Portugal The Economy
Tending wine casks
PORTUGAL'S POLITICAL ECONOMY holds our interest for a
number of
reasons. First, Portugal, a founding member both of the
North
Atlantic Treaty Organization (NATO) and the European Free
Trade Association
(EFTA--see Glossary),
one of the newest members
(along with Spain) of the European Community
(EC--see Glossary).
Second, scholars interested in revolutionary change and
the
associated economic consequences can compare the
Portuguese
experience with that of other nations that have undergone
rapid
systemic transformation. Third, Portugal's recent
experiment with
nationalization of the means of production will be of
particular
interest to students of industrial organization and public
enterprise economics.
As a fledgling member of the EC, Portugal was required
to
adopt the EC's Common External Tariff on imports from
nonmember
countries and the Common Agricultural Policy (CAP).
Portugal also
was pledged to eliminate all barriers to the movement of
goods,
services, and capital between itself and the other members
of the
European Economic Community
(EEC--see Glossary),
as well as to
phase out fiscal subsidies that distort competition.
During a transition period ending in 1993, Portugal was a net
recipient of
EC funds to assist in the restructuring of its relatively
backward economy.
At the beginning of the 1990s, Portugal's economy was
classified by the
World Bank (see Glossary)
as an upper-middle-income economy. Its 1990 gross domestic product
(GDP--see Glossary)
on a purchasing power parity basis was US$82 billion,
and its per capita GDP was estimated at US$8,364. With a
per capita GDP growth rate of 5.4 percent in 1989, Portugal
moved
ahead of Greece to eleventh place among the twelve members
of the
EC.
Several distinctive features characterized Portugal's
economy
at the time of its accession to the EC; one of the most
striking
was its dependence on foreign "invisible" income. This
income,
consisting of tourism receipts and emigrant worker
remittances,
financed the country's large merchandise trade deficit.
The
growth and magnitude of tourism together with the
explosive rise
of government services largely explain the expansion of
the
services sector to nearly 56 percent of GDP in 1990 from
39
percent of GDP in 1973. One of every three Portuguese
workers in
the active labor force was engaged in temporary work in
highincome countries, mainly France. These emigrant workers,
numbering about 2 million, contributed significantly to
Portugal's foreign exchange income, as well as to the
country's
household savings. Although less educated and technically
less
proficient than their EC counterparts, Portuguese workers
were
recognized for their strong work ethic and frugality.
Another distinguishing feature was Portugal's
anachronistic
agricultural sector, whose overall performance was
unfavorable
when considered in the context of the country's natural
resources
and climatic conditions. In the mid-1980s, agricultural
productivity was half that of the levels in Greece and
Spain and
a quarter of the EC average. The land tenure system was
polarized
between two extremes: small and fragmented family farms in
the
north and large collective farms in the south that proved
incapable of modernizing. The decollectivization of
agriculture,
which began in modest form in the late 1970s and
accelerated in
the late 1980s, promised to increase the efficiency of
human and
land resources in the south during the 1990s.
A third economic distinction was the scale and sectoral
spread of Portugal's public enterprises. Before the
Revolution of
1974, private enterprise ownership dominated the
Portuguese
economy to a degree unmatched in other West European
countries;
in 1982 the relative size of Portugal's public enterprise
sector
(based on an average of value added, employment, and gross
capital formation) substantially exceeded that of the
other West
European economies.
The dispossession of the family-based
financial-industrial
groups, together with the "antifascist" purges of the
mid-1970s,
inflicted a serious "brain drain" on Portugal through the
exile
of entrepreneurs and professional managers. Recent
Portuguese
governments have recognized the highly politicized public
enterprise sector as a major obstacle to the resolution of
macroeconomic problems, such as large fiscal deficits,
inflation,
and burdensome external debt.
Portugal's commodity trade increasingly has become
dominated
by the EC, and since the accession of both Iberian
countries to
the organization in 1986, Spain has suddenly emerged as a
significant trading partner for Portugal, whose major
commodity
exports at the beginning of the 1990s included textiles,
clothing, and footwear, machinery and transport equipment,
forest
products (including pulp and paper and cork products), and
agricultural products (mainly wine). With the rising
participation of multinational firms, Portugal also was
gaining
competitive strength in the export of higher technology
automotive and electronic components and parts.
Privatization, economic deregulation, debt reduction,
and
supply-side tax reform became the salient concerns of
government
as Portugal prepared itself for the challenges and
opportunities
of full participation in the EC's single market in the
1990s.
These market-driven policies deserved much of the credit
for
Portugal's economic resurgence. Led by surging exports and
robust
capital formation, Portugal's GDP grew by an annual rate
of 4.6
percent from 1986 to 1990. During this five-year period,
only
Japan among the Organisation for Economic Co-operation and
Development
(OECD--see Glossary)
countries exceeded
Portugal's
economic performance.
Data as of January 1993
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