GRAZIA TANTA: Center and peripheries in Europe (2) - Portugal, a case of peripheral disaster

Within the context of some narrowing of Europe’s inequalities, Portugal is a country with evident relative impoverishment.

1 - Evolution of per capita GDP

2 – Households’ gross income

3 - Those labor costs

We have recently carried on a synthetic explanation of the inequalities in the EU, which are the consequence of a process that has taken place over the past 45 years. And we used the word synthetic because we have privileged an indicator - demographic evolution - which clearly reflects the evolution of the position of each European region in the hierarchy built by the current neoliberal capitalism.

In this paper, we will observe those inequalities between countries at the light of per capita GDP, household income, and business’ costs with labor, including some details related to what has been going on in Portugal.

1 - Evolution of per capita GDP

The evolution of per capita GDP for the EU-28 group, measured in euros, for the period of 1970 to 2014, shows a very rapid growth until 1990, with a slowdown in the next five years, a recovery in the decade of 1995 to 2005, with the later period ending with a very weak growth, subsequent to the systemic political, economic, and financial crisis, which continues to grow deeper.

Primary source: UNCTAD / CNUCED

A more detailed look enables seeing the average yearly growth rate of the GDP per capita for each of the five-year periods, thus evidencing the shorter fluctuations that make up the long cycle that was started by the appearance of neoliberalism around the early 70's of the last century.

In the second half of the 1990s, several technological innovations or their massification (internet, mobile phones) gave a strong impulse to globalization and businesses, but neoliberalism, through the financial transformation drive, relocations, deindustrialization, and social deregulation, led to so-called "dot.com" crisis at the turn of the century. Because the process became more pronounced, with real estate bubbles, subprime lending, all based on credit without the counterpart of effective income to pay for it, the crisis intensified, with bank failures, states’ indebtedness, ineffective austerity programs, and the anemic growth that we have been witnessing, without an end in sight, as is clearly visible in the following chart.

Primary source: UNCTAD / CNUCED

Next we observe the variation of the GDP per capita for each country between 1970 and 2014, using as a reference for each of them the aggregate value of the EU-28 = 100.

Primary source: UNCTAD / CNUCED

This long period corresponds to the time of affirmation and consolidation of neoliberalism that, meanwhile, could possibly be in an exhaustion phase regarding its economic, social and political model. It shows, in a first approach, that in all the countries considered as developed the GDP per capita increased slightly (3.9%) when compared to the EU-28, while for the world as a whole, this GDP per capita is reduced by 12.7%, in the same comparative terms. Obviously, by exclusion of parts, for the group of least developed countries (which are benevolently labeled as developing countries by the international institutions and include all other non-OECD countries) the situation is very unflattering; as unflattering is the situation of the peoples considered to be developed by the OECD - Hungary, Poland, Turkey, Mexico ... - just because they belong to that club. A championship classification earned in the administration office...

In undeveloped countries the GDP per capita might have regressed, in comparison with the EU-28, more than the world average, revealing that the consequences of a world economic order – which, historically, generates inequalities – remain quite active.

One may consider that, meanwhile, the population of the undeveloped countries has grown substantially, more than the GDP; but this cannot be the basis for defending Malthusian policies, but rather political and economic changes that eliminate the alliance between these countries’ political classes, autocratic and corrupt, and the predator multinationals that plunder the riches and promote devastating environmental disasters, in addition to the pinchers with which the global financial system, through debt[1], dominates the poor and peripheral countries.

Relative to the EU average, some of the wealth framework’s top countries have lost their position. This is particularly true in Switzerland (-28.5%), Sweden, Italy, France, the Netherlands, and Denmark. With a large loss when compared to the EU average, Greece stands out because despite not being a rich country it has substantially declined in recent years, for reasons that are well known.

Those cases where there was a big approach to the EU-28 levels are found among the recently added countries, mainly to the east (resulting from the breakup of the Soviet bloc and having being subject to deep intervention by foreign capital, while maintaining low wages vis the Community average) or, to the South (Malta and Cyprus), in addition to Ireland.

We also note a geographically diverse group of countries showing positive growth of the GDP per capita relative to the Community average, that growth being, however, relatively modest. In this group we highlight the cases of Germany (4.1%), Belgium (1.5%), Great Britain (6.2%), Spain (0.6%), and even Portugal (11.4%), in the last two cases because of overly evident reasons.

As one would expect, there is nothing here that can be specifically related to the single currency, but rather to the anti-democratic nature of the European institutions intended to promote or interact with capitalism’s development inequalities, which have deep roots in history and generate poor, less poor, and rich regions, as we recently documented .

There are rich countries with their own currencies that lost position relatively to the EU average (Sweden and Denmark, for example, in addition to Switzerland which is not integrated in the EU but only in the European Economic Area); others, equally rich and using the euro, raised further above the EU average (Austria, Finland, Ireland, Luxembourg); a number of countries that subscribe to the euro, and which are considered to be wealthy, are seen in decline compared to the aforementioned average GDP per capita (France, the Netherlands, Italy); several poor or balanced countries show gains in relation to the EU-28 average, with or without the adoption of the euro as their currency. Finally, we highlight the Germany case, the export engine of the EU, the big gatherer of financial surpluses, the single currency inspirational country and the politically dominant country, that does not manage to improve its position in relation to the Community average by more than 4.1%, in what concerns the GDP per capita, in the span of 44 years.

The following chart identifies, among the selected times, those in which each country had the best or the worst ratio of their per capita income in the period of 1970-2014, as compared with the EU-28 average at the same time points (best years in blue and worst years in red).

Primary source: UNCTAD / UNCTAD

In 1970, eleven situations of greater deviation from the Community average show up, including one of the founders - Belgium - and some of the richest countries, such as Austria or Norway, the latter which, by then, still had to start exploiting oil in the North Sea. Among the other countries we highlight Portugal in the last years of the colonial and fascist regime. Also in that distant year, rich countries such as Denmark, Holland, Sweden, Switzerland, and "the World" appear at their moment of greatest advantage over the community average.

The year of 1995 appears as the worst year for most Eastern European countries, former members the recently dismembered Soviet bloc and also for two countries of the former Yugoslavia, as well as Sweden, which suffered a deep crisis at that time. That year, on the other hand, was the most favorable, when compared to the EU-28 average, for countries such as Germany, Belgium, Italy, and all the "developed countries".

Curiously, the year 2000 is the best year only for Portugal and S. Marino. 2005 and 2014 are the ones sharing the largest number of best years, including countries that would come to be targeted (Cyprus, Spain and Ireland) or with serious financial problems (Iceland and Great Britain) following the crisis that began in late 2007.

Finally, 2014 is shown to be the most favorable, when compared to the EU-28 average, for several Eastern European countries as well as for Austria and Malta; but, on the other hand, it is the worst for Denmark, France and Italy, apart from Greece, which won’t surprise anyone.

During such a long span of time the hierarchy of the countries on the European scene has undergone some changes that are related to political and geostrategic changes and, above all, to the way each of these countries fits into a globalized and dynamic space. The relations between center and periphery are remade every day but, at a very aggregate level, usually do not suffer heavy mutations. Let's look at these mutations in the area of GDP per capita.

Evolution of the hierarchy of GDP per capita in some European countries

	1970	1980	1990	1995	2000	2005	2010	2014
No. of countries considered	28	28	28	34	34	34	34	34
Cyprus	21	20	19	19	19	19	19	19
Slovenia	-	-	-	22	22	22	21	20
Spain	18	19	18	18	18	18	18	18
Greece	19	18	20	20	20	20	20	21
Ireland	17	16	16	13	6	5	6	5
Italy	16	16	16	16	17	17	17	17
Malta	26	24	22	23	23	23	23	22
Portugal	20	21	21	21	21	21	22	23

Primary source: UNCTAD / UNCTAD

Several countries have improved their ranking in this championship, especially Ireland which moved from the second half of the table in 1970 to a place near the podium in the present century. Also winners are Cyprus, Slovenia, and Malta, despite the troika intervention in the first, all coming to be ahead of Portugal in 2014. Spain and Italy maintain a stable position throughout the period, despite the difficulties of their financial systems and austerity. Greece and Portugal show clear losses in their positions, being more pronounced and evident in the Portuguese case, and it is also worth noting that, despite the greater violence of the troika intervention in Greece, throughout the whole period it maintains a ranking less unfavorable than Portugal, as we pointed out four years ago.

2 – Households’ gross income

If we take the available gross income of households in EU countries, per person, and if in each year we allocate the index 100 to the income per person within the average Portuguese family, we can estimate the approximation or distancing of both richer and poorer countries. For the EU as a whole the resulting evolution of available income, taking as a base the value relative to Portugal, is shown in the graph below.

In 2003/04, the average income of a Community’s family was 26% higher than that of a member of a Portuguese family. In 2005, there was a sharp fall in this distance which means an approach to the EU's overall income levels, continuing to have values close to 20% until 2010, when the closest approach of the whole period can be seen.

The troika intervention and austerity have widened the gap to EU-28 average income, which in 2015 stood 24.5% above the then standard in Portugal.

Primary Source: Eurostat

Keeping the comparison with the Portuguese situation (index 100), the detail of the evolution of all countries between 2003 and 2008 and between the latter and 2014, reveals that there is a narrowing of the distances relatively to the richest countries in 2008, but then the gap widens sharply in 2014 due to austerity, the debt tourniquet, the collapse of the financial system, the impoverishment of the general population, and to the devoted performance of the Passos government. In 2014, despite Portugal’s poor social situation, some countries that in 2008 were less distant from rich countries are, more recently, showing a lower average income than Portugal – Cyprus, Slovenia, and Greece. It should also be emphasized that there is a marked fall in the distance between the average Spanish income and the Portuguese level; if in 2003 the average income of a member of a Spanish family was 24.9% higher than that registered in Portugal, in 2014 it was 9.9%, having been 15.2% in the intermediate year.

	2003	2008	2014
Germany	152.8	146.7	163.0
Austria	155.8	148.8	155.0
Belgium	147.3	134.6	143.4
Bulgaria**	38.9	45.8	54.4
Cyprus	109.1	130.2	97.4
Croatia	69.6	70.0	74.4
Denmark	125.3	118.8	133.3
Slovakia	65.3	79.6	93.8
Slovenia	99.4	101.0	96.8
Spain	124.9	115.2	109.9
Estonia	57.0	73.5	78.4
Finland	120.5	127.9	138.2
France	147.2	137.6	145.6
Greece	122.0	121.6	90.3
Netherlands**	150.9	145.0	136.8
Hungary	75.5	69.4	78.5
Ireland	126.9	124.3	113.0
Iceland**	124.7	130.7	119.7
Italy	141.4	133.2	123.4
Latvia	54.5	73.8	70.8
Lithuania *	69.6	78.1	90.4
Norway	151.8	146.7	166.1
Poland	64.5	67.5	85.4
Portugal	100.0	100.0	100.0
United Kingdom	155.1	139.6	132.1
Czech Republic	88.8	84.1	93.3
Romania	33.8	53.1	56.5
Sweden	134.4	132.0	138.4
Switzerland**	159.4	157.2	171.6
* 2004 ** 2013 Primary Source: Eurostat

3 - Those labour costs

Official statistics clearly reflect the capitalism’s logic and the mercantilist view of reality. For example, Eurostat has information on the cost of labor, worried that it is with the efficient investments and the competitiveness of companies and to assess the extent to which the charges with workers are compatible with those elements central to the logic of capital.

The labour costs include wages, as well as employers’ contributions to social security and other elements related to the work and workers. In the typical neoliberal logic companies are the ones creating jobs and, therefore, the workers should wait and pray for their turn to fit into the working world, submissively, hardworking, and grateful for the benefit of a salary. Although income from work is central to workers and their families, entrepreneurs do not assess whether or not those wages endow life tranquility to the lives of those who work, or whether such income has a high or low purchasing power; they consider that it is the responsibility of the State to ensure an acceptable level of poverty, through social or police action, and that the supporting funds should come from taxes that do not bear on enterprise costs or pinch the sacrosanct competitiveness.

Really important to the common capitalist is to free himself from all costs, pursuing the impossible dream of matching the sales volume to profits, a lost battle since being competitive requires constant investment and this tends to reduce the weight of the labour costs in the costs’ total, although the wages’ mass is considered to be the most manageable element.

In the following graph we compare the relationship between the total labor costs in the country wherever they are higher (usually Norway) and Portugal; the relationship between those costs in Portugal and the European country where they are the lowest (Bulgaria); and also the evolution of the comparison between the EU average and the costs observed in Portugal.

Primary Source: Eurostat

In 2000 the cost of one wage in Norway was slightly lower than that of three workers in Portugal. As of 2012, this ratio remains relatively stable in terms of a situation where the income of a Norwegian equals that of four workers in Portugal. To this effect concur the large growth observed in the Scandinavian country between 2008 and 2012, having regressed somewhat since then, and the absolute stagnation of the wages’ costs in Portugal, in the fifteen years considered, especially since 2012.

From this situation it cannot be concluded, in a simplistic way, that Norwegians are expensive and have "low competitiveness" or that they are four times more productive than a Portuguese worker, working in Portugal. It is a result, rather, of the social organization, the technological and managerial levels, the quality of the political system, of the public administration, the utilization of the tax burden, of economic or social rights, and education levels.

If we look at the evolution of wages’ costs between Portugal and Bulgaria there is a clear approximation, given the very low levels observed in the Balkan country at the beginning of the century (1.3 euros / hour) and growing to 4.1 euros in 2015. During the same period, in Portugal, labor costs went from 11.1 to 13.2 euros, an increase that certainly would not prevent any business in Portugal, were it not for the decapitalization and indebtedness of companies, weak management capacities and a productive standard that competes directly with Asia and Latin America in the supply of consumer and intermediate goods to the more developed countries of Europe. It is the productive standard, the incorporation of technologies allowing high levels of productivity that enable Norway to not feel affected by the low Bulgarian salaries, although the labor costs in this country are, in 2015, 12.5 times lower than in Norway.

Even within a framework of capitalism, the capabilities of the Portuguese capitalists lead nowhere. In those activities where natural conditions are better or where the qualifications of its workers are adequate, Portugal will tend to see these sectors become dominated by foreign capital, mainly Spanish, given the geographical and cultural proximity between Portugal and Spain, the former being seen as, at a global level, an Iberian and European periphery. And to be considered as a complement to a Spain that has 4.5 times the population, which is more educated, and this in spite of both being still suffering the effects of austerity, unemployment and industrial or financial restructuring processes.

The impoverishment and stagnation of labor costs in Portugal, when compared to the moderate increase in the EU average, caused that, in 2000, the average European cost of one person’s work-hour corresponded to that of 1.5 Portuguese workers, the value having reached 1.89 in the past year. And, as we know, this relatively cheaper price does not attract investors, does not trigger exports, and maintains an unsatisfactory GDP growth and the public and private debts with unsustainable levels.

The Portuguese governments’ enthusiastic bet on tourism will tend to be a failure. Even if we do not consider a return to political stability in North Africa that would attract again the middle / low echelons of European tourists, mass tourism is not a generator of high income because it does not generate a lot of skilled labor; it does not allow the use of technologies, because it requires Interpersonal relations; is a sector widely used by mafia capitals and where tax evasion is high; the tourist’s attraction networks are dominated by tourist emitting countries, not by tourist receivers; investment in real estate, in seasonal tourism zones, needs a long time to allow capital recovery; and, finally, in a country like Portugal, the imported component is high, as it is high for the indigenous population. And there are also aspects of the competition’s alternative destinations which cannot be met by transforming Lisbon’s center into a veritable manger, but with pretentious menus, accompanied by high decibel emitting “pimba”[2] festivals.

Finally, let us do a convenient comparison being between Portugal and Spain, in the area of labor costs in euros per hour. In 2000, the cost of a Spanish worker was 29% higher than that of a Portuguese worker and this distance clearly increases up to 2005 until it becomes quite stable from 2008, around 60%. Ironically, it can be said that the austerity and monitoring of the two economies by the Community institutions (and the IMF in the Portuguese case) crystallized the relation between labor’s costs calculated for the two Peninsula countries, consolidating a significantly larger difference than that registered at the beginning of the century.