The Anatomy of Power Inside Political Parties

Before we discuss how to apply the principles of representative democracy to political parties, we need to understand the allocation of power inside them. Power struggles within organizations in general and within parties have many features in common studied in organizational theory.

One feature that is salient in political parties is the extreme greed for power, well expressed in the popular saying: “In the other parties I have adversaries; in my party I have enemies”. Another distinctive feature of party organizations is that members tend to be aligned in groups. However, this form of tribal or feudal organization often ends up in two opposite forms of power sharing. In some parties the contenders defeated are selectively invited to join the winners while in others they ostracized into permanent opposition or expulsion.

Such groups are formed in many different ways, including the sharing of ideals or ideology, but generally they fight for power over mundane issues. For instance, the most common is to fight over some obscure amendment to the Party’s charter, which is immediately forgotten once the fight is over. Another bizarre form of fight for succession in communist parties was over the organization of the burial ceremony of deceased leaders. Many leaders also run the parties in a courtier system and therefore give a lot of power to those with the door keys to the courtroom.

In my brief experience as member of a Party Directorate I identified three major sources of power within political parties. These are the Leader’s entourage, the Administration in charge of liaison with the local sections of the party and the Fundraisers. The Leader’s Cabinet is usually made up of at least four or five people: his head of cabinet and secretary, media and intelligence liaison officers and the head of administration.

Among them they manage a network of official and unofficial political advisers. Their role can be quite distinct and there are those who do not seat in the party’s elected bodies and some who are not even party members. There are many that come and go as policies shift and there a few with lasting influence over the leader. The later are the most powerful and are usually on the unofficial or undisclosed list of advisers, often including family members and party financiers. The Cabinet and Administration heads are essential for the relationship of the Party Leader with the party members and interest groups in general.

The second-in-command is usually the Head of Administration (with a title of Secretary-General, Chief of Staff or similar). Because of the role he plays in the control over the party membership, he is essential for the reelection of the leader. His influence derives from the power to distribute resources among the various sections of the party, and, most importantly, from his role in organizing all party events and elections. However, the way the party is organized in terms of local sections and the process of selection of its members to national elections may mitigate the influence of the Head of Administration.

Finally, the third most influential members are those responsible for fund raising. These may include three different types of fund raisers: a Party Treasurer, who in some cases has a simple accounting role without political influence, wealthy supporters of the Party, who are also some of the biggest party donors, and non-donor fund raisers. The second may have some influence in policy setting, but the later are the most active and influential in selling political favors and legislative votes to special interest groups. Among these we often find some obscure and dodgy characters that the parties reward with sinecures or by letting them take a cut in the donations received.

So it is against this background of organizational power within parties that any regulation aimed at improving representative democracy within parties has to be discussed. This will need to consider the relationship within local sections of the party and their role in the selection of candidates for national office as well as the role of the various national bodies representing the party.

As modas Parisienses e os Impostos de Américo Amorim e Belmiro de Azevedo

A comunicação social Portuguesa, sempre ávida das novidades Parisienses, tem dado grande destaque à chamada tributação das grandes fortunas. Porém esquece-se que em matéria de tributação a França não é exemplo para ninguém, como se pode facilmente depreender dos seguintes quadros extraídos da base de dados da OCDE.

No que respeita à taxa máxima do imposto sobre o rendimento, a França já tem uma das taxas mais elevadas. No entanto, é ainda assim inferior à da Alemanha, país com o qual acordou recentemente fazer uma harmonização fiscal. Por isso o pedido dos 16 milionários para pagarem mais impostos foi apenas uma manobra demagógica de antecipação ao que o Governo já tinha decidido. Note-se que como o limiar de aplicação da taxa máxima é muito inferior ao Alemão pode acontecer que ainda venham a pagar menos impostos.

No que toca à tributação dos rendimentos de capital os milionários Franceses têm ainda muito mais a ganhar com a harmonização fiscal com a Alemanha, pois a França tem a taxa global mais elevada de toda a OCDE (57.8%).

Nestes dois impostos Portugal tem taxas elevadas, quando comparadas com países de baixa tributação, mas ainda assim mais baixas do que as Francesas, pelo que não temos nada a aprender com eles nesta matéria. No entanto, o debate também trouxe para a ribalta a questão da tributação do património das grandes fortunas referindo-se com frequência os casos de Belmiro de Azevedo e Américo Amorim.

Ora esses dois empresários são um bom exemplo dos desequilíbrios que estão mal no nosso sistema fiscal. O primeiro terá declarado um rendimento anual de um milhão e cem mil Euros dos quais pagou ao Estado cerca de 500 milhões de Euros em IRS. Enquanto o segundo terá declarado cerca de 250 mil Euros dos quais teria pago em IRS cerca de setenta e cinco mil Euros. Ora é sabido que quem é dono da própria empresa pode receber salários ou dividendos sobre os lucros da empresa consoante o regime fiscal que lhe seja mais favorável. Mas quem define as regras é o Estado.

Como ambos são bons gestores escolheram a sua melhor opção de acordo com as regras em vigor. Por exemplo, como Belmiro de Azevedo detém apenas 50% das suas empresas faz sentido fazer-se pagar uma remuneração elevada porque 50% dessa remuneração será paga pelos outros accionistas (pode-se dizer-se que foram eles a pagar o seu IRS). Pelo contrário, Américo Amorim em geral detém participações mais elevadas nas suas empresas pelo que não tem vantagem em pagar-se uma remuneração mais elevada.

Se estes incentivos bem como outros relembrados pelo Presidente da República como a ausência de tributação sobre as heranças estão errados, cabe ao Estado corrigi-los. Não de forma apressada no contexto de uma tributação adicional de emergência, mas no âmbito de uma reforma fiscal bem estudada e ponderada.

Para corrigir a injustiça criada pelo imposto extraordinário sobre o décimo terceiro mês basta alargar esse imposto aos restantes rendimentos e, se necessário, baixar o limiar de rendimento a partir do qual se aplica a taxa máxima do IRS.

We can’t all deleverage at the same time

We can’t all deleverage at the same time. That would be equivalent to everyone moving to the same spot in a sinking ship. It would capsize immediately. To see why, imagine this nightmare scenario: everywhere and everybody – banks, firms, governments and families – think that they are overleveraged (i.e. is excessively in debt) and decide to reduce debt (deleverage) simultaneously. Regardless of whether they are right or wrong about their excessive level of debt (in a previous post we explain why this is difficult to define); the simultaneous deleveraging could start the following fatal spiral.

Banks reduced excessive leverage by not renewing their lending facilities to firms; these add misery to injury and reduce further their leverage by firing workers and trying to sell assets. Braced with lower tax revenues and higher calls for unemployment insurance, governments answer by reducing public debt through higher taxes and massive cuts in spending; which reduce the revenue streams of banks, firms and families. Families, affected by higher unemployment, loss of revenues and fearing the future, decide also to deleverage by saving more or defaulting on their loans and by massive cuts in spending. This would reduce further the revenues of banks, firms and governments. Thus, to pursue their debt reducing objectives all would initiate a new round of cuts. This would cause a downward spiral of spending cuts that would stop only after the economy was brought to a complete halt and widespread defaults.

Wait, there must exist some break point on this spiral. After all, debts are owed to someone and those receiving the debt repayments must use their surplus money. Yes, but what if, fearing that same spiral, they decide to hoard it by holding cash, exchanging it for some remote currency (e.g. the Swiss Franc) or buying some relic from the past (e.g. gold). The first, if not offset by the Central Bank, would cause a major liquidity crisis accelerating the depression. The other two may lead to absurd bubbles whose anticipated bust would hang on the heads of enterprising people. So, not much hope here.

What if there is somewhere an unleveraged entity willing to finance an orderly sequence of deleveraging through saving and inflation? To a large extent that was the situation at the end of World War II, when the US played that role. Can’t China and other emerging nations play that role now? Probably not, because they do not have the economic size needed to face a much bigger problem. Moreover, by accepting a rescue from a dictatorship, the Western democratic nations would risk losing their freedom.

Indeed, despite some double counting, the following table shows that the net international investment position of the Western countries is less than 3% of their GDP, largely because of the high level of savings in Japan. Yet, Japan has the largest government debt as a percentage of GDP (226%).

Unfortunately, a deleveraging spiral may start without all countries being overleveraged. A debt crisis in one sector (e.g. the Government) may easily infect the remaining or be started off by a generalized downgrade by the rating agencies. In fact, some fear that the leading Western nations (US, European Union and Japan) may be in the brink of getting into such a depression spiral started by deleveraging in the sovereign debt sector. So they desperately need to find an alternative solution.

First, they must plug once and for all the holes emerging in the weaker economies of the Euro Area. Second, they must mobilize the spending power of the few remaining sectors with borrowing capacity. Finally, and most importantly, they must acknowledge that at least one entity must be allowed to continue to increase its leverage while the others deleverage.

Here the obvious choice must be the Government (except in Japan), due to its policy powers, but mostly because it is the only one that can borrow with very long maturities.

Thus, although we live in a peacetime period, sovereign debt limits in the US and Europe can be increased to levels close to those observed at the end of wars. That is, countries with national debts around 60% of GDP could borrow close to a 100%, while those already above the 100% should be allowed to borrow up to 180% of GDP.

The process, relying on multilateral facilities, should be sequential with an agreed calendar and coordinated at the level of the G3 group of countries (not the G20, which should only have a consultative role).

Government Stimulus and the Expenditure Multiplier

I am quite fed up with the way professional economists discuss the pros and cons of stimulus spending. I would like to remind them that textbooks teaching the income and expenditure multipliers also explain that the effects of increased spending are partially offset by two types of leakages – savings and imports. So, one would expect that economists would fight their corner by fencing with different estimates about these two effects. But that is not so.

Surprisingly, they keep discussing government spending in general terms rather than the various types of stimulus spending. These can be grouped into four main categories: a) useless spending; b) capital write-off spending; c) productivity enhancing spending; and d) unallocated spending.

The first group includes the so-called roads to nowhere, paying someone to dig a hole and after paying him to fill it again, creating new services that nobody is willing to pay for or wants, etc. The main purpose of these spending programs is to put money in the pocket of those delivering such services and hope that they will go on spending their earnings. So, basically this type of spending is similar to the fourth group of spending.

The fourth group of government spending includes various forms of tax breaks and rebates, showering notes with helicopters or through bank transfers and paying subsidies to various types of recipients. Under these proposals the government does not know where to spend the money and leaves it to the private sector to decide whether to hoard or to spend it. Its advantage in relation to the first group of spending is that taxpayers know best how to use this is “manna from heaven”; its main drawback is that it cannot be targeted to minimize the leakage through savings and imports.

A common problem with these two groups of spending is that they are seen as a waste of resources and taxpayers assume that they will have to pay for them later on. So, they undermine the credibility of governments, raising more the fear that causes inaction than lifting the hope needed to stimulate entrepreneurial animal spirits.

The second type of spending is based on the idea that destruction requires reconstruction and this galvanizes the spending needed to start-off the economy. It may be justified by anticipation or after the disaster. This is often the case with rearmament and war reconstruction or in dealing with natural and manmade catastrophes. Other types of policies within this group include subsidizing the anticipation of capital replacement (e.g. the recent program of cash-for-clunkers) and the acceleration of depreciation charges.

This type of spending is obviously inefficient because the wealth created by the extra people employed as a result of the stimulus is offset by the costs of destroying existing wealth. Moreover, you could use the same money to fix broken assets rather than breaking and then fixing them. But, unfortunately, this is occasionally seen as the most efficient way to stimulate aggregate demand because often politicians only act fast in the presence of calamities.

By contrast the better type of stimulus – the productivity enhancing spending – is often slow to impact on the animal spirits of entrepreneurs and consumers. This type of spending includes infrastructures, research and development, health, education and the arts. Indeed, the development of profitable programs in these fields takes a long time to implement which often is not consistent with the short run impact needed from stimulus programs. Attempts to rush in programs in this field risk turning such spending in useless spending of the type one. Another unfortunate nature of this type of expenditure is that productivity enhancing policies often require lay-offs to reduce the productivity drag caused by over manning and this offsets the intended goal of employment creation.

Apart from discussing the various types of spending stimulus, two other important issues on which economists should focus are the trade-off between speed and efficiency and the phasing out of stimulus programs to prevent perpetuating the consequent growth of the public sector at the expense of the market capitalism sector. Also the potential for collateral damages resulting from increased government spending – unsustainable debt levels, crowding-out and inflation risks – should be discussed in a dispassionate way.

In conclusion, instead of searching for abstract and absolute yes or no answers on the working of the expenditure multiplier and business cycle management policies, economists should focus on the when and how to make the stimulus programs work.

Américo Amorim, Trabalhador e Bilionário!

Ontem as televisões Portugueses, num exemplo típico de mau jornalismo, entrevistaram quatro bilionários Portugueses sobre a iniciativa dos bilionários Franceses que propuseram um imposto extraordinário sobre as suas fortunas para ajudar o país a sair da crise e concluíram (pasme-se…) que os milionários Portugueses estavam divididos sobre a questão com base em declarações de Américo Amorim que terá dito: “Eu não me considero rico, eu sou um trabalhador”.

Seguiram-se-lhe declarações de dirigentes sindicais e de dirigentes do Bloco de Esquerda indignados por o homem mais rico de Portugal se ter considerado um trabalhador.

Ora não existe qualquer relação entre uma situação e a outra. Há ricos que trabalham e outros não, assim como há pobres que trabalham e outros não. Na sociedade nós temos pessoas que gostam sobretudo de trabalhar, outras que gostam apenas de gastar, outros que desejam ostentar os seus gastos supérfluos e ainda alguns que tanto gostam de ganhar como de gastar.

Em muitos países acontece que os detentores das maiores fortunas são precisamente aqueles que mais gostam de trabalhar e de viver modestamente. Nos Estados Unidos entre os exemplos destacados deste tipo de personalidades temos os casos de Bill Gates e Warren Buffett. Também em Portugal, os empresários que acumularam as maiores fortunas – Américo Amorim, Belmiro de Azevedo e Soares dos Santos – são do tipo trabalhadores e poupadinhos.

É evidente que existem diferenças na forma como cada um deles se relaciona com a sociedade e os cronistas sociais, mas isso são questões de estilo pessoal. Enquanto Belmiro de Azevedo tem dedicado uma parte significativa do seu tempo a promover a educação dos jovens quadros e Soares dos Santos criou uma fundação com fins culturais, Américo Amorim tem mantido um “low-profile” em matéria de intervenção pública talvez porque tem mais negócios em indústrias sujeitas a regulação.

O estereótipo segundo o qual um capitalista é uma pessoa de lazer, que vive de rendas, e que considera o trabalho como algo indigno do seu estatuto que deve ser deixado aos subalternos está tão ultrapassado como a ideia que um dirigente sindical é necessariamente um operário.

Com que direito um dirigente sindical que passa o dia em reuniões e manifestações se considera a si próprio trabalhador enquanto chama parasita a um empresário que tem de coordenar centenas de empresas que empregam milhares de trabalhadores? No fim do dia qual deles contribuiu mais para a riqueza da sociedade?

Em suma, a tributação ou não do património não deve ter como objectivo castigar os ricos; quer estes optem por uma vida de lazer ou de trabalho.

Renegociar ou Nacionalizar as Parcerias Público-Privadas?

As Parcerias Público-Privadas (PPPs), foram um desastre a dois níveis – ficaram desastrosamente caras e serviram para ocultar o despesismo que levou à crise da dívida Portuguesa. Infelizmente, a despesa está feita e nada se pode fazer, há que pagar a irresponsabilidade dos nossos governantes.

No entanto, o seu custo ainda pode ser parcialmente reduzido renegociando as rendas por vencer, nacionalizando as concessionárias ou transformando-as em concessão plena. Qual é a melhor solução?

Antes de responder à questão, convém relembrar porque é que as PPPs foram um desastre financeiro. Em termos simples o que aconteceu é que os Governos da altura em vez de pedir emprestado no mercado às taxas de juro da época (por exemplo 4% a 30 anos) optaram por contratar a construção e exploração de estradas, hospitais, etc. a privados prestando-lhe garantias e assegurando-lhes uma remuneração anual de cerca de 11% por 30 anos. Uma margem financeira desta grandeza era quase um negócio da China para as construtoras e bancos que tivessem o cuidado de fazer o hedging do risco da taxa de juro.

A margem era de tal modo generosa que as construtoras começaram por abusar das tradicionais derrapagens nos preços de construção sem que os seus sócios nas empresas concessionárias (os bancos financiadores) protestassem. Isso só foi possível porque o risco do projecto seria habilidosamente transferido para o Estado através de sucessivas renegociações dos contratos.

Porém, o maior atractivo do negócio não está nos dividendos, mas sim no grau de alavancagem usado na estrutura de financiamento dos projectos. A estrutura de financiamento utilizada permite gerir os projectos como se fossem operações de “buy-out”, em que os investidores triplicam ou quadruplicam o seu investimento em poucos anos através da prestação de diversos serviços a empresas altamente endividadas, independentemente de estas terem sucesso ou não.

Sendo assim, uma eventual renegociação das rendas (alternativa que os concessionários parecem aceitar) não resolve o problema pois os promotores podem facilmente compensá-las com uma redução na manutenção das estradas ou redução dos resultados operacionais. Por isso pensamos que a prevenção das práticas de “buy-out” só pode ser conseguida através da nacionalização das empresas concessionárias e sua transformação futura em institutos ou serviços públicos (ou na sua transformação em concessões plenas com todos os riscos assumidos pelos concessionários).

Para perceber melhor o problema consideremos o caso típico de uma concessão rodoviária. Por exemplo a concessão das Beiras Litoral e Alta (a famigerada IP5, agora denominada A25), com uma extensão de 173 Kms entre Aveiro e Vilar Formoso, e actualmente consolidada na Ascendi, uma empresa do Grupo Mota Engil (60%) e do BES (perto de 40%). A requalificação do IP5 custou perto de 1000 milhões de Euros, financiados em termos concessionais pelo BEI em 470 milhões (garantidos por um sindicato bancário), 385 milhões financiados por um sindicato bancário liderado pelo BES e os restantes 8% (78 milhões de Euros) financiados parcialmente por fundos próprios (51 milhões).

Note-se que os promotores usam um grau de alavancagem superior aos dos bancos (apenas 41 milhões de Euros, ou seja 4.4% de capitais próprios). Como os empréstimos contratados tinham um período de carência de 6 a 7 anos que terminava em Junho de 2008 a empresa aproveitou logo os resultados do primeiro ano de exploração plena (2007) para pagar um dividendo aos accionistas de 12.5 milhões de Euros (isto é, 25% do capital investido).

Como em 2010 o Estado já estava a pagar à Empresa perto de 200 milhões de Euros, basta ao BES e à Mota-Engil prestarem 20% dos serviços que a concessionária necessita para lucrarem por essa via cerca de 15 milhões de Euros/ano. Ou seja, excluindo os dividendos, os promotores podem triplicar o seu investimento em apenas seis anos. As formas como os promotores podem extrair esses ganhos são diversas, incluindo os 275 mil Euros pagos aos corpos sociais em 2007.

Este último custo não é extraordinário quando comparado com outras empresas, mas tem um valor simbólico para os contribuintes. Note-se que, em vez dos 13 Administradores que a Concessionária tinha em 2007 (dos quais 6 executivos), hoje, se ainda tivéssemos a Junta Autónoma de Estradas, a gestão desses Kms de auto-estrada precisaria apenas de um Director de Serviços ou Subdirector Geral que custaria ao Estado menos de 50 mil Euros/ano.

Este simples exemplo mostra como aquilo a que podemos chamar “custos de buy-out” associados à gestão das PPPs podem chegar facilmente aos 30 milhões de Euros/ano. Pode não parecer muito, mas multiplicado por cerca de 40 PPPs temos um custo anual de 1200 milhões de Euros, que podem ser simplesmente poupados através de uma nacionalização das Concessionárias (ou da transformação da PPP em concessão plena no caso das estradas com mais tráfego).

Isto é, os concessionários deviam ter de escolher entre comprar uma concessão plena ou revender a sua concessão ao Estado.

Political Parties and Representative Democracy

What do the Norwegian bomber, the London rioters and the Madrid sit-in have in common? All questioned the capacity of the elected representatives to listen to their demands. All used the new media to organize themselves to commit and promote their acts. Politicians and the media have always been blamed for steering the extremism and madness of individuals and mobs. Such events are also invariable followed by repeated calls for regulation of the parties and the media. Let us consider then the case for more party regulation.

It is a well established fact that representative democracy needs to be complemented by constitutional liberalism and an independent judicial system to protect individuals and minorities from unwarranted interference of governments and oppression by the majorities. That is generally considered enough and therefore political parties were usually left to themselves. So, has something changed? Yes and no!

The mainstream parties lost most of their ideological imprint, leaving the confrontation of ideologies for non-parliamentary small parties. There has been also a growing trend towards rotation within a two-party system. Therefore political parties became murky grand coalitions of interests, relying on large secretive organizations fed by an ever increasing number of partisan jobs in government and the regulated industries. Their communication with the electorate is delegated to expensive marketing and public relations groups with enormous resources and privileged access to the mass media, which perpetuates them in a duopolistic position at the expense of the small parties.

The smaller parties (parliamentary and non-parliamentary) occasionally achieve ephemeral visibility but only by taking radical positions on single-issue policies. This is a self-defeating route. It bars them from participating in government or having their views considered by legislators and the public in general. They face a situation similar to that of the small suppliers of large corporations. Likewise they would benefit from a stronger regulation of big political parties to get closer to a leveling playing field in the electoral system.

It is true that technological progress towards internet-based media may give them a new opportunity to challenge the big players. But as the emergence of cheap email brought with it the need for anti-spam programs so will the public ask for protection against a spam of miniscule parties.

Therefore, any increase in regulation needs to address both big and small parties, but it needs to differentiate. For instance, while the public disclosure of membership should be required from both types of parties, rules on the selection of their electoral candidates should apply only to the big parties. Likewise, the same applies to many aspects of the regulation of their financing and access to broadcasting services.

One important area of the regulation of big political parties is the imposition of limits on their campaign spending. This is so because long media-based campaigning periods become absurdly long, and consequently expensive. This gives the incumbent leading parties an unfair competitive advantage. Moreover, it compromises effective public governance and generates “democracy fatigue”.

Yet, although the new realities require a better regulation of political parties, representation in democratic societies is still better protected by restricting it to clearly defined broad political associations like the political parties. Resorting to other types of associations, pursuing specific interests or confessional values, would easily degenerate into broken societies falling either in anarchy or totalitarianism. That is, we need to improve competition between parties rather than search for new players.

A lógica do Prof. Marcelo sobre o TGV

O Professor Marcelo Rebelo de Sousa é um comentador televisivo inteligente, influente e popular. Possuindo uma capacidade de comunicação extraordinária e fontes de informação privilegiadas, utiliza a sua aptidão analítica e razoável grau de independência para nos brindar semanalmente com comentários de grande influência sobre a opinião pública.

Apesar de ser militante destacado do PSD e consultor jurídico de vários interesses económicos, o enviesamento dos seus comentários a favor dessas entidades tem sido geralmente explícito e moderado. Por isso, os telespectadores, após o devido desconto, dão-lhe maior credibilidade que à maioria dos outros comentadores que são meros advogados ou porta-vozes de interesses não declarados.

No entanto, por vezes o Professor exagera. Por exemplo, ontem ao tentar defender o iminente volta-face na posição do Governo sobre a construção do TGV utilizou um raciocínio de bradar aos céus, e que daria direito a chumbo imediato em qualquer exame de lógica. Disse ele que como havia uns subsídios da União Europeia que só podiam ser utilizados para o TGV então teria de se avançar com o TGV para utilizar esses subsídios.

Imagine o leitor que eu lhe dava mil Euros na condição de você queimar 10 mil notas de euro. Você aceitava? Claro que não! Ou, se preferir, imagine que eu lhe oferecia 10 mil Euros na condição de você ir comprar um carro de luxo (e.g. um Ferrari) por 100 mil Euros que você não tinha condições para pagar e manter. Você aceitaria? Claro que não! Ora, é precisamente isso que acontece com o TGV.

O país não precisa e não pode pagar a manutenção do TGV Lisboa-Madrid, mesmo que o mesmo lhe seja oferecido totalmente de graça. Para confirmar isso, não é preciso nomear comissões de sábios ou encomendar mais estudos a consultores. Basta olhar para o mapa da Península Ibérica e consultar as contas da RENFE e notícias recentes sobre o encerramento de serviços por falta de passageiros.

No entanto, o problema tem uma solução muito simples e sem custos para Portugal. Portugal pode ceder a sua quota-parte nos subsídios da União Europeia para a rede de alta velocidade à Espanha, na condição desta construir e explorar por conta própria linhas de alta velocidade entre Madrid e Lisboa, Sevilha e Lisboa e Corunha Porto. Portugal poderia mesmo ceder gratuitamente os respectivos terrenos, desde que a RENFE garantisse que durante 40 anos fazia pelo menos quatro viagens diárias entre aquelas cidades. Mas nunca deverá aceitar suportar os inevitáveis défices de exploração.

Portugal não pode ignorar que o nosso vizinho, com o pretexto de preservar o centralismo de Madrid e a unidade de Espanha face às Autonomias, de forma insensata e financeiramente desastrosa, enveredou há 20 anos pela construção da 2ª maior rede mundial de alta velocidade. É pois natural que deseje alargar essa rede a Portugal.

Por nós tudo bem, desde que sejam eles a pagar a sua exploração deficitária.

Alerta ao Governo: Não Agravem o Sentimento de Injustiça

Os três principais factores que mais contribuem para a crescente desmotivação dos portugueses são: a) a falta de perspectivas para o futuro, b) a percepção de que são sempre enganados pelos políticos, e c) o sentimento de injustiça na repartição dos sacrifícios necessários para sair da crise. O último é frequentemente expresso através do dito popular “são sempre os pequeninos a pagar”.

Como eu costumo dizer aos meus alunos, qualquer programa de ajustamento macroeconómico para ter sucesso precisa de ter um rede de protecção para os mais vulneráveis e repartir os custos do ajustamento de uma forma justa. Isto é, deve penalizar primeiro os que mais beneficiaram das políticas que levaram ao descalabro financeiro e repartir os restantes custos com um sentido visível de justiça.

A rede de protecção aos mais vulneráveis foi recentemente apresentada pelo Ministro da Solidariedade e Segurança Social através do chamado Programa de Emergência Social que visa apoiar cerca de um terço dos Portugueses e terá uma dotação anual de 400 milhões de Euros. Esperemos que seja suficiente.

Quanto à penalização dos beneficiários pelo descalabro financeiro ainda não vimos qualquer medida. Pior ainda, tivemos vários sinais preocupantes em sentido contrário, de que destacamos os seguintes exemplos. O Ministro da Economia continua a passear-se vaidosamente e ufano rodeado dos mesmos dirigentes empresariais que desde 1986 têm desbaratado os milhares de milhões de Euros em subsídios recebidos da União Europeia. Mais ainda, afirmou recentemente no Financial Times que os produtores de energia eólica (que desde 2005 já receberam mais de 7.5 mil milhões de euros de subsídios) não teriam os seus contratos renegociados.

Quanto ao Ministro das Finanças, deixou que as empresas oligopolistas onde o Estado detinha direitos preferenciais (e.g. PT e EDP) cancelassem esses direitos sem compensação ao Estado. Quando precisou de recorrer a receitas extraordinárias para tapar o chamado buraco orçamental de 2011 recorreu a medidas sem grande preocupação de justiça. Por exemplo, o imposto extraordinário sobre os rendimentos do trabalho (vulgarmente conhecido por corte do 13º mês) deixou de fora os juros e dividendos. Aumentou o IVA de bens essenciais como a electricidade e o gás de 6 para 23% mas deixou de fora muitos bens supérfluos (ainda que simbólicos) actualmente no escalão dos 6% (e.g. o Golfo). Finalmente, satisfazendo uma reivindicação antiga dos bancos, aceitou comprar os fundos de pensões dos bancos que foram uns dos principais responsáveis pela crise. Também o aumento do número de administradores da CGD, ainda que insignificante em termos de custos, não deixou de dar uma má imagem.

Todas estas posições e decisões levam muitos dos que depositaram a sua esperança no novo governo a pensar que afinal temos mais do mesmo. É por isso indispensável que no Orçamento de Estado para 2012 o governo arrepie caminho. Os anunciados aumentos de impostos e o corte da despesa em 9% provavelmente irão causar a maior recessão jamais vivida em Portugal. Se os mesmos não forem feitos com justiça (tal como sugerimos no passado) corremos o risco de agravar o sentimento de injustiça ao ponto de romper a tradicional resignação e pacifismo dos Portugueses. Adicionar a uma grave crise económica uma crise de ordem pública seria desastroso para o país.

Continuamos a acreditar que o Primeiro-ministro e o Ministro das Finanças são pessoas sensatas e justas que tentarão inverter esta tendência para o abismo da injustiça. Porém, parafraseando o dito sobre a mulher de César, “a sua determinação em restabelecer o sentido de justiça entre os Portugueses tem de estar acima de qualquer suspeita ”.

A Merkel & Sarkozy’s Europe? No, Thank You!

Yesterday’s press conference of the German and French leaders to announce their vision of Europe was so dull, leaderless and uninspiring that in itself it was enough to put off any followers of their proposals.

However, their plans for an Euro Zone closer integration are so misguided and meaningless that they need to be denounced as such. They include: a) closer economic integration; b) enforcing compliance with budgetary targets; c) greater fiscal harmonization; and d) better European governance. Let’s examine them one by one.

Full economic integration in Europe has been achieved a long time ago with the implementation of the common market and the single market. All that lacks is a more efficient judicial system to punish attempts by member-states to circumvent the rules when it benefits domestic special interest groups. To have their economic ministers meeting regularly adds nothing. Instead it might increase their propensity to mess with the competition rules whenever it suits them.

Enforcing compliance with budgetary targets by inscribing debt limits in their constitutions is a major mistake as we show in a recent post and the recent history of the US confirms. In short, once you reach the limit there is nothing you can do except to increase the ceiling while creating a lot of uncertainty about the nation’s creditworthiness. The experience in enforcing the Maastricht deficit and debt limits has also shown that France was among the first to bend the rules.

Greater fiscal harmonization on corporate taxation may suit the two countries but it would be a disaster for the rest of Europe. The OECD Tax Database for 2011 shows that France applies a combined corporate income tax rate of 34.4% with a number of special exemptions, while Germany applies a general tax rate of 30.2%. Dividends in France are taxed under a partial inclusion system without withholding, with an overall personal plus corporate income tax rate of 57.8%, while Germany uses a classical system with a withholding rate of 26.4% and a combined personal and corporate income tax rate of 48.6%. Harmonization would give Mr. Sarkozy an electoral boost by reducing tax rates and would allow Mrs. Merkel to get away with a tax rise, but the final result would still be a very high level of taxation. Should other countries follow suit, all the remaining Euro Zone countries would have to raise rates and lose their current tax advantage.

Finally, on European Governance, the two leaders propose an elected president for the Euro Zone area with a mandate of two and a half years and the appointment of an economics minister. This double-headed European Union would aggravate an already messy situation in Europe about who is in charge. What would happen to the head of the Euro Group? Who remembers the names of the current European Union President and Foreign Minister? But, most importantly, it would institutionalize a de facto two-speed Europe that would endanger progress towards an ever closer union.

Overall the meeting of the two leaders was another missed opportunity. The other European leaders should politely say: no thanks!

The Euro Zone Bond Debate: Can we have a common treasury without a common budget?

The debate on whether an European Agency (some kind of Euro Area Treasury department) should replace the Euro Zone countries in financing a substantial share of each country’s public sector borrowing requirements (some suggest a minimum of 60%) has gained new momentum since leading German business groups called for the issuance of Euro Zone bonds in defiance of the official German position.

The centralization of the debt issuing function in the Euro Zone is seen by many (including George Soros) as a solution for the current sovereign debt crisis as well as a way out of the intrinsic weakness of a Monetary Union built without a corresponding budgetary policy. Indeed, the later is the only convincing reason to argue for joint Eurobond issues and the debate should focus on its pros and cons.

Indeed, the European Union has already a long history of joint debt issues. Through the European Investment Bank it finances a non-negligible share of infrastructure projects in Europe. Through the European Commission it has also made several issues to finance specific programs of industrial restructuring and balance of payments support, the most recent being the EFSF mechanism to support the adjustment programs in Greece, Ireland and Portugal. However these issues were for limited purposes and for limited amounts. The centralization of the public sector borrowing requirements is an entirely new game.

In principle, a central Treasury Department for the Euro Zone makes sense. Indeed, that is what happens within national governments where debt issuance by local, state or regional governments is often supplemented by grants, borrowing and guarantees provided by the Ministry of Finance or National Treasurer. However, the later are usually granted under nationally agreed budgetary policies and often require the setting of borrowing limits. These are often the source of frequent disputes between national and sub-national governments that occasionally end up in blackmail by separatist movements.

In a Union like the Euro Area, which is taking the first steps towards a future political unification, a simple setting of borrowing limits by a central Treasurer (no matter how well designed they are) is more prone to such separatist threats because there is no national solidarity. These separatist threats would be a permanent risk undermining the credit standing of the central Treasurer and would become a burden for the remaining members.

To some extent national solidarity can be substituted by common interest in joint spending. For this reason, tying a large share of joint debt issues to the financing of centralized spending in common policies needs to be considered as an essential part of a monetary union package.

Although the experience of common policies in the EU is nothing to write home about (e.g. agriculture) it does not mean that it cannot succeed in areas like transport infrastructure, security (defense and policing), research and population policies (health, education, migration, etc.).

The only certainty is that, like a stool, a solid monetary union also needs three legs – a monetary authority, a treasurer and a spending authority.

Proof that One Should Not Put All the Eggs in the Same Basket

It is common sense that a simple form of risk mitigation is through portfolio diversification. This principle has been popularized as “do not put all the eggs in the same basket!” That is, do not invest all your Euros in a single investment. However, a few discordant voices claim that one should put all the eggs in a just a couple of baskets, so that they can be properly monitored.

The view proclaiming the advantage of diversification is based on the use of a statistical measure of dispersion called variance. It has the unique property that the variance of (a+b) is smaller than the variance of (a) plus the variance of (b). Since modern portfolio theory adopted variance as a proxy to measure risk it follows that the more securities one adds to a portfolio the smaller its risk. In fact, in most markets a substantial degree of risk reduction can be achieved by holding between 25 and 50 assets. So, a simple rule of thumb (for an equally weighted portfolio) is that investors should invest no more than 2 or 4% of their capital on each exposure.

In practice this simple rule has three major drawbacks: a) it is difficult to adopt by small investors without enough funds to buy economically at least 25 different assets, and is also hard to follow by those with large amounts of money without incurring excessive exposures to a single entity; b) exposures to 25 or 50 investments are hard to monitor by a single person; and c) most importantly, the expected risk reduction is strongly dependent on the degree of correlation between the different assets and correlations are extremely difficult to forecast.

On logical grounds it is clearly questionable to prove a property by choosing to identify it with something that has the property we wish to prove. In addition, it has also three more theoretical limitations: a) price and total return volatilities are not necessarily correlated with other important sources of risk, namely bankruptcy and market delisting; b) for some investment strategies volatility is more useful as a measure of opportunity rather than risk; and c) it does not fully accounts for the reduced returns caused by its implicit bias towards cash-like exposures.

So it seems worthwhile to add an alternative proof that reinforces the case for the superiority of diversification. Marginalist theories tell us that we should invest up to the point where the expected marginal efficiency of capital equals the risk free rate of return. This may be so at the aggregate level. But, when assessing individual investment opportunities, it implies that investors should invest as much as possible on the exposure with the highest expected returned, followed by the second and so on until they invest all their funds. For most investors this rule would mean investing their entire capital in the single most promising investment opportunity.

Yet, with the schedules of the marginal efficiency of capital sloping downwards (the normal textbook case), investing up to the point where it meets the free risk rate of return is not an optimal solution. To verify this imagine the case of an investor considering opportunities A and B with linear schedules sloping downwards. The first Euro invested in opportunity A has an expected return of 30% while the last Euro invested earns the same as the risk free rate of return, which is 10%. The first Euro invested in the second best opportunity B earns only 20% while the last earns the risk free return. As a result the expected total return for A is 20% and for B it is only 15%. Naturally, ignoring risk or assuming identical levels of risk, investors would put all their money into opportunity A.

This would not be an optimal solution, since by switching the last Euro invested in opportunity A to B it would earn 20% instead of 15%. Likewise one may improve the total return by switching the penultimate Euro and so on until it is no longer worthwhile. This point will be reached when the integrals of the two marginal efficiency curves in the two defined ranges are equal. In the numerical example given above an investor would be able to invest up to two thirds of his capital in opportunity B and still achieve a total return of 20%. However, his optimal allocation would be to invest two thirds into A and one third in B to achieve an expected total return of 21.67%.

Note that our proof of the supremacy of diversification was given under conditions of certainty. Should we wish to add risk we may consider a worst case scenario where the investment opportunity with the highest return has also the highest risk. We may, for instance, assume that the expected return of the first Euro invested in A might be missed by ten percentage points while that of B may be missed by only 2 percentage points. With these revised marginal efficiency curves the return for A would be 15% and for B would be 14%. Under this scenario investors could allocate up to 89% of their capital to B and still achieve a total return of 15%. But now the optimal capital allocation to A would be only 56%, with an expected total return for both assets of 16.78%.

Our simple model may be extended to more than two assets and to incorporate the effects of leverage and still prove the case for diversification. Its theoretical value is that it proves the case for diversification with or without risk (uncertainty). Its main practical drawback is the reliance on the marginal efficiency of capital curves which are not as easy to estimate as the volatilities. Still we believe that it will be enough to convince the few remaining skeptics about the superiority of diversification.