social prestige and influence. A more recent empirical study by Makler of the Portuguese industrial elite highlights the central role of education as a vehicle for upward mobility into the world of businessr’ Before the 1974 Revolution, the largest, most technologically advanced (and recently organized) firms offered the greatest opportunity for management careers based on merit rather than on accident of birth. The industrial elites, particularly some of the large financial-industrial family groups, were able to pursue their interests via direct contact and alliances with different branches of the govemment.20 Some of the more prestigious private associations, such as the Portuguese Industrial Association and the Commercial Association of Lisbon, were able to articulate directly their economic interests, bypassing the official guild channels. Toward the latter 1960s and early 197Os, the corporative system became increasingly disfunctional, for it lacked the flexibility to adapt itself to the more dynamic and complex enterprises. In short, the corporate stage was in decline, reduced largely to a formal facade, but until the end it ‘still remained repressive for some, irrelevant for others, and cumbersome for all’.21 The liberalization of the Portuguese economy was given further impetus under Salazar’s successor, Prime Minister Marcello Caetano (1968-1974). Adopting the motto ‘evolution with continuity’, Caetano brought a new group. of technocrats into government who set about to eliminate price controls, to lower trade barriers, and to remove industrial licensing requirements for new firms in many branches. Notwithstanding the emergence of a small European-oriented technocratic cadre within the Caetano government, it is important to point out the tenuousness of their position.

In striking contrast to their counterparts in Spain - the Opus Dei group that dominated the commanding heights of the Spanish economy and held cabinet rank - none of the Portuguese technocrats enjoyed full cabinet rank. Both Xavier Pintado, Secretary of State for Commerce, and Rogerio Martins, Secretary of State for Industry, were subject to the authority of the Minister for the Economy, and neither had access to cabinet meetings where crucial political and economic questions were debated.= More importantly, in Spain, France’s authority was unassailable; in Portugal, Prime Minister Marcello Caetano served at the pleasure of octogenarian President Americo Thomaz, who had appointed him. Thomaz, a long-time political associate of Salazar’s, reflected the views of Portugal’s traditional elites on such questions as the status of the African provinces and the pace of modernization. Portugal’s commitment to the African territories contined to be the central public issue of the Caetano regime. The massive military deployment in Africa and official economic assistance for the development of Angola and Mozambique drained resources that would otherwise have been available for a more decisive development push in metropolitan Portugal. Within the Caetano government, as Lawrence Graham demonstrates, there were four broad clusters of interest that addressed themselves to the metropole’s relations with its overseas provinces.23 Three of them - ‘the ultraconservatives, the integrationists, and the federalists - were broad coalitions with representatives in the civilian bureaucracy, the military, and the business community. The fourth, the developmentalists, was made up of advocates of a resolution of the African question by negotiated settlement and of European integration’.% Mostly economists by profession, the developmental&s considered metropolitan Portugal’s involvement with the African territories as major obstacle to the full commitment of the nation to integration with Europe. Among the most prominent members of this group were Xavier Pintado and Rogerio Martins, as well as Jo;io Salgueiro, Undersecretary of State for Planning. However, as Graham makes clear, of the developmentalist cluster members ‘simply did not move in sufficiently large numbers into strategic positions to be able to effect meaningful change in the distribution of power within the regime’.2s By the middle of 1972, Pintado, Martins and Salgueiro had left the government, and by late 1972 and early 1973, Caetano was moving back to a more

THE POLITICAL ECONOMY OF FORTUGAL’S

traditional stance that between his administration

stressed continuity and that of Salazar.

3. DIMENSIONS AND SOURCES OF GROWTH, 1960-1973 Compared with the 1940s and 195Os, the annual growth rate of the Portuguese economy from 1960-l 973 advanced notably. During the decade 1960-1970 (see Table I), GNP growth averaged over 6%/yr and accelerated to 7% from 1970-1973. Considering that the Portuguese population actually fell slightly between 1960 and 1973, the per capita growth performance was even more impressive. The secondary sector, including manufacturing, paced the economy’s advance with growth averaging about 9% annually during 1960-1973. Lagging behind general economic growth was the primary sector, including agriculture, fishing and mining. Agricultural production, which grew by only 1.5% per annum from 19601970, slowed to less than half that rate during 1970-1973. Tertiary sector growth, comprising the whole range of private and public service activities, advanced at a pace nearly equal to GNP. The rapid expansion of tourism services between 1960 and 1973 supported the growth of the tertiary sector. The Portuguese economy took on a signi& cantly changed appearance by 1973, when compared with its position in 196 1, as indicated in Table 4. Total output (GDP at factor cost) grew by 120% in real terms; the secondary sector was over three times greater; the size of the tertiary sector doubled; but the -primary sector, chiefly agriculture, advanced by only 18%. Manufacturing, the major component of

OLD REGIME

803

the secondary sector, was three times as large at the end of the period. The decline in the resident labour force associated with worker emigration and the military draft coincided with a healthy advance in total output. For clearly, growth in all three sectors was mainly the result of large rises in labour productivity. Because of the reduction of the Portuguese resident population and work force, the rural-to-urban migration within Portugai provided the necessary elasticity of labour supply for the labour-absorbing secondary and tertiary sectors. Still, as Table 2 shows, the number of workers in both of these sectors increased only very slowly (1.5% as an annual average in the secondary sector and 1.7% annually in the tertiary sector) between 1960 and 1971, productivity in the secondary sector increased at a rate of 7.2% annually, with advances in manufacturing productivity exceeding the industrial average. In the tertiary sector, labour productivity increases averaged a little over 4%/yr, and for the economy as a whole, the annual rate of increase was 6.6%. The rise in labour productivity in the primary sector (5.5% yearly average) more than offset the sharp decline in that sector’s working population. Table 3 gives an estimate of the sources of GNP growth for the decade 1960-1970. At the beginning of this period, the shares of the national income going to labour and capital (i.e. property) were roughly the same. For this reason, equal weight is given to each factor input, i.e. 50% to labour, 50% to capital. With the active labour force declining by 0.5% annually and fixed investment growing by an average rate of 8.1%, total factor inputs rose by 3.8% annually. Labour contributed - 0.25

Table 1. Portugal: Growth of Gross Domestic Product, by sector, 1960-1970 and 1970-1973 (percentage rate of growth) Sector

1960-1970

1970-1973

PlilllarY Agriculture and forestry Fishing Miuing Secondary MallUfaCttUmg ConstNclion Electricity, gas, and water

1.5

0.7

1.4 0.5 6.2 9.1 8.9 8.1 9.0 5.9 6.1

0.1

Tertiary Total

62:: 9.0 9.0

i:8 7.1 7.0

SOWe: Presidencia do Conseiho, IVPlano do Fomento, 1974-1979, Vol.I(Lisbon: 1974), pp. 55-56, Table I.

WORLD DEVELOPMENT

804

Table 2. Portugal: Changes in Iabour force and productivity, 1960-I 971 (annual percentage rates of change) Sector

Employment

Productivity

Agriculture and forestry Mining I. Primary sector

-4.2 -2.7 -3.5

5.7 5.4 5.5

Manufacturing

1.2 1.3 1.7 1.5 1.8 1.7 1.7 -0.5

7.8 5.5 8.0 7.2 4.8 4.0 4.1 6.6

ConstNction

Electricity, gas and water II. Secondary sector Transport and communications Other servmes III. Tertiary sector Total

Source: Presidencia do Conselho, IV Pfanc de Fomento. 1974-1979, Vol. I (Lisbon: Imprensa National, 1974), p. 75, Table VIII.

percentage points (50% of - 0.5) and capital 4.05 points (50% of 8.1) for a total factor

input (labour and capital combined) of 3.8 percentage points. It follows that quantitative factor inputs (3.8%) explain only 60% of the measured Increase in Portugal’s GNP growth rate (6.3%) during the 1960-1970 decade, and other elements (the ‘residual’ 2.5%) account for 40% of GNP growth. Among the elements that explain the residual were: (1) improved allocation, i.e. shifting resources from low productivity to higher productivity uses; (2) improved technology, mainly through direct foreign investment inflows; and (3) greater competition in the product markets. 4. STRUCTURAL CHANGE AND WORKER EMIGRATION, 1960- 1973 From 1960 to 1973, Portuguese policy tools were mobilized in support of a shift of resources

from low-productivity toward high-productivity uses, including export-oriented industries. That Portugal had indeed undergone a profound restructuring of its economy is evidenced by the changing sector distribution of the working population and the changing composition of output. Between 1960 and 1973, the share of the labour force in the primary sector (agriculture, fishing and mining) fell from 44 to 28%, while that of the secondary sector (manufacturing, construction, and electricity, gas and water) rose from 29 to 36% and of the tertiary sector (including transport and communications) from 28 to 35%.% In Portugal, the shift of the working population out of agriculture involved a reduction in the number of persons engaged in that sector (a decline of about 550,000 workers between 1960 and 1973) as well as in the proportion of farm workers in the total labour force. Nearly two out of every three workers leaving the Portuguese agricultural sector found employment in another European

Table 3. Portugal: Sources of GNP growth, 1960-l 970 (percentage point contribution to annual average compound growth rate of GNP, 1960-1970) Labour resources Capital resources Labour and capital combined GNP growth rate Residual

-0.25 4.05 3.8 6.3 2.5

(50% of -0.5) (50% of 8.1)

Sources: Derived from Presidencia do Conselho, IV, Piano do Fomen to, 1974-l 979, 1974), p. 61, Table III; p. 7.5, Table VIII; pp. 80-81, Table XI. For methodology see Angus Maddison, Economic Progress and Policy in Developing Counties (New York: W. W. Norton Co., Inc., 1970), pp. 52-53 and Table II-I 1, and E. F. Denison, Why Growth Rates Differ (Washington, D.C.: Brookings Institution, 1967).

Vol. I (Lisbon: Imprensa National,

THE POLITICAL ECONOMYOF PORTUGAL’S OLD REGIME country. Consequently, net worker emigration from 1960-1973 exceeded 1 million, which was greater than the natural increase in the Portuguese population.” Toward the mid-l 96Os, emigration extended increasingly to workers in the industrial sector, including skilled employees attracted by the higher wage levels abroad. The annual increase in real industrial wages during 1961-1967 averaged 3% in Lisbon and 4.5% in Oporto. Nevertheless, average daily wages in 1967 were less than $3.00 for foremen and less than $2.00 for skilled workers in the food processing industries. In the manufacture of transport equipment, wages for foremen and skilled workers averaged $4.00 and slightly over %2.00, respectively.28 Loss of technicians and skilled workers came to be perceived as a serious problem by both the Portuguese government and the business community. The Portuguese Association of industries surveyed its members to determine the impact of emigration. Of the 274 firms surveyed, 18% indicated they had been seriously affected by labour shortages caused by emigration of previously employed workers, and 40% had been somewhat affected.” The industries mainly affected were woodworking, cork products, _fumiture, ceramics, cement and glass products. To counter the exodus of skilled workers, many of the firms in these industries were forced to raise wages and improve fringe benefits. Other firms coped with growing manpower shortages by introducing labour-saving equipment. The ernigration of Portuguese workers, particularly clandestine departures, continued to worry Portuguese officials who were concerned with the negative effect of labour shortages on development planning. Following publication of the 1970 population census, Lisbon’s evening newspaper, Diario de Lisboa, also mentioned the growing military obligations associated with the African expeditionary force as one cause for the population decrease.se Initially, Portuguese emigration undoubtedly provided a safety valve for open and disguised unemployment, particularly in the rural areas. With the passing of the years, however, so heavy a drain on manpower resources may have had an inhibiting effect on Portugal’s development. Still, it should be noted that the rate of GNP growth accelerated during the latter 1960s and early 197Os, the period coinciding with the heaviest exodus of Portuguese workers. What is indisputable is that emigrant workers’ remittances, of negligible importance in the early 196Os, exploded to $1.1 billion on average in 1972-1973, equivalent to over one-half of

805

the value of Portuguese merchandise exports or about 10% of national income. Thus, one major benefit to Portugal derived from the ample flow of funds remitted by the migrants to their families and relatives back home. The second important benefit as suggested previously relates to the opportunity cost of Portuguese labour. As Ian M. Hume made clear, migration of workers from southern to industrialized Europe represented the equivalent of a huge effort in the development assistance rendered by the countries receiving labour to those sending it. The latter countries ‘are provided with a volume of employment abroad which would require very large capital outlays to duplicate at home’.31 If we assumed an investment cost per job of $7500, the employment abroad of 1,000,OOO Portuguese workers would require a capital outlay of $7.5 b&ion. In the absence of such a capital flow to Portugal, the absorption by the industrialized countries of about one-fourth of the Portuguese labour force implied the elimination of domestic unemployment and underemployment. Thus, the massive export of Portuguese labour during the 1960s and early 1970s was a substitute for a huge capital inflow from the industrialized nations. The composition of the Gross Domestic Product also changed markedly during the dozen years from 196 1-I 973 as shown in Table 4. The share of the primary sector in GDP shrank from about 24% in 196 1 to just under 13% in 1973, while the secondary or industrial sector’s contribution increased from about 37 to 5 1% during the period. Tertiary activities accounted for a somewhat smaller share of GDP in 1973 compared with 1961, i.e. a decline from 39 to 37%. Manufacturing industry has been the leading sector in the Portuguese economy, pacing its growth during the 1960s and early 1970s. In 1973, it contributed 41% of GDP, accounted for the lion’s share of merchandise exports, and provided employment for 27% of the labour force. Industrial growth has been concentrated in larger-scale enterprises, using modem and often capital-intensive technology. Around 1960, Portugal’s manufacturing profile was characterized by_ numerous traditional light industries, some of which were oriented toward foreign markets and overseas territories. Cotton and woollen textile manufacturers were highly developed as was food processing, including canned fish (mainly for export), flour milling, and the refining of sugar and vegetable oils. Of chief importance among the branches producing for export were the cork,

806

WORLD DEVELOPMENT Table 4. Portugal: Origin of GrossDomestic Product at Factor Cost, 1961 and 1973 (millions of escudos at 1963 prices)

Sector

1961

%

1973

%

Per cent change 1961-1973 18.0

primary Agriculture, forestry and tiig Mining

17,370

23.8

20,408

12.7

16,908 462

23.2 0.6

19,590 818

12.2 0.5

Secondary Manufacturing Electricity, gas and water Construction

26,843 21,779 1728 3336

36.8 29.8

81,213 65,052 5409 16,752

50.7 40.6 3.4 6.7

Tertiary

28,767

39.4

58,723

36.6

104.0

72,980

100.0

160,344

100.0

119.7

Gross domestic product

:::

*

16.0 77.0 203.0 199.0 213.0 222.2

Source: National Statistics Institute. Derived from OECD Economic Survey: Portugal (Paris: July 1970).-p. 50, Table B; and OECD Economic Survey: Portugal (Paris: November 1976), p. 49, Table B.

fuh canning, and naval stores (turpentine and rosin) industries. As Table 5 shows, value added in manufacturing (in escudos at constant 1963 prices) trebled between 1960 and 1973. Above average growth was experienced in the following subsectors: basic metals (628%); metal products, machinery and transportation equipment (297%); chemicals and related products (229%); and textiles, clothing and footwear (221%). Two of the traditional sub-sectors - food products, beverages and tobacco and wood and cork products - grew slower than the manufacturing sector as a whole, 117% and 59%, respectively. As a result, their combined contribution to manufacturing fell from 23.5% in 1960 to only 14.9% in 1973. On the other hand, the basic metal (mainly steel) and metal products sub-sectors (especially shipbuilding and repairs, auto assembly, and electronic

products) increased their joint contribution to total mandfacturing from 25 to 35% between 1960 and 1973. Portugal, which had heretofore depended entirely upon imports of aJI ?.teel mill products, inaugurated its first steel ~I.U, Siderurgica National, at Seixal, near Lisbon, in 196 1. The non-metallic mineral products subsector (including cement, glass and ceramic manufactures) held its relative position, contributing about 7% of total manufacturing value both in 1960 and 1973. 5. INTERNATIONAL ECONOMIC RELATIONS The progressive ‘opening’ of Portugal to the world economy was reflected in the growing shares of exports and imports (both visible and invisible) relative to national output and

Table 5. Portugal: Value added by manufacturing industry, by major branches, 1960 and 1973 (millions of escudos at constant 1963 prices) Branch

’

Textiles, clothing and footwear Food, beverages and tobacco Wood and cork products Chemicals and related products Non-metallic mineral products Basic metal industries Metal products, machinery, and transportation equipment Paper products and printing Other manufacturing Total manufacturing

1960

Per cent change 1960-1973

%

1973

%

4567 2762 2041 2216 1451 348

22.3 13.5 10.0 10.9 7.1 1.7

14,698 5997

23.7 9.7 5.2 11.8 7.1 4.1

221 117

4831 1103 1108 20,427

23.7 5.4 5.4 I100.0

19,215 2574 2061 62,012

31.0 4.1 3.3 100.0

297 133 86 204

Source: Data received from National Institute of Statistics.

3255 7292 4394 2536

2;; 202 628

THE POLITICAL ECONOMY OF PORTUGAL’S OLD REGIME

income. Further, the composition of Pqrtugal’s balance of international payments altered substantially. From 1960 to 1973, the merchandise trade deficit widened, but owing to a growing surplus on invisibles - including tourist receipts and emigrant worker remittances - the deficit in the current account gave way to a surplus from 1965 onward. Beginning with that year, the long-term capital account typically registered a deficit, the counterpart of the current account surplus. Even though the -nation attracted a rising level of capital from abroad (both direct investments and loans), official and private Portuguese investments in the overseas territories were greater still hence the net outflow on long-term capital account. Merchandise exports in 1972 contributed only 40% of total foreign exchange inflow (credits) from current sources (see Table 6). Private remittances (mainly emigrant worker funds) contributed 29% and tourism receipts nearly 13% of Portugal’s current exchange resources. Receipts from services rendered and private remittances, taken together, financed 60% and merchandise exports only 40% of Portugal’s exchange receipts on current transactions. Significantly, income from tourism and foreigrrreniit>ances, which together contributed about 42%, exceeded receipts from commodity exports by two percentage points. The phase of accelefited growth, beginning in the early 196OS, wai sustained by increasing international integration of the Portuguese economy. The country became a charter member of the European Free Trade Association (EFTA) in 1959 and several international organizations such as the IMF, the World Ban& and the General Agreement on Tariffs and Trade. During the 1960s and early 197Os, there was a substantial growth and

807

Table 6. Portugal: Current account structure, 1972 (percentages) * Expenditures (debits) Merchandise imports, F.O.B. services Private remittances Receipts (credits) Merchandise exports, F.O.B. Services Tourism Transportation Other Private remittances

100.0 71.8 27.3 0.9 100.0 39.6 31.3 12.6 3.8 14.6 29.1

Source: Adapted from Preside&a do ConseIho, IV, P&no de Fomento, 19741979, I. Metropole (Lisbon: 19741, p. 92, Table XV. diversification of commodity exports, and tourism expanded considerably. As we have noted previously, Portugal also became a major exporter of workers to industrialized European countries and, on the eve of the 1974 revolution, emigrant worker remittances came to represent some 30% of foreign exchange eamings and nearly 10% of national income. Exports of goods and services advanced at an average annual rate of 10% between 1960 and 1973 and tourism became a most important source of fore&n exchange, outranking traditional earn& from shipping and transport. An analysis of the direction of Portuguese trade from 1960 to 1972 ,(Table 7) shows two major trends: the relative decline in the importance of the overseas territories in the composition of both exports and imports and the growing importance of the European Free Trade Association as a market for Portuguese exports. EFTA’s share in Portuguese exports nearly doubled from 2 1% in 1960 to 4 1% in

Table 7. Portugal: Foreign trade, by major trading partners, 1960 and 1972 (pcrcmtages)

Exports Trading partner Overseas territories

EFTA (7) EEC (6) Other Western Europe US and Canada Rest of World Total

Imports

I960

1972

1960

1972

25 21 22

15 41 21

14 20 38

9 :;

4 12 16 100

3 12 8 100

4 8 16 100

4 11 20 100

Source: For 1960, Associacao Industrial Portuguesa, Guide to Investment in Portugal (Lisbon: 1968), p. 15; for 1972, derived from Bank of Portugal, Report of the Board of Directors 1973 (Lisbon: 1974), pp. 295-296.

WORLD DEVELOPMENT

808

1972; the overseas territories’ share in metropolitan Portugal’s exports fell from one-fourth to 15% during the same period. North America (the US and Canada) and the EEC (six) maintained their shares of Portuguese exports. Both the EEC and the overseas territories contributed diminishing shares of Portuguese purchases abroad between 1960 and 1972. The Iberlan nation’s growing orientation toward EFTA is also illustrated by Table 8. While Portuguese real commodity exports grew by an average annual rate of 8.5% from 1960 to 1972, the nation’s exports to EFTA advanced at over twice that rate (l&7%), and sales to the United Kingdom, the major partner in EFTA during this period, grew by nearly 14% a year. Membership in EFTA was instrumental in opening up export markets to Portuguese manufactures as good quality and reliable deliveries helped to make use of these opportunities. The industrialization that has taken shape in the Portuguese economy is reflected in the changing commodity composition of exports, the bulk of which, around 1960, was accounted for by a few products - canned fiih, raw and manufactured cork, cotton textiles, and wine. By contrast, in the early 197Os, Portugal’s export list reflected significant product diversification, including both consumer and capital goods. Several branches of Portuguese industry became export-oriented, competing successfully in the European and American markets. In 1973, over one-fifth of Portuguese manufactured output was exported: the textile and footwear group exported 41% of production; the machinery and equipment sub-sector and the pulp and paper industry each exported 23% of production; and the other branches exported shares lower than the average for all manufacturing industries. Association with EFTA and close affiliation with multinational companies, which provided venture capital,

Table 8. Portugal: Growth of exports to major areas and countries,

1960-I 912

(rate of growth, %) European Community (Six) European Free Trade Association United Kingdom United States Rest of the World* Total

6.1 18.7 13.6 7.4 8.5

Source: Residencia do Conselho, IV Plan0 Fomento, 1974-1979, pp. 75-76, Tables VIII and XV. * Rate of growth not indicated.

de

advanced technology and market outlets, contributed much to Portugal’s export performance. From 1960 to 1972, when real commodity exports grew at an average annual rate of 8.5%, ex orts of manufactures advanced by 9.8% yearly. !2 The most dynamic categories in terms of rates of growth were: metallurgy, machinery and transport equipment (18.4%), pulp and paper (17.5%), clothing and footwear (15.4%), and chemicals (11.7%). These four product groups, which made a negligible contribution to Portuguese export earnings at the beginning of the period, contributed jointly 43% to the nation’s total value of exports in 1972. The number of foreign visitors in Portugal grew from 353,000 in 1960 to over 4 million in 1972 - a more than 1 l-fold increase. Income from tourism peaked in 1973 at $324 million and the hotel industry, including inns and boardinghouses, employed 30,000 people, nearly half the estimated 62,000 people classified as employed in miscellaneous services that year.33 Of the 4.1 million recorded visitors in 1973, 2.4 million were classified as bona tide tourists, and the remainder as excursionists, i.e. temporary visitors staying for a period of less than 24 hr. As with Spain, Portugal offers many attractions to vacationers from northern Europe and the United States - the medieval castles and other architectural landmarks (a number of which serve as govemmentoperated inns), the more than 100 beaches along the southern coast of the Algarve, and the Sun Coast stretching westward from Lisbon at the mouth of the Tejo River, including the famed resorts of Cascais and Estoril. Attracted by growing investment opportunities and favourable domestic legislation, foreign private capital became a significant factor in the establishment of new industries. In addition, foreign capital was used to purchase real estate in Portugal, both for recreational uses and in support of tourism. A number of factors helped to attract foreign investments to Portugal. First, wages of skilled and unskilled workers were among the lowest in Europe. Second, Portugal’s membership in EFTA provided an opportunity for non-members to export goods duty-free to the EFTA market by establishing production facilities in Portugal, (Portugal’s exports to other EFTA countries grew much faster than those to non-members of EFTA.) Third, the transfer of profits and capital was specifically assured by law. Finally, the Portuguese government provided political stability and outlawed labour disputes. Also, the Foreign Investment Law of 1965 allowed

THE POLITICAL ECONOMY OF PORTUGAL’S

wholly-owned foreign subsidiaries to transfer profits and to repatriate capital and provided for exemptions or reductions in taxes and import duties for specified industries. In 1959, foreign direct investment accounted for less than 1% of the nation’s gross capital formation and, bJ 1970, its share had risen Forergn investors assumed to beyond 27%. a dominant position in electronics and electrical machinery (mainly US, German, British, Swedish, and Belgian capital) and also had a significant participation in chemicals, transport equipment, pulp and paper, automobile tires, and ready-made clothing. During the 3 yr preceding the military coup, foreign direct investment flows were on a rising trend, increasing from $55 mIllion in 1971 to $77 million in 1972, andreaching$llOmillion in 1973.j’ The lion’s share of foreign direct investment came from the EEC (9). West Germany was the major national source of total investment during the three-year period, accounting for about 26% of the total, the United Kingdom was the second most important source (16% of the total), and United States investors ranked third with 15% of the total. Foreign direct investments during these three years favoured the real estate (35%) and manufacturing (30%) sectors, which together accounted for about two-thirds of the total. According to US State Department sources, accumulated direct US investments, representing about $200-$250 million, were third in magnitude behind those of the United Kingdom and the Federal Republic of Germany. Most of the IOO- 125 US firms, which employ between 22,000 and 25,000 are concentrated in the Lisbon and Oporto regions and are wholly owned subsidiaries of large multinational corporations. Among the most important American firms with subsidiaries in Portugal were General Motors and Ford in auto assembly, Mobil in petroleum refining, Goodyear and Firestone in tires, ITT in telephone equipment, and Timex in watches. British investments - reflecting the United Kingdom’s former economic pre-eminence and close historical ties to Portugal - have been associated with such traditional branches as port wine, cork products, and public services. The latter included the telephone systems in Lisbon and Oporto, operated on a concession basis, by the Anglo-Portuguese Telephone Co., as well as investments in streetcar and bus service. The Bank of London and South America Ltd., has deep roots in the Portuguese financial community through its branches in Lisbon and oporto.

OLD REGIME

6. CONCLUDING

809

REMARKS

The recent pre-revolutionary economic achievements of Portugal followed in large measure from national policies that were growthenhancing rather than growth-inhibiting. It should be added, however, that the dynamic expansion of the world economy from around 1960 to 1973 was a necessary condition for the realization of accelerated growth in the Iberian nation. For it was the international economy, and most especially the industrialized countries of Western Europe, that presented Portugal with surging markets for her products, sent her free-spending tourists by the millions, invested in Portugal’s factories and real estate, and employed a considerable share of her ‘surplus’ It must also be recognized that manpower. Portugal has certain advantages over the other low-income countries of the world in that the Iberian peninsula lies close to its major markets and major sources of supply. This locational advantage, translated into lower transportation costs, benefits Portugal’s commodity trade with industrialized Europe and Improves her attraction for tourists from across the Pyrenees. In the course of a dozen years, both Spain and Portugal crossed the arbitrary line that separates the ‘less developed’ from the ‘more developed’ countries. Under the tutelage of a new breed of European&t technocrats - and with France’s blessing - Spain was transformed from an autarchic corporate state into an outward-looking, modified capitalistic market economy. On the eve of the April 1974 military coup, Portugal was poised between Europe and Africa and between corporatism and market capitalism. Francisco France left a more prosperous and better-educated nation than did the Salaza.r/ Caetano regime. Both social and economic indicators revealed a continuing gap in living standards between the two Iberian nations. Significantly, among the 7 countries of Mediterranean Europe, Portugal ranked fourth in per capita GNP, sixth in literacy and fifth in urbanization; Spain, on the other hand, ranked first in literacy and second in both urbanization and per capita GNP.* The period of accelerated growth from 1960 to 1973 witnessed rapid transformation of the Portuguese economy that was climaxed by the conclusion of a free-trade agreement between Portugal and the EEC in 1973. Still, on the eve of the April 1974 military coup, Portugal faced four major economic problems: (1) an excessive rate of worker emigration and military conscription that gave rise to critical shortages of

810

WORLD DEVELOPMENT

skilled manpower; (2) a high level of defence spending estimated at 40-45% of the national budget; (3) an anachronistic pattern of agricultural organization that inhibited the nation’s rate of growth; and (4) a high concentration of economic and political power in the oligarchy of the ‘40 families’. The problems cited above were closely linked to the authoritarian character of the old regime and its denial of universal suffrage, independent trade unions, freedom of speech and assembly. Despite the growing manpower shortage, real wages increased only slowly during the 1960s and early 1970s - a dramatic testimony to labour’s negligible bargaining power. The political influence of the landed gentry, though on the wane, was still sufficient to block a programme of rational agricultural reform in the south-central provinces. In 196 1, when Salazar committed Portugal to defend and develop the

overseas territories, he placed a great burden on what was then a low-income country. Large human and capital resources were expended on Africa which, in the view of the European& factions, should have been used for the metropole. As one junior minister in the Caetano government said to an Economist correspondent: ‘If we had approached development with the same political will we displayed in our African policy, we could transform the economy in ten years’.37 Portugal was engaged in a war she could not win: ‘In Africa, a 200,000-strong Portuguese srmy facing defeat in Guinea-Bissau found itself severely pressed in Mozambique and stalemated in Angola’.js The African vocation was a burden to Portugal. With the lifting of that burden Portugal can redirect its energies and resources toward the twin goals of joining both the ranks of the industrialized nations and the European

Community.

NOTES 1. The development of the modern lberian countries is extensively analyzed in Baklanoff, The Economic Tmnsformation of Spain and Portugal (New York: Praeger, 1978). I am gratefuI to the Louisiana State University Foundation, the University of Alabama Research Grants Committee and the US State Department for research and travel grants in support of this project. 2. Eugene K. Keefe et iI., Area Handbook for Portugal (Washington,D.C.: US Government Print@ Office, 1977), p. 138. 3. Richard Pattee, Port& and the Portuguese World (ph$;tkyee The Bruce Publishing Company, 1957).

.

-

.

4. A. H. de Oiiveira Marques, History of Portugal, Vol. 2 (New York: Columbia Univeristy Press, 1972), pp. 177-178. For an excellent analysis of the historical-institutional factors underlying corporatism in Portugal, see Howard I. Wiarda, ‘Corporatism and development in the Iberic Latin world: persistent strains and new variations’, in Fredrlck B. Pike and Thomas S&itch (eds.), The New Corporatism: SocialPoliticalStructures in the Iberian World. (Notre Dame: University of Notre Dame Press, 1974). 5. Cited in Stanley G. Payne, A History of Spain and Portugal, Vol. 2 (Madison: The University of Wisconsin Press, 1973), pp. 668-669. 6. Antonio de Oliveira Salazar, Doctrine and Action (London: Faber & Faber Ltd., 1939).

versity Studies on Contemporary Europe (New. York: Random House, Vintage Books, 1969). p. 18. 9. ibid., p. 18. 10. Associac80 Industrial Portuguesa, G&e to Investment in Portugal (Lisbon: 1968), Ch. 7, p. 1. 11. For an informative discus&n of Portugal’s oligarchy before the -revolution see Michael Harsgor, Portugal. in Revolution, The Washington Papers, Vol. III, No. 32 (Beverly Hills: Sage Publications, 1976), pp. 44-46. 12. T. Lynn Smith, ‘The social relationship of man to the land in Portugal’, Revue Intemationale de Sociologic, Vol. II, No. 2 (December 1965), pp. l-30. 13. OECD Economic Survey: Portugal (Paris: 1976), p.7. 14. Institute Nacionalde Estadisticas, Censo Industrial (Lisbon: 1972). 15. V. Xavier Pintado, Portugal’sEconomy and Profit Opportunities (Lisbon: Banco Portugues do Atlantico, 1973), p. 7. 16. Lawrence S. Graham, Portugal: The Decline and Collapse of an Authoritarian Order, Comparative Politics Series No. 01-053 (Beverly Hills: Sage Publications, 1975) p. 16.

7. Antonio Ferro, OliveiraSabuar: El Hombre Y su Obra (Madrid: Ediciones FAX, 1935), p. 96.

17. This section draws heavily on my discussions with the folIowing individuaIs, all of which were associated with the US Embassy in Portugal during the summer of 1968: Diego C. Asencio, H. Kent Goodspeed, Frank Tumminia, and Dr. Mario Silva Nunes.

8. H. R. Trevor-Roper, The phenomenon of fascism’, in S. J. Woolf (ed.), European Fascism, Reading Uni-

18. Harry M. Makler, A ‘Elite’ Industrial Portguesa (Lisbon: Instituto Gulbenkian de Ciencia, 1969).

THE POLITICAL ECONOMY OF PORTUGAL’S OLD REGIME 19. Harry M. Maklex, ‘Educational levels of the portuguesa industrial elite’, International Studies of Management and Organization, Vol. 4, Nos. 1-2 (Spring/Summer 1974), Tables 1 and 2.

811

29. Bank of London and South America, BOLSA Review (London: ApriI 1967), n. p. 30. Quoted in ‘Population drop a worry in Lisbon’, New York Times (16 May), p. 17.

20. Harry M. Makler, ‘The Portuguese industrial elite and its corporative relations: a study of compartmentalization in an authoritarian regime’, Economic Development and Cultural Change, Vol. 24, No. 3 (April 1976), p. 499.

31. Ian M. Hume, ‘Migrant workers in Europe’, Finance and Development, Vol. 10, No. 1 (March 1973), p. 5.

21. ibid., p. 524.

32. Presidencia do Conselho. IV Piano do Fomento, 1974-1979, I, Metropole (Lisbon: 1974), pp. 84-85, Table 12.

22. ‘A survey of Portugal’. The Economist (26 February 1972), p. 13.

33. Eugene K. Keefe eta]., op. cit., p. 367.

23. S. Lawrence Graham, op. cit., pp. 40-48.

34. ibid., p. 323.

24. ibid., p. 40.

35. Derived from Bank of Portugal, Report of the Boardof Directors 1973 (Lisbon: 1974), pp. 148-149.

25. ibid., p. 54. 26. For 1960, Republica Portuguesa, III P&no De Foment0 para 1968-1973 (Lisbon: Secretaria General da Assembleia National, 1967), p. 321. For 1973, Presidencia do Conselho, IV Plan0 de Fomento, 1974-1979, Vol. I, pp. 75-76, Tables VII and XV. 27. ‘Portugal’s free trade ties in Europe give new thrust to industrial growth’, IMF Survey (22 April 1974), pp. 119-120. 28. Assoc&cZo Industrial Portugueea. op. cit., Ch. 12, p. 4.

36. Bakkutoff, ‘Mediterranean Europe: perspective on a developing region’, in Eric N. Baklanoff (ed.), Meditemanean Europe and the Common Market (The University of Alabama Press, 1976). 37. ‘A survey of Portugal’, me Economist, p. 21. 38. Kenneth Maxwell, +The thorns of the Portuguese revolution’, Foreign Affairs, VoL 54, No. 2 (January 1976), p. 252. 39. ibid., p. 55.