Socialist state capitalism in Scandinavia

State capitalism is a form of capitalism in which the state holds a significant part of the means of production or regulates big companies, interfering directly or indirectly in the majority of the most significant businesses.

This interference is similar to that observed under the so-called crony capitalism, except that is carried out under the guise of the interest of the state. Another feature is that it rejects to be identified with the private sector and capitalism but does not disavow them in entirely. State capitalism exists in democratic or dictatorial regimes, as well as under right or left-wing governments.

In Western Europe there are two distinct forms of state capitalism - the Scandinavian and the Mediterranean. The first was made possible by the rise to power of social democratic parties in Sweden and England in the 1920s which would lead them to the government in the aftermath of World War II, with an extensive agenda of industry nationalization and social policies. The basic ideal of a broad welfare state was common to other political forces, including the Liberal and Conservative party in England, but has since been identified with social democracy.

The British experience with post-war nationalization was progressively abandoned after the Conservative electoral victory in 1951, but it continued in the Nordic countries with a golden age that lasted until the 1970s. For various reasons (namely windfalls) not all Nordic countries experienced a decline as pronounced as that of Sweden. However, we will use the case of Sweden to illustrate the initial success and subsequent decline of the Nordic model.

The Scandinavian initial success in combining strong equality with economic growth has been attributed to special features of their people, namely being ethnically homogeneous protestant societies, to their taxation policies and to a decentralized welfare system.

Some dismiss this golden era as being simply the result of the Western golden Keynesian period of the 1950-1960s compounded by a pragmatic continuation of the liberal policies that had transformed Sweden in a modern industrial country from 1870 to 1936. They reinforce this hypothesis by claiming that Sweden’s decline began in 1968 when the radicalised left wing Social Democrats attempted a ‘third-way’ approach trying to establish an economic system between a free market and a planned economy.

During this period the taxation of business financing was strongly discriminatory in favour of state pension funds and insurance companies. For instance, Henrekson (2007) estimated that in 1980 the maximum marginal tax rate on new share issues was 137% for private household investors but -12% for tax exempt public pension funds, while the rates for debt financed investments were 58% and -88%, respectively.

This attempt to create a market economy without individual capitalists and entrepreneurs proved disastrous. For instance, Axelsson (2006) points out that in 2004 among the top 100 Swedish firms in terms of revenue only 38 started as privately-owned businesses. Moreover, out of these 38, only 2 were created since 1970 while 21 were founded before 1913.

Not surprisingly, despite the initial success in upholding private property, free markets and the rule of law while avoiding the dependency culture often associated with extensive welfare systems, in the early 1990s Sweden went through a dramatic banking crisis with a cost for taxpayers equivalent to 2% of GDP. At the political level it also meant the break of the Social Democrats rule. Since 1991 the liberal conservatives have alternated in power and promoted the introduction of a liberalization program that initiated the end of the Nordic model of state capitalism in Sweden.

Personally, in 2012, I drove through Sweden to Gothenburg and could still feel an atmosphere of decay that was markedly in contrast with the energy I had felt in 1977 when I first visited the country. This was not an impression simply due to my aging. The OECD figures below for GDP per capita also confirm the relative decline until 2005 and a minor recovery thereafter.


There are two important lessons that one can draw from the Swedish experience. First, that there is a limit on how much the weight of the state in the economy can go. Using as an indicator the level of public expenditure as a percentage of GDP, that limit seems to set in when its value reaches 55%. Second, and probably most importantly, capitalism cannot dispense with the profit motive as a driver of innovation and entrepreneurship.

The attempt to socialize profits through state pension funds and the tax system might have contributed to a high level of equality in Sweden but its cost in terms of entrepreneurship was severe. In the end, the pursuit of profit motive always implies a certain degree of inequality. So, the challenge for Sweden, as it moves towards market capitalism, is to find a fair balance between a socially acceptable increase in inequality and the growth of the private sector initiative.

Wild west and “crony” capitalism

Capitalism without rules and capitalism with rigged rules are the two sides of the same coin. In fact, despite claiming to be capitalist, such economic systems violate its basic foundations, namely free markets and the rule of law.

The absence of any form of regulation, whether on working conditions or environment, is often associated with the early days of capitalism in XIX century England. However, Anderson and Hill in their “An American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West”, re-interpreted the wild west history as an experimental libertarian society. They claim that “Private agencies provided the necessary basis for an orderly society in which property was protected and conflicts were resolved. These agencies often did not qualify as governments because they did not have a legal monopoly on "keeping order."”

This is a mistaken reinterpretation of facts. Indeed, all historical experiments quickly have shown that someone (the government) stepped in with a monopoly over law and its enforcement before the country collapsed from civil war or banditry. This has happened in all revolutionary processes as well as in the development of private law experiments (e.g. securities law in XVII century Amsterdam or the merchant courts in medieval Europe).

Presently we may find examples of wild west capitalism in failed states (e.g. Somalia or Libya) or in special territories enjoying reduced or non-existent regulation (e.g. the special enterprise zones in China).

However, the most common is to find situations where, although private property is protected from extortion by law, the law itself and its enforcement may be twisted in favor of the rulers and their acolytes. Like in “wild west” societies, business is carried out under the law of the jungle but this time the strongest is protected by the state. This type of “crony capitalism” is common in dictatorships but exists also in democratic societies.

The “cronies” typically use their control of the state to raid other people’s property, to get rid of competitors, to get favorable tax treatment, privileged access to financing and to secure government procurement contracts and concessions. Often, these advantages are also secured through protection against corruption charges.

Crony capitalism exists to some extent in most capitalist economies but only when favoritism is rampant can we talk of a “crony capitalistic” system.

Unfortunately, there are too many past and present examples of crony capitalism. Among the most extreme historical examples we may mention the Suharto and Mobutu families in Indonesia and Zaire, respectively. Presently, Putin’s Russia or Chaves’ Venezuela are also two of the most extreme examples, although the later would be better described as crony socialism. Obviously, the more regulated a sector is the greater the scope for crony capitalism. For instance, in sectors like banking, real estate, utilities, telecoms, natural resources and casinos. So, not surprisingly, in 2014 the Economist ranked Hong Kong, Russia, Malaysia, Ukraine and Singapore as the top five countries in terms of crony-sector wealth.

The antidotes to crony capitalism are the rule of law and free markets. Indeed, as long as these are upheld, as they should in societies with representative democracy and constitutional liberalism, market capitalism will never degenerate into “crony capitalism” as is frequently anticipated by Marxists and other anti-capitalist movements.

It is important to remember that in their initial stages countries under crony capitalism economies often experience substantial economic growth driven by public or speculative investment. However, when such levels of unsustainable investment comes to a halt due to losses and lack of financing the economic miracle always collapses with huge amounts of debt, abandoned investments and unemployment.

That is, even when apparently successful, one should not be fooled because in the end crony capitalism will always bring misery and a huge misallocation of resources.

Likewise, the frequent examples of crony capitalism under systems of state and managerial capitalism should not be used to confuse these systems with crony capitalism, because such systems have a deliberate policy to change the workings of capitalism.

The role of the voluntary sector

What we call voluntary sector is often referred to as NGOs, third sector, associative sector, non-profit sector, social economy and similar words aimed at differentiating it from capitalism. Non-profit sector would be a better label if it was not used by entities with special incorporation statutes (e.g. cooperatives) to claim preferential treatment under the pretence of being of general interest rather than for the self-interest of its members, promoters and sponsors.

It is important to understand the difference between self-interest and profit. The first can be achieved through cost minimization or service maximization for its members while the second is separate from the services delivered by the providing entity and can only be achieved through profit maximization.

Let me use as an example the motor associations we find in many countries. When I lived in the UK there were two such associations and I joined the AA after comparing the two in terms of their breakdown and other motor services. The price of these two services was bundled in a single annual fee. So, when assessing its value for money I had to weight simultaneously three different services the insurance premium for the cost of recovery and the quality of the recovery service and the extra services provided. The first I wanted it to be as low as possible and the other two as high as possible. So, the AA directors had no way of knowing how to maximize the members welfare except indirectly through their vote during elections. Indeed they probably did not know whether to maximize the number of members or the welfare of the existing members.

However, later on the AA decided to transform into a corporation and issued shares to its members. So I became a shareholder as well as a client subscribing to their services. Now, the directors had a clear mandate – to maximize my profits. Does it mean that they had an incentive to do it by charging me more or reducing the quality of my services. Quite the contrary. While they needed to focus on getting me profits they also had to keep me pleased to avoid losing a customer and attract more clients by offering a better value for money than AA’s competitors. I was also better off because, instead of being tied up to the AA, if I was not pleased with the profits I could sell my shares and still continue as a client as long as the service was worthwhile.

So, in general, whenever a service or product can be produced on a profit basis the capitalist option is preferable. The few exceptions usually involve cost-minimization situations where members are few and compete among themselves so that they may end up being served by a single monopolist service provider that they co-own. For instance, in the banking industry the banks in small countries may find it advantageous to set up a joint non-profit company to run a single national network of ATM machines. As long as this monopoly is not given any privileges by the state and can be challenged by anyone willing to set up a competing service free competition is preserved, despite the lack of profit-motive.

However, as the activity expands, sooner or later a profit-driven corporate will come to challenge the incumbent and non-corporate entities may find it necessary to transform into a profit-seeking corporation. This can be done overnight or through a long and tortuous process of transformation.

Due to economies of scale, bundling requirements and similar conditions, there is always a reasonable number of activities pursued for self-interest by non-profit entities which do not qualify as part of the capitalist sector. However, in a lively capitalist environment such organizations should aim to transform into corporations, instead of adopting an anti-capitalist stance and chasing state privileges. That is, like the informal sector, they should be a nursery for future capitalists.

Now, these non-profit self-serving entities should not be confused with truly altruistic (non-self-interest) organizations. We find these pursing activities where the state or the capitalist sectors are present and as well as in activities of no-interest for both. They use various institutional forms ranging from associations and clubs to charities and foundations. However, their real distinctive feature is whether they are self-serving or not, a differentiation that is not easy to define when they are active in the fields traditionally associated with the government or enterprise sectors.

From the middle ages we inherited charities and mutuals set up to aid the poor with medical, educational and financial services. Many remain to this day, even when their initial motivation has largely disappeared.

For instance, in the past the small savings of the children and poor were too meagre to be of interest for banks. So, when my first child was born I decided to open an account in a Portuguese mutual that gave children a nice money pig to save coins to deposit later with the bank and earn a little interest. Equally, it allowed its members to open a retirement savings account with as little as one Euro monthly and provides nice retirement homes for its members. All these services are subsided by sharing the profits obtained by a mortgage bank owned by the mutual.

However, a well-informed friend of mine, told me that the profits could be much higher if it was not for the fact the banking staff earned on average 30% more than their colleagues in the for-profit banking sector. Obviously, the staff and directors are strongly against the demutualisation of the institution, despite the fact that now all banks offer similar services to small savers. Moreover, I have noticed that many of the beneficiaries of the profit sharing products are indeed middle class. So, this institution is more properly qualified as an hybrid institution self-serving its employees and clients, but with a significant philanthropic activity.

Indeed, today there are an increasing demand for the state to outsource some of its functions to such hybrid organizations. This could be an alternative to the privatization of natural monopolies and other non-sovereign activities carried out by the state. However, this “third-way” has its own governance and agency problems. Although it is reasonable in aid programs one should be careful to avoid stimulating rent-seeking and anti-competitive behaviour.

In conclusion, there are a wide range of activities where cooperation may substitute market competition and humans may voluntarily mobilize to pursue selfless objectives. However, regardless of how well intended their objectives are, their activities and practices should be carefully scrutinized to avoid confusing self-interest with selfless organizations.

Notas preliminares sobre a evolução recente da despesa pública

No início do programa de ajustamento em Portugal alertei neste post para a necessidade de corrigir a trajetória da despesa pública, em especial no que diz respeito à evolução da segurança social.

Hoje podemos fazer uma avaliação preliminar do que mudou, pois já dispomos dos dados apresentados na tabela seguinte relativos aos dois primeiros anos 2011-2012.



Relativamente aos dados de 2009 tinha estimado que os cortes necessários em pontos percentuais do PIB seriam 6.0 na proteção social, 1.8 na saúde, 1.2 na educação e 0.7 nas forças de segurança. Como podemos ver na tabela acima a proteção social aumentou 0.8, a saúde reduziu apenas 0.6, a educação baixou 1.4 e as forças segurança tiveram uma diminuição de 0.2 pontos percentuais. Entretanto, o serviço da divida aumentou 1.6 pontos percentuais.

Isto é, nos sectores onde devia ter havido ajustamento, apenas na educação as reduções de despesa atingiram (e até superaram) a correção desejável. Outros sectores também contribuíram para o ajustamento, em particular os transportes com 1.4 e a defesa com 0.9 pontos percentuais, mas tais contribuições não foram suficientes para compensar a ausência de ajustamento nos restantes sectores.

Este ajustamento desequilibrado resultou da redução da despesa ter sido feita sobretudo através dos cortes salariais e do investimento e teve custos significativos em termos de crescimento e equidade. Por exemplo, o agravar dos desequilíbrios na despesa pública ocorreu num contexto em que o PIB caiu mais de 6 mil milhões de Euros em valor nominal.

Pior ainda, a ausência de ajustamento no peso do sector social não significou que os beneficiários deste sector tenham sido protegidos, antes pelo contrário. O crescimento das despesas sociais ficou a dever-se sobretudo ao aumento extraordinário dos beneficiários resultante do empobrecimento da classe média-baixa e do aumento das reformas antecipadas.

Uma das principais explicações reside na continuação do regime de incentivos às reformas antecipadas que foram utilizados por mais de 30 mil funcionários públicos nesses dois anos. Isto é, em vez de se optar por uma política de dispensa de funcionários que devidamente apoiados rapidamente se integrariam no mercado de trabalho privado, optou-se por comprometer de forma permanente a sustentabilidade da segurança social e não se fez qualquer reforma do Estado.

Em conclusão, a redução de 4.1 pontos percentuais no peso da despesa pública (ou 5.4 se considerarmos o efeito combinado do aumento da divida e da diminuição do PIB) foi excessiva para um período de apenas dois anos. Os 8 pontos que dissemos serem necessários podiam e deviam ter sido implementados ao longo dos três anos do programa. Mas, sobretudo, foram muito menos eficazes do que teria sido um corte generalizado de 5 pontos percentuais no orçamento de cada ministério, para já não falarmos numa política de cortes seletivos direcionada para uma verdadeira reforma do Estado.

Um argumento estúpido para acabar com os chumbos

As “eminências” pardas do nosso sistema educativo voltaram esta semana à baila com a ideia de reduzir o insucesso escolar através da passagem administrativa dos alunos que chumbam na avaliação (ou que ficam retidos, na linguagem politicamente correta do “eduquês” nacional).

O argumento foi que estes alunos custavam ao estado cerca de 600 milhões de Euros por ano. Se fosse essa a razão então abolia-se o ensino e o estado pouparia muito mais. É no entanto um argumento estupido se tal custo não for comparado com o custo para a totalidade dos alunos que seriam penalizados pelas passagens administrativas.

Um número muito elevado de reprovações só pode resultar de duas coisas – matérias e exigências desajustadas ou alunos preguiçosos e desmotivados. Pelo que me é dado observar como professor os níveis de exigência baixaram e os alunos não são mais preguiçosos do que sempre foram. Portanto a causa do elevado número de reprovações e desistências é um misto de matérias desajustadas e alunos desmotivados.

As primeiras são o resultado de reformas curriculares constantes e irrefletidas que tentaram impor teorias pedagógicas absurdas e não testadas. A desmotivação também resulta destas reformas mas é sobretudo o resultado da perda de autoridade dos pais e professores. À qual podemos ainda acrescentar a cultura de facilitismo muita espalhada entre nós em que o que interessa é o canudo e não a qualidade e exigência do que se aprendeu (vide episódios recentes que envolveram governantes).

O insucesso escolar tem de ser analisado nas suas múltiplas facetas, nomeadamente na maior ou menor aptidão dos alunos e nos diferentes sistemas e níveis de ensino.

Por exemplo, um sistema de passagem obrigatória pode ser aceitável no sistema universitário se a ele apenas tiverem acesso alunos com boa aptidão. Em tal sistema (como existe em Inglaterra), a passagem obrigatória ou atribuição de um “diploma de consolação” é na prática uma medida disciplinadora. Pois os alunos sabem que se saírem da Universidade com a nota mínima nenhum empregador reconhece as suas habilitações e eles próprios preferem omitir no CV que tiraram o curso.

Porém, nas atuais condições, aplicar tal sistema em Portugal seria inútil. Eu próprio já o testei nas minhas disciplinas sem qualquer resultado, porque outros colegas continuaram a inflacionar as notas e os alunos acabavam por sair com uma média aceitável mesmo sem saber nada. Isto é, sem um sistema de avaliações externas e de calibração da distribuição das notas a passagem obrigatória seria injusta e ineficaz. Tanto mais que o Estado Português, principal empregador de licenciados em Portugal, continua a não valorizar as notas e as escolas no seu recrutamento.

Em conclusão, optar pelo facilitismo das passagens obrigatórias é muito mais custoso do que o insucesso escolar. Atacar o problema do insucesso escolar pelos resultados e não pelas suas causas é uma estupidez.

About the Role of the State

Discussions about the role of the state are invariably contaminated by data misrepresentation and political demagogy.

The Portuguese Government in 2013, called a four billion Euros cut in public spending agreed with the IMF a re-foundation of the state. Like in many similar examples of faux liberalism, it was simply a matter of "get out so that I can sit there". Indeed, the government simultaneously borrowed an equivalent amount to create a new development bank. In a country where the state already controls more than 50% of the banking sector, to create one more state-owned bank, in a model that has already failed in the past in Portugal and the rest of the world, can only be deceit or irresponsibility.

In short, the Portuguese government's proposal for a debate on the role of government is not serious and would not deserve commenting. But a real debate about the role of the state is important and should be always present in political discussions.

As Martin Wolf wrote in a recent article on the topic "this is the most important issue of political economy" and has been debated since antiquity by Plato and other philosophers. As he points out, one of the first questions to ask is about the limits and extent of the protective function of the state. The theme is handled brilliantly by the author so I strongly recommend you read his article.

However, to have an intelligent discussion about such limits it is important to know more or less in detail the current role of the state in terms of function, cost and contribution to national wealth.

For example, public spending is usually broken down into ten categories, as shown in the following table with data for Portugal:



However, this breakdown is not the most appropriate to understand the functions of the state. The functions of the state should be divided into five major activities: sovereignty, regulatory, insurance, production and distribution.

The importance (for good and for bad) of each of these activities has an impact on the various categories of public expenditure listed in the table above but are not necessarily fully reflected in budgetary terms. For instance, regulation may have little or no budgetary costs but can have huge economic costs. Moreover, they may be budgeted or not (e.g. in Portugal the electricity rates paid to regulators are not fully budgeted). Equally, the redistribution function of the state can be undertaken on the revenue or the expenditure side.

We can also question whether insurance, production and distributive activities must be carried out by public or private entities subcontracted by the administration. For example, why contract construction services in public works and not education services. That is, the debate on state production and state provision must be clearly separate from the debate on the functions of the state.

Most importantly, the insurance function must be clearly separated from the redistribution function. For example, whether we are talking of health, unemployment or weather insurance, one must make a clear distinction between a component of compulsory insurance (subsidized or not by the state) and a discretionary component funded by taxes to deal with exceptional situations (epidemics, natural disasters, etc.).

Finally, with regard to life insurance and pensions, in addition to its subsidization, the fundamental debate should be on the minimum and maximum levels. For example, does it makes sense that the State offers pension insurance to millionaires? Given the weight that pensions have in public spending this is perhaps the most critical aspect in any debate about the role of the state.

In summary, a deep and thoughtful debate about the limits to the role of the state needs a breakdown of public expenditure and its financing by each of the five categories of state activity. The creation of an accounting system that allows this analysis should be the first step of any government that wants to make a serious debate about the functions of the state.

Only after agreeing the limits in each state activity should we discuss separately the issues related to the relative effectiveness of direct or delegated administration, as well as how to solve the free-riding, theft and nepotism inherent in any political system.

Farto de comentários sobre a Grécia

Estou farto de ouvir falar na Grécia, não porque não seja positivo ver os Europeus a preocuparem-se com outro país que não o seu, mas pela forma como decorre o debate.

Por um lado discute-se até há exaustão o problema Grego como se não houvesse outros problemas semelhantes, e porventura mais perigosos, como acontece em relação à situação na Hungria e à sua política energética de total alinhamento com a Rússia. Talvez seja porque lá os radicais são de direita e a nossa comunicação social vive obcecada pela esquerda.


Por outro lado, fala-se demasiado nos Gregos e nos Portugueses, como se estes fossem um todo, em vez de se discutirem as posições políticas dos diferentes partidos nos dois países. Gostaria de ver o Partido Socialista a discutir as críticas do Pasok ao Syriza ou o PSD a apoiar a Nova Democracia numa verdadeira discussão entre famílias políticas Europeias.

Cada um à sua maneira deve querer o bem do povo Grego e apontar os caminhos que são melhores para o seu futuro. Não existem países bons e maus, existem políticas boas e más!

A última lição: A economia e os doentes terminais

O falecimento do meu pai no passado dia de São Valentim foi para mim uma enorme perda. Ele era não só um pai querido, mas também o meu herói e ídolo. Nas suas últimas horas de vida deixou-me mais uma prova do seu amor ao esperar pela minha visita antes de partir.

Desde que aos quinze anos partiu sozinho para Lisboa procurando escapar à pobreza da sua aldeia natal, trabalhou incansavelmente para dar aos seis filhos a educação que ele não tivera. Apesar de não ter concluído a escola primária, recordo-me como ele estudava matemática de forma autodidata para poder ajudar-me a resolver os problemas na escola primária. Foi também ele quem, sem saber de economia, me aconselhou a optar por economia na universidade.



A Serra da Estrela que o viu nascer e morrer despediu-se dele com este arco-íris, o mais bonito que já vi. E, também ele, na forma como partiu me deixou mais uma lição de economia, tal como tantas vezes o fizera ao longo da sua vida de trabalho.

Um mês e meio após ter completado 96 anos de idade sofreu uma trombose intestinal que lhe seria fatal. Dada a sua idade avançada, os médicos acharam que uma intervenção cirúrgica tinha pouca probabilidade de sucesso e como ele não estava consciente chamaram a família para ser ela a decidir se queria deixá-lo morrer sossegadamente ou se queria tentar a operação. Foi uma decisão muito difícil.

Após o esclarecimento dos médicos sobre o sofrimento previsível no pós-operatório, a probabilidade de sucesso e o número de meses adicionais de vida que teria se a intervenção tivesse sucesso optamos pela operação.

É importante salientar que não tivemos de ter em conta qualquer outra consideração que não fosse o bem-estar do doente (fosse de natureza financeira ou familiar) porque estávamos num hospital público financiado por via orçamental. Se estivéssemos num hospital privado seria impossível ter esta liberdade de decisão sem intervenção da companhia de seguros.

Esta liberdade de decisão em relação ao prolongamento do tratamento dos doentes terminais é por vezes debatida por filósofos e economistas em conjunto com outras decisões difíceis sobre eutanásia, suicídio assistido, morrer em casa ou a qualidade da morte, mas poucas vezes se discute o enquadramento institucional que condiciona a decisão em tais matérias, nomeadamente a opção entre sistemas de financiamento da saúde através de seguros ou de dotações orçamentais.

As modalidades de financiamento são porventura mais decisivas do que a escolha entre hospitais operados pelo sector privado, público ou misto e é apenas sobre essas que irei debruçar-me.

Teoricamente podíamos ter seguros ilimitados, mas estes apenas estariam ao alcance de uma minoria. Por isso, com exceção dos Estados Unidos, a maioria dos países desenvolvidos optou por um sistema baseado numa única entidade pagadora dos cuidados hospitalares que pode estar enquadrada no orçamento de estado ou ter um orçamento próprio financiado por contribuições obrigatórias. Este orçamento pode cobrir a totalidade dos custos hospitalares ou apenas uma parte (geralmente mais de 70%).

É evidente que a oferta de cuidados hospitalares é menor nos países pobres e pequenos. Por isso, nesses países o financiamento através de contribuições tem de ser suplementado por transferências orçamentais de forma a assegurar que em situações de perigo de vida todos têm acesso aos tratamentos disponíveis, independentemente das suas contribuições.

É também normal que em contexto de crescente inovação tecnológica os recursos afetos à saúde sejam sempre insuficientes para fazer tudo o que é teoricamente possível para salvar cada paciente. Por isso, são geralmente bem-vindos os seguros privados voluntários que permitem a alguns optar por novos tratamentos mais dispendiosos ou melhores amenidades de internamento.

No entanto a utilização desses seguros para decidir sobre os tratamentos nos casos de vida ou morte coloca os médicos e as famílias dos pacientes perante um tipo de decisão eticamente intolerável. Isto é, retira-lhes a possibilidade de decidir exclusivamente com base no bem-estar do paciente tal como fizemos no caso do meu pai.


Em suma, na forma como nos deixou, o meu pai relembrou-me que a análise custos-benefícios e a teoria económica podem ser necessárias na análise dos sistemas e na alocação de meios à saúde, mas não podem guiar as decisões individuais sobre a vida e a morte dos doentes terminais.

Playing games: aspectos bizarros do nosso sistema judicial

Independentemente da opinião que se tenha sobre a prisão de José Sócrates, não se pode deixar de ficar estupefacto com o que se passou com o recurso da sua prisão preventiva.

Em qualquer país civilizado esperar-se-ia que os recursos sobre prisão preventiva fossem feitos e decididos de forma célere, ou pelo menos dentro do prazo máximo da prisão preventiva.

Creio que qualquer firma de advogados prepararia um recurso em dois ou três dias. Entretanto, o seu advogado demorou quase um mês. Também me parece que nenhum tribunal de recurso precisará de mais de uma ou duas semanas para preparar a sua decisão. Entretanto, o STA deixou passar os três meses da prisão preventiva sem se pronunciar.

A quem serve este triste espetáculo? Por favor deixem-se de “brincadeiras” com a opinião pública e com a justiça.

Medidas anticorrupção (2): Estabilizar o regime fiscal.

Em qualquer país o nível de corrupção é diretamente proporcional à complexidade, iniquidade e natureza predatória do sistema fiscal, e Portugal não é exceção.

Porém, em Portugal o contributo da fiscalidade para a corrupção é ainda mais agravado pela mudança permanente das normas fiscais e regimes especiais. Em cada novo orçamento de estado as alterações fiscais ultrapassam as centenas. Não há nenhum lobby público ou oculto que não introduza regimes específicos, muitas vezes com características surrealistas como acontece nos sectores automóvel e energético.

Como é normal, os políticos e responsáveis tributários gostam de “vender” favores, mas no final acabamos todos com uma carga fiscal cada vez mais elevada.

Ora, é muito simples e barato eliminar esta fonte de corrupção. Basta introduzir na Lei de Enquadramento Orçamental um limite ao número de alterações fiscais que podem ser introduzidas em cada ano. Por exemplo, limitando as alterações substanciais a apenas uma vez por legislatura, e em cada um dos restantes anos permitir apenas alterar um máximo de 5 normas.

Poder-se-á contra-argumentar que todos os anos se descobrem muitos “buracos” ou iniquidades e tal seria irrealista. É verdade que existe uma luta permanente entre o gato e rato na descoberta de fugas ao fisco, mas essa luta só pode ser minorada se o gato e o rato forem limitados no número de investidas que podem fazer.

A vantagem de tal limitação reside precisamente no fato de os políticos terem de pensar duas vezes antes de fazer a sua “reforma fiscal” por legislatura e de ser transparentes na escolha dos cinco buracos a tapar ou dos benefícios a conceder em cada ano.

Será que os proponentes da luta contra a corrupção estão disponíveis para propor medidas deste tipo? Gostaria de saber a sua opinião.

The coexistence of economic systems

In capitalist countries not all activities are conducted in the capitalist sector. There is usually a mix of economic systems that complement and compete against each other and also a competition among various forms of capitalism. This is normal and a permanent feature of capitalism. Nevertheless, the capitalist sector needs to be the leading sector for a country to be considered as capitalist.

Capitalism is probably the only economic system that does not rejects other modes of organization. In fact, it recognizes that some activities are not based on the profit motive while others cannot be carried out through markets. The first constitute the so-called voluntary sector and the second the state sector.

The voluntary sector, also called third sector or social sector, includes both purely altruistic activities and others that are or could be organized through markets but are conducted without a profit motive. Focusing only on self-interest activities let me show how these can contribute to human welfare through clubs and many other forms of associations that do not seek to incorporate.

For instance, consider the case of a choir or a similar activity. Most of us get utility from listening to songs, but only a few can or enjoy singing. The first usually pay to buy records or go to concerts but those in the second group have three options – pay to sing in a choir, sing voluntarily in a choir or be paid to sing in a choir. We may find examples for the three cases. However, there are very few, if any, profit-seeking entrepreneurs offering the first option to willing singers. Likewise, the last option is only available for the top singers. So, most eager singers choose the voluntary option as a hobby.

Now the satisfaction obtained through this hobby derives from three sources – the pleasure of listening and singing in a choir and the pleasure of having an audience. But to get a good audience they usually have to give free or low cost concerts, often at a personal cost in time and money. Even, when they manage to make a little money out their hobby its weight in their utility function is very small when compared with the pleasure of singing, the recognition of an audience and the comradeship of a choir. So, the profit making objective, if any, is negligible and this activity is certainly included in the voluntary sector.

Note, however, that the frontier between the voluntary and the for-profit sector is often fuzzy and shifting. For instance, a conductor in search of paid employment may create a choir to give him a job paid by the singers. Likewise an impresario may contract the singers to profit from their performances. But, an activity may be undertaken by some on a for-profit basis while others do it on a voluntary basis and yet all are pursuing their self-interest.

A similar situation arises in those cases where people join together to fulfil a common need, for example through consumer, housing and workers cooperatives or credit mutuals to provide goods and services that could also be procured from for-profit corporations. Some of these institutions even have corporations among its promoters and sponsors.


This said, the coexistence of economic systems and their fuzzy borders do not prevent us from distinguishing a capitalist from a non-capitalist country on the basis of the relative importance of the capitalist sector.

The relevance of 25%

What defines a predominantly capitalist economy is the size of the capitalist sector. However, since the size of the voluntary sector is usually small and difficult to measure and the state sector is easier to quantify, it is frequently expedient to measure only the state sector to assess the degree of capitalism in an economy. Typically one measures the role of the state through three indicators – the value of the goods and services it produces through government and state owned enterprises and agencies, how much it spends and how tightly it regulates the other sectors in the economy.

Because government expenditure is the easiest to measure the most used indicator is public expenditure as a percentage of GDP. Globally, based on data used by the Economic Freedom Index (2014) the values range from 14.6% in Guatemala to 139.7% in East Timor. On the lower side of the distribution, with a share of less than 30%, there are more than one third of the countries, most of them too poor to have a welfare system with the notable exceptions of Macau, Singapore, Hong Kong, UAE, Taiwan and the Bahamas.

Among advanced OECD capitalist countries, this share varied between 5 and 15% in the early XX century, but it has risen to the current range of 30 to 58%. The lowest value is found in South Korea (30.2%) and the highest in Denmark (57.6%). Because the prevalence of extended families in Asian explains a lower social expenditure in those countries we note that among the other countries the one with the lowest share is Switzerland (33.8%). So, 25% is the standard amplitude of public expenditure among western capitalist countries.

The increase in the share of the state is mostly due to the creation of welfare systems while the widest amplitude reflects the greater variety in the forms of capitalism. I shall focus on the 25% amplitude because it illustrate better what drives the growth of the state sector and, concomitantly, the shrinking or slow growth of the capitalist sector.

An important insight to understand this amplitude is to look at the percentage of public expenditure devoted to collective goods which generally cannot be run under market capitalism. The OECD has produced this data for 18 of its members for the period 1995-2009. It shows that in 1995 the share of collective goods in total public spending ranged from 30.2% in Luxembourg and 54.9% in the Czech Republic, yet by 2009 its range had reduced to a minimum of 27.5% in Norway and 45.8% in Greece. This reduction may be the result of a faster rise in individual public spending or a reduction in overall government spending biased against investment.

The following table showing the percentage of collective spending in 2009 suggests that,

on average, two thirds of government spending is on individual goods which, theoretically, could be produced under a capitalist system. On average, the collective goods represent only 16% of GDP, ranging from a low of 12.1% in Norway and a high of 23.8% in Greece.

Spending on these goods is strongly influenced by the level of economic development, urbanization and geography. Surprisingly, it does not vary much with the form of capitalism. In fact, only in Hungary and Greece does spending in collective goods exceeds more than 20% of GDP.

So, what really differentiates the various types of capitalism is the government spending for individual consumption. This spending should be broken down into distinct categories. In particular we need to consider separately social spending which accounts for the bulk of individual spending.

The table below shows that public sector social expenditure ranges from 10% of GDP in South Korea to 30% in France. It also shows that mandatory private spending is negligible while voluntary social expenditure is meaningful only in the USA (10.2%), U.K. (5.3%), Canada (5.1%) and Iceland (4.6%).

To some extent total social expenditure is determined by per capita income, age and other demographic factors but it is clearly the result of political choices.

For instance, note that countries that rely more on voluntary private expenditure are not among the top spenders. Is this the result of more efficiency or less coverage? The data does not allow an answer to such question, but this question is fundamental to ascertain the relative comparative advantage of the public and private sectors in the provision of these services.

First, we must split this type of public expenditure into two subsectors: income redistribution and insurance services. This is not easy because redistribution is often made through the provision of subsidised services produced in the public sector. However, old age and survivors public pensions as a percentage of GDP are a good proxy for the size of public spending that could be provided by the capitalist sector. With this indicator we find a wide variability, with values below 3% of GDP for South Korea and Iceland and above 14% for Austria, Italy and France.

Overall, we have that a mere 25 percentage points of public expenditure separates the extremes in capitalist economic systems between market and state capitalism. However, one needs to know the composition of such expenditure to really understand how close each country is to the ideal of market capitalism. Moreover, one needs to bear in mind that the role of the state extends beyond public expenditure and production.

Failed alternatives to capitalism

The rise of a new economic system to acquire wealth and social status is usually disliked by the established elites, and capitalism was no exception. This repulsion was also encouraged by the progressive replacement of serfs tied to the land by an urban proletariat working in factories under appalling conditions in the early years of industrialization. So, from the beginning there were calls for its reformation or replacement by alternative systems.

One the earliest attempts to find an alternative to capitalism was undertaken by businessmen who wished to promote a more humane form of industrial organization based on the ideal of a model village. We shall group these various experiments under the general heading of utopian socialism. Utopian socialism has its roots in the works of Henri de Saint-Simon, Charles Fourier, and Robert Owen who developed the fundamentals of voluntary cooperative socialism established among like-minded people.

Owen. established a textile factory in New Lanark, Scotland, and devoted much of his profits to improve the lives of his employees by introducing shorter working hours, schools for children and housing. He also established the New Harmony commune in Indiana, USA, which collapsed when one of his business partners ran off with all the profits.

Fourier was more radical. He rejected the industrial revolution and advocated the transformation of work into play and the creation of colonies based on love and passion. Today it is still possible to find similar initiatives among religious sects, hippies and new age travellers.

In general, all these peaceful utopian experiments subsided because they lacked the profit motive and the free markets necessary to create wealth. Moreover, the shared leadership adopted initially usually turned into a patriarchal dictatorship.

In contrast to the peaceful and voluntary creation of ideal societies, anarchists advocated terrorism and revolution to replace the state with self-managed institutions federated in a non-hierarchical structure. Anarchism is often also called libertarianism and has many distinct variations among left and right wing groups. Pierre-Joseph Proudhon’s political philosophy, expounded in his book What is Property? published in 1840, is among the most influential. It considers that property is a theft and is against the state, church and any other form of hierarchical organization. Currently, many remnants of the anarchist ideals can still be found among the anti-war, anti-capitalist, and anti-globalisation movements.

Despite its many ideological strands the number of actual anarchist experiments is very small and short-lived. For instance, the Paris Commune lasted only two months in 1871. Likewise, during the Russian revolution, the anarchist society established by the Revolutionary Insurrectionary Army of Ukraine in the “free territories” in eastern Ukraine lasted only for a few months. The same happened with the anarchist collectives formed in Aragon and Catalonia during the Spanish Civil War (1936-1939).

Since these anarchist experiments took place during civil wars their organization was mostly military and we cannot say that they really constituted an economic system. Should they have tried one it would have certainly failed because of their opposition to private property. This conclusion is corroborate by the fact that mutuals, cooperatives and other forms of non-corporate entities inspired in the social property ideal are being progressively abandoned.

On the contrary, the alternative proposed by Marx and Engels in the Communist Manifesto of 1848 was tried in various forms in many countries following the Russian Bolshevik revolution in 1917 and lasted until 1989. The central features of communism (or centralized planned economies as they were also called) are the abolition of private property and the replacement of markets by centralized planning. At the political level these regimes abolished democracy and established the so-called dictatorship of the proletariat.

The actual experiments with communism can be grouped in terms of the importance given to central planning relative to the market system to define three major gradients – the Soviet, the Chinese and the Yugoslav models – with the later relying more on self-managed organizations supervised by the state.

Notwithstanding their military success after World War II, their economic performance was abysmal and in the 1980s the ruling dictators began to be questioned by the party elites and the people alike. So, communism fell apart by itself in most countries after the fall of the Berlin Wall in 1989. With the notable exceptions of North Korea and Cuba where the god-like communist dictators so far managed to cling to power.

In spite of the various attempts to modernize communism and the efforts of economists to demonstrate how central planners could mimic the market system through an Arrow and Debreu tâtonnement process, central planning did not work efficiently. The theoretical superiority of the market economy demonstrated by Adam Smith back in 1776 and the inferiority of the communist system already pointed out in 1925 by Keynes were empirically vindicated when most countries, which at one stage accounted for more than half of the world population, replaced communism with some form of capitalism.

Apart from those attempting to find an alternative to capitalism, another group of thinkers, although critical of capitalism, accepted capitalism as the basis of the economic system provided that it was limited, regulated or controlled by the state. These may be categorized under two main lines - socialists/ social-democrats and corporatists/national-socialists.

Following Bismarck's Sickness Insurance Law of 1883 many dissenting Liberal Party politicians in Britain began arguing for similar social measures while non-revolutionary socialists inspired by the Fabian Society began supporting the idea of creating a party based on the trade union movement. So, the labour party was established in 1900, it endorsed socialism in 1918 and won its first election in 1924. Similar movements took place in the Scandinavian countries where Social Democratic parties began their social reforms in the 1920s.

After World War II major experiments with the nationalization of key industries and the creation of universal welfare states aimed at creating a mixed economy were tried in the UK and Scandinavia but only the later remains today as a type of state capitalism.

The other line of “controlled capitalism” was inspired in Pope Leo XIII’s Rerum Novarum encyclical of 1883 opposing the tri-partite (labour, capital and state) corporative cooperation to the Marxist concept of class struggle and the unregulated capitalism. In 1927 the Italian fascists adopted the carta del lavoro, setting the principles of corporatism, namely the strong influence of government over investment, as opposed to having a merely regulatory role. Corporatist models were adopted by the other Southern European countries.

Some of the corporatist policies were also adopted by the German National-socialists, but the Nazis introduced a new Darwinian approach based on racism, the ideal of racial supremacy and the conquest or elimination of the inferior races. Hitler’s control of labour relations and the key sectors of the economy was a tool for rearmament and the multiplier effect of such spending initially had a positive impact in the growth of the economy.

However, because the German experience from 1934 to 1945 was under an economy of war, it is better to assess this form of state capitalism through the experience of the more moderate forms of Christian-fascism. For instance, in Portugal corporatism lasted 40 years from 1933 to 1974. But, by the mid-1950s, the Portuguese ruler had to ease some of his corporatist policies to achieve a significant rebound of the economy. Still this was not enough to avoid the collapse of the regime and the restoration of democracy in 1974.

Overall, with the possible exception of the Scandinavian model, all historical attempts to create alternative economic systems or to control capitalism had a dramatic cost for humanity. In terms of economic misery and loss of human lives they surpassed everything experienced before during the turbulent past of the human species.

How nobility and clergy adapted to capitalism

The rise of the bourgeoisie under the capitalist system inexorably meant a change in the existing social hierarchy. Yet, historians are divided on whether the existing ruling classes - aristocracy and the clergy - waned or simply adapted and became part of the business class. Obviously, there are many individual cases to support both theories but, overall, under capitalism the new social hierarchies no longer were based on inbreeding within the same class.

The nobility had already undergone two major transformations when it changed from a warrior class into a courtier elite and when its income became increasingly dependent on financial investments. However its investment in industry and commerce had to wait until the XIX century, when by necessity or interest they began to marry with rich business people and to sell nobility titles to the wealthy.

This mingling with the bourgeoisie was initially resisted and for many years the nobility tried to position itself as arbiter between workers and capitalists or as sponsors of alternative economic systems.

In what concerns the adaptation of the clergy to capitalism, we need to distinguish between Christians and the other religions and, within the first, a fundamental divide between Catholics and Protestants.

For Max Weber and other authors the protestant ethic is often identified with the rise of the spirit of capitalism, by linking moral righteousness with making money. Indeed, the preaching of puritanism was essential to promote the savings necessary for capital accumulation. Concurrently, the proving of one’s faith through worldly activities was crucial to develop the entrepreneurial spirit associated with capitalism.

On the contrary, Catholicism preached resignation, asceticism and monastic contemplation which favoured the preservation of the status quo in the social hierarchy. Rome has traditionally been slow to breakup from existing powers, whether in relation to the acceptance of democracy or the condemnation of Nazism and communism.

Not surprisingly, protestants embraced capitalism while the catholic church, accepted reluctantly the role of markets and advocated a middle-of-the-road alternative based on the corporatist doctrine proposed by Leo XIII in 1891. The failure of this system has not prevented the catholic church from searching for new alternatives, nowadays mostly through a mix of Marxism, Latin American populism and global environmentalism.

Islam, the other big Abrahamic religion, is also generally anti-capitalist despite being founded by a merchant. Curiously, at the time of the so-called commercial revolution Muslim merchants were probably wealthier than their counterparts in northern Italy but they did not evolve towards capitalism. The main reason resides in the sharia law which, despite being favourable to commerce, prohibited joint stock companies, restricts the use of credit, does not accept the rule of law and favours theocratic regimes. Overall, Islamic theologians have been much more slow than the Christians to reinterpret the ancient scriptures to new times.

In India, Hinduism favoured an endogamy caste system which today still continues to be a big obstacle to the development of capitalism because individuals are not free to be professionally or socially mobile.

Buddhism and Shintoism, despite being religions and philosophies who favour meditation over action, did not hamper the development of capitalism in countries like Japan and South Korea, once their feudal systems and the emperor’s divinity were abandoned. Indeed, many entrepreneurs adhere to Buddhism as a relaxation and productivity-enhancing technique. Remarkably, these countries managed to keep their family and cultural traditions while westernizing and embracing capitalism.

In China, despite attempts to abolish religion during Mao’s Communist regime, Confucianism, Buddhism and Taoism remained alive and gained a new momentum since the Chinese Communist Party embraced capitalism. Confucian ethics emphasises the importance of the family but is not formally a religion. Unlike biblical religions, the Confucian system has no point of leverage by means of which disobedience to parents could be justified. In principle, its values are not opposed to capitalist principles but it is too early to know if it will impact on the future of capitalism in China.

In general, the clergy cares more about competition between religions and political power than economic systems. Nevertheless, because capitalism values materialism, democratizes economic power and reducesthe importance of political power, the clergy fears that capitalism will lessen the status of religion. Therefore, their preferred position continues to be one of critical acceptance of capitalism or support for alternative systems.

Overall, both nobility and clergy have now reluctantly accepted capitalism as inevitable, but they are not wholehearted about it. In fact, before taking this position, they often supported some of the various failed attempts to find an alternative to capitalism.

Medidas anticorrupção (1): A nomeação dos dirigentes na administração pública.

Os partidos políticos continuam a pensar que a corrupção se combate com legislação, adotada em vésperas de eleições. Não há nada mais enganador. A corrupção só se combate reduzindo o papel do estado na economia, criando uma cultura anticorrupção, um enquadramento penal desincentivador e uma administração pública independente mas responsável.


O último aspeto prende-se sobretudo com a politização dos quadros dirigentes da função pública de que ainda esta semana tivemos um caso exemplar com a nomeação de quadros da Segurança Social maioritariamente oriundos dos partidos no governo por parte de uma comissão de seleção supostamente independente.


A politização dos dirigentes que tem existido a todos os níveis da administração pública, desde o desporto até aos hospitais, jamais poderá ser eliminada através de comissões, júris ou provas, por mais bem-intencionados que sejam os seus membros (que muitas vezes não o são). A tentação para o nepotismo é inevitável, e qualquer político principiante aprende rapidamente como manipular esses processos de seleção.


A experiência internacional mostra-nos que essa tendência é universal e que apenas pode ser mitigada através de uma separação inequívoca entre os quadros da administração pública e o pessoal de apoio aos políticos.


Os últimos devem ser apenas assessores com um mandato limitado ao dos políticos e escolhidos por estes. Os primeiros terão de ser funcionários de carreira selecionados de acordo com as regras da respetiva carreira e com o nível de formação adequado à função.


Existem basicamente duas formas de atingir esta separação entre os quadros independentes da administração e os quadros de apoio aos políticos: a) com uma administração pública independente do tipo anglo-saxónico à qual se acede apenas através de provas; ou b) recrutando apenas quadros oriundos de escolas de elite selecionadas para esse efeito no estilo da ENA Francesa.


Em Portugal surgiram de forma descoordenada e imperfeita algumas instituições inspiradas no modelo Francês sem qualquer impacto significativo na qualificação e independência dos quadros da administração pública. Entre elas destacam-se instituições como o INA, o CEFA e a Escola de Saúde Pública. A estas vieram somar-se várias licenciaturas em Administração Pública criadas pela maioria das universidades.


Todas estas iniciativas cometem o erro básico de misturar vários níveis de ensino e/ou não fornecerem formação de nível adequado.


Por exemplo, a administração pública precisa de técnicos com formação variada (engenheiros, gestores, economistas, juristas, etc.) para vários níveis hierárquicos que só precisam de formação adicional em administração pública como complemento à licenciatura da sua especialidade. Essa formação deve ser ao nível de uma pós-graduação de seis meses a um ano, nunca ao nível de uma licenciatura. Este tipo de formação devia ser lecionada pelas universidades e ser condição obrigatória para admissão aos concursos da função pública.


Porém, esta formação não deve ser confundida com aquela que devia permitir uma progressão rápida na hierarquia da administração pública.


Os quadros dirigentes da função pública deviam ser selecionadas somente entre os seus quadros que tivessem obtido formação avançada num curso muitíssimo seletivo. Uma espécie de MBA em Administração Pública que só aceitasse estudantes de elite que já se tivessem destacado como quadros promissores.


Não ignoro que nós somos muito propensos a perverter qualquer tentativa de formar elites e por isso preferia um modelo anglo-saxónico. Mas também não posso ignorar que toda a nossa tradição administrativa é de origem Napoleónica. Por isso talvez tenhamos de aceitar um modelo do tipo Francês. O que não podemos aceitar é que não seja pelo menos tão eficiente como o Francês.


Porém, isso jamais acontecerá se não existir uma diferença institucional e funcional entre o pessoal político e o pessoal não político. A permanência de situações dúbias ou excecionais não pode ser aceite.


Só assim teremos condições para ter uma classe dirigente independente e responsabilizada. Esta é uma condição sine qua non para reduzir a corrupção.

Micro and Macro stories about another Greek bailout

The Greek finance minister European tour of charm has some reasonable ideas in terms of financial engineering. Unfortunately, adjustment is about operational restructuring and only when this has been agreed should the financial engineering solution be designed. I will explain why through two stories.

First the micro story: imagine that Greece is a large corporation running three different businesses. The first business has a good customer basis (e.g. healthcare) but low profits because of over manning. The second has a very long payback period (e.g. infrastructure) and will only turn a profit after a decade. The third is a loss making business (e.g. corporate welfare) with a bleak outlook in terms of future returns. Overall, the company is heavily indebted and runs at a small profit or loss.

Let us consider three restructuring options: a) close down business 3, sell business 2 and use proceeds to refinance business 1; b) refinance existing debt, declare a wage cut for all businesses, stop any further investments in business 2 and reorganize business 3; and c) draw some idealistic reorganization plans and try to convince the creditors that it can only repay them by investing more in the three businesses.

Restructuring plan a) is what a private sector company might do. It would not be the most efficient, because it would not solve the over manning and would jeopardise its service quality and client base. It would continue a lousy business but generating enough cash to keep the creditors happy.

Plan b) is what one may call a restructuring a la Troika. It would ease the financial pressure in the short term but would not improve any of the businesses. Business 3 would still run at a loss and businesses 2 and 1 would deteriorate in both quality and customer base.

Plan c) we may call it a wishful thinking Syriza plan. If “romantic” creditors bought it, they would only throw good money after bad money. The promised growth, even if it happens, will not be enough or sustainable and will only last as long credit keeps flowing in.

Now for the macro story. Of course, if restructuring was done along private sector lines (option 1) the company will not need to worry much about what would happen to businesses 3 and 2, since business 1 was small in relation to the rest of the economy. However, this a fundamental difference in relation to Greece. The country as a whole could not ignore the macro consequences of plan 1, because aggregate demand would reduce significantly causing economic decline instead of growth with a consequent rise in unemployment. So, what could the central bank and budgetary authorities do to minimize such effects?

If they had their own currency (which Greece no longer has), they could devalue it to ensure that real (not nominal) wages would decline making the country as a whole more competitive and hope that the unemployed would quickly get a new job in the export oriented industries. This could be supplemented by printing money, retraining and many other supply side measures. Whether this was enough is not relevant because Greece wants to remain in the Euro and the ECB cannot manage the Euro to meet the needs of Greece. Moreover, Greece is indeed the heavily indebted company and would need extra credit to finance such measures, credit that she no longer may create and has difficulty to obtain in the financial markets.

As expected, see my 2011 post, plan b) has already failed with dramatic declines in GDP and employment. Plan c) could ease the current social disaster in the short run but would make the current imbalances much worse, by compounding over manning across all businesses, perpetuating loss making businesses and government mismanagement.

So, which macro policies can be implemented to emulate a better private sector restructuring plan compatible with economic growth? Basically by providing extra funding and refinancing based on strict conditionality to impose a modified private restructuring plan.

These modifications should involve a mandatory reduction of over manning in the surviving businesses 1 and 2. All redundant workers should be paid a temporary unemployment benefit plus grants to promote labour mobility and the creation of self-employment businesses. The business sector 2 should be capitalized and progressively privatized to maintain a minimum level of investment on a selective basis (only for projects with a short payback period or export orientation). Internal devaluation should be achieved by longer working hours paid in non-negotiable long term government bonds. The fiscal and welfare systems should be entirely revamped and simplified to eradicate tax evasion, free riding and corruption.

As long as conditionality forces the Greeks to use their well-known creativity in the right direction, instead of accounting and fiscal tricks, they will come up with many other ideas and we do not need to enter into further details here.

What Greece, Europe and its creditors cannot afford is to let the Greeks deviate from following a private sector type of restructuring. Without such conditionality, any moratoria, debt swaps, special funds and other types of financial engineering are a waste of money.

Otherwise, everyone risks being caught into a loose-loose dispute between Syriza’s loony left agenda and the Troika’s austerity fairy tale that self-flagellation creates by itself an invigorated economy.

“Podemos” evitar repetir os erros dos anos 30

O crescente radicalismo à esquerda e à direita no Sul e Norte da Europa tem demasiadas semelhanças com o que se passou no período 1917-1934 para que os mais esclarecidos fiquem indiferentes.

As suas origens ideológicas são as mesmas – anti capitalismo, nacionalismo, fascismo, nacional-socialismo, comunismo, trotskismo, anarquismo e antissemitismo, embora hoje se apresentem com tonalidades diferentes como libertarianismo moral, ambientalismo, pró-Palestina e anti-imigração.

As condições criadas pela crise financeira de 2008 são semelhantes às da crise de 1929, nomeadamente a falência de instituições bancárias, as desvalorizações competitivas, o protecionismo e o desemprego massivo.

As condições políticas também são semelhantes se considerarmos que a intransigência e o austerismo Alemão em relação aos países do sul é equivalente à indiferença dos vencedores da 1ª Grande Guerra em relação às reparações Alemãs, que a evolução política na Hungria/Áustria e na Grécia de hoje lembram a subida ao poder dos fascistas em Itália e dos Republicanos em Espanha, e que o pacifismo e apaziguamento relativamente ao nazismo crescente nos anos 30 é semelhante ao que hoje existe perante a Rússia e o Irão.

Se estas condições geram movimentos de massas semelhantes (veja-se a manifestação do Podemos em Madrid) então temos de relembrar o que se aprendeu sobre a psicologia de massas nos anos 30. Um dos ensinamentos é que a maneira de controlar uma multidão (eleitorado) irracional não é enfrentá-la mas sim encaminhá-la para um caminho que evite o abismo. Por vezes é mesmo preciso fingir ser mais radical do que os líderes da multidão.

Por isso, nas atuais circunstâncias, os partidos reformistas (em especial o PSD), deviam abandonar a sua retórica pró-austeridade. Sobretudo quando pode invocar que apenas cumpriu 1/3 do programa da Troika e que por isso Portugal não está hoje na situação da Grécia.

Na verdade, com o oportunismo que o caracteriza, António Costa está a fazer isso ao insinuar que é mais Syriza do que Pasok. Porém, aquilo que oferece é apenas incerteza.

O centro-direita em Portugal está hoje perante uma situação semelhante à que Keynes enfrentou quando lhe foi pedido que preparasse programas de rádio para contrapor à propaganda Nazi sobre o investimento público e uma nova ordem económica mundial. Ele optou então por explicar que os aliados fariam uma melhor gestão do investimento público, de forma mais equitativa, pacífica, livre e sustentável.

Em Portugal, mais uma vez, podemos evitar o desastre iniciado na Grécia e bastante provável em Espanha. Para tal, é preciso romper com o discurso e com as caras que o eleitorado associa com os nossos problemas de forma a poder encabeçar o desejo de mudança dos Portugueses.

More on Greece: Krugman’s utopia or folly?

Nobel Laureate Paul Krugman’s case for reducing Greece’s debt service so that she no longer needs to run a large budget surplus is the following: “Suppose that the multiplier is 1.3 — which is what IMF estimates seem to suggest — and that Greece can collect 40 percent of a rise in GDP in revenue (roughly matching its average revenue/GDP). Then an additional billion euros in spending should generate around 0.5 billion euros in revenue, reducing the primary surplus by only 0.5 billion euros”.

However, his back-of-the-envelope calculation is based on an unfounded optimism about the public spending multiplier. I know that he knows that the multiplier effects of spending (public or private) are reduced through import and saving leakages. But, what he (and other optimists) usually miss is that such leakages are extremely dependent on the confidence about the spending policies being implemented.

For instance, if Greek politicians are not credible the multiplier could suddenly reduce to 0.5 and the primary surplus would be reduced by 0.8 billion euros. Or, even worse, if the ruling party is seen as revolutionary, as is the case with Syriza, the leakages may even turn the multiplier into negative values (e.g. -0.5), in which case the primary surplus reduction would be 1.2 billion euros and the current surplus would quickly vanish and destroy any lenders’ willingness to refinance the current debt level ad aeternum.

Indeed, without their own currency, capital controls and the possibility of imposing trade barriers, the leakage through imports is inevitable. Likewise the fear of the radical Syriza policies will accelerate capital flight which is a form of “hoarding”. Moreover, an unexperienced left wing political coalition is usually the most fertile ground for corruption and mismanagement which again act as a form of “hoarding”. In a country already plagued by a culture of corruption, a change towards a “loony left” will only exacerbate the problem.

In conclusion, Krugman’s call to give more importance to debt flows than debt stocks is not a folly, but in Greece’s circumstances it is certainly utopia. So the European countries should only agree to more public spending if Syriza passes a test of political responsibility and can be tied up to a properly designed adjustment program (not the ones implemented in the past by the Troika).

The lesser evil for Greece and Europe

By electing the Syriza party, the Greeks in despair have turned what was an untenable situation into a nightmare scenario, perhaps hoping to force some kind of way out from the present situation.

What are in fact the Greek options? Using my academic hat I will put them bluntly and leave to others the task of dressing them in politically correct language. The options are basically three.


The first is that once in power, Tsipras and other radical leaders in the coalition will become realists and will not rock the boat. The second is that he will try to implement his political and economic agenda and will end up in mayhem and forced out of the Euro, or, in a worst case scenario, exit the EU and fall back into dictatorship. The third option is that he will declare a moratorium or some other form of debt default and will end up being bailed out again by the Troika.


There are several international experiences we may use as an analogy for each scenario.


The “get real” hypothesis has two versions: a) the FT hope that Tsipras becomes a Lula da Silva rather than a Hugo Chaves; and, b) Krugman’s (socialist) wishful thinking that the sudden abandonment of austerity will revive the Greek economy and the political mess will disappear. Both are very unlikely. The first, because the ideological base of Tsipras is fundamentally different from that of the Lula’s party in Brazil and the financial situation is much worse in Greece. The second ignores that the moderate socialist left has been almost wiped out of the political map and replaced by radicals without previous government experience.


The “mayhem and Euro exit” scenario is the most dangerous for Greece and Europe, if one judges from historical precedents such as the Cuban revolution or the rise of Nazism in Germany. One should not forget that it was economic anarchy, national humiliation, anti-Semitism and the fear of communism that led the Germans to vote Hitler into power. The fact that Syriza has chosen as coalition partner a nationalistic anti-Semite party and left-wing leaders in Southern Europe are increasingly endorsing anti-Semitism under the guise of pro-Palestinian support, creates an environment favorable to the Greek Golden Dawn neo-Nazi party which came third in the election.

The “new debt restructuring and new bailout” is the lesser of the three evils. In practice it means that the Troika needs to develop a new financing mechanism to lend Greece the money they need to repay their debt. This way of preventing a formal write-off of loans from international financial institutions, which enjoy preferred creditor status, has been used by the World Bank through AID lending and by the IMF through the HIPC/MDRI and PRGT Initiatives. Two countries with recently overdue repayments to the IMF were Zimbabwe and Argentina. Both with left-leaning, populist leaders who decided to challenge the international lenders. The results have been years of economic decline and rampant corruption. So, Greece, a country already rigged by alarming levels of corruption, might follow their path. However, for the good of Greece, one should hope that Tsipras will be more like Cristina Kirchner than Robert Mugabe.


To close this rather bleak outlook, I must address the question on whether there are no solutions for the Greek problem. Yes, there are. And I have written about some of them in other posts (e.g. here and here) in 2011, at the start of the Southern European crisis.


However, I do not foresee a possibility that someone will endorse them before the Greek electorates gets disillusioned with the new utopia, votes for more reliable politicians and the EU leaders reconsider their austerity bias. I hope that time will prove me wrong.

O perigo da ascensão da extrema-direita na Europa

A controvérsia em torno da participação ou não de Marine Le Pen da Frente Nacional na manifestação contra o terrorismo em Paris, resulta de um equívoco muito comum entre democratas. Porém, a questão de saber se em democracia se pode tolerar partidos xenófobos e tendencialmente totalitários só tem uma resposta possível – sim! De outro modo não será uma verdadeira democracia.

O único requisito que se lhe deve exigir é que exerçam a sua atividade sem violência e respeitem a lei e as regras da democracia. Nesse aspeto não existe qualquer diferença entre extrema-direita e extrema-esquerda, independentemente do seu passado.

Pessoalmente, não tenho a menor duvida que se a Frente Nacional em França ou o Partido Comunista em Portugal alguma vez forem eleitos para governar tratarão rapidamente de instaurar uma ditadura para se perpetuarem no poder. Por essa e outras razões procuro sempre relembrar o perigo dessas ideologias totalitárias mesmo quando elas juram ser democráticas.

No entanto, se se quisesse proibir o Partido Comunista em Portugal eu estaria entre os primeiros a protestar na rua pelo seu direito à liberdade. Na verdade a sua liberdade não é menos importante que a minha.

Mais, quando em Portugal o PCP utiliza a sua influência nos sindicatos para promover greves frequentes nos transportes públicos com prejuízo para todos nós, eu não me insurjo contra o PCP, mas sim contra a legislação que permite a esses sindicatos recorrer arbitrariamente à greve.

De igual modo, não culpo os radicais de esquerda e de direita pela sua ascensão na Europa. Culpo sim os partidos democráticos à esquerda e à direita por terem alienado o seu eleitorado. Isto é, o verdadeiro perigo para a Europa é o declínio dos partidos reformistas e moderados.

Globalização, assimilação e multiculturalismo

Os recentes atos de terrorismo em Paris renovaram a necessidade de um debate esclarecido sobre os problemas do fundamentalismo, seja Islâmico ou outro. O fenómeno deve ser analisado sob vários ângulos, mas irei apenas abordá-lo na perspetiva do debate entre assimilação e multiculturalismo.

Paradoxalmente, o processo de globalização em curso ressuscita novas formas de feudalismo. Temos pois de recorrer à história para analisar o fenómeno. A história da Península Ibérica durante a idade média é das mais relevantes para percebermos a diferença entre os sistemas de assimilação (melting pot) e multiculturalismo.

Durante os séculos de guerra entre cristãos e muçulmanos que se seguiram ao domínio Visigótico, muitos Judeus, Cristãos e Mouros sobreviveram às frequentes guerras predatórias e respetivas mudanças de vassalagem, refugiando-se em pequenas comunidades autónomas mediante o pagamento de um tributo aos reis do momento. Em Lisboa, ainda temos bairros com o nome desses guetos, por exemplo a Mouraria para os muçulmanos ou a Alfama para os Judeus.

Em troca desses tributos os moradores eram autorizados a ter a sua própria religião, educação, justiça e até polícia. Porém, a vida nessas comunidades não era fácil. Quando enriqueciam ficavam sujeitas à ganância dos seus senhores e à inveja dos vizinhos. Quando eram miseráveis ou adoeciam eram desprezados pelos senhores e acusados de propagar a peste pelos vizinhos.

Por isso essas populações viviam alternadamente períodos de tolerância e perseguição feroz, por vezes dramática, como no caso do massacre dos Judeus em Lisboa no ano de 1506. Como seria de esperar, alguns dos seus líderes religiosos mais fanáticos sonhavam com retaliação e pregavam a criação de um Califado ou Reino que lhes permitisse inverter a situação. Os que pregavam a tolerância eram menos ouvidos e frequentemente desmentidos pelas perseguições recorrentes .

A proliferação nas grandes cidades de zonas suburbanas habitadas maioritariamente por minorias étnicas ou religiosas, onde os restantes habitantes e a própria polícia têm receio de entrar, são a versão moderna dos guetos medievais. Para os defensores do multiculturalismo, essas comunidades devem ser protegidas e respeitadas no seu desejo de autoexclusão.

Porém, não é difícil imaginar que tal processo gerará os mesmos conflitos que ocorriam na idade média. Desde logo, porque o isolamento dessas comunidades leva inexoravelmente ao seu empobrecimento e desemprego, tanto mais que hoje (e ainda bem) não temos as guerras e doenças que na idade média limitavam o crescimento dessas populações. Mais, as tentativas de remediar o problema através do estado social criam problemas adicionais,são financeiramente insustentáveis a longo prazo e geram reações xenófobas nos restantes habitantes. Isto é, o ritmo avassalador dos custos sociais tornar-se-á no equivalente à peste da idade média.

No entanto, a história da miscigenação no Brasil e da emigração nos Estados Unidos mostram-nos como a assimilação pode ser a melhor solução para preservar a identidade das minorias. Sendo nações de emigrantes oriundos de muitos países, os seus habitantes revêm-se simultaneamente no seu país de acolhimento e de origem. Por exemplo, nos Estados Unidos os seus habitantes sentem-se simultaneamente Americanos e Afro-Americanos ou Luso-Americanos, sem terem necessidade de renegar a sua origem e cultura. Qualquer tentativa de os segregar numa base residencial ou linguística justificada por um pseudo multiculturalismo apenas contribuirá para a sua “guetização” e subsequente desagregação da sociedade.

Um processo de assimilação não tem necessidade de excluir comunidades de base étnica, linguística, religiosa ou cultural, tal como a existência de associações e governos locais ou regionais não destrói o estado central. O essencial é que tais comunidades sejam voluntárias, abertas, democráticas, tenham poderes limitados e respeitem as regras de um estado de direito. Por isso, a existirem, tais comunidades deve ser reguladas de forma transparente, constitucionalmente aceite e assumida.

Em suma, num processo de globalização a ideologia multiculturalista é perigosa e perfeitamente dispensável quando os modelos de assimilação podem facilmente coabitar com as desejáveis diferenças e respeito pelas tradições e origens de cada um de nós. Só assim se evita que fanáticos e políticos sem escrúpulos explorem as nossas diferenças culturais, étnicas ou religiosas para prosseguir as suas agendas totalitárias e destruir a nossa liberdade.

Communist state capitalism in China

China currently lives under a complex mishmash of the leftovers of communism, state capitalism, crony capitalism and laissez faire in the special economic zones. The communist party remains in power, but has progressively replaced the communist ideology by a mix of nationalism and mercantilism.

This new model has been very successful in terms of economic growth and attraction of foreign direct investment. Due to its huge population (1/4 of all humanity), China is now seen as a kind of manufacturing factory for the world.

Under Deng Xiaoping, China introduced in 1979 a policy to modernize their state owned companies by granting them more decision making power and the possibility of retaining a share of the profits. Along with this, marginal players operating outside the boundary of socialism were tolerated as long as they did not threaten the state sector or challenge the Party’s political power. The later spur a movement of entrepreneurial activity through private farming, township and village enterprises, private business in cities, and Special Economic Zones.

Three years after the Tiananmen Square Massacre the Communist Party officially endorsed the “socialist market economy” in 1992. This was followed from 1992 to 1994 by a second round of reforms aimed at creating a true internal market within China by abolishing or reducing the many trade and tax barriers at provincial borders and through the privatization of some state enterprises.

Two other important milestones were the membership of the World Trade Organization in 2001 and the constitutional amendment of 2004 recognizing the protection of private property.

The most radical departure from communism was the 1980 establishment of Special Economic Zones in Zhuhai, Xiamen, Shenzhen, and Shantou opened to foreign investment to experiment with the market economy, import advanced technology and managerial know-how, and sell goods to the global markets without undermining socialism in the rest of the country.

These were later extended to other regions and transformed China from a backward rural economy into the largest offshore processing center of the world. These areas attracted 70% of all foreign investment and contributed to over 70% of its exports. Foreign direct investment (FDI), including from Chinese living abroad, became the driver of an unprecedented export-led boom.

Source: UNCTAD World Investment Report 2014

There are two remarkable features in the evolution of FDI in China. Its ten-fold increase during the 1990-1994 second round of reforms that followed Tiananmen and the fact that since 2005 China also became a major source of FDI. Most of the Chinese outward investment went to Hong Kong and offshore centers but the Chinese have also invested significantly in Australia, South Africa and other African countries rich in natural resources.

These flows are an unquestionable testimony and consequence of the success of China’s mercantilist dualist economy – a state owned economy supported by the largest offshore territory in the world. Indeed, in 2006 its foreign currency reserves, already the world's biggest, topped $1 trillion. They are also the best proof of the power of capitalism as an economic system, even in its distorted version of state capitalism.

The question is to know whether it can survive in its current form and how it may evolve. Judging from previous experiences it is unlikely that the current model will last more than 30-40 years.

For instance, despite the initial economic role of the Chinese military complex and a rising nationalism one hopes that it will not derive into a Nazi/Japanese-like military adventure that would kill its early success and endanger world peace.

Similarly, any drive to obstruct the growth of joint stock companies while transforming the still large and inefficient state enterprises into some form of Tito’s Yugoslav model of self-managed enterprises is equally doomed to fail.

An evolution towards a Scandinavian model of state capitalism would be equally short-lived and does not seem feasible given the cultural differences between the Nordics and the Chinese. Likewise with a move towards a Mediterranean corporatist form.

The Chinese state capitalism is already showing signs of fatigue. As usual, these are more visible in disastrous investments abroad and in a fragile banking system. The latter is a time-bomb in waiting. Some, like C. E. Walter and J.T.H. Fraser (2009), alerted to how the banks are risking the retirement of an ageing population of more than 300 million people. The “heroic savings capacity of the Chinese people” are being used to finance loss making state companies as well as property bubbles and gigantic “Pharaonic” infrastructure investments.

Despite these worrisome signs, the Chinese people have embraced a commitment to education and learning from the Western countries experience without parallel in history. For instance, in the academic year 2010-2011 there were about 340 thousand students studying abroad, most of them financed by their own families. Indeed, in the USA and the UK there are now Universities that survive on Chinese students. These students are very competitive and will foster a new rise in entrepreneurship and modernization as long as their drive to succeed is not diverted towards nationalistic adventures.

Indeed, contrary to what some claim, I do not believe that the peaceful transition from communist state capitalism towards a democratic market capitalism needs a new “third way”. I totally disagree with the Nobel Laureate Ronald Coase predicament that: “Capitalism will be much more robust if it’s not a monopoly of the West, but flourishes in societies with different cultures, religions, histories, and political systems.”

It is not possible to achieve true market capitalism within a communist political system. However, the two transition processes can reinforce each other rather than deter one another.

By correcting the many deficiencies in the Chinese pillars of capitalism, from relying less in joint ventures and better protecting private property to the abolishment of internal restrictions to labor mobility and the opening up of its domestic financial market to achieve international capital mobility on both current and capital transactions, China would ease its political transition towards representative democracy and constitutional liberalism. For instance, a strong adherence to a system of limited liability will enforce credit prudence in the banking sector and might avoid the foreseeable problems with old age pensions.

In conclusion, China is at a crossroad. If she wants to preserve its recent economic success and avoid descending into other forms of state capitalism or to become a crony capitalist system of the Russian type it must fully embrace market capitalism. The more it does so the greater the chances of also managing a peaceful political transition.

We’re all capitalists now

The six pillars of capitalism – private property, profit motive, free markets, rule of law, joint ownership and limited liability – allowed this economic system to be the most productive as well as the most equalitarian system ever tried by humanity. Nevertheless, this result was neither procured nor foreseeable from the outset.

For example, one of the widest off the mark forecasts in history was Marx’s prediction that under capitalism the greater part of the middle-class would constantly sink into the proletariat leaving the population divided into a small bourgeoisie and a large proletariat. Indeed, exactly the opposite has happened. Although the wealthiest one percent has increased its share of total income the number of proletarians (those without any assets other than their labor) dwindled to a small number. So, instead of all becoming proletarians now we are all capitalists.

The explanation for Marx’s failure resides in his erroneous theory of wages and employment and from unforeseen developments in terms of labor organization (unionization), welfare state and compulsory savings through retirement, unemployment and health insurance.

Furthermore, apart from the number of capitalists in society, there were other developments that also changed the perception and the role of capitalists.

In fact, under capitalism the social structure no longer is based on breeding but on work and merit. Social mobility is now achieved mostly through education while the social standing of business people as well as that of wealthy and poor capitalists is now at par with the traditional higher classes of nobility and clergy.

Popular capitalism, a term used to describe the rise in shareholding by individual investors, may occasionally hit the headlines but it should not be confused with the process through which people are now simultaneously workers and capitalists. Whether people choose to own shares in a company directly or indirectly through institutional investors depends simply on their perception about which is the best way to manage their capital.

The role of the capitalists investing in equity has also changed in the sense that most of them do not participate in the life of the company into which they invested or simply monitor its development. Indeed, some do not even want to know much about the company where they invested except its price so that they do not become sentimentally attached to the stock.

Nevertheless, although day trading based in technical analysis is a popular approach among some investors, the majority of investors still follow an investment approach based on event or portfolio investing which require a good knowledge about the company. Thus the signs they transmit through their buy and sell orders cannot be ignored by company managers, even when they are not part of the small group of investors that have or might exercise the control of the company.

So, although trading plays an increasing role in today’s capitalism, we cannot identify the kids gesticulating in a modern trading room with a Rothschild standing at the door of the London Exchange in the XIX century. Mostly because they are just agents, while Rothschild was simultaneously agent and principal. So, traders cannot be used to symbolize modern capitalism. Nor should the wealthy be confused with capitalists whenever they invest only in government debt.

As I said elsewhere, 100% leveraged companies cannot exist in the capitalist sector. In this sector, shareholders are indispensable to preserve the profit motive and profit maximization indispensable to a capitalist system. So, although consumers are the main beneficiaries of capitalism with an unequivocal interest in free markets (another pillar of capitalism) they cannot play the role of capitalists and force managers to pursue profit maximization because they would have an interest in securing lower prices at the expense of profits.

Then, since most people are simultaneously consumers, workers and capitalists, how can they achieve at the same time lower prices, higher wages and more profits? This is a false conundrum easily solved in a capitalist system through competition and profit maximization. To pursue profit maximization firms have to optimize their labor/capital mix while investing more in physical and human capital to increase productivity and wages. Through free and competitive markets corporations are at the same time forced to take good care of their customers and try to offer the best service at a lowest price.

In conclusion, as more people becomes capitalist they improve their wealth and income, and, most importantly, they play a role in keeping the system alive and efficient.

In general, most of us, including those with more than a million invested in securities, cannot live on capital earnings alone. Therefore we do not recognize ourselves in the old stereotype of an idle capitalist with a top hat living on investment income and spending only a few hours a month monitoring or trading his securities. But, generally, now we are all capitalists (whether directly or indirectly) despite not fitting into a stereotype. This is clearly an important civilizational advancement of capitalism.