Portugal’s Plight: Social Democracy at Fault

Abstract

Portugal holds the dubious distinction of being among the so-called PIGS countries, the sub-set of Euro zone nations bedeviled by large public sector debt and deficits. In this paper, we try to explain why Portugal has fallen into its current predicament using concepts from the Austrian tradition of economics and political economy. Portugal’s history before and after its 1974 Carnation revolution furnishes an ideal case to examine first, the impact of establishing an interventionist welfare state and, secondly, the economic consequences of democratization.

With respect to the first, we find that Portugal’s experience conforms with Ludwig von Mises’ predictions regarding the impact of interventionsm in hampering capital accumulation. Regarding the second, Portugal’s fate lends credence to the thesis advanced by Mises that democracy is susceptible to encouraging short-sighted economic policies by opening the field to the privilege seeking of political parties on behalf of special interests. Consequently, Portugal’s plight is the end result of the social democratic project it embarked upon in the aftermath of the 1974 revolution.

Keywords: Portugal, Social Democracy, Debt Crisis, Euro zone, Pigs, mises, Austrian, Democracy

JEL Classification: D72, F34, H10, H11, N00, N14, N44, O52, P16, P26, P52