Portugal was a peculiar social formation between 1976 and 1989. Most of its high-profile businessmen had fled the country after the ‘Carnation Revolution’, seeing their firms nationalised in the midst of political radicalisation and mounting social conflict.Footnote 1 The Constitution of the Portuguese Republic, passed in April 1976, declared those nationalisations to be ‘irreversible’, prescribing a model of economic development aimed at ‘opening up a path towards a socialist society’.Footnote 2 However, state planning was never implemented, nor were additional steps taken to consolidate an alternative economic system. As Kenneth Maxwell pointed out, Portuguese society remained ‘divided between the consequences of an unfinished socialist revolution and a merely partial capitalist transformation, suffering the disadvantages of both without enjoying the benefits of either’.Footnote 3 Some authors have defined this peculiar arrangement as a ‘politicised market economy’, in which ‘the distributional role of prices’ became a ‘justification for their manipulation’, but, at the same time, their allocative role was ‘not replaced by a centralized allocation of quantities’.Footnote 4
Two stand-by agreements with the International Monetary Fund (IMF), signed in 1978 and in 1983, contributed to shift the pendulum of political debate towards a pro-market approach. However, the economic section of the constitution would only suffer significant changes in 1989, when most of the paragraphs concerning nationalisations and planning were altered or eliminated, paving the way for the privatisation of the commanding heights of the economy. This confronts us with two questions: (1) why did the economic trajectory of the country veer away from the project of building a ‘Portuguese road to socialism’?; (2) how did a new type of consensus emerge during this period, allowing for the revision of the constitution?
These interrogations have long been a subject for debate amongst scholars. Regarding the first question, Boaventura de Sousa Santos has called attention to a ‘discrepancy between legal framework and social practices’, attributing it to the absence of a consistent socialist strategy, capable of bridging the gap between the constitutional legacy of the Carnation Revolution and the prevalent capitalist relations of production.Footnote 5 As for the second demand, some authors have pointed out the emergence of a new paradigm of economic policy on the global stage, with the rise of a ‘new economic orthodoxy’ advocating a ‘greater role for markets, the reform of the public sector, less state intervention, and greater international integration of national economies’.Footnote 6 Even though these are evidently important elements for discussion, this sort of explanation remains somewhat deterministic in terms of historical causality. In other words, both the absence of a ‘socialist strategy’ and the emergence of a ‘new paradigm of economic policy’ need to be explained, rather than merely stated. And while international factors have played an important role in setting the conditions for economic policy in Portugal, the specific agency of domestic actors must also be taken into account, namely the reception of economic ideas and the political decisions taken by government officials.
Covering the political and economic trajectory of Portugal between 1976 and 1989, this article argues that the changes made to the constitution reflected the growing influence of a home-grown neoliberal ‘intellectual field’.Footnote 7 As we shall see, key elements of neoliberal theory – such as the superior capacity of markets to process and disperse information, or the role of monetary policy in ensuring price stability – had circulated in Portugal since the late 1970s, becoming a crucial source of inspiration for those who criticised the economic legacy of the Carnation Revolution. The writings of a group of intellectuals associated with the Faculty of Economics of the New University of Lisbon (Universidade Nova de Lisboa, henceforth ‘Nova’) proved to be particularly important in this regard. By mapping the rise of this group to a dominant position within academia and the Bank of Portugal, along with its intervention in the public sphere throughout the 1980s, this article offers new arguments to reconsider the trajectory of Portugal after the Carnation Revolution, namely in regard to the role played by domestic actors. Simultaneously, by combining political economy and intellectual history, the article engages with some crucial debates across the field of ‘neoliberal studies’.Footnote 8
In spite of its widespread use in the public sphere, the term ‘neoliberalism’ is frequently met with scepticism by scholars, who tend to disregard it as too vague and over-reaching.Footnote 9 That is, perhaps, an inescapable feature of the phenomenon itself, the ‘variegated’ nature of which has been acknowledged by researchers across different fields, who pointed out the distinct ‘geographies, modalities and pathways of neoliberalization’, as well as the ‘differentiated, experimental, specific and ultimately polymorphic character’ of neoliberalism.Footnote 10 The term poses additional challenges to historians, since it is all too easy to hypostatise it, converting ‘neoliberalism’ into a nebulous historical agent that pursues an invariant set of goals. On the other hand, renouncing the concept makes it more difficult to move beyond a generic description of the transformations of the global economy during the last quarter of the twentieth century. A brief excursion through the literature on ‘neoliberalism’ may help us to clarify both the meaning and the usefulness of the concept.
At a course held at the Collège de France, in 1978, Michel Foucault addressed the theoretical production of the Freiburg School (‘Ordoliberalism’) and of the Chicago School of Economics, defining neoliberalism as a ‘mode of governmentality’ based on the principle of competition, in which markets operate as a ‘site of veridiction’, allowing individual preferences and abilities to be measured and translated into price signals.Footnote 11 Drawing on this insight, a collective volume dedicated to the Mont Pèlerin Society defined neoliberalism as a transnational movement based on common epistemic commitments, pointing out ‘the numerous and sometimes confusing ways in which neoliberal ideas have been historically related to each other, to social classes and to political and economic regimes’.Footnote 12 Quinn Slobodian has recently added the ‘Geneva School’ to this picture, highlighting the contribution of neoliberal intellectuals to the creation of a world order based in international competition and unfettered global trade.Footnote 13 Even though they pursue somewhat different approaches, all of these authors have defined neoliberalism as a transnational intellectual current formed after the Second World War, with the aim of challenging the influence of Keynesianism and ‘socialism’.
Following a more structuralist approach, other authors have associated neoliberalism with ‘a new social order’ designed to re-establish the power and income of the ‘upper fractions of the ruling classes’, identifying 1979 as the starting point for what they called the ‘neoliberal counterrevolution’.Footnote 14 As this argument goes, the structural transformation of the global economy in the late twentieth century was the result of deliberate actions, taken at the state level, with the aim of building a new regime of capitalist accumulation.Footnote 15 Rather than a movement or a current, this approach tends to define ‘neoliberalism’ as a particular stage in the history of capitalism, based on a global institutional architecture favourable to investors and employers.
Instead of opting for either of these two lines of interpretation, this article seeks to bring them together. Indeed, many features of the ‘neoliberal counterrevolution’ – a new discipline of labour and management, a diminished intervention of the state concerning economic development and welfare, the growth of financial institutions, the strengthening of central banks and the targeting of their activity towards price stability – resulted from contributions made by neoliberal intellectuals over a relatively long period of time. Most of them circulated through a broad network of academic institutions and think-tanks before being implemented at government level. This justifies analysing the theoretical production developed to meet the specific circumstances of the Portuguese social formation, as well as its translation into economic policy, so as to clarify whether we can speak of a ‘semiperipheral’ pathway to neoliberalisation.
The concept of ‘semiperiphery’ is frequently used in the literature dedicated to Southern Europe, a region that combines features of both the core and the periphery of the modern capitalist world-system.Footnote 16 From a comparative standpoint, the trajectory of Portugal, Spain and Greece looks rather similar: the three countries underwent rapid industrialisation after the Second World War, experienced democratic transitions in the 1970s and joined the European Common Market during the 1980s.Footnote 17 But there were also significant variations in terms of their political economy, since Spain experienced a tight monetary policy throughout the 1980s, whereas Greece had rather more profligate governments and Portugal oscillated between the two.Footnote 18 These differences call for a fine-grained approach that acknowledges the specific features of each social formation, while assessing the circulation of ideas and the degree to which exogenous decisions interfere with policy-making in semiperipheral countries.
The rest of the article is divided into four sections and a conclusion. The first section covers the debates that unfolded during the first International Conference on the Portuguese Economy, organised by the Gulbenkian Foundation (Fundação Calouste Gulbenkian) and The German Marshall Fund of the United States in September 1976. The second section analyses the impact of the first stand-by agreement signed with the IMF, in May 1978. The third section covers the growing influence of neoliberal intellectuals during the 1980s. The fourth section handles the process that led to the second revision of the constitution. The concluding section summarises the main features of the ‘Portuguese road to neoliberalism’, offering a few additional insights on the particularities that characterised the processes of neoliberalisation in semiperipheral countries.
By the end of the 1970s, state-owned enterprises (SOEs) in Portugal ensured 19.8 per cent of the Gross Value Added and 30 per cent of Gross Fixed Capital formation, employing 7.6 per cent of the country's labour force.Footnote 19 This was in line with other Western European countries, with the particularity that the economic sections of the Portuguese constitution prescribed a state-led development model, loosely identified with the build-up of ‘socialism’. There were also a few inescapable constraints that could not be ignored, such as the long-standing trade relations with Western Europe and the United States, or the goal of joining the European Economic Community (EEC), cherished by the first constitutional government, formed by the Socialist Party (Partido Socialista; PS) under the leadership of Mário Soares.Footnote 20 The prevalent situation in 1976 was therefore one of ambivalence and indeterminacy.
It was in this context that The German Marshall Fund of the United States of America and the Gulbenkian Foundation organised an ‘International Conference on the Portuguese Economy’, gathered in October 1976, with the purpose of providing sound ‘technical’ advice to the Portuguese government. The conference brought together economists from various countries, including, of course, some of the most prominent representatives of the discipline in Portugal. The organising committee included Robert Livingston (Vice-Chairman of The German Marshall Fund of the United States), Alves Martins (representing the Gulbenkian Foundation), José Silva Lopes (Governor of the Bank of Portugal), João Cravinho (former Minister of Industry), Richard Eckaus (MIT Economics) and Erik Lundberg (University of Stockholm).Footnote 21 The conference's proceedings – published in two volumes, amounting to more than a thousand pages – reveal a tremendously ambitious scope, with working panels that covered almost every imaginable topic, from agriculture to local development and from industrial specialisation to labour policy. This was not merely an academic venue, but a forum that brought together technical expertise and political opinions, focusing on the immediate prospects of economic development in Portugal. One of the presentations was particularly important in this context, as it amounted to a full proposal of economic policy, drafted by a group of doctoral candidates from the Massachusetts Institute of Technology (MIT). Economic advice from foreign experts was far from constituting a novelty in Portugal. Erik Lundberg, Robert Solow and Peter Diamond, among others, had visited the country after the Carnation Revolution, so as to offer analysis and proposals to either the Portuguese Government or the Bank of Portugal. In December 1975, three professors from MIT – Lance Taylor, Rudiger Dornbusch and Richard S. Eckaus – had been invited by the Bank of Portugal to assess the economic situation. They found that the country's recent record ‘would not appear so different from that of the rest of Europe’, since ‘the major trends of reduced production and investment, balance of payments deficits, and inflation would all look quite familiar and even in some respects less serious for Portugal than in some of the other countries of western Europe’.Footnote 22 Their chief conclusion was that the growth of internal demand in the course of the previous two years – supported by the Central Bank through an expansionary credit policy – had prevented a more serious recession. But they also warned that this could not go on indefinitely and should rather be seen as a good starting point.
Apparently impressed by their arguments, the Bank of Portugal went on to invite the three professors to prepare a broader, more detailed, proposal of economic policy. Since none of them was willing or able to do it, a group of MIT doctoral candidates was summoned to the task, including a few names that would become well known in the following years: Andrew Abel, Luís Miguel Beleza, Jeffrey Frankel, Raymond Hill and Paul Krugman.Footnote 23 Their proposal of economic policy was the main topic for discussion at the conference.Footnote 24
The MIT group started by analysing the recent deterioration of the balance of trade, which was to become a critical issue over the next years. A large share of Portuguese imports was non-elastic in terms of price (namely grain and fuel), with the additional problem that most industries depended on imported energy and machinery. Moreover, there had been a significant reduction of domestic savings after the revolution – from 21.3 per cent to 4.7 per cent of the Gross Domestic Product (GDP) between 1973 and 1975 – while wages increased about 23.6 per cent.Footnote 25 Combined with capital flight and a diminution of external demand, this meant that available resources for investment were scarce and had to be used efficiently.
The policy proposal offered by the MIT group identified two available options. The first was to allow the trade deficit to persist, aiming at short-term growth through a combination of market and planning. The second, which was considered to be preferable, would deliberately seek to bring down the external deficit, by limiting internal consumption and expanding production. Currency devaluation, combined with salary increases below the expected rate of inflation, would restore the competitive edge of Portuguese exports (which had suffered a contraction estimated at around 12.6 per cent since 1973), allowing a rise of 8 per cent in its value, while bringing down the value of imports by 4 per cent.Footnote 26 The proposal also implied an expansion of internal credit by 58 per cent, with the purported aim of financing productive investment. In short, the MIT group remained well within the boundaries of the conventional macroeconomics wisdom of the time. The main thrust of its proposal was aimed at creating a mixed economy and a robust welfare-state, aligned with the programme of the first constitutional government.Footnote 27
Even though the organisers of the conference claimed that its programme obeyed strictly ‘technical’ and ‘scientific’ criteria, there were clear political divergences amongst the participants. Stuart Holland, a left-leaning British economist, questioned the assumptions of the MIT group concerning the advantages of export-led growth models, arguing that ‘in the real world outside the econometric models, there are five or six economies in Europe alone which have got a similar crisis to the Portuguese economy’, and therefore, ‘even massive potential profits through low wages will not mobilize actual investment if there is no evidence of expanding demand’.Footnote 28 Other participants criticised the proposal of the MIT group from the opposite angle. Maxwell Fry and Bela Balassa, who intervened, respectively, on finance and trade issues, outlined an alternative model of export-led growth, the foundations of which would become highly influential for the Portuguese neoliberal intellectual field.
A British economist who specialised in development, Fry questioned the benefits of state intervention in the credit system. He regarded existing ceilings on interest rates – set below the expected inflation rate – as a hidden tax on depositors and a major deterrent for capital formation, arguing that political measures enacted to ensure credit selectivity merely distorted the price mechanism and led to an ineffective allocation of resources.Footnote 29 Accordingly, he proposed the liberalisation of interest rates and the abolition of price ceilings. But even though he had an eye on the long-run, Fry was a pragmatic adviser and knew that this required a ‘radical policy change’ which would probably not be ‘politically acceptable at the present’. He therefore proposed a set of measures that pointed in the direction of financial liberalisation: creating Negotiable Certificates of Deposit (NCD) inspired by the Mexican example of ‘la financeira’; implementing a ‘long term fixed dividend instrument with a competitively high yield’, in order to attract savings (namely emigrant remittances); adopting compulsory savings schemes for wageworkers; establishing a centralised market for bills, to serve as an indicator of market pricing and a reference for monetary policy.
Bela Balassa's paper was both longer and more ambitious, calling for an integrated approach to industrial and trade policy.Footnote 30 A Hungarian economist working for the World Bank, Balassa called for an export-oriented strategy that would fully explore the opportunities offered to Portugal by its geographical position. In his view, the country should occupy the ‘middle ground’ between the capital-intensive, technologically-advanced, industries of developed countries and the unskilled, labour-intensive, industries of developing countries, by specialising in labour-intensive industries (namely machinery and equipment) that employed skilled and semi-skilled workers. Balassa enumerated a few measures of economic policy for that purpose: (1) private investors should receive adequate guarantees concerning property rights, labour relations and credit concession; (2) SOEs should be forced to compete in the market and a number of sectors under state monopoly should be open to private initiative; (3) fiscal and credit measures should be designed to increase industrial concentration; (4) price controls and quantitative limits to imports should be abolished, so as to ensure the formation of prices through market mechanisms. Just like the MIT group, Balassa believed it was necessary to combine an increase in productivity with a ‘temporary decline in real wages’. But unlike the MIT group, he favoured a programme of adjustment through liberalisation, specifically tailored to a small and open economy in the Southern European context.
In a conference where most speakers favoured state-led development models, Fry and Balassa pointed in the opposite direction: they argued for the need of long-term measures, aimed at ensuring a competitive market order, and denounced the legacy of the Carnation Revolution as an obstacle to economic growth. Their interventions were one of the first attempt to conceive a variety of neoliberalisation adequate to the specific circumstances of Southern Europe.
In the following years, some of these ideas would be appropriated and developed by a group of young economists who had studied in the United States and returned to Portugal in the second half of the 1970s. When the Faculty of Economics of the New University of Lisbon was installed, in 1977, Luís Miguel Beleza (who had received his doctorate at MIT), Manuel Pinto Barbosa (Yale), António Borges and Diogo Lucena (both coming from Stanford), António Pinto Barbosa (Center for Study of Public Choice, in Virginia) and Jorge Braga de Macedo (Princeton) were all hired to its teaching staff. ‘Nova’, along with the Portuguese Catholic University (Universidade Católica Portuguesa, henceforth ‘Católica’), would become the main academic hub for those who argued in favour of economic liberalisation, in opposition to the older, more left-leaning Higher Institute of Economics (Instituto Superior de Economia; ISE).
The reflections and writings of these young scholars found a suitable vehicle in the journal Economia, the first number of which appeared in January 1977. Published by Católica, it was a scientific journal with a deliberately technical profile, but most of its articles displayed a visible neoliberal inspiration (both Fry and Balassa had articles published in its first issues).Footnote 31 Also in 1977, Jorge Braga de Macedo published a book that borrowed extensively from Balassa, criticising economic planning and other forms of state intervention.Footnote 32 In the following year, after joining the IMF's research department, Macedo published an article in Economia that introduced Portuguese readers to key concepts of the Chicago School of Economics, summarising the monetarist outlook that was on the rise within the Fund:
The monetary approach to the balance of payments corresponds to a crucial development of international economic theory over the past twenty years. The rise of monetarism and the fall of the international monetary system, elaborated at Bretton-Woods, gave this approach a particular audience in the early Seventies. Cultivated, in specific variants, by the University of Chicago and the International Monetary Fund, it has managed to present powerful theoretical and empirical results, based on extremely simple and intuitive hypotheses. As a result, it gained wide publicity among economists and politicians, forcing the Keynesian orthodoxy to rethink the assumptions of its own approach to the international economy.Footnote 33
At a time in which the ‘monetarist counter-revolution’ was spreading across the world, Braga de Macedo did not hesitate in presenting it as a scientific ‘development’, labelling those who opposed it as ‘the Keynesian orthodoxy’.Footnote 34 With the benefit of hindsight, his article was one of the first signs that a Portuguese neoliberal intellectual field was starting to emerge, as the young teachers from Nova used their technical expertise to support pro-market approaches to economic policy.
In the course of the following years, the performance of the Portuguese economy offered this group of neoliberal intellectuals the opportunity to develop their arguments at greater length. The country's external trade balance deteriorated at a rhythm that had not been anticipated by anyone at the conference, with the current account balance deficit rising from $1,244 million in 1976 (around 8 per cent of GDP) to $1,495 million in 1977. The prospect of a balance of payments crisis confronted the government – that initially seemed inclined to adopt the strategy laid-out by the MIT group – with the need for an emergency loan, which, at the time, could only be sponsored by the IMF. It also brought a decisive choice to the table, since the ‘stabilisation programmes’ imposed by the IMF – favouring price stability over full-employment and external equilibrium over economic growth – were hardly compatible with what was prescribed by the Portuguese constitution.
A possible alternative to the stand-by agreement with the IMF was a Medium-Term Plan (1977–80) prepared by the Department of Central Planning, under the coordination of Manuela Silva (a left-leaning economist who had a long-standing experience of economic planning). It was aimed at raising employment and production, through a significant expansion of public provision in the housing sector, ambitious investments in infrastructures and a rather optimistic strategy of import substitution.Footnote 35 Although it was duly approved by the government, in June 1977, Prime Minister Mário Soares ended up opting for the stabilisation programme instead. Many years later, Manuela Silva regretted the fact that the ‘neoliberal and monetarist approach’ followed by the IMF had prevailed over the development strategy she had helped to design.Footnote 36
Austerity measures had been applied as early as February 1977: prices of necessary goods were allowed to fluctuate, rising 24.8 per cent in that month alone, whereas wage ceilings were established well below the inflation rate.Footnote 37 A second austerity package was introduced in August: more prices were allowed to float, interest rates raised and companies in financial dire straits received authorisation to lay off workers. A ‘crawling peg’ system of monetary devaluation was adopted, offering investors a certain degree of foresight regarding the exchange rate and the inflation rate.Footnote 38 In May 1978, having reached a stand-by agreement focused on the reduction of the current account deficit, the government signed a letter of intentions with the IMF.Footnote 39
The agreement, described by Franco as a combination of ‘liberalism and realism’, caused a decline of 4.9 per cent in real wages in 1978 and 5.1 per cent in 1979, while exports grew by 12.9 per cent in 1979 and 29.7 per cent in 1980.Footnote 40 Other authors highlighted the long-term consequences of the agreement. Brito considered that it laid down a ‘new macroeconomic guiding framework’, characterised by ‘limits to State intervention and reinforcement of market mechanisms’, while Corkill noted that, by accepting the conditions of the IMF, ‘the Socialist government presided over a marked shift to the right’, contributing ‘to reverse the changes associated with 1975–6’.Footnote 41
A rather more complex question – of whether or not the stand-by agreement could be characterised as ‘neoliberal’ – would be clarified in a seminar organised by the Washington Center of Foreign Policy Research, in May 1979. Two IMF staff-members – Patrick Fontenay and J. K. Kouri – were invited to comment on a paper entitled ‘Portugal and the IMF: The Political Economy of Stabilization’, written by British economist Barbara Stallings. Stallings argued that even though the Fund presented itself as a ‘stabilisation institution’, there was an ‘implicit development strategy’ behind its programmes, which emphasised ‘private enterprise and foreign capital, an open economy and export promotion’.Footnote 42 She concluded that the ‘real role of the IMF’ was to ‘reinforce (and probably exacerbate) existing inclinations toward dismantling structural reforms and forcing workers to pay the main cost of stabilization’, offering a ‘technical veneer’ to unpopular political decisions.Footnote 43
Fontenay was quick to dismiss the accusation, arguing that the ‘character of the Fund’ was ‘determined by its technical tasks’ and that the aim of stabilisation programmes was to reduce the incentive for ‘discriminatory practices’ and ‘interferences with the price mechanism’.Footnote 44 He went on to claim that rent controls affected new construction (creating or aggravating housing problems) and attempts to ‘artificially’ keep down the price of staples served as a ‘disincentive’ to their production, whereas bans on lay-offs and a high minimum wage tended to aggravate unemployment. For his part, Kouri considered that an ‘efficient utilization of scarce resources’ required that the prices of individual commodities reflected their ‘relative scarcity’. He added that in ‘open economies’, whenever ‘real wage demands’ exceeded the ‘warranted real wage’, the inevitable result was unemployment and slow growth.Footnote 45
These arguments allow us to draw some conclusions regarding the theoretical premises upon which the stand-by agreement of 1978 was based. For Fontenay and Kury, political decisions that affected the price system were ‘artificial’ because competition amounted to the ultimate reality test. And since the market was considered to be a privileged site of veridiction, as Foucault pointed out in regard to the Chicago and the Freiburg schools, the Fund's ‘technical’ approach was meant to ensure that governments did not interfere with the making of reality itself.
The proceedings of the ‘Second International Conference on the Portuguese Economy’, held in late September 1979, further illustrate the impact of the stand-by agreement with the IMF. Invited once again to address financial and monetary issues, Fry argued that the Bank of Portugal should allow the credit rate to fluctuate along with the escudo, as a first step towards the abolition of interest rate ceilings, in order to attain long-term price stability.Footnote 46 Full financial liberalisation was the ultimate goal. For his part, Balassa took the opportunity to praise the measures of ‘normalisation’ adopted under the stabilisation plan:
Government interventions in private industry practically ceased. Also, labour legislation enacted in February 1977 circumscribed the role of workers’ commissions and provided some, albeit limited, possibilities for employers to lay off workers. In the same year, the scope of the public and private sector was delimited by law; the government committed itself not to undertake further nationalizations; it established rules on compensation for nationalized assets; and the foreign investment law was revised, providing greater assurances to foreign investors. Finally, the government imposed ceilings on wage increases and, after mid-1977, the escudo was devalued more rapidly than the rise in production costs and a crawling peg system was introduced in the place of intermittent devaluations that had created considerable uncertainty for exporters. The policies applied helped to rebuild confidence in the economy.Footnote 47
Fry and Balassa were no longer isolated at the conference, since other speakers had changed their views after 1976. Luís Miguel Beleza – who had been a member of the MIT group and would soon join the Department of Economic Studies at the Bank of Portugal – presented a joint paper with Manuel Pinto Barbosa, criticising the strategy he had previously endorsed.Footnote 48 With the benefit of hindsight, Barbosa and Beleza accused the government and the Bank of Portugal of ‘macroeconomic mismanagement’, because they had implemented ‘overly permissive monetary and fiscal policies’ at a time in which the ‘critical state of the balance of payments’ was becoming ‘increasingly apparent’.Footnote 49 Even though they praised the stabilisation programme endorsed by the IMF, Barbosa and Beleza considered it ‘exceedingly biased towards the reduction of the current account deficit’ and too reliant on ‘expenditure-switching measures’, whereas greater emphasis should have been put on the ‘improvement of the capital account’. They argued that a ‘deceleration in domestic aggregate demand’ and ‘more appropriate expenditure-reducing policies’ were required, so as to allow the private sector access to a greater share of available financial resources. Even though they refrained from developing this argument at length, Barbosa and Beleza hinted at the need for ‘institutional measures’ that would enable the creation of ‘domestic capital and financial markets’, concluding that long-term sustainable growth called for market mechanisms rather than government intervention. More importantly, they singled out the balance of payments as the main pressure point of a small open economy, and elected external equilibrium as the yardstick upon which economic policy had to be measured. This was to become a key topic for the Portuguese neoliberal intellectual field in the following years, as the underlying causes for the balance of payment crisis proved to be structural rather than temporary.
Beleza was not the only one to have changed his opinion. In 1976, Maria Teodoro Cardoso (chief economist at the Bank of Portugal and member of the team that negotiated the stand-by agreement with the IMF) had presented a joint paper with Raymond Hill, advocating a devaluation of the escudo combined with an expansionary credit policy, arguing that a restrictive approach would have ‘disastrous effects on the macroeconomic situation’.Footnote 50 In 1979, however, Cardoso considered that the positive effects of devaluation had been annulled by excessive credit concession, which had mostly been used to build stocks of foreign currency and imported goods.Footnote 51 Her main conclusion was that ‘monetary policy, in Portugal as in any other small open economy’, had to be ‘undertaken in a way that encourages savings and guarantees that domestic financial instruments are profitable enough to prevent capital outflows’. Invited to comment on Cardoso's paper, Fry was quick to grasp its meaning:
The analytical framework behind the Banco de Portugal's monetary policy has undergone radical changes over the past two years. In her paper, Teodoro Cardoso examines the most important shifts: a) From closed to open economy perspective; b) From passive to active monetary and exchange rate stance. The watershed came in April and May 1978, during negotiation and implementation of an IMF standby agreement.Footnote 52
By 1979, then, a growing number of economists, most notably those who worked at the Bank of Portugal, considered monetary stability and financial liberalisation to be the only way out of the crisis. Those who favoured a state-led development model, like Manuela Silva or João Cravinho, from the Research Centre on the Portuguese Economy (Centro de Investigação Sobre Economia Portuguesa; CISEP), associated with the ISE, had been relegated to a marginal position.Footnote 53 In the following years, as economists from Nova became increasingly influential, both within academia and in the public sphere, discourses that criticised state intervention and called for a competitive market order started to make their way into the political arena.
In the aftermath of the Carnation Revolution, a semi-presidential system emerged in Portugal, structured around four political parties that represented almost 90 per cent of the electorate.Footnote 54 The Socialist Party (Partido Socialista; PS), on the centre-left, and the People's Democratic Party (Partido Popular Democrático; PPD), on the centre-right, were sided by two smaller parties, the Portuguese Communist Party (Partido Comunista Português; PCP), on the left, and the conservatives of the Democratic-Social Center (Centro Democrático-Social; CDS), on the right. Even though it remained the dominant force during the first four years of the democratic regime, the PS was unable to secure an absolute majority in parliament. Since the possibility of an alliance with the PCP was promptly discarded, the socialists were forced to negotiate with the right side of the political spectrum in order to have the budget approved. Soares would eventually form a coalition government with the CDS in 1978, in order to secure its vote in support of the stand-by agreement with the IMF. Minority governments formed by presidential initiative (General Ramalho Eanes, a moderate military officer, was elected president in 1976) would follow, all lasting a few months, until December 1979, when the Democratic Alliance (Aliança Democrática; AD), a coalition of right-leaning political parties (PPD, CDS and the small People's Monarchist Party [Partido Popular Monárquico; PPM]), won the general elections. The AD government was clearly more favourable to private investors than its predecessors, but it could not conduct a more ambitious pro-market economic policy without changes to the constitution, for which two-thirds of the votes in parliament were required. A project for a new constitution with a clear liberal bent was drafted by the new Prime Minister, Francisco Sá Carneiro (leader of the PPD), eliminating constitutional barriers to private investment and allowing the parliament to define what sectors should remain under state monopoly.Footnote 55 But even though the PS accepted revising the constitution in 1982, so as to put an end to the intervention of the military in political affairs, changes to the economic section were relatively modest: private investors were allowed to enter sectors that had previously been under state monopoly (banks, insurance, cement and fertilisers), while the nationalisations undertaken during the Carnation Revolution remained ‘irreversible’. This began a ‘constitutional quarrel’ with the right, which kept on demanding the elimination of all paragraphs that blocked the liberalisation of the economic landscape.
Businessmen were particularly adamant in their demand for a change to the constitution. In 1981, the Portuguese Confederation of Industry (Confederação da Indústria Portugueses; CIP), the Portuguese Confederation of Commerce (Confederação do Comércio Português; CCP) and the National Council of Business Associations (Conselho Nacional das Associações Empresariais; CNAE) organised the ‘Second Congress of Economic Activities’. The opening speech was delivered by Prime Minister Francisco Pinto Balsemão (the new leader of the PPD, after Sá Carneiro died in a plane crash), who considered the private sector to be the ‘decisive factor of economic modernisation’ and argued that it was necessary to roll-back an ‘excessive state’.Footnote 56 The motion approved at the end of the Congress demanded the end of price controls, the liberalisation of labour laws and the restructuring of state-owned enterprises, forcing them to compete with the private sector.Footnote 57
António Borges and Jorge Braga de Macedo also intervened at the conference, illustrating the growing influence of the Portuguese neoliberal intellectual field. Macedo called for the ‘depoliticisation of resource allocation’ and denounced the ‘illogical’ character of the economic section of the constitution, warning against the dangers of a new ‘external disequilibrium’ similar to the one that had led to the IMF intervention.Footnote 58 Borges, who addressed the topic of prices and competition, denounced the reach of state intervention and highlighted the negative effects of inflation.Footnote 59 He argued that a consistent anti-inflationary policy demanded the contraction of the public sector, starting with the extinction of state-owned enterprises that ran systematic deficits. Competition, he argued, would not lead to the ‘rule of the strongest’, but rather to the ‘rule of the most efficient’.
Although praise for the competitive market was becoming a rallying-cry to the right, the AD government did not refrain from adopting expansionary policies. With an eye for the upcoming elections, Finance Minister Cavaco Silva (chief economist of the Bank of Portugal, but also a professor at both Nova and Católica) raised wages and appreciated the escudo by 6 per cent, boosting demand and bringing down inflation, while keeping energy and food prices low through subsidies. This allowed for the first increase in real wages since 1975, along with a reduction of unemployment and a marked increase in investment, with GDP growing 2 per cent in 1981 and 3 per cent in 1982.Footnote 60 The price to pay for it would soon become evident. In the context of an international recession and a surge in oil prices, this sudden rise of purchasing power caused a sharp deterioration of the balance of payments, creating an external disequilibrium similar to the one experienced in 1977: the external deficit rose from −5.1 per cent in 1980, to −11.7 per cent in 1981 and −13.5 per cent in 1982, while the state deficit rose from 4.5 per cent of GDP to 11.8 per cent in 1982.Footnote 61
A new stand-by agreement with the IMF followed, with harsher anti-inflationary measures and tighter budget control targets.Footnote 62 It also had a considerably higher social impact than the previous agreement: GDP contracted by 0.3 per cent in 1983 and 1.6 per cent in 1984, while unemployment reached 9.5 per cent of the active population in 1983 and 10.5 per cent in 1985. The situation was further aggravated by the fact that thousands of workers had payments in deferral for several months, while wage earners suffered an estimated loss of 15 per cent of their purchasing power.Footnote 63
In order to carry these measures through, the two main political parties (the PS and the PPD) formed a government coalition dubbed the ‘Central Bloc’, led by Mário Soares. Exploring the possibilities created by the first revision of the constitution, the government opened some sectors of the economy to private investment.Footnote 64 But this was a far cry from liberalisation, since the government's programme still considered SOEs to be of ‘primordial importance’ (granting them financial support whenever needed), whereas private investment was to be ‘guided’ to sectors deemed to be a ‘priority’.Footnote 65
The notion that the Portuguese economy had been caught up in a vicious cycle – with fast growth inevitably leading to external disequilibrium, which in turn demanded stabilisation policies that inevitably led to a recession – radicalised the right side of Portuguese politics. A weekly newspaper, Semanário, was created in 1984, with an editorial line that opposed the ‘Central Bloc’ and called for a more ambitious revision of the constitution. Semanário was to become an important platform for the neoliberal intellectual field: Miguel Beleza, António Borges, Jorge Braga de Macedo, Diogo de Lucena, Manuel Pinto Barbosa and António Pinto Barbosa shared an open-ed column entitled ‘The Invisible Hand’. Theoretical ideas previously developed in an academic context were simplified and adapted to a non-specialised public, in articles that covered the full scope of the neoliberal agenda, ranging from inflation to state-owned enterprises and from employment to taxation.Footnote 66 The political culture of the Portuguese right was becoming ever more inclined towards economic liberalisation.
That became even clearer in 1985, when the CDS presented a project for a new constitution, based on the reflections undertaken by an informal think tank, the Grupo de Ofir, that openly claimed for itself the designation of ‘neoliberal’.Footnote 67 With António Borges as its leading economist, the Grupo de Ofir demanded a tight monetary policy conducted by an independent central bank, liberalisation of the financial sector and an ambitious programme of privatisations. In the documents he wrote on behalf of the Grupo, Borges was particularly critical regarding the ‘monetisation of the public deficit’, which he attributed to the excessive weight of the state. He argued in favour of a development model based on monetary stability and a firm commitment to the discipline of the market that would allow for a specialisation in sectors in which Portugal enjoyed comparative advantages (just as Balassa had recommended in 1976). This was the most ambitious and consistent programme of liberalisation since the Carnation Revolution, and its proposals would have a long-lasting impact. By now, the influence of the neoliberal intellectual field spanned from academia to the Bank of Portugal, and from the conservative press to employers’ confederations and right-wing parties. It appeared to be only a matter of time before its ideas were translated into government policy.
The CDS initially appeared to be the best candidate for the task, but in May 1985 Cavaco Silva was elected president of the PPD, renaming it the Social-Democratic Party (Partido Social-Democrata; PSD) and realigning its programme with the ideas of the Grupo de Ofir. After winning the parliamentary elections by a tight margin, in that very same year, Cavaco formed a government that considered private initiative to be ‘the authentic and irreplaceable source of economic and social development’, assigning a ‘supplementary role’ to the state.Footnote 68 Although privatisations were formally banned by the constitution, Cavaco Silva was determined to reduce the weight of SOEs: those that did not perform a public service were submitted to the discipline of the market, while restrictions on credit concession were lifted and nationalised banks were forced to compete with private banks. A steady commitment to bring down inflation offered additional security for businessmen to invest and for consumers to save. Benefiting from a favourable international conjuncture, the PSD government saw its popularity rise in opinion polls. All seemed set to roll back the state and reinforce the role of markets.
Changing the constitution nevertheless required a two-thirds majority in parliament, which meant that the PS held a decisive trump. Its political programme still assigned a decisive role to the state, electing full employment as the main aim of economic policy.Footnote 69 In addition to that, the socialist leader who came out to confront Cavaco Silva, Vitor Constâncio (also chief economist at the Bank of Portugal), repeatedly stated that the party's programmatic realignment could not mean the acceptance of ‘purely neoliberal concepts’.Footnote 70 It therefore remained unclear how far the PS was willing to go in terms of revising the constitution. New parliamentary elections proved decisive to break this stalemate, revealing a significant shift in popular opinion. In the spring of 1987, when the PSD government failed to secure a vote of trust in a parliament dominated by the left, Mário Soares, who had been elected president in the previous year, called for new elections. These proved to be clarifying, inasmuch as they gave the PSD the first absolute majority in the history of the Portuguese democratic regime.
The PSD's electoral landslide brought down the resistance from the PS. A formal agreement between the two parties was reached in October 1988 and the second revision of the constitution was approved in June 1989, purging the constitutional text from the paragraphs concerning the ‘irreversible’ character of nationalisations and significantly altering those with an obvious ‘socialist’ bent.Footnote 71 Privatisations were already underway by then, as the PSD government selected some of the most profitable SOEs and placed 49 per cent of their capital in the stock market, receiving an enthusiastic response from private investors. The commanding heights of the Portuguese economy would be privatised in the following decades, with the resulting revenue being used to balance out the public deficit.Footnote 72
The triumph of the neoliberal intellectual field was all but complete. Luís Miguel Beleza became Finance Minister in 1989, being succeeded by Braga de Macedo in 1991. In 1990, the Bank of Portugal became statutorily independent, according to a legal statute elaborated by its new vice-governor, António Borges. Invited to comment on the trajectory of the Portuguese economy between 1985 and 1991, Borges credited the government's monetary policy for overcoming the dilemma between stagnation and external equilibrium.Footnote 73 The exchange rate, he noted, had ceased to be an instrument of trade policy, which, in turn, forced firms to invest in order to raise productivity and gain international competitiveness. Simultaneously, by bringing down the public deficit and submitting SOEs to competition, the government not only reduced inflation but also established a stable market environment, generating a virtuous cycle of economic growth. As Borges acknowledged, somewhat grudgingly, the PSD government had basically implemented the programme drafted by the Grupo de Ofir at the beginning of the 1980s.
Integration into the European Common Market offered an additional impetus to this process, especially after 1992, when the Maastricht treaty was signed and Portugal joined the European Monetary System, under the supervision of the new Governor of the Bank of Portugal, Luís Miguel Beleza. A new regime of accumulation emerged, based on financialisation, deindustrialisation, de-regulation and European integration, aligning the country with the dominant trend at the global level.Footnote 74 The Portuguese road to neoliberalism was now wide open.
Conclusion
The trajectory of Portugal between 1976 and 1989 illustrates the ‘differentiated, experimental, specific and ultimately polymorphic character’ of neoliberalisation processes.Footnote 75 Throughout this period, political struggle and intellectual debate became polarised by the constitutional legacy of the Carnation Revolution, as a vague notion of ‘socialism’ lingered on. It was against this backdrop that a neoliberal intellectual field started to form, around a group of young economists who had studied in North American universities during the 1970s and established themselves at the Faculty of Economics of the New University of Lisbon (Nova) at the end of the decade. Inspired by the insights of foreign economists familiarised with the Portuguese context, this group ensured the reception and adaptation of neoliberal ideas, using Nova (and, to a lesser degree, Católica) as its academic base of operations.
The stand-by agreement with the IMF, signed in 1978, offered an opportunity for the Portuguese neoliberal intellectual field to develop policy proposals specifically tailored to a small, open economy. The notion of ‘external equilibrium’ became a particularly powerful signifier, employed both to explain the crisis of the Portuguese economy and to argue for the need to establish a competitive market order in the country. Simultaneously, the transnational circulation of ideas led a growing number of staff members of the Bank of Portugal to incorporate the principles of competition and economic liberalisation as basic common sense.
Entering the 1980s, neoliberal intellectuals were able to intervene on a wider number of spheres, advising politicians, addressing businessmen, writing opinion columns, or simply teaching a new generation of economists, for whom the competitive market was indisputably the best framework for an efficient allocation of resources. Gradually, those ideas spread to the public sphere and the political system at large, as employers’ confederations and the parties of the right offered them a broad basis of support. As ‘socialism’ started to fade out from the political landscape, the constitution became a crucial point of dispute between left and right. The second stand-by agreement with the IMF, in 1983, further reinforced this tendency. When the PSD achieved an absolute majority in the parliamentary elections of 1987, the superiority of the competitive market over state-led development models had become hegemonic within Portuguese society. Once the PS came to accept this, political conditions were finally set for changing the constitution and liquidating what remained of the economic legacy of the Carnation Revolution. After 1989, for all relevant purposes, the Portuguese constitution no longer differed from its European counterparts.
In regard to causality, there were both exogenous and endogenous factors at play, allowing us to venture a generic observation about semiperipheral varieties of neoliberalism. In Southern European countries that experienced a crisis of the balance of payments, domestic actors enjoyed a greater degree of agency than in the periphery of the world-system, where ‘structural adjustment’ had considerably more significant implications.Footnote 76 Even though stabilisation programmes championed by the IMF could shift the balance of power – imposing measures such as the lifting of capital controls or the liberalisation of the financial system – they were insufficient to legitimise a new regime of accumulation (at least not until the Washington Consensus was brought into effect).
Neoliberalism could not be simply smuggled into the country, hidden inside the briefcase of an IMF official. The neoliberalisation process in Portugal had to be grounded in the hegemony of a specific school of economics (Nova) and backed by relevant domestic actors, such as the Bank of Portugal, employers’ associations and the political parties of the right. Without the development of a home-grown neoliberal intellectual field, it would have been impossible to align Portugal with the dominant transnational trend of the late twentieth century.
This raises some important questions regarding the role of intellectuals in the semiperiphery of the world-system. On the one hand, in order for the ‘neoliberal intellectual field’ to play a relevant role, the reception of ideas developed in the core of the world-system (namely academia, but also think tanks and central banks) had to be coupled with the capacity to adapt those ideas to the specific settings of each country. A successful project of neoliberalisation demanded a substantial degree of familiarity with the political system, the legal framework and the main patterns of economic specialisation of any given country. It also implied that notions such as ‘development’ or ‘modernisation’ – that had become dominant political tropes after the Second World War, usually associated with a strong role of the state – could be turned into floating signifiers, appropriated and redesigned in order to coincide with the neoliberal narrative. It was not simply a matter of importing theory, but also of making the necessary adjustments for it to be effective.
There is another important aspect, concerning the capacity to mediate between the language, methods and goals of global institutions, such as the IMF or the World Bank, and the national level of governance, with its full spectrum of domestic actors, each with its own set of goals and its own level of political influence. The authority required to ensure this mediation was offered by the symbolic status of the economist, as someone immune to political rhetoric, who operated in the passionless realm of numbers and was capable of reading the information conveyed through the price system. Whereas in core countries the ‘neoliberal fix’ (to use Quinn Slobodian's termFootnote 77) resulted from intense cooperation between scholars, propagandists and politicians – the different layers of the ‘Russian doll’, as Philip Mirowski dubbed the neoliberal multi-tier structure of academic departments, think tanks and foundationsFootnote 78 – in semiperipheral countries the notion of ‘technical expertise’ acquired greater importance. The reasons for this are somewhat obvious. In a country that experienced intense political polarisation, embittering social conflict and frequent economic turbulence – as was the case of Portugal in the late 1970s and early 1980s – technocrats easily appeared as ‘experts’ who held the keys to fix any problem. They fulfilled several roles at once: teaching and researching in universities, working in central banks, advising politicians, writing op-ed columns and eventually becoming political decision makers themselves. Whether this ubiquity was a defining characteristic of the Portuguese case, or an inescapable feature of neoliberalisation processes outside the core of the world-system, is a question that remains open for debate. Whatever the case may be, it appears safe to say that the Portuguese road to neoliberalism had to be designed according to the rough terrain upon which it was built.
Acknowledgements
The author would like to thank João Rodrigues (CES/FEUC) and Ian Bruff (University of Manchester) for reading and commenting on an early version of the article, as well as the anonymous referees of CEH and the journal's editors (Victoria Harris in particular), for the very useful remarks and suggestions made during the process that led to its publication. This work is funded by national funds through the FCT – Fundação para a Ciência e a Tecnologia, I.P., under the Norma Transitória – DL 57/2016/CP1453/CT0020.
