Friday 10 December 2010

Cronyism and the next government

One of the most interesting papers that I have recently read on the Portuguese economy was the paper (already referenced here) by Pedro Martins on cronyism with regards to public sector jobs. Martins uses the "Quadros do Pessoal" data in order to undergo an extensive empirical investigation of job hirings in public sector enterprises before and after general elections. The paper is important because it confirms fairly convincingly something that many suspected and from which we only had, up to now, anecdotal evidence: that hirings in public enterprises are strongly associated with general elections. Namely, Martins finds that hirings in public sector enterprises goes up immediately before and in the 3-6 months after a general election (see graph below, where period 0 represents the date of the election). Interestingly, but probably not suprisingly, the effect on hirings is stronger when the party in power changes (i.e. if there is a change in the "color" of the party in power), that is, when the jobs-for-the-boys effect comes clearly into play. The results hold even after Martins controls for experience, education, private sector hirings, among others.
   What this points out very clearly is that, in the last 30 years (i.e. at least since 1980, the year the data begin), public sector enterprises have been blatantly used for political gains and to reward whoever helps you get into power. Yes, there are jobs for the boys alright and  they are not only in the public administration or the State. Public companies also do.
   This is certainly not completely surprising, but it is surely very nice to have substantial and unequivocal evidence on the extent of cronyism in Portugal. One of the obvious implications of this study is that we now understand better why public expenditures have been so difficult to control in our country, or why the debt of public enterprises keeps on growing at, on average, about 3 billion euros a year.

Cronyism _ Job hirings in public enterprises before and after general elections
 Source: Martins (2010), and taken, with permission, from here.

   I would like to end with a word of caution about the future. It is widely expected that we will have general elections sometime in 2011 (hopefully sooner rather than later), after the presidential election is over and after the constitutional limits allow. It is also widely expected that there will be a government of a new "color"(to use Martins's terminology),  probably in coalition with a smaller party. Thus, the temptation to emulate the past will be there, with interest groups associated with the new parties in power pushing for new jobs for the boys.  Let's hope this does not happen. If it does, it would be simply unexcusable in times like these. The fact is that it is not worth changing the boys from pink to orange or even to blue just for the sake of doing it. Boys will be boys will be boys. And this "boy" culture and tradition is partly responsible for the sad state of our public  finances. Therefore, if the new government truly wishes to reform the State and get away from the sorry state of affairs that is taking place in Portugal right now, it must avoid, at all costs, the temptation to distribute new jobs for the boys in the State and in public companies. If it does so, the new government will fail and won't be able to implement a truly reformist agenda, something that Portugal desperately needs. Let's hope not. I am sincerely hopeful that next time will indeed be different (even if it is because we really can't afford to do otherwise).

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