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Portugal The Economy of the Salazar Regime
The First Republic was ended by a military coup in May
1926,
but the newly installed government failed to solve the
nation's
precarious financial situation. Instead, President Óscar
Fragoso
Carmona invited António de Oliveira Salazar to head the
Ministry
of Finance, and the latter agreed to accept the position
provided
he would have veto power over all fiscal expenditures. At
the
time of his appointment as minister of finance in 1928,
Salazar
held the Chair of Economics at the University of Coimbra
and was
considered by his peers to be Portugal's most
distinguished
authority on inflation. For forty years, first as minister
of
finance (1928-32) and then as prime minister (1932-68),
Salazar's
political and economic doctrines were to shape the
Portuguese
destiny
(see The New State
, ch. 1).
From the perspective of the financial chaos of the
republican
period, it was not surprising that Salazar considered the
principles of a balanced budget and monetary stability as
categorical imperatives. By restoring equilibrium both in
the
fiscal budget and in the balance of international
payments,
Salazar succeeded in restoring Portugal's credit
worthiness at
home and abroad. Because Portugal's fiscal accounts from
the
1930s until the early 1960s almost always had a surplus in
the
current account, the state had the wherewithal to finance
public
infrastructure projects without resorting either to
inflationary
financing or to borrowing abroad.
At the bottom of the Great Depression, Premier Salazar
laid
the foundations for his Estado Novo, the "New State."
Neither
capitalist nor communist, Portugal's economy was cast into
a
quasi-traditional mold. The corporative framework within
which
the Portuguese economy evolved combined two salient
characteristics: extensive state regulation and
predominantly
private ownership of the means of production. Leading
financiers
and industrialists accepted extensive bureaucratic
controls in
return for assurances of minimal public ownership of
economic
enterprises and certain monopolistic (or
restricted-competition)
privileges.
Within this framework, the state exercised extensive de
facto
authority regarding private investment decisions and the
level of
wages. A system of industrial licensing
(condicionamento
industrial), introduced by law in 1931, required prior
authorization from the state for setting up or relocating
an
industrial plant. Investment in machinery and equipment
designed
to increase the capacity of an existing firm also required
government approval. Although the political system was
ostensibly
corporatist, as political scientist Howard J. Wiarda makes
clear,
"In reality both labor and capital--and indeed the entire
corporate institutional network--were subordinate to the
central
state apparatus."
Under the old regime, Portugal's private sector was
dominated
by some forty 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.
Within
this elite group, the top ten 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 in
whose
stock the banks participated, the influence of the large
banks
extended to a host of commercial, industrial, and service
enterprises.
Portugal's shift toward a moderately outward-looking
trade
and financial strategy, initiated in the late 1950s,
gained
momentum during the early 1960s. A growing number of
industrialists, as well as government technocrats, favored
greater Portuguese integration with the industrial
countries to
the north as a badly needed stimulus to Portugal's
economy. The
rising influence of the Europe-oriented technocrats within
Salazar's cabinet was confirmed by the substantial
increase in
the foreign investment component in projected capital
formation
between the first (1953-58) and second (1959-64) economic
development plans. The first plan called for a foreign
investment
component of less than 6 percent, but the plan for the
1959-64
period envisioned a 25-percent contribution. The newly
influential Europe-oriented industrial and technical
groups
persuaded Salazar that Portugal should become a charter
member of
the European Free Trade Association (EFTA) when it was
organized
in 1959. In the following year, Portugal also added its
membership in the General Agreement on Tariffs and Trade
(GATT),
the International Monetary Fund
(IMF--see Glossary), and
the World Bank.
In 1958 when the Portuguese government announced the
1959-64
Six-Year Plan for National Development, a decision had
been
reached to accelerate the country's rate of economic
growth--a
decision whose urgency grew with the outbreak of guerrilla
warfare in Angola in 1961 and in Portugal's other African
territories thereafter. Salazar and his policy advisers
recognized that additional claims by the state on national
output
for military expenditures, as well as for increased
transfers of
official investment to the "overseas provinces," could
only be
met by a sharp rise in the country's productive capacity.
Salazar's commitment to preserving Portugal's
"multiracial,
pluricontinental" state led him reluctantly to seek
external
credits beginning in 1962, an action from which the
Portuguese
treasury had abstained for several decades.
Beyond military measures, the official Portuguese
response to
the "winds of change" in the African colonies was to
integrate
them administratively and economically more closely with
Portugal
through population and capital transfers, trade
liberalization,
and the creation of a common currency--the so-called
Escudo Area.
The integration program established in 1961 provided for
the
removal of Portugal's duties on imports from its overseas
territories by January 1964. The latter, on the other
hand, were
permitted to continue to levy duties on goods imported
from
Portugal but at a preferential rate, in most cases 50
percent of
the normal duties levied by the territories on goods
originating
outside the Escudo Area. The effect of this two-tier
tariff
system was to give Portugal's exports preferential access
to its
colonial markets.
Despite the opposition of protectionist interests, the
Portuguese government succeeded in bringing about some
liberalization of the industrial licensing system, as well
as in
reducing trade barriers to conform with EFTA and GATT
agreements.
The last years of the Salazar era witnessed the creation
of
important privately organized ventures, including an
integrated
iron and steel mill, a modern ship repair and shipbuilding
complex, vehicle assembly plants, oil refineries,
petrochemical
plants, pulp and paper mills, and electronic plants. As
economist
Valentina Xavier Pintado observed, "Behind the facade of
an aged
Salazar, Portugal knew deep and lasting changes during the
1960s."
The liberalization of the Portuguese economy continued
under
Salazar's successor, Prime Minister Marcello José das
Neves
Caetano (1968-74), whose administration abolished
industrial
licensing requirements for firms in most sectors and in
1972
signed a free trade agreement with the newly enlarged EC.
Under
the agreement, which took effect at the beginning of 1973,
Portugal was given until 1980 to abolish its restrictions
on most
community goods and until 1985 on certain sensitive
products
amounting to some 10 percent of the EC's total exports to
Portugal. EFTA membership and a growing foreign investor
presence
contributed to Portugal's industrial modernization and
export
diversification between 1960 and 1973.
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
university-educated
individuals with middle-class backgrounds into
professional
management careers. Before the revolution, 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.
Data as of January 1993
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