wheretobuyloctite.henkel.buildingonline.com/jeremy-volume-3-frankies-bride.php The ability to do this was supported by the fact that the majority of shareholders in big public companies were single individuals, with scant means of communication, in short, divided and conquered. In Berle and Means issued a revised edition of their work, in which the preface added a new dimension. It was not only the separation of controllers of companies from the owners as shareholders at stake.
They posed the question of what the corporate structure was really meant to achieve:. They are beneficiaries by position only. Justification for their inheritance Its force exists only in direct ratio to the number of individuals who hold such wealth. Justification for the stockholder's existence thus depends on increasing distribution within the American population. Ideally the stockholder's position will be impregnable only when every American family has its fragment of that position and of the wealth by which the opportunity to develop individuality becomes fully actualized.
Together they founded Industrial Organization Economics. Chamberlin also founded Experimental Economics. In Russian economist Leonid Kantorovich — developed Linear Programming for the optimal allocation of resources, receiving the Nobel Economics Prize. By the twentieth century, the industrial revolution had led to an exponential increase in the human consumption of resources. The increase in health, wealth and population was perceived as a simple path of progress. However, in the s economists began developing models of non-renewable resource management see Hotelling's rule and the sustainability of welfare in an economy that uses non-renewable resources.
Concerns about the environmental and social impacts of industry had been expressed by some Enlightenment political economists and in the Romantic movement of the s. Overpopulation had been discussed in an essay by Thomas Malthus see Malthusian catastrophe , while John Stuart Mill foresaw the desirability of a stationary state economy , thus anticipating concerns of the modern discipline of ecological economics. Ecological economics was founded in the works of Kenneth E.
The disciplinary field of ecological economics also bears some similarity to the topic of green economics. According to ecological economist Malte Faber, ecological economics is defined by its focus on nature, justice, and time. Issues of intergenerational equity , irreversibility of environmental change , uncertainty of long-term outcomes, thermodynamics limits to growth, and sustainable development guide ecological economic analysis and valuation. Energy accounting was proposed in the early s as a scientific alternative to a price system , or money method of regulating society.
Falling EROEI due to depletion of non-renewable resources also poses a difficult challenge for industrial economies. Sustainability becomes an issue as survival is threatened due to climate change. In Yale economist Walton H. Hamilton coined the term " Institutional economics ". In John R. Commons — , another economist from midwestern America published Institutional Economics , based on the concept that the economy is a web of relationships between people with diverging interests, including monopolies, large corporations, labor disputes, and fluctuating business cycles.
They do however have an interest in resolving these disputes. Government, thought Commons, ought to be the mediator between the conflicting groups. Commons himself devoted much of his time to advisory and mediation work on government boards and industrial commissions. In Alfred Marshall's student Arthur Cecil Pigou — published Wealth and Welfare , which insisted on the possibility of market failures , claiming that markets are inefficient in the case of economic externalities , and the state must interfere to prevent them.
However, Pigou retained free market beliefs, and in , in the face of the economic crisis, he explained in The Theory of Unemployment that the excessive intervention of the state in the labor market was the real cause of massive unemployment because the governments had established a minimal wage, which prevented wages from adjusting automatically. This was to be the focus of attack from Keynes. In Pigou published the paper The Classical Stationary State , which popularized the Pigou Real Balance Effect , the stimulation of output and employment during deflation by increasing consumption due to a rise in wealth.
In response to the Economic Calculation Problem proposed by the Austrian School of Economics that disputes the efficiency of a state-run economy, the theory of Market Socialism was developed in the late s and s by economists Fred M. Taylor — , Oskar R. Lange — , Abba Lerner — et al. In Ohlin and Heckscher proposed the Heckscher-Ohlin Model of International Trade , which claims that countries will export products that use their abundant and cheap factors of production and import products that use their scarce factors of production.
In Ohlin was awarded a share of the Nobel Economics Prize. In Myrdal published his theory of Circular Cumulative Causation , in which a change in one institution ripples through others. In he received a share of the Nobel Economics Prize. Ely — et al. Pigou and Alfred Marshall at Cambridge University.
He began his career as a lecturer before working for the British government during the Great War, rising to be the British government's financial representative at the Versailles Conference , where he profoundly disagreed with the decisions made. His observations were laid out in his book The Economic Consequences of the Peace  , where he documented his outrage at the collapse of American adherence to the Fourteen Points  and the mood of vindictiveness that prevailed towards Germany.
The book was an enormous success, and though it was criticized for false predictions by a number of people,  without the changes he advocated, Keynes's dark forecasts matched the world's experience through the Great Depression which began in , and the descent into World War II in World War I had been touted as the "war to end all wars", and the absolute failure of the peace settlement generated an even greater determination to not repeat the same mistakes.
With the defeat of Fascism , the Bretton Woods Conference was held in July to establish a new economic order, in which Keynes was again to play a leading role. The Great Depression had been sparked by the Wall Street Crash of , leading to massive rises in unemployment in the United States, leading to debts being recalled from European borrowers, and an economic domino effect across the world.
Orthodox economics called for a tightening of spending, until business confidence and profit levels could be restored. Keynes by contrast, had argued in A Tract on Monetary Reform which argues for a stable currency that a variety of factors determined economic activity, and that it was not enough to wait for the long run market equilibrium to restore itself.
As Keynes famously remarked:. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again. On top of the supply of money , Keynes identified the propensity to consume , inducement to invest, marginal efficiency of capital, liquidity preference, and multiplier effect as variables which determine the level of the economy's output, employment, and price levels.
Much of this esoteric terminology was invented by Keynes especially for his General Theory. Keynes argued that if savings were being withheld from investment in financial markets , total spending falls, leading to reduced incomes and unemployment, which reduces savings again. This continues until the desire to save becomes equal to the desire to invest, which means a new "equilibrium" is reached and the spending decline halts.
This new "equilibrium" is a depression, where people are investing less, have less to save and less to spend. Keynes argued that employment depends on total spending, which is composed of consumer spending and business investment in the private sector. Consumers only spend "passively", or according to their income fluctuations.
Businesses, on the other hand, are induced to invest by the expected rate of return on new investments the benefit and the rate of interest paid the cost. So, said Keynes, if business expectations remained the same, and government reduces interest rates the costs of borrowing , investment would increase, and would have a multiplied effect on total spending. Interest rates , in turn, depend on the quantity of money and the desire to hold money in bank accounts as opposed to investing. If not enough money is available to match how much people want to hold, interest rates rise until enough people are put off.
So if the quantity of money were increased, while the desire to hold money remained stable, interest rates would fall, leading to increased investment, output and employment. For both these reasons, Keynes therefore advocated low interest rates and easy credit, to combat unemployment.
But Keynes believed in the s, conditions necessitated public sector action. Deficit spending , said Keynes, would kick-start economic activity. This he had advocated in an open letter to U. President Franklin D. Roosevelt in the New York Times The New Deal programme in the U. It provided conceptual reinforcement for policies already pursued. Keynes also believed in a more egalitarian distribution of income, and taxation on unearned income arguing that high rates of savings to which richer folk are prone are not desirable in a developed economy. Keynes therefore advocated both monetary management and an active fiscal policy.
Keynes died little more than a year later, but his ideas had already shaped a new global economic order, and all Western governments followed the Keynesian economics program of deficit spending to avert crises and maintain full employment. One of Keynes's pupils at Cambridge was Joan Robinson — , a member of Keynes's Cambridge Circus , who contributed to the notion that competition is seldom perfect in a market, an indictment of the theory of markets setting prices.
In The Production Function and the Theory of Capital Robinson tackled what she saw to be some of the circularity in orthodox economics. Neoclassicists assert that a competitive market forces producers to minimize the costs of production. Robinson said that costs of production are merely the prices of inputs, like capital. Capital goods get their value from the final products. And if the price of the final products determines the price of capital, then it is, argued Robinson, utterly circular to say that the price of capital determines the price of the final products. Goods cannot be priced until the costs of inputs are determined.
This would not matter if everything in the economy happened instantaneously, but in the real world, price setting takes time — goods are priced before they are sold. Since capital cannot be adequately valued in independently measurable units, how can one show that capital earns a return equal to the contribution to production? Alfred Eichner — was an American post-Keynesian economist who challenged the neoclassical price mechanism and asserted that prices are not set through supply and demand but rather through mark-up pricing.
Eichner is one of the founders of the post-Keynesian school of economics and was a professor at Rutgers University at the time of his death. Eichner's writings and advocacy of thought, differed with the theories of John Maynard Keynes, who was an advocate of government intervention in the free market and proponent of public spending to increase employment. Eichner argued that investment was the key to economic expansion. He was considered an advocate of the concept that government incomes policy should prevent inflationary wage and price settlements in connection to the customary fiscal and monetary means of regulating the economy.
Richard Kahn — was a member of the Cambridge Circus who in proposed the Multiplier. In he published a small book called Production of Commodities by Means of Commodities , which explained how technological relationships are the basis for production of goods and services. Prices result from wage-profit tradeoffs, collective bargaining, labour and management conflict and the intervention of government planning. Like Robinson, Sraffa was showing how the major force for price setting in the economy was not necessarily market adjustments. Its central theme is the provision of a microeconomic foundation for Keynesian macroeconomics, obtained by identifying minimal deviations from the standard microeconomic assumptions which yield Keynesian macroeconomic conclusions, such as the possibility of significant welfare benefits from macroeconomic stabilization.
In George Akerlof — and Janet Yellen — published menu costs arguments showing that, under imperfect competition, small deviations from rationality generate significant in welfare terms price stickiness. In British economist Huw Dixon — published A simple model of imperfect competition with Walrasian features ,  the first work to demonstrate in a simple general equilibrium model that the fiscal multiplier could be increasing with the degree of imperfect competition in the output market, helping develop New Keynesian economics.
The reason for this is that imperfect competition in the output market tends to reduce the real wage , leading to the household substituting away from consumption towards leisure. When government spending is increased, the corresponding increase in lump-sum taxation causes both leisure and consumption to decrease assuming that they are both a normal good.
The greater the degree of imperfect competition in the output market, the lower the real wage and hence the more the reduction falls on leisure i. Hence the fiscal multiplier is less than one, but increasing in the degree of imperfect competition in the output market. This opened the door to many younger economists such as E.
Ray Canterbery —. Always Post Keynesian in his style and approach, Canterbery went on to make contributions outside traditional Post Keynesianism. His friend, John Kenneth Galbraith, was a long-time influence.
Randall Wray called "The best pair of articles on the nature of money written in the twentieth century. The government-interventionist monetary and fiscal policies that the postwar Keynesian economists recommended came under attack by a group of theorists working at the University of Chicago , which came in the s to be known as the Chicago School of Economics. The second generation was known for a more conservative line of thought, reasserting a libertarian view of market activity that people are best left to themselves to be free to choose how to conduct their own affairs.
Ronald Coase — of the Chicago School of Economics was the most prominent economic analyst of law, and the Nobel Prize in Economics winner. His first major article The Nature of the Firm argued that the reason for the existence of firms companies , partnerships, etc. Homo economicus trades through bilateral contracts on open markets until the costs of transactions make the use of corporations to produce things more cost-effective. His second major article The Problem of Social Cost argued that if we lived in a world without transaction costs, people would bargain with one another to create the same allocation of resources, regardless of the way a court might rule in property disputes.
Coase used the example of an old legal case about nuisance named Sturges v Bridgman , where a noisy sweets maker and a quiet doctor were neighbors and went to court to see who should have to move. Only the existence of transaction costs may prevent this. The idea is that law and regulation are not as important or effective at helping people as lawyers and government planners believe. In Coase disciple Richard Posner — published Economic Analysis of Law , which became a standard textbook, causing him to become the most cited legal scholar of the 20th century.
In he published The Economics of Justice , which claimed that judges have been interpreting common law as it they were trying to maximize economic welfare. Milton Friedman — of the Chicago School of Economics is one of the most influential economists of the late 20th, century, receiving the Nobel Prize in Economics in Friedman argues that laissez-faire government policy is more desirable than government intervention in the economy.
Governments should aim for a neutral monetary policy oriented toward long-run economic growth , by gradual expansion of the money supply. He advocates the quantity theory of money , that general prices are determined by money. Therefore, active monetary e. In Capitalism and Freedom , Friedman wrote:.
Friedman was also known for his work on the consumption function, the Permanent Income Hypothesis , which Friedman referred to as his best scientific work. Windfall gains would mostly be saved. Tax reductions likewise, as rational consumers would predict that taxes would have to rise later to balance public finances.
Other important contributions include his critique of the Phillips Curve , and the concept of the natural rate of unemployment Lucas, Jr. Muth , opposing the idea that government intervention can or should stabilize the economy. Sargent — and Neil Wallace — , which seemed to refute a basic assumption of Keynesian economics was also adopted. The Lucas aggregate supply function states that economic output is a function of money or price "surprise. Prescott — , which seeks to explain observed fluctuations in output and employment in terms of real variables such as changes in technology and tastes.
Assuming competitive markets, real business cycle theory implies that cyclical fluctuations are optimal responses to variability in technology and tastes, and that macroeconomic stabilization policies must reduce welfare. In Kydland and Prescott also founded the theory of Dynamic Stochastic General Equilibrium DSGE , large systems of microeconomic equations combined into models of the general economy, which became central to the New Neoclassical Synthesis , incorporating theoretical elements such as sticky prices from New Keynesian Macroeconomics.
They shared the Nobel Economics Prize. In Chicago School economist Eugene Fama — published The Behavior of Stock Market Prices , which found that stock market prices follow a random walk, proposing the Efficient Market Hypothesis , that randomness is characteristic of a perfectly functioning financial market. The same year Paul Samuelson published a paper concluding the same thing with a mathematical proof, sharing the credit. Earlier in Holbrook Working — published a paper saying the same thing, but not in a mathematical form.
In Fama published Efficient Capital Markets: A Review of Theory and Empirical Work , proposing that efficient markets can be strong, semi-strong, or weak, and also proposing the Joint Hypothesis Problem , that the idea of market efficiency can't be rejected without also rejecting the market mechanism. Joseph Alois Schumpeter — was an Austrian School economist and political scientist best known for his works on business cycles and innovation.
He insisted on the role of the entrepreneurs in an economy. In Business Cycles: A theoretical, historical and statistical analysis of the Capitalist process , Schumpeter synthesized the theories about business cycles, suggesting that they could explain the economic situations. According to Schumpeter, capitalism necessarily goes through long-term cycles because it is entirely based upon scientific inventions and innovations. A phase of expansion is made possible by innovations, because they bring productivity gains and encourage entrepreneurs to invest.
However, when investors have no more opportunities to invest, the economy goes into recession, several firms collapse, closures and bankruptcy occur. This phase lasts until new innovations bring a creative destruction process, i. In American economist Robert Solow — and Australian economist Trevor Swan — proposed the Solow—Swan model , based on productivity, capital accumulation, population growth, and technological progress.
In Swan also proposed the Swan diagram of the internal-external balance. In Solow was awarded the Nobel Economics Prize. To prevent another global depression, the victorious U. In the s it changed its role to recycling global surpluses. After World War II, Canadian-born John Kenneth Galbraith — became one of the standard bearers for pro-active government and liberal-democrat politics. In The Affluent Society , Galbraith argued that voters reaching a certain material wealth begin to vote against the common good. He also argued that the " conventional wisdom " of the conservative consensus was not enough to solve the problems of social inequality.
They set prices and use advertising to create artificial demand for their own products, distorting people's real preferences. Consumer preferences actually come to reflect those of corporations — a "dependence effect" — and the economy as a whole is geared to irrational goals.
This hierarchy is self-serving, profits are no longer the prime motivator, and even managers are not in control. Because they are the new planners, corporations detest risk, require steady economic and stable markets. They recruit governments to serve their interests with fiscal and monetary policy, for instance adhering to monetarist policies which enrich money-lenders in the City through increases in interest rates. While the goals of an affluent society and complicit government serve the irrational technostructure, public space is simultaneously impoverished. Galbraith paints the picture of stepping from penthouse villas onto unpaved streets, from landscaped gardens to unkempt public parks.
In Economics and the Public Purpose Galbraith advocates a "new socialism" as the solution, nationalising military production and public services such as health care , introducing disciplined salary and price controls to reduce inequality. In contrast to Galbraith's linguistic style, the post-war economics profession began to synthesize much of Keynes ' work with mathematical representations. Introductory university economics courses began to present economic theory as a unified whole in what is referred to as the neoclassical synthesis. The Paul Samuelson 's — Foundations of Economic Analysis published in was an attempt to show that mathematical methods could represent a core of testable economic theory.
Samuelson started with two assumptions. First, people and firms will act to maximize their self-interested goals. Second, markets tend towards an equilibrium of prices, where demand matches supply. He extended the mathematics to describe equilibrating behavior of economic systems , including that of the then new macroeconomic theory of John Maynard Keynes. Whilst Richard Cantillon had imitated Isaac Newton 's mechanical physics of inertia and gravity in competition and the market,  the physiocrats had copied the body's blood system into circular flow of income models, William Jevons had found growth cycles to match the periodicity of sunspots , Samuelson adapted thermodynamics formulae to economic theory.
Reasserting economics as a hard science was being done in the United Kingdom also, and one celebrated "discovery", of A. Phillips , was of a correlative relationship between inflation and unemployment. The workable policy conclusion was that securing full employment could be traded-off against higher inflation. Samuelson incorporated the idea of the Phillips curve into his work. His introductory textbook Economics was influential and widely adopted.
It became the most successful economics text ever.
Grated, powdered, blue-veined and other non-processed cheese excluding fresh cheese, whey cheese and curd. Efklides and D. Pyka and E. Western Macedonia. The fourteen private electric power enterprises were joined into a single power generation and transmission monopoly, Electricidade de Portugal EDP. Governor of the rich 'Order of Christ' and holding valuable monopolies on resources in the Algarve, he sponsored voyages down the coast of Mauritania , gathering a group of merchants, shipowners, and stakeholders interested in the sea lanes. This prompted some economists to question the current orthodoxy.
Paul Samuelson was awarded the new Nobel Prize in Economics in for his merging of mathematics and political economy. It consider connections between economics and political theory. It gave rise to social choice theory with the introduction of his " Possibility Theorem ". This sparked widespread discussion over how to interpret the different conditions of the theorem and what implications it had for democracy and voting. In Arrow published a paper which founded Health Economics. In Arrow and Frank Hahn published General Competitive Analysis , which reasserted a theory of general equilibrium of prices through the economy.
He lifted this from a comment by Milton Friedman in which formed a Time. In English economist James E. Meade — published The Balance of Payments , volume 1 of "The Theory of International Economic Policy", which proposed the theory of domestic divergence internal and external balance , and promoted policy tools for governments.
In he published volume 2 Trade and Welfare , which proposed the theory of the "second-best", and promoted protectionism. In American economist Paul Krugman — published a paper founding New trade theory , which attempts to explain the role of increasing returns to scale and network effects in international trade. In he published a paper founding New economic geography. His textbook International Economics appears on many undergraduate reading lists. He was awarded the Nobel Prize in Economics in In Saint Lucian economist Sir Arthur Lewis — proposed the Dual Sector Model of Development Economics , which claims that capitalism expands by making use of an unlimited supply of labor from the backward non-capitalist "subsistence sector" until it reaches the Lewisian breaking point where wages begin to rise, receiving the Nobel Economics Prize.
In Russian-born American economist Simon Kuznets — , who introduced the concept of Gross domestic product GDP in published an article revealing an inverted U-shaped relation between income inequality and economic growth, meaning that economic growth increases income disparity between rich and poor in poor countries, but decreases it in wealthy countries.
In he received the Nobel Economics Prize. Indian economist Amartya Sen — expressed considerable skepticism about the validity of neoclassical assumptions, and was highly critical of rational expectations theory, devoting his work to Development Economics and human rights. In , Sen published Poverty and Famines: An Essay on Entitlement and Deprivation , a book in which he argued that famine occurs not only from a lack of food, but from inequalities built into mechanisms for distributing food.
Sen also argued that the Bengal famine was caused by an urban economic boom that raised food prices, thereby causing millions of rural workers to starve to death when their wages did not keep up. In addition to his important work on the causes of famines, Sen's work in the field of development economics has had considerable influence in the formulation of the " Human Development Report ",  published by the United Nations Development Programme. Sen was awarded the Nobel Prize in Economics in In American economists Alfred H.
Conrad — and John R. Meyer — founded New Economic History , which in was called Cliometrics by American economist Stanley Reiter — after Clio , the muse of history. It uses neoclassical economic theory to reinterpret historical data, spreading throughout academia, causing economic historians untrained in economics to disappear from history departments.
In American economists James M. Buchanan — and Gordon Tullock — published The Calculus of Consent , which revived Public Choice Theory by differentiating politics the rules of the game from public policy the strategies to adopt within the rules , founding Constitutional Economics , the economic analysis of constitutional law.
Buchanan was awarded the Nobel Economics Prize. In — Scottish economist Marcus Fleming — and Canadian economist Robert Mundell — published the Mundell-Fleming Model of the Economy , an extension of the IS-LM Model to an open economy, proposing the Impossible Trinity of fixed exchange rate, free capital movement, and an independent monetary policy, only two of which can be maintained simultaneously. Mundell received the Nobel Economics Prize. In American economist Henry G. Manne — published Mergers and the Market for Corporate Control in Journal of Political Economy , which claims that changes in the price of a share of stock in the stock market will occur more rapidly when insider trading is prohibited than when it is permitted, founding the theory of market for corporate control.
Joseph E. Stiglitz — also received the Nobel Economics Prize in for his work in Information Economics. In recent years he has become an outspoken critic of global economic institutions. In Making Globalization Work he offers an account of his perspectives on issues of international economics:.
The absence or imperfection can, in turn, to a large extent be explained by problems of information. Stiglitz talks about his book Making Globalization Work here. Reverse Game Theory, which allows people to distinguish situations in which markets work well from those in which they do not, aiding the identification of efficient trading mechanisms, regulation schemes, and voting procedures; he developed the theory with Eric Maskin — and Roger Myerson — , sharing the Nobel Economics Prize with them.
This concept was adopted by U. President Ronald Reagan in the early s, becoming the cornerstone of Reaganomics , which was co-founded by American economist Paul Craig Roberts. In French economist Jean Tirole published "Dynamic Models of Oligopoly", followed by "The Theory of Industrial Organization" , launching his quest to understand market power and regulation, resulting in the Nobel Economics Prize.
In , there was a financial crisis which led to a global recession. This prompted some economists to question the current orthodoxy. One response was the Keynesian Resurgence. This emerged as a consensus among some policy makers and economists for a Keynesian solutions. As contrasted sharply with the previous economic orthodoxy in its support for government intervention in the economy. Austerity was another response, the policy of reducing government budget deficits.
Austerity policies may include spending cuts, tax increases, or a mixture of both. It asserted that fiscal austerity measures did not hurt economies, and actually helped their recovery. Many governments accepted this and followed the austerity course. Following this, on June 6, Paul Krugman published How the Case for Austerity Has Crumbled in The New York Review of Books , arguing that the case for austerity was fundamentally flawed, and calling for an end to austerity measures.
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Business and economics portal. Archived from the original on Retrieved Retrieved 12 April Asiapac Books. Archived from the original on 29 August Austin; Pierre Vidal-Naquet Economic and Social History of Ancient Greece. University of California Press. Economy and Economics of Ancient Greece. April Comparative Studies in Society and History. Comparative Studies in Society and History vol 6 no. A Study of History.
Wayback Machine. Retrieved Apr 9, This article, which is a supplement to Understanding Economics McGraw-Hill Ryerson, , describes the early Arab historian Ibn Khaldun's views of taxation, and their parallels with the modern-day Laffer Curve. Morality and Justice in Islamic Economics and Finance. Edward Elgar Publishing. Retrieved 26 June The Sketch of The Mughal Empire. Lulu Publishers. Money and the Market in India, — Oxford University Press.
New School. Archived from the original on June 29, Retrieved 23 March The collected scientific papers of Paul A. Cambridge, Mass: M. Hayek — ". Archived from the original on July 23, Archived PDF from the original on Ecological economics. Blackwell, Oxford. Blond and Briggs, London. Steady-State Economics 2nd ed. Island Press, Washington, D. Ecological Economics and the Ecology of Economics.
E Elgar Publications, Cheltenham. For the Common. Conservation and Environmentalism: An Encyclopedia, p. How to be an ecological economist. Ecological Economics 66 1 :1—7. Preprint Archived at the Wayback Machine. An article on Energy Accounting as proposed by Technocracy Inc. The Collapse of Complex Societies 1st paperback ed. Cambridge: Cambridge University Press. Randall Wray, ed. Mitchell Innes. The wealth of ideas: a history of economic thought. Cambridge University Press. An Outline of the History of Economic Thought' 2nd ed.
Archived from the original on 28 March Retrieved 27 March Regulation vs deregulation and lessons learnt from previous financial crisis". Time Magazine. Archived from the original on 15 July Retrieved 16 June Human Development Report 20th anniversary edition the real wealth of nations: pathways to human development. The approach was anchored in a new vision of development, inspired by the creative passion and vision of Mahbub ul Haq, the lead author of the early HDRs, and the ground-breaking work of Amartya Sen.
Pdf version. Already cultivated in Algarve, the accessibility of Madeira attracted Genoese and Flemish traders keen to bypass Venetian monopolies. Sugarcane production became a leading factor in the island's economy, and the establishment of plantations on Madeira, the Canary Islands , and the Cape Verde Islands increased the demand for labor. Rather than trading slaves back to Muslim merchants, there was an emerging market for agricultural workers on the plantations. By the s, Madeira had overtaken Cyprus in the production of sugar,  and the success of sugar merchants such as Bartolomeo Marchionni would propel the investment in exploratory travel.
For an annual rent of , reais , Gomes was to explore leagues of the coast of Africa annually, for five years later the agreement would be extended for another year. It was not until they reached the Kingdom of Kongo 's coast in the s that they exceeded Muslim trading territory. On the coast, Gomes found a thriving alluvial gold trade among the natives and visiting Arab and Berber traders at the port then named A Mina meaning "the mine" , where he established a trading post.
Trade between Elmina and Portugal grew over the next decade. The port became a major trading center for gold and slaves purchased from local African peoples along the slave rivers of Benin. Given the large profits, in the newly crowned king John II ordered a factory to be built in Elmina, to manage the local gold industry: Elmina Castle. The Company of Guinea was founded in Lisbon as a government institution that was to deal with trade and fix the prices of the goods. By the beginning of the colonial era there were forty forts operating along the coast.
They acted mainly as trading posts and rarely saw military action, but the fortifications were important, as arms and ammunition were being stored prior to trade. The profitable eastern spice trade was cornered by the Portuguese in the 16th century. In , Vasco da Gama 's pioneering voyage reached India by sea, opening the first European direct trade in the Indian Ocean.
Up to this point, spice imports to Europe had been brought overland through India and Arabia , based on mixed land and sea routes through the Persian Gulf , Red Sea , and caravans , and then across the Mediterranean by the Venetians for distribution in Western Europe, which had a virtual monopoly on these valuable commodities.
By establishing these trade routes, Portugal undercut the Venetian trade with its abundance of middlemen. The Republic of Venice had gained control over much of the trade routes between Europe and Asia. After traditional land routes to India had been closed by the Ottoman Turks , Portugal hoped to use the sea route pioneered by Gama to break the Venetian trading monopoly. Portugal aimed to control trade within the Indian Ocean and secure the sea routes linking Europe to Asia. This new sea route around the Cape of Good Hope was firmly secured for Portugal by the activities of Afonso de Albuquerque , who was appointed the Portuguese viceroy of India in Early Portuguese explorers established bases in Portuguese Mozambique and Zanzibar and oversaw the construction of forts and factories trading posts along the African coast, in the Indian subcontinent , and other places in Asia, which solidified the Portuguese hegemony.
The export and distribution to Europe was made by the Portuguese factory in Antwerp. For about thirty years, from to , the Portuguese cut into the Venetian spice trade in the eastern Mediterranean. Income started to decline mid-century because of the costs of maintaining a presence in Morocco and domestic waste. Also, Portugal did not develop a substantial domestic infrastructure to support this activity, but relied on foreigners for many services supporting their trading enterprises, and therefore a lot of money was consumed in this way.
In , the Portuguese trade center in Antwerp went bankrupt and was closed. As the throne became more overextended in the s, it increasingly relied on foreign financing. The Portuguese monarchy had become, in Garrett Mattingly 's words, the owner of "a bankrupt wholesale grocery business". Goa had functioned from the start as the capital of Portuguese India , the central shipping base of a commercial net linking Lisbon, Malacca, and as far as China and the Maluku Islands Ternate since In , Portuguese traders arrived in Japan.
Soon after, in , Portuguese merchants established a colony on the island of Macau. Chinese authorities allowed the Portuguese to settle through an annual payment, creating a warehouse. After the Chinese banned direct trade by Chinese merchants with Japan, the Portuguese filled this commercial vacuum as intermediaries. Guarding its trade from European and Asian competitors, Portugal dominated not only the trade between Asia and Europe, but also much of the trade between different regions of Asia, such as India, Indonesia, China, and Japan. Jesuit missionaries, such as the Basque Francis Xavier , followed the Portuguese to spread Roman Catholicism to Asia, with mixed results.
During the 16th century, Portugal also started to colonize its newly discovered territory of Brazil. However, temporary trading posts were established earlier to collect Brazilwood , used as a dye, and with permanent settlements came the establishment of the sugar cane industry and its intensive labor. Several early settlements were founded, among them the colonial capital, Salvador , established in at the Bay of All Saints in the north, and the city of Rio de Janeiro in the south, in March The Portuguese colonists adopted an economy based on the production of agricultural goods that were exported to Europe.
Sugar became by far the most important Brazilian colonial product until the early 18th century, when gold and other minerals assumed a higher importance. Each courtier was told that he and his heirs could found cities, grant land, and levy taxes over as much territory as they could colonize inland from their stretch of coastline. In the s, John III was forced to change his policy. He placed Brazil under direct royal control as in Spanish America and appointed a governor general.
The first governor general of Brazil arrived in and headquartered himself at Bahia today known as Salvador. It remained the capital of Portuguese Brazil for more than two centuries, until replaced by Rio de Janeiro in But from the late 17th century onward, Brazil benefited at last from the mineral wealth which underpinned Spanish America. Gold was found in in the southern inland region of Minas Gerais. The discovery set off the first great gold rush of the Americas, opening up the interior as prospectors swarmed westwards, and underpinning Brazil's economy for much of the 18th century.
Diamonds were also discovered in large quantities in the same region in the 18th century. Colonists gradually moved west into the interior. Accompanying the first governor general in were members of the newly founded order of Jesuits. In their mission to convert the Indians, they were often the first European presence in new regions far from the coast. They frequently clashed with adventurers also pressing inland in great expeditions known as bandeiras to find silver and gold or to capture Indians as slaves. These two groups, with their very different motives, brought a Portuguese presence far beyond the Tordesillas Line.
By the late 17th century, the territory of Brazil encompassed the entire basin of the Amazon as far west as the Andes. At the same time, Portuguese colonists had moved south along the coast beyond Rio de Janeiro. The Portuguese Colony of Sacramento was established on the River Plate in , provoking a century of Spanish-Portuguese border conflicts in what is now Uruguay. Meanwhile, the use of the Portuguese language gradually gave the central region of South America an identity and a culture distinct from that of its Spanish neighbours. After initiating the European slave trade in Sub-Saharan Africa through its involvement in the African slave trade , Portugal played a decreasing role in it over the next few centuries.
Although they were the first Europeans to establish trading settlements in Sub-Saharan Africa, they failed to press home their advantage. Nevertheless, they retained a clear presence in the three regions which received their particular attention during the original age of exploration. The closest of these, on the sea journey from Portugal, was Portuguese Guinea , known also, from its main economic activity, as the Slave Coast. The local African rulers in Guinea, who prospered greatly from the slave trade, had no interest in allowing the Europeans to move any further inland than the fortified coastal settlements where the trading took place.
In the 15th century, Portugal's Company of Guinea was one of the first chartered commercial companies established by Europeans in other continents during the Age of Discovery. The Company's task was to deal with the spices and to fix the prices of the goods. The Portuguese presence in Guinea was largely limited to the port of Bissau. For a brief period in the s, the British attempted to establish a rival foothold on an offshore island, at Bolama.
By the 19th century, however, the Portuguese were sufficiently secure in Bissau to regard the neighbouring coastline as their own special territory. Thousands of miles down the coast, in Angola, the Portuguese found it harder to consolidate their early advantage against encroachments by Dutch, British, and French rivals.
Nevertheless, the fortified Portuguese towns of Luanda established in with Portuguese settlers and Benguela a fort from , a town from remained almost continuously in their hands. As in Guinea, the slave trade became the basis of the local economy, with raids carried ever further inland by local natives to gain captives. More than a million men, women, and children were shipped from this region across the Atlantic. In this region, unlike Guinea, the trade remained largely in Portuguese hands. Nearly all the slaves who came from this area were destined for Brazil. The deepest Portuguese penetration into the continent was from the east coast, up the Zambezi , with an early settlement as far inland as Tete.
This was a region of powerful and rich African kingdoms. The eastern coastal area was also much visited by Arabs pressing south from Oman and Zanzibar. From the 16th to 19th centuries the Portuguese and their merchants were just one among many rival groups competing for the local trade in gold, ivory, and slaves. Even if the Portuguese hold on these three African regions was tenuous, they clearly remained the main European presence in Sub-Saharan Africa.
It was natural to assert their claim, therefore, in all three regions when the scramble for Africa began later. Prolonged military campaigns were required to retain and impose Portuguese control over the Africans in these territories in the late 19th century. The boundaries of Portuguese Guinea were agreed upon in two stages in with France, the colonial power in neighbouring Senegal and Guinea. No other nation presented a challenge for the vast and relatively unprofitable area of Angola. The most likely scene of conflict was Portuguese East Africa , where Portugal's hope of linking up with Angola clashed with Britain's plans for the Rhodesias.
There was a diplomatic crisis in , but the borders between British and Portuguese colonies were agreed upon by treaty in During the 15th and 16th centuries, with its global empire that included possessions in Africa, Asia, South America, and Oceania, Portugal remained one of the world's major economic, political, and cultural powers. English, Dutch, and French interests in and around Portugal's well-established overseas possessions and trading outposts tested Portuguese commercial and colonizing hegemony in Asia, Africa, and the New World.
In the 17th century, the lengthy Portuguese Restoration War — between Portugal and Spain ended the sixty-year period of the Iberian Union — According to a study, Portugal's colonial trade "had a substantial and increasingly positive impact on [Portugal's] economic growth". The Lisbon earthquake and, in the 19th century, armed conflicts with French and Spanish invading forces first in the War of the Oranges in , and from in the Peninsular War , as well as the loss of its largest territorial possession abroad, Brazil , disrupted political stability and potential economic growth.
The Scramble for Africa during the 19th century pressed the country to divert larger investments into the continent to secure its interests there. By the late 19th century, the country's resources were exhausted by its overstretched empire, which was now facing unprecedented competition. Portugal had one of the highest illiteracy rates in Western Europe, a lack of industrialization, and underdeveloped transportation systems.
The Industrial Revolution , which had spread out across several other European countries, creating more advanced and wealthier societies, was almost forgotten in Portugal. Under the rule of Carlos I , the penultimate King of Portugal, the country was twice declared bankrupt—on 14 June , and 10 May —causing socio-economic disturbances, socialist and republican antagonism, and press criticism of the monarchy.
The Portuguese colonies in Africa started a period of great economic development fuelled by ambitious Chartered Companies and a new wave of colonization. Manuel II became the new king, but was eventually overthrown during the revolution on 5 October , which abolished the monarchy and instated republicanism. Along with new national symbols, a new currency was adopted. Portugal's First Republic —26 became, in the words of historian Douglas L. Wheeler, "midwife to Europe's longest surviving authoritarian system".
Under the sixteen-year parliamentary regime of the republic, with its forty-five governments, growing fiscal deficits , financed by money creation and foreign borrowing, climaxed in hyper-inflation , all made possible by the introduction of paper money after leaving the gold standard as did many other countries during the First World War,  and a moratorium on Portugal's external debt service.
The cost of living around was thirty times higher than what it had been in Fiscal imprudence and accelerating inflation gave way to massive capital flight , crippling domestic investment. Burgeoning public sector employment during the First Republic was accompanied by a perverse shrinkage in the share of the industrial labor force in total employment. Although some headway was made toward increasing the level of literacy, The First Republic was ended by a military coup in May , but the newly installed government failed to fix the nation's precarious financial situation. At the time of his appointment in , Salazar held the Chair of Economics at the Law School of 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 —32 and then as prime minister —68 , Salazar's political and economic doctrines shaped the progress of the country. 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 s until the early s 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 borrowing abroad. Neither capitalist nor communist, Portugal's economy was quasi-traditional. 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 , 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. 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 prominent 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 large 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 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 s, gained momentum during the early s. Until that time the country remained very poor and largely underdeveloped; although the country had a disadvantaged starting position, three decades of the Estado Novo regime had done no better than slightly increasing the country's GDP per capita from 36 percent of EC average in  to 39 percent in The influence of the Europe-oriented technocrats was rising within Salazar's cabinet. This was confirmed by the substantial increase in the foreign investment component in projected capital formation between the first —58 and second —64 economic development plans; the first plan called for a foreign investment component of less than 6 percent, but the latter envisioned a 25 percent contribution.
During the s and s, Portugal had experienced some economic growth due to increased raw material exports to the war-ravaged and recovering nations of Europe. Until the s, however, the country remained very poor and largely underdeveloped due to its disadvantaged starting position and lack of effective policies to counter that situation. Salazar managed to discipline the Portuguese public finances , after the chaotic First Portuguese Republic of —, but consistent economic growth and development remained scarce until well into the s, when due to the influence of a new generation of technocrats with background in economics and technical-industrial know-how, the Portuguese economy started to take off with visible accomplishments in the people's quality of life and standard of living , as well as in terms of secondary and post-secondary education attainment.
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 The resulting European economic integration, consisting, among other factors, in relatively free markets that facilitated the bridging of labour shortages through migration from Portugal, as well as other southern European countries such as Italy, Spain or Greece, towards Central Europe e.
Moreover, capital shortages did not affect economies as negatively as earlier since capital could be moved across borders more easily. In , when the Portuguese government announced the —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 and in Portugal's other African territories thereafter.
Salazar and his policy advisers recognized that additional military expenditure needs, as well as 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 , 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 the mainland. This was accomplished through population and capital transfers, trade liberalization, and the creation of a common currency, the so-called Escudo Area. The integration program established in provided for the removal of Portugal's duties on imports from its overseas territories by January 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 to 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 Valentim Xavier Pintado observed, "Behind the facade of an aged Salazar, Portugal knew deep and lasting changes during the s.
Under the agreement, which took effect at the beginning of , Portugal was given until to abolish its restrictions on most community goods and until 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 and 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 birth. By the early s, Portugal's fast economic growth with increasing consumption and purchase of new automobiles set the priority for improvements in transportation. From to , Portugal faced an independentist insurgency in its African overseas territories — the Portuguese Colonial War. The Portuguese national interests in Africa were put under threat by several separatist guerrilla organizations supported by most of the international community and the United Nations.
By the early s, while the counterinsurgency war was won in Angola, it was less than satisfactorily contained in Mozambique and dangerously stalemated in Portuguese Guinea from the Portuguese point of view, so the Portuguese Government decided to create sustainability policies in order to allow continuous sources of financing for the war effort in the long run. In , at the initiation of Salazar's more outward-looking economic policy due to the influence of a new generation of technocrats with background in economics and technical-industrial know-how, Portugal's per capita GDP was only 38 percent of the European Community EC average; by the end of the Salazar period, in , it had risen to 48 percent, and by , under the leadership of Marcelo Caetano , Portugal's per capita GDP had reached Portuguese economic growth in the period — under the Estado Novo regime and even with the effects of an expensive war effort in African territories against independence guerrilla groups from onwards created an opportunity for real integration with the developed economies of Western Europe.
Through emigration, trade, tourism, and foreign investment, individuals and firms changed their patterns of production and consumption, bringing about a structural transformation. Simultaneously, the increasing complexity of a growing economy brought new technical and organizational challenges, stimulating the formation of modern professional and management teams. Average family purchasing power was rising together with new consumption patterns and trends and this was promoting both investment in new capital equipment and consumption expenditure for durable and nondurable consumer goods.
The Estado Novo regime economic policy encouraged and created conditions for the formation of large and successful business conglomerates. Those Portuguese conglomerates had a business model with similarities to South Korean chaebols and Japanese keiretsus and zaibatsus.
In addition, rural areas' populations were committed to agrarianism that was of great importance for a majority of the total population, with many families living exclusively from agriculture or complementing their salaries with farming, husbandry and forestry yields. Besides that, the overseas territories were also displaying impressive economic growth and development rates from the s onwards.
Even during the Portuguese Colonial War — , a counterinsurgency war against independentist guerrilla and terrorism, the overseas territories of Angola and Mozambique Portuguese Overseas Provinces at the time had continuous economic growth rates and several sectors of its local economies were booming. They were internationally notable centres of production of oil, coffee, cotton, cashew, coconut, timber, minerals like diamonds , metals like iron and aluminium , banana, citrus, tea, sisal, beer Cuca and Laurentina were successful beer brands produced locally , cement, fish and other sea products, beef and textiles.
Tourism was also a fast-developing activity in Portuguese Africa both by the growing development of and demand for beach resorts and wildlife reserves. Labour unions were not allowed and a minimum wage policy was not enforced. However, in a context of an expanding economy, bringing better living conditions for the Portuguese population in the s, the outbreak of the colonial wars in Portuguese Africa set off significant social changes, among them the rapid incorporation of more and more women into the labour market.
Marcelo Caetano moved on to foster economic growth and some social improvements, such as the awarding of a monthly pension to rural workers who had never had the chance to pay social security. The objectives of Caetano's pension reform were threefold: enhancing equity, reducing fiscal and actuarial imbalance, and achieving more efficiency for the economy as a whole, for example, by establishing contributions less distortive to labour markets or by allowing the savings generated by pension funds to increase the investments in the economy.
Caetano's Portuguese Government began also a military reform that gave the opportunity to militia officers who completed a brief training program and had served in the overseas territories' defensive campaigns, of being commissioned at the same rank as military academy graduates in order to increase the number of officials employed against the African insurgencies, and at the same time cut down military costs to alleviate an already overburdened government budget.
Thus, a group of disgusted captains started to instigate their peers to conspire against the new laws proposed by the regime.
Although the military-led coup returned democracy to Portugal, ending the unpopular Colonial War where thousands of Portuguese soldiers had been conscripted into military service, and replacing the authoritarian Estado Novo New State regime and its secret police which repressed elemental civil liberties and political freedoms , it also paved the way for the end of Portugal as an intercontinental empire and an intermediate emerging power. The coup was originally a mostly pro-democracy movement, intended to replace the previous regime with an Western-style liberal democracy and to develop and modernize the economy in order to achieve Western European standards of living, along with finding a solution for the African colonies to end the year-long Colonial War.
Power in the African colonies was handover to selected former independentist guerrilla movements, which acted as the spark for the appearance of civil wars or the introduction of single party regimes in the newly independent states. The Portuguese economy had changed significantly prior to the revolution, in comparison with its position in —total output GDP at factor cost had grown by percent in real terms.
The pre-revolutionary period was characterized by robust annual growth rates for GDP 6. The post revolution period was, however, characterized by chaos and negative economic growth, as industries became nationalized and the effects of the decoupling of Portugal from its former overseas territories, especially Angola and Mozambique , were felt. Additionally, the general European economic growth, including the Portuguese one, came to an end after the oil price shock of That shock consisted in a significant increase of energy prices as a result of occurring conflicts in the Middle East.
The result was stagflation, a combination of economic growth stagnation and inflation. All sectors of the economy, including manufacturing, mining, chemical, defence, finance, agriculture, and fishing, collapsed. Portugal quickly went from the country with the highest growth rate in Western Europe to the lowest, and experienced several years of negative growth.
Post revolution Portugal was not able to achieve the same economic growth rates as it achieved during the last decade before The reorganization of the MFA coordinating committee in March brought into prominence a group of Marxist -oriented officers. Abandoning its moderate-reformist posture, the MFA leadership set out on a course of sweeping nationalizations and land expropriations. 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 and often tiny enterprises in which the state had thus obtained a majority shareholding. Another 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 a negative business climate brought about a sharp reversal in the trend of direct investment inflows from abroad. After the coup, both the Lisbon and Porto stock exchanges were closed by the revolutionary National Salvation Junta ; they would be reopened a couple of years later.
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. 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.
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The 47 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. 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 , the number of domestic commercial banks was reduced from 15 to 9. Notwithstanding their public status, the remaining banks competed with each other and retained their individual identities and policies. Before the revolution, private enterprise ownership dominated the Portuguese economy to a degree unmatched in other western European countries. The Portuguese government held minority interests in TAP, the national airline, in Siderurgia Nacional, the third telecommunications company Radio Marconi, and in oil refining and oil marketing firms. The railroads, two colonial banks Banco de Angola and BNU , and the Bank of Portugal were majority privately owned but publicly administered.
Finally, although privately owned, the tobacco companies 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 compared with 10 percent of GFCF, 9 percent of VA, and 13 percent of employment for the traditional public sector of Expansion of the public sector since the revolution was particularly apparent 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, with minority state participation less than 50 percent of the common stock , or worker-managed firms and agricultural collectives. In the agricultural sector , the collective farms set up in Alentejo after the —75 expropriations due to the coup proved incapable of modernizing, and their efficiency declined.
In January , the government pledged to restore the illegally occupied lands to their owners, and in , it promulgated the Land Reform Review Law. Restoration began in Compounding the problem of massive nationalizations was the brain drain of managerial and technical expertise away from public enterprises. The income-leveling measures of the MFA revolutionary regime, together with the "anti-fascist" purges in factories, offices, and large agricultural estates, induced an exodus of human capital, mainly to Brazil.
This loss of managers, technicians, and businesspeople inspired a popular Lisbon saying: "Portugal used to send its legs to Brazil, but now we are sending our heads. A detailed analysis of Portugal's loss of managerial resources is contained in Harry M. Makler's follow-up surveys of enterprises, conducted in July , and again in June His study makes clear that nationalization was greater in the modern, large, and technically advanced industries than in the traditional ones such as textiles, apparel, and construction.
In small enterprises 50—99 employees , only 15 percent of the industrialists left as compared with 43 percent in the larger organizations. In the largest firms 1, or more employees , more than half left. Makler's calculations show that the higher the socioeconomic class of the person, the greater the likelihood that they 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. The constitution of confirmed the large and interventionist role of the state in the economy.
Its Marxist character, which lasted until the and 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 25 April , as "irreversible conquests of the working classes". The constitution also defined new power relationships between labor and management, with a strong bias in favor of labor. All regulations with reference to layoffs, including collective redundancy, were circumscribed by Article After the revolution, the Portuguese economy experienced a rapid, and sometimes uncontrollable, expansion of public expenditures—both in the general government and in public enterprises.
The lag in public sector receipts resulted in large public enterprise and government deficits. In , the borrowing requirement of the consolidated public sector reached 24 percent of GDP, its peak level; it was reduced to 9 percent of GDP by To rein in domestic demand growth, the Portuguese government was obliged to pursue International Monetary Fund IMF -monitored stabilization programs in —78 and — The large negative savings of the public sector including the state-owned enterprises became a structural feature of Portugal's political economy after the revolution.
Other official impediments to rapid economic growth after included all-pervasive price regulation, as well as heavy-handed intervention in factor markets and the distribution of income. Privatization, economic deregulation, and tax reform became the salient concerns of public policy as Portugal prepared itself for the challenges and opportunities of membership in the EC's single market in the s. Following the sweeping nationalizations of the mids, public enterprises became a major component of Portugal's consolidated public sector.
Portugal's nationalized sector in included a core of fifty non-financial enterprises, which were entirely government owned. This so-called public non-financial 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.
Although the nationalizations broke up the concentration of economic power that had been held by financial-industrial groups, the subsequent merger of several private firms into single publicly owned enterprises left domestic markets even more monopolized. 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 industries such as cement, chemicals, and trucking probably reduced managerial incentives for cost reduction and technical advance.
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 political expediency to maintain a redundant labor force and freeze prices or utility rates for long periods in the face of rising costs.
The failure of the public transportation firms to raise fares during a time of accelerating inflation resulted in substantial operating losses and 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 — 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, as evidenced by their inadequate equity and liquidity ratios.
The consolidated losses of the firms included in the survey increased from Losses were concentrated in transportation and to a lesser extent transport equipment and materials principally shipbuilding and ship repair. The budgetary burden of the public enterprises 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 to 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 to through increased debt, of which two-thirds was foreign. The rapid buildup of Portugal's external debt from to was largely associated with the public enterprises. The share of general government expenditure including capital outlays in GDP rose from 23 percent in to 46 percent in On the revenue side, the upward trend was less pronounced: the share increased from nearly 23 percent in to From a modest surplus before the revolution in , the government balance swung to a wide deficit of 12 percent of GDP in , declining thereafter to around 5.
Significantly, both current expenditures and capital expenditures roughly doubled their shares of GDP between and government current outlays rose from Apart from the growing investment effort, which included capital transfers to the public enterprises, government expenditure patterns since the revolution reflected rapid expansion in the number of civil servants and pressure to redistribute income, mainly through current transfers and subsidies, as well as burgeoning interest obligations.
The category "current transfers" nearly tripled its share of GDP between and , from under 5 percent to Escalating interest payments on the public debt, from less than half a percent of GDP in to 8. The narrowing of the government deficit since the mids and the associated easing of the borrowing requirement was caused both by a small increase in the share of receipts by two percentage points and the relatively sharper contraction of current subsidies, from 7.
This reduction was a direct consequence of the gradual abandonment by the government of its policy of curbs on rises in public utility rates and food prices, against which it paid subsidies to public enterprises. Tax reform—comprising both direct and indirect taxation—was a major element in a more comprehensive effort to modernize the economy in the late s.
The key objective of these reforms was to promote more efficient and market-oriented economic performance. Prior to the reform, about 90 percent of the personal tax base consisted of labor income.