Development & Aid, Economy & Trade, Europe, Headlines, Poverty & SDGs

PORTUGAL: Gap Between Rich and Poor Yawning Wider and Wider

Mario de Queiroz

LISBON, Jan 8 2008 (IPS) - The gap between rich and poor is still widening in Portugal, the country with the greatest social disparity in the European Union. Despite having a socialist government in office for nearly three years, there has been no reversal of this trend.

According to a report by the Organisation for Economic Cooperation and Development (OECD), the highest salaries in state-owned or partially state-owned companies were 27 times greater than the lowest ones in 2004.

Since the Socialist Party (PS) took office in March 2005, this gap has increased 32-fold, according to economic analysts, because of the policies espoused by Prime Minister José Sócrates, who has continued to follow neoliberal polices, leaving most decisions to market forces.

Conservative President Aníbal Cavaco e Silva referred to this in a New Year speech. Without criticising Sócrates directly, he deplored the gaps in income levels that make Portuguese executives the best paid in Europe and its workers those with the lowest purchasing power.

A Portuguese top executive, managing workers who were the worst paid in the 15 EU countries until 2004 – when 10 more countries joined, with a further two becoming members in 2007 – earns considerably more than his or her peers in Germany, Spain, France or Italy.

In Germany, the most powerful industrial economy in the EU and the third largest in the world, a major social debate is taking place over the “injustice” involved in its top executives being paid 10 times more than the average wages of employees.

In Portugal, which ranks 33rd among the world’s economies, no one appears to be scandalised by Vítor Constâncio, the governor of the Bank of Portugal, being paid a salary two-and-a-half times greater than that of the chairman of the Federal Reserve of the United States, the largest economy on the planet.

According to Luisa Bessa, an analyst for the Lisbon newspaper Jornal de Negócios, in spite of the country’s economic difficulties, managers’ pay has grown consistently faster than that of ordinary employees.

Social and economic indicators published by the EU confirm Portugal’s high levels of poverty and social injustice, which are unacceptable in a country that has been a member of Europe’s “rich nations club” since 1986.

The OECD, which has 30 members and brings together all the industrialised countries, stated as early as 2004 that Portugal would be left even further behind advanced nations in the next few years.

Among the country’s failings, the OECD report noted the lowest productivity levels in the EU, lack of innovation and vitality in the private sector, poor quality education and professional training, and poor management of public funds, with excessive spending and meagre results.

Together with Spain and Greece, Portugal was part of the EU’s poorest group when they joined in the 1980s. But Spain and Greece made better use of the generous resources from the bloc’s structural and cohesion funds, sent from Brussels for two decades, economic observers say.

Spain and Portugal joined the former European Economic Community with similar relative development indicators.

Until 1995, Portugal was ranked higher than Greece and Ireland in the Community, but in 2001 it was easily outranked by both countries, while Spain had already attained an above-average position within the bloc.

Portugal has received the highest amount of Community assistance per capita over the last two decades. But after nine years of approaching EU levels, its relative progress came to a stop in 1995, and now the indications are that the gap is widening.

An economist imbued with the political experience of having been prime minister from 1985 to 1995, Cavaco e Silva used his speech to question the extremely high earnings of top executives in national companies.

On average, upper-echelon executives receive salaries of 41,500 dollars a month, which are paid 14 times a year. In addition they benefit from profit-sharing schemes, productivity bonuses, a company car and petrol, and unlimited expense accounts, which can boost earnings up to 90,000 dollars a month, in contrast to German executives who are paid 15,000 dollars a month.

Often these salaries are unjustified and out of proportion to the average wages of workers, said the president.

“We cannot be anything but concerned about the inequalities in wealth distribution shown by the statistics,” he added.

Bessa said in a Jan. 4 column that the growth in pay for the top jobs is due to the companies’ need to capture the best talent in order to face ever more complex challenges.

It is the market at work, she said, although she recognised that when a firm’s capital is widely dispersed, managers wind up having an influence on the level of their own salaries, and then market rules are no longer in play.

That view is shared by former socialist lawmaker Joao Cravinho, former minister of public works (1995-2002) and currently an executive at the European Bank for Reconstruction and Development (EBRD). “Managers set their own salaries, and then blame the market,” he told IPS.

According to the Jornal de Negócios, Cavaco e Silva’s message can be interpreted as a warning about the need for self-regulation by shareholders and executives.

It would be preferable for the companies themselves to take the necessary action, so that “capitalism doesn’t kill off capitalism,” Bessa said.

For her part, the editor-in-chief of the Lisbon weekly Visao, Áurea Sampaio, wrote in the latest issue of the magazine that recent statistics on health, education, human development and social inequalities are “disturbing.”

“It is true that the OECD goes so far as to say that Portugal could grow at a rate above the EU average in 2009, and that if that comes to pass it will at least give us the feeling that the sacrifices will not have been in vain. But the truth is that gains in economic growth will not bridge the abyss that separates us from the more developed and prosperous parts of Europe,” Sampaio said.

Fernando Madrinha, deputy director of Expresso, the country’s most popular weekly, complained about the obscene earnings of a large proportion of managers in the public and private sectors.

“We have the same two countries we have always had: the rich one parading ever more ostentatious wealth, and the poor one increasingly burdened with poverty; two countries that never meet in real life, but come face to face in radio and television newscasts or in the pages of newspapers,” he said.

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