Tuesday 23 February 2010

Back to the lost decade...

   For a decade, since roughly 2000, the growth of the Portuguese economy has been low by every standard. Basically, the initial efficiency gains resulting from entering the European Communities in 1986 were exhausted by that time. Most of them resulted from producing basically the same mix and volume of products with less inputs (workers mainly) in the sectors exposed to the international markets, and those workers
moved into sectors of non-tradeable goods and services. Which was fine for a while. But such processes have a limit. And while Governments paid lip service to the importance of innovation to growth, no strong change actually occurred.
   It is true that some companies of high technological content appeared and do well. It is true that traditional sectors like textiles and footwear have shown more ability to survive, reinvent and upgrade their products that some anticipated (though many firms failed). Still, no major change in the economy took place.
   Then, we suffered the international crisis like any other country. As we were at a lower level of growth, the drop in output was also smaller. The danger now is that a positive view regarding having less of a crisis than other countries will actually keep us in the same path as before. In a couple of years, other countries will be growing fast (ou faster than Portugal), and we will back to the lost decade... a second one.
   The challenge the Portuguese economy faces is not the international crisis, but how to produce goods that it can trade in the international market.


  1. I'm a non economist but I wonder, how do other european countries produce goods that can be traded in the international market? Don't they order them with a custom label from some maker in Asia for half the price it would cost to produce in Europe? Should Portugal do the same? Am I missing the point and/or being narrow minded? :)

  2. I would love to see this argument strenghtened with some numbers, namely % of the workforce in the tradicional, technological, and public sectors, in 1986, 2000 and 2009, and of course the % of GDP by each of these sectors.