Economic history of Portugal
Encyclopedia
The economic history of Portugal covers the development of the economy throughout the course of Portuguese history. It has its roots prior to nationality, when Roman
occupation developed a thriving economy in Hispania
, in the provinces of Lusitania
and Gallaecia
, as producers and exporters to the Roman Empire. This continued under the Visigoths and then Al-Andalus
Moorish rule, until the Kingdom of Portugal
was established in 1139.
With the end of Portuguese reconquista
and integration in the European Middle Age economy, the Portuguese were at the forefront of maritime exploration
of the age of discovery
, expanding to become the first global empire
. Portugal then became the world's main economic power during the Renaissance
, introducing most of Africa and the East to European society, and establishing a multi-continental trading system
extending from Japan to Brazil.
In 1822, Portugal lost its main colony, Brazil. Portuguese territorial claims in Africa were challenged during the Scramble for Africa
. Political chaos and economic problems endured from the last years of the monarchy to the first Republic of 1910–1926
, which led to the installing of a national dictatorship
in 1926. While Finance Minister
António de Oliveira Salazar
managed to discipline the Portuguese economy, it evolved into a single party corporative regime in 1933—the Estado Novo. The country underwent a regime change in 1974, the Carnation Revolution
, a leftist
military coup, culminating with the end of one of its most notable periods of economic growth, which had started in the 1960s. From 1974 to the end of the 1970s, over a million Portuguese citizens arrived from the former African overseas colonies, most as destitute refugees—the retornados. 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 the development of the Portuguese economy, and the resultant increase in the 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. Tourism
accounts for about 5% of the Gross Domestic Product (GDP), while fisheries
and agriculture
each account for about 4%.
The country adopted the euro in 1999. Despite being both a developed country and a high income country, Portugal's GDP per capita was of about 80% of the EU27 average. The Global Competitiveness Report
of 2008–2009 ranked Portugal 43rd out of 134 countries and territories. Research by the Economist Intelligence Unit
's (EIU) Quality of Life survey in 2005 ranked Portugal 19th
in the world.
As far as to companies is concerned, the country is home to a number of world players with international reputation, like Grupo Portucel Soporcel, a major world player in the international paper market, Sonae Indústria
, the largest producer of wood-based panels in the world, Corticeira Amorim
, the world leader in cork production, and Conservas Ramirez, the oldest canned fish producer in continuous operation.
in Iberia, the peninsula had a rural-based subsistence economy
with very limited trade, with the exception of large cities on the Mediterranean coast, which had contact with Greek
and Phoenician traders. Iberians
and Celts were some of the first groups present in the territory, with the Celtic economy centered on cattle raising, agriculture, and metal working.
when invading the peninsula was to access the mines near New Carthage. After the Second Punic War
, from 29 BC to 411 AD, Rome governed the Iberian peninsula, expanding and diversifying the economy, and extending trade with the Roman Empire. Indigenous peoples paid tribute
to Rome through an intricate web of alliances and allegiances. The economy experienced a major production expansion, profiting from some of the best agricultural lands under Roman hegemony and fueled by roads, trade routes, and the minting
of coins, which eased commercial transactions. Lusitania
developed, driven by an intensive mining industry; fields explored included the Aljustrel
mines (Vipasca), São Domingos
, and Riotinto in the Iberian Pyrite Belt
, which extended to Seville
, and contained copper, silver, and gold. All mines belonged to the Roman Senate
, and were operated by slaves
.
Subsistence agriculture was replaced by large farming units (Roman villa
s) producing olive oil
, cereals, and wine, and rearing livestock. This farming activity was located mainly in the region to the south of the Tagus River, the third largest grain-producing area in the Roman Empire.
There was also development in fishing activity, producing the valued garum
or liquamen, a condiment obtained from the maceration of fish, preferably tuna and mackerel, exported throughout 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
, which made it one of the most important centers for canners in Hispania. At the same time, specialized industries also developed. The fish salting and canning in turn required the development of salt, shipbuilding
, and ceramic industries, to facilitate the manufacture of amphorae and other containers that allowed the storage and transport of commodities such as oil, wine, cereals, and preserves.
and Visigoths took over the power vacuum left by Roman administrators and established themselves as nobility, with some degree of centralized power at their capitals in Braga
and Toledo. Although it suffered some decline, Roman law remained in the 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.
. They maintained much of the Roman legacy; they repaired and extended Roman infrastructure, 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 merchant
s, who would buy and sell on commission
, with money lent
to them by wealthy investors, or a joint investment of several merchants, who were often Muslim, Christian, and Jewish.
Little is directly known from the economic structures of the region due to the paucity of Arab sources. It is however possible to advance a few assertions. The constant warfare between Muslims and Christians and among Muslims certainly costed the region dearly and must have participated to the rampant problems of underpopulation experienced by the Gharb al-Andalus. As a matter of example, several attempts to repopulate the regions north of Coimbra
to guaranty a line of defense against the Christian kingdom failed. The economy was heavily influenced both by structural Islamic habits (creation of cities) and the direction chosen by the dominating Muslim ruler of the Maghrib
and al-Andalus. For instance, the great interest paid by the Almohad
dynasty to the Atlantic helped develop the military and civilian (trade, fishery) activities of the western Iberian ports such as Sevilla, Lisbon, etc. Despite a general impression of sustained development, specially during the 10th and 11th centuries when the area witnessed a noticeable demographic expansion, the Gharb al-Andalus also underwent some dramatic episodes such as the great famine of 740 which decimated the Berber
colonists of the Douro
region.
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 for commercial activities. After 800 years of warfare, the Catholic kingdoms gradually became more powerful and eventually expelled the Moors from the peninsula. In the case of the Kingdom of Portugal
it happened in the 13th century; in the Algarve, the combined forces of Aragon
and Castile
defeated the last Iberian Muslim strongholds in the 15th century.
In 1139, the Kingdom of Portugal
achieved independence from the Kingdom of León
, having doubled its area through the Reconquista
(the reconquest of former Christian lands to the Muslim rulers established in the Iberian Peninsula
) under Afonso Henriques
, first King of Portugal. His successor, Sancho I
, accumulated the first national treasury
, and supported new industries and the middle class of merchants. Moreover, he created several new towns, such as Guarda in 1199, and took great care in populating remote areas.
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 sent ambassadors to European kingdoms outside the Iberian Peninsula to begin commercial relations. The earliest references of commercial relations between Portugal and the County of Flanders
document Portuguese attendance at Lille
's fair
in 1267. In 1297, with the Reconquista completed, King Denis
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 for the export of surplus production to other European countries. On 10 May 1293, King Denis instituted the Bolsa de Comércio, a commercial fund
for the defense of Portuguese traders in foreign ports, such as the County of Flanders, which were to pay certain sums according to tonnage, accrued to them when necessary. In 1308, he signed Portugal's first commercial agreement with England. He distributed land, promoted agriculture, organized communities of farmers and took a personal interest in the development of exports, founding and regulating regular markets in a number of towns. In 1317, he made a pact with the Genoese
merchant sailor Manuel Pessanha
(Pesagno), appointing him Admiral and giving him trade privileges with his homeland, in return for twenty warships and crews. The intention was the defense of the country against pirates, and it laid the basis for the Portuguese Navy
and the establishment of a Genoese merchant community in Portugal.
Agriculture was Portugal's main activity, with produce mostly consumed internally. Wine and dried fruits from the 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
, a scarlet dye
, were also exported. Industry was minimal, and Portugal imported armor and munitions, fine clothes, and several manufactured products from Flanders and Italy. Since the 13th century, a monetary economy had been stimulated, but barter
still dominated trade, and coinage was limited; foreign currency was also used until the beginning of the 15th century.
In the second half of the 14th century, outbreaks of bubonic plague
led to severe depopulation: the economy was extremely localized in a few towns, and migration from the country led to land being abandoned to agriculture and resulted in rises in rural unemployment. Only the sea offered alternatives, with most populations settling in fishing and trading coastal areas.
Between 1325 and 1357, Alfonso IV
granted public funding to raise a proper commercial fleet and ordered the first maritime explorations, with the help of Genoese sailors under the command of admiral Manuel Pessanha. Forced to reduce their activities in the Black Sea
, the Republic of Genoa had turned to the north African trade of wheat and olive oil
(valued also as an energy source), and a search for gold, although they also visited the ports of Bruges
(Flanders) and England. Genoese and Florentine communities were then well-established in Portugal, and they profited from the enterprise and financial experience of these rivals of the Republic of Venice
. In 1341, the Canary Islands
, already known to the Genoese, were officially discovered under the patronage of the Portuguese king, but in 1344 Castile disputed them, further propelling the development of the Portuguese navy.
To promote settlement, the Sesmarias law was issued in 1375, expropriating vacant lands and leasing it to unemployed cultivators, without great effect: by the end of the century, Portugal faced food shortages, having to import wheat from north Africa.
After the 1383–1385 Crisis
—combining a succession crisis, war with Castile, and Lisbon plagued by famine and anarchy—a newly elected Aviz
dynasty, with strong links to England, marked an eclipse of the conservative land-oriented aristocracy.
In 1415, Ceuta
was occupied by the Portuguese with the aim of controlling navigation of the African coast, expanding Christianity with the avail of the papacy, and providing the nobility
with war. The king's son, Henry the Navigator, then became aware of the profitability of the Saharan trade routes. Governor of the rich 'Order of Christ' and holding valuable monopolies on resources in the Algarve, he sponsored voyages down the coast of Mauritania, gathering a group of merchants, shipowners, and stakeholders interested in the sea lanes. Later, his brother Prince Pedro granted him a "Royal Flush" of all profits from trading within the discovered areas. Soon the Atlantic islands of Madeira (1420) and Azores (1427) were reached and began to be settled, producing wheat for export to Portugal. By the beginning of the reign of King Duarte I in 1433, the Real
became the currency unit in Portugal, and remained so up to the XX century.
In January 1430, Princess Isabella of Portugal married Philip III, Duke of Burgundy
, Count of Flanders. Around 2,000 Portuguese accompanied her, developing great activity in trade and finance in what was then the richest European court. With Portuguese support, Bruges
shipyard was started, and in 1438 the Duke granted the Portuguese traders the opportunity to elect consuls with legal powers, thus giving full civil jurisdiction to the Portuguese community. In 1445, the Portuguese Feitoria of Bruges was built.
In 1443, Prince Pedro, Henry's brother, granted him the monopoly of navigation, war, and trade in the lands south of Cape Bojador. Later, this monopoly would be enforced by the Papal bull
s Dum Diversas
(1452) and Romanus Pontifex
(1455), granting Portugal the trade monopoly for the newly discovered lands.
When the Portuguese first sailed down the Atlantic, extending their influence on coastal Africa, they were interested in gold. Trade in sub-Saharan Africa
was controlled by Muslims, who controlled trans-Saharan trade
routes for salt, kola
, textiles, fish, and grain, and engaged in the Arab slave trade
.
To attract Muslim traders along the routes traveled in North Africa, the first factory trading post
was built in 1445 on the island of Arguin
, off the coast of Mauritania. Portuguese merchants accessed the interior via the Senegal
and Gambia rivers
, which bisected long-standing trans-Saharan routes. They brought in copperware, cloth, tools, wine, and horses, and later included arms and ammunition
. In exchange, they received gold from the mines of Akan
, Guinea pepper
(a trade which lasted until Vasco da Gama
reached India in 1498), and ivory
. The expanding market opportunities in Europe and the Mediterranean resulted in increased trade across the Sahara. There was a very small market for African slaves as domestic workers in Europe, and as workers on the sugar plantations of the Mediterranean and later Madeira. The Portuguese found they could make considerable amounts of gold by 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
.
's captaincies
started in 1455, using advisers from Sicily
and (largely) the Genoese capital to produce the "sweet salt" rare in Europe
. Already cultivated in Algarve, the accessibility of Madeira attracted Genoese and Flemish traders keen to bypass Venetian
monopolies. Sugarcane production became a leading factor in the island's economy, and the establishment of plantations on Madeira, the Canary Islands
, and the Cape Verde Islands increased the demand for labor. 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, and the proportion of imported slaves in Madeira reached 10% of the total population by the 16th century. By 1480, Antwerp had some 70 ships engaged in the Madeira sugar trade, with refining and distribution concentrated in the city. By the 1490s, Madeira had overtaken Cyprus in the production of sugar, and the success of sugar merchants such as Bartolomeo Marchionni
would propel the investment in exploratory travel.
In 1469, responding to meager returns from African explorations, King Afonso V
granted monopoly of trade in part of the Gulf of Guinea
to the merchant Fernão Gomes
. For an annual rent of 200,000 reais
, Gomes was to explore 100 league
s of the coast of Africa annually, for five years (later the agreement would be extended for another year). He gained monopoly trading rights for a popular substitute of black pepper
, then called "malagueta
", the guinea pepper (Aframomum melegueta)
, for another yearly payment of 100,000 reais.
The Portuguese found Muslim merchants entrenched along the African coast as far as the Bight of Benin
. 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
's coast in the 1480s that they exceeded Muslim trading territory.
Under Gomes' sponsorship, the equator
was crossed and the islands of the Gulf of Guinea were reached, including São Tomé and Príncipe.
On the coast, Gomes found a thriving alluvial gold trade among the natives and visiting Arab and Berber traders at the port then named Mina
(meaning "the mine"), where he established a trading post. Trade between Elmina and Portugal grew over the next decade. The port became a major trading center for gold and slaves purchased from local African peoples along the slave rivers of Benin. Using his profits from African trade, Fernão Gomes assisted the Portuguese king in the conquests of Asilah
, Alcacer Ceguer, and Tangier
in Morocco.
Given the large profits, in 1482 the newly crowned king John II
ordered a factory
to be built in Elmina, to manage the local gold industry: Elmina Castle
. São Jorge da Mina Factory centralized trade, which was held again as a royal monopoly. The Company of Guinea
was founded in Lisbon as a government institution that was to deal with trade and fix the prices of the goods.
15th century Portuguese exploration of the African coast is commonly regarded as the harbinger of European colonialism, and marked the beginning of the Atlantic slave trade
, Christian missionary evangelization
, and the first globalization
processes, which were to become a major element of European colonialism until the end of the 18th century. By the beginning of the colonial era there were forty forts operating along the coast. They acted mainly as trading posts and rarely saw military action, but the fortifications were important, as arms and ammunition were being stored prior to trade.
The profitable eastern spice trade
was cornered by the Portuguese in the 16th century. In 1498, Vasco da Gama
's pioneering voyage reached India by sea, opening the first European direct trade in the Indian Ocean. Up to this point, spice imports to Europe had been brought overland through India and Arabia, based on mixed land and sea routes through the Persian Gulf
, Red Sea
, and caravans
, and then across the Mediterranean by the Venetians
for distribution in Western Europe, which had a virtual monopoly on these valuable commodities. By establishing these trade routes, Portugal undercut the Venetian trade with its abundance of middlemen.
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 Venetian trading monopoly. Portugal aimed to control trade within the Indian Ocean and secure the sea routes linking Europe to Asia. This new sea route around the Cape of Good Hope
was firmly secured for Portugal by the activities of Afonso de Albuquerque
, who was appointed the Portuguese viceroy of India in 1508. Early Portuguese explorers established bases in Mozambique and Zanzibar
and oversaw the construction of forts and factories (trading posts)
along the African coast, in the Indian subcontinent
, and other places in Asia, which solidified the Portuguese hegemony.
At Lisbon the Casa da Índia
(House of India) was the central organization that managed all Portuguese trade overseas under royal monopoly during the 15th and 16th centuries. Established around 1500, it was the successor of the House of Guinea, the House of Guinea and Mina, and the House of Mina (respectively, the Casa da Guiné, Casa de Guiné e Mina, and Casa da Mina in Portuguese). 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 export and 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. By 1510, King Manuel I of Portugal
was pocketing a million cruzados
yearly from the spice trade alone, and this led François I
of France to dub Manuel I "le roi épicier", meaning "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 the 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 money 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 1550s, it increasingly relied 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 words, the owner of "a bankrupt wholesale grocery business".
Goa had functioned from the start as the capital of Portuguese India
, the central shipping base of a commercial net linking Lisbon, Malacca, and as far as China and the Maluku Islands
(Ternate
) since 1513.
The first official visit of Fernão Pires de Andrade
to Guangzhou
(1517-1518) was fairly successful, and the local Chinese authorities allowed the embassy led by Tomé Pires
, brought by de Andrade's flotilla, to proceed to Beijing
.
In 1542, Portuguese traders arrived in Japan. According to Fernão Mendes Pinto
, who claimed to have been present in this first contact, they arrived at Tanegashima
, where locals were impressed by firearms
that would be immediately made by the Japanese on a large scale. The arrival of the Portuguese in Japan in 1543 initiated the Nanban trade period
, with the hosts adopting several technologies and cultural practices, such as the arquebus
, European-style cuirasses, European ships, Christianity, decorative art, and language. In 1570, after an agreement between Jesuits and a local daimyo
, the Portuguese were granted a Japanese port where they founded the city of Nagasaki
, thus creating a trading center which for many years was Japan's main gateway to the world.
Soon after, in 1557, Portuguese merchants established a colony on the island of Macau
. Chinese authorities allowed the Portuguese to settle through an annual payment, creating a warehouse. After the Chinese banned direct trade by Chinese merchants with Japan, the Portuguese filled this commercial vacuum as intermediaries. Engaging in the triangular trade
between China, Japan, and Europe, the Portuguese bought Chinese silk and sold it to the Japanese in return for Japanese-mined silver; since silver was more highly valued in China, the Portuguese could then use their newly-acquired metal to buy even larger stocks of Chinese silk. However, by 1573, after the Spanish established a trading base in Manila, the Portuguese intermediary trade was trumped by the prime source of incoming silver to China from the Spanish Americas.
As Portugal increased its presence along China's coast, they began trading in slaves
. As slave trade was not outlawed in China, many Chinese slaves were sold
to Portugal by Chinese slave traders. Since the 16th century, Chinese slaves existed in Portugal, most of them Chinese children, and a large number were shipped to the Indies. Chinese prisoners were sent to Portugal, where they were sold as slaves; they were prized and regarded as better than Moorish and black slaves. The first known visit of a Chinese person to Europe dates to 1540, when a Chinese scholar, enslaved during one of several Portuguese raids somewhere on the southern China coast, was brought to Portugal. Purchased by João de Barros
, he worked with the Portuguese historian on translating Chinese texts into Portuguese. Dona Maria de Vilhena, a Portuguese noble woman from Évora
, Portugal, owned a Chinese male slave in 1562. In the 16th century, a small number of Chinese slaves, around 29–34 people, were in southern Portugal, where they were used in agricultural labor. Chinese boys were captured in China, and through Macau
were brought to Portugal and sold as slaves in Lisbon
. Some were then sold in Brazil, a Portuguese colony. Due to hostility from the Chinese regarding the trafficking in Chinese slaves, in 1595 a law was passed by Portugal banning the selling and buying of Chinese slaves. On 19 February 1624, the King of Portugal forbade the enslavement of Chinese people of either sex.
Guarding its trade from European and Asian competitors, Portugal dominated not only the trade between Asia and Europe, but also much of the trade between different regions of Asia, such as India, Indonesia, China, and Japan. Jesuit
missionaries, such as the Basque Francis Xavier
, followed the Portuguese to spread Roman Catholicism to Asia, with mixed results.
During the 16th century, Portugal also started to colonize its newly discovered territory of Brazil. However, temporary trading posts were established earlier to collect Brazilwood
, used as a dye, and with permanent settlements came the establishment of the sugar cane industry and its intensive labor. Several early settlements were founded, 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
in the south, in March 1567. 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.
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 long, 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 have any success in this venture. In the 1540s, John III was forced to change his policy. He placed Brazil under direct royal control (as in Spanish America) and appointed a governor general. The first governor general of Brazil arrived in 1549 and headquartered himself 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 southern inland region of Minas Gerais
. The discovery set off the first great gold rush of the Americas, 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 what is now Uruguay. Meanwhile, the use of the Portuguese language gradually gave the central region of South America an identity and a culture distinct from that of its Spanish neighbours.
After initiating the European slave trade in Sub-Saharan Africa
through its involvement in the African slave trade
, Portugal played a decreasing role in it over the next few centuries. Although they were the first Europeans to establish trading settlements in Sub-Saharan Africa, they failed to press home 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, was 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
. By the 19th century, however, 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 their hands. As in Guinea, the slave trade became the basis of the local economy, with raids carried ever further inland by local natives to gain 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 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 centuries the Portuguese and their merchants were just one among many rival groups competing for the local trade in gold, ivory, and slaves.
Even if the Portuguese hold on these three African regions was tenuous, they clearly remained 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 in 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.
During the 15th and 16th centuries, with its global empire that included possessions in Africa, Asia, and South America, Portugal remained 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 tested Portuguese commercial and colonizing hegemony in Asia, Africa, and 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 the continent to secure its interests there. By the late 19th century, the country's resources were exhausted by its overstretched empire, which was now facing unprecedented competition. Portugal had one of the highest illiteracy
rates in Western Europe, a 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 Portugal. Under the rule of Carlos I
, the penultimate King of Portugal, the country was twice declared bankrupt—on 14 June 1892, and 10 May 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 Praça do Comércio Square, in Lisbon
's city center. 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 revolution
ary and Napoleonic wars
, Portugal entered a period exceeding five decades during 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 allied to France seized the Portuguese border district of Olivença
in what was called 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 into Portuguese exports to its colony of Brazil
. Just as harsh in its effects as British competition was the closure of markets by war and the independence of Brazil in 1822, which during 1796–1806 had accounted for three-quarters of all Portuguese commerce, re-exports from Brazil totaling 60–80% 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 manufacturing since the 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 in the two years after the triumph of liberalism in 1820
. 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, as 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 on 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 land mass 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 increased. Market production increased somewhat, and between 1839 and 1855 Portugal 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 governance 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 1855–1865. Fontes consolidated the national debt at 3% and created a new ministry of public works, building more roads, beginning telegraph construction, and encouraging railroad expansion. New credit was obtained, foreign investment was 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 large holders 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 the Portuguese government's political support, leading to Fontes's 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, was 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 19th 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, technology, and political favoritism played a major role. The first short railway 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 situation, which bedeviled Portuguese government to the end of the monarchy in 1910 and throughout the history of the parliamentary republic that followed. 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. 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 arriving; fontismo relied mainly on foreign investment and the raising of loans, while encouraging free trade (to the detriment of home-grown manufacturing) and maintaining high excises.
A new opposition movement among radical intellectuals began after 1865. 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 19th 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. The 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 19th 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, 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 to a lesser degree, toward the general trend of heavier protectionism in Europe during the late 19th century. There was also a new wave of industrialization around the turn of the 20th century, yet it was modest and hardly served to compensate for the extremely slow growth of domestic manufactures. Portugal still suffered from the main deficiencies of underdeveloped countries: lack of capital for productive investment, skilled labor, technological know-how (there were only 150 qualified engineers in Portugal in 1870), and 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 20th 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 non-aristocratic 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, rather 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 eminent cultural historian and political critic Oliveira Martins became minister of finance in a new nonparty government in 1892, but failed to win passage on effective financial reforms. Portugal was indeed twice declared bankrupt in the final decades of monarchy – on 14 June 1892, and again on 10 May 1902 – causing industrial disturbances, socialist, and republican antagonism and press criticism of the monarchy.
while travelling to Lisbon. Manuel II
became the new king, but was eventually overthrown during the revolution on 5 October 1910
, which abolished the monarchy and instated republicanism
.
Along with new national symbols, a new currency was adopted. The "Escudo
" was introduced on 22 May 1911 to replace the Real
(portuguese for "royal"), at the rate of 1,000 réis to 1 escudo. The escudo's value was initially set at 4$50 escudos = 1 pound sterling
, but after 1914 it's value fell, being fixed in 1928 at 108$25 to the pound. This was altered to 110$00 escudos to the pound in 1931.
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 higher than 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, 68.1 percent of Portugal's population was still classified as illiterate by the 1930 census.
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 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 shaped the progress of the country.
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 borrowing abroad.
At the nadir of the Great Depression
, Premier Salazar laid the foundations for his Estado Novo, the "New State". Neither capitalist nor communist, Portugal's economy was quasi-traditional. 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. 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 prominent 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 large 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 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. Until that time the country remained very poor and largely underdeveloped due to its disadvantaged starting position. However, by the late 1950s, 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 influence of the Europe-oriented technocrats was rising within Salazar's cabinet. This 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 latter 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 became a member of the General Agreement on Tariffs and Trade
(GATT), the International Monetary Fund
, and the World Bank
.
In 1958, when the Portuguese government announced the 1959–64 Six-Year Plan for National Development, a decision had been reached to accelerate the country's rate of economic growth, a decision whose urgency grew with the outbreak of guerrilla warfare in Angola in 1961 and in Portugal's other African territories
thereafter. Salazar and his policy advisers recognized that additional military expenditure needs, as well as increased transfers of official investment to the "overseas provinces", could only be met by a sharp rise in the country's productive capacity. Salazar's commitment to preserving Portugal's "multiracial, pluricontinental" state led him reluctantly to seek external credits beginning in 1962, an action from which the Portuguese treasury had abstained for several decades.
Beyond military measures, the official Portuguese response to the "winds of change" in the African colonies was to integrate them administratively and economically more closely with the mainland. This was accomplished through population and capital transfers, trade liberalization, and the creation of a common currency, the so-called Escudo Area. The integration program established in 1961 provided for the removal of Portugal's duties on imports from its overseas territories by January 1964. The latter, on the other hand, were permitted to continue to levy duties on goods imported from Portugal but at a preferential rate, in most cases 50 percent of the normal duties levied by the territories on goods originating outside the Escudo Area. The effect of this two-tier tariff system was to give Portugal's exports preferential access to its colonial markets. The economies of the overseas provinces, especially those of both the Overseas Province of Angola and Mozambique, boomed.
Despite the opposition to 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 birth.
By the early 1970s, Portugal's fast economic growth with increasing consumption and purchase of new automobiles set the priority for improvements in transportation. Brisa – Autoestradas de Portugal was founded in 1972, and the State granted the company a 30-year concession to design, build, manage, and maintain express motorways.
, Portugal's per capita GDP had reached 56.4 percent of the EC-12 average. On a long term analysis, after an extended period of economic divergence before 1914, and a period of chaos during the First Republic
(1910–1926), 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 from 1961 onwards) 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 brought new technical and organizational challenges, stimulating the formation of modern professional and management teams. The economy of Portugal and its overseas territories on the eve of the Carnation Revolution (a military coup on 25 April 1974) was growing well above the European average. Average family purchasing power was rising together with new consumption patterns and trends and this was promoting both investment in new capital equipment and consumption expenditure for durable and nondurable consumer goods. The Estado Novo regime economic policy encouraged and created conditions for the formation of large and successful business conglomerates. Economically, the Estado Novo regime maintained a policy of corporatism
that resulted in the placement of a big part of the Portuguese economy in the hands of a number of strong conglomerate
s, including those founded by the families of António Champalimaud (Banco Totta & Açores, Banco Pinto & Sotto Mayor, Secil, Cimpor
), José Manuel de Mello
(CUF – Companhia União Fabril
), Américo Amorim
(Corticeira Amorim
) and the dos Santos family (Jerónimo Martins
). Those Portuguese conglomerates had a business model with similarities to South Korean chaebol
s and Japanese keiretsu
s and zaibatsu
s. The Companhia União Fabril (CUF) was one of the largest and most diversified Portuguese conglomerates with its core business
es (cement, chemicals, petrochemicals, agrochemicals, textiles, beer, beverages, metallurgy
, naval engineering, electrical engineering
, insurance, banking, paper, tourism, mining, etc.) and corporate headquarters located in mainland Portugal, but also with branches, plants and several developing business projects all around the Portuguese Empire
, specially in the Portuguese territores of Angola
and Mozambique. Other medium sized family companies specialized in textiles (for instance those located in the city of Covilhã
and the northwest), ceramics, porcelain, glass and crystal (like those of Alcobaça
, Caldas da Raínha
and Marinha Grande), engineered wood (like SONAE
near Porto
), canned fish (like those of Algarve and the northwest), fishing, food and beverages (alcoholic beverages, from liqueurs like Licor Beirão
and Ginjinha
, to beer like Sagres, were produced across the entire country, but Port Wine
was one of its most reputed and exported alcoholic beverages), tourism (well established in Estoril
/Cascais
/Sintra
and growing as an international attraction in the Algarve since the 1960s) and in agriculture (like the ones scattered around the Alentejo – known as the breadbasket
of Portugal) completed the panorama of the national economy by the early 1970s. In addition, rural areas' populations were committed to agrarianism
that was of great importance for a majority of the total population, with many families living exclusively from agriculture or complementing their salaries with farming, husbandry and forestry yields.
Besides that, the overseas territories were also displaying impressive economic growth and development rates from the 1920s onwards. Even during the Portuguese Colonial War
(1961–1974), a counterinsurgency war against independentist guerrilla and terrorism, the overseas territories of Angola
and Mozambique (Portuguese Overseas Provinces at the time) had countinuous economic growth rates and several sectors of its local economies were booming. They were internationally notable centres of production of oil, coffee, cotton, cashew, coconut, timber, minerals (like diamonds), metals (like iron and aluminium), banana, citrus, tea, sisal, beer (Cuca and Laurentina were successful beer brands produced locally), cement, fish and other sea products, beef and textiles. Tourism was also a fast-developing activity in Portuguese Africa both by the growing development of and demand for beach resorts and wildlife reserves.
Labour unions were not allowed and a minimum wage
policy was not enforced. However, in a context of an expanding economy, bringing better living conditions for the Portuguese population in the 1960s, the outbreak of the colonial wars in Portuguese Africa set off significant social changes, among them the rapid incorporation of more and more women into the labour market. Marcelo Caetano moved on to foster economic growth and some social improvements, such as the awarding of a monthly pension to rural workers who had never had the chance to pay social security. The objectives of Caetano's pension reform were threefold: enhancing equity, reducing fiscal and actuarial imbalance, and achieving more efficiency for the economy as a whole, for example, by establishing contributions less distortive to labour markets or by allowing the savings generated by pension funds to increase the investments in the economy. In 1969, with the replacement of António de Oliveira Salazar by Marcelo Caetano, the Estado Novo-controlled nation got indeed a very slight taste of democracy and Caetano allowed the formation of the first democratic labour union movement since the 1920s.
Caetano's Portuguese Government began also a military reform that gave the opportunity to militia officers who completed a brief training program and had served in the overseas territories' defensive campaigns, of being commissioned at the same rank as military academy graduates in order to increase the number of officials employed against the African insurgencies, and at the same time cut down military costs to alleviate an already overburdened government budget
. Thus, a group of disgusted captains started to instigate their peers to conspire against the new laws proposed by the regime. The protest of Portuguese Armed Forces
captains against a decree law: the Dec. Lei nº 353/73 of 1973. would therefore lay behind a military coup in 25 April 1974 – the Carnation Revolution
.
-led Carnation Revolution
had a devastating impact on the Portuguese economy and social structure. It prompted a mass exodus of Portuguese citizens from Portugal's African territories (mostly from the then overseas territories of Angola
and Mozambique), creating over a million Portuguese destitute refugees – the retornados. Although the military-led coup returned democracy to Portugal, ending the unpopular Colonial War
where thousands of Portuguese soldiers had been conscripted into military service, and replacing the authoritarian Estado Novo (New State) regime and its secret police which repressed elemental civil liberties
and political freedoms, it also paved the way for the end of Portugal as an intercontinental empire and an intermediate emerging power.
The Portuguese economy had changed significantly prior to the revolution, in comparison with its position in 1961—total output (GDP at factor cost) had grown by 120 percent in real terms. 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 was, however, characterized by chaos and negative economic growth, as industries became nationalized and the effects of the decoupling of Portugal from its former overseas territories, especially Angola
and Mozambique, were felt. Heavy industry came to an abrupt halt. All sectors of the economy, including manufacturing, mining, chemical, defence, finance, agriculture, and fishing, collapsed. Portugal quickly went from the country with the highest growth rate in Western Europe to the lowest, and experienced several years of negative growth. This was amplified by the mass emigration of skilled workers and entrepreneurs (among them were António Champalimaud and José Manuel de Mello
) due to communism-inspired political intimidation and economic stagnation.
Only in 1991, 16 years later, did the GDP as a percentage of EC-12 average climb 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 participation in the European Economic Community
since 1985. Post revolution Portugal was not able to achieve the same growth rates as its predecessors.
-oriented officers. 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, they sought a radical transformation of the nation's social system and political economy. This change of direction from a purely pro-democracy coup to a communist-oriented one became known as the Processo Revolucionário Em Curso (PREC). 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, major breweries, large shipping lines, most public transport, two of the three principal shipyards, core companies of the Companhia União Fabril (CUF) conglomerate, 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 and 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 a negative business climate brought about a sharp reversal in the trend of direct investment inflows from abroad.
After the coup, both the Lisbon and Porto stock exchanges were closed by the revolutionary National Salvation Junta
; they would be reopened a couple of years later.
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 16 months from 14 March 1975, to 29 July 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 merging the 93 nationalized trucking and bus lines. The 47 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 15 to 9. Notwithstanding their public status, the remaining banks competed with each other and retained their individual identities and policies.
Before the revolution, private enterprise ownership dominated the Portuguese economy to a degree unmatched in other western 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 third telecommunications company Radio Marconi, 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 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 was particularly apparent 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, with minority state participation (less than 50 percent of the common stock), or worker-managed firms and agricultural collectives.
, the collective farms set up in Alentejo after the 1974–75 expropriations due to the coup 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); around 32% of these were ruled illegal. In January 1976, the government pledged to restore the illegally occupied lands to their owners, and in 1977, it promulgated the Land Reform Review Law. Restoration began in 1978.
of managerial and technical expertise away from public enterprises. The income-leveling measures of the MFA revolutionary regime, together with the "anti-fascist" purges in factories, offices, and large agricultural estates, induced an exodus of human capital, mainly to Brazil. This loss of managers, technicians, and businesspeople 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, and technically advanced industries than in the traditional ones such as textiles, apparel, and construction. In small enterprises (50–99 employees), only 15 percent of the industrialists left as compared with 43 percent in the larger organizations. In the largest firms (1,000 or more employees), more than half left. Makler's calculations show that the higher the socioeconomic class of the person, the greater the likelihood that they 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 such as founders (18%), heirs (21%), and owner-managers (32%) had left their enterprises.
The constitution of 1976 confirmed the large and interventionist role of the state in the economy. Its Marxist character, which lasted until 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 25 April 1974, as "irreversible conquests of the working classes". The constitution also defined new power relationships between labor and management, with a strong bias in favor of labor. All regulations with reference to layoffs, including collective redundancy, were circumscribed by Article 53.
To rein in domestic demand growth, the Portuguese government was obliged to pursue International Monetary Fund
(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 denationalization 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.
Although the nationalizations broke up the concentration of economic power that had been held by financial-industrial groups, the subsequent merger of several private firms into single publicly owned enterprises left domestic markets even more monopolized. 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 industries such as cement, chemicals, and trucking probably reduced managerial incentives for cost reduction and technical advance.
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 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 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, as evidenced by their inadequate equity and liquidity ratios
. The consolidated losses of the firms included in the survey increased from 18.3 to 40.3 million contos from 1978 to 1980, or 4.6 percent to 6.1 percent of net worth, respectively. Losses were concentrated in transportation and to a lesser extent transport equipment and materials (principally shipbuilding and ship repair). The budgetary burden of the public enterprises 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 increased 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.
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.
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. 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%, 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%, and the top marginal tax rate on personal income was cut from 80% to 40%. A 25% 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.
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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% in 1990, the general government debt/GDP ratio was expected to continue to decline, reflecting fiscal restraint and increased proceeds from privatization.
The financing structure of the public deficits had changed since the mid-1980s due to 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 were "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 in 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 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 would eventually have to accept investment from other member countries on parity 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.
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 to 16.8 percent, and the contribution of the secondary (or industrial) sector (manufacturing, construction, mining, electricity, gas, and water) increased from 37 to 44 percent. The services sector's share in GDP remained constant at 39.4 percent. Within the industrial sector, the contribution of manufacturing advanced from 30 to 35 percent and that of construction from 4.6 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 onwards. 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, causing 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 such as canned fish, raw and manufactured cork, cotton textiles, and wine. By contrast, in the early 1970s, Portugal's export list underwent 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 global recession, and 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 from 12.2 percent in 1973. In contrast to the pre-revolutionary period, 1961–73, when the industrial sector grew by 9 percent annually and its contribution to GDP expanded, industry's share narrowed from 44 to 38.4 percent of GDP. Manufacturing, the major component of the industrial sector, contributed relatively less to GDP in 1990, falling from 35 to 28 percent. Most striking was the 16 percentage point increase in the participation of the services sector from 39 percent to 55.5 percent. 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.
, averaged a modest 4 percent a year before the revolution compared with nearly 18 percent annually during the 1980s. 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 compared to 26.7 percent during the 1980s), the overall investment productivity or efficiency (GDP growth rate/investment coefficient) was nearly three times greater before the revolution (28.6 percent) 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, when revolutionary turmoil peaked, 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 during the worst revolutionary period. In addition, the events of 1974 prompted a mass exodus of citizens from Portugal's African territories (mostly from Portuguese Angola and Mozambique), creating over a million Portuguese destitute refugees known as the retornados.
Portugal entered the European Economic Community
(EEC) in 1986 and left the European Free Trade Association
(EFTA), which it had helped found 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.
Portugal experienced a strong recovery in a few decades after the leftist turmoil of 1974, the ultimate loss of its overseas empire
in 1975, and the adhesion to 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, ceramic
s, textiles, footwear, paper, cork
, and fine wine, among others, was a major factor in the development of the Portuguese economy and improvements in the 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
, Unilever
/Jerónimo Martins
, and Danone Portugal, ranked among the best in the world for productivity.
Among the most notable Portugal-based global companies that expanded internationally in the 1990s and first decade of the 21st century were Sonae
, Sonae Indústria
, Amorim
, Sogrape
, EFACEC
, Portugal Telecom
, Jerónimo Martins
, Cimpor
, Unicer
, Millennium bcp, Lactogal
, Sumol + Compal
, Cerealis
, Frulact
, Ambar
, Bial
, Critical Software
, Active Space Technologies
, YDreams
, Galp Energia
, Energias de Portugal
, Visabeira
, Renova
, Delta Cafés
, Derovo
, Teixeira Duarte
, Soares da Costa
, Portucel Soporcel
, Salsa jeans
, Grupo José de Mello
, Valouro
, Sovena Group, Simoldes
, Iberomoldes
, and Logoplaste
.
Although being both a developed and a high income country, Portugal had the lowest GDP per capita in western Europe, and the average income was one of the lowest in the European Union
. According to the Eurostat
it had the sixth-lowest purchasing power
of the 27 member states of the European Union for the period 2005–2007. However, research about quality of life
by the Economist Intelligence Unit
's (EIU) Quality-of-life Survey placed Portugal 19th in the world for 2005
, ahead of other economically and technologically advanced countries such as France, Germany, the United Kingdom, and South Korea, but nine places behind its only neighbour, Spain.
The Global Competitiveness Report
for 2005, published by the World Economic Forum
, placed Portugal 22nd, ahead of countries and territories such as Spain, Ireland, France, Belgium, and Hong Kong. On the Technology index, Portugal ranked 20th, on the Public Institutions Index, Portugal ranked 15th best, and on the Macroeconomic Index, Portugal was placed 37th. The Global Competitiveness Index 2007–2008 placed Portugal 40th out of 131 countries and territories. However, the Global Competitiveness Report 2008–2009 edition placed Portugal 43rd out of 134.
Related to the notable economic development
that was seen in Portugal from the 1960s to the early 21st century (with an abrupt but short-lived halt after 1974), the development of tourism, which allowed increased exposure for national cultural heritage, particularly in regards to architecture
and local cuisine, improved further. The adoption of the euro and the organization 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 in all of Europe. In the first decade of the 21st century, the Czech Republic, Greece, Malta, Slovakia, and Slovenia all overtook Portugal in terms of GDP (PPP) per head. Greece had been a regular comparison point for Portugal since EU adhesion as both countries were formerly ruled by authoritarian governments and share similar EU-membership history, number of inhabitants, market size and tastes, national economies, mediterranean culture, sunny weather, and tourist appeal; however, the Greek economic and financial wealth of the first five years of the 21st century was artificially boosted and was hampered by lack of sustainability, and they were caught out by a massive crisis by 2010. 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
". From 2002 to 2007, the unemployment rate increased by 65%; the number of unemployed citizens grew from 270,500 in 2002 to 448,600 in 2007. By December 2009, the unemployment rate had passed the 10% mark.
Overall, the late 1990s and the first decade of the 21st century were marked by a lagging economy where Portugal not only failed to catch up to the EU average, but actually fell behind for a period. Public expenditure rose to unsustainable levels and the number of public servants, which had been on the rise since the 1974 Carnation Revolution, reached unprecedented proportions. State-funded and supported construction projects such as those related to the Expo 98 World Fair in Lisbon, the 2004 European Football Championship, and a number of new motorways, proved to have little positive effect in fostering sustainable growth. The short-term impact of these major investments was exhausted by the end of the first decade of the 21st century, and the aim of achieving faster economic growth and the improvement of the population's purchasing power
in relation to the EU average did not materialize. To make matters worse, the late 2000s recession
, when much of the industrialized world entered a deep recession, led to increased unemployment and a downturn.
In December 2009, ratings agency Standard and Poor's lowered its long-term credit assessment of Portugal from "stable" to "negative", voicing pessimism on the country's structural economic weaknesses and poor competitiveness, which would hamper growth and the capacity to strengthen its public finances and reduce debt. Lack of government regulation; easy lending in the housing market, including Spain's and US markets, meant anyone could qualify for a home loan with no government regulations in place, and with key players, including bankers and politicians in several countries, making the wrong financial decisions, saw the world's biggest financial collapse. Portugal had to add a chronic public servant overcapacity problem, a severe sovereign debt crisis and a small, relatively weak, economy to the equation.
Notwithstanding the bad macroeconomic environment, modern non-traditional technology-based industries like aerospace
, biotechnology
and information technology, were developed in several locations across the country. Alverca, Covilhã
, Évora
, and Ponte de Sor became the main centres of Portuguese aerospace industry, led by Brazil-based company Embraer
and the Portuguese company OGMA. Since after the turn of the 21st century, many major biotechnology and information technology industries were founded and proliferated in the metropolitan areas of Lisbon
, Porto, Braga, Coimbra and Aveiro.
(BPN) and Banco Privado Português (BPP)) had been accumulating losses for years due to bad investiments, embezzlement and accounting fraud. In the grounds of avoiding a potentially serious financial crisis in the Portuguese economy, the Portuguese government decided to give them a bailout, eventually at a future loss to taxpayers. Because of that, the role of Banco de Portugal
(BdP) (Portuguese Central Bank) in regulating and supervising the Portuguese banking system, when it was led by Vítor Constâncio
from 2000 to 2010, has been the subject of heated argument, particularly whether Vítor Constâncio and the BdP had the means to do something or whether they revealed gross incompetence. In December 2010, Constâncio was appointed vice president of the European Central Bank
, for an eight-year mandate, being responsible for banking supervision. Shortly after, in April 2011, the Portuguese Government would request international financial assistance as the State itself would be declared bankrupt.
In the opening weeks of 2010, renewed anxiety about the excessive levels of debt in some EU countries and, more generally, about the health of the Euro spread from Ireland and Greece to Portugal, Spain, and Italy.
Some senior German policy makers went as far as to say that emergency bailouts to Greece and future EU aid recipients should bring with it harsh penalties.
In 2010, PIIGS and PIGS acronyms were widely used by international bond analysts, academics, and the international economic press when referring to the underperforming economies of Portugal, Italy, Ireland, Greece, and Spain.
In the summer of 2010, Moody's
Investors Service cut Portugal's sovereign bond rating down two notches from an Aa2 to an A1. Due to spending on economic stimuli, Portugal's debt
had increased sharply compared to the gross domestic product. Moody noted that the rising debt would weigh heavily on the government's short-term finances. Earlier in the year, Portugal was one of the countries identified in the 2010 Euro Crisis as concern spread over increasing government deficit and debt levels in certain countries.
Also in 2010, the country reached a record high unemployment rate of nearly 11%, a figure not seen for over two decades, while the number of public servants remained very high.
International financial market
s compelled the Portuguese Government led by Prime Minister José Sócrates
, to make radical changes in economic policy, like other European governments had done before. Thus, in September 2010, the Portuguese Government announced a fresh austerity package following other Eurozone
partners, through a series of tax hikes and salary cuts for public servants. In 2009, the deficit had been 9.4 percent, one of the highest in the Eurozone and way above the European Union
's Stability and Growth Pact
three percent limit.
In November 2010, risk premium
s on Portuguese bond
s hit euro lifetime highs as investors and creditors worried that the country would fail to reign in its budget deficit and debt. The yield on the country's 10-year government bonds reached 7 percent – a level the Portuguese Finance Minister Fernando Teixeira dos Santos
had previously said would require the country to seek financial help from international institutions.
A report published in January 2011 by the Diário de Notícias
, a leading Portuguese newspaper, demonstrated that in the period between the Carnation Revolution
in 1974 and 2010, the democratic Portuguese Republic government
s encouraged over expenditure and investment bubbles through unclear public-private partnerships. This has funded numerous ineffective and unnecessary external consultancy and advising committees and firms, allowed considerable slippage in state-managed public works
, inflated top management and head officers' bonuses and wages, causing a persistent and lasting recruitment policy that has boosted the number of redundant public servants. The economy had also been damaged by risky credit
, public debt creation and mismanaged European structural and cohesion funds for almost four decades. Apparently, the Prime Minister Sócrates's cabinet was not able to forecast or prevent any of this when symptoms first appeared in 2005, and later was incapable of doing anything to ameliorate the situation when the country was on the verge of bankruptcy in 2011.
On 23 March 2011, José Sócrates resigned following passage of a no confidence motion sponsored by all five opposition parties in parliament over spending cuts and tax increases.
On 6 April 2011, the resigning Prime Minister announced on the television that the country, facing a status of bankruptcy, would request financial assistance to the IMF
(at the time managed by Dominique Strauss-Kahn
) and the European Financial Stability Facility
, like Greece and the Republic of Ireland had done before.
In order to accomplish the European Union
/IMF-led rescue plan for Portugal's sovereign debt crisis, in July and August 2011, the new government led by Pedro Passos Coelho
announced it was going to cut on state spending and increase austerity measures, including public servant wage cuts and additional tax increases.
Roman Empire
The Roman Empire was the post-Republican period of the ancient Roman civilization, characterised by an autocratic form of government and large territorial holdings in Europe and around the Mediterranean....
occupation developed a thriving economy in Hispania
Economy of Hispania
The economy of Hispania, or Roman Iberia, experienced a strong revolution during and after the conquest of the peninsular territory by Rome, in such a way that, from an unknown but promising land, it came to be one of the most valuable acquisitions of both the Republic and Empire and a basic pillar...
, in the provinces of Lusitania
Lusitania
Lusitania or Hispania Lusitania was an ancient Roman province including approximately all of modern Portugal south of the Douro river and part of modern Spain . It was named after the Lusitani or Lusitanian people...
and Gallaecia
Gallaecia
Gallaecia or Callaecia, also known as Hispania Gallaecia, was the name of a Roman province and an early Mediaeval kingdom that comprised a territory in the north-west of Hispania...
, as producers and exporters to the Roman Empire. This continued under the Visigoths and then Al-Andalus
Al-Andalus
Al-Andalus was the Arabic name given to a nation and territorial region also commonly referred to as Moorish Iberia. The name describes parts of the Iberian Peninsula and Septimania governed by Muslims , at various times in the period between 711 and 1492, although the territorial boundaries...
Moorish rule, until the Kingdom of Portugal
Kingdom of Portugal
The Kingdom of Portugal was Portugal's general designation under the monarchy. The kingdom was located in the west of the Iberian Peninsula, Europe and existed from 1139 to 1910...
was established in 1139.
With the end of Portuguese reconquista
Reconquista
The Reconquista was a period of almost 800 years in the Middle Ages during which several Christian kingdoms succeeded in retaking the Muslim-controlled areas of the Iberian Peninsula broadly known as Al-Andalus...
and integration in the European Middle Age economy, the Portuguese were at the forefront of maritime exploration
Portuguese discoveries
Portuguese discoveries is the name given to the intensive maritime exploration by the Portuguese during the 15th and 16th centuries. Portuguese sailors were at the vanguard of European overseas exploration, discovering and mapping the coasts of Africa, Asia and Brazil, in what become known as the...
of the age of discovery
Age of Discovery
The Age of Discovery, also known as the Age of Exploration and the Great Navigations , was a period in history starting in the early 15th century and continuing into the early 17th century during which Europeans engaged in intensive exploration of the world, establishing direct contacts with...
, expanding to become the first global empire
Portuguese Empire
The Portuguese Empire , also known as the Portuguese Overseas Empire or the Portuguese Colonial Empire , was the first global empire in history...
. Portugal then became the world's main economic power during the Renaissance
Renaissance
The Renaissance was a cultural movement that spanned roughly the 14th to the 17th century, beginning in Italy in the Late Middle Ages and later spreading to the rest of Europe. The term is also used more loosely to refer to the historical era, but since the changes of the Renaissance were not...
, introducing most of Africa and the East to European society, and establishing a multi-continental trading system
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
extending from Japan to Brazil.
In 1822, Portugal lost its main colony, Brazil. Portuguese territorial claims in Africa were challenged during the Scramble for Africa
Scramble for Africa
The Scramble for Africa, also known as the Race for Africa or Partition of Africa was a process of invasion, occupation, colonization and annexation of African territory by European powers during the New Imperialism period, between 1881 and World War I in 1914...
. Political chaos and economic problems endured from the last years of the monarchy to the first Republic of 1910–1926
Portuguese First Republic
The Portuguese First Republic spans a complex 16 year period in the history of Portugal, between the end of the period of constitutional monarchy marked by the 5 October 1910 revolution and the 28 May coup d'état of 1926...
, which led to the installing of a national dictatorship
Ditadura Nacional
The Ditadura Nacional was the name of the Portuguese regime initiated by the election of President Óscar Carmona in 1928 that lasted until the adoption of the new constitution in 1933, when the régime changed its name to Estado Novo...
in 1926. While Finance Minister
Finance minister
The finance minister is a cabinet position in a government.A minister of finance has many different jobs in a government. He or she helps form the government budget, stimulate the economy, and control finances...
António de Oliveira Salazar
António de Oliveira Salazar
António de Oliveira Salazar, GColIH, GCTE, GCSE served as the Prime Minister of Portugal from 1932 to 1968. He also served as acting President of the Republic briefly in 1951. He founded and led the Estado Novo , the authoritarian, right-wing government that presided over and controlled Portugal...
managed to discipline the Portuguese economy, it evolved into a single party corporative regime in 1933—the Estado Novo. The country underwent a regime change in 1974, the Carnation Revolution
Carnation Revolution
The Carnation Revolution , also referred to as the 25 de Abril , was a military coup started on 25 April 1974, in Lisbon, Portugal, coupled with an unanticipated and extensive campaign of civil resistance...
, a leftist
Left-wing politics
In politics, Left, left-wing and leftist generally refer to support for social change to create a more egalitarian society...
military coup, culminating with the end of one of its most notable periods of economic growth, which had started in the 1960s. From 1974 to the end of the 1970s, over a million Portuguese citizens arrived from the former African overseas colonies, most as destitute refugees—the retornados. In 1986, Portugal entered the European Economic Community
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
and left the EFTA
EFTA
EFTA may refer to:* European Family Therapy Association, an NGO.* European Fair Trade Association, an association of eleven Fair Trade importers in nine European countries....
. The European Union's structural and cohesion funds and the growth of many of Portugal's main exporting companies were leading forces in the development of the Portuguese economy, and the resultant increase in the standard of living
Standard of living
Standard of living is generally measured by standards such as real income per person and poverty rate. Other measures such as access and quality of health care, income growth inequality and educational standards are also used. Examples are access to certain goods , or measures of health such as...
and quality of life
Quality of life
The term quality of life is used to evaluate the general well-being of individuals and societies. The term is used in a wide range of contexts, including the fields of international development, healthcare, and politics. Quality of life should not be confused with the concept of standard of...
. Similarly, for several years Portuguese subsidiaries of large multinational companies ranked among the most productive in the world. Tourism
Tourism in Portugal
Portugal attracts many tourists each year. In 2006, the country was visited by 12.8 million tourists. Tourism is playing an increasingly important role in Portugal's economy contributing with about 5% of the Gross Domestic Product ....
accounts for about 5% of the Gross Domestic Product (GDP), while fisheries
Fishing in Portugal
Fishing is a major economic activity in Portugal. The country has a long tradition in the sector, and is among the countries in the world with the highest fish consumption per capita. Roman ruins of fish processing facilities were found across the Portuguese coast. Fish has been an important staple...
and agriculture
Agriculture in Portugal
Agriculture in Portugal is based on small to medium-sized family-owned dispersed units, however, the sector also includes larger scale intensive farming export-oriented agrobusinesses backed by companies...
each account for about 4%.
The country adopted the euro in 1999. Despite being both a developed country and a high income country, Portugal's GDP per capita was of about 80% of the EU27 average. The Global Competitiveness Report
Global Competitiveness Report
The Global Competitiveness Report is a yearly report published by the World Economic Forum. The first report was released in 1979. The 2011–2012 report covers 142 major and emerging economies....
of 2008–2009 ranked Portugal 43rd out of 134 countries and territories. Research by the Economist Intelligence Unit
Economist Intelligence Unit
The Economist Intelligence Unit is part of the Economist Group.It is a research and advisory company providing country, industry and management analysis worldwide and incorporates the former Business International Corporation, a U.S. company acquired by the parent organization in 1986...
's (EIU) Quality of Life survey in 2005 ranked Portugal 19th
Quality-of-life index
The Economist Intelligence Unit’s quality-of-life index is based on a unique methodology that links the results of subjective life-satisfaction surveys to the objective determinants of quality of life across countries...
in the world.
As far as to companies is concerned, the country is home to a number of world players with international reputation, like Grupo Portucel Soporcel, a major world player in the international paper market, Sonae Indústria
Sonae Indústria
Sonae Indústria is a manufacturer of engineered wood products, founded and headquartered in Maia, Portugal. Present in twelve countries within three continents, Sonae Indústria has a wide range of products, from simple board to complete construction systems, a large range of wood-based products...
, the largest producer of wood-based panels in the world, Corticeira Amorim
Corticeira Amorim
Corticeira Amorim S.G.P.S., S.A., is a Portuguese subholding company belonging to the Amorim Group and claims to be the world leader in the cork industry for over 130 years, with operations in hundreds of countries all over the world. Corticeira Amorim S.G.P.S., S.A...
, the world leader in cork production, and Conservas Ramirez, the oldest canned fish producer in continuous operation.
Pre-nationality
Before the arrival of RomansAncient Rome
Ancient Rome was a thriving civilization that grew on the Italian Peninsula as early as the 8th century BC. Located along the Mediterranean Sea and centered on the city of Rome, it expanded to one of the largest empires in the ancient world....
in Iberia, the peninsula had a rural-based subsistence economy
Subsistence economy
A subsistence economy is an economy which refers simply to the gathering or amassment of objects of value; the increase in wealth; or the creation of wealth. Capital can be generally defined as assets invested with the expectation that their value will increase, usually because there is the...
with very limited trade, with the exception of large cities on the Mediterranean coast, which had contact with Greek
Ancient Greece
Ancient Greece is a civilization belonging to a period of Greek history that lasted from the Archaic period of the 8th to 6th centuries BC to the end of antiquity. Immediately following this period was the beginning of the Early Middle Ages and the Byzantine era. Included in Ancient Greece is the...
and Phoenician traders. Iberians
Iberians
The Iberians were a set of peoples that Greek and Roman sources identified with that name in the eastern and southern coasts of the Iberian peninsula at least from the 6th century BC...
and Celts were some of the first groups present in the territory, with the Celtic economy centered on cattle raising, agriculture, and metal working.
Roman province
The territory's mineral wealth made it an important strategic region during the early metal ages, and one of the first objectives of the RomansRoman Empire
The Roman Empire was the post-Republican period of the ancient Roman civilization, characterised by an autocratic form of government and large territorial holdings in Europe and around the Mediterranean....
when invading the peninsula was to access the mines near New Carthage. After the Second Punic War
Second Punic War
The Second Punic War, also referred to as The Hannibalic War and The War Against Hannibal, lasted from 218 to 201 BC and involved combatants in the western and eastern Mediterranean. This was the second major war between Carthage and the Roman Republic, with the participation of the Berbers on...
, from 29 BC to 411 AD, Rome governed the Iberian peninsula, expanding and diversifying the economy, and extending trade with the Roman Empire. Indigenous peoples paid tribute
Tribute
A tribute is wealth, often in kind, that one party gives to another as a sign of respect or, as was often the case in historical contexts, of submission or allegiance. Various ancient states, which could be called suzerains, exacted tribute from areas they had conquered or threatened to conquer...
to Rome through an intricate web of alliances and allegiances. The economy experienced a major production expansion, profiting from some of the best agricultural lands under Roman hegemony and fueled by roads, trade routes, and the minting
Mint (coin)
A mint is an industrial facility which manufactures coins for currency.The history of mints correlates closely with the history of coins. One difference is that the history of the mint is usually closely tied to the political situation of an era...
of coins, which eased commercial transactions. Lusitania
Lusitania
Lusitania or Hispania Lusitania was an ancient Roman province including approximately all of modern Portugal south of the Douro river and part of modern Spain . It was named after the Lusitani or Lusitanian people...
developed, driven by an intensive mining industry; fields explored included the Aljustrel
Aljustrel mine
Aljustrel mine was a zinc-lead mine near Aljustrel, Portugal. The mine was put on care and maintenance in November 2008....
mines (Vipasca), São Domingos
Sao Domingos Mine
The São Domingos Mine is a deserted open-pit mine in São Domingos, Alentejo, Portugal. This site is one of the volcanogenic massive sulfide ore deposits in the Iberian Pyrite Belt, which extends from the southern Portugal into Spain. The Romans mined in the São Domingos area for gold and silver for...
, and Riotinto in the Iberian Pyrite Belt
Iberian Pyrite Belt
The Iberian Pyrite Belt is a vast geographical area with particular geological features that stretches along much of the south of the Iberian Peninsula, from Portugal to Spain. It is about 250 km long and 30–50 km wide, running northwest to southeast from Alcácer do Sal to Sevilla...
, which extended to Seville
Seville
Seville is the artistic, historic, cultural, and financial capital of southern Spain. It is the capital of the autonomous community of Andalusia and of the province of Seville. It is situated on the plain of the River Guadalquivir, with an average elevation of above sea level...
, and contained copper, silver, and gold. All mines belonged to the Roman Senate
Roman Senate
The Senate of the Roman Republic was a political institution in the ancient Roman Republic, however, it was not an elected body, but one whose members were appointed by the consuls, and later by the censors. After a magistrate served his term in office, it usually was followed with automatic...
, and were operated by slaves
Slavery in ancient Rome
The institution of slavery in ancient Rome played an important role in society and the Roman economy. Besides manual labor on farms and in mines, slaves performed many domestic services and a variety of other tasks, such as accounting...
.
Subsistence agriculture was replaced by large farming units (Roman villa
Roman villa
A Roman villa is a villa that was built or lived in during the Roman republic and the Roman Empire. A villa was originally a Roman country house built for the upper class...
s) producing olive oil
Olive oil
Olive oil is an oil obtained from the olive , a traditional tree crop of the Mediterranean Basin. It is commonly used in cooking, cosmetics, pharmaceuticals, and soaps and as a fuel for traditional oil lamps...
, cereals, and wine, and rearing livestock. This farming activity was located mainly in the region to the south of the Tagus River, the third largest grain-producing area in the Roman Empire.
There was also development in fishing activity, producing the valued garum
Garum
Garum, similar to liquamen, was a type of fermented fish sauce condiment that was an essential flavour in Ancient Roman cooking, the supreme condiment....
or liquamen, a condiment obtained from the maceration of fish, preferably tuna and mackerel, exported throughout the entire empire. The most famous was manufactured in Cadiz
Cádiz
Cadiz is a city and port in southwestern Spain. It is the capital of the homonymous province, one of eight which make up the autonomous community of Andalusia....
(modern Spain) and the largest producer of the entire Roman Empire was in Tróia Peninsula
Tróia Peninsula
Tróia is a peninsula located in Grândola Municipality , Portugal, next to the Sado River estuary. Tourism is the peninsula's main activity due to its long beaches facing the Atlantic. There is a ferry boat connection between the peninsula and the city of Setúbal...
, near modern Setúbal
Setúbal
Setúbal is the main city in Setúbal Municipality in Portugal with a total area of 172.0 km² and a total population of 118,696 inhabitants in the municipality. The city proper has 89,303 inhabitants....
, 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
Póvoa de Varzim
Póvoa de Varzim is a Portuguese city in the Norte Region and sub-region of Greater Porto, with a 2011 estimated population of 63,364. According to the 2001 census, there were 63,470 inhabitants with 42,396 living in the city proper. The urban area expanded, southwards, to Vila do Conde, and there...
, Angeiras (Matosinhos
Matosinhos
Matosinhos Municipality is located in Porto District, Portugal. The main city is Matosinhos. It is bordered to the south by the city of Porto and lies within the Greater Porto subregion. The municipality has a population of 168,451 in 10 parishes. Many people have recently moved from the...
), and the estuary of the Sado River
Sado River
The Sado River is a river in Southern Portugal, and is one of the major rivers in the country. It flows in a South/North direction through 175 km from its springs in the Caldeirão hills before entering the Atlantic Ocean in an estuary in the city of Setúbal.In Setúbal, its estuary is famous...
, which made it one of the most important centers for canners in Hispania. At the same time, specialized industries also developed. The fish salting and canning in turn required the development of salt, shipbuilding
Shipbuilding
Shipbuilding is the construction of ships and floating vessels. It normally takes place in a specialized facility known as a shipyard. Shipbuilders, also called shipwrights, follow a specialized occupation that traces its roots to before recorded history.Shipbuilding and ship repairs, both...
, and ceramic industries, to facilitate the manufacture of amphorae and other containers that allowed the storage and transport of commodities such as oil, wine, cereals, and preserves.
Visigothic rule
With the decline of the Roman Empire, circa 410–418, SuebiSuebi
The Suebi or Suevi were a group of Germanic peoples who were first mentioned by Julius Caesar in connection with Ariovistus' campaign, c...
and Visigoths took over the power vacuum left by Roman administrators and established themselves as nobility, with some degree of centralized power at their capitals in Braga
Suebic Kingdom of Galicia
The Suebic Kingdom of Galicia was the first independent barbarian Christian kingdom of Western Europe and the first to separate from the Roman Empire, as well as the first one to mint coins. Based in Gallaecia, it was established in 410 and lasted as independent state until 584, after a century of...
and Toledo. Although it suffered some decline, Roman law remained in the Visigothic Code
Visigothic Code
The Visigothic Code comprises a set of laws promulgated by the Visigothic king of Hispania, Chindasuinth in his second year...
, 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.
Al-Andalus
In 711, Moors occupied large parts of the Iberian Peninsula, establishing the Al-AndalusAl-Andalus
Al-Andalus was the Arabic name given to a nation and territorial region also commonly referred to as Moorish Iberia. The name describes parts of the Iberian Peninsula and Septimania governed by Muslims , at various times in the period between 711 and 1492, although the territorial boundaries...
. They maintained much of the Roman legacy; they repaired and extended Roman infrastructure, 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 merchant
Merchant
A merchant is a businessperson who trades in commodities that were produced by others, in order to earn a profit.Merchants can be one of two types:# A wholesale merchant operates in the chain between producer and retail merchant...
s, who would buy and sell on commission
Commission (remuneration)
The payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often will be calculated on the basis of a percentage of the goods sold...
, with money lent
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
to them by wealthy investors, or a joint investment of several merchants, who were often Muslim, Christian, and Jewish.
Little is directly known from the economic structures of the region due to the paucity of Arab sources. It is however possible to advance a few assertions. The constant warfare between Muslims and Christians and among Muslims certainly costed the region dearly and must have participated to the rampant problems of underpopulation experienced by the Gharb al-Andalus. As a matter of example, several attempts to repopulate the regions north of Coimbra
Coimbra
Coimbra is a city in the municipality of Coimbra in Portugal. Although it served as the nation's capital during the High Middle Ages, it is better-known for its university, the University of Coimbra, which is one of the oldest in Europe and the oldest academic institution in the...
to guaranty a line of defense against the Christian kingdom failed. The economy was heavily influenced both by structural Islamic habits (creation of cities) and the direction chosen by the dominating Muslim ruler of the Maghrib
Maghrib
The Maghrib prayer , prayed just after sunset, is the fourth of five formal daily prayers performed by practicing Muslims.The formal daily prayers of Islam comprise different numbers of units, called rak'at. The Maghrib prayer has three obligatory rak'at. The first two fard rak'at are prayed...
and al-Andalus. For instance, the great interest paid by the Almohad
Almohad
The Almohad Dynasty , was a Moroccan Berber-Muslim dynasty founded in the 12th century that established a Berber state in Tinmel in the Atlas Mountains in roughly 1120.The movement was started by Ibn Tumart in the Masmuda tribe, followed by Abd al-Mu'min al-Gumi between 1130 and his...
dynasty to the Atlantic helped develop the military and civilian (trade, fishery) activities of the western Iberian ports such as Sevilla, Lisbon, etc. Despite a general impression of sustained development, specially during the 10th and 11th centuries when the area witnessed a noticeable demographic expansion, the Gharb al-Andalus also underwent some dramatic episodes such as the great famine of 740 which decimated the Berber
Berber people
Berbers are the indigenous peoples of North Africa west of the Nile Valley. They are continuously distributed from the Atlantic to the Siwa oasis, in Egypt, and from the Mediterranean to the Niger River. Historically they spoke the Berber language or varieties of it, which together form a branch...
colonists of the Douro
Douro
The Douro or Duero is one of the major rivers of the Iberian Peninsula, flowing from its source near Duruelo de la Sierra in Soria Province across northern-central Spain and Portugal to its outlet at Porto...
region.
Business partnerships would be made for many commercial ventures
Joint venture
A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...
, and bonds of kinship
Kinship
Kinship is a relationship between any entities that share a genealogical origin, through either biological, cultural, or historical descent. And descent groups, lineages, etc. are treated in their own subsections....
enabled trade networks
Trade route
A trade route is a logistical network identified as a series of pathways and stoppages used for the commercial transport of cargo. Allowing goods to reach distant markets, a single trade route contains long distance arteries which may further be connected to several smaller networks of commercial...
to form over huge distances. Muslims were involved in trade extending into Asia, and Muslim merchants traveled long distances for commercial activities. After 800 years of warfare, the Catholic kingdoms gradually became more powerful and eventually expelled the Moors from the peninsula. In the case of the Kingdom of Portugal
Kingdom of Portugal
The Kingdom of Portugal was Portugal's general designation under the monarchy. The kingdom was located in the west of the Iberian Peninsula, Europe and existed from 1139 to 1910...
it happened in the 13th century; in the Algarve, the combined forces of Aragon
Aragon
Aragon is a modern autonomous community in Spain, coextensive with the medieval Kingdom of Aragon. Located in northeastern Spain, the Aragonese autonomous community comprises three provinces : Huesca, Zaragoza, and Teruel. Its capital is Zaragoza...
and Castile
Crown of Castile
The Crown of Castile was a medieval and modern state in the Iberian Peninsula that formed in 1230 as a result of the third and definitive union of the crowns and parliaments of the kingdoms of Castile and León upon the accession of the then King Ferdinand III of Castile to the vacant Leonese throne...
defeated the last Iberian Muslim strongholds in the 15th century.
Kingdom of Portugal
Kingdom of Portugal
The Kingdom of Portugal was Portugal's general designation under the monarchy. The kingdom was located in the west of the Iberian Peninsula, Europe and existed from 1139 to 1910...
achieved independence from the Kingdom of León
Kingdom of León
The Kingdom of León was an independent kingdom situated in the northwest region of the Iberian Peninsula. It was founded in AD 910 when the Christian princes of Asturias along the northern coast of the peninsula shifted their capital from Oviedo to the city of León...
, having doubled its area through the Reconquista
Reconquista
The Reconquista was a period of almost 800 years in the Middle Ages during which several Christian kingdoms succeeded in retaking the Muslim-controlled areas of the Iberian Peninsula broadly known as Al-Andalus...
(the reconquest of former Christian lands to the Muslim rulers established in the Iberian Peninsula
Iberian Peninsula
The Iberian Peninsula , sometimes called Iberia, is located in the extreme southwest of Europe and includes the modern-day sovereign states of Spain, Portugal and Andorra, as well as the British Overseas Territory of Gibraltar...
) under Afonso Henriques
Afonso I of Portugal
Afonso I or Dom Afonso Henriques , more commonly known as Afonso Henriques , nicknamed "the Conqueror" , "the Founder" or "the Great" by the Portuguese, and El-Bortukali and Ibn-Arrik by the Moors whom he fought, was the first King of Portugal...
, first King of Portugal. His successor, Sancho I
Sancho I of Portugal
Sancho I , nicknamed the Populator , second monarch of Portugal, was born on 11 November 1154 in Coimbra and died on 26 March 1212 in the same city. He was the second but only surviving legitimate son and fourth child of Afonso I of Portugal by his wife, Maud of Savoy. Sancho succeeded his father...
, accumulated the first national treasury
Treasury
A treasury is either*A government department related to finance and taxation.*A place where currency or precious items is/are kept....
, and supported new industries and the middle class of merchants. Moreover, he created several new towns, such as Guarda in 1199, and took great care in populating remote areas.
Middle ages
Starting in 1212, Afonso II of PortugalAfonso II of Portugal
Afonso II , or Affonso , Alfonso or Alphonso or Alphonsus , nicknamed "the Fat" , third king of Portugal, was born in Coimbra on 23 April 1185 and died on 25 March 1223 in the same city. He was the second but eldest surviving son of Sancho I of Portugal by his wife, Dulce, Infanta of Aragon...
established the state's administration, designing the first set of Portuguese written laws. These were mainly concerned with private property
Private property
Private property is the right of persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other forms of property. Private property is distinguishable from public property, which refers to assets owned by a state, community or government rather than by...
, civil justice, and minting. He sent ambassadors to European kingdoms outside the Iberian Peninsula to begin commercial relations. The earliest references of commercial relations between Portugal and the County of Flanders
County of Flanders
The County of Flanders was one of the territories constituting the Low Countries. The county existed from 862 to 1795. It was one of the original secular fiefs of France and for centuries was one of the most affluent regions in Europe....
document Portuguese attendance at Lille
Lille
Lille is a city in northern France . It is the principal city of the Lille Métropole, the fourth-largest metropolitan area in the country behind those of Paris, Lyon and Marseille. Lille is situated on the Deûle River, near France's border with Belgium...
's fair
Fair
A fair or fayre is a gathering of people to display or trade produce or other goods, to parade or display animals and often to enjoy associated carnival or funfair entertainment. It is normally of the essence of a fair that it is temporary; some last only an afternoon while others may ten weeks. ...
in 1267. In 1297, with the Reconquista completed, King Denis
Denis of Portugal
Dinis , called the Farmer King , was the sixth King of Portugal and the Algarve. The eldest son of Afonso III of Portugal by his second wife, Beatrice of Castile and grandson of king Alfonso X of Castile , Dinis succeeded his father in 1279.-Biography:As heir to the throne, Infante Dinis was...
pursued policies on legislation and centralization of power, adopting Portuguese as the official language. He ordered the exploration of mines of copper, silver, tin
Tin
Tin is a chemical element with the symbol Sn and atomic number 50. It is a main group metal in group 14 of the periodic table. Tin shows chemical similarity to both neighboring group 14 elements, germanium and lead and has two possible oxidation states, +2 and the slightly more stable +4...
, and iron, and organized for the export of surplus production to other European countries. On 10 May 1293, King Denis instituted the Bolsa de Comércio, a commercial fund
Funding
Funding is the act of providing resources, usually in form of money , or other values such as effort or time , for a project, a person, a business or any other private or public institutions...
for the defense of Portuguese traders in foreign ports, such as the County of Flanders, which were to pay certain sums according to tonnage, accrued to them when necessary. In 1308, he signed Portugal's first commercial agreement with England. He distributed land, promoted agriculture, organized communities of farmers and took a personal interest in the development of exports, founding and regulating regular markets in a number of towns. In 1317, he made a pact with the Genoese
Republic of Genoa
The Most Serene Republic of Genoa |Ligurian]]: Repúbrica de Zêna) was an independent state from 1005 to 1797 in Liguria on the northwestern Italian coast, as well as Corsica from 1347 to 1768, and numerous other territories throughout the Mediterranean....
merchant sailor Manuel Pessanha
Manuel Pessanha
Manuel Pessanha was a Genoese merchant sailor who served in Portugal in the 14th century as the first admiral of Portugal at the time of King Denis of Portugal....
(Pesagno), appointing him Admiral and giving him trade privileges with his homeland, in return for twenty warships and crews. The intention was the defense of the country against pirates, and it laid the basis for the Portuguese Navy
Portuguese Navy
The Portuguese Navy is the naval branch of the Portuguese Armed Forces which, in cooperation and integrated with the other branches of the Portuguese military, is charged with the military defence of Portugal....
and the establishment of a Genoese merchant community in Portugal.
Agriculture was Portugal's main activity, with produce mostly consumed internally. Wine and dried fruits from the Algarve (figs, grapes, and almonds) were sold in Flanders and England, salt from Setúbal
Setúbal
Setúbal is the main city in Setúbal Municipality in Portugal with a total area of 172.0 km² and a total population of 118,696 inhabitants in the municipality. The city proper has 89,303 inhabitants....
and Aveiro was a profitable export to northern Europe, and leather and kermes
Kermes (dye)
Kermes is a red dye derived from the dried bodies the females of a scale insect in the genus Kermes, primarily Kermes vermilio. The insects live on the sap of certain trees, especially Kermes oak tree near the Mediterranean region...
, a scarlet dye
Dye
A dye is a colored substance that has an affinity to the substrate to which it is being applied. The dye is generally applied in an aqueous solution, and requires a mordant to improve the fastness of the dye on the fiber....
, were also exported. Industry was minimal, and Portugal imported armor and munitions, fine clothes, and several manufactured products from Flanders and Italy. Since the 13th century, a monetary economy had been stimulated, but barter
Barter
Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a...
still dominated trade, and coinage was limited; foreign currency was also used until the beginning of the 15th century.
In the second half of the 14th century, outbreaks of bubonic plague
Bubonic plague
Plague is a deadly infectious disease that is caused by the enterobacteria Yersinia pestis, named after the French-Swiss bacteriologist Alexandre Yersin. Primarily carried by rodents and spread to humans via fleas, the disease is notorious throughout history, due to the unrivaled scale of death...
led to severe depopulation: the economy was extremely localized in a few towns, and migration from the country led to land being abandoned to agriculture and resulted in rises in rural unemployment. Only the sea offered alternatives, with most populations settling in fishing and trading coastal areas.
Between 1325 and 1357, Alfonso IV
Afonso IV of Portugal
Afonso IV , called the Brave , was the seventh king of Portugal and the Algarve from 1325 until his death. He was the only legitimate son of King Denis of Portugal by his wife Elizabeth of Aragon.-Biography:...
granted public funding to raise a proper commercial fleet and ordered the first maritime explorations, with the help of Genoese sailors under the command of admiral Manuel Pessanha. Forced to reduce their activities in the Black Sea
Black Sea
The Black Sea is bounded by Europe, Anatolia and the Caucasus and is ultimately connected to the Atlantic Ocean via the Mediterranean and the Aegean seas and various straits. The Bosphorus strait connects it to the Sea of Marmara, and the strait of the Dardanelles connects that sea to the Aegean...
, the Republic of Genoa had turned to the north African trade of wheat and olive oil
Olive oil
Olive oil is an oil obtained from the olive , a traditional tree crop of the Mediterranean Basin. It is commonly used in cooking, cosmetics, pharmaceuticals, and soaps and as a fuel for traditional oil lamps...
(valued also as an energy source), and a search for gold, although they also visited the ports of Bruges
Bruges
Bruges is the capital and largest city of the province of West Flanders in the Flemish Region of Belgium. It is located in the northwest of the country....
(Flanders) and England. Genoese and Florentine communities were then well-established in Portugal, and they profited from the enterprise and financial experience of these rivals of the Republic of Venice
Republic of Venice
The Republic of Venice or Venetian Republic was a state originating from the city of Venice in Northeastern Italy. It existed for over a millennium, from the late 7th century until 1797. It was formally known as the Most Serene Republic of Venice and is often referred to as La Serenissima, in...
. In 1341, the Canary Islands
Canary Islands
The Canary Islands , also known as the Canaries , is a Spanish archipelago located just off the northwest coast of mainland Africa, 100 km west of the border between Morocco and the Western Sahara. The Canaries are a Spanish autonomous community and an outermost region of the European Union...
, already known to the Genoese, were officially discovered under the patronage of the Portuguese king, but in 1344 Castile disputed them, further propelling the development of the Portuguese navy.
To promote settlement, the Sesmarias law was issued in 1375, expropriating vacant lands and leasing it to unemployed cultivators, without great effect: by the end of the century, Portugal faced food shortages, having to import wheat from north Africa.
After the 1383–1385 Crisis
1383–1385 Crisis
The 1383–1385 Crisis was a period of civil war in Portuguese history that began with the death of King Ferdinand I of Portugal, who left no male heirs, and ended with the accession to the throne of King John I in 1385, in the wake of the Battle of Aljubarrota.In Portugal, this period is also known...
—combining a succession crisis, war with Castile, and Lisbon plagued by famine and anarchy—a newly elected Aviz
House of Aviz
The House of Aviz is a dynasty of kings of Portugal. In 1385, the Interregnum of the 1383-1385 crisis ended with the acclamation of the Master of the Order of Aviz, John, natural son of king Peter I and Dona Teresa Lourenço as king...
dynasty, with strong links to England, marked an eclipse of the conservative land-oriented aristocracy.
Expansion of the Portuguese empire (15th and 16th centuries)
Ceuta
Ceuta is an autonomous city of Spain and an exclave located on the north coast of North Africa surrounded by Morocco. Separated from the Iberian peninsula by the Strait of Gibraltar, Ceuta lies on the border of the Mediterranean Sea and the Atlantic Ocean. Ceuta along with the other Spanish...
was occupied by the Portuguese with the aim of controlling navigation of the African coast, expanding Christianity with the avail of the papacy, and providing the nobility
Nobility
Nobility is a social class which possesses more acknowledged privileges or eminence than members of most other classes in a society, membership therein typically being hereditary. The privileges associated with nobility may constitute substantial advantages over or relative to non-nobles, or may be...
with war. The king's son, Henry the Navigator, then became aware of the profitability of the Saharan trade routes. Governor of the rich 'Order of Christ' and holding valuable monopolies on resources in the Algarve, he sponsored voyages down the coast of Mauritania, gathering a group of merchants, shipowners, and stakeholders interested in the sea lanes. Later, his brother Prince Pedro granted him a "Royal Flush" of all profits from trading within the discovered areas. Soon the Atlantic islands of Madeira (1420) and Azores (1427) were reached and began to be settled, producing wheat for export to Portugal. By the beginning of the reign of King Duarte I in 1433, the Real
Portuguese real
The real was the unit of currency of Portugal from around 1430 until 1911. It replaced the dinheiro at the rate of 1 real = 840 dinheiros and was itself replaced by the escudo at a rate of 1 escudo = 1000 réis...
became the currency unit in Portugal, and remained so up to the XX century.
In January 1430, Princess Isabella of Portugal married Philip III, Duke of Burgundy
Philip III, Duke of Burgundy
Philip the Good KG , also Philip III, Duke of Burgundy was Duke of Burgundy from 1419 until his death. He was a member of a cadet line of the Valois dynasty . During his reign Burgundy reached the height of its prosperity and prestige and became a leading center of the arts...
, Count of Flanders. Around 2,000 Portuguese accompanied her, developing great activity in trade and finance in what was then the richest European court. With Portuguese support, Bruges
Bruges
Bruges is the capital and largest city of the province of West Flanders in the Flemish Region of Belgium. It is located in the northwest of the country....
shipyard was started, and in 1438 the Duke granted the Portuguese traders the opportunity to elect consuls with legal powers, thus giving full civil jurisdiction to the Portuguese community. In 1445, the Portuguese Feitoria of Bruges was built.
In 1443, Prince Pedro, Henry's brother, granted him the monopoly of navigation, war, and trade in the lands south of Cape Bojador. Later, this monopoly would be enforced by the Papal bull
Papal bull
A Papal bull is a particular type of letters patent or charter issued by a Pope of the Catholic Church. It is named after the bulla that was appended to the end in order to authenticate it....
s Dum Diversas
Dum Diversas
Dum Diversas is a papal bull issued on June 18, 1452 by Pope Nicholas V, that is credited by some with "ushering in the West African slave trade." It authorized Afonso V of Portugal to conquer Saracens and pagans and consign them to indefinite slavery...
(1452) and Romanus Pontifex
Romanus Pontifex
Romanus Pontifex is a papal bull written January 8, 1455 by Pope Nicholas V to King Afonso V of Portugal. As a follow-up to the Dum Diversas, it confirmed to the Crown of Portugal dominion over all lands discovered or conquered during the Age of Discovery. Along with encouraging the seizure of the...
(1455), granting Portugal the trade monopoly for the newly discovered lands.
When the Portuguese first sailed down the Atlantic, extending their influence on coastal Africa, they were interested in gold. Trade in sub-Saharan Africa
Sub-Saharan Africa
Sub-Saharan Africa as a geographical term refers to the area of the African continent which lies south of the Sahara. A political definition of Sub-Saharan Africa, instead, covers all African countries which are fully or partially located south of the Sahara...
was controlled by Muslims, who controlled trans-Saharan trade
Trans-Saharan trade
Trans-Saharan trade requires travel across the Sahara to reach sub-Saharan Africa. While existing from prehistoric times, the peak of trade extended from the 8th century until the late 16th century.- Increasing desertification and economic incentive :...
routes for salt, kola
Kola nut
Kola Nut is the nut of the kola tree, a genus of trees native to the tropical rainforests of Africa, classified in the family Malvaceae, subfamily Sterculioideae . It is related to the South American genus Theobroma, or cocoa...
, textiles, fish, and grain, and engaged in the Arab slave trade
Arab slave trade
The Arab slave trade was the practice of slavery in the Arab World, mainly Western Asia, North Africa, East Africa and certain parts of Europe during their period of domination by Arab leaders. The trade was focused on the slave markets of the Middle East and North Africa...
.
To attract Muslim traders along the routes traveled in North Africa, the first factory trading post
Factory (trading post)
Factory was the English term for the trading posts system originally established by Europeans in foreign territories, first within different states of medieval Europe, and later in their colonial possessions...
was built in 1445 on the island of Arguin
Arguin
Arguin is an island off the western coast of Mauritania in the Bay of Arguin, at 20° 36' N., 16° 27' W. It is six km long by two broad. Off the island are extensive and dangerous reefs...
, off the coast of Mauritania. Portuguese merchants accessed the interior via the Senegal
Sénégal River
The Sénégal River is a long river in West Africa that forms the border between Senegal and Mauritania.The Sénégal's headwaters are the Semefé and Bafing rivers which both originate in Guinea; they form a small part of the Guinean-Malian border before coming together at Bafoulabé in Mali...
and Gambia rivers
Gambia River
The Gambia River is a major river in West Africa, running from the Fouta Djallon plateau in north Guinea westward through Senegal and The Gambia to the Atlantic Ocean at the city of Banjul...
, which bisected long-standing trans-Saharan routes. They brought in copperware, cloth, tools, wine, and horses, and later included arms and ammunition
Ammunition
Ammunition is a generic term derived from the French language la munition which embraced all material used for war , but which in time came to refer specifically to gunpowder and artillery. The collective term for all types of ammunition is munitions...
. In exchange, they received gold from the mines of Akan
Akan people
The Akan people are an ethnic group found predominately in Ghana and The Ivory Coast. Akans are the majority in both of these countries and overall have a population of over 20 million people.The Akan speak Kwa languages-Origin and ethnogenesis:...
, Guinea pepper
Guinea pepper
Guinea pepper is the name for several unrelated pepper-like spices traded from the general region of West Africa:* Aframomum melegueta from the ginger family...
(a trade which lasted until Vasco da Gama
Vasco da Gama
Vasco da Gama, 1st Count of Vidigueira was a Portuguese explorer, one of the most successful in the Age of Discovery and the commander of the first ships to sail directly from Europe to India...
reached India in 1498), and ivory
Ivory trade
The ivory trade is the commercial, often illegal trade in the ivory tusks of the hippopotamus, walrus, narwhal, mammoth, and most commonly, Asian and African elephants....
. The expanding market opportunities in Europe and the Mediterranean resulted in increased trade across the Sahara. There was a very small market for African slaves as domestic workers in Europe, and as workers on the sugar plantations of the Mediterranean and later Madeira. The Portuguese found they could make considerable amounts of gold by 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
Caliphate
The term caliphate, "dominion of a caliph " , refers to the first system of government established in Islam and represented the political unity of the Muslim Ummah...
.
Atlantic Islands' sugar trade
Expansion of sugar cane agriculture in MadeiraMadeira
Madeira is a Portuguese archipelago that lies between and , just under 400 km north of Tenerife, Canary Islands, in the north Atlantic Ocean and an outermost region of the European Union...
's captaincies
Captaincy
A captaincy is a historical administrative division of the former Spanish and Portuguese colonial empires. Each was governed by a captain general.-In the Portuguese Empire:...
started in 1455, using advisers from Sicily
Sicily
Sicily is a region of Italy, and is the largest island in the Mediterranean Sea. Along with the surrounding minor islands, it constitutes an autonomous region of Italy, the Regione Autonoma Siciliana Sicily has a rich and unique culture, especially with regard to the arts, music, literature,...
and (largely) the Genoese capital to produce the "sweet salt" rare in Europe
History of sugar
The long history of sugar is interwoven with that of trade, religion, colonialism, capitalism, industry and technology. The labor-intensive nature of sugar cultivation and processing has meant that much of the history of the sugar industry has had associations with large-scale slavery...
. Already cultivated in Algarve, the accessibility of Madeira attracted Genoese and Flemish traders keen to bypass Venetian
Republic of Venice
The Republic of Venice or Venetian Republic was a state originating from the city of Venice in Northeastern Italy. It existed for over a millennium, from the late 7th century until 1797. It was formally known as the Most Serene Republic of Venice and is often referred to as La Serenissima, in...
monopolies. Sugarcane production became a leading factor in the island's economy, and the establishment of plantations on Madeira, the Canary Islands
Canary Islands
The Canary Islands , also known as the Canaries , is a Spanish archipelago located just off the northwest coast of mainland Africa, 100 km west of the border between Morocco and the Western Sahara. The Canaries are a Spanish autonomous community and an outermost region of the European Union...
, and the Cape Verde Islands increased the demand for labor. 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, and the proportion of imported slaves in Madeira reached 10% of the total population by the 16th century. By 1480, Antwerp had some 70 ships engaged in the Madeira sugar trade, with refining and distribution concentrated in the city. By the 1490s, Madeira had overtaken Cyprus in the production of sugar, and the success of sugar merchants such as Bartolomeo Marchionni
Bartolomeo Marchionni
Bartolomeo Marchionni was a Florentine merchant established in Lisbon during the Age of Discovery.Bartolomeo Marchionni arrived circa 1468 at Lisbon as an agent to the Cambini. In a long career he become the most successful merchant and one of the richest men in Lisbon at the time...
would propel the investment in exploratory travel.
Guinean gold
Afonso V of Portugal
Afonso V KG , called the African , was the twelfth King of Portugal and the Algarves. His sobriquet refers to his conquests in Northern Africa.-Early life:...
granted monopoly of trade in part of the Gulf of Guinea
Gulf of Guinea
The Gulf of Guinea is the northeasternmost part of the tropical Atlantic Ocean between Cape Lopez in Gabon, north and west to Cape Palmas in Liberia. The intersection of the Equator and Prime Meridian is in the gulf....
to the merchant Fernão Gomes
Fernão Gomes
Fernão Gomes was a Portuguese merchant and explorer from Lisbon, the son of Tristão Gomes de Brito .In 1469, King Afonso V of Portugal granted him the monopoly on trade in the Gulf of Guinea...
. For an annual rent of 200,000 reais
Portuguese real
The real was the unit of currency of Portugal from around 1430 until 1911. It replaced the dinheiro at the rate of 1 real = 840 dinheiros and was itself replaced by the escudo at a rate of 1 escudo = 1000 réis...
, Gomes was to explore 100 league
League (unit)
A league is a unit of length . It was long common in Europe and Latin America, but it is no longer an official unit in any nation. The league originally referred to the distance a person or a horse could walk in an hour...
s of the coast of Africa annually, for five years (later the agreement would be extended for another year). He gained monopoly trading rights for a popular substitute of black pepper
Black pepper
Black pepper is a flowering vine in the family Piperaceae, cultivated for its fruit, which is usually dried and used as a spice and seasoning. The fruit, known as a peppercorn when dried, is approximately in diameter, dark red when fully mature, and, like all drupes, contains a single seed...
, then called "malagueta
Malagueta pepper
Malagueta pepper, a kind of Capsicum frutescens, is a type of chilli used in Brazil, Portugal and Mozambique. It is heavily used in the Bahia state of Brazil . It apparently gets its name from the unrelated melegueta pepper from West Africa .It is a small, tapered, green pepper that turns red as it...
", the guinea pepper (Aframomum melegueta)
Aframomum melegueta
Aframomum melegueta is a species in the ginger family, Zingiberaceae. This spice, commonly known as grains of paradise, melegueta pepper, alligator pepper, Guinea grains or Guinea pepper, is obtained from the ground seeds; it gives a pungent, peppery flavour...
, for another yearly payment of 100,000 reais.
The Portuguese found Muslim merchants entrenched along the African coast as far as the Bight of Benin
Bight of Benin
The Bight of Benin is a bight on the western African coast that extends eastward for about 400 miles from Cape St. Paul to the Nun outlet of the Niger River. To the east it is continued by the Bight of Bonny . The bight is part of the Gulf of Guinea...
. The slave coast
Slave Coast
The Slave Coast is the name of the coastal areas of present Togo, Benin and western Nigeria, a fertile region of coastal Western Africa along the Bight of Benin. In pre-colonial time it was one of the most densely populated parts of the African continent...
, 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
Kingdom of Kongo
The Kingdom of Kongo was an African kingdom located in west central Africa in what are now northern Angola, Cabinda, the Republic of the Congo, and the western portion of the Democratic Republic of the Congo...
's coast in the 1480s that they exceeded Muslim trading territory.
Under Gomes' sponsorship, the equator
Equator
An equator is the intersection of a sphere's surface with the plane perpendicular to the sphere's axis of rotation and containing the sphere's center of mass....
was crossed and the islands of the Gulf of Guinea were reached, including São Tomé and Príncipe.
On the coast, Gomes found a thriving alluvial gold trade among the natives and visiting Arab and Berber traders at the port then named Mina
Elmina
Elmina, is a town in the Central Region, situated on a south-facing bay on the Atlantic Ocean coast of Ghana, about 12 km west of Cape Coast...
(meaning "the mine"), where he established a trading post. Trade between Elmina and Portugal grew over the next decade. The port became a major trading center for gold and slaves purchased from local African peoples along the slave rivers of Benin. Using his profits from African trade, Fernão Gomes assisted the Portuguese king in the conquests of Asilah
Asilah
Asilah or Arzila is a fortified town on the northwest tip of the Atlantic coast of Morocco, about 31 km from Tangier. Its ramparts and gateworks remain fully intact...
, Alcacer Ceguer, and Tangier
Tangier
Tangier, also Tangiers is a city in northern Morocco with a population of about 700,000 . It lies on the North African coast at the western entrance to the Strait of Gibraltar where the Mediterranean meets the Atlantic Ocean off Cape Spartel...
in Morocco.
Given the large profits, in 1482 the newly crowned king John II
John II of Portugal
John II , the Perfect Prince , was the thirteenth king of Portugal and the Algarves...
ordered a factory
Factory (trading post)
Factory was the English term for the trading posts system originally established by Europeans in foreign territories, first within different states of medieval Europe, and later in their colonial possessions...
to be built in Elmina, to manage the local gold industry: Elmina Castle
Elmina Castle
Elmina Castle was erected by Portugal in 1482 as São Jorge da Mina Castle, also known simply as Mina or Feitoria da Mina) in present-day Elmina, Ghana . It was the first trading post built on the Gulf of Guinea, so is the oldest European building in existence below the Sahara...
. São Jorge da Mina Factory centralized trade, which was held again as a royal monopoly. The Company of Guinea
Company of Guinea
The Company of Guinea was 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, or simply Casa da Índia.-See also:* Casa da Índia*...
was founded in Lisbon as a government institution that was to deal with trade and fix the prices of the goods.
15th century Portuguese exploration of the African coast is commonly regarded as the harbinger of European colonialism, and marked the beginning of the Atlantic slave trade
Atlantic slave trade
The Atlantic slave trade, also known as the trans-atlantic slave trade, refers to the trade in slaves that took place across the Atlantic ocean from the sixteenth through to the nineteenth centuries...
, Christian missionary evangelization
Evangelization
Evangelization is that process in the Christian religion which seeks to spread the Gospel and the knowledge of the Gospel throughout the world. It can be defined as so:-The birth of Christian evangelization:...
, and the first globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
processes, which were to become a major element of European colonialism until the end of the 18th century. By the beginning of the colonial era there were forty forts operating along the coast. They acted mainly as trading posts and rarely saw military action, but the fortifications were important, as arms and ammunition were being stored prior to trade.
Spice trade
Spice trade
Civilizations of Asia were involved in spice trade from the ancient times, and the Greco-Roman world soon followed by trading along the Incense route and the Roman-India routes...
was cornered by the Portuguese in the 16th century. In 1498, Vasco da Gama
Vasco da Gama
Vasco da Gama, 1st Count of Vidigueira was a Portuguese explorer, one of the most successful in the Age of Discovery and the commander of the first ships to sail directly from Europe to India...
's pioneering voyage reached India by sea, opening the first European direct trade in the Indian Ocean. Up to this point, spice imports to Europe had been brought overland through India and Arabia, based on mixed land and sea routes through the Persian Gulf
Persian Gulf
The Persian Gulf, in Southwest Asia, is an extension of the Indian Ocean located between Iran and the Arabian Peninsula.The Persian Gulf was the focus of the 1980–1988 Iran-Iraq War, in which each side attacked the other's oil tankers...
, Red Sea
Red Sea
The Red Sea is a seawater inlet of the Indian Ocean, lying between Africa and Asia. The connection to the ocean is in the south through the Bab el Mandeb strait and the Gulf of Aden. In the north, there is the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez...
, and caravans
Camel train
A camel train is a series of camels carrying goods or passengers in a group as part of a regular or semi-regular service between two points. Although they rarely travelled faster than the walking speed of a man, camels' ability to handle harsh conditions made camel trains a vital part of...
, and then across the Mediterranean by the Venetians
Republic of Venice
The Republic of Venice or Venetian Republic was a state originating from the city of Venice in Northeastern Italy. It existed for over a millennium, from the late 7th century until 1797. It was formally known as the Most Serene Republic of Venice and is often referred to as La Serenissima, in...
for distribution in Western Europe, which had a virtual monopoly on these valuable commodities. By establishing these trade routes, Portugal undercut the Venetian trade with its abundance of middlemen.
The Republic of Venice
Republic of Venice
The Republic of Venice or Venetian Republic was a state originating from the city of Venice in Northeastern Italy. It existed for over a millennium, from the late 7th century until 1797. It was formally known as the Most Serene Republic of Venice and is often referred to as La Serenissima, in...
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 Venetian trading monopoly. Portugal aimed to control trade within the Indian Ocean and secure the sea routes linking Europe to Asia. This new sea route around the Cape of Good Hope
Cape of Good Hope
The Cape of Good Hope is a rocky headland on the Atlantic coast of the Cape Peninsula, South Africa.There is a misconception that the Cape of Good Hope is the southern tip of Africa, because it was once believed to be the dividing point between the Atlantic and Indian Oceans. In fact, the...
was firmly secured for Portugal by the activities of Afonso de Albuquerque
Afonso de Albuquerque
Afonso de Albuquerque[p][n] was a Portuguese fidalgo, or nobleman, an admiral whose military and administrative activities as second governor of Portuguese India conquered and established the Portuguese colonial empire in the Indian Ocean...
, who was appointed the Portuguese viceroy of India in 1508. Early Portuguese explorers established bases in Mozambique and Zanzibar
Zanzibar
Zanzibar ,Persian: زنگبار, from suffix bār: "coast" and Zangi: "bruin" ; is a semi-autonomous part of Tanzania, in East Africa. It comprises the Zanzibar Archipelago in the Indian Ocean, off the coast of the mainland, and consists of numerous small islands and two large ones: Unguja , and Pemba...
and oversaw the construction of forts and factories (trading posts)
Factory (trading post)
Factory was the English term for the trading posts system originally established by Europeans in foreign territories, first within different states of medieval Europe, and later in their colonial possessions...
along the African coast, in the Indian subcontinent
Indian subcontinent
The Indian subcontinent, also Indian Subcontinent, Indo-Pak Subcontinent or South Asian Subcontinent is a region of the Asian continent on the Indian tectonic plate from the Hindu Kush or Hindu Koh, Himalayas and including the Kuen Lun and Karakoram ranges, forming a land mass which extends...
, and other places in Asia, which solidified the Portuguese hegemony.
Casa da Índia
Casa da Índia was the Portuguese organization that managed all overseas territories during the heyday of the Portuguese Empire in the 16th century. It was both the central authority for managing all aspects of overseas trade, the central shipment point and clearing house...
(House of India) was the central organization that managed all Portuguese trade overseas under royal monopoly during the 15th and 16th centuries. Established around 1500, it was the successor of the House of Guinea, the House of Guinea and Mina, and the House of Mina (respectively, the Casa da Guiné, Casa de Guiné e Mina, and Casa da Mina in Portuguese). Casa da Índia maintained a royal monopoly on the trade in pepper
Black pepper
Black pepper is a flowering vine in the family Piperaceae, cultivated for its fruit, which is usually dried and used as a spice and seasoning. The fruit, known as a peppercorn when dried, is approximately in diameter, dark red when fully mature, and, like all drupes, contains a single seed...
, cloves, and cinnamon
Cinnamon
Cinnamon is a spice obtained from the inner bark of several trees from the genus Cinnamomum that is used in both sweet and savoury foods...
, and levied a 30 percent tax on the profits of other articles.
The export and 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. By 1510, King Manuel I of Portugal
Manuel I of Portugal
Manuel I , the Fortunate , 14th king of Portugal and the Algarves was the son of Infante Ferdinand, Duke of Viseu, , by his wife, Infanta Beatrice of Portugal...
was pocketing a million cruzados
Portuguese real
The real was the unit of currency of Portugal from around 1430 until 1911. It replaced the dinheiro at the rate of 1 real = 840 dinheiros and was itself replaced by the escudo at a rate of 1 escudo = 1000 réis...
yearly from the spice trade alone, and this led François I
Francis I of France
Francis I was King of France from 1515 until his death. During his reign, huge cultural changes took place in France and he has been called France's original Renaissance monarch...
of France to dub Manuel I "le roi épicier", meaning "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 the 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 money 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 1550s, it increasingly relied 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
Garrett Mattingly
Garrett Mattingly was a professor of European history at Columbia University who specialized in early modern diplomatic history and won a Pulitzer Prize for a bestseller about the Spanish Armada....
's words, the owner of "a bankrupt wholesale grocery business".
Triangular trade between China, Japan, and Europe
Portuguese India
The Portuguese Viceroyalty of India , later the Portuguese State of India , was the aggregate of Portugal's colonial holdings in India.The government started in 1505, six years after the discovery of a sea route to India by Vasco da Gama, with the nomination of the first Viceroy Francisco de...
, the central shipping base of a commercial net linking Lisbon, Malacca, and as far as China and the Maluku Islands
Maluku Islands
The Maluku Islands are an archipelago that is part of Indonesia, and part of the larger Maritime Southeast Asia region. Tectonically they are located on the Halmahera Plate within the Molucca Sea Collision Zone...
(Ternate
Ternate
Ternate is an island in the Maluku Islands of eastern Indonesia. It is located off the west coast of the larger island of Halmahera, the center of the powerful former Sultanate of Ternate....
) since 1513.
The first official visit of Fernão Pires de Andrade
Fernão Pires de Andrade
Captain Fernão Pires de Andrade was a Portuguese merchant, pharmacist, and official diplomat under the explorer and Malacca governor Afonso de Albuquerque...
to Guangzhou
Guangzhou
Guangzhou , known historically as Canton or Kwangchow, is the capital and largest city of the Guangdong province in the People's Republic of China. Located in southern China on the Pearl River, about north-northwest of Hong Kong, Guangzhou is a key national transportation hub and trading port...
(1517-1518) was fairly successful, and the local Chinese authorities allowed the embassy led by Tomé Pires
Tomé Pires
Tomé Pires was an apothecary from Lisbon who spent 1512 to 1515 in Malacca immediately after the Portuguese conquest, at a time when Europeans were only first arriving in South East Asia...
, brought by de Andrade's flotilla, to proceed to Beijing
Beijing
Beijing , also known as Peking , is the capital of the People's Republic of China and one of the most populous cities in the world, with a population of 19,612,368 as of 2010. The city is the country's political, cultural, and educational center, and home to the headquarters for most of China's...
.
In 1542, Portuguese traders arrived in Japan. According to Fernão Mendes Pinto
Fernão Mendes Pinto
Fernão Mendes Pinto was a Portuguese explorer and writer. His exploits are known through the posthumous publication of his memoir Pilgrimage in 1614, an autobiographical work whose truthfulness is nearly impossible to assess...
, who claimed to have been present in this first contact, they arrived at Tanegashima
Tanegashima
is an island lying to the south of Kyushu, in southern Japan, and is part of Kagoshima Prefecture. The island is the second largest of the Ōsumi Islands....
, where locals were impressed by firearms
Firearms of Japan
Firearms were introduced to Japan in the 13th century. Following an intense development, with strong local manufacture during the period of conflicts of the 16th century, Japan then almost completely abandoned firearms through a policy of forced disarmament, helped by a policy of seclusion, sakoku...
that would be immediately made by the Japanese on a large scale. The arrival of the Portuguese in Japan in 1543 initiated the Nanban trade period
Nanban trade
The or the in Japanese history extends from the arrival of the first Europeans to Japan in 1543, to their near-total exclusion from the archipelago in 1614, under the promulgation of the "Sakoku" Seclusion Edicts.- Etymology :...
, with the hosts adopting several technologies and cultural practices, such as the arquebus
Arquebus
The arquebus , or "hook tube", is an early muzzle-loaded firearm used in the 15th to 17th centuries. The word was originally modeled on the German hakenbüchse; this produced haquebute...
, European-style cuirasses, European ships, Christianity, decorative art, and language. In 1570, after an agreement between Jesuits and a local daimyo
Daimyo
is a generic term referring to the powerful territorial lords in pre-modern Japan who ruled most of the country from their vast, hereditary land holdings...
, the Portuguese were granted a Japanese port where they founded the city of Nagasaki
Nagasaki
is the capital and the largest city of Nagasaki Prefecture on the island of Kyushu in Japan. Nagasaki was founded by the Portuguese in the second half of the 16th century on the site of a small fishing village, formerly part of Nishisonogi District...
, thus creating a trading center which for many years was Japan's main gateway to the world.
Soon after, in 1557, Portuguese merchants established a colony on the island of Macau
Macau
Macau , also spelled Macao , is, along with Hong Kong, one of the two special administrative regions of the People's Republic of China...
. Chinese authorities allowed the Portuguese to settle through an annual payment, creating a warehouse. After the Chinese banned direct trade by Chinese merchants with Japan, the Portuguese filled this commercial vacuum as intermediaries. Engaging in the triangular trade
Triangular trade
Triangular trade, or triangle trade, is a historical term indicating among three ports or regions. Triangular trade usually evolves when a region has export commodities that are not required in the region from which its major imports come...
between China, Japan, and Europe, the Portuguese bought Chinese silk and sold it to the Japanese in return for Japanese-mined silver; since silver was more highly valued in China, the Portuguese could then use their newly-acquired metal to buy even larger stocks of Chinese silk. However, by 1573, after the Spanish established a trading base in Manila, the Portuguese intermediary trade was trumped by the prime source of incoming silver to China from the Spanish Americas.
As Portugal increased its presence along China's coast, they began trading in slaves
Slavery in Portugal
-Ancient era:Slavery was a major economic and social institution in Europe during the classical era. A great deal is known about the ancient Greeks and Romans. The Romans added Portugal to their empire . It was the province of Lusitania. The name of the future kingdom was derived from Portucale, a...
. As slave trade was not outlawed in China, many Chinese slaves were sold
Slavery in China
Slavery in China has taken various forms throughout history. Never as absolute as its Muslim or European models, Chinese slavery still often viewed its objects as "half-man, half-thing"...
to Portugal by Chinese slave traders. Since the 16th century, Chinese slaves existed in Portugal, most of them Chinese children, and a large number were shipped to the Indies. Chinese prisoners were sent to Portugal, where they were sold as slaves; they were prized and regarded as better than Moorish and black slaves. The first known visit of a Chinese person to Europe dates to 1540, when a Chinese scholar, enslaved during one of several Portuguese raids somewhere on the southern China coast, was brought to Portugal. Purchased by João de Barros
João de Barros
João de Barros , called the Portuguese Livy, is one of the first great Portuguese historians, most famous for his Décadas da Ásia , a history of the Portuguese in India and Asia.-Early years:...
, he worked with the Portuguese historian on translating Chinese texts into Portuguese. Dona Maria de Vilhena, a Portuguese noble woman from Évora
Évora
Évora is a municipality in Portugal. It has total area of with a population of 55,619 inhabitants. It is the seat of the Évora District and capital of the Alentejo region. The municipality is composed of 19 civil parishes, and is located in Évora District....
, Portugal, owned a Chinese male slave in 1562. In the 16th century, a small number of Chinese slaves, around 29–34 people, were in southern Portugal, where they were used in agricultural labor. Chinese boys were captured in China, and through Macau
Macau
Macau , also spelled Macao , is, along with Hong Kong, one of the two special administrative regions of the People's Republic of China...
were brought to Portugal and sold as slaves in Lisbon
Lisbon
Lisbon is the capital city and largest city of Portugal with a population of 545,245 within its administrative limits on a land area of . The urban area of Lisbon extends beyond the administrative city limits with a population of 3 million on an area of , making it the 9th most populous urban...
. Some were then sold in Brazil, a Portuguese colony. Due to hostility from the Chinese regarding the trafficking in Chinese slaves, in 1595 a law was passed by Portugal banning the selling and buying of Chinese slaves. On 19 February 1624, the King of Portugal forbade the enslavement of Chinese people of either sex.
Guarding its trade from European and Asian competitors, Portugal dominated not only the trade between Asia and Europe, but also much of the trade between different regions of Asia, such as India, Indonesia, China, and Japan. Jesuit
Society of Jesus
The Society of Jesus is a Catholic male religious order that follows the teachings of the Catholic Church. The members are called Jesuits, and are also known colloquially as "God's Army" and as "The Company," these being references to founder Ignatius of Loyola's military background and a...
missionaries, such as the Basque Francis Xavier
Francis Xavier
Francis Xavier, born Francisco de Jasso y Azpilicueta was a pioneering Roman Catholic missionary born in the Kingdom of Navarre and co-founder of the Society of Jesus. He was a student of Saint Ignatius of Loyola and one of the first seven Jesuits, dedicated at Montmartre in 1534...
, followed the Portuguese to spread Roman Catholicism to Asia, with mixed results.
Expansion in South America
Brazilwood
Caesalpinia echinata is a species of Brazilian timber tree in the pea family, Fabaceae. Common names include Brazilwood, Pau-Brasil, Pau de Pernambuco and Ibirapitanga . This plant has a dense, orange-red heartwood that takes a high shine, and it is the premier wood used for making bows for...
, used as a dye, and with permanent settlements came the establishment of the sugar cane industry and its intensive labor. Several early settlements were founded, 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
Rio de Janeiro
Rio de Janeiro , commonly referred to simply as Rio, is the capital city of the State of Rio de Janeiro, the second largest city of Brazil, and the third largest metropolitan area and agglomeration in South America, boasting approximately 6.3 million people within the city proper, making it the 6th...
in the south, in March 1567. 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.
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 long, 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 have any success in this venture. In the 1540s, John III was forced to change his policy. He placed Brazil under direct royal control (as in Spanish America) and appointed a governor general. The first governor general of Brazil arrived in 1549 and headquartered himself 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 southern inland region of Minas Gerais
Minas Gerais
Minas Gerais is one of the 26 states of Brazil, of which it is the second most populous, the third richest, and the fourth largest in area. Minas Gerais is the Brazilian state with the largest number of Presidents of Brazil, the current one, Dilma Rousseff, being one of them. The capital is the...
. The discovery set off the first great gold rush of the Americas, 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
Río de la Plata
The Río de la Plata —sometimes rendered River Plate in British English and the Commonwealth, and occasionally rendered [La] Plata River in other English-speaking countries—is the river and estuary formed by the confluence of the Uruguay River and the Paraná River on the border between Argentina and...
in 1680, provoking a century of Spanish-Portuguese border conflicts in what is now Uruguay. Meanwhile, the use of the Portuguese language gradually gave the central region of South America an identity and a culture distinct from that of its Spanish neighbours.
Expansion in sub-Saharan Africa
Sub-Saharan Africa
Sub-Saharan Africa as a geographical term refers to the area of the African continent which lies south of the Sahara. A political definition of Sub-Saharan Africa, instead, covers all African countries which are fully or partially located south of the Sahara...
through its involvement in the African slave trade
African slave trade
Systems of servitude and slavery were common in many parts of Africa, as they were in much of the ancient world. In some African societies, the enslaved people were also indentured servants and fully integrated; in others, they were treated much worse...
, Portugal played a decreasing role in it over the next few centuries. Although they were the first Europeans to establish trading settlements in Sub-Saharan Africa, they failed to press home 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, was Portuguese Guinea
Portuguese Guinea
Portuguese Guinea was the name for what is today Guinea-Bissau from 1446 to September 10, 1974.-History:...
, 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
Company of Guinea
The Company of Guinea was 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, or simply Casa da Índia.-See also:* Casa da Índia*...
was one of the first chartered commercial companies established by Europeans in other continents during the Age of Discovery
Age of Discovery
The Age of Discovery, also known as the Age of Exploration and the Great Navigations , was a period in history starting in the early 15th century and continuing into the early 17th century during which Europeans engaged in intensive exploration of the world, establishing direct contacts with...
. 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
Bissau
Bissau is the capital city of Guinea-Bissau. The city's borders are conterminous with the Bissau Autonomous Sector. In 2007, the city had an estimated population of 407,424 according to the Instituto Nacional de Estatística e Censos...
. For a brief period in the 1790s, the British attempted to establish a rival foothold on an offshore island, at Bolama
Bolama
Bolama is the closest of the Bijagós Islands to the mainland of Guinea-Bissau, and is also the name of the island's main town, the capital of the Bolama Region. Population 10,014 ....
. By the 19th century, however, the Portuguese were sufficiently secure in Bissau to regard the neighbouring coastline as their own special territory.
Luanda
Luanda, formerly named São Paulo da Assunção de Loanda, is the capital and largest city of Angola. Located on Angola's coast with the Atlantic Ocean, Luanda is both Angola's chief seaport and its administrative center. It has a population of at least 5 million...
(established in 1587 with 400 Portuguese settlers) and Benguela
Benguela
Benguela is a city in western Angola, south of Luanda, and capital of Benguela Province. It lies on a bay of the same name, in 12° 33’ S., 13° 25’ E...
(a fort from 1587, a town from 1617) remained almost continuously in their hands. As in Guinea, the slave trade became the basis of the local economy, with raids carried ever further inland by local natives to gain 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 Brazil.
The deepest Portuguese penetration into the continent was from the east coast, up the Zambezi
Zambezi
The Zambezi is the fourth-longest river in Africa, and the largest flowing into the Indian Ocean from Africa. The area of its basin is , slightly less than half that of the Nile...
, with an early settlement as far inland as Tete
Tete
-External links:* *...
. 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
Zanzibar
Zanzibar ,Persian: زنگبار, from suffix bār: "coast" and Zangi: "bruin" ; is a semi-autonomous part of Tanzania, in East Africa. It comprises the Zanzibar Archipelago in the Indian Ocean, off the coast of the mainland, and consists of numerous small islands and two large ones: Unguja , and Pemba...
. From the 16th to 19th centuries the Portuguese and their merchants were just one among many rival groups competing for the local trade in gold, ivory, and slaves.
Even if the Portuguese hold on these three African regions was tenuous, they clearly remained 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
Scramble for Africa
The Scramble for Africa, also known as the Race for Africa or Partition of Africa was a process of invasion, occupation, colonization and annexation of African territory by European powers during the New Imperialism period, between 1881 and World War I in 1914...
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 in 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
Portuguese East Africa
Mozambique or Portuguese East Africa was the common name by which the Portuguese Empire's territorial expansion in East Africa was known across different periods of time...
, 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.
Decline: 17th to 19th century
Omani
Omani may refer to:* Something of, from, or related to Oman, an Arab coujntry in southwestern Asia** A person from Oman or of Omani descent, collectively referred to as Omanis; see Demographics of Oman and Culture of Oman...
interests in and around Portugal's well-established overseas possessions and trading outposts tested Portuguese commercial and colonizing hegemony in Asia, Africa, and the New World
New World
The New World is one of the names used for the Western Hemisphere, specifically America and sometimes Oceania . The term originated in the late 15th century, when America had been recently discovered by European explorers, expanding the geographical horizon of the people of the European middle...
. In the 17th century, the lengthy Portuguese Restoration War
Portuguese Restoration War
Portuguese Restoration War was the name given by nineteenth-century 'romantic' historians to the war between Portugal and Spain that began with the Portuguese revolution of 1640 and ended with the Treaty of Lisbon . The revolution of 1640 ended the sixty-year period of dual monarchy in Portugal...
(1640–1668) between Portugal and Spain ended the sixty-year period of the Iberian Union
Iberian Union
The Iberian union was a political unit that governed all of the Iberian Peninsula south of the Pyrenees from 1580–1640, through a dynastic union between the monarchies of Portugal and Spain after the War of the Portuguese Succession...
(1580–1640).
1755 Lisbon earthquake
The 1755 Lisbon earthquake, also known as the Great Lisbon Earthquake, was a megathrust earthquake that took place on Saturday 1 November 1755, at around 9:40 in the morning. The earthquake was followed by fires and a tsunami, which almost totally destroyed Lisbon in the Kingdom of Portugal, and...
and, in the 19th century, armed conflicts with French and Spanish invading forces
War of the Oranges
The War of the Oranges was a brief conflict in 1801 in which Spanish forces, instigated by the government of France, and ultimately supported by the French military, invaded Portugal...
and the loss of its largest territorial possession abroad, Brazil, disrupted political stability and potential economic growth. The Scramble for Africa
Scramble for Africa
The Scramble for Africa, also known as the Race for Africa or Partition of Africa was a process of invasion, occupation, colonization and annexation of African territory by European powers during the New Imperialism period, between 1881 and World War I in 1914...
during the 19th century pressed the country to divert larger investments into the continent to secure its interests there. By the late 19th century, the country's resources were exhausted by its overstretched empire, which was now facing unprecedented competition. Portugal had one of the highest illiteracy
Education in Portugal
Education in Portugal is regulated by the State through two ministries - the Ministry of Education, and the Ministry of Science, Technology and Higher Education. There are a system of public education and also many private schools at all levels of education...
rates in Western Europe, a lack of industrialization, and underdeveloped transportation
Transport in Portugal
Transport in Portugal is well-developed and diversified. Portugal has a network of roads, of which almost are part of a 44 motorways system. Brisa is the largest highway management concessionaire. With 89,015 km2, Continental Portugal has 3 international airports located near Lisbon, Porto...
systems. The Industrial Revolution
Industrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
, which had spread out across several other European countries, creating more advanced and wealthier societies, was almost forgotten in Portugal. Under the rule of Carlos I
Carlos I of Portugal
-Assassination:On 1 February 1908 the royal family returned from the palace of Vila Viçosa to Lisbon. They travelled by train to Barreiro and, from there, they took a steamer to cross the Tagus River and disembarked at Cais do Sodré in central Lisbon. On their way to the royal palace, the open...
, the penultimate King of Portugal, the country was twice declared bankrupt—on 14 June 1892, and 10 May 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 Praça do Comércio Square, in Lisbon
Lisbon
Lisbon is the capital city and largest city of Portugal with a population of 545,245 within its administrative limits on a land area of . The urban area of Lisbon extends beyond the administrative city limits with a population of 3 million on an area of , making it the 9th most populous urban...
's city center. In 1891, the Bolsa de Valores do Porto (Porto Stock Exchange) in Porto
Porto
Porto , also known as Oporto in English, is the second largest city in Portugal and one of the major urban areas in the Iberian Peninsula. Its administrative limits include a population of 237,559 inhabitants distributed within 15 civil parishes...
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 revolution
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
ary and Napoleonic wars
Napoleonic Wars
The Napoleonic Wars were a series of wars declared against Napoleon's French Empire by opposing coalitions that ran from 1803 to 1815. As a continuation of the wars sparked by the French Revolution of 1789, they revolutionised European armies and played out on an unprecedented scale, mainly due to...
, Portugal entered a period exceeding five decades during 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
Imperialism
Imperialism, as defined by Dictionary of Human Geography, is "the creation and/or maintenance of an unequal economic, cultural, and territorial relationships, usually between states and often in the form of an empire, based on domination and subordination." The imperialism of the last 500 years,...
. In 1801, a petty border invasion by Spanish forces allied to France seized the Portuguese border district of Olivença
Olivenza
Olivenza or Olivença is a town in the autonomous community of Extremadura, situated on a disputed section of the border between Portugal and Spain...
in what was called the War of the Oranges
War of the Oranges
The War of the Oranges was a brief conflict in 1801 in which Spanish forces, instigated by the government of France, and ultimately supported by the French military, invaded Portugal...
. 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 into Portuguese exports to its colony of Brazil
Colonial Brazil
In the history of Brazil, Colonial Brazil, officially the Viceroyalty of Brazil comprises the period from 1500, with the arrival of the Portuguese, until 1815, when Brazil was elevated to kingdom alongside Portugal as the United Kingdom of Portugal, Brazil and the Algarves.During the over 300 years...
. Just as harsh in its effects as British competition was the closure of markets by war and the independence of Brazil in 1822, which during 1796–1806 had accounted for three-quarters of all Portuguese commerce, re-exports from Brazil totaling 60–80% 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.
Count of Ericeira
Count of Ericeira ' was a title created by King Philip III of Portugal, through a 1 March 1622 letter in favour of Diogo de Menezes .Titulars include:*Diogo de Menezes ; 1st Count of Ericeira...
program of 1675–1690 and the Pombaline efforts of 1769–1778. The third occurred in the two years after the triumph of liberalism in 1820
Liberal Revolution of 1820
The Liberal Revolution of 1820 was a political revolution that erupted in 1820 and lasted until 1826. It was unchained via a military insurrection in the city of Porto, in northern Portugal, that quickly and peacefully spread to the rest of the country. From 1807 to 1811 Napoleonic French forces...
. 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
Porto District
The District of Porto , sometimes Oporto in English, is located on the north-west coast of Portugal. The district capital is the city of Porto, the second largest city in the country...
. 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, as 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 on 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
Agriculture in Portugal
Agriculture in Portugal is based on small to medium-sized family-owned dispersed units, however, the sector also includes larger scale intensive farming export-oriented agrobusinesses backed by companies...
, began to change, but also very slowly. At the beginning of the 19th century, only about one-sixth of the land mass 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
Emphyteusis
The Law of Emphyteusis is a right, susceptible of assignment and of descent, charged on productive real estate, the right being coupled with the enjoyment of the property on condition of taking care of the estate and paying taxes, and sometimes the payment of a small rent.Akin to a system of...
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
Subsistence agriculture
Subsistence agriculture is self-sufficiency farming in which the farmers focus on growing enough food to feed their families. The typical subsistence farm has a range of crops and animals needed by the family to eat and clothe themselves during the year. Planting decisions are made with an eye...
cultivation of corn and potatoes also increased. Market production increased somewhat, and between 1839 and 1855 Portugal 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 governance for nearly seventy years after the return of the Charter in 1842.
Fontes Pereira de Melo
António Maria de Fontes Pereira de Melo GCTE KGF was a Portuguese statesman, politician, and engineer. He was the son of João de Fontes Pereira de Melo and wife and first cousin Jacinta Venância Rosa da Cunha Matos...
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 1855–1865. Fontes consolidated the national debt at 3% and created a new ministry of public works, building more roads, beginning telegraph construction, and encouraging railroad expansion. New credit was obtained, foreign investment was 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 large holders 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 the Portuguese government's political support, leading to Fontes's 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, was 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 19th 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, technology, and political favoritism played a major role. The first short railway 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 situation, which bedeviled Portuguese government to the end of the monarchy in 1910 and throughout the history of the parliamentary republic that followed. 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. 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 arriving; fontismo relied mainly on foreign investment and the raising of loans, while encouraging free trade (to the detriment of home-grown manufacturing) and maintaining high excises.
A new opposition movement among radical intellectuals began after 1865. 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 19th 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. The 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 19th 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, 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 to a lesser degree, toward the general trend of heavier protectionism in Europe during the late 19th century. There was also a new wave of industrialization around the turn of the 20th century, yet it was modest and hardly served to compensate for the extremely slow growth of domestic manufactures. Portugal still suffered from the main deficiencies of underdeveloped countries: lack of capital for productive investment, skilled labor, technological know-how (there were only 150 qualified engineers in Portugal in 1870), and 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 20th 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 non-aristocratic 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, rather than an immediate threat. The real problem was the national financial crisis precipitated by the diplomatic humiliation and political uncertainty. A banking moratorium
Moratorium (law)
A moratorium is a delay or suspension of an activity or a law. In a legal context, it may refer to the temporary suspension of a law to allow a legal challenge to be carried out....
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 eminent cultural historian and political critic Oliveira Martins became minister of finance in a new nonparty government in 1892, but failed to win passage on effective financial reforms. Portugal was indeed twice declared bankrupt in the final decades of monarchy – on 14 June 1892, and again on 10 May 1902 – causing industrial disturbances, socialist, and republican antagonism and press criticism of the monarchy.
The Portuguese Republic
On 1 February 1908, King Carlos I was assassinatedLisbon Regicide
The Lisbon Regicide was the name given for the assassinations of King Carlos I of Portugal and his heir, Luis Filipe, the Prince Royal by assassins sympathetic to republican interests...
while travelling to Lisbon. Manuel II
Manuel II of Portugal
Manuel II , named Manuel Maria Filipe Carlos Amélio Luís Miguel Rafael Gabriel Gonzaga Francisco de Assis Eugénio de Bragança Orleães Sabóia e Saxe-Coburgo-Gotha — , was the last King of Portugal from 1908 to 1910, ascending the throne after the assassination of his father and elder brother Manuel...
became the new king, but was eventually overthrown during the revolution on 5 October 1910
5 October 1910 revolution
The revolution of 1910 was a republican coup d'état that occurred in Portugal on 5 October 1910, which deposed King Manuel II and established the Portuguese First Republic....
, which abolished the monarchy and instated republicanism
Republicanism
Republicanism is the ideology of governing a nation as a republic, where the head of state is appointed by means other than heredity, often elections. The exact meaning of republicanism varies depending on the cultural and historical context...
.
Along with new national symbols, a new currency was adopted. The "Escudo
Portuguese escudo
The escudo was the currency of Portugal prior to the introduction of the Euro on 1 January 1999 and its removal from circulation on 28 February 2002. The escudo was subdivided into 100 centavos....
" was introduced on 22 May 1911 to replace the Real
Portuguese real
The real was the unit of currency of Portugal from around 1430 until 1911. It replaced the dinheiro at the rate of 1 real = 840 dinheiros and was itself replaced by the escudo at a rate of 1 escudo = 1000 réis...
(portuguese for "royal"), at the rate of 1,000 réis to 1 escudo. The escudo's value was initially set at 4$50 escudos = 1 pound sterling
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
, but after 1914 it's value fell, being fixed in 1928 at 108$25 to the pound. This was altered to 110$00 escudos to the pound in 1931.
Portugal's First Republic
Portuguese First Republic
The Portuguese First Republic spans a complex 16 year period in the history of Portugal, between the end of the period of constitutional monarchy marked by the 5 October 1910 revolution and the 28 May coup d'état of 1926...
(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
Money creation
In economics, money creation is the process by which the money supply of a country or a monetary region is increased due to some reason. There are two principal stages of money creation. First, the central bank introduces new money into the economy by purchasing financial assets or lending money...
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 higher than what it had been in 1914. Fiscal imprudence and accelerating inflation gave way to massive capital flight
Capital flight
Capital flight, in economics, occurs when assets and/or money rapidly flow out of a country, due to an economic event and that disturbs investors and causes them to lower their valuation of the assets in that country, or otherwise to lose confidence in its economic...
, 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, 68.1 percent of Portugal's population was still classified as illiterate by the 1930 census.
The economy under the "Estado Novo" regime
The First Republic was ended by a military coup in May 1926, but the newly installed government failed to fix the nation's precarious financial situation. Instead, President Óscar Fragoso Carmona invited António de Oliveira SalazarAntónio de Oliveira Salazar
António de Oliveira Salazar, GColIH, GCTE, GCSE served as the Prime Minister of Portugal from 1932 to 1968. He also served as acting President of the Republic briefly in 1951. He founded and led the Estado Novo , the authoritarian, right-wing government that presided over and controlled Portugal...
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 in 1928, Salazar held the Chair of Economics at the Law School
Law school
A law school is an institution specializing in legal education.- Law degrees :- Canada :...
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 shaped the progress of the country.
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 borrowing abroad.
At the nadir of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
, Premier Salazar laid the foundations for his Estado Novo, the "New State". Neither capitalist nor communist, Portugal's economy was quasi-traditional. 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. 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 prominent 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 large 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 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. Until that time the country remained very poor and largely underdeveloped due to its disadvantaged starting position. However, by the late 1950s, a growing number of industrialists, as well as government technocrats
Technocracy (bureaucratic)
Technocracy is a form of government where technical experts are in control of decision making in their respective fields. Economists, engineers, scientists, health professionals, and those who have knowledge, expertise or skills would compose the governing body...
, favored greater Portuguese integration with the industrial countries to the north, as a badly needed stimulus to Portugal's economy. The influence of the Europe-oriented technocrats was rising within Salazar's cabinet. This 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 latter envisioned a 25 percent contribution.
European Free Trade Association
The European Free Trade Association or EFTA is a free trade organisation between four European countries that operates parallel to, and is linked to, the European Union . EFTA was established on 3 May 1960 as a trade bloc-alternative for European states who were either unable to, or chose not to,...
(EFTA) when it was organized in 1959. In the following year, Portugal also became a member of the General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...
(GATT), the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, and the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
.
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
Portuguese Colonial War
The Portuguese Colonial War , also known in Portugal as the Overseas War or in the former colonies as the War of liberation , was fought between Portugal's military and the emerging nationalist movements in Portugal's African colonies between 1961 and 1974, when the Portuguese regime was...
thereafter. Salazar and his policy advisers recognized that additional military expenditure needs, as well as increased transfers of official investment to the "overseas provinces", could only be met by a sharp rise in the country's productive capacity. Salazar's commitment to preserving Portugal's "multiracial, pluricontinental" state led him reluctantly to seek external credits beginning in 1962, an action from which the Portuguese treasury had abstained for several decades.
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 birth.
By the early 1970s, Portugal's fast economic growth with increasing consumption and purchase of new automobiles set the priority for improvements in transportation. Brisa – Autoestradas de Portugal was founded in 1972, and the State granted the company a 30-year concession to design, build, manage, and maintain express motorways.
Retrospective analysis
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 by 1973, under the leadership of Marcelo CaetanoMarcelo Caetano
Marcelo José das Neves Alves Caetano, GCTE, GCC, also spelled Marcello Caetano , was a Portuguese politician and scholar, who was the last prime minister of the Estado Novo regime, from 1968 until his overthrow in the Carnation Revolution of 1974....
, Portugal's per capita GDP had reached 56.4 percent of the EC-12 average. On a long term analysis, after an extended period of economic divergence before 1914, and a period of chaos during the First Republic
Portuguese First Republic
The Portuguese First Republic spans a complex 16 year period in the history of Portugal, between the end of the period of constitutional monarchy marked by the 5 October 1910 revolution and the 28 May coup d'état of 1926...
(1910–1926), the Portuguese economy recovered slightly until 1950, entering thereafter on a path of strong economic convergence until the Carnation Revolution
Carnation Revolution
The Carnation Revolution , also referred to as the 25 de Abril , was a military coup started on 25 April 1974, in Lisbon, Portugal, coupled with an unanticipated and extensive campaign of civil resistance...
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
Portuguese Colonial War
The Portuguese Colonial War , also known in Portugal as the Overseas War or in the former colonies as the War of liberation , was fought between Portugal's military and the emerging nationalist movements in Portugal's African colonies between 1961 and 1974, when the Portuguese regime was...
against independence guerrilla groups from 1961 onwards) 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 brought new technical and organizational challenges, stimulating the formation of modern professional and management teams. The economy of Portugal and its overseas territories on the eve of the Carnation Revolution (a military coup on 25 April 1974) was growing well above the European average. Average family purchasing power was rising together with new consumption patterns and trends and this was promoting both investment in new capital equipment and consumption expenditure for durable and nondurable consumer goods. The Estado Novo regime economic policy encouraged and created conditions for the formation of large and successful business conglomerates. Economically, the Estado Novo regime maintained a policy of corporatism
Corporatism
Corporatism, also known as corporativism, is a system of economic, political, or social organization that involves association of the people of society into corporate groups, such as agricultural, business, ethnic, labor, military, patronage, or scientific affiliations, on the basis of common...
that resulted in the placement of a big part of the Portuguese economy in the hands of a number of strong conglomerate
Conglomerate (company)
A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate structure , usually involving a parent company and several subsidiaries. Often, a conglomerate is a multi-industry company...
s, including those founded by the families of António Champalimaud (Banco Totta & Açores, Banco Pinto & Sotto Mayor, Secil, Cimpor
Cimpor
Cimpor - Cimentos de Portugal is the largest Portuguese cement group, operating in eleven countries - Portugal, Spain, Morocco, Brazil, Tunisia, Turkey, Cape Verde, Mozambique, China, Egypt and South Africa, involved in manufacturing and marketing cement, hydraulic lime, concrete and aggregates,...
), José Manuel de Mello
José Manuel de Mello
José Manuel de Mello , was a Portuguese businessman who founded the conglomerate Grupo José de Mello. He was the heir of an older industrial conglomerate, Companhia União Fabril , which had been founded by his grandfather Alfredo da Silva. José started to work for CUF until the Carnation Revolution...
(CUF – Companhia União Fabril
Companhia União Fabril
The Companhia União Fabril is a Portuguese chemical corporation and a part of Grupo José de Mello.-History:The company was founded by Alfredo da Silva in 1871 and managed by his descendents, including José Manuel de Mello as a family-run business conglomerate. CUF was one of the largest and most...
), Américo Amorim
Americo Amorim
Américo Ferreira Amorim is a Portuguese entrepreneur, the third of four sons of Américo Alves Amorim. He was ranked by Forbes as the 212th richest person in the world in 2010....
(Corticeira Amorim
Corticeira Amorim
Corticeira Amorim S.G.P.S., S.A., is a Portuguese subholding company belonging to the Amorim Group and claims to be the world leader in the cork industry for over 130 years, with operations in hundreds of countries all over the world. Corticeira Amorim S.G.P.S., S.A...
) and the dos Santos family (Jerónimo Martins
Jerónimo Martins
Jerónimo Martins SGPS, SA is a Portugal-based company that operates in food distribution and consumer products manufacturing. The firm is the majority owner of Jerónimo Martins Retail , which operates the Pingo Doce super- and hypermarket chains in Portugal...
). Those Portuguese conglomerates had a business model with similarities to South Korean chaebol
Chaebol
Chaebol refers to a South Korean form of business conglomerate. They are global multinationals owning numerous international enterprises. The term is often used in a context similar to that of the English word "conglomerate"...
s and Japanese keiretsu
Keiretsu
A is a set of companies with interlocking business relationships and shareholdings. It is a type of business group. The keiretsu has maintained dominance over the Japanese economy for the greater half of the twentieth century....
s and zaibatsu
Zaibatsu
is a Japanese term referring to industrial and financial business conglomerates in the Empire of Japan, whose influence and size allowed for control over significant parts of the Japanese economy from the Meiji period until the end of World War II.-Terminology:...
s. The Companhia União Fabril (CUF) was one of the largest and most diversified Portuguese conglomerates with its core business
Core business
The core business of an organization is an idealized construct intended to express that organization's "main" or "essential" activity.The corporate trend in the mid-20th Century of acquiring new enterprises and forming conglomerates enabled corporations to reduce costs funds and similar investment...
es (cement, chemicals, petrochemicals, agrochemicals, textiles, beer, beverages, metallurgy
Metallurgy
Metallurgy is a domain of materials science that studies the physical and chemical behavior of metallic elements, their intermetallic compounds, and their mixtures, which are called alloys. It is also the technology of metals: the way in which science is applied to their practical use...
, naval engineering, electrical engineering
Electrical engineering
Electrical engineering is a field of engineering that generally deals with the study and application of electricity, electronics and electromagnetism. The field first became an identifiable occupation in the late nineteenth century after commercialization of the electric telegraph and electrical...
, insurance, banking, paper, tourism, mining, etc.) and corporate headquarters located in mainland Portugal, but also with branches, plants and several developing business projects all around the Portuguese Empire
Portuguese Empire
The Portuguese Empire , also known as the Portuguese Overseas Empire or the Portuguese Colonial Empire , was the first global empire in history...
, specially in the Portuguese territores of Angola
Angola (Portugal)
Angola is the common name by which the Portuguese colony in southwestern Africa was known across different periods of time...
and Mozambique. Other medium sized family companies specialized in textiles (for instance those located in the city of Covilhã
Covilhã
Covilhã is a city in Covilha Municipality in Centro region, Portugal. The city proper has 36,723 inhabitants, and the municipality has an area of 555.6 km² with a total population of 53,501, being composed of 31 parishes. It is located in the Cova da Beira subregion, in the district of...
and the northwest), ceramics, porcelain, glass and crystal (like those of Alcobaça
Alcobaça
Alcobaça is a city in Alcobaça Municipality in Leiria District and Oeste Subregion, in Portugal, formerly included in the Estremadura Province. The city grew along the valleys of the rivers Alcoa and Baça, from which it derives its name. The municipality has a total population of 55,269...
, Caldas da Raínha
Caldas da Rainha
Caldas da Rainha is a city in western central Portugal. The city serves as the seat of the larger municipality of the same name and is the seat of the Comunidade Intermunicipal do Oeste...
and Marinha Grande), engineered wood (like SONAE
Sonae
Sonae is a conglomerate, and is the largest private employer in Portugal. The company is primarily engaged in the operation of retail stores through its subsidiary Modelo Continente....
near Porto
Porto
Porto , also known as Oporto in English, is the second largest city in Portugal and one of the major urban areas in the Iberian Peninsula. Its administrative limits include a population of 237,559 inhabitants distributed within 15 civil parishes...
), canned fish (like those of Algarve and the northwest), fishing, food and beverages (alcoholic beverages, from liqueurs like Licor Beirão
Licor Beirão
Licor Beirão is a Portuguese liqueur. Its recipe is a trade secret; the producer, J. Carranca Redondo, Lda., only states it is made from a double distillation of seeds and herbs from all over the world, including Malaysia, Brazil, and Thailand. It has 22% ABV.- Origin of the name :Beirão is...
and Ginjinha
Ginjinha
Ginjinha or simply Ginja, is a liqueur made by infusing ginja berries, in alcohol and adding sugar together with other ingredients. Ginjinha is served in a shot form with a piece of the fruit in the bottom of the cup...
, to beer like Sagres, were produced across the entire country, but Port Wine
Port wine
Port wine is a Portuguese fortified wine produced exclusively in the Douro Valley in the northern provinces of Portugal. It is typically a sweet, red wine, often served as a dessert wine, and comes in dry, semi-dry, and white varieties...
was one of its most reputed and exported alcoholic beverages), tourism (well established in Estoril
Estoril
Estoril is a seaside resort and civil parish of the Portuguese municipality of Cascais, Lisboa District. The Estoril coast is close to Lisbon, the capital of Portugal. It starts in Carcavelos, 15 kilometres from Lisbon, and stretches as far as Guincho, often known as Costa de Estoril-Sintra or...
/Cascais
Cascais
Cascais is a coastal town in Cascais Municipality in Portugal, 30 kilometres west of Lisbon, with about 35,000 residents. It is a cosmopolitan suburb of the Portuguese capital and one of the richest municipalities in Portugal. The former fishing village gained fame as a resort for Portugal's royal...
/Sintra
Sintra
Sintra is a town within the municipality of Sintra in the Grande Lisboa subregion of Portugal. Owing to its 19th century Romantic architecture and landscapes, becoming a major tourist centre, visited by many day-trippers who travel from the urbanized suburbs and capital of Lisbon.In addition to...
and growing as an international attraction in the Algarve since the 1960s) and in agriculture (like the ones scattered around the Alentejo – known as the breadbasket
Breadbasket
The breadbasket or the granary of a country is a region which, because of richness of soil and/or advantageous climate, produces an agricultural surplus which is often considered vital for the country as a whole. Rice bowl is a similar term used in Southeast Asia...
of Portugal) completed the panorama of the national economy by the early 1970s. In addition, rural areas' populations were committed to agrarianism
Agrarianism
Agrarianism has two common meanings. The first meaning refers to a social philosophy or political philosophy which values rural society as superior to urban society, the independent farmer as superior to the paid worker, and sees farming as a way of life that can shape the ideal social values...
that was of great importance for a majority of the total population, with many families living exclusively from agriculture or complementing their salaries with farming, husbandry and forestry yields.
Besides that, the overseas territories were also displaying impressive economic growth and development rates from the 1920s onwards. Even during the Portuguese Colonial War
Portuguese Colonial War
The Portuguese Colonial War , also known in Portugal as the Overseas War or in the former colonies as the War of liberation , was fought between Portugal's military and the emerging nationalist movements in Portugal's African colonies between 1961 and 1974, when the Portuguese regime was...
(1961–1974), a counterinsurgency war against independentist guerrilla and terrorism, the overseas territories of Angola
Angola (Portugal)
Angola is the common name by which the Portuguese colony in southwestern Africa was known across different periods of time...
and Mozambique (Portuguese Overseas Provinces at the time) had countinuous economic growth rates and several sectors of its local economies were booming. They were internationally notable centres of production of oil, coffee, cotton, cashew, coconut, timber, minerals (like diamonds), metals (like iron and aluminium), banana, citrus, tea, sisal, beer (Cuca and Laurentina were successful beer brands produced locally), cement, fish and other sea products, beef and textiles. Tourism was also a fast-developing activity in Portuguese Africa both by the growing development of and demand for beach resorts and wildlife reserves.
Labour unions were not allowed and a minimum wage
Minimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
policy was not enforced. However, in a context of an expanding economy, bringing better living conditions for the Portuguese population in the 1960s, the outbreak of the colonial wars in Portuguese Africa set off significant social changes, among them the rapid incorporation of more and more women into the labour market. Marcelo Caetano moved on to foster economic growth and some social improvements, such as the awarding of a monthly pension to rural workers who had never had the chance to pay social security. The objectives of Caetano's pension reform were threefold: enhancing equity, reducing fiscal and actuarial imbalance, and achieving more efficiency for the economy as a whole, for example, by establishing contributions less distortive to labour markets or by allowing the savings generated by pension funds to increase the investments in the economy. In 1969, with the replacement of António de Oliveira Salazar by Marcelo Caetano, the Estado Novo-controlled nation got indeed a very slight taste of democracy and Caetano allowed the formation of the first democratic labour union movement since the 1920s.
Caetano's Portuguese Government began also a military reform that gave the opportunity to militia officers who completed a brief training program and had served in the overseas territories' defensive campaigns, of being commissioned at the same rank as military academy graduates in order to increase the number of officials employed against the African insurgencies, and at the same time cut down military costs to alleviate an already overburdened government budget
Government budget
A government budget is a legal document that is often passed by the legislature, and approved by the chief executive-or president. For example, only certain types of revenue may be imposed and collected...
. Thus, a group of disgusted captains started to instigate their peers to conspire against the new laws proposed by the regime. The protest of Portuguese Armed Forces
Portuguese Armed Forces
The armed forces of Portugal, commonly known as the Portuguese Armed Forces encompasses a Navy , an Army and an Air Force...
captains against a decree law: the Dec. Lei nº 353/73 of 1973. would therefore lay behind a military coup in 25 April 1974 – the Carnation Revolution
Carnation Revolution
The Carnation Revolution , also referred to as the 25 de Abril , was a military coup started on 25 April 1974, in Lisbon, Portugal, coupled with an unanticipated and extensive campaign of civil resistance...
.
Revolutionary change, 1974
The anti-Estado Novo MFAMovimento das Forças Armadas
The Movement of the Armed Forces was an organisation of lower-ranked left-leaning officers in the Portuguese Armed Forces which was responsible for the Carnation Revolution of 25 April 1974, a military coup in Lisbon which ended the corporatist New State regime in Portugal, the Portuguese...
-led Carnation Revolution
Carnation Revolution
The Carnation Revolution , also referred to as the 25 de Abril , was a military coup started on 25 April 1974, in Lisbon, Portugal, coupled with an unanticipated and extensive campaign of civil resistance...
had a devastating impact on the Portuguese economy and social structure. It prompted a mass exodus of Portuguese citizens from Portugal's African territories (mostly from the then overseas territories of Angola
Angola (Portugal)
Angola is the common name by which the Portuguese colony in southwestern Africa was known across different periods of time...
and Mozambique), creating over a million Portuguese destitute refugees – the retornados. Although the military-led coup returned democracy to Portugal, ending the unpopular Colonial War
Portuguese Colonial War
The Portuguese Colonial War , also known in Portugal as the Overseas War or in the former colonies as the War of liberation , was fought between Portugal's military and the emerging nationalist movements in Portugal's African colonies between 1961 and 1974, when the Portuguese regime was...
where thousands of Portuguese soldiers had been conscripted into military service, and replacing the authoritarian Estado Novo (New State) regime and its secret police which repressed elemental civil liberties
Civil liberties
Civil liberties are rights and freedoms that provide an individual specific rights such as the freedom from slavery and forced labour, freedom from torture and death, the right to liberty and security, right to a fair trial, the right to defend one's self, the right to own and bear arms, the right...
and political freedoms, it also paved the way for the end of Portugal as an intercontinental empire and an intermediate emerging power.
The Portuguese economy had changed significantly prior to the revolution, in comparison with its position in 1961—total output (GDP at factor cost) had grown by 120 percent in real terms. 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
Gross fixed capital formation
Gross fixed capital formation is a macroeconomic concept used in official national accounts such as the UNSNA, NIPAs and the European System of Accounts . The concept dates back to the NBER studies of Simon Kuznets of capital formation in the 1930s, and standard measures for it were adopted in the...
(7.8 percent).
The post revolution period was, however, characterized by chaos and negative economic growth, as industries became nationalized and the effects of the decoupling of Portugal from its former overseas territories, especially Angola
Angola (Portugal)
Angola is the common name by which the Portuguese colony in southwestern Africa was known across different periods of time...
and Mozambique, were felt. Heavy industry came to an abrupt halt. All sectors of the economy, including manufacturing, mining, chemical, defence, finance, agriculture, and fishing, collapsed. Portugal quickly went from the country with the highest growth rate in Western Europe to the lowest, and experienced several years of negative growth. This was amplified by the mass emigration of skilled workers and entrepreneurs (among them were António Champalimaud and José Manuel de Mello
José Manuel de Mello
José Manuel de Mello , was a Portuguese businessman who founded the conglomerate Grupo José de Mello. He was the heir of an older industrial conglomerate, Companhia União Fabril , which had been founded by his grandfather Alfredo da Silva. José started to work for CUF until the Carnation Revolution...
) due to communism-inspired political intimidation and economic stagnation.
Only in 1991, 16 years later, did the GDP as a percentage of EC-12 average climb 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 participation in the European Economic Community
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
since 1985. Post revolution Portugal was not able to achieve the same growth rates as its predecessors.
Nationalization
The reorganization of the MFA coordinating committee in March 1975 brought into prominence a group of MarxistMarxism
Marxism is an economic and sociopolitical worldview and method of socioeconomic inquiry that centers upon a materialist interpretation of history, a dialectical view of social change, and an analysis and critique of the development of capitalism. Marxism was pioneered in the early to mid 19th...
-oriented officers. 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, they sought a radical transformation of the nation's social system and political economy. This change of direction from a purely pro-democracy coup to a communist-oriented one became known as the Processo Revolucionário Em Curso (PREC). 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, major breweries, large shipping lines, most public transport, two of the three principal shipyards, core companies of the Companhia União Fabril (CUF) conglomerate, 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 and 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
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
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 a negative business climate brought about a sharp reversal in the trend of direct investment inflows from abroad.
After the coup, both the Lisbon and Porto stock exchanges were closed by the revolutionary National Salvation Junta
National Salvation Junta
The National Salvation Junta was a group of military officers designated to maintain the government of Portugal in April 1974, after the Carnation Revolution had overthrown the Estado Novo dictatorial regime. This junta functioned between 1974 and 1976, following a communiqué of its president,...
; they would be reopened a couple of years later.
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 16 months from 14 March 1975, to 29 July 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
Central de Cervejas
Sociedade Central de Cervejas is a Portuguese brewery, founded in 1934. Its main output is the Sagres brand of beers...
(Centralcer) and Unicer
Unicer
União Cervejeira SA , is a Portuguese beer producer, owner of several beer brands, including Super Bock, Cristal, Cheers, Cool Beer, Clok, and is the Portuguese distributor for Carlsberg, Tuborg, Guinness, Tetley's, and Kilkenny. One of the most famous is Super Bock, the market leader in the country...
; and a single state enterprise, Rodoviária
Rodoviária Nacional
Rodoviária Nacional was the state-owned bus network in Portugal, resulting from the nationalization, in 1975, of the largest bus operators in the country, basically the criteria used for nationalization was the fleet size : more than 60 vehicles.-Operations:...
, was created by merging the 93 nationalized trucking and bus lines. The 47 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 15 to 9. Notwithstanding their public status, the remaining banks competed with each other and retained their individual identities and policies.
Before the revolution, private enterprise ownership dominated the Portuguese economy to a degree unmatched in other western European countries. Only a handful of wholly owned or majority owned state entities existed; these included the post office (CTT
CTT
thumb|200px|right|A CTT mail delivery vehiclethumb|200px|right|A CTT traditional mail boxCTT Correios de Portugal, S.A.—meaning Postal Services of Portugal, plc—is the national postal service of Portugal. The acronym CTT comes from Correios, Telégrafos e Telefones—Post, Telegraph and Telephone—the...
), 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
Caixa Geral de Depósitos
Caixa Geral de Depósitos is a Portuguese state-owned banking corporation and the largest bank in Portugal.- History :*1876 — Caixa Geral de Depósitos was founded under the aegis of the Junta de Crédito Público....
, the largest savings bank. The Portuguese government held minority interests in TAP, the national airline, in Siderurgia Nacional, the third telecommunications company Radio Marconi, and in oil refining and oil marketing firms. The railroads, two colonial banks (Banco de Angola and BNU
Banco Nacional Ultramarino
Banco Nacional Ultramarino was a Portuguese bank with operations throughout the world, especially in Portugal's former overseas provinces. It ceased existence as an independent legal entity in Portugal following its merger with Caixa Geral de Depósitos, the government-owned savings bank, in...
), 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 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 was particularly apparent 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, with minority state participation (less than 50 percent of the common stock), or worker-managed firms and agricultural collectives.
Land reform
In the agricultural sectorAgriculture in Portugal
Agriculture in Portugal is based on small to medium-sized family-owned dispersed units, however, the sector also includes larger scale intensive farming export-oriented agrobusinesses backed by companies...
, the collective farms set up in Alentejo after the 1974–75 expropriations due to the coup 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); around 32% of these were ruled illegal. In January 1976, the government pledged to restore the illegally occupied lands to their owners, and in 1977, it promulgated the Land Reform Review Law. Restoration began in 1978.
The brain drain
Compounding the problem of massive nationalizations was the brain drainBrain drain
Human capital flight, more commonly referred to as "brain drain", is the large-scale emigration of a large group of individuals with technical skills or knowledge. The reasons usually include two aspects which respectively come from countries and individuals...
of managerial and technical expertise away from public enterprises. The income-leveling measures of the MFA revolutionary regime, together with the "anti-fascist" purges in factories, offices, and large agricultural estates, induced an exodus of human capital, mainly to Brazil. This loss of managers, technicians, and businesspeople 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, and technically advanced industries than in the traditional ones such as textiles, apparel, and construction. In small enterprises (50–99 employees), only 15 percent of the industrialists left as compared with 43 percent in the larger organizations. In the largest firms (1,000 or more employees), more than half left. Makler's calculations show that the higher the socioeconomic class of the person, the greater the likelihood that they 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 such as founders (18%), heirs (21%), and owner-managers (32%) had left their enterprises.
The constitution of 1976 confirmed the large and interventionist role of the state in the economy. Its Marxist character, which lasted until 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 25 April 1974, as "irreversible conquests of the working classes". The constitution also defined new power relationships between labor and management, with a strong bias in favor of labor. 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 sometimes 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 government deficits. In 1982, the borrowing requirement of the consolidated public sector reached 24 percent of GDP, its peak level; it was reduced to 9 percent of GDP by 1990.To rein in domestic demand growth, the Portuguese government was obliged to pursue International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(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
Aníbal Cavaco Silva
Aníbal António Cavaco Silva, GCC , is the President of Portugal. He won the Portuguese presidential election on 22 January 2006 and was re-elected on 23 January 2011, for a second five-year term. Cavaco Silva was sworn in on 9 March 2006....
succeeded in mobilizing the required two-thirds vote in the National Assembly to amend the constitution, thereby permitting the denationalization 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 non-financial 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 non-financial enterprises, which were entirely government owned. This so-called public non-financial 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 western European economies, including the EC member countries.Although the nationalizations broke up the concentration of economic power that had been held by financial-industrial groups, the subsequent merger of several private firms into single publicly owned enterprises left domestic markets even more monopolized. 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 industries such as cement, chemicals, and trucking probably reduced managerial incentives for cost reduction and technical advance.
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 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 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, as evidenced by their inadequate equity and liquidity ratios
Reserve requirement
The reserve requirement is a central bank regulation that sets the minimum reserves each commercial bank must hold of customer deposits and notes...
. The consolidated losses of the firms included in the survey increased from 18.3 to 40.3 million contos from 1978 to 1980, or 4.6 percent to 6.1 percent of net worth, respectively. Losses were concentrated in transportation and to a lesser extent transport equipment and materials (principally shipbuilding and ship repair). The budgetary burden of the public enterprises 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 increased 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. 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.
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. 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%, 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%, and the top marginal tax rate on personal income was cut from 80% to 40%. A 25% 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
The financing structure of the public deficits had changed since the mid-1980s due to 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 were "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 in 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 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 would eventually have to accept investment from other member countries on parity 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 services sector doubled; however, agriculture, forestry, and fishing advanced by only 16 percent. Manufacturing, the major component of the secondary sector, tripled during this time. 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 to 16.8 percent, and the contribution of the secondary (or industrial) sector (manufacturing, construction, mining, electricity, gas, and water) increased from 37 to 44 percent. The services sector's share in GDP remained constant at 39.4 percent. Within the industrial sector, the contribution of manufacturing advanced from 30 to 35 percent and that of construction from 4.6 to 6.4 percent.
The progressive "opening" of Portugal to the world economy
World economy
The world economy, or global economy, generally refers to the economy, which is based on economies of all of the world's countries, national economies. Also global economy can be seen as the economy of global society and national economies – as economies of local societies, making the global one....
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 onwards. 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, causing 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 such as canned fish, raw and manufactured cork, cotton textiles, and wine. By contrast, in the early 1970s, Portugal's export list underwent 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 global recession, and 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 from 12.2 percent in 1973. In contrast to the pre-revolutionary period, 1961–73, when the industrial sector grew by 9 percent annually and its contribution to GDP expanded, industry's share narrowed from 44 to 38.4 percent of GDP. Manufacturing, the major component of the industrial sector, contributed relatively less to GDP in 1990, falling from 35 to 28 percent. Most striking was the 16 percentage point increase in the participation of the services sector from 39 percent to 55.5 percent. 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. 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 slower 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, 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 more recent period compared with the extremely rapid annual growth rate of 7.4 percent earlier. Inflation, as measured by the GDP deflatorGDP deflator
In economics, the GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy...
, averaged a modest 4 percent a year before the revolution compared with nearly 18 percent annually during the 1980s. In 1960, Portugal joined the European Free Trade Association
European Free Trade Association
The European Free Trade Association or EFTA is a free trade organisation between four European countries that operates parallel to, and is linked to, the European Union . EFTA was established on 3 May 1960 as a trade bloc-alternative for European states who were either unable to, or chose not to,...
(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 compared to 26.7 percent during the 1980s), the overall investment productivity or efficiency (GDP growth rate/investment coefficient) was nearly three times greater before the revolution (28.6 percent) 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, when revolutionary turmoil peaked, 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 during the worst revolutionary period. In addition, the events of 1974 prompted a mass exodus of citizens from Portugal's African territories (mostly from Portuguese Angola and Mozambique), creating over a million Portuguese destitute refugees known as the retornados.
Portugal entered the European Economic Community
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
(EEC) in 1986 and left the European Free Trade Association
European Free Trade Association
The European Free Trade Association or EFTA is a free trade organisation between four European countries that operates parallel to, and is linked to, the European Union . EFTA was established on 3 May 1960 as a trade bloc-alternative for European states who were either unable to, or chose not to,...
(EFTA), which it had helped found in 1960. An important external influx of structural and cohesion funds was managed by the country as the EEC evolved to the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
(EU) and beyond.
European Union integration: the 1990s and 2000s
Portuguese Empire
The Portuguese Empire , also known as the Portuguese Overseas Empire or the Portuguese Colonial Empire , was the first global empire in history...
in 1975, and the adhesion to the European Economic Community
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
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
Engineered wood
Engineered wood, also called composite wood, man-made wood, or manufactured board; includes a range of derivative wood products which are manufactured by binding the strands, particles, fibers, or veneers of wood, together with adhesives, to form composite materials...
, injection molding
Injection molding
Injection molding is a manufacturing process for producing parts from both thermoplastic and thermosetting plastic materials. Material is fed into a heated barrel, mixed, and forced into a mold cavity where it cools and hardens to the configuration of the cavity...
, plastics, specialized software, ceramic
Ceramic
A ceramic is an inorganic, nonmetallic solid prepared by the action of heat and subsequent cooling. Ceramic materials may have a crystalline or partly crystalline structure, or may be amorphous...
s, textiles, footwear, paper, cork
Cork (material)
Cork is an impermeable, buoyant material, a prime-subset of bark tissue that is harvested for commercial use primarily from Quercus suber , which is endemic to southwest Europe and northwest Africa...
, and fine wine, among others, was a major factor in the development of the Portuguese economy and improvements in the standard of living
Standard of living
Standard of living is generally measured by standards such as real income per person and poverty rate. Other measures such as access and quality of health care, income growth inequality and educational standards are also used. Examples are access to certain goods , or measures of health such as...
and quality of life
Quality of life
The term quality of life is used to evaluate the general well-being of individuals and societies. The term is used in a wide range of contexts, including the fields of international development, healthcare, and politics. Quality of life should not be confused with the concept of standard of...
. Similarly, for several years, the Portuguese subsidiaries of large multinational companies, such as Siemens Portugal
Siemens AG
Siemens AG is a German multinational conglomerate company headquartered in Munich, Germany. It is the largest Europe-based electronics and electrical engineering company....
, Volkswagen Autoeuropa
Volkswagen
Volkswagen is a German automobile manufacturer and is the original and biggest-selling marque of the Volkswagen Group, which now also owns the Audi, Bentley, Bugatti, Lamborghini, SEAT, and Škoda marques and the truck manufacturer Scania.Volkswagen means "people's car" in German, where it is...
, Qimonda Portugal
Qimonda
Qimonda AG, was a memory company split out of Infineon Technologies on 1 May 2006, to form at the time the second largest DRAM company worldwide, according to the industry research firm Gartner Dataquest...
, IKEA
IKEA
IKEA is a privately held, international home products company that designs and sells ready-to-assemble furniture such as beds and desks, appliances and home accessories. The company is the world's largest furniture retailer...
, Nestlé Portugal
Nestlé
Nestlé S.A. is the world's largest food and nutrition company. Founded and headquartered in Vevey, Switzerland, Nestlé originated in a 1905 merger of the Anglo-Swiss Milk Company, established in 1867 by brothers George Page and Charles Page, and Farine Lactée Henri Nestlé, founded in 1866 by Henri...
, Microsoft Portugal
Microsoft
Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...
, Unilever
Unilever
Unilever is a British-Dutch multinational corporation that owns many of the world's consumer product brands in foods, beverages, cleaning agents and personal care products....
/Jerónimo Martins
Jerónimo Martins
Jerónimo Martins SGPS, SA is a Portugal-based company that operates in food distribution and consumer products manufacturing. The firm is the majority owner of Jerónimo Martins Retail , which operates the Pingo Doce super- and hypermarket chains in Portugal...
, and Danone Portugal, ranked among the best in the world for productivity.
Sonae
Sonae is a conglomerate, and is the largest private employer in Portugal. The company is primarily engaged in the operation of retail stores through its subsidiary Modelo Continente....
, Sonae Indústria
Sonae Indústria
Sonae Indústria is a manufacturer of engineered wood products, founded and headquartered in Maia, Portugal. Present in twelve countries within three continents, Sonae Indústria has a wide range of products, from simple board to complete construction systems, a large range of wood-based products...
, Amorim
Amorim
Amorim is a Portuguese surname. A habitational name from any of the various places named Amorim, originally Amorini, from the name of the estate owner.It may refer to:- People :*Ana Amorim, Brazilian handball player...
, Sogrape
Sogrape
The Sogrape Vinhos S.A. is a Portuguese winery founded in 1942 by Fernando van Zeller Guedes as “Sociedade Comercial dos Grandes Vinhos de Mesa de Portugal”.Its first product was the rosé wine Mateus...
, EFACEC
EFACEC
The EFACEC Group is the largest Portuguese corporation in the field of electromechanics and electronics, with a strong presence in different international markets. It is headquartered in Matosinhos, Greater Porto area, Portugal. The José de Mello corporation owns about 50% of EFACEC's capital....
, Portugal Telecom
Portugal Telecom
Portugal Telecom is the largest telecommunications service provider in Portugal. Although it operates mainly in Portugal and Brazil, it has also a significant presence in Guinea-Bissau, Cape Verde, Mozambique, Timor-Leste, Angola, Kenya, the People's Republic of China, and São Tomé and...
, Jerónimo Martins
Jerónimo Martins
Jerónimo Martins SGPS, SA is a Portugal-based company that operates in food distribution and consumer products manufacturing. The firm is the majority owner of Jerónimo Martins Retail , which operates the Pingo Doce super- and hypermarket chains in Portugal...
, Cimpor
Cimpor
Cimpor - Cimentos de Portugal is the largest Portuguese cement group, operating in eleven countries - Portugal, Spain, Morocco, Brazil, Tunisia, Turkey, Cape Verde, Mozambique, China, Egypt and South Africa, involved in manufacturing and marketing cement, hydraulic lime, concrete and aggregates,...
, Unicer
Unicer
União Cervejeira SA , is a Portuguese beer producer, owner of several beer brands, including Super Bock, Cristal, Cheers, Cool Beer, Clok, and is the Portuguese distributor for Carlsberg, Tuborg, Guinness, Tetley's, and Kilkenny. One of the most famous is Super Bock, the market leader in the country...
, Millennium bcp, Lactogal
Lactogal
Lactogal is a Portuguese food products company focused on dairy products, milk, fruit juice and mineral water. It is headquartered in Porto and is placed among the twenty largest agro-food European companies...
, Sumol + Compal
Sumol + Compal
Sumol + Compal is a Portuguese food and beverages company specializing in soft drink production and bottling. The company's principal activities are the manufacturing, marketing, bottling, selling, exporting, and distribution of various types of beverages, such as soft drinks, juices, nectars,...
, Cerealis
Cerealis
Cerealis is a Portuguese food producer and the biggest milling company in Portugal, headquartered in Maia, and founded in 1919 as a cereal processing company...
, Frulact
Frulact
Frulact - Ingredientes para a Indústria de Laticínios, Lda. is a food industry company specialized in fruit processing, headquartered in Maia, Portugal. Its aim is the manufacture of food products like fruit compounds for food industries. It has industrial and commercial facilities in Maia,...
, Ambar
Ambar - Ideas on Paper S.A.
Ambar – Ideas on Paper S.A., known in Portugal simply as Ambar, is a Portuguese company founded in 1939, and headquartered in Porto. Its name is derived from the first two syllables of its founder’s name, Américo Barbosa. Ambar produces and commercialises stationery products to be used at home or...
, Bial
Bial
Bial is a pharmaceutical company headquartered in S. Mamede do Coronado, in Trofa, Porto district, Portugal. It was founded in 1924, being among the largest companies of its kind in Portugal....
, Critical Software
Critical Software
Critical Software is a Portuguese information systems and software company, headquartered in Coimbra. Critical Software specialises in the development and deployment of software solutions or COTS based systems...
, Active Space Technologies
Active Space Technologies
Active Space Technologies is a European company, with main offices in Portugal and Germany, headquartered in Coimbra, which offers products and services in the fields of thermo-mechanical engineering , electronics engineering , as well as management support services for technology...
, YDreams
YDreams
YDreams is an interactive technology company headquartered in Lisbon, Portugal, with offices in Barcelona, Rio de Janeiro, São Paulo and New York City...
, Galp Energia
Galp Energia
The Galp Energia Group is a Portuguese corporation which consists of more than 100 companies engaged in activities such as natural gas supply, regasification, transport, storage, and distribution; petroleum products exploration, production, refining, trading, logistics and retailing; co-generation...
, Energias de Portugal
Energias de Portugal
EDP - Energias de Portugal ranks among Europe's major electricity operators, as well as being one of Portugal's largest business groups....
, Visabeira
Visabeira
Visabeira is a Portugal-based international conglomerate with interests on telecommunications, construction, industry, tourism, real estate, and service industries...
, Renova
Renova (brand)
Renova is a Portuguese company that produces paper consumption goods . It is based in the city of Torres Novas, located in Médio Tejo, a NUTS3 subregion belonging to Centro region.It is one of the most well-known industry brands inside and outside of the country...
, Delta Cafés
Delta Cafés
Delta Cafés , officially named Novadelta - Comércio e Indústria de Cafes, S.A., is a Portuguese coffee roasting and coffee packaging company headquartered in Campo Maior, Alentejo. The company was founded in 1961 and is among the top market leaders in the Iberian Peninsula...
, Derovo
Derovo
Derovo - Derivados de ovos, S.A. is a Portugal-based company headquartered in Pombal and founded in 1994, specialized in the production of pasteurized egg products, in the production of boiled eggs, in the production of Fullprotein , and develops egg-based products to the needs of its customers,...
, Teixeira Duarte
Teixeira Duarte
Teixeira Duarte is one of the largest construction companies in Portugal, headquartered in Oeiras. The company was founded in 1921 by Ricardo Esquível Teixeira Duarte, an engineer. It is a major stakeholder in Cimpor and Banco Comercial Português. Today operates in countries and regions like...
, Soares da Costa
Soares da Costa
Soares da Costa SGPS, S.A. is a Portuguese company. Its main activities are civil engineering and construction, public works, real estate, housing construction, production of construction materials and other related activities. It also has interests in rendering financial services. The group...
, Portucel Soporcel
Portucel Soporcel
The Portucel Soporcel Group is a Portuguese pulp and paper company, which resulted from the 2001 merger of the firms Portucel and Soporcel....
, Salsa jeans
Salsa jeans
Salsa is a Portuguese company and brand of clothing. Salsa has stores around the globe and designs, produces, and sells products ranging from jeans to skirts.-History:...
, Grupo José de Mello
Grupo José de Mello
The José de Mello Group is an economic group that has a stable Portuguese shareholder base. It is one of Portugal's biggest corporate groups...
, Valouro
Valouro
Grupo Valouro or simply Valouro, is one of the largest economic groups in Portuguese agrobusiness industry and the biggest in the poultry sector...
, Sovena Group, Simoldes
Simoldes
Simoldes is a Portuguese mould maker company headquartered in Oliveira de Azeméis.Claimed to be Europe's largest mould maker, Simoldes Group Mould Division supplies plastic injection moulds for the automotive industry....
, Iberomoldes
Iberomoldes
Iberomoldes is one of the largest mould engineering and product development groups in the world, with about 800 employees. The company's headquarters are in Marinha Grande, Portugal, it has engineering offices in the UK and Sweden...
, and Logoplaste
Logoplaste
Logoplaste is a Portuguese company, producing rigid plastic containers.Logoplaste was incorporated in 1976, pioneering in-house manufacturing in Europe, with the “Hole in the Wall” concept...
.
Although being both a developed and a high income country, Portugal had the lowest GDP per capita in western Europe, and the average income was one of the lowest in the European Union
Economy of the European Union
The economy of the European Union generates a GDP of over €12,279.033 billion according to the International Monetary Fund , making it the largest economy in the world...
. According to the Eurostat
Eurostat
Eurostat is a Directorate-General of the European Commission located in Luxembourg. Its main responsibilities are to provide the European Union with statistical information at European level and to promote the integration of statistical methods across the Member States of the European Union,...
it had the sixth-lowest purchasing power
Purchasing power
Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...
of the 27 member states of the European Union for the period 2005–2007. However, research about quality of life
Quality of life
The term quality of life is used to evaluate the general well-being of individuals and societies. The term is used in a wide range of contexts, including the fields of international development, healthcare, and politics. Quality of life should not be confused with the concept of standard of...
by the Economist Intelligence Unit
Economist Intelligence Unit
The Economist Intelligence Unit is part of the Economist Group.It is a research and advisory company providing country, industry and management analysis worldwide and incorporates the former Business International Corporation, a U.S. company acquired by the parent organization in 1986...
's (EIU) Quality-of-life Survey placed Portugal 19th in the world for 2005
Quality-of-life index
The Economist Intelligence Unit’s quality-of-life index is based on a unique methodology that links the results of subjective life-satisfaction surveys to the objective determinants of quality of life across countries...
, ahead of other economically and technologically advanced countries such as France, Germany, the United Kingdom, and South Korea, but nine places behind its only neighbour, Spain.
Global Competitiveness Report
The Global Competitiveness Report is a yearly report published by the World Economic Forum. The first report was released in 1979. The 2011–2012 report covers 142 major and emerging economies....
for 2005, published by the World Economic Forum
World Economic Forum
The World Economic Forum is a Swiss non-profit foundation, based in Cologny, Geneva, best known for its annual meeting in Davos, a mountain resort in Graubünden, in the eastern Alps region of Switzerland....
, placed Portugal 22nd, ahead of countries and territories such as Spain, Ireland, France, Belgium, and Hong Kong. On the Technology index, Portugal ranked 20th, on the Public Institutions Index, Portugal ranked 15th best, and on the Macroeconomic Index, Portugal was placed 37th. The Global Competitiveness Index 2007–2008 placed Portugal 40th out of 131 countries and territories. However, the Global Competitiveness Report 2008–2009 edition placed Portugal 43rd out of 134.
Related to the notable economic development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
that was seen in Portugal from the 1960s to the early 21st century (with an abrupt but short-lived halt after 1974), the development of tourism, which allowed increased exposure for national cultural heritage, particularly in regards to architecture
Architecture of Portugal
Architecture of Portugal refers to the architecture practised in the territory of present-day Portugal since before the foundation of the country in the 12th century...
and local cuisine, improved further. The adoption of the euro and the organization 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 in all of Europe. In the first decade of the 21st century, the Czech Republic, Greece, Malta, Slovakia, and Slovenia all overtook Portugal in terms of GDP (PPP) per head. Greece had been a regular comparison point for Portugal since EU adhesion as both countries were formerly ruled by authoritarian governments and share similar EU-membership history, number of inhabitants, market size and tastes, national economies, mediterranean culture, sunny weather, and tourist appeal; however, the Greek economic and financial wealth of the first five years of the 21st century was artificially boosted and was hampered by lack of sustainability, and they were caught out by a massive crisis by 2010. 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
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...
, which described Portugal as "a new sick man of Europe
Sick man of Europe
"Sick man of Europe" is a nickname that has been used to describe a European country experiencing a time of economic difficulty and/or impoverishment...
". From 2002 to 2007, the unemployment rate increased by 65%; the number of unemployed citizens grew from 270,500 in 2002 to 448,600 in 2007. By December 2009, the unemployment rate had passed the 10% mark.
Overall, the late 1990s and the first decade of the 21st century were marked by a lagging economy where Portugal not only failed to catch up to the EU average, but actually fell behind for a period. Public expenditure rose to unsustainable levels and the number of public servants, which had been on the rise since the 1974 Carnation Revolution, reached unprecedented proportions. State-funded and supported construction projects such as those related to the Expo 98 World Fair in Lisbon, the 2004 European Football Championship, and a number of new motorways, proved to have little positive effect in fostering sustainable growth. The short-term impact of these major investments was exhausted by the end of the first decade of the 21st century, and the aim of achieving faster economic growth and the improvement of the population's purchasing power
Purchasing power
Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...
in relation to the EU average did not materialize. To make matters worse, the late 2000s recession
Late 2000s recession
The late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...
, when much of the industrialized world entered a deep recession, led to increased unemployment and a downturn.
In December 2009, ratings agency Standard and Poor's lowered its long-term credit assessment of Portugal from "stable" to "negative", voicing pessimism on the country's structural economic weaknesses and poor competitiveness, which would hamper growth and the capacity to strengthen its public finances and reduce debt. Lack of government regulation; easy lending in the housing market, including Spain's and US markets, meant anyone could qualify for a home loan with no government regulations in place, and with key players, including bankers and politicians in several countries, making the wrong financial decisions, saw the world's biggest financial collapse. Portugal had to add a chronic public servant overcapacity problem, a severe sovereign debt crisis and a small, relatively weak, economy to the equation.
Notwithstanding the bad macroeconomic environment, modern non-traditional technology-based industries like aerospace
Aerospace
Aerospace comprises the atmosphere of Earth and surrounding space. Typically the term is used to refer to the industry that researches, designs, manufactures, operates, and maintains vehicles moving through air and space...
, biotechnology
Biotechnology
Biotechnology is a field of applied biology that involves the use of living organisms and bioprocesses in engineering, technology, medicine and other fields requiring bioproducts. Biotechnology also utilizes these products for manufacturing purpose...
and information technology, were developed in several locations across the country. Alverca, Covilhã
Covilhã
Covilhã is a city in Covilha Municipality in Centro region, Portugal. The city proper has 36,723 inhabitants, and the municipality has an area of 555.6 km² with a total population of 53,501, being composed of 31 parishes. It is located in the Cova da Beira subregion, in the district of...
, Évora
Évora
Évora is a municipality in Portugal. It has total area of with a population of 55,619 inhabitants. It is the seat of the Évora District and capital of the Alentejo region. The municipality is composed of 19 civil parishes, and is located in Évora District....
, and Ponte de Sor became the main centres of Portuguese aerospace industry, led by Brazil-based company Embraer
Embraer
Embraer S.A. is a Brazilian aerospace conglomerate that produces commercial, military, and executive aircraft and provides aeronautical services....
and the Portuguese company OGMA. Since after the turn of the 21st century, many major biotechnology and information technology industries were founded and proliferated in the metropolitan areas of Lisbon
Lisbon Metropolitan Area
Lisbon Metropolitan Area is a territorial zone that includes 18 municipalities in Portugal. The smaller Grande Lisboa area is a subregion of the NUTS II Lisbon Region by its own right....
, Porto, Braga, Coimbra and Aveiro.
The BPN and BPP bailouts
During the global economic crisis, it was known in 2008–2009 that two Portuguese banks (Banco Português de NegóciosBanco Português de Negócios
Banco Português de Negócios , or simply BPN, is a Portuguese banking institution. It used to be a private bank, but was nationalized by the Portuguese Government in 2008 after a bad management and malpractice-related debt of 1.800 billion euros and several irregularities uncovered in the...
(BPN) and Banco Privado Português (BPP)) had been accumulating losses for years due to bad investiments, embezzlement and accounting fraud. In the grounds of avoiding a potentially serious financial crisis in the Portuguese economy, the Portuguese government decided to give them a bailout, eventually at a future loss to taxpayers. Because of that, the role of Banco de Portugal
Banco de Portugal
The Banco de Portugal is the central bank of the Republic of Portugal. Established by a royal charter of 19 November 1846 to act as a commercial bank and issuing bank, it came about as the result of a merger of the Banco de Lisboa and the Companhia de Confiança Nacional, an investment company...
(BdP) (Portuguese Central Bank) in regulating and supervising the Portuguese banking system, when it was led by Vítor Constâncio
Vitor Constâncio
Vítor Manuel Ribeiro Constâncio, GCC, GCIH is a Portuguese economist and politician, Vice-President of the European Central Bank. Constâncio graduated in economics from the Universidade Técnica de Lisboa....
from 2000 to 2010, has been the subject of heated argument, particularly whether Vítor Constâncio and the BdP had the means to do something or whether they revealed gross incompetence. In December 2010, Constâncio was appointed vice president of the European Central Bank
European Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
, for an eight-year mandate, being responsible for banking supervision. Shortly after, in April 2011, the Portuguese Government would request international financial assistance as the State itself would be declared bankrupt.
Economic crisis: the 2010s
Some senior German policy makers went as far as to say that emergency bailouts to Greece and future EU aid recipients should bring with it harsh penalties.
In 2010, PIIGS and PIGS acronyms were widely used by international bond analysts, academics, and the international economic press when referring to the underperforming economies of Portugal, Italy, Ireland, Greece, and Spain.
In the summer of 2010, Moody's
Moody's
Moody's Corporation is the holding company for Moody's Analytics and Moody's Investors Service, a credit rating agency which performs international financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized...
Investors Service cut Portugal's sovereign bond rating down two notches from an Aa2 to an A1. Due to spending on economic stimuli, Portugal's debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
had increased sharply compared to the gross domestic product. Moody noted that the rising debt would weigh heavily on the government's short-term finances. Earlier in the year, Portugal was one of the countries identified in the 2010 Euro Crisis as concern spread over increasing government deficit and debt levels in certain countries.
Also in 2010, the country reached a record high unemployment rate of nearly 11%, a figure not seen for over two decades, while the number of public servants remained very high.
International financial market
Financial market
In economics, a financial market is a mechanism that allows people and entities to buy and sell financial securities , commodities , and other fungible items of value at low transaction costs and at prices that reflect supply and demand.Both general markets and...
s compelled the Portuguese Government led by Prime Minister José Sócrates
José Sócrates
José Sócrates Carvalho Pinto de Sousa, GCIH , commonly known by José Sócrates , is a Portuguese politician who was the Prime Minister of Portugal from 12 March 2005 to 21 June 2011....
, to make radical changes in economic policy, like other European governments had done before. Thus, in September 2010, the Portuguese Government announced a fresh austerity package following other Eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...
partners, through a series of tax hikes and salary cuts for public servants. In 2009, the deficit had been 9.4 percent, one of the highest in the Eurozone and way above the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
's Stability and Growth Pact
Stability and Growth Pact
The Stability and Growth Pact is an agreement among the 27 Member states of the European Union that take part in the Eurozone, to facilitate and maintain the stability of the Economic and Monetary Union...
three percent limit.
In November 2010, risk premium
Risk premium
A risk premium is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset, in order to induce an individual to hold the risky asset rather than the risk-free asset...
s on Portuguese bond
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
s hit euro lifetime highs as investors and creditors worried that the country would fail to reign in its budget deficit and debt. The yield on the country's 10-year government bonds reached 7 percent – a level the Portuguese Finance Minister Fernando Teixeira dos Santos
Fernando Teixeira dos Santos
Fernando Teixeira dos Santos , GOIH is a Portuguese economist and professor. He was Minister of Finance in the Portuguese Government led by José Sócrates .-Career:...
had previously said would require the country to seek financial help from international institutions.
A report published in January 2011 by the Diário de Notícias
Diário de Notícias
Diário de Notícias is a Portuguese daily newspaper, founded in Lisbon, on December 29, 1864 by Tomás Quintino Antunes and Eduardo Coelho. It gradually became one of the best known Portuguese newspapers...
, a leading Portuguese newspaper, demonstrated that in the period between the Carnation Revolution
Carnation Revolution
The Carnation Revolution , also referred to as the 25 de Abril , was a military coup started on 25 April 1974, in Lisbon, Portugal, coupled with an unanticipated and extensive campaign of civil resistance...
in 1974 and 2010, the democratic Portuguese Republic government
Government of Portugal
The Government is one of the four sovereignty organs of the Portuguese Republic. It is also the organ that conducts politics in general in the country and is also the superior body in public administration...
s encouraged over expenditure and investment bubbles through unclear public-private partnerships. This has funded numerous ineffective and unnecessary external consultancy and advising committees and firms, allowed considerable slippage in state-managed public works
Public works
Public works are a broad category of projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community...
, inflated top management and head officers' bonuses and wages, causing a persistent and lasting recruitment policy that has boosted the number of redundant public servants. The economy had also been damaged by risky credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
, public debt creation and mismanaged European structural and cohesion funds for almost four decades. Apparently, the Prime Minister Sócrates's cabinet was not able to forecast or prevent any of this when symptoms first appeared in 2005, and later was incapable of doing anything to ameliorate the situation when the country was on the verge of bankruptcy in 2011.
On 23 March 2011, José Sócrates resigned following passage of a no confidence motion sponsored by all five opposition parties in parliament over spending cuts and tax increases.
On 6 April 2011, the resigning Prime Minister announced on the television that the country, facing a status of bankruptcy, would request financial assistance to the IMF
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(at the time managed by Dominique Strauss-Kahn
Dominique Strauss-Kahn
Dominique Gaston André Strauss-Kahn , often referred to in the media, and by himself, as DSK, is a French economist, lawyer, politician, and member of the French Socialist Party...
) and the European Financial Stability Facility
European Financial Stability Facility
The European Financial Stability Facility is a special purpose vehicle financed by members of the eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing...
, like Greece and the Republic of Ireland had done before.
In order to accomplish the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
/IMF-led rescue plan for Portugal's sovereign debt crisis, in July and August 2011, the new government led by Pedro Passos Coelho
Pedro Passos Coelho
Pedro Manuel Mamede Passos Coelho , is Prime Minister of Portugal. Passos Coelho started very early in politics, becoming the national leader of the youth branch of the Social Democratic Party...
announced it was going to cut on state spending and increase austerity measures, including public servant wage cuts and additional tax increases.
See also
- Economic historyEconomic historyEconomic history is the study of economies or economic phenomena in the past. Analysis in economic history is undertaken using a combination of historical methods, statistical methods and by applying economic theory to historical situations and institutions...
- Economy of PortugalEconomy of PortugalThe Economy of Portugal is a high income mixed economy. The Global Competitiveness Report 2008-2009 edition placed Portugal in the 43rd position out of 134 countries and territories....
- Economic history of BrazilEconomic history of BrazilThe economic history of Brazil covers various economic events and traces the changes in the Brazilian economy over the course of the history of Brazil. Portugal, which first colonized the area in the 16th century, enforced a colonial pact with Brazil, an imperial mercantile policy, which drove...
- Economic history of EuropeEconomic history of Europe-Technology diffusion in conflict:Conflict between regions, in Viking raids and in Crusader invasions of the Middle East incidentally led to the diffusion of and refinement technology instrumental to overseas travel, from the 8th Century to the 12th Century. People made improvements in ships,...
- Economic history of SpainEconomic history of SpainThis article covers the development of Spain's economy over the course of its history.- Ancient era :The prehistoric Iberians and Celts were some of the earliest groups in what is now Spain. The Iberians developed agriculture and metal working. Celtic economy centered around cattle raising, like...
- Economic history of the worldEconomic history of the worldThe Economic History Of The World is a record of the economic activities of all humans, spanning both recorded history and evidenced prehistory.-Prehistory:...
- Elmina CastleElmina CastleElmina Castle was erected by Portugal in 1482 as São Jorge da Mina Castle, also known simply as Mina or Feitoria da Mina) in present-day Elmina, Ghana . It was the first trading post built on the Gulf of Guinea, so is the oldest European building in existence below the Sahara...
- Company of GuineaCompany of GuineaThe Company of Guinea was 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, or simply Casa da Índia.-See also:* Casa da Índia*...
- Fort JesusFort JesusFort Jesus is a Portuguese fort built in 1593 by order of King Philip I of Portugal , then ruler of the joint Portuguese and Spanish Kingdoms, located on Mombasa Island to guard the Old Port of Mombasa, Kenya. It was built in the shape of a man , and was given the name of Jesus...
- Island of MozambiqueIsland of MozambiqueThe Island of Mozambique lies off northern Mozambique, between the Mozambique Channel and Mossuril Bay. It has a population of around 14,000 people and is part of Nampula Province.-History:...
- Mozambique CompanyMozambique CompanyThe Mozambique Company, in Portuguese the Companhia de Moçambique, was a royal company in the Portuguese colony of Mozambique, that had the concession of the lands that include the present provinces of Manica and Sofala....
- MacauMacauMacau , also spelled Macao , is, along with Hong Kong, one of the two special administrative regions of the People's Republic of China...
- NagasakiNagasakiis the capital and the largest city of Nagasaki Prefecture on the island of Kyushu in Japan. Nagasaki was founded by the Portuguese in the second half of the 16th century on the site of a small fishing village, formerly part of Nishisonogi District...
- Niassa CompanyNiassa CompanyThe Nyassa Company, in Portuguese the Companhia do Nyassa, and sometimes spelled "Niassa", was a royal company in the Portuguese colony of Mozambique, then known as Portuguese East Africa, that had the concession of the lands that include the present provinces of Cabo Delgado and Niassa between...
- Portuguese East India CompanyPortuguese East India Company- Background :Portuguese trade with India had been a crown monopoly since the Portuguese captain Vasco da Gama opened the sea route to India in 1497-99. The monopoly had been managed by the Casa da Índia, the royal trading house founded around 1500. The Casa was responsible for the yearly India...
- Portuguese East AfricaPortuguese East AfricaMozambique or Portuguese East Africa was the common name by which the Portuguese Empire's territorial expansion in East Africa was known across different periods of time...
- Portuguese IndiaPortuguese IndiaThe Portuguese Viceroyalty of India , later the Portuguese State of India , was the aggregate of Portugal's colonial holdings in India.The government started in 1505, six years after the discovery of a sea route to India by Vasco da Gama, with the nomination of the first Viceroy Francisco de...
- Portuguese West Africa
- Portuguese realPortuguese realThe real was the unit of currency of Portugal from around 1430 until 1911. It replaced the dinheiro at the rate of 1 real = 840 dinheiros and was itself replaced by the escudo at a rate of 1 escudo = 1000 réis...
- Portuguese escudoPortuguese escudoThe escudo was the currency of Portugal prior to the introduction of the Euro on 1 January 1999 and its removal from circulation on 28 February 2002. The escudo was subdivided into 100 centavos....
- Slavery in PortugalSlavery in Portugal-Ancient era:Slavery was a major economic and social institution in Europe during the classical era. A great deal is known about the ancient Greeks and Romans. The Romans added Portugal to their empire . It was the province of Lusitania. The name of the future kingdom was derived from Portucale, a...