Whenever a company faces financial trouble, one of the first restructuring measures is to cut the number of non-core subsidiaries. Company restructuring is about specialisation: a business with negative operating income usually needs to make what sells and drop everything else.
A similar approach could be taken by the Portuguese Government to limit spending and improve the country’s public accounts. Following a prolonged period of low GDP growth (or recession) and very high Government debt (128% of GDP and growing), there is a pressing need to cut the size of the State.
Yet, almost 2 years following the intervention of the IMF, ECB and European Commission, the major tangible results of the so-called restructuring measures imposed by the country’s main lenders were a reduction in the wages of civil servants and pension cuts. Any improvements in the State’s efficiency remain to be seen.
Improving efficiency means cutting costs and this could be achieved in a number of ways. The most obvious fix is to cut salaries, which is what Government did so far. More cuts are likely in 2014, after the European Parliament elections in May. Any serious Public sector restructuring should also involve a reduction in the number of institutes, independent entities and associations that are financed using Government money. One estimate places the total number of Government and Quasi-government entities at over 13.000, for a country with under 10 million inhabitants. These are estimates since not even the Bank of Portugal knows for sure. In fact, no-one appears to know – a tell-tale sign that restructuring is badly needed.
Yet this is not likely to happen. Everyone now understands how things will turn out: there will be no fundamental reforms, nor will the State’s efficiency improve. A significant reduction in the number of State entities is not strictly needed, and will not be executed. The political system as we know it would have to change dramatically. No-one in the political arena really wants that to happen.
All that is strictly needed is to cut wages and pensions, transfer a massive amount of debt from the balance sheets of certain banks to the ECB – and that is it. Economic miracles happen in Hollywood. Around here? We will probably go back to the usual muddle-through economy. It will go according to plan.
Innovation Models 