Estado Novo (Portugal) - Economy

Economy

During the 1940s and 1950s, Portugal experienced economic growth due to increased raw material exports to the war-ravaged and recovering nations of Europe. Until the 1960s, 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 1910–1926, but consistent economic growth and development remained scarce until well into the 1960s, when due to the influence of a new generation of technocrats with background in economics, 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. During the early period of Salazar's rule, a brand new road system was built, new bridges spanned the rivers, and an educational program was able to build a primary school in each Portuguese town (an idea developed and begun during the democratic First Republic). Some liberal economic reforms advocated by elements of the ruling party, which were successfully implemented under similar circumstances in neighboring Spain, were rejected out of fear that industrialization would destabilize the regime and its ideological base and would strengthen the Communists and other left-wing movements.

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 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 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 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 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. The economies of the overseas provinces, especially those of both the Overseas Province of Angola and Mozambique, boomed.

The liberalization of the Portuguese economy gained a new impetus under Salazar's successor, Prime Minister Marcello José das Neves Caetano (1968–1974), whose administration abolished industrial licensing requirements for firms in most sectors and in 1972 signed a free trade agreement with the newly enlarged European Community. 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. Starting in 1960, EFTA membership and a growing foreign investor presence contributed to Portugal's industrial modernization and export diversification between 1960 and 1973. 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. Some large scale investments were made at national level, such as the building of a major oil processing center in Sines. 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 1974 Carnation 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. In 1960, at the initiation of Salazar's more outward-looking economic policy, Portugal's per capita GDP was only 38 percent of the European Community (EC-12) average; by the end of the Salazar period, in 1968, it had risen to 48 percent; and in 1973, under the leadership of Marcelo Caetano, Portugal's per capita GDP had reached 56.4 percent of the EC-12 average. On a long term analysis, after a long period of economic divergence before 1914, and a period of chaos during the First Republic, the Portuguese economy recovered slightly until 1950, entering thereafter on a path of strong economic convergence with the wealthiest economies of Western Europe, until the Carnation Revolution in April 1974. Portuguese economic growth in the period 1960 to 1973 under the Estado Novo regime (and even with the effects of an expensive war effort in African territories against independence guerrilla groups), 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 raised new technical and organizational challenges, stimulating the formation of modern professional and management teams. By the early 1970s Portugal's fast economic growth with increasing consumption and purchase of new automobiles set the priority for improvements in transportation. Brisa – Autoestradas de Portugal was founded in 1972 and the State granted the company a 30-year concession to design, build, manage, and maintain a modern network of express motorways.

The economy of Portugal and its overseas territories on the eve of the Carnation Revolution (a military coup on April 25, 1974) was growing well above the European average. 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. Economically, the Estado Novo regime maintained a policy of corporatism that resulted in the placement of a big part of the Portuguese economy in the hands of a number of strong conglomerates, including those founded by the families of António Champalimaud (Banco Pinto & Sotto Mayor, Cimpor), José Manuel de Mello (CUF – Companhia União Fabril, Banco Totta & Açores), Américo Amorim (Corticeira Amorim) and the dos Santos family (Jerónimo Martins). Those Portuguese conglomerates had a business model with similarities to South Korean chaebols and Japanese keiretsus and zaibatsus. The Companhia União Fabril (CUF) was one of the largest and most diversified Portuguese conglomerates with its core businesses (cement, chemicals, petrochemicals, agrochemicals, textiles, beer, beverages, metallurgy, naval engineering, electrical engineering, insurance, banking, paper, tourism, mining, etc.) and corporate headquarters located in mainland Portugal, but also with branches, plants and several developing business projects all around the Portuguese Empire, specially in the Portuguese territores of Angola and Mozambique. Other medium sized family companies specialized in textiles (for instance those located in the city of Covilhã and the northwest), ceramics, porcelain, glass and crystal (like those of Alcobaça, Caldas da Raínha and Marinha Grande), engineered wood (like SONAE near Porto), canned fish (like those of Algarve and the northwest), fishing, food and beverages (alcoholic beverages, from liqueurs like Licor Beirão and Ginjinha, to beer like Sagres, were produced across the entire country, but Port Wine was one of its most reputed and exported alcoholic beverages), tourism (well established in Estoril/Cascais/Sintra and growing as an international attraction in the Algarve since the 1960s) and in agriculture (like the ones scattered around the Alentejo – known as the breadbasket of Portugal) completed the panorama of the national economy by the early 1970s. In addition, the rural population was committed to agrarianism—greatly important 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 1920s onwards. Even during the Portuguese Colonial War (1961–1974), 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 1960s, the outbreak of the colonial wars in 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. In 1969, with the replacement of António de Oliveira Salazar by Marcelo Caetano, the Estado Novo-controlled nation got indeed a very slight taste of democracy and Caetano allowed the formation of the first democratic labour union movement since the 1920s.