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Portugal The Nonfinancial Public Enterprises
Following the sweeping nationalizations of the
mid-1970s,
public enterprises became a major component of Portugal's
consolidated public sector. Portugal's nationalized sector
in
1980 included a core of fifty nonfinancial enterprises,
entirely
government owned. This so-called public nonfinancial
enterprise
group included the Institute of State Participation, a
holding
company with investments in some seventy subsidiary
enterprises;
a number of state-owned entities manufacturing or selling
goods
and services grouped with nationalized enterprises for
national
accounts purposes (arms, agriculture, and public
infrastructure,
such as ports); and a large number of over 50-percent
EPNF-owned
subsidiaries operating under private law. Altogether these
public
enterprises accounted for 25 percent of VA in GDP, 52
percent of
GFCF, and 12 percent of Portugal's total employment. In
terms of
VA and GFCF, the relative scale of Portugal's public
entities
exceeded that of the other West European economies,
including the
EC member countries.
Although the nationalizations broke up the
concentration of
economic power in the hands of the financial-industrial
groups,
the subsequent merger of several private firms into single
publicly owned enterprises left domestic markets even more
subject to monopoly. Apart from special cases, as in iron
and
steel, where the economies of scale are optimal for very
large
firms, there was some question as to the desirability of
establishing national monopolies. The elimination of
competition
following the official takeover of such industries as
cement,
chemicals, and trucking probably reduced managerial
incentives
for cost reduction and technical advance.
As hybrid institutions, public enterprises find it
difficult
to separate market choices from political considerations.
Their
poorer economic performance may partially be explained by
public
management's frustration at attempting to reconcile
impossible
goals: on the one side, a concern for the "bottom line";
on the
other, coping with the distributional struggles of
interest
groups. Special interest groups that shape the policies of
state-owned firms include "elite" public enterprise unions
aspiring to guarantee employment and above-market wages;
consumer
groups desiring goods and services at below user cost or
market
price; oversight ministries intent upon expanding their
authority; and politicians, including chiefs of state,
seeking to
expand patronage opportunities. As a vehicle for
redistribution,
public enterprise often becomes the servant of special
interest
groups--those who are politically connected--rather than a
guardian of the public or general interest.
It was not surprising that numerous nationalized
enterprises
experienced severe operating and financial difficulties.
State
operations faced considerable uncertainty as to the goals
of
public enterprises, with negative implications for
decision
making, often at odds with market criteria. In many
instances,
managers of public firms were less able than their
private-sector
counterparts to resist strong wage demands from militant
unions.
Further, public firm managers were required for reasons of
political expediency to maintain a redundant labor force
and
freeze prices or utility rates for long periods in the
face of
rising costs. Overstaffing was particularly flagrant at
Petrogal,
the national petroleum monopoly, and Estaleiros Navais de
Setúbal
(Setenave), the wholly state-owned shipbuilding and
repairing
enterprise. The failure of the public transportation firms
to
raise fares during a time of accelerating inflation
resulted in
substantial operating losses and even obsolescence of the
sector's capital stock.
As a group, the public enterprises performed poorly
financially and relied excessively on debt financing from
both
domestic and foreign commercial banks. The operating and
financial problems of the public enterprise sector were
revealed
in a study by the Bank of Portugal covering the years
1978-80.
Based upon a survey of fifty-one enterprises, which
represented
92 percent of the sector's VA, the analysis confirmed the
debilitated financial condition of the public enterprises,
i.e.,
their inadequate equity and liquidity ratios. The
consolidated
losses of the firms included in the survey increased from
18.3
million contos (for value of the
contos--see Glossary) in
1978 to
40.3 million contos in 1980, or 4.6 percent to 6.1 percent
of net
worth, respectively. Losses were concentrated in
transportation
and to a lesser extent in transport equipment and
materials
(principally shipbuilding and ship repair). The budgetary
burden
of the public enterprises as a result of their overall
weak
performance was substantial: enterprise transfers to the
Portuguese government (mainly taxes) fell short of
government
receipts in the forms of subsidies and capital transfers.
The
largest nonfinancial state enterprises recorded
(inflation-discounted) losses in the seven-year period
from 1977
to 1983 equivalent to 11 percent on capital employed.
Notwithstanding their substantial operating losses and
weak
capital structure, these large enterprises financed 86
percent of
their capital investments from 1977 to 1983 through
increases in
debt, of which two-thirds was foreign. The rapid buildup
of
Portugal's external debt from 1978 to 1985 was largely
associated
with the public enterprises.
Data as of January 1993
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