Madeira, the Portuguese island, has some lessons for Portugal. Forty years ago it was the poorest region in the country and now it is above average in terms of income per capita. How did that happen? Part of Madeira’s catching-up was due to net financial transfers from Lisbon and Brussels, and that is reflected in the fact that catching up in terms of income per capita was higher than in terms of factor productivity. And there is also some Irish stuff in Madeira’s success, namely a competitive tax regime. However, the crux of the matter is that Madeira had what was once called a development state – and the dominance of one party, the Social Democratic Party (PSD), led by a charismatic and often controversial leader, Alberto João Jardim.
Switch now to Portugal as a whole. What can we learn from Madeira’s experience? Does it have lessons regarding the way Portugal will catch-up to the European core? About the need for a development state? And about internal politics?
The recently elected leader of PSD, Pedro Passos Coelho, should think a bit about that. I am sure that his economic advisers do not agree that Madeira have some lessons for Portugal, as much of them have looked at Ireland as the upmost example about what Portugal should “do”. They are however wrong – and may loose next elections because of that. That would be a shame because Portugal is in dire need of a government change. Just for the sake of it.