Salazar And The Loss Of The Business Elite

Although Salazar’s Estado Novo met its ultimate demise at the hands of multi-decade communist subversion, numerous factors undermined its efficacy in the interim. Indirect contributors included the unending geopolitical hurdles that muddled its efforts in the Colonial Wars: the abrupt power decline of its oldest ally, the United Kingdom; the opposition at times the world’s two super-powers, the United States and the Soviet Union; and the scrambles to preserve alliances with a shifting cast of nations, including France, West Germany, Rhodesia, South Africa, and hodgepodge of states in the Third World.

The more immediate cause, however, was the breakdown in Salazar’s traditional bastions of support: the military; the business elite; and the Roman Catholic Church. The collapse of military support arose from extreme factionalization – with the brass split between ultranationalist imperialists and Americanist centrists, and both facing an insurgent, Marxist mid-ranking officer staff. In this piece of the series, however, we will instead examine the collapse of support among the Portuguese business elite that arose from divided and insecure power within the Estado Novo.

We will start by examining the historical development of economic thought in Portugal in the 19th century, and how the travails of that century foreshadowed the impediments that the Estado Novo faced in pursuing ideologically consistent policies in the 20th century. Next, we will look at Salazar’s economic philosophy with an emphasis on what it meant for the industrial sector. The following sections will examine a few key themes: how economic crises and the colonial question forced a gradual abandonment of these core policies; the symbiotic relationship between the technocrat class and ascendant “Europeanist” industrialists and their reliance on an ever-increasing internationalization; and lastly, how as Lisbon abandoned old policies, the state lost effectiveness and influence – leading factionalization to accelerate.

What lessons can be extrapolated from his case? First, it showcases how a broad set of nation-specific limitations constrain a state’s economic policy options: geopolitical constraints; economic competitiveness, or the lack thereof; and sociological considerations. Second, it’s a reminder of the dangers of short term decision making: Salazar and Caetano deployed some interesting “4D Chess” moves that solved short-term problems very creatively, but meanwhile introduced a wide range of long-term complications. Finally, it shows the difficulty of attempting to pursue a nationalist framework, while concurrently remaining even partially immersed in the prevailing globalist international system.

A Liberalism Not Meant to Be

Foreshadowing 20th century dynamics, Portugal in the 19th century was an avid consumer of the latest fads in political economy. Initially, Enlightenment liberalism met ample interest in the Iberian nation. In 1811,[1] Adam Smith’s The Wealth of Nations became one of the first classical liberal texts translated into Portuguese. Interested Portuguese readers gravitated towards the physiocrats,[2] the French school of agrarian economists that also influenced Thomas Jefferson.[3] Indeed, it was the French authors of the classical liberal tradition[4] – including Frédéric Bastiat and Jean-Baptiste Say – rather than their British counterparts that captivated Portuguese thought, both due to greater fluency in French and a stronger affinity for the French conversational writing style.

Ideological exploration was quickly upended by harsh geopolitical realities: the loss of protected markets in Brazil after its 1822 independence provoked a fierce debate between free traders and protectionists. Unfortunately for the budding Portuguese classical liberals, the ensuing erosion of prosperity geared the discourse towards pragmatism over dogma:

Most politicians – absolutist, liberal, and democratic – paid lip service to the theoretical arguments about the superiority of free trade, but usually rallied on the side of protectionism when pressed to take a practical stand … The dependency upon customs revenues as a regular constituent of treasury receipts also helps to explain the shift away from the tenets of free trade.[5]

For the remainder of the 19th century, Portuguese economists would debate whether the target of protection should be agriculture or industry – neither of which, unfortunately, was very competitive on the global markets. Much like in the later years of the Estado Novo regime, this protectionist environment was used to attract foreign investment[6] – albeit with some meaningful restrictions in both periods.[7] The late 19th century historical setting surrounding this influx of foreign investment–a period of national decline showcasing new disruptive ideologies, great structural economic changes, and cantankerous sociopolitical movements–engendered the plausible notion that the travel companion of foreign capital was the blight of destabilizing foreign ideologies:

The historic Guild system survived in Portugal in a very real form until the nineteenth century, and was only finally suppressed, in the name of Liberalism, by a decree of May 7, 1834. A political invasion accompanied the Napoleonic invasion of Portugal: what Salazar has described as the ‘alien and exotic plan’ of Liberalism was obtruded on a country exhausted by thirty years of Invasion and civil war. During the remainder of the nineteenth century Portugal was dominated by alien influences, and exploited to the full by English and German capital.[8]

Long before the creation of the Estado Novo, the contours of economic policy making are very much visible: a susceptibility to foreign ideologies; economic and geopolitical crises compelling policy reorientations; competitive disadvantages curtailing policy options; and a dependence on a foreign capital base with potentially divergent sociopolitical interests. The initial policy choices undertaken by Salazar were attempts to address these constraints.

Corporatism and the Pursuit of Harmony

To avoid the materialism at the core of both communist and capitalist ideologies, Salazar sought to create a more neutral system whose “framework was a market-oriented one, but [where] all rules and decisions had to be subordinated to the ‘superior interests of the nation’ which emphasized economic growth and stability, and the reduction of external dependence to a minimum.”[9] There was a dearth of state-run enterprises, a policy design of Salazar that ran contrary to the case next door in Franco’s Spain.[10] While private ownership was pervasive, so was interventionism with innumerable controls on pricing, wages, and various aspects of production. One of the central planks of the early Estado Novo system was strict controls on foreign capital:

Governmental approval was needed before a national firm could be sold to a foreign firm. Special laws were adopted to ensure national control over insurance, fishing and shipping. In 1943, the government declared that foreign capital could not control firms involved in public service, defense, or activities fundamental to the Portuguese economy. Exchange policy restricted the inflow of foreign capital so that foreign capital investment in metropolitan Portugal remained insignificant until the 1960s.[11]

Portuguese policy was squarely anti-Keynesian: Salazar subscribed to Say’s law and made production the center-piece of policy promotion, eschewed the pursuit of nominal growth grounded in the witches’ brew of deficits, debt and inflation that was all the rage in Washington, and retained an “almost religious vision of the country’s gold supply.”[12]

For the industrial segments that are the core of this analysis, the most pertinent piece of Salazar’s policies are the laws of condicionamento industrial, an extensive system of industrial licensing, which essentially mandated “prior authorization from the state for setting up or relocating an industrial plant. Investment in machinery and equipment designed to increase the capacity of an existing firm also required government approval.”[13] Salazar’s rationale for this policy was to help ensure economic stability:

As Correia de Oliveira, minister of the economy in 1945, explained, ‘we created systems of condicionamento or reserve of the internal market with the theoretical objective of avoiding overproduction and with the practical result of impeding competition, which was thought to be excessive, among domestic producers.’ The policies associated with the condicionamento helped establish the basis for the balance between large and small or medium capital. For large firms, the policies helped assure markets after expensive industrial investment, which might not have otherwise occurred, by restricting new product lines to larger, more capitalized enterprises. For small and medium firms, it made possible for ‘almost all of them to survive to this day as industrialists.’ This was done by restricting entrance into old product lines, which were often dominated by small and medium producers.[14]

Thus, while critics of Salazar’s system tend to allege a tendency to create monopolies and concentrate capital,[15] the results arising from its partial relaxation, as well as the political debates surrounding said liberalization, showcase an altogether different story as well shall see later.

Spurring Industrialization and Factionalism

Deep in the throes of the Great Depression, there arose the first in a series of lobbying efforts aimed towards more proactive policies to jump start the still lagging Portuguese industrialization efforts. Thanks to the work of Ferreira Dias – the father of Portuguese industrialization – there was the I Congresso da Indústria Portuguesa (the First Industrial Congress) in 1933. Though it engendered little substantive governmental action, it did increase the star of the same Ferreira Dias.

In the next decade, as undersecretary for industry, he helped bring about several key pieces of legislation:[16] the Law of Nationalization of Capital (1943); the Law of National Electrification (1944); and the Law of Industrial Reorganization (1945). The first law “controlled and in some cases banned direct foreign investment in certain industries.”[17] The second law explicitly “proclaimed that the primary aim of the dams being built was to provide electricity for industrial development”[18] rather than rural considerations. The final law mapped out the government’s public works and infrastructure over a 15-year period – half went to defense, with the remainder to transport, electricity and public holdings.[19] Ferreira Dias was a believer in industrial policy and thought the state should be proactive in the creation of critical industries:

Each industry would be called to reorganize itself, but if it failed to do this, the State would could employ coercion to this end. Where there was no existing industry capable of meeting a strategic national goal, it would be built from scratch. The law unveiled five core industries: iron and copper metallurgy., and the production of ammonia sulfate, calcium cyanide, and cellulose.[20]

The primary beneficiaries of this policy shift, unsurprisingly, were the famed “forty families”[21] – the largest family-based holding companies that controlled many of Portugal’s most prominent business concerns. Of this group, an inner circle of seven major conglomerates emerged which could be further divided into industrial and non-industrial groups. The nonindustrial group[22] – comprising Banco Espirito Santo, Banco Burnay, and Nacional Ultramarino – each held less than 10% of their stock portfolio in industrial subsidiaries up until the 1960s. This group was more heavily invested in the colonies, especially in exports geared towards global commodity markets. In contrast, the industrial groups – Banco Português do Atlântico, Companhia União Fabril (CUF), Banco Pinto e Sotto Mayor, and Banco Borges e Irmão – had been more heavily invested in industry since early in the Estado Novo. The industrial groups had little ties to foreign capital and to the extent they had holdings in the colonies, they were geared towards securing raw materials[23] for their industrial production.

While critics of the Estado Novo will sometimes present Salazar as beholden to big business interests, such a characterization is frustrated by the divergent interests encapsulated within Portuguese industry. Even the most elite tier was far from a unified group – as the prior division between industrial and non-industrial groups showcases. Looking at the broader business community, the key decision makers within Portuguese industry were actually “heterogeneous in socio-economic origin, social mobility, education, managerial styles, politically fractured, and [their] enterprises varied in terms of their technological complexity, relations to the state and foreign capital.”[24] Differences in size, industry vertical, and geographic orientation caused extremely divergent policy preferences that only grew more disparate as Salazar’s regime advanced in years. The solidification of these camps coincided with the growing influence of certain key technocrats within the Estado Novo, of which Ferreira Dias was quite emblematic:

Ferreira Dias was clearly the latest continuator in a long-line of thinkers who refused to accept poverty of Portugal and its people as a given, and to accept as axiomatic the primacy of the rural over the industrial. Fernando Rosa describes Ferreira Dias and his supporters as being engaged in a ‘scientific’, technical, industrializing crusade’ to modernize Portugal, overcoming the reluctance of politicians, civil servants, and key economic players to see industry as a force for good.[25]

Portugal’s position within the international framework of the post-war era would only help to heighten this trend towards a higher prevalence of modernizing technocrats within the gears of the Estado Novo.

The Marshall Plan and the Technocrats 

The Second World War brought both benefits and costs to the Portuguese economy.[26] On the plus side, Lisbon was arguably the greatest European maritime port in a neutral country and benefited as such. Portugal was also a favored haven for wealthy refugees and even became a preferred haven for stolen German gold. However, the war greatly constrained Portugal’s ability to get much needed imports, including foodstuffs, raw materials, and capital goods. Exporters relying on the warring parties faced extreme difficulties, while “the disruption to merchant shipping caused scarcity, triggered inflation, and threatened to stoke social unrest.”[27] These pressures factored into the Portuguese decision to seek closer relations with the Allies towards the end of the war. The subsequent increase in trade with the Allies drove Portugal to have a positive trade balance, which the government used to pay for imports after the war.

This favorable situation quickly reversed itself after the war’s end. Poor agricultural results in 1947 forced the Portuguese to spend much of their accumulated gold reserves on importing foodstuffs.[28] In September of that year, Lisbon initially rejected[29] Marshall Plan aid as the prevailing ideology still favored autarky and a belief in national self-reliance. But as Salazar studied the situation, he saw an opportunity beyond just short-term economic salvation: the chance to score a major public relations victory versus his opposition and hence further strengthen his regime.[30]

The official story emanating from Lisbon remained the same in terms of a public commitment to autarky[31] and full opposition to any form of European integration. Behind the scenes, however, there was an aggressive lobbying campaign led by the skilled diplomat Ambassador Rui Teixeira Guerra[32] and which included outreach efforts to multiple American points of contact including “the U.S. [Presidential] Administration, the Marshall Plan’s US administrative office and the OEEC to secure maximum U.S. financial aid.”[33]  Luckily for Lisbon, it was concurrently being courted into the American-led Atlantic security concern as evidenced by its involvement in the Dunkirk Treaty in 1947 and the Brussels Treaty in 1948. Whereas neutral Spain[34] received no Marshall Plan money, the Portuguese received $54mm in US assistance between 1949 and 1951.[35]

Portugal thus immersed itself in Europe’s first economic integration entities which initially centered around the coordination of Marshall Plan funds: the Organization for European Economic Co-Operation (OEEC) in 1948; and the European Payments Union (EPU) in 1950. What this meant operatively for the Portuguese was an invasion of the expert class:

Portugal’s participation in the various programs run under the Marshall Plan sowed seeds that were to spread to part of the Portuguese elite, enabling contacts to be intensified and raising awareness of new international realities. In the same way, it opened the country up in unusual fashion to the presence of foreign specialists, helping to make the Estado Novo increasingly open, a process that would be difficult to reverse.[36]

In the near term, the ascent of the technocrats marked a solidification of industrial policy. In 1952, the Estado Novo launched the I Plano de Fomento (First Development Plan). Rather than set specific planning targets[37], it identified the major problems of the Portuguese economy as low labor productivity, low incomes, and unemployment. It then dedicated nearly two-thirds of spending to infrastructure, primarily electrical power generation and transport communications improvements. Tellingly, agriculture and the colonies received little funding.

These trends persisted for the remainder of the decade. A full quarter century after the first Congress, the Second Congress of Portuguese Industry was called in 1957. In 1958, Lisbon launched the Second Development Plan, which was squarely focused on industry:[38] it lamented over-reliance on key foreign suppliers and allocated resources to promoting core industries like steel and petroleum refining; it set the key policy goals as accelerating growth, improving productivity and raising living standards; and, most importantly, it matched rhetoric with cold, hard, funding. Industry received the largest tranche of investment – 27%. Most demonstrative of the changes to come in the 1960s, it “recognized the important role that foreign investment and private sector involvement had to play on economic development.”[39]

Foreign Policy Driving Liberalization

As the turbulence in the African continent was increasing in the late 1950s, Salazar sought to strengthen his footing with Portugal’s European partners – starting with its traditional ally, Great Britain. While France and the Federal German Republic were cooperating for the creation of the European Economic Community (EEC) – the nucleus of the future European Union – the British were planning a competing, more “light-touch” organization in the form of a free trade organization spanning the UK, Austria, Switzerland, and the Scandinavian countries. As London advanced on this project over 1956-7, the last country it contemplated including was Salazar’s Portugal:

Considering the low level of Portugal’s economic development, and the fact that the proposed free trade area deliberately excluded agriculture, it would appear that this proposal would be of no interest to Portugal. However, when the United Kingdom informed Lisbon of this proposal, Portugal officially stated its desire to be represented at the negotiations. Portugal accepted the general political objective of liberalizing the market and, in contrast with the other peripheral countries of Europe, Portugal did not have any financial problems.[40]

As Britain at that time was still a colonial power and would therefore refuse to unfairly burden its Commonwealth, the Portuguese felt confident that their own overseas provinces would receive analogous treatment in this organization. The African economies and the underperformance of agriculture in the Metropolitan were the two key economic motivators for the Estado Novo:

First, many of the countries which joined the EFTA, including Britain, were the consumers of Portugal’s and her colonies’ basic products. If she remained outside, the markets were at serious risk. Secondly, with agriculture in stagnation (which in the final years of the regime necessitated increasing food imports), the growth of industry was the only route to development, but the sector required a market far larger than that provided by the integrated market of Portugal and her colonies.[41]

As was the case with Portugal and Marshall Plan funding, the adept work of skillful Portuguese diplomats made all the difference. Portugal became a signatory to the EFTA in 1960, and thus tacitly abandoned its long-standing policy of autarky.

The following year marked the launch of the Colonial Wars, and all in the Estado Novo would change–economic policies included. The massive war effort necessitated much faster economic growth for its funding, and seeking out such growth became the all-consuming motivation for a sweeping set of policy changes. The most dramatic of these changes was the Decree-Law 46312 of April 1965,[42] which greatly facilitated foreign investment – both in metropolitan Portugal and in the overseas provinces – by removing various of the previous barriers erected over the course of the Estado Novo. After spending so many years excoriating the pernicious influence of foreign capital, Salazar had to bow to the exigencies of the hour and volte-face on yet another foundational policy position.

Shifting Economy, Shifting Business Attitudes

The effects of these policy changes in the Portuguese economy are hard to understate. First, the structure of Portuguese exports and imports changed dramatically: “In 1960, 26% of all exports were bound for the colonies and 21% to the European Free Trade Association (EFTA). Whereas, by 1970, the colonial share had decreased to 14% and the EFTA share rose to 41%.”[43] Not only the destination, but also the mix of goods shifted as well, away from traditional Portuguese exports – such as wood, cork, resin, and wine – towards new products such as tomato concentrate, chemicals, wood pulp, machinery, and nonmetallic minerals, with only textiles remaining as a major export. Overall, exports became a larger share of the Portuguese economy, with Europe again driving the trends and accounting for two-thirds of all exports and imports.

Second, there was a rapid expansion in foreign investment. From 1943-1960, there was only 2mm escudos of foreign capital investment.[44] Comparatively, that figure increased to 20mm from 1961 through 1967. In 1971 alone, foreign capital investment was three times as high as the entire period from 1943 to 1960. As a percent of invested capital, foreign capital during this period expanded from 0.8% of the formation of shareholder’s equity in Portuguese business concerns to 21%. Specifically, this concentration was strongest in industrial sectors, where it represented “19.1% of the social capital formed in industry in 1962, 52.2% in 1968, decreasing to 30.8% in 1971.”[45] This concentration was even greater in industries with something to gain from increased internationalization, “including over 40% of the social capital in chemicals, ceramics, metallurgical products, and electric machinery and less than 15% in textiles, food and drink or cork.”[46]

Third, Portuguese industry came to be significantly more concentrated. “In 1959, 93.7% of all industrial firms employed less than 20 workers, decreasing to 88% in 1971. More importantly, the percentage of the industrial workforce employed in these small firms decreased from 34.3% to 20.6% during the same period.”[47] This trend towards concentration was especially strong in the more industrialized sectors:

Those that would benefit the most from European integration were also the most concentrated: six chemical firms received 63% of the income generated in this sector; two glass manufacturers held 53% of the capital and employed 39% of the workforce; one naval repair yard held 75% of the capital and employed 50% of the work force; and six machine construction firms controlled 42% of the capital. In contrast, traditional industries remained largely dispersed: among 571 textile firms, the top five controlled only 9.8% of the capital.[48]

What impact did these changes have on the major holding companies? First, many of the non-industrial groups came to be much more industrialized, as “by 1974, only Banco Nacional Ultramarino had less than 10% of its stock in industrial firms. The previously non-industrial banks, Banco Espirito Santo and Banco Fonsecas e Burnay, increased their industrial holdings (16.1% and 32%, respectively).”[49] Simultaneously, the industrial banks maintained or increased their industrial holdings: Banco Totta Alliança (controlled by CUF) held 51.7% of its stock portfolio in industrial companies by 1974, versus 76% for Banco Pinto e Sotto Mayor in 1972, and 68.1% for Banco Português do Atlântico in 1974.[50]

The control groups as a class accumulated significant economic power over this period, since “of the top 100 industrial firms in 1973, 43.9% were controlled by the groups, 18.7% by foreign capital, and 37.4% by domestic non-groups.”[51] Isolating the sectors with the most riding on European integration, the conglomerates edged up slightly to 45.8% of the capital for a comparable set of top 100 firms; the domestic non-groups, however, were supplanted by foreign investors and instead contributed just 20.8% of total invested capital.[52]

Exhibiting comparatively little reorientation towards Europe, small and mid-sized industrialists instead maintained their long-standing dependence on the Portuguese Ultramar:

Although industrialists unassociated with the groups did not directly invest in the colonies, this did not mean that they had no interest in the traditional economic relationship between Portugal and Africa that the groups and foreign capital seemingly promoted. In particular, textile manufacturers historically depended on colonial raw materials and markets, a pattern that continued well into the 1970s. Clothing exports to Angola, for example, grew 26.8% between 1960 and 1970. Moreover, in his analysis on the transference of technology to Portugal, Rolo found that 41% of the contracts restricted the market to Portugal and its colonies. Thus for many firms that received technology from abroad, the market for their goods extended to the colonies.[53]

This divergence led to the creation of two rival camps that would push for very opposite business policies in the final years of the Salazar and Caetano regimes. The first camp, the “colonialists,” favored a maintenance of the same longstanding Portuguese policies under the Estado Novo:

The colonialists favored the continuation of the status quo. Economically, they supported limited market competition, a restriction on foreign capital investment, isolation from the European market, and continued economic integration with African colonies. Whether Portugal should emphasize industrialization remained a matter of debate. Politically colonialists opposed any liberalization efforts such as free trade unions, greater political participation, recognition of individual rights, and other civil liberties. The Colonialists stood for the economic policies pursued by Salazar since the 1930s.[54]

Opposing them were the Europeanists, who were clearly the party-on-the-go in these latter years of the Estado Novo:

The Europeanists looked abroad for new economic and political orientation that would allow Portugal to join the more developed European countries The Europeanists advocated export-oriented industrialization, the concentration of industrial firms, relaxation on foreign capital investment, the use of state funds for projects to stimulate industry, and an end to the colonial war. Politically, they favored liberalization, and after a long evolutionary process, eventual democratization.[55]

Military Waning, Technocrats Ascending

Salazar’s bureaucratic organs did not have an easy transition into this semi-liberalized environment, as the Estado Novo’s “political-constitutional structure [was] adapted to a less fluid system of authoritarian corporate capitalism.”[56] Indeed, over the preceding decades, a large state bureaucracy had arisen in order to comply with the regulatory structure that aimed to promote social cohesion, and it was now increasingly out of place: “the state apparatus became highly isolated and rigidified, and it was expected to perform regulatory functions to which it was not adapted and which exceeded its rather inflexible steering capacities.”[57] Additionally, the close symbiotic relationship between the state and the economic players meant that the state was in a position to import conflicts:

It also had the consequence that owing to the persistently close links between economic and political coordination, the state was deeply susceptible to destabilization caused by economic conflict and unrest; economic instabilities were of necessity internalized as political conflicts, and the failure of government to provide for wage increases or satisfactory settlements over changing production conditions necessarily consumed and drained its legitimacy.[58]

One can see the attempts to reduce conflict via staffing shifts within the state apparatus, specifically in the transition towards lower military participation in the government. To be fair, this was a longstanding project within Salazar’s rule as was apparent even in the late 1930s, when the military accounted for just 28% of the total ministerial positions versus 40% for university professors and 20% for liberal professionals such as lawyers and journalists.[59]. For the military men that remained, they were increasingly siloed into purely military roles – especially after the creation of the Defense Ministry and the growth in military bureaucracy that accompanied it.[60]

By the 1960s, two developments arose that would greatly reduce the presence of the military in Salazar’s government. First was the failed Botelho Moniz revolt, after which “the degree of military presentation at the ministerial level declined, and the dependence of the regime on military support became more uncertain.”[61] The other factor was the commencement of hostilities in the African provinces:

After 1961, the military’s missions were expanded, from the defense of the mainland to an all-inclusive concern with Portuguese overseas territories. Accordingly, there was a drop in the armed forces’ representation in the Council of Ministers after 1960 – and even earlier in the National Assembly and the Corporative Chamber – as well as a steady increase in civilian technocrats.[62]

Technocrats gained share not only from the military but even more so from other categories, since “from 1958 to 1968, there were a total of 22 technocrats in the cabinet, as opposed to 8 military men and three politicians. Under Caetano, the practice of giving weight to civilian bureaucrats with technical and professional qualifications continued.”[63]

The introduction of these technocrats would mark policy shifts, most notably with respect to greater economic integration with continental Europe, where they held influence out of proportion with their numbers:

The European brief continued to be overseen by Correia de Oliveira, a believer in [the] European project who wanted Portugal to participate in its construction while preserving certain existing privileges. Correira de Oliveira was able to keep Salazar on board, as a result of which other ministers had to follow his lead on the matter. Can one speak of the triumph of a technocratic class in 1960s Portugal? There were probably not enough of these modernizing pragmatists to call them a class; there was nevertheless a handful of civil servants from various quarters who had been involved originally with the OEEC, and who conducted subsequent negotiations. Some entertained doubts about aspects of the regime, notably the colonial policy (to which Correia de Oliveira always professed adhesion); and it was from their number that Salazar recruited the government ministers and under-secretaries responsible for economic affairs.[64]

While partially frozen out of the mechanisms of the state, the military brass nonetheless maintained its longstanding close relationship with the business community. In a practice widely discouraged elsewhere in Europe, many high ranking military officials also served simultaneously upon the boards of major Portuguese corporations.[65] The stated goal was to align the interests of both parties with that of the state, but the relationships that developed included some alliances directed towards a much different end as we shall see shortly.

Caetano’s Doomed Liberalization

When examining the quick spate of reforms in the early years of the Caetano regime, one might ask: why was Salazar’s replacement so zealous in getting through these reforms so quickly? With the Portuguese elite factionalized, the military campaigns oscillating, and the communist threat omnipresent, wouldn’t a slower yet steadier pace lead to better results in the long-term? One potential explanation for this eagerness was a desire to ensure successful negotiations for an accord with the European Community to ensure both the economic and public relations gains a means of enhancing regime security. The key wrinkle in the EC negotiations leading up to the July 22, 1972 free trade agreement was the political context of the Estado Novo regime, as the European Parliament’s Birkelbach report of 1962 referenced Artitcle 237 of the Treaty of Rome, “in which the condition for assembly was to be a parliamentary democracy of West European style.”[66]

While a turn to democracy was not something that Caetano could bring into action in any short-time horizon, he could nonetheless attempt to pursue as many liberal-democratic trappings as possible to help move along the Portuguese candidacy. As soon as a disabled Salazar was forced into retirement and Marcelo Caetano came into power, a new tone was immediately set:

On taking office in September 1968, Premier Caetano adopted as his slogan ‘Evolution with Continuity’ implying change within the broad framework of the Salazarist system. In his first speech, he added the rider that ‘faithfulness to the doctrine brilliantly taught by Dr. Salazar should not be confused with stubborn adherence to formulae or solutions that he, at some time, may have adopted’.[67]

Caetano took no time, and instituted a wide mass of reforms[68] all of which seem aligned with improving the international perception of his regime within the liberal West. Political opponents in exile were permitted to return to Portugal, notably the socialist politician and future Portuguese Prime Minister Mário Soares in 1968 and the anti-Salazar Bishop of Oporto, Dom António Ferreira Gomes, in 1969. With deleterious results within the smoldering cauldron of dissent brewing among university students and the military, Caetano widely reduced censorship: Marxist literature could now be sold in bookshop. Literature and film previously deemed subversive were permitted for circulation. At the same time, the paramilitary PIDE was rebranded the DGS (General Directorate of Security) and had its powers curtailed. Lastly, government approval was no longer obligatory for heads of the state trade unions, which had the predictable result of facilitating Marxist infiltration.

In December 1968, the União Nacional (UN), the official political party under the Estado Novo, was put under the head of a reformist, Jose Guilherme de Melo e Castro. A leftist Catholic, Melo e Castro was “known to favor political pluralism and a free press, [and he] brought young progressive elements into the UN and his appointment coincided with a new electoral law which [enfranchised] all Portuguese who could read and write, including literate women.”[69] Although this election for representatives in the National Assembly was widely criticized by the opposition and showcased low turnout, it nonetheless marked a watershed reversal in liberalizing the Portuguese franchise – something that Caetano must have hoped was noticed across the major European capitals.

It was in the National Assembly that the looming fight among the elite begins to show itself. The Ala Liberal – the liberal wing – was the ascendant group in the legislature as showcased in the fact that these men were the first in the multi-decade Estado Novo to actually sponsor legislation, as surprising as that might be. Under the leadership of Pino Leite and Oliveira Dias, the first target of their liberal, reformist outlook was economic policy, as they argued “for liberalization of the condicionamento industrial, for the concentration of firms, increasing exports (particularly to Europe), and autonomous economic development for Portugal and its colonies.”[70] These men were opposed by interest groups favoring traditional economic policies, the binding glue of this group was opposition to autonomy for the Ultramar provinces. While spirited, these debates had a short shelf life: Pino Leite died unexpectedly in 1970, and afterwards the reformers turned their attention to political items.

Nonetheless, this newfound political debate at the National Assembly reverberated through the business world, whose elite followed suit and dialed-up their political signaling. Banco Espirito Santo e Comercial de Lisboa and Banco Nacional Ultramarino, the core set of non-industrial control groups that had considerable investments in Africa, in their annual reports “often lauded the military’s efforts to defeat the African liberation movements. These banks, together with Banco Borges e Irmão, were most likely to discuss the system of payments and to advocate a change in this system that would facilitate trade between Portugal and the colonies.”[71] They were joined by the textile firms, a key bastion of small scale industry, whose public statements “lamented the problems of obtaining raw materials. They sought an improvement in trade between the colonies and Portugal to correct this situation.” Other small industrialists like the National Federation of Millers favored maintaining the laws of condicionamento as necessary for continued industrial development as “excessive change in the economic direction of the Portuguese economy generates insecurity for industrialists.”[72]

Just as vocal were the economic agents with the most to gain from further integration. The major industrial control groups such as Banco Totta e Açores (another CUF subsidiary) and Banco Pinto e Sotta Mayor never mentioned the war effort, and instead in their annual reports mentioned the need for more pro-industry reforms including “more competition, policies to facilitate exports, and an end to the condicionamento industrial.”[73] Unsurprisingly, they were joined by companies controlled by foreign capital as “the Jornal do Comércio reported that Sorefame, Plessey Automática Eléctrica, and Fabrica de Tintas de Sacavém (all industrial firms owned in part by foreign capital) publicly supported the Law of Industrial Development,”[74] which undermined the prior condicionamento industrial.

Fittingly, the most strident protest against what was deemed an insufficiently fast spate of reforms came from Companhia União Fabril (CUF), the behemoth of the Portuguese conglomerates. Controlled by the Mello family, CUF came to prominence under the regime of industrialization, as the family made its wealth in the nascent chemical industry it came to dominate. CUF held stakes in “chemicals, petroleum refining, cellulose, tobacco, shipbuilding and other industries”[75] and through its 186 subsidiaries, accounted for 20% of Portugal’s industrial output. With the most to gain from industrialization, it took its politicizing a step further than merely lamenting policy in its annual reports: when General Spínola wrote his critical book on the state of the African colonial wars, Portugal e o Futuro in 1974, it was a publisher owned by CUF that not only published it, but made sure that it ran through three editions in a fortnight[76].

Conclusion

The long reign of Salazar’s Estado Novo was in no small part the result of his methodical approach to policy decisions. Salazar’s ideology was highly developed, and the policy positions originally were holistic and aimed towards rebuilding the honor Portugal had lost in the period through the First Republic.

Whatever his strengths as a theorist, Salazar was nonetheless helpless to alter certain actualities of Portugal. And grim indeed were many of these realities: impoverished by European standards; fighting political, social, and cultural wars in direct opposition to what emanated from Washington and Moscow; and trying to arrest the dismembering of an empire whose heyday had been five centuries Salazar’s predecessor.

Still, via decisions that maximized short-term gains – averting economic crises, strengthening alliances, and scoring political points for friends and against foes – Salazar and team helped unleash dynamics that cost him one of his key pillars of support. With no other way to fund the Colonial Wars, Salazar had to open to the same foreign trade and foreign investment that would ultimately destabilize the vision of Portugal he had cultivated. And destabilize it did: by inviting foreign ideas opposed to corporatism; by sowing division among the nation’s leading businessmen; and by creating new classes of elites whose interests were no longer aligned with the success of the Império.

The next and final installment of this series will examine the breakdown in the relationship with the last remaining un-examined pillar: Salazar and the Roman Catholic Church.

[1] Mata, Maria Eugénia. “Economic Ideas and Policies in Nineteenth-Century Portugal”  Luso-Brazilian Review. Vol. 39,  No. 1 (Summer, 2002), p32

[2] Mata p31

[3] Rothbard, Murray. Thomas Jefferson’s Free Market Economics. Mises Institute, 29 November 2011: https://mises.org/library/thomas-jeffersons-free-market-economics. Accessed 3 November 2017

[4] Mata p32

[5] Mata pp3-4

[6] Mata p31

[7] Mata p33

[8] Derrick, Michael. The Portugal of Salazar. Campion Books, 1939: p79

[9] Corkhill p12

[10] Etchemendy p278

[11] Nataf, Daniel & Elizabeth Sammis. “Classes, Hegemony & Portuguese Democratization.” Transitions From Dictatorship To Democracy: Comparative Studies Of Spain, Portugal And Greece, ed. By Ronald H. Chilcote et al. Taylor & Francis, 1991: p79

[12] Almovodor p114:

[13] “Economy of the Salazar Regime” Country Studies Series by Federal Research Division of the Library of Congress: http://www.country-data.com/cgi-bin/query/r-10909.html. Accessed 3 November 2017

[14] Nataf, Daniel. Democratization and Social Settlements: The Politics of Change in Contemporary Portugal. SUNY Press, 1985: p25

[15] “Portugal: Caetano’s Economic Policies.” Directorate of Intelligence, Intelligence Memorandum. Central Intelligence Agency, May 1971: p9

[16] [16] De Meneses, Felipe. Salazar: A Political Biography. Enigma Books, 2009:  p335

[17] Corkhill, David. Development of the Portuguese Environment: A Case of Europeanization. Routledge, 2002: p17.

[18] De Meneses p335

[19] Corkhill p17

[20] De Meneses p336

[21] “Economy of Salazar”

[22] Nataf & Sammis. p79

[23] Ibid

[24] Corkhill p18

[25] De Menses p336

[26] Corkhill p18

[27] Ibid

[28] Coppolaro & Lains p63

[29] Corkhill p21

[30] Ibid

[31] Coppolaro, Lucia & Pedro Lains. “Portugal and European Integration, 1947-1992: an essay on protected openness in the European Periphery.” E Journal of Portuguese History. Volume 11, No. 1:  p64

[32] Rollo, Maria Fernanda. “Portugal and the European integration process —  historical context.” CVCE. University of Luxemburg, 2016: p3

[33] Ibid

[34]Corkhill p21

[35] Ibid

[36] Portugal and the European Integration Process

[37] Corkhill p22

[38] Ibid

[39] Ibid

[40] Costa Pinto, António & Nuno Severiano Teixeira. “From Atlantic past to European destiny, Portugal.” European Union Enlargement: A Comparative History, ed. by Jurgen Elvert & Wolfram Kaiser. Routledge, 2004: p115

[41] Williamson, Peter J. Varities of Corporatism: A Conceptual Discussion. Cambridge University Press, 1985:  p106

[42] Raby, D.L. Fascism and Resistance in Portugal: Communists, Liberals and Military Dissidents in the Opposition to Salazar, 1941-1974. Manchester University Press, 1988: p220

[43] Nataf & Sammis p80

[44] Ibid

[45] Ibid

[46] Nataf & Sammis p81

[47] Ibid

[48] Ibid

[49] Nataf & Sammis p82

[50] Ibid

[51] Ibid

[52] Ibid

[53] Nataf & Sammis p83

[54] Nataf & Sammis p84

[55] Ibid

[56] Tomhill, Chris. A Sociobiology of Constitutions: Constitutions and State Legitimacy in Historical-Sociological Perspective. Cambridge University Press, 2011:  p342

[57] Ibid

[58] Ibid

[59] Costa Pinto et al. p434

[60] Barany, Zoltan. The Soldier and the Changing State: Building Democratic Armies in Africa, Asia, Europe, and the Americas. Princeton University Press, 2012: p120

[61] Tomhill p343-4

[62] Barany p121

[63] Barany p122

[64] De Meneses p351

[65] Gallagher, Tom. Portugal: A Twentieth-Century Interpretation. Manchester University Press, 1983: p180

[66] The Developing Place of Portugal in the European Union p133

[67] Gallagher p167

[68] Ibid

[69] Ibid

[70] Nataf & Sammis p85

[71] Nataf & Sammis p86

[72] Ibid

[73] Ibid

[74] Ibid

[75] Etchemendy, Sebastián. Models of Economic Liberalization: Business, Workers, and Compensation in Latin America, Spain, and Portugal. Cambridge University Press, 2011: p278

[76] Gallagher p184

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One Comment

  1. I read this right after reading Jim’s long piece, and it struck me that the need for the Estado Novo to micromanage every aspect of its economy is the kind of weakness Jim’s warning against. Salazar couldn’t be everywhere and do everything himself. As you suggest, given Portugal’s weak position, perhaps there was little that could have been done differently.

    Looking forward to the last part.

    Reply

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