Austerity - a little bit of prehistory

The Portuguese Economy has been sick for years.   It is an old problem.  The economic crisis was already a reality when Gueterres gave up in 2001 by throwing the towel into the ring - and even somewhat when he came to power in 1995.

From interesting article: Driving too fast

The very clever politician, Durão Barroso, took over government after Gueterres and in a moment of inspiration did what no prime minister should do, and told the Portuguese people how very, very badly the country was doing.  That of course assured that things got worse.  He promised (maybe even gave his word?) that he would stay with the government for the whole period to recuperate the country.  But when you are a born opportunist, your current job is going badly, a new and more prestigious job is offered - of course then your word is worth nothing...   For he was offered the job as the President of the European Commission.    A compromise candidate - naturally.  To my eternal wonderment he is now considered a person of integrity.   Were I the Portuguese people I would have him tried as a traitor, take away his citizenship and never let him set foot on Portuguese soil again.   I think some would suggest using the name Barroso as an analogue to Quisling.

After Barroso we got a politician for whom I had respect.  A born demagogue if anybody:  The new prime minister, Pedro Santana Lopes, head of the same PSD government (except for the guy who fled to Belgium).  Let me reiterate:  HAD respect.   The government was a minor catastrophe.  Of course it was no easy job taking over unprepared.  It also taught me that the Portuguese president in fact does have power as for the first time ever a president fired a sitting government.  The ex-mayor then president of course PS and the government PSD - but still.

After Santana Lopes we got his debating partner from TV:  "engineer" José Socrates.   The reason why I write "engineer" is that I am still not sure (along with a majority of the Portuguese population) whether he is an engineer.  Not that I give a damn qualification wise - to be prime minister you don't need to be an engineer.  And it is refreshing not having an economist or lawyer.  (BTW the number of lawyers in the Portuguese parliament is now down to one quarter.  That is better than it used to be, as the degree of banana republic is known to be directly proportional to the number of lawyers in parliament.)  But it is worrying to have a prime minister that either a) lies about his degree or b) has gotten it through mysterious ways.  Until anything proven I suppose we must give Mr Socrates the privilege of doubt.
Anyway Mr Socrates was initially a fresh breath.  I also HAD respect for him and rather enjoyed the debates he was involved in on TV before he was elected.   Mr Socrates in the 6-7 years of government actually did a few positive things such as trying to get teachers to work and raising the age of retirement.   Both unheard of in Portugal and even more so from a PS government.
But of course his errors more than compounded his successes.  The economic initiatives were the same as for all Portuguese governments:  Raise the taxes, borrow and then spend, spend, spend.  Why is it that most European politicians only subscribe to Keynesian hypothesis?  There are other economic "schools".  Is it because Keynes is always described first in books on economy?  All in all also another proof of the old adage:  It is so very easy to spend other people’s money.

For the last 4 months we now have a new PSD government.  The prime minister is Passos Coelho.  His government are currently implementing austerity measures that will hurt.  Until now the only implemented ones are extra income for the state.  But newly announced measures also aim to cut down public expenditure.   Unfortunately, except for one small measure - there seem to be none to resolve the structural problems of the country such as creating favorable conditions for private enterprise.

Portugal became a full member of the EU in 1994.  Of course all the initial EU subsidies were wasted as Portugal is the only country that was allowed to decide itself on how to spend them.  In exaggerated terms it did so on fictitious courses for grownups (with salary) - hence all the new school owners got Ferraris.  It also spend the money on traditional old fashioned industries such as mechanical and textile.   Guess how many of these endeavours still exist in Portugal today?

Portugal and spending are so close to synonyms it is chocking.  Not only spending but bad spending.   Visit Lisbon and you will see a western capital apparently on par with other capitals.  That is if you do not look behind the facade of amazing public works, highways to every village, monuments on each round about, major football stadiums for each city etc., etc.

Generally speaking the public sector is big and hugely ineffective.  Productivity is very low as you in reality only have to work if you want to.  Salaries are on an average nearly 50% (*) more than in the private sector.  You cannot be fired and you can go on sick leave indefinitely.  Pensions are huge - now becoming smaller - but meanwhile still nearly equal to the last salary.  Many retire very early, some after only 30 years of work.  Until you die you are member of a public health insurance equal to or better than private ones (not the least reason: the private ones kick you out before you get old).  No wonder all Portuguese mothers wish for the children to get a job in the public sector.

Education is largely a failure even though some improvement has been made.  Portuguese teachers are to some accounts the best paid and the least working in the OECD
The quality of students in and from higher education is with some exceptions rather miserable.

The justice system is largely broken down.   People with money are mostly immune to all lawsuits as they manage to drag the process out until it prescribes by using "good" lawyers and their contacts.  The number of pending processes is so large that it seems impossible ever to get to the bottom.   Many people and companies do not bother to use the juridical system as it seems hopeless.

The health care system is also in a miserable state.  Many use the emergency in hospitals instead of going to the doctor.  It can take months to get an appointment.  The conditions at some hospitals are appalling. Try to visit and see for yourself.

The last many years a great scheme has been used by politicians (local and state).  The creation of public companies.  It is great to be on the board of such a company and it is a great way to place more "boys" as directors and so on.  Of course these public companies are not limited to follow salary limitations of public entities...  All or nearly all the municipalities in Portugal have created such companies.  There are around 308 municipalities in Portugal.

Interestingly, to my knowledge, not a single public company has so far been abolished/closed/absorbed due to austerity measures.  There are plans to do so.  But so far, basically all the austerity has been the citizens paying more tax and loosing privileges.

(*) By some accounts they are more - by some less.   The current government gave a value of 10-15%.  But it does depend on how you look at it.  What is that value of not being able to be fired, less working hours, earlier retirement, lifetime "private" health insurance etc.  This blog article (in Portuguese) from "O Insurgente" based on a study by the Portuguese National Bank claims a 91% higher salary per hour in the public sector and 79% all in all.

One must, however, also bear some other factors in mind.  The type of work in the public sector compared to the private sector is quite different.  Medics as a group earn poorly as public employees compared to requirement for education comparable jobs in the private sector.  Also they often will work in shifts.  But most importantly their jobs involve literally life and death decisions.  Medicine might be the extreme example, but other professions such as policing and teaching are also very important professions.  Often jobs in the public sector will involve life quality and destination deciding decisions for the citizen.  One cannot but admire dedicated people in professions such as those.

There are more factors, to quantify them into salary terms is very difficult and well worth a future article.