Development & Aid, Economy & Trade, Europe, Headlines

DEVELOPMENT-PORTUGAL: Lagging Further and Further Behind the Rest of the EU

Mario de Queiroz

LISBON, Sep 23 2004 (IPS) - Economic and social indicators periodically released by the European Union (EU) reveal levels of poverty and social injustice in Portugal that are inadmissible in a country that has belonged to the continent’s "rich nations’ club" since 1986.

But the coup de grace came from a recent report by the Organisation for Economic Cooperation and Development (OECD), which states that in the next few years, Portugal will fall even further behind the countries of western Europe.

Portugal has the lowest levels of productivity in the EU, scarce innovation and vitality in the business sector, and deficient education and professional training, while making poor use of public funds, with excessive spending and meagre results, according to the annual report on Portugal by the OECD, an organisation that links 30 industrialised nations.

By contrast with Spain, Greece and Ireland (which have also traditionally been among the poorest EU nations), Portugal failed to take full advantage of the huge inflows of EU structural funds that arrived from Brussels for nearly two decades, say political and economic analysts.

When Spain and Portugal joined the European Economic Community in 1986, they were at similar levels of development, and as recently as a decade ago, Portugal was ahead of both Greece and Ireland in the EU ranking. But in 2001, it was easily surpassed by both countries, while Spain has seen its indicators improve to the extent that they are approaching the bloc’s averages.

The Portuguese economy’s convergence with the advanced OECD economies appears to have come to a standstill in the last few years, leaving a significant gap in terms of per capita income, said the organisation.

In the private sector, capital goods are not always effectively used, and new technologies are not rapidly incorporated, the report adds.

Meanwhile, the Portuguese labour force has less formal education than workers from other EU countries, even the bloc’s new members in central and eastern Europe, notes the OECD.

But analysts agree that the problem does not lie in the amount of structural and regional development funds received, but in the way they were distributed and used.

Portugal actually spends more on the wages of public employees than the great majority of EU countries, in proportion to Gross Domestic Product (GDP). However, it has failed to significantly improve the quality and efficiency of public services.

And although it has more teachers per student than most OECD members, it has also failed to provide education and vocational and professional training that are competitive with the rest of the world’s industrialised nations.

Over the past 18 years, Portugal has received the highest per capita transfers of community funds of any EU nation. Nevertheless, after nine years of climbing closer to average EU indicators, this southern European country began to slip in 1995, and since then has fallen further and further behind.

Where did the EU funds go? is a question that is brought up over and over again in televised debates and opinion columns in the country’s leading newspapers. The most frequent response is that the money fattened the wallets of those who were already better off than the rest.

The statistics show that Portugal is the EU country with the greatest social inequalities and with the lowest minimum and average wages in the bloc – at least until May 1, when the EU expanded from 15 to 25 member nations.

It is also the EU country with the highest salaries for directors of public companies.

The argument most frequently put forth by the executives is that it is the market that sets the salaries. But socialist lawmaker Joao Cravinho, who served as public works minister from 1995 to 2002, disputes that argument. He told IPS that "it is the directors themselves who set their own salaries, and then blame the market."

In private companies with state participation or public enterprises in which private interests hold a minority stake, "executives set astronomically high salaries (as high as 90,000 dollars a month, including bonuses) with the complicity of the main shareholders," said Cravinho.

The big shareholders themselves "are at the same time high-level executives, and the entire system, at bottom, works at the expense of the small shareholder, who sees a large portion of the profits being channelled into the bank accounts of the members of the board," the legislator added.

The crisis that has slowed Portugal’s economic growth to a crawl in the last two years "is being paid for by the least privileged classes," he said.

That inequality is illustrated by a wide variety of examples, one of the latest of which is the crisis in the automobile industry.

Companies are complaining of a nearly 20 percent drop in sales of cars in the 15,000 to 20,000 dollar price range.

But representatives of luxury makes like Ferrari, Porsche, Lamborghini, Maserati and Lotus (cars that carry price tags of more than 200,000 dollars) say they can’t keep up with demand, which has grown 36 percent.

Reports on Portugal’s traditional textile industry, which used to be one of the most modern and highest quality in the world, point out that it has become stagnant, because factory owners have failed to make the necessary upgrades. Nevertheless, northern Portugal, where the textile sector is concentrated, has more Ferraris per square metre than Italy.

A Spanish computer industry executive, Javier Felipe, told IPS that his experience with members of the Portuguese business community has led him to conclude that "they are more interested in the image they project than in the results of their work."

For many, "the car they drive, the kind of credit card they can exhibit when they pay a bill, or the make and model of cell-phone they carry is more important than how efficiently they work," said Felipe, who clarified, however, that there are of course exceptions.

"All of this shapes a mentality that, in the end, affects the development of a country," he argued.

Tax evasion that goes unpunished is another factor that has crippled public sector investment and spending that could otherwise have a positive impact in terms of helping Portugal overcome the economic crisis and 7.3 percent unemployment rate.

The only reliable taxpayers are workers hired under legal contracts, part of whose wages are withheld from their paychecks.

But in the past two years, the conservative government of Prime Minister José Manuel Durao Barroso decided to place an even heavier share of the burden on the shoulders of wage-earners, which has given rise to an "obscene" and "scandalous" situation, according to TV commentator Antonio Pérez Metello, an economist.

"Instead of announcing progress in recovering taxes from those who continue to thumb their nose at the treasury, the government decides to wrest an even greater share from those who are already paying as they should, while leaving the fiscal fugitives untouched," said Metello.

In an op-ed column this week in the Lisbon newspaper Público, José Vitor Malheiros criticised highly-paid professionals who lie on their tax declarations.

According to the tax statements, doctors and dentists declare average annual earnings of 17,680 euros (21,750 dollars), lawyers 10,864 (13,365 dollars), architects 9,277 (11,410 dollars) and engineers 8,382 (10,310 dollars).

With the tax refunds at the end of the fiscal year, these professionals end up "stealing more than they pay. It’s as if a butcher were to sell us 400 grams of steak and charge us for one kilo. And there are 180,000 of these professionals who, on average, steal 600 grams per kilo from us," Malheiros wrote.

If a country "allows an affluent professional with two houses and two luxury cars to declare an income of 600 euros (738 dollars) a month, year after year, without ever being questioned by the tax authorities, and on top of that they receive a state subsidy to help pay the private school tuition for their children, that means the system is totally lacking in morality," he stated.