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The Economic history of Portugal covers the development of the economy over the course of Portuguese history to the present day. It had its roots previous to nationality, with trade and development of market economy in the roman provinces of Lusitania and Gallaecia, as producer and exporter to the roman Empire. It proceeded under the Visigoths and the Moorish rule of the Al-Andalus until the Kingdom of Portugal was established in 1139.

With the end of Portuguese reconquista and integrated in the European middle ages economy, Portuguese led the exploration of the age of discovery, expanding into the first global empire. Portugal become then one of main economic world powers of the Renaissance, introducing most of Africa and the East to the Europeans, establishing a multi-continental trading system extending from Japan to Brazil.^[1] From the 16th century to 1974, Portugal's economic interests were transcontinental, with a wide range of territories and natural resources.

Political chaos and economic problems during the last years of the monarchy and the governments of the first Republic, led to the installing of a National Dictatorship in 1926, which evolved into a single party corporative regime in 1933 - the Estado Novo. During this period, Portugal was a founding member of the Organisation for Economic Cooperation and Development (OECD), and the European Free Trade Association (EFTA). From 1961 on, as independence movements became active, Portuguese Colonial War started.

In 1974-76, following a left wing military coup that deposed the ruling regime of Estado Novo, the Carnation Revolution, Portugal granted the independence of its colonies, other than Macau, and 15 years of war effort came to an end. From 1974 to the end of the 1970s, over a million Portuguese citizens returned from the colonies, most as destitute refugees - the retornados^[2]^[3] and came to comprise a sizable section of the population.

In the few decades after the Revolution's turmoil it experienced a strong economic recovery. In 1986, Portugal entered the European Economic Community and left the EFTA. The European Union's structural and cohesion funds, and the growth of many of Portugal's main exporting companies were leading forces in a number of economic sectors worldwide; products such as engineered wood, injection molding, plastics, specialized software, ceramics, textiles, footwear, paper, cork, fine wine, among others, were major factors in the development of the Portuguese economy, standard of living and quality of life. Similarly, for several years Portuguese subsidiaries of large multinational companies ranked among the most productive in the world due to continually high productivity records.^[4]^[5]^[6] Tourism's accounts for about 5% of the Gross Domestic Product (GDP). Fisheries and agriculture account for about 4% of the GDP.

The country joined the Euro in 1999. Still, Portugal remains the country with the lowest per capita GDP in Western Europe. The Global Competitiveness Report 2008-2009 edition placed Portugal in the 43rd position out of 134 countries and territories.^[7] Research about quality of life by the Economist Intelligence Unit's (EIU) Quality-of-life Survey placed Portugal as the country with the 19th-best quality of life in the world for 2005.

Ancient Era

Before the entrance of Romans into Iberia, the peninsula was based on a rural subsistence economy with very limited trade, with the exception of large cities on the Mediterranean coast, which had contact with Greek and Phoenician commerce. Iberians and Celts were some of the earliest groups in the territory, with Celtic economy centered in cattle raising, agriculture and metal working.

Mineral wealth of the territory made it an important source during the early metal ages, and one of the first strategic objectives of Romans when invading the peninsula was to access the mines near New Carthage. After the Second Punic War, from 29BC to 411AC Rome governed the Iberian peninsula, expanding and diversifying the economy and extending trade with the Roman Empire. Indigenous peoples payed tribute to Rome through an intricate web of alliances and allegiances. The economy experienced then a major production expansion, profiting from some of the best agricultural lands in Roman territory and fueled by roads, trade routes and the minting of coins that eased commercial transactions. Lusitania developed then an intensive mining industry, exploring the Aljustrel mines (Vipasca), São Domingos and Riotinto in the Iberian Pyrite Belt that extends to Seville, extracting copper, silver and gold. All mines belonged to the Roman Senate, being operated by slaves.

Subsistence agriculture was replaced by large farming units (Roman villas), producing olive oil, cereals, wine and livestock. This farming activity was located mainly in the south of the Tagus River, the third largest grain-producing region in the roman empire. There was also a development in fishing activity, producing the valued garum or liquamen, a condiment obtained from the maceration of fish, preferably tuna and mackerel, exported for the entire empire. The most famous was manufactured in Cadiz (modern Spain) and the largest producer of the entire Roman Empire was in Tróia Peninsula, near modern Setúbal, south of Lisbon. Remains of garum manufacturing plants show a sharp growth of the canning industry in Portugal, mainly on the coast of Algarve but also in Póvoa de Varzim, Angeiras (Matosinhos) and the estuary of the Sado (river) making it one of the most important centers of canners Hispania.

At the same time, specialized industries developed. The fish salting and canning in turn required the development of salt industry, shipbuilding and also the ceramic industry for the manufacture of amphorae and other containers that allowed the storage and transport of commodities (oil, wine, cereals, preserves, etc.).

Middle Ages

A golden *triente* minted at Braga during the reign of Wittiza and bearing his rough effigy.

With the decline of the Roman Empire, circa 410-418 Suebi and Visigoths took over in the absence of Roman administrators and established themselves as nobility, with some degree of centralized power at their capitals in Braga and Toledo. Though it suffered some decline, Roman law was kept in Visigothic Code and infrastructure such as roads, bridges, aqueducts and irrigation systems, was maintained to varying degrees. While trade dwindled in most of the former Roman lands in Europe, it survived to some degree in Visigothic hispania.

In 711 Moors occupied large parts of the Iberian Peninsula establishing the Al-Andalus. They also maintained much of the Roman legacy, having had Roman infrastructure repaired and extended, using it for irrigation while introducing new agricultural practices and novel crops such as sugar cane, rice, citrus fruit, apricots and cotton. Trade flourished with effective systems of contract relied upon by merchants. Merchants would buy and sell on commission, with money loaned to them by wealthy investors, or a joint investment of several merchants, who were often Muslim, Christian and Jewish. Business partnerships would be made for many commercial ventures, and bonds of kinship enabled trade networks to form over huge distances. Muslims were involved in trade extending into Asia, and Muslim merchants traveled long distances to conduct commercial activities.^[8] After 800 years of warring, the Catholic kingdoms gradually became more powerful and eventually expelled the Moors from the peninsula.

Kingdom of Portugal

In 1139 the Kingdom of Portugal achieved independence from León, having doubled its area with the Reconquista under Afonso Henriques. His successor, Sancho I, accumulated a first national treasury, supported new industries and the middle class of merchants. Moreover, he created several new towns (like Guarda in 1199) and took great care in populating remote areas. Starting in 1212 Afonso II of Portugal established the state's administration, designing the first set of Portuguese written laws. These were mainly concerned with private property, civil justice, and minting. He also sent ambassadors to European kingdoms outside the Iberian Peninsula and began commercial relations with them. Earliest references of commercial relations between Portugal and the County of Flanders record the Portuguese in Lille's fair in 1267.^[9] In 1297, with the Reconquista completed, king Denis of Portugal pursued policies on legislation and centralization of power, adopting Portuguese as the official language. He ordered the exploration of mines of copper, silver, tin and iron and organized the export of surplus production to other European countries. On May 10th, 1293 King Denis instituted an insurance fund for Portuguese traders living in the County of Flanders, which was to pay certain sums according to tonnage, accrued to them when necessary. In 1308 he signed the first Portuguese commercial agreement with England^[10]. He distributed the land, promoted agriculture, organized communities of farmers and took personal interest in the development of exports, founding and regulating regular markets in a number of towns. Agriculture was Portugal's main activity, mostly consumed inside the country. Wine and dried fruits from Algarve (figs, grapes and almonds) were sold in Flanders and England, salt from Setúbal and Aveiro was a profitable export to northern Europe, and leather and kermes (dye), a scarlet dye, were also exported. Industry was minimal and Portuguese imported armors and munitions, fine clothes and several manufactured products from Flanders and Italy. Since 1200's monetary economy had been stimulated but still barter dominated trade, and coinage was limited and foreign currency was also used until the beginning of the 15th century.^[11].

Expansion of the Portuguese empire (15th - 16th c.)

In the second half of the fourteen century outbreaks of bubonic plague led to severe depopulation: the economy was extremely localized in a few towns, and migration from the country lead to land being abandoned to agriculture and resulting in village unemployment rise. To promote settlement, in 1375 Sesmarias law was issued, leasing vacant lands to unemployed cultivators, but without great effect: by the end of the century Portugal faced a food shortages, having to import wheat from north Africa. Only the sea offered alternatives, with most population settling in fishing and trading coastal areas.^[12]

The Aviz dynasty since 1385 marked an eclipse of the conservative land-oriented aristocracy. Also, close connections with several Islamic kingdoms and cultural exchange made Portugal a center of knowledge and technological development, with many mathematicians and experts in naval technology appeared in Portugal.

After consolidating the territory in the 13th century through the Portuguese Reconquista against the Muslims states of Western Iberia, the Kingdom of Portugal started to expand overseas. In 1415, Islamic Ceuta was occupied by the Portuguese during the reign of John I of Portugal. The Portuguese expansion on North Africa was the beginning of a larger process eventually called the Portuguese Overseas Expansion. Kingdom of Portugal's goals included the expansion of Christianity into Muslim lands and the desire of nobility for epic acts of war and conquest with the avail of the Pope.

Elmina Castle viewed from the sea in 1668.

In North West Africa, Portugal would dominate several towns, including Ceuta, Alcácer-Ceguer, Tangiers, Arzila, Azomor, Santa Cruz, Mogador, Safi, and Mazagão that become the first important Portuguese strongholds in Africa. In 1468, a Portuguese fleet conquered and destroyed the port of Anfa (Anafé in Portuguese), today included in Casablanca, which was a barbary corsairs base. When the Portuguese first sailed down the Atlantic coast of Africa in the 1430s, they were interested in gold. Ever since Mansa Musa, ruler of the Mali Empire, made his pilgrimage to Mecca in 1325, with 500 slaves and 100 camels (each carrying gold) the region had become synonymous with such wealth. The trade from sub-Saharan Africa was controlled by the Islamic Empire which stretched along Africa's northern coast. Muslim trade routes across the Sahara, which had existed for centuries, involved salt, kola, textiles, fish, grain, and slaves.^[13] As the Portuguese extended their influence around the coast, Mauritania, Senegambia (by 1445) and Guinea, they created trading posts. Rather than becoming direct competitors to the Muslim merchants, the expanding market opportunities in Europe and the Mediterranean resulted in increased trade across the Sahara.^[14] In addition, the Portuguese merchants gained access to the interior via the Senegal and Gambia rivers which bisected long-standing trans-Saharan routes. The Portuguese brought in copper ware, cloth, tools, wine and horses. Trade goods soon also included arms and ammunition. In exchange, the Portuguese received gold (transported from mines of the Akan deposits), pepper (a trade which lasted until Vasco da Gama reached India in 1498) and ivory. There was a very small market for African slaves as domestic workers in Europe, and as workers on the sugar plantations of the Mediterranean. However, the Portuguese found they could make considerable amounts of gold transporting slaves from one trading post to another, along the Atlantic coast of Africa. Muslim merchants had a high demand for slaves, which were used as porters on the trans-Saharan routes, and for sale in the Islamic Empire. The Portuguese found Muslim merchants entrenched along the African coast as far as the Bight of Benin.^[15] The slave coast, as the Bight of Benin was known, was reached by the Portuguese at the start of the 1470s. It was not until they reached the Kingdom of Kongo coast in the 1480s that they outdistanced Muslim trading territory. Forts (fortes) and feitorias (trading posts), were established across the coast. Portuguese sailors, merchants, cartographers, priests and soldiers had the task of taking the coastal areas, settling, and building churches, forts and factories, as well as exploring unknown land and sea. The Company of Guinea was founded as a Portuguese governative institution whose task was to deal with the spices and to fix the prices of the goods. It was called Casa da Guiné, Casa da Guiné e Mina from 1482 to 1483 and Casa da Índia e da Guiné in 1499.

The first of the major European trading forts, Elmina, was founded on the Gold Coast in 1482 by the Portuguese. Elmina Castle (originally known as São Jorge da Mina Castle) was modelled on the Castelo de São Jorge, one of the first Portuguese Royal residences in Lisbon. Elmina, which means "the mine", became a major trading centre for slaves purchased to local African peoples along the slave rivers of Benin. By the beginning of the colonial era there were forty such forts operating along the coast. Rather than being icons of colonial domination, the forts acted as trading posts - they rarely saw military action - the fortifications were important, however, when arms and ammunition were being stored prior to trade.^[16] The end of the 15th century was marked (for Europe) by Vasco da Gama's successful voyage to India and the establishment of sugar plantations on Madeira, Canary, and Cape Verde Islands. Rather than trading slaves back to Muslim merchants, there was an emerging market for agricultural workers on the plantations. By 1500 the Portuguese had transported approximately 81,000 slaves to these various markets.^[17] Christopher Columbus had discovered the New World and Pedro Álvares Cabral had reached the coast of Brazil.

The 15th century Portuguese exploration of the African coast, is commonly regarded as the harbinger of European colonialism, and also marked the beginnings of the Atlantic slave trade, Christian missionary evangelization and the first globalization processes which were to become a major element of the European colonialism until the end of the 18th century.

16th century

The Portuguese were the first Europeans to explore the Indian Ocean, Vasco da Gama having visited Mombasa in 1498. Gama's voyage was successful in reaching India and this permitted the Portuguese to trade with the Far East directly by sea, thus challenging older trading networks of mixed land and sea routes, such as the Spice trade routes that utilized the Persian Gulf, Red Sea and caravans to reach the eastern Mediterranean. 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 once Venetian trading monopoly. Portugal's main goal in the east coast of Africa was take control of the spice trade from the Arabs and Portugal's actions in the region served the purpose of control trade within the Indian Ocean and secure the sea routes linking Europe to Asia. The construction of forts and trading posts along all the African coast, in the Indian subcontinent and other places in Asia was meant to solidify Portuguese hegemony with regards to its highly profitable transcontinental commercial interests.

At Lisbon the Casa da Índia, or House of India, was the organization that managed Portuguese trade monopoly in overseas goods, mainly in the 15th and 16th centuries. It was the Portuguese counterpart of the Spanish organization, the Casa de Contratación (est. 1503, abolished 1790). It was established in in 1500 (or 1501 according to some sources^[18]). However it was the succeessor of other similar Portuguese organizations, including the House of Guinea, the House of Guinea and Mina, and the House of Mina (that is, the Casa da Guiné, Casa de Guiné e Mina, and Casa da Mina in Portuguese).

The Casa da Índia maintained a royal monopoly on the trade in pepper, cloves, and cinnamon, and levied a 30 percent tax on the profits of other articles. The distribution to Europe was made by the portuguese factory in Antwerp. For about thirty years, from 1503 to 1535, the Portuguese cut into the Venetian spice trade in the eastern Mediterranean area. By 1510, the Portuguese throne was pocketing a million cruzados yearly from the spice trade alone, and it was this which led François I of France to dub King Manuel I of Portugal "le roi épicier", that is, "the grocer king."

In 1506, about 65% of the state income was produced by taxes on overseas activity. Income started to decline mid-century because of 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 the income was consumed in this way. In 1549 the Portuguese trade center in Antwerp went bankrupt and was closed. As the throne became more overextended in the l550s, it relied more and more on foreign financing. By about 1560 the income of the Casa da Índia was not able to cover its expenses. The Portuguese monarchy had become, in Garrett Mattingly's phrase, the owner of "a bankrupt wholesale grocery business."

Expansion in Asia

The profitable trade in eastern spices was cornered by the Portuguese in the 16th century much to the detriment of Venice, which had previously had a virtual monopoly of these valuable commodities. Up to this point, spice imports had been brought overland through India and Arabia, and then across the Mediterranean by the Venetians for distribution in Western Europe. By establishing the sea route round the Cape of Good Hope, Portugal undercut the Venetian trade with its profusion of middlemen. The new route was firmly secured for Portugal by the activities of Afonso de Albuquerque, who took up his duties as the Portuguese viceroy of India in 1508. Early explorers along the east Africa coast had left Portugal with bases in Mozambique and Zanzibar. Albuquerque extended this secure route eastwards by capturing and fortifying Hormuz at the mouth of the Persian Gulf in 1514, Goa on the west coast of India in 1510 (where he massacred the entire Muslim population for the effrontery of resisting him,) and Malacca, guarding the narrowest channel of the route eastward, in 1511. The island of Bombay was ceded to the Portuguese in 1534. An early Portuguese presence in Sri Lanka steadily increased during the century. And in 1557 Portuguese merchants established a colony on the island of Macao. Goa functioned from the start as the capital of Portuguese India.

Expansion in South America

During the 16th century Portugal also started to colonize its newly-discovered territory of Brazil. Although temporary trading posts were established earlier to collect brazilwood, used as a dye, with permanent settlements came the establishment of the sugar cane industry and its intensive labor. Several early settlements were founded across the coast, among them the colonial capital, Salvador, established in 1549 at the Bay of All Saints in the north, and the city of Rio de Janeiro on March 1567, in the south. 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.^[19]^[20]

The first attempt to establish a Portuguese presence in Brazil was made by John III in 1533. His solution was simplistic. He divided the coastline into fifteen sections, each about 150 miles in length, and granted these strips of land, on a hereditary basis, to fifteen courtiers - who become known as donatários. 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. Only two of the donatários were to make any success of this venture. In the 1540s John III was forced to change his policy. He brought Brazil under direct royal control (as in Spanish America) and appointed a governor general. The first governor general of Brazil arrived in 1549 and made his headquarters 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 1763.

The economic strength of Portuguese Brazil derived at first from sugar plantations in the north (established as early as the 1530s by one of the two successful donatários). But from the late 17th century onward, Brazil benefited at last from the mineral wealth which underpinned Spanish America. Gold was found in 1693 in the inland region of Minas Gerais, in the southern part of the colony. The discovery set off the first great gold rush of the American continent - 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 1549 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. A Portuguese town was established on the river Plate in 1680, provoking a century of Spanish-Portuguese border conflicts in the region which is now Uruguay. Meanwhile the use of the Portuguese language gradually gave the central region of South America an identity and a culture distinct and different from that of its Spanish neighbours.

Expansion in Sub-Saharan Africa

Flag of the Company of Guinea established in the 15th century.

Portugal, after initiating the European slave trade in Sub-Saharan Africa through its involvement on the African slave trade, played a decreasing role in it over the next few centuries. Similarly the Portuguese, although the first Europeans to establish trading settlements in Sub-Saharan Africa, failed later to use this to 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, is 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 1790s the British attempted to establish a rival foothold on an offshore island, at Bolama. But by the 19th century 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 1587 with 400 Portuguese settlers) and Benguela (a fort from 1587, a town from 1617) remained almost continuously in Portuguese hands. As in Guinea, the slave trade became the basis of the local economy - with raids carried ever further inland by local natives to procure 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 the Portuguese Colony of 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 century the Portuguese and their merchants were just one among many rival groups competing for the local trade in gold, ivory and slaves.

Nevertheless, even if the Portuguese hold on these three African regions was tenuous, they were still unmistakably 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 from 1886 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 1890. But the borders between British and Portuguese colonies were agreed upon by treaty in 1891.

17th to 19th century

Ribeira Palace where *Casa da Índia* (House of India) was located, first half of the 18th century, Lisbon.

During the 15th and 16th centuries, with its global empire that included possessions in Africa, Asia, and South America, Portugal remained as one of the world's major economic, political, and cultural powers. English, Dutch, French and Omani interests in and around Portugal's well-established overseas possessions and trading outposts stressed Portuguese commercial and colonizing hegemony in Asia, Africa and in the New World. In the 17th century, the lengthy Portuguese Restoration War (1640 – 1668) between Portugal and Spain ended the sixty year period of the Iberian Union (1580–1640).

The 1755 Lisbon earthquake and, in the 19th century, armed conflicts with French and Spanish invading forces and 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 Africa in order to secure its interests there. By the late 19th century, the country's resources were exhausted by its overstretched empire which was now facing competition and rivalries as never before. Portugal had one of the highest illiteracy rates of Western Europe, 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 the Kingdom of Portugal, as Portugal was formally called by then. Under the rule of king Carlos I of Portugal, penultimate King of Portugal, the country was twice declared bankrupt - on June 14, 1892, and again on May 10, 1902 - causing socioeconomic disturbances, socialist and republican antagonism and press criticism of the monarchy. However, it was during this period that the predecessor of the Lisbon Stock Exchange was created in 1769 as the Assembleia dos Homens de Negócio in the Praça do Comércio Square, Lisbon downtown. In 1891, the Bolsa de Valores do Porto (Porto Stock Exchange) in Porto was founded. The Portuguese colonies in Africa started a period of great economic development fuelled by ambitious Chartered Companies and a new wave of colonization.

With the beginning of the French revolutionary and Napoleonic wars, Portugal entered a period of more than fifty years in which major issues were decided largely by the influence and pressures of foreign powers. Portugal continued faithful to its alliance with Britain during the French wars, and sheltered by geography, was able for a time to remain largely independent of French imperialism. In 1801, a petty border invasion by Spanish forces acting the role of French satellite seized the Portuguese border district of Olivença in what was called somewhat derisively the War of the Oranges. The first effects of modern economic development began to be felt by the beginning of the 19th century, not so much in terms of Portugal's domestic expansion but as a consequence of foreign competition and imports. Industrializing Britain had begun to produce so many goods—primarily textiles—so cheaply that they cut deeply into the domestic market in Portugal and also into Portuguese exports to its colony of Brazil. As harsh in its effects as British competition was the closure of markets by war and the independence of Brazil in 1822, which in the decade 1796-1806 had accounted for three-quarters of all Portuguese commerce, re-exports from Brazil totaling from 60 to 80 percent of all Portuguese exports. Most of this valuable trade was lost. Altogether, using the level of the year 1800 as 100, Portuguese manufactured exports, while never very extensive, declined to 66 in 1805 and 10 in 1810 and recovered to only 27 in 1820. The period from 1808 to 1826 was a time of general price deflation, with a particularly sharp decline in prices and commerce between 1817 and 1820. These economic pressures were of great importance in encouraging the coastal bourgeoisie to support a revolt for representative government that might provide more stimulus for economic development.

Similarly, the loss of Brazil, coupled with the general problem of reviving commerce in a deflated market, encouraged the first real effort to increase Portuguese manufactures since Marquis of Pombal. The first two waves of Portuguese pre-industrialization were the Ericeira program of 1675-1690 and the Pombaline efforts of 1769-1778. The third occurred after the triumph of liberalism in 1820: between 1820 and 1822. 177 new manufacturing establishments were set up, an increase of 15 percent, bringing the total to 1,031 shops, most of them very small. In the following eighteen months from mid-1822 to the end of 1823 the number rose by 20 percent, the main beneficiary being the Porto district. During the following decade of internal turmoil there was little advance in commerce, but a new wave of industrialization developed after 1835. The Septembrist movement of 1836 was to some extent an industrialists' movement, for some of its leaders were industrialists and small merchants, and it drew support from artisans and workers. Certain Septembrist leaders, especially Sá da Bandeira, were the first to conceive of the economic development of Portuguese Africa to complement the expanded commerce and industry of metropolitan Portugal. In general, the mechanization of Portuguese industry began around 1835, but its dependence of the importation of steam engines and other machinery made the process very slow. By 1845 only 30 of 634 manufacturing plants (only a few of which could be called factories) possessed steam power. In the post-1835 phase of mechanization, the Lisbon region progressed more rapidly than did Porto.

The basis of the Portuguese economy, agriculture, began to change, but also very slowly. At the beginning of the 19th century only about one-sixth of the surface of Portugal was under cultivation; it is doubtful if the proportion had ever been any higher. The economic reforms of the liberal regime—selling church and some royal lands, beginning the breakup of aristocratic entailed estates, and abolishing many seigneurial obligations—greatly enlarged the land market and the opportunities for agriculture. Though many foreiro and emphyteutic rights were swept away, the reforms rallied most of the wealthier elements to the liberal regime. The extent of land under cultivation increased, though not as dramatically as in Spain during the same period. Among the peasantry, subsistence cultivation of corn and potatoes also rose. Market production increased somewhat, and between 1839 and 1855 Portugal actually exported grain for the first time in centuries. (It is not entirely clear, however, whether this was due to greatly increased production or due to a shift in commercial and transportation patterns, for considerable grain was also imported from Spain.) There was no significant improvement in agricultural technique, which was scarcely as advanced as Spain's. Thus the changes in Portuguese landholding and agriculture between 1834 and 1855 were not in any drastic productive reform, but simply in the consolidation of a new class of middle and large landholders, drawn from the upper middle class and the aristocracy, which now controlled the primary sources of wealth. This class was able, together with major commercial and financial interests, to largely control Portuguese government for nearly seventy years after the return of the Charter in 1842.

Fontes Pereira de Melo, was the chief proponent of a policy of economic development that became known as fontismo, the Portuguese equivalent of the Spanish economic expansion and railroad building of the decade 1855-1865. Fontes consolidated the national debt at 3 percent and created a new ministry of public works, building more roads, beginning telegraph construction, and encouraging railroad expansion. New credit was obtained, foreign investment stimulated, and taxes were both increased and reorganized, while tariff duties were lowered. In general, the program was aimed at laying some of the foundations, particularly in communication and transportation, for a more modern economy. There was little attempt at direct industrialization, however, and the costs were borne mostly by the lower classes in the form of excise taxes. Property taxes, as in Spain, tended to be rigged in favor of the largeholders to the detriment of small property owners. This general orientation characterized the economic policy of Portuguese government for the next generation. Bad economic conditions in 1855-1856, however, together with criticism for too-generous concessions to foreign investors, played a major role in the erosion of Portuguese government's political support, leading to his resignation in 1856. Fontismo as practiced in the 1850s and 1860s stressed commerce, finance, and transportation.

The first bona fide Portuguese bank, the Bank of Lisbon, had been founded in 1821. The number of banks increased to three by 1858, thirteen by 1867, and fifty-one by 1875. Deposits increased eightfold between 1858 and 1875. The first Portuguese bankers came primarily from wholesale commerce, since this was the major source of profit and capital formation in the traditional Portuguese economy. Some large landowners also became involved, but nineteenth-century Portuguese banking showed little interest in trying to finance industrial development. Its resources were limited, and it preferred easy, high-interest earnings through short-term loans, state bonds, transportation projects, and real estate mortgages. Portuguese railroad construction was begun soon after that of Spain and on much the same financial terms, but the rhythm of its development was considerably slower. Foreign capital and technology dominated, and political favoritism played a major role. The first short line out of Lisbon was built in 1856, and the kilometers of track increased. By the 1860s the center of attention in public affairs was taken by the financial question, which bedeviled Portuguese government to the end of the monarchy in 1910 and throughout the history of the parliamentary republic that followed. The government debt mounted rapidly, nearly doubling between 1854 and 1869, when it hit a level of almost fifty dollars per capita, a crushing burden for so poor a country. There was no end in sight. The royal jewels were sold and the royal estates mortgaged, but the main problem was poor government management, waste and corruption, and above all extremely low revenue from an unproductive economy. All entailment of estates was abolished in 1863, opening up the market for agricultural production, but the effects of this were slow in coming. Fontismo relied mainly on foreign investment and the raising of loans, while encouraging free trade (to the detriment of national manufactures) and maintaining high excises.

A new opposition movement among radical intellectuals began after 1865, and in 1867 a small element of middle class progressives joined with the more liberal of the Historicals to form a loosely organized grouping known as the Popular or Reformist party. Protests among the lower classes over excises and among businessmen over foreign competition and taxes mounted steadily. An attempt by the government to raise excises further was blocked by a merchants' revolt in Porto and several other cities on the first day of 1868 (and hence termed the janeirinha). The Fusionist cabinet was forced to resign and was replaced with a Reformist ministry that hoped to reduce the budget and balance the tax structure. Lacking organized support, internal unity, and a clear-cut program, it accomplished little. The major development in the Portuguese economy of the late nineteenth century was the expansion of agriculture, which got underway around the middle of the century but accelerated only in the 1890s. There were at least three main factors involved. Population increased steadily, and despite emigration the demand for food steadily mounted. Secondly, all morgados (entailment of estates) were finally abolished in 1863, completing the opening up of the land market. Third, the first tariff of the century that provided real protection for grain was adopted in 1889. Altogether between 1874 and 1934 the extent of land under cultivation in Portugal increased by 70 percent. The new land inheritance law after 1863 provided for equal division of property among heirs, and the average size of Portuguese cultivation units remained uneconomically small. In 1868, five years after the final extinction of morgados, there were 5,678,385 agrarian properties averaging 1.55 hectares. In much of the Minho, minifundia were even more the rule than in Spanish Galicia. Some landlords owned many small properties and renting was still common, but there may have been a slightly higher percentage of small peasant proprietors than in Spain generally. Many renters retained long-term emphyteutic rights. Expansion of peasant agriculture was encouraged by the decline in fixed rental costs under the slow inflation of the later nineteenth century. The cultivation of corn was extended, and some improvement in technique was made possible by increased use of fertilizer, mainly manure, and new sources of water.

The greatest extension of cultivation occurred not in the heavily populated, already heavily cultivated Minho, but in the southern two-thirds of Portugal, where the Alentejo was finally repopulated by the close of the century. In part because of the agricultural expansion, the 1890s were a decade of rapid growth in commerce. This occurred despite the tariff of 1892, which marked Portugal's swing, though in lesser degree, toward the general trend of heavier protectionism in Europe during the late nineteenth century. There was also a new wave of industrialization around the turn of the century, yet it was modest and hardly served to take up the slack in the extremely slow growth of domestic manufactures. Portugal still suffered from the main deficiencies of underdeveloped countries: lack of capital for productive investment, lack of skilled labor, lack of technology (there were only 150 qualified engineers in Portugal in 1870), and lack of industrial raw materials. There was a notable increase in corporate investment during the second half of the century, but it was quite small by comparison with the industrialized countries. Even during the first decade of the twentieth century, corporate investment in commerce exceeded that in industry.

By the end of the 18th century the weight of Portuguese society had begun to shift for the first time since the Middle Ages. Though the traditional peasant structure remained almost unchanged, a new upper middle class of wealth and potential influence was beginning to emerge. It was made up of elements of the commercial bourgeoisie in the coastal towns, an elite of educated bureaucrats and officeholders, and some of the nonaristocratic and petty noble landholders in central and south-central Portugal. The traditional aristocracy was already in decline. However, the incipient shift in the weight of Portuguese elites had no immediate political consequences, for the preeminence of the virtually absolute Portuguese monarchy remained unquestioned. The reforms of an elitist enlightened despotism fulfilled nearly all the ambitions of the new upper middle class. The republican revolt was more a sign of changing times than an immediate threat. The real problem was the national financial crisis precipitated by the diplomatic humiliation and political uncertainty. A banking moratorium had to be declared, and the state neared bankruptcy in 1891-1892. Foreign creditors demanded international control of Portuguese customs and the German government urged a naval demonstration off Lisbon similar to that recently brandished against Venezuela. The outstanding cultural historian and political critic Oliveira Martins took office as minister of finance in a new nonparty government in 1892 but failed to win passage of effective financial reforms.

Early 20th century

On February 1, 1908, the king Carlos I of Portugal was assassinated while he returned from the palace of Vila Viçosa to Lisbon. Manuel II of Portugal become the new king but was eventually overthrown by the 5 October 1910 revolution which abolished the monarchy and instated republicanism in Portugal.

Portugal's First Republic (1910-26) 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 and a moratorium on Portugal's external debt service. The cost of living around 1926 was thirty times what it had been in 1914. 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 under the parliamentary regime, 68.1 percent of Portugal's population was still classified as illiterate by the 1930 census.

The economy under the New State Regime

The First Republic was ended by a military coup in May 1926, but the newly installed government failed to solve the nation's precarious financial situation. Instead, President Óscar Fragoso Carmona invited António de Oliveira Salazar to head the Ministry of Finance, and the latter agreed to accept the position provided he would have veto power over all fiscal expenditures. At the time of his appointment as minister of finance in 1928, Salazar held the Chair of Economics at the 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 (1928-32) and then as prime minister (1932-68), Salazar's political and economic doctrines were to shape the Portuguese destiny.

From the perspective of the financial chaos of the republican period, it was not surprising that Salazar considered the principles of a balanced budget and monetary stability as categorical imperatives. By restoring equilibrium both in the fiscal budget and in the balance of international payments, Salazar succeeded in restoring Portugal's credit worthiness at home and abroad. Because Portugal's fiscal accounts from the 1930s until the early 1960s almost always had a surplus in the current account, the state had the wherewithal to finance public infrastructure projects without resorting either to inflationary financing or to borrowing abroad.

At the bottom of the Great Depression, Premier Salazar laid the foundations for his Estado Novo, the "New State." Neither capitalist nor communist, Portugal's economy was cast into a quasi-traditional mold. The corporative framework within which the Portuguese economy evolved combined two salient characteristics: extensive state regulation and predominantly private ownership of the means of production. Leading financiers and industrialists accepted extensive bureaucratic controls in return for assurances of minimal public ownership of economic enterprises and certain monopolistic (or restricted-competition) privileges.

Within this framework, the state exercised extensive de facto authority regarding private investment decisions and the level of wages. A system of industrial licensing (condicionamento industrial), introduced by law in 1931, required prior authorization from the state for setting up or relocating an industrial plant. Investment in machinery and equipment designed to increase the capacity of an existing firm also required government approval. Although the political system was ostensibly corporatist, as political scientist Howard J. Wiarda makes clear, "In reality both labor and capital--and indeed the entire corporate institutional network--were subordinate to the central state apparatus."

Under the old regime, Portugal's private sector was dominated by some forty great families. These industrial dynasties were allied by marriage with the large, traditional landowning families of the nobility, who held most of the arable land in the southern part of the country in great estates. Many of these dynasties had business interests in Portuguese Africa. Within this elite group, the top ten families owned all the important commercial banks, which in turn controlled a disproportionate share of the national economy. Because bank officials were often members of the boards of directors of borrowing firms in whose stock the banks participated, the influence of the large banks extended to a host of commercial, industrial, and service enterprises. Portugal's shift toward a moderately outward-looking trade and financial strategy, initiated in the late 1950s, gained momentum during the early 1960s. A growing number of industrialists, as well as government technocrats, favored greater Portuguese integration with the industrial countries to the north as a badly needed stimulus to Portugal's economy. The rising influence of the Europe-oriented technocrats within Salazar's cabinet was confirmed by the substantial increase in the foreign investment component in projected capital formation between the first (1953-58) and second (1959-64) economic development plans. The first plan called for a foreign investment component of less than 6 percent, but the plan for the 1959-64 period envisioned a 25-percent contribution.

The newly influential Europe-oriented industrial and technical groups persuaded Salazar that Portugal should become a charter member of the European Free Trade Association (EFTA) when it was organized in 1959. In the following year, Portugal also added its membership in the General Agreement on Tariffs and Trade (GATT), the International Monetary Fund, and the World Bank.

File:CoA of Portuguese East Africa.svg

Overseas Province of Mozambique's coat of arms until 1975

In 1958 when the Portuguese government announced the 1959-64 Six-Year Plan for National Development, a decision had been reached to accelerate the country's rate of economic growth—a decision whose urgency grew with the outbreak of guerrilla warfare in Angola in 1961 and in Portugal's other African territories thereafter. Salazar and his policy advisers recognized that additional claims by the state on national output for military expenditures, as well as for increased transfers of official investment to the "overseas provinces," could only be met by a sharp rise in the country's productive capacity. Salazar's commitment to preserving Portugal's "multiracial, pluricontinental" state led him reluctantly to seek external credits beginning in 1962, an action from which the Portuguese treasury had abstained for several decades.

Beyond military measures, the official Portuguese response to the "winds of change" in the African colonies was to integrate them administratively and economically more closely with Portugal through population and capital transfers, trade liberalization, and the creation of a common currency—the so-called Escudo Area. The integration program established in 1961 provided for the removal of Portugal's duties on imports from its overseas territories by January 1964. The latter, on the other hand, were permitted to continue to levy duties on goods imported from Portugal but at a preferential rate, in most cases 50 percent of the normal duties levied by the territories on goods originating outside the Escudo Area. The effect of this two-tier tariff system was to give Portugal's exports preferential access to its colonial markets.

Despite the opposition of protectionist interests, the Portuguese government succeeded in bringing about some liberalization of the industrial licensing system, as well as in reducing trade barriers to conform with EFTA and GATT agreements. The last years of the Salazar era witnessed the creation of important privately organized ventures, including an integrated iron and steel mill, a modern ship repair and shipbuilding complex, vehicle assembly plants, oil refineries, petrochemical plants, pulp and paper mills, and electronic plants. As economist Valentim Xavier Pintado observed, "Behind the facade of an aged Salazar, Portugal knew deep and lasting changes during the 1960s."

The liberalization of the Portuguese economy continued under Salazar's successor, Prime Minister Marcello José das Neves Caetano (1968-74), whose administration abolished industrial licensing requirements for firms in most sectors and in 1972 signed a free trade agreement with the newly enlarged EC. Under the agreement, which took effect at the beginning of 1973, Portugal was given until 1980 to abolish its restrictions on most community goods and until 1985 on certain sensitive products amounting to some 10 percent of the EC's total exports to Portugal. EFTA membership and a growing foreign investor presence contributed to Portugal's industrial modernization and export diversification between 1960 and 1973.

Notwithstanding the concentration of the means of production in the hands of a small number of family-based financial-industrial groups, Portuguese business culture permitted a surprising upward mobility of university-educated individuals with middle-class backgrounds into professional management careers. Before the revolution, the largest, most technologically advanced (and most recently organized) firms offered the greatest opportunity for management careers based on merit rather than on accident of birth.

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.^[21] On a long term analysis, after a long period of economic divergence before 1914, and a period of chaos during the Portuguese First Republic, the Portuguese economy recovered slightly until 1950, entering thereafter on a path of strong economic convergence until the Carnation Revolution in April 1974. Portuguese economic growth in the period 1950-1973 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.^[22]^[23]

Revolutionary change, 1974

The anti-Estado Novo MFA-led Carnation Revolution had a devastating impact on the Portuguese economy and social structure. The Portuguese economy had changed significantly by 1973 prior to the revolution, compared with its position in 1961 - total output (GDP at factor cost) had grown by 120 percent in real terms. Clearly, the pre-revolutionary period was characterized by robust annual growth rates for GDP (6.9 percent), industrial production (9 percent), private consumption (6.5 percent), and gross fixed capital formation (7.8 percent).

The post revolution period however was characterized by chaos and negative economic growth as industries were nationalised and the effects of the decoupling of Portugal from its former territories were felt. Heavy industry came to an abrupt halt. All sectors of the economy from manufacturing, mining, chemical, defence, finance, agriculture and fishing went into free fall. Portugal found itself overnight going from the country in Western Europe with the highest growth rate to the lowest - in fact it experienced several years of negative growth. This was amplified by the mass emigration of skilled workers due to political intimidation and economic stagnation.

It would only be in 1991 – 16 years later that the GDP as percentage EC-12 average climbed to 54.9 percent (nearly comparable with that which had existed by the time of the Carnation Revolution in 1974). Mainly as a result of Portugal's economic resurgence due to participation in the European Economic Community since 1985. Post revolution Portugal was not able to achieve the same growth rates as it had achieved in the pre revolution period.^[22]^[23]^[24]

Nationalization

The reorganization of the MFA coordinating committee in March 1975 brought into prominence a group of Marxist-oriented officers who, in league with the General Confederation of Portuguese Workers-National Intersindical (Confederação Geral dos Trabalhadores Portugueses-Intersindical Nacional—CGTP-IN), the communist-dominated trade union confederation known as Intersindical prior to 1977, sought the radical transformation of the nation's social system and political economy. Abandoning its moderate-reformist posture, the MFA leadership set out on a course of sweeping nationalizations and land expropriations. During the balance of that year, the government nationalized all Portuguese-owned capital in the banking, insurance, petrochemical, fertilizer, tobacco, cement, and wood pulp sectors of the economy, as well as the Portuguese iron and steel company, the major breweries, the large shipping lines, most public transport, two of the three principal shipyards, core companies of the Companhia União Fabril (CUF) conglomerate, the radio and TV networks (except that of the Roman Catholic Church), and important companies in the glass, mining, fishing, and agricultural sectors. 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 (often tiny) enterprises in which the state had thus obtained a majority shareholding. Another 300 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 negative business climate brought about a sharp reversal in the trend of direct investment inflows from abroad.

After the military coup in April 25, 1974, both the Lisbon and Porto stock exchanges were closed by the revolutionary National Salvation Junta (they would be reopened a couple of years later).^[25]

A study by the economists Maria Belmira Martins and José Chaves Rosa showed that a total of 244 private enterprises were directly nationalized during the sixteen-month interval from March 14, 1975 to July 29, 1976. 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. Four large companies were integrated to form the national oil company, Petróleos de Portugal (Petrogal). 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. The several breweries and beer distribution companies were integrated into two state firms, Central de Cervejas (Centralcer) and Unicer; and a single state enterprise, Rodoviária, was created by joining the ninety-three nationalized trucking and bus lines. The forty-seven 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. Included among these were the iron and steel company, Siderurgia Nacional; the railway, Caminhos de Ferro Portugueses (CP); and the national airline, Transportes Aéreos Portugueses (TAP).

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 1979 the number of domestic commercial banks was reduced from fifteen to nine. Notwithstanding their public status, the remaining banks competed with each other and retained their individual identities and certain differences in their activities.

Before the revolution, private enterprise ownership dominated the Portuguese economy to a degree unmatched in other West European countries. Only a handful of wholly owned or majority owned state entities existed; these included the post office (CTT), two of three telecommunications companies (CTT and TLP), the armaments industry, and the ports, as well as the National Development Bank and Caixa Geral de Depósitos, the largest savings bank. The Portuguese government held minority interests in TAP, the national airline; in Siderurgia Nacional, the integrated steel mill; Radio Marconi, the third telecommunications company; 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 shares should be compared with 10 percent of GFCF, 9 percent of VA, and 13 percent of employment for the traditional public sector of 1973. Expansion of the public sector since the revolution is particularly noteworthy 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, private enterprises with minority state participation (less than 50 percent of the common stock), or worker-managed firms and agricultural collectives.

Land reform

In the agricultural sector, the collective farms set up in Alentejo after the 1974-75 expropriations due to the leftist military coup of 25 April 1974, proved incapable of modernizing, and their efficiency declined. According to government estimates, about 900,000 hectares (2,200,000 acres) of agricultural land were occupied between April 1974 and December 1975 in the name of land reform (reforma agrária); about 32% of the occupations were ruled illegal. In January 1976, the government pledged to restore the illegally occupied land to its owners, and in 1977, it promulgated the Land Reform Review Law. Restoration of illegally occupied land began in 1978.

The brain drain

Compounding the problem of massive nationalizations was the brain drain of managerial and technical expertise away from the public enterprises. The income-leveling measures of the MFA revolutionary regime, together with the "antifascist" purges in factories, offices, and large agricultural estates, induced an exodus of human capital, mainly to Brazil. This loss of managers, technicians, and business people 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 306 enterprises, conducted in July 1976, and again in June 1977. His study makes clear that nationalization was greater in the modern, large, technically advanced industries than in the traditional industries such as textiles, apparel, and construction. In small enterprises (fifty to ninety-nine employees), only 15 percent of the industrialists had quit as compared with 43 percent in the larger. In the giant firms (1,000 or more employees), more than half had quit. Makler's calculations show that the higher the socioeconomic class origin, the greater the likelihood that the industrialist 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." Significantly, a much larger percentage of professional managers (52 percent) compared with owners of production (i.e., founders—18 percent, heirs—21 percent, and owner-managers—32 percent) had left their enterprises.

The constitution of 1976 confirmed the large and interventionist role of the state in the economy. Its Marxist character before the 1989 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 April 25, 1974 as "irreversible conquests of the working classes." The constitution also defined new power relationships between labor and management, with a strong bias in labor's favor. All regulations with reference to layoffs, including collective redundancy, were circumscribed by Article 53.

Role of the new public sector

After the revolution, the Portuguese economy experienced a rapid, and often 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 general government deficits. In 1982 the borrowing requirement of the consolidated public sector reached 24 percent of GDP, its peak level; it was subsequently reduced to 9 percent of GDP in 1990.

To rein in domestic demand growth, the Portuguese government was obliged to pursue IMF-monitored stabilization programs in 1977-78 and 1983-85. 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 1974 included all-pervasive price regulation, as well as heavy-handed intervention in factor markets and the distribution of income.

In 1989 Prime Minister Aníbal Cavaco Silva succeeded in mobilizing the required two-thirds vote in the National Assembly to amend the constitution, thereby permitting the denationalisation of the state-owned banks and other public enterprises. 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 1990s.

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 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.

General government

The share of general government expenditure (including capital outlays) in GDP rose from 23 percent in 1973 to 46 percent in 1990 (see table 5, Appendix). On the revenue side, the upward trend was less pronounced: the share increased from nearly 23 percent in 1973 to 39.2 percent in 1990. From a modest surplus before the revolution in 1973, the government balance swung to a wide deficit of 12 percent of GDP in 1984, declining thereafter to around 5.4 percent of GDP in 1990. Significantly, both current expenditures and capital expenditures roughly doubled their shares of GDP between 1973 and 1990: government current outlays rose from 19.5 percent to 40.2 percent, capital outlays from 3.2 percent to 5.7 percent.

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 1973 and 1990, from under 5 percent to 13.4 percent, reflecting the explosive growth of the social security system, both with respect to the number of persons covered and the upgrading of benefits. Escalating interest payments on the public debt from less than half a percent of GDP in 1973 to 8.2 percent of GDP in 1990 were the result of both a rise in the debt itself and higher real effective interest rates.

The narrowing of the government deficit since the mid-1980s 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 7.6 percent of GDP in 1984 to 1.5 percent of GDP in 1990. 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 1980s. The key objective of these reforms was to promote more efficient and market-oriented economic performance. Beyond considerations of efficiency, a good tax system also should be simple (i.e., easy to administer), fair, and transparent.

Prior to the reform, about 90 percent of the personal tax base consisted of labor income. Statutory marginal tax rates on labor income were very high, even at relatively low income levels, especially after the revolution. The large number of tax exemptions and fiscal benefits, together with high marginal tax rates, entailed the progressive erosion of the tax base through tax avoidance and evasion. Furthermore, Portuguese membership in the EC created the imperative for a number of changes in the tax system, especially the introduction of the value-added tax.

Reform proceeded in two major installments: the VAT was introduced in 1986; the income tax reform, for both personal and corporate income, became effective in 1989. The VAT, whose normal rate was 17 percent, replaced all indirect taxes, such as the transactions tax, railroad tax, and tourism tax. Marginal tax rates on both personal and corporate income were substantially cut, and in the case of individual taxes, the number of brackets was reduced to five. The basic rate of corporate tax was 36.5 percent, and the top marginal tax rate on personal income was cut from 80 percent to 40 percent. A 25-percent capital gains tax was levied on direct and portfolio investment. Business proceeds invested in development projects were exempt from capital gains tax if the assets were retained for at least two years.

Preliminary estimates indicated that part of the observed increase in direct tax revenue in 1989-90 was of a permanent nature, the consequence of a redefinition of taxable income, a reduction in allowed deductions, and the termination of most fiscal benefits for corporations. The resulting broadening of the income tax base permitted a lowering of marginal tax rates, greatly reducing the disincentive effects to labor and saving.

Macroeconomic disequilibria and public debt

Between 1973 and 1988, the general government debt/GDP ratio quadrupled, reaching a peak of 74 percent in 1988. This growth in the absolute and relative debt was only partially attributable to the accumulation of government deficits. It also reflected the reorganization of various public funds and enterprises, the separation of their accounts from those of the government, and their fiscal consolidation. The rising trend of the general government debt/GDP ratio was reversed in 1989, as a surge in tax revenues linked to the tax reform and the shrinking public enterprise deficits reduced the public sector borrowing requirement (PSBR) relative to GDP. After falling to 67 percent in 1990, the general government debt/GDP ratio was expected to continue to decline, reflecting fiscal restraint and increased proceeds from privatisation.

The financing structure of the public deficits had changed since the mid-1980s under the effect of two factors. First, the easing of the PSBR and the government's determination to reduce the foreign debt/GDP ratio led to a sharp reduction in borrowing abroad. Second, since 1985 the share of nonmonetary financing had increased steeply, not only in the form of public issues of Treasury bills but also, since 1987-88, in the form of medium-term Treasury bonds.

The magnitude of the public sector deficit (including that of the public enterprises) had a crowding-out effect on private investment. The nationalized banks were obliged by law to increase their holding of government paper bearing negative real interest rates. This massive absorption of funds by the public sector was largely at the expense of private enterprises whose financing was often constrained by quantitative credit controls.

Portugal's membership in the EC resulted in substantial net transfers averaging 1.5 percent of annual GDP during 1987-90. The bulk of these transfers was "structural" funds that were used for infrastructure developments and professional training. Additional EC funds, also allocated through the public sector, were designed for the development of Portugal's agricultural and industrial sectors.

After 1985 the PSBR began to show a substantial decline, largely as a result of the improved financial position of public enterprises. Favorable exogenous factors (lower oil prices, lower interest rates, and depreciation of the dollar) helped to moderate operating costs. More important, however, was the shift in government policy. Public enterprise managers were given greater autonomy with respect to investment, labor, and product pricing. Significantly, the combined deficit of the nonfinancial public enterprises fell to below 2 percent of GDP on average in 1987-88 from 8 percent of GDP in 1985-86. In 1989 the borrowing requirements of those enterprises fell further to 1 percent of GDP.

In April 1990, legislation concerning privatization was enacted following an amendment to the constitution in June 1989 that provided the basis for complete (100 percent) divestiture of nationalized enterprises. Among the stated objectives of privatization were to modernize economic units, increase their competitiveness, and contribute to sectoral restructuring; to reduce the role of the state in the economy; to contribute to the development of capital markets; and to widen the participation of Portuguese citizens in the ownership of enterprises, giving particular attention to the workers of the enterprises and to small shareholders.

The Portuguese government was concerned about the strength of foreign investment in privatizations and wanted to reserve the right to veto some transactions. But as a member of the EC, Portugal eventually would have to accept investment from other member countries on an equal footing with investment of its nationals. Significantly, government proceeds from privatization of nationalized enterprises would primarily be used to reduce public debt; and to the extent that profits would rise after privatization, tax revenues would expand. In 1991 proceeds from privatization were expected to amount to 2.5 percent of GDP.

Changing structure of the economy

The Portuguese economy had changed significantly by 1973, compared with its position in 1961. Total output (GDP at factor cost) grew by 120 percent in real terms. The industrial sector was three times greater, and the size of the services sector doubled; but agriculture, forestry, and fishing advanced by only 16 percent. Manufacturing, the major component of the secondary sector, was three times as large at the end of the period. Industrial expansion was concentrated in large-scale enterprises using modern technology.

The composition of GDP also changed markedly from 1961 to 1973. The share of the primary sector (agriculture, forestry, and fishing) in GDP shrank from 23 percent in 1961 to 16.8 percent in 1973, and the contribution of the secondary (or industrial) sector (manufacturing, construction, mining, and electricity, gas and water) increased from 37 percent to 44 percent during the period. The services sector's share in GDP remained constant at 39.4 percent between 1961 and 1973. Within the industrial sector, the contribution of manufacturing advanced from 30 percent to 35 percent and that of construction from 4.6 percent to 6.4 percent.

The progressive "opening" of Portugal to the world economy was reflected in the growing shares of exports and imports (both visible and invisible) in national output and income. Further, the composition of Portugal's balance of international payments altered substantially. From 1960 to 1973, the merchandise trade deficit widened, but owing to a growing surplus on invisibles—including tourist receipts and emigrant worker remittances—the deficit in the current account gave way to a surplus from 1965 onward. Beginning with that year, the long-term capital account typically registered a deficit, the counterpart of the current account surplus. Even though the nation attracted a rising level of capital from abroad (both direct investments and loans), official and private Portuguese investments in the "overseas territories" were greater still—hence the net outflow on the long-term capital account.

The growth rate of Portuguese merchandise exports during the period 1959 to 1973 was 11 percent per annum. In 1960 the bulk of exports was accounted for by a few products—canned fish, raw and manufactured cork, cotton textiles, and wine. By contrast, in the early 1970s, Portugal's export list reflected significant product diversification, including both consumer and capital goods. Several branches of Portuguese industry became export-oriented, and in 1973 over one-fifth of Portuguese manufactured output was exported.

The radical nationalization-expropriation measures in the mid-1970s were initially accompanied by a policy-induced redistribution of national income from property owners, entrepreneurs, and private managers and professionals to industrial and agricultural workers. This wage explosion favoring workers with a high propensity to consume had a dramatic impact on the nation's economic growth and pattern of expenditures. Private and public consumption combined rose from 81 percent of domestic expenditure in 1973 to nearly 102 percent in 1975. The counterpart of overconsumption in the face of declining national output was a contraction in both savings and fixed capital formation, depletion of stocks, and a huge balance-of-payments deficit. The rapid increase in production costs associated with the surge in unit labor costs between 1973 and 1975 contributed significantly to the decline in Portugal's ability to compete in foreign markets. Real exports fell between 1973 and 1976, and their share in total expenditures declined from nearly 26 percent to 16.5 percent.

The economic dislocations of metropolitan Portugal associated with the income leveling and nationalization-expropriation measures were exacerbated by the sudden loss of the nation's African colonies in 1974 and 1975 and the reabsorption of overseas settlers (the so-called retornados), the global recession, and, as well, the international energy crisis.

Over the longer period, 1973-90, the composition of Portugal's GDP at factor cost changed significantly. The contribution of agriculture, forestry, and fishing as a share of total production continued its inexorable decline, to 6.1 percent in 1990 from 12.2 percent in 1973. In contrast to the prerevolutionary period, 1961-73, when the industrial sector grew by 9 percent annually and its contribution to GDP expanded, industry's share narrowed to 38.4 percent of GDP in 1990 from 44 percent in 1973. Manufacturing, the major component of the industrial sector, contributed relatively less to GDP in 1990 (28 percent) than in 1973 (35 percent). Most striking was the 16- percentage-point increase in the participation of the services sector from 39 percent of GDP in 1973 to 55.5 percent in 1990. Most of this growth reflected the proliferation of civil service employment and the associated cost of public administration, together with the dynamic contribution of tourism services during the 1980s.

Economic growth, 1960-73 and 1981-90

There was a striking contrast between the economic growth and levels of capital formation in the 1960-73 period and in the 1980s decade. Clearly, the pre-revolutionary period was characterized by robust annual growth rates for GDP (6.9 percent), industrial production (9 percent), private consumption (6.5 percent), and gross fixed capital formation (7.8 percent). By way of contrast, the 1980s exhibited a pattern of slow-to-moderate annual growth rates for GDP (2.7 percent), industrial production (4.8 percent), private consumption (2.7 percent), and fixed capital formation (3.1 percent). As a result of worker emigration and the military draft, employment declined during the earlier period (by a half percent annually), but increased by 1.4 percent annually during the 1980s. Significantly, labor productivity (GDP growth/employment growth) grew by a sluggish rate of 1.3 percent annually in the recent period compared with the extremely rapid annual growth rate of 7.4 percent earlier. Inflation, as measured by the GDP deflator, averaged a modest 4 percent a year before the revolution compared with nearly 18 percent annually during the 1980s.^[22]^[23]^[24] In 1960, Portugal joined the European Free Trade Association (EFTA) as a founding member.

Although the investment coefficients were roughly similar (24 percent of GDP allocated to fixed capital formation in the earlier period; 26.7 percent during the 1980s), the overall investment productivity or efficiency (GDP growth rate/investment coefficient) was nearly three times greater (28.6 percent) before the revolution than in the 1980s (10.1 percent).

In 1960, at the initiation of Salazar's more outward-looking economic policy, Portugal's per capita GDP was only 38 percent of the EC-12 average; by the end of the Salazar period, in 1968, it had risen to 48 percent; and in 1973, on the eve of the revolution, Portugal's per capita GDP had reached 56.4 percent of the EC-12 average. In 1975, the year of maximum revolutionary turmoil, Portugal's per capita GDP declined to 52.3 percent of the EC-12 average. Convergence of real GDP growth toward the EC average occurred as a result of Portugal's economic resurgence since 1985. In 1991 Portugal's GDP per capita climbed to 54.9 percent of the EC average, exceeding by a fraction the level attained just during the worst revolutionary period.^[26] In addition, the events of the 1974 Carnation Revolution prompted a mass exodus of Portuguese citizens from Portugal's African territories (mostly from Portuguese Angola and Mozambique), creating over a million Portuguese destitute refugees - the retornados.^[27]

Portugal entered the European Economic Community (EEC) in 1986 and left the European Free Trade Association (EFTA) where its had been a founding member in 1960. An important external influx of structural and cohesion funds was managed by the country as the EEC evolved to the European Union (EU) and beyond.

European Union integration - the 1990s and 2000s

Portugal experienced a strong recovery in a few decades after the Carnation Revolution's turmoil of 1974, the ultimate loss of its overseas empire in 1975, and the adhesion to the European Union, then the European Economic Community, in 1986.

The European Union's structural and cohesion funds and the growth of many of Portugal's main exporting companies which became leading world players in a number of economic sectors, such as engineered wood, injection molding, plastics, specialized software, ceramics, textiles, footwear, paper, cork, fine wine, among others, was a major factor on the development of the Portuguese economy, standard of living and quality of life. Similarly, for several years, the Portuguese subsidiaries of large multinational companies, such as Siemens Portugal, Volkswagen Autoeuropa, Qimonda Portugal, IKEA, Nestlé Portugal, Microsoft Portugal,^[4] Unilever/Jerónimo Martins and Danone Portugal, ranked among its most productive in the world for its continued high productivity records.^[28]^[29]

Among the most notable Portugal-based global companies that expanded internationally in the 1990s and 2000s are Sonae, Sonae Indústria, Amorim, Sogrape, EFACEC, Portugal Telecom, Jerónimo Martins, Cimpor, Unicer, Millennium bcp, Lactogal, Sumolis, Cerealis, Frulact, Ambar, Bial, Critical Software, Active Space Technologies, YDreams, Galp Energia, Energias de Portugal, Visabeira, Renova, Teixeira Duarte, Soares da Costa, Portucel Soporcel, Salsa jeans, Simoldes, Iberomoldes and Logoplaste.

Although being very high by world's average standards, Portugal's GDP per capita remained among the lowest in Western Europe. It was the 6th poorest country of the 27 member states of the European Union by purchasing power, for the period 2005-2007, according to the Eurostat.^[30] However, research about quality of life by the Economist Intelligence Unit's (EIU) Quality-of-life Survey placed Portugal as the country with the 19th-best quality of life in the world for 2005, ahead of other economically and technologically advanced countries like France, Germany, the United Kingdom and South Korea, but 9 places behind its only neighbour, Spain.

Several new stadiums were built for the UEFA Euro 2004,^[31] a number of these stadiums remained underutilized after the championship - shown is the Algarve Stadium.

The Global Competitiveness Report for 2005, published by the World Economic Forum, placed Portugal on the 22nd position, ahead of countries and territories like Spain, Ireland, France, Belgium and Hong Kong. This table showed that Portugal had stepped two places regarding the 2004 ranking. On the Technology index, Portugal was ranked 20th, on the Public Institutions index Portugal was the 15th best and on the Macroeconomic index, Portugal was placed on the 37th position. [5] The Global Competitiveness Index 2007-2008 placed Portugal on the 40th position out of 131 countries and territories.^[32] However, the Global Competitiveness Report 2008-2009 edition placed Portugal in the 43rd position out of 134 countries and territories.^[7]

Related to the notable economic development that was seen in Portugal from the 1960s to the early 2000s (with an abrupt but short-lived halt due to the Carnation Revolution of 1974), the development of tourism, which allowed a display of the national cultural heritage, particularly in regards to architecture and local cuisine, improved further and defined its development. The adoption of the euro and the organisation of Expo 98 world fair in Lisbon, the 2001 European Culture Capital in Porto and the Euro 2004 football championship, were also important landmarks in the economic history of the country.

GDP growth in 2006, at 1.3%, was the lowest not just in the European Union but in all of Europe. In the 2000s, the Czech Republic, Greece, Malta, Slovakia and Slovenia have all overtaken Portugal in terms of GDP per head. And Portuguese GDP per head has fallen from just over 80% of the EU 25 average in 1999 to just over 70% in 2007. This poor performance of the Portuguese economy was explored in April 2007 by The Economist which described Portugal as "a new sick man of Europe".^[33] From 2002 to 2007, the unemployment rate increased 65% (270,500 unemployed citizens in 2002, 448,600 unemployed citizens in 2007).^[34] By December 2009, unemployment had surpassed the 10% mark nationwide.

In the overall, the late 1990s and the 2000s, were marked by a lagging economy where Portugal not only failed to converge to the EU average, but actually diverged for a period. State-funded and supported construction projects like those related with the Expo 98 World Fair in Lisbon, the 2004 European Football Championship and the opening of a number of brand-new motorways, proved to have little positive effect in a sustainable growth of the Portuguese economy. The short term impact of these major investments was exhausted by the late 2000s, and both a faster economic growth and the improvement of the population's purchasing power in relation to the EU average, were not achieved. To make matters worse, the late 2000s recession, when much of the industrialized world entered into a deep recession, led to increased unemployment and economic downturn in the final years of the decade. A two-decades long unemployment record had been broken and the country's economy as a whole was performing bad.

In December 2009, ratings agency Standard and Poor's lowered its long-term credit assessment of Portugal to "negative" from "stable," voicing pessimism on the country's structural weaknesses in the economy and weak competitiveness that would hamper growth and the capacity to strengthen its public finances and reduce debt.^[35]

References

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- Portugal

^ "Portuguese Empire," Microsoft Encarta Online Encyclopedia 2009. Archived 2009-10-31.
^ Flight from Angola, The Economist (August 16, 1975).
^ Dismantling the Portuguese Empire, Time Magazine (Monday, July 07, 1975).
^ ^a ^b Microsoft Portugal novamente eleita melhor Subsidiária mundial da Microsoft International em 2008
^ A Siemens executive, Carlos de Melo Ribeiro, pointed to labor costs and productivity as major reasons why shipping semiconductors to Portugal for final production was more advantageous than retaining the work in Germany or Great Britain - Siemens Builds on Long History in Portugal, to the Benefit of Both, By Karen E. Thuermer, October, 1997, in Keller Publishing [1]
^ "The investment made in Portugal by the VW group has enabled “this plant to become one of the best in the VW Group and indeed in the whole automotive industry in terms of quality, productivity, absenteeism, safety, and many other decisive criteria”, Gerd Heuss upon the manufacturing of car nº 1 million in Palmela", June 2003., AICEP - Business Development Agency
^ ^a ^b "The Global Competitiveness Index rankings" (PDF). World Economic Forum. Retrieved 2009-03-20.
^ Edson and Savage-Smith "Medieval Views of the Cosmos"(2004), pp. 113–6
^ Joel Serrão, "O carácter social da revolução de 1383", p. 95, Livros Horizonte, 1976
^ Pereira, John Felix, "Abridgement of the History of Portugal", p. 114, ISBN 1110335261
^ A. R. de Oliveira Marques, Vitor Andre, "Daily Life in Portugal in the Late Middle Ages", p.9, Univ of Wisconsin Press, 1971, ISBN 0299055841
^ M. D. D. Newitt, "A history of Portuguese overseas expansion, 1400-1668", p.9, Routledge, 2005 ISBN 0415239796
^ A.L. Epstein, Urban Communities in Africa - Closed Systems and Open Minds, 1964
^ B.W. Hodder, Some Comments on the Origins of Traditional Markets in Africa South of the Sahara - Transactions of the Institute of British Geographers, 1965 - JSTOR
^ H. Miner, The City in Modern Africa - 1967
^ H. Kuper, Urbanization and Migration in West Africa - 1965 - Berkeley, Calif., U. of California
^ Transformations in Slavery by Paul E. Lovejoy - Cambridge University Press, 2000
^ The first written reference to the Casa da Índia was in a royal letter dated 1501. The Casa da Índia might more properly be viewed as a continuation of previous similar organizations
^ JSTOR: Anglo-Portuguese Trade, 1700-1770. JSTOR. Retrieved on August 16, 2007.
^ Janick, Jules. Lecture 34. Retrieved on August 16, 2007
^ [Problems of Democratic Transition and Consolidation, Juan José Linz http://books.google.com/books?id=TqRn1lAypsgC&pg=PA128&dq=Financial+crisis+1974+Portugal#PPA129,M1]
^ ^a ^b ^c [2], Joaquim da Costa Leite (Aveiro University) - Instituições, Gestão e Crescimento Económico: Portugal, 1950-1973
^ ^a ^b ^c Template:Pt icon Fundação da SEDES - As primeiras motivações, "Nos anos 60 e até 1973 teve lugar, provavelmente, o mais rápido período de crescimento económico da nossa História, traduzido na industrialização, na expansão do turismo, no comércio com a EFTA, no desenvolvimento dos sectores financeiros, investimento estrangeiro e grandes projectos de infra-estruturas. Em consequência, os indicadores de rendimentos e consumo acompanham essa evolução, reforçados ainda pelas remessas de emigrantes.", SEDES
^ ^a ^b [3] Tiago Neves Sequeira (University of Beira Interior), CRESCIMENTO ECONÓMICO NO PÓS-GUERRA: OS CASOS DE ESPANHA, PORTUGAL E IRLANDA
^ Template:Pt icon História da Bolsa de Valores de Lisboa, Millennium bcp
^ Economic Growth and Change, U.S. Library of Congress, countrystudies.us
^ Dismantling the Portuguese Empire, Time Magazine (Monday, Jul. 07, 1975)
^ A Siemens executive, Carlos de Melo Ribeiro, pointed to labor costs and productivity as major reasons why shipping semiconductors to Portugal for final production is more advantageous than retaining the work in Germany or Britain - Siemens Builds on Long History in Portugal, to the Benefit of Both, By Karen E. Thuermer, October, 1997, in Keller Publishing [4]
^ "The investment made in Portugal by the VW group has enabled “this plant to become one of the best in the VW Group and indeed in the whole automotive industry in terms of quality, productivity, absenteeism, safety, and many other decisive criteria”, Gerd Heuss upon the manufacturing of car nº 1 million in Palmela", June 2003., AICEP - Business Development Agency
^ Template:Pt icon Portugueses perderam poder de compra entre 2005 e 2007 e estão na cauda da Zona Euro, Público (December 11, 2008)
^ Is Euro 2004 worth it for Portugal?, BBC News (2 June 2004)
^ Global Competitiveness Index 2007-2008
^ "A new sick man of Europe", The Economist, 2007-04-14. http://www.economist.com/world/europe/displaystory.cfm?story_id=9009032
^ Luis Miguel Mota, População desempregada aumentou 65% em cinco anos, Destak.pt (6th June 2008)
^ Standard and Poor's pessimistic on Portugal, Agence France-Presse (December 7, 2009)

Bibliography

[1] "Portuguese Empire," Microsoft Encarta Online Encyclopedia 2009. Archived 2009-10-31.

[2] Flight from Angola, The Economist (August 16, 1975).

[3] Dismantling the Portuguese Empire, Time Magazine (Monday, July 07, 1975).

[microsoft.com-4] Microsoft Portugal novamente eleita melhor Subsidiária mundial da Microsoft International em 2008

[5] A Siemens executive, Carlos de Melo Ribeiro, pointed to labor costs and productivity as major reasons why shipping semiconductors to Portugal for final production was more advantageous than retaining the work in Germany or Great Britain - Siemens Builds on Long History in Portugal, to the Benefit of Both, By Karen E. Thuermer, October, 1997, in Keller Publishing [1]

[6] "The investment made in Portugal by the VW group has enabled “this plant to become one of the best in the VW Group and indeed in the whole automotive industry in terms of quality, productivity, absenteeism, safety, and many other decisive criteria”, Gerd Heuss upon the manufacturing of car nº 1 million in Palmela", June 2003., AICEP - Business Development Agency

[World_Economic_Forum-7] "The Global Competitiveness Index rankings" (PDF). World Economic Forum. Retrieved 2009-03-20.

[ESS116-8] Edson and Savage-Smith "Medieval Views of the Cosmos"(2004), pp. 113–6

[9] Joel Serrão, "O carácter social da revolução de 1383", p. 95, Livros Horizonte, 1976

[10] Pereira, John Felix, "Abridgement of the History of Portugal", p. 114, ISBN 1110335261

[11] A. R. de Oliveira Marques, Vitor Andre, "Daily Life in Portugal in the Late Middle Ages", p.9, Univ of Wisconsin Press, 1971, ISBN 0299055841

[12] M. D. D. Newitt, "A history of Portuguese overseas expansion, 1400-1668", p.9, Routledge, 2005 ISBN 0415239796

[13] A.L. Epstein, Urban Communities in Africa - Closed Systems and Open Minds, 1964

[14] B.W. Hodder, Some Comments on the Origins of Traditional Markets in Africa South of the Sahara - Transactions of the Institute of British Geographers, 1965 - JSTOR

[15] H. Miner, The City in Modern Africa - 1967

[16] H. Kuper, Urbanization and Migration in West Africa - 1965 - Berkeley, Calif., U. of California

[17] Transformations in Slavery by Paul E. Lovejoy - Cambridge University Press, 2000

[18] The first written reference to the Casa da Índia was in a royal letter dated 1501. The Casa da Índia might more properly be viewed as a continuation of previous similar organizations

[19] JSTOR: Anglo-Portuguese Trade, 1700-1770. JSTOR. Retrieved on August 16, 2007.

[20] Janick, Jules. Lecture 34. Retrieved on August 16, 2007

[21] [Problems of Democratic Transition and Consolidation, Juan José Linz http://books.google.com/books?id=TqRn1lAypsgC&pg=PA128&dq=Financial+crisis+1974+Portugal#PPA129,M1]

[ideas.repec.org-22] [2], Joaquim da Costa Leite (Aveiro University) - Instituições, Gestão e Crescimento Económico: Portugal, 1950-1973

[sedes.pt-23] Template:Pt icon Fundação da SEDES - As primeiras motivações, "Nos anos 60 e até 1973 teve lugar, provavelmente, o mais rápido período de crescimento económico da nossa História, traduzido na industrialização, na expansão do turismo, no comércio com a EFTA, no desenvolvimento dos sectores financeiros, investimento estrangeiro e grandes projectos de infra-estruturas. Em consequência, os indicadores de rendimentos e consumo acompanham essa evolução, reforçados ainda pelas remessas de emigrantes.", SEDES

[dge.ubi.pt-24] [3] Tiago Neves Sequeira (University of Beira Interior), CRESCIMENTO ECONÓMICO NO PÓS-GUERRA: OS CASOS DE ESPANHA, PORTUGAL E IRLANDA

[25] Template:Pt icon História da Bolsa de Valores de Lisboa, Millennium bcp

[26] Economic Growth and Change, U.S. Library of Congress, countrystudies.us

[27] Dismantling the Portuguese Empire, Time Magazine (Monday, Jul. 07, 1975)

[28] A Siemens executive, Carlos de Melo Ribeiro, pointed to labor costs and productivity as major reasons why shipping semiconductors to Portugal for final production is more advantageous than retaining the work in Germany or Britain - Siemens Builds on Long History in Portugal, to the Benefit of Both, By Karen E. Thuermer, October, 1997, in Keller Publishing [4]

[29] "The investment made in Portugal by the VW group has enabled “this plant to become one of the best in the VW Group and indeed in the whole automotive industry in terms of quality, productivity, absenteeism, safety, and many other decisive criteria”, Gerd Heuss upon the manufacturing of car nº 1 million in Palmela", June 2003., AICEP - Business Development Agency

[economia.publico.clix.pt-30] Template:Pt icon Portugueses perderam poder de compra entre 2005 e 2007 e estão na cauda da Zona Euro, Público (December 11, 2008)

[31] Is Euro 2004 worth it for Portugal?, BBC News (2 June 2004)

[32] Global Competitiveness Index 2007-2008

[sick_man-33] "A new sick man of Europe", The Economist, 2007-04-14. http://www.economist.com/world/europe/displaystory.cfm?story_id=9009032

[34] Luis Miguel Mota, População desempregada aumentou 65% em cinco anos, Destak.pt (6th June 2008)

[35] Standard and Poor's pessimistic on Portugal, Agence France-Presse (December 7, 2009)

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 === Kingdom of Portugal ===
-In 1139 the [[Kingdom of Portugal]] achieved independence from León, having doubled its area with the [[Reconquista]] under [[Afonso I of Portugal|Afonso Henriques]]. His successor, Sancho I, accumulated a first national [[treasury]], supported new industries and the middle class of merchants. Moreover, he created several new towns  (like Guarda in 1199) and took great care in populating remote areas. Starting in 1212 [[Afonso II of Portugal]] established the state's administration, designing the first set of Portuguese written laws. These were mainly concerned with [[private property]], civil justice, and [[Mint (coin)|minting]]. He also sent ambassadors to European kingdoms outside the Iberian Peninsula and began commercial relations with them. Earliest references of commercial relations between Portugal and the [[County of Flanders]] record the Portuguese in [[Lille]]'s [[fair]] in 1267.<ref>Joel Serrão, "O carácter social da revolução de 1383", p. 95, Livros Horizonte, 1976</ref> In 1297, with the Reconquista completed, king [[Denis of Portugal]] pursued policies on legislation and centralization of power, adopting Portuguese as the official language. He ordered the exploration of mines of [[copper]], [[silver]], [[tin]] and [[iron]] and organized the export of excess production to other European countries. On May 10th, 1293 King Denis instituted an insurance fund for Portuguese traders living in the County of Flanders, which was to pay certain sums according to tonnage, accrued to them when necessary. In 1308 he signed the first Portuguese commercial agreement with [[England]]<ref>Pereira, John Felix, [http://books.google.com/books?id=ZhuWFtPzsbsC&lpg=PP1&pg=PP1#v=onepage&q=&f=false "Abridgement of the History of Portugal"], p. 114, ISBN 1110335261</ref>. He distributed the land, promoted agriculture, organized communities of farmers and took personal interest in the development of exports, founding and regulating regular [[market]]s in a number of towns. Agriculture was Portugal's main activity, mostly consumed in the country. Wine and dried fruits from Algarve (figs, grapes and almonds) were sold in Flanders and England, salt from Lisbon, Setúbal and Aveiro was a profitable export to northern Europe, and leather and [[kermes (dye)]], a scarlet dye, were also exported. Industry was minimal and Portuguese imported armors and munitions, fine clothes and several manufactured products from Flanders and Italy. Since 1200's monetary economy had been stimulated but still [[barter]] and direct exchanges dominated trade, and coinage was limited and foreign currency used until the beginning of the 15th century.<ref>A. R. de Oliveira Marques, Vitor Andre, [http://books.google.com/books?id=aq08DHChiGwC&lpg=PP1&pg=PP1#v=onepage&q=&f=false "Daily Life in Portugal in the Late Middle Ages"], p.9, Univ of Wisconsin Press, 1971, ISBN 0299055841</ref>
+In 1139 the [[Kingdom of Portugal]] achieved independence from León, having doubled its area with the [[Reconquista]] under [[Afonso I of Portugal|Afonso Henriques]]. His successor, Sancho I, accumulated a first national [[treasury]], supported new industries and the middle class of merchants. Moreover, he created several new towns  (like Guarda in 1199) and took great care in populating remote areas. Starting in 1212 [[Afonso II of Portugal]] established the state's administration, designing the first set of Portuguese written laws. These were mainly concerned with [[private property]], civil justice, and [[Mint (coin)|minting]]. He also sent ambassadors to European kingdoms outside the Iberian Peninsula and began commercial relations with them. Earliest references of commercial relations between Portugal and the [[County of Flanders]] record the Portuguese in [[Lille]]'s [[fair]] in 1267.<ref>Joel Serrão, "O carácter social da revolução de 1383", p. 95, Livros Horizonte, 1976</ref> In 1297, with the Reconquista completed, king [[Denis of Portugal]] pursued policies on legislation and centralization of power, adopting Portuguese as the official language. He ordered the exploration of mines of [[copper]], [[silver]], [[tin]] and [[iron]] and organized the export of surplus production to other European countries. On May 10th, 1293 King Denis instituted an insurance fund for Portuguese traders living in the County of Flanders, which was to pay certain sums according to tonnage, accrued to them when necessary. In 1308 he signed the first Portuguese commercial agreement with [[England]]<ref>Pereira, John Felix, [http://books.google.com/books?id=ZhuWFtPzsbsC&lpg=PP1&pg=PP1#v=onepage&q=&f=false "Abridgement of the History of Portugal"], p. 114, ISBN 1110335261</ref>. He distributed the land, promoted agriculture, organized communities of farmers and took personal interest in the development of exports, founding and regulating regular [[market]]s in a number of towns. Agriculture was Portugal's main activity, mostly consumed inside the country. Wine and dried fruits from [[Algarve]] (figs, grapes and almonds) were sold in Flanders and England, salt from [[Setúbal]] and [[Aveiro]] was a profitable export to northern Europe, and leather and [[kermes (dye)]], a scarlet dye, were also exported. Industry was minimal and Portuguese imported armors and munitions, fine clothes and several manufactured products from Flanders and Italy. Since 1200's monetary economy had been stimulated but still [[barter]] dominated trade, and coinage was limited and foreign currency was also used until the beginning of the 15th century.<ref>A. R. de Oliveira Marques, Vitor Andre, [http://books.google.com/books?id=aq08DHChiGwC&lpg=PP1&pg=PP1#v=onepage&q=&f=false "Daily Life in Portugal in the Late Middle Ages"], p.9, Univ of Wisconsin Press, 1971, ISBN 0299055841</ref>.
-== Beginning of Portuguese empire: 15th - 16th c. AD ==
+== Expansion of the Portuguese empire (15th - 16th c.) ==
-The Portuguese economy had benefited from its connections with neighboring [[Muslim]] states. A money economy was well enough established for [[15th century]] workers in the countryside as well as in the towns to be paid in [[currency]]. The agriculture of the countryside had diversified to the point where grain was imported from [[Morocco]] (a symptom of an economy dependent upon Portugal's), while specialized crops occupied former grain-growing areas: vineyards, olives, or the sugar factories of the [[Algarve]], later to be reproduced in [[Brazil]] (Braudel 1985). Most of all, the [[House of Aviz|Aviz]] dynasty that had come to power in 1385 marked the semi-eclipse of the conservative land-oriented aristocracy (See [[The Consolidation of the Monarchy in Portugal]].) Also, due to their close connections with several Islamic kingdoms, a constant exchange of cultural ideals made Portugal a centre of knowledge and technological development. Due to these connections with Islamic kingdoms, many [[mathematician]]s and experts in naval technology appeared in Portugal. The Portuguese government impelled this even further by taking full advantage of this and by creating several important research centres in Portugal, where Portuguese and foreign experts made several breakthroughs in the fields of mathematics, cartography and naval technology. [[Sagres Point|Sagres]] and [[Lagos, Portugal|Lagos]] in the [[Algarve]] become famous as such places.
+In the second half of the fourteen century outbreaks of [[bubonic plague]] led to severe depopulation: the economy was extremely localized in a few towns, and migration from the country lead to land being abandoned to agriculture and resulting in village unemployment rise. To promote settlement, in 1375 [[Sesmarias law]] was issued, leasing vacant lands to unemployed cultivators, but without great effect: by the end of the century Portugal faced a food shortages, having to import [[wheat]] from [[north Africa]]. Only the sea offered alternatives, with most population settling in fishing and trading coastal areas.<ref>M. D. D. Newitt, [http://books.google.com/books?id=vpteLQcx6J4C&lpg=PP1&pg=PP1#v=onepage&q=&f=false "A history of Portuguese overseas expansion, 1400-1668"], p.9, Routledge, 2005
-The Portuguese, in their bold exploration along the coasts of [[Africa]], have an underlying purpose - to sail round the continent to the [[spice]] markets of the east. But in the process they develop a trading interest and a lasting presence in Africa itself. On the west coast their interest is in [[gold]], and later on [[African slave trade|slaves]] for use in the largely underdeveloped and scarcely populated newly-discovered territories of the [[New World]], resulting in Portuguese settlements in both [[Portuguese Guinea|Guinea]] and [[Portuguese West Africa|Angola]]. On the [[East Africa|east coast of Africa]] they are drawn to [[Portuguese East Africa|Mozambique]] and the [[Zambezi river]] by news of a local ruler, the [[Munhumutapa]], who has fabulous wealth in gold. In their efforts to reach the Munhumutapa, the Portuguese establish in 1531 two settlements far up the Zambezi - one of them, at [[Tete]], some 260 miles from the sea. The Munhumutapa Kingdom and his gold mines remain autonomous and mostly isolated from the Portuguese. But in this region of east Africa - as in Guinea and Angola in the west - Portuguese involvement became sufficiently strong to survive into the [[20th century]]. Throughout the 16th century the Portuguese had no European rivals on the long sea route round Africa. The situation changed in the early 17th century, when both the [[Netherlands|Dutch]] and the [[England|English]] created [[East India companies]]. The Dutch, in particular, damaged Portugal's eastern trade.
+ISBN 0415239796 </ref>
+The [[House of Aviz|Aviz]] dynasty since 1385 [[The Consolidation of the Monarchy in Portugal|marked an eclipse]] of the conservative land-oriented aristocracy. Also, close connections with several Islamic kingdoms and cultural exchange made Portugal a center of knowledge and technological development, with many [[mathematician]]s and experts in naval technology appeared in Portugal.
+After consolidating the territory in the 13th century through the Portuguese [[Reconquista]] against the [[Al-Andalus|Muslims states]] of Western Iberia, the [[Kingdom of Portugal]] started to expand overseas. In 1415, [[Islamic Empire|Islamic]] [[Ceuta]] was occupied by the Portuguese during the reign of [[John I of Portugal]]. The Portuguese expansion on [[North Africa]] was the beginning of a larger process eventually called the [[Portuguese Empire|Portuguese Overseas Expansion]]. Kingdom of Portugal's goals included the expansion of [[Christianity]] into [[Muslim]] lands and the desire of [[nobility]] for epic acts of war and conquest with the avail of the [[Pope]].
-=== 15th century ===
 [[File:Cruzado Ouro D. Dinis.JPG|thumb|thumb|Gold ''Cruzado'' minted during king [[Manuel I of Portugal]] reign (1495-1521)]]
 [[Image:ElminaCastle1668.jpg|right|thumb|[[Elmina Castle]] viewed from the sea in 1668.]]
-After consolidating its territory in the 13th century through the Portuguese [[Reconquista]] against the [[Al-Andalus|Muslims states]] of Western Iberia, the [[Kingdom of Portugal]] started to expand overseas. In 1415, [[Islamic Empire|Islamic]] [[Ceuta]] was occupied by the Portuguese during the reign of [[John I of Portugal]]. The Portuguese expansion on [[North Africa]] was the beginning of a larger process eventually called the [[Portuguese Empire|Portuguese Overseas Expansion]]. Concerning the characterization of Portuguese political strategies in North Africa in the context of local and international [[conjuncture]]s and of the process of Portuguese empire-building in the 15th and 16th centuries, Kingdom of Portugal's goals included the expansion of [[Christianity]] into [[Muslim]] lands and the desire of [[nobility]] for epic acts of war and conquest with the avail of the [[Pope]].
 In North West Africa, Portugal would dominate several towns, including [[Ceuta]], [[Alcácer-Ceguer]], [[Tangiers]], [[Arzila]], [[Azomor]], Santa Cruz, [[Mogador]], [[Safi]], and [[El Jadida|Mazagão]] that become the first important Portuguese strongholds in Africa. In 1468, a Portuguese fleet conquered and destroyed the port of [[Anfa]] (''Anafé'' in Portuguese), today included in [[Casablanca]], which was a [[barbary corsairs]] base. When the Portuguese first sailed down the [[Atlantic]] coast of [[Africa]] in the 1430s, they were interested in [[gold]]. Ever since [[Mansa Musa]], ruler of the [[Mali Empire]], made his pilgrimage to [[Mecca]] in 1325, with 500 slaves and 100 camels (each carrying gold) the region had become synonymous with such wealth. The trade from [[sub-Saharan Africa]] was controlled by the [[Islamic Empire]] which stretched along Africa's northern coast. Muslim trade routes across the [[Sahara]], which had existed for centuries, involved [[salt]], [[kola]], [[textiles]], [[fish]], [[grain]], and [[slaves]].<ref>A.L. Epstein, Urban Communities in Africa - Closed Systems and Open Minds, 1964</ref> As the Portuguese extended their influence around the coast, [[Mauritania]], [[Senegambia]] (by 1445) and [[Guinea]], they created [[trading post]]s. Rather than becoming direct competitors to the Muslim merchants, the expanding market opportunities in [[Europe]] and the [[Mediterranean]] resulted in increased trade across the [[Sahara]].<ref>B.W. Hodder, Some Comments on the Origins of Traditional Markets in Africa South of the Sahara - Transactions of the Institute of British Geographers, 1965 - JSTOR</ref> In addition, the Portuguese merchants gained access to the interior via the [[Senegal river|Senegal]] and [[Gambia river|Gambia]] rivers which bisected long-standing trans-Saharan routes. The Portuguese brought in [[copper]] ware, [[cloth]], [[tools]], [[wine]] and [[horses]]. Trade goods soon also included [[Armaments|arms]] and [[ammunition]]. In exchange, the Portuguese received gold (transported from mines of the [[Akan]] deposits), [[Black pepper|pepper]] (a trade which lasted until [[Vasco da Gama]] reached [[India]] in 1498) and [[ivory]]. There was a very small market for African slaves as domestic workers in Europe, and as workers on the sugar plantations of the Mediterranean. However, the Portuguese found they could make considerable amounts of gold transporting slaves from one trading post to another, along the Atlantic coast of Africa. Muslim merchants had a high demand for slaves, which were used as porters on the [[trans-Saharan route]]s, and for sale in the [[Islamic Empire]]. The Portuguese found Muslim merchants entrenched along the African coast as far as the [[Bight of Benin]].<ref>H. Miner, The City in Modern Africa - 1967</ref> The [[slave coast]], as the Bight of Benin was known, was reached by the Portuguese at the start of the 1470s. It was not until they reached the [[Kingdom of Kongo]] coast in the 1480s that they outdistanced Muslim trading territory.

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