Wednesday, 24 September 2014

Capitalism and Private Property

The acceptance and protection of private property is fundamental for capitalism. By private property we mean not only the individual or joint ownership of produced and natural assets but also the respective property rights in relation to its use and disposal.

The distinction between property rights and property ownership as well as its use for personal or commercial purposes is essential to discuss any acceptable limitations to such rights.

Obviously, personal private property is indispensable even in the most utopian of the communal organizations. For instance, in a hippie commune one could share the food in the fridge but not the toothbrush, and sooner or later, if someone likes only a specific kind of yogurt, he or she would like to be sure that such brand would be left untouched for his private use. However, when discussing capitalism we are not talking about such minutiae in relation to personal objects but rather on what Marxists call productive capital or means of productions.

The means of production may be divided in at least four categories: 1) land and other natural resources, 2) materials, tools and equipment, 3) labor, and 4) know how. Likewise the various forms of ownership must be split into individual, joint, and communal (state) or international. The first two types we call private and the rest we call collective property.

All types of property and ownership coexist in every economic system, but the various economic systems differ on the relative importance and role taken by private property. For instance, in primitive hunting and gathering societies land was the main mean of production and was mostly used for pastures and game and owned collectively. Other natural means of production inseparable from land like water, wind, minerals, air waves or landscape were not perceived as scarce and valuable. Likewise, intellectual property was not important then.

So, collective ownership of natural resources was as important in primitive societies as intellectual property is in modern capitalism. Yet, any limits on the property rights of specific types of property are critical not because of the nature of such property but because of their impact in the of accumulation capital and its efficient use. In this regard joint ownership as opposed to collective ownership became an important lever for competition and capital accumulation despite the obvious drawbacks introduced by large corporations.

Since the late XIX century, a rise in the size of corporations and its share of total assets were inevitably associated with the prevalence of joint-ownership over individual or family ownership. Yet, joint-ownership through joint stock companies and similar organizations does not invalidates the need for private ownership. If anything, increases its scope by facilitating capital accumulation through diversification and risk mitigation. But, it introduces a new reality – the separation of ownership and control and the associated problematic of the relationship between principals and theirs agents.

This separation, inevitably questioned the old stereotype of the capitalist as embodying simultaneously the financier, the entrepreneur and the manager. And, in the early XX century, some economists began replacing the traditional view of capitalism by a system of managerial capitalism. In their classic “The Modern Corporation and Private Property” Berle and Means (1932) described this process and its consequences in terms of corporate law and governance. They claimed that the owners no longer were served by a profit seeking controlling group. The realization that many industries had become oligopolistic and big businesses were run by a new class of professional managers rather than shareholders led some to question whether we still needed capitalists, private property and competitive markets.

For instance, Keynes (1936) in his “General Theory”, although refuting a system of State Socialism, conceived that to achieve an optimum rate of investment “a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment”. Likewise Schumpeter’s (1942) theory on the demise of capitalism claimed that the success of capitalism would lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals, that would replace entrepreneurship with “laborism”.

Since then the separation between ownership and control has deepened by the rise of another layer of intermediaries between the ultimate owners and their investments. That is, capitalists progressively lost control not only over how to run their assets but also over the allocation of capital, and are now often reduced to choosing professional fund managers.

Still, regardless of how removed ownership is from control, the preservation of this last domain of private property power and rights is indispensable to preserve the profit motive and the role of markets in a capitalist economic system. Otherwise, wealth owners would lose the freedom to dispose of their property, including the right to bequest it as they like, and lose any incentive to venture and to accumulate the capital indispensable for economic growth.

The fact that nowadays most people own a substantial share of their wealth through pension funds owned or regulated by governments and that prudence recommends that they should not be able to withdraw their funds as they please does not invalidates the previous assertion. That is, private property continues to be an essential foundation of capitalism.

Wednesday, 10 September 2014

The economics of disintegration and why the Scottish should vote no

The world and Scotland fear what may happen if next week the Scottish people votes for Independence. Economic theory has a solid knowledge about economic integration and there are a few empirical studies measuring its costs and benefits (including my own here). Independence is the reversal of integration, so we may apply most of the theory to disintegration.

Apart from the immediate impact caused by changing existing relations and institutions, which may be enormous if independence is not a peaceful process, the long term advantages of separation must be proved in terms on how it will impact on the four basic freedoms – free movement of labour, capital, goods and services. To these one may add the pros and cons of financial transfers through a centralized budget and the use of a common currency.

Let me speculate on each one of them. For this I shall assume, optimistically, that the process will be peaceful and Scotland will remain in the European Union, which itself will not disintegrate if the independence movement extends to countries like Spain, Belgium, etc.

In terms of labour market Scotland is now fully integrated with the UK and workers move freely between Scotland and the rest of the UK. So nothing can be won by independence, but losses are foreseeable in terms of job opportunities.

Likewise, in relation to the free movement of goods and services, as long as Scotland remains within the EU, these will remain relatively free. Again, nothing can be gained through separation but the risk of non-tariff barriers will rise.

When it comes to the free movement of capital the answer is not straightforward, because it depends on what the separatists would decide in terms of their future currency. They promise to retain the British Pound but this may prove untenable. Using a foreign currency only works until the rulers of that currency (in this case the Bank of England) pursue a monetary policy that is good for the local economy, but this is uncertain. What is sure is that there will be a significant change in Scotland’s current account because of the North Sea revenues.

Indeed, the case for independence rests on little else than retaining such revenues in Scotland. However, there is no certainty on how long those reserves will last. And, more importantly, they would only reduce the current government deficit from 14 to 8%, or probably much less if one accounts for loss of revenue in the financial sector and increased sovereignty costs, let alone the local politicians’ eagerness for more spending.

This bet on becoming an oil-producing country is a very dangerous mirage. Not only because of the likely effects of the so-called “Dutch disease”, but also due to the rise of populism and anarchy in the fight for such revenues (Venezuela comes to mind when one thinks about it).

Traditionally, the Scottish are viewed as tight-fisted and prudent people. Let’s trust that these characteristics will lead them to prefer the certain to the uncertain and to avoid embarking on an independence adventure with so many risks for them and the rest of Europe.

Wednesday, 3 September 2014

A brief history of Economic Systems

Economic systems are characterized by a set of rules defining the relationship between interacting economic agents. The organization of economic activities is not separate from the political and social institutions adopted by the groups carrying out such activities. Thus, we may categorize many economic systems across the globe and throughout human history.

However, if we consider only broad differentiating factors, we may resume our history to five main economic systems – the gathering and hunting economy, the predatory and slave economy, the medieval serfdom system, centrally planned economies and capitalism or free market system.

With the exception of the centrally planned systems (fascism, national socialism and communism) who were driven by a precedent ideology, all the other systems evolved more or less spontaneously after long periods of gestation. In this brief history of these five major economic systems we highlight their main distinguished features in terms of division of labor, property rights, income distribution and capital accumulation.

Our oldest ancestors (the homo sapiens) appeared as a distinct species some 200-500 thousand years ago organized in small groups, mostly made up of family members. They were basically roving hunters and only settled down and began farming around 10-50 thousand years ago. At this stage their level of organization was much more developed and included a clear division of labor between male (hunter) and female (farmer), a division of property rights between common and family property and an acceleration of capital accumulation on durable goods like lodging and hunting/domestic tools, but also on non-essentials such as jewelry and other cultural and religious artifacts.

As hunters they undertook also predatory activities as a short cut to get what they needed, either by stealing from other tribes or by killing similar species (like the Neanderthals) who competed with them for the same territory and preys. As an alternative to predation, primitive forms of barter trade also appeared, but they were not the primary form of wealth exchange, which continued to be mostly done on a kinship basis. Another important development in terms of farming was the domestication of animals as pets and cattle.

All these developments led to a rapid increase in predatory activities which required larger societies (tribes), a further division of labor, beyond gender and age, between warriors/ hunters, shepherds/ farmers, slaves and clergy, as well as a political power structure beyond the traditional family/tribal hierarchy.

So, in the ancient civilizations of Mesopotamia, Egypt and India that appeared between the 3rd and 4th millennium BC, economic activity was mostly based on predation (conquest) and slavery and the military warriors naturally became the most powerful group within those societies. War permitted not only to obtain slaves to perform domestic, agricultural and construction activities but also to achieve a fast accumulation of durable goods. The organization skills required to command large armies and numerous slaves were essential to increase further the level of specialization in the division of labor needed to construct large durable infrastructures like irrigation, bridges, fortresses or temples.

Although most of these activities were under a centralized command, the development of trade and its tools was also inevitable and facilitated by the development of money exchanges that progressively replaced the traditional barter trade. In particular, the development of pictographic writing by the Sumerians, during the Uruk period at about 3400 BC, was essential to keep trading records and turn Uruk into the most urbanized city in the world and a major trade center in Mesopotamia with more than 50,000 inhabitants.

Ancient civilizations progressively turned into agriculture based societies and big estates, producing wine and oil (the most important commodities for commerce), replaced the small self-sufficient wheat-producing farms. Thus, private ownership of land became one of the crucial factors in the social stratification of those societies. For instance, in ancient Athens and Rome the population was divided into slaves, freedmen, free men, foreigners and women and only some of these groups were considered citizens.

Slaves did most of the work in agriculture, mining and manufacturing. The rulers, whether theocratic, oligarchic or democratic, continued engaged in military campaigns, initially mostly to plunder and destroy the property of the vanquished. However, they soon realized that slaughtering and enslaving their enemies was not always the most profitable course of action. So, they began to demand as an alternative the payment of ransoms and tributes (through various types of taxation) from independent producers and traders. This allowed a much faster accumulation of capital in palaces and jewelry as well as a rise in population.

In Europe and the Mediterranean these civilizations were later vanquished by hordes of barbarians who destroyed most of the cities and centralized forms of government, thus splitting the continent into countless kingdoms. This had two important consequences, the rise of monotheist religions (first Christianity and later Islam) who became a unifying force in those societies and an inward return to the big estates as the base of society. These were invariably involved in frequent wars and alliances that led to the development of a vassalage system - the feudal system.

The driving force of the feudal system was still predation but now the territorial range was much smaller (with a few exceptions like the Charlemagne Empire) and reliance on slaves was slowly replaced by a system of serfdom.

In contrast to what happened with the ancient slaves, the serfs’ master did not have the power of life and death. The serf (whether bound to the soil or to the lord) was considered a living creature with soul and the master had to allow him to attend church and could not force him to work on holy days or to commit immoral acts. The serf usually had a separate hut with an attached plot of land and lived with his family.

Production was often organized in a manor system, where the land was split in three parts, one directly controlled by the lord for his own benefit, another used by the serfs in exchange for labor services and a share of their produce and a third considered free land leased against a money rent. Under this system there was very little incentive to produce surplus for trading, and the lords often reserved a large part of their domain for hunting.

Not surprisingly throughout the middle ages the division of labor, the level of trade and capital accumulation were significantly reduced when compared to the ancient civilizations. This system lasted for a long period, appropriately named the “dark ages”, which only began to change slowly with the fragmentation of the feuds and the resumption of the so-called trade revolution in the XII century and the rediscovery of the ancient civilizations during the Italian Renaissance in the XV century. These developments allowed the rise of a new class of rich traders and bankers who questioned an otherwise rigid class pyramid made up of the Pope, King, Nobles, Knights / Vassals, Freemen, Yeomen, Servants, and Peasants / Serfs / Villeins.

The transition from feudalism to capitalism was also a long process that was only completed in Europe by the end of the XVIII century. One may even say that it began as early as the Crusades in 1096 and was only completed by the British Limited Liability Act of 1855.

The key changes that combined to drive the process were the XIII century trade revolution, the Italian renaissance in the XV century, the Portuguese and Spanish voyages of discovery in the XV-XVI and the scientific, illuminist and industrial/transport revolutions from the XV to the XVII century.

At the institutional level the key marks were the progressive repeal/ ignorance of the usury laws that hampered the use of credit and banking, the creation of joint stock companies who enabled capital accumulation and risk sharing, the development of securities markets and the introduction of limited liability laws that facilitated entrepreneurship.

The end result of this process was that the specialization and division of labor deepened to unprecedented levels, free labor progressively replaced slavery and serfdom and the accumulation of financial and non-financial assets accelerated leading to the fastest ever growth in productivity and trade experienced by humankind. Thus old agrarian societies were replaced by commercial and industrial societies and the traditional rigid social hierarchy was challenged by the new money earned on such activities.

In the Wealth of Nations (1776), Adam Smith refuted Physiocratism and Mercantilism and demonstrated the clear advantages of free labor and free markets, which are the essence of capitalism. The word capitalism itself only made its first written appearance in Thackeray’s novel “The Newcomes” (1855) to refer to those whose capital was not the result of land ownership. The term was also used by Karl Marx in Das Kapital (1867) to denigrate the new economic system by claiming that “social wealth becomes to an ever-increasing degree the property of those who are in a position to appropriate continually and ever afresh the unpaid labour of others”.

The nobility and clergy did not accept easily the loss of power and status brought about by capitalism. Indeed, Marx was not the only one to fight the ideal of “the invisible hand” and decentralization subjacent to capitalism. Among both revolutionaries and reactionaries there were two opposite criticisms of a capitalistic decentralized system. Some proposed a return to a system of small communities (e.g. the model villages of Utopian Socialists or the Anarchist and Hamish communes) while the others proposed a centralized system relying more on economic planning than competition (e.g. communism, national socialism and corporatism).

The experiences with decentralized non-capitalist systems were localized and have been subsiding progressively without a major impact on humankind.

On the contrary, the experiences with central planning had a dramatic impact in our world since they were tried in the first three quarters of the XX century in many developed and less developed countries. The three types of experiments relied on dictatorships to control the economy and the labor market, in accordance with their different ideologies.

Following the Marxist-Leninist doctrine, communists established a so-called proletariat dictatorships, initially run by the oligarchy of the only legal party, which invariably transformed into a single god-like dictator (e. g. Stalin in Russia, Mao in China or Fidel Castro in Cuba). Communists abolished private property and reintroduced forced labor, namely slavery in the Russian Gulags, serfdom in Chinese rural areas and modern forms of slavery in Cuba. They also replaced the markets by some form of central planning.

Forced labor, private property confiscation and central planning proved disastrous, causing the worst man-made famines known to humankind, when 6-8 million people died during the 1932-1933 Soviet famine and 15-40 million starved to death during the 1958-1961 Chinese famine. Capital accumulation and productivity growth lagged so much under this system that in the 1980s communism collapsed by itself in the Soviet Union and the Chinese Communist Party replaced communism by a form of state capitalism.

National-socialism was introduced in the 1930s by the Nazi Party in Germany. It was based on an ideology of racial supremacy, proclaiming that the Aryans were a superior race and the other races should be either destroyed (e.g. the Jews and Gypsies) or become servants of the Germans (e.g. the Eastern and Southern Europeans).

The Nazis did not abolish private property and markets for the Germans, but firms had to work under the direction of the party by contracting to receive forced labor and to supply the government. The Nazis reintroduced the most brutal form of slavery by forcing war prisoners and Jews to work until they died of exhaustion. The party also had a god-like leader - Hitler - who repeated the old forms of predatory economics through outright confiscation of the Jews and the Central Banks of the countries occupied and the introduction of ransoms, forced labor, punitive taxes and the coercive supply of his armies.

The German (and Japanese) imperialist wars to conquer new territories originated the Second World War, the most deadly conflict ever lived by mankind, which claimed the lives of more than 60 million people.

Corporatism, was a milder form of centralized economic system introduced in Italy, Portugal, Greece and Spain during the 1920s and 1930s. Its ideological origin goes back to the Rerum Novarum papal encyclical on the social question issued by Leo XIII in 1891. The basic idea was that labor and capital should cooperate under the guidance of government.

Private property and markets were accepted, but labor relations were regulated by agreement between unions and employers under the supervision of the state. Other markets were also regulated through price controls and licensing.

At the political level, the dictatorships adopted more or less extreme forms of fascism depending on the moderation and warmongering of their leaders, with Salazar in Portugal being the only one who was not involved in war.

The economic consequences of corporatism and the lack of market competition was the impoverishment of Southern Europe relative to the rest of Europe.

Without exception, all attempts to create an economic system by design based on anti-capitalist ideologies only brought oppression, misery and war and have been progressively abandoned in favor of various versions of capitalism.

Despite having so few supporters and so many opponents capitalism vanquished by itself and is now the dominant economic system. So, one is left wondering what is the beauty of capitalism and how long it will last. But, first we needed to understand how mankind got here.

Friday, 22 August 2014

Portugal e a escravatura dos médicos Cubanos

Em declarações recentes o Bastonário da Ordem dos Médicos insurgiu-se contra o pagamento que estava a ser feito aos médicos cubanos contratados por Portugal, reclamando o mesmo pagamento para os Portugueses.

Chocou-me que o Bastonário não tenha referido que o pagamento não é feito aos médicos mas sim ao governo Cubano que por sua vez apenas paga uma pequena fração aos médicos (no caso do Brasil menos de 10%) e retém como reféns a família dos mesmos. Isto é, não acusou o governo Português de estar a ser cúmplice numa forma de escravatura moderna praticada pela ditadura comunista de Cuba.

Para obter divisas o regime comunista Cubano decidiu recorrer ao tráfico de pessoas, na sua maioria médicos. Note-se que não se trata de uma exportação de serviços médicos ou de facilitar ou promover a emigração desses trabalhadores para outros países, o que seria perfeitamente legítimo. Nem sequer, de uma prática de angariação de mão-de-obra barata por agências pouco escrupulosas. Pois, em tais casos, os trabalhadores continuariam livres para rescindir o seu contrato e voltar ou não ao seu país de origem.

Neste caso, embora os médicos cubanos sejam livres de aceitar ou não a emigração, se o fizerem o governo retém como reféns os seus familiares, pode confiscar-lhes os passaportes e nalguns países (como a Venezuela) chega mesmo a mantê-los prisioneiros em regime de trabalhos forçados. Mais detalhes sobre estas práticas Cubanas podem ser lidos neste sítio.

O mais perturbante é que tais práticas subsistem há muitos anos, perante a complacência da OIT e dos sindicatos e a conivência dos partidos, dos governos e meios de comunicação social de esquerda. Para cúmulo da hipocrisia, os Cubanos ainda proclamam que tais práticas são uma forma de solidariedade internacional no seu apoio aos países menos desenvolvidos.

Pelo contrário, o verdadeiro liberalismo defende a livre circulação internacional de mão-de-obra mas só aceita como legítimos os contratos celebrados de livre vontade entre partes livres, i. e. com garantia dos seus direitos fundamentais individuais. Os estados não são donos dos seus cidadãos!

Wednesday, 16 July 2014

Professor Jacinto Nunes – uma lição do mestre sobre supervisão bancária

Esta semana faleceu o Professor Jacinto Nunes. A sua família, o país, e todos os que tivemos o privilégio de o conhecer ficaram mais pobres. A última vez que o cumprimentei foi na receção que se seguiu à última tomada de posse do Presidente da Republica. Fiquei com a impressão de que já não me reconheceu, talvez devido ao congestionamento de pessoas na sala, mas não deixou de me transmitir a sua habitual simpatia. É normal que depois de tantos anos os mestres confundam os seus alunos, mas para os alunos há mestres que marcam para o resto da vida. Foi o que aconteceu comigo em relação ao Professor Jacinto Nunes.

Jacinto Nunes foi meu professor em 1974 ou 1975, creio que na disciplina de Política Monetária, pois já não me lembro bem do ano nem do nome da disciplina. No entanto houve uma lição dele de que nunca me esqueci – sobre a eficácia da supervisão bancária, tema que nos últimos tempos se revelou muito importante em Portugal.

Recordo-me como ele nos explicou porque é que supervisores pouco preparados e mal pagos não podiam fazer bem o seu trabalho. Contou-nos que no passado os supervisores do Banco de Portugal eram tão mal pagos relativamente aos restantes bancários que quando chegavam a um banco ficavam logo intimidados com o edifício e com os caixas do banco. E, quando eram conduzidos ao andar da Administração, já mal conseguiam falar e muito menos questionar perante a altivez dos respetivos administradores e secretariado.

Anos mais tarde, quando trabalhei na banca de investimento, tive ocasião de presenciar situações semelhantes às descritas pelo Professor e outras de sentido exatamente oposto. Isto é, casos onde os supervisores eram tão bem pagos que fechavam os olhos a tudo o que pudesse por em perigo o seu estatuto remuneratório ou futuras oportunidades como administradores não executivos das entidades supervisionadas.

A solução para o problema de como remunerar pessoas com funções fiscalizadoras é antiga e universal. Por um lado, têm de ser bem remuneradas para que possam ter a independência necessária à sua função, mas por outro não podem ser demasiado remuneradas para que não fiquem prisioneiras do seu estatuto.

A grande dificuldade está em encontrar o meio-termo adequado. Na banca hoje é cada vez mais difícil de definir esse nível porque o leque remuneratório aumentou do tradicional 20/1 para 150/1. Nestas circunstâncias não há fórmulas mágicas que nos ajudem. Teremos de recorrer a pessoas sábias com a modéstia e o bom senso do Professor Jacinto Nunes, tão bem expressas no seu livro de “Memórias Soltas”, que vivamente recomendo.

Friday, 30 May 2014

Piketty, the 0.1% debate and the backdoor return of class warfare

Recently economists got very excited by a book on wealth inequality (Piketty, 2014), which reminded me of how economics is still mostly an ideological debate and how far it is from being the queen of social sciences.

We see again the old left wing anti-capitalism rhetoric and its denial by the traditional adulation of the rich by the usual ass-kissing right wing. Economics can claim to be the science of many things, but apparently it is unable to be a science of common sense.

If economists relied more on common sense, they would immediately realize that the rise in inequality is hardly news. There has been plenty of studies showing that. Meanwhile, the focus on the share of the top 0.1%, apart from creating an “identifiable” common enemy, tried to create a stereotype equivalent to the XIX century top hat capitalist depicted by Marxists.

Remember that the later began by focusing on the 1%, but probably this group was too large to provide the necessary stereotype. Note also that the debate relies largely on the Gini coefficient and ignored the different weightings that society may put on inter-group income transfers using the metric suggested long ago by Atkinson.

Yet the greatest failure is on understanding why inequality is rising, and the reason may be quite plainly related to the failure to correct a well-known feature of capitalism.

Capitalism is the most efficient economic system ever devised by humankind that replaced a largely hereditary class system (nobility, clergy and serfs) based on predatory (conquest) economics by a system mostly based on social mobility through free enterprise and trade.

Yet, its central feature, the free accumulation of private property has two limitations. On one hand some ventures require large amounts of capital which are beyond individual means and require institutions (such as governments and institutional investors), and on the other hand the law of compound interest would allow such long-living institutions to ultimately own the entire capital stock and self-destroy capitalism itself. As we have shown in this post, the solution to this feature is easily achievable through reasonable levels of progressive taxes and the taxation of inheritances.

We add here that the survival of capitalism should not rely on artificially curbing the return on capital (Piketty’s r/g) or opportunistically expropriate the rich from time to time as some on the left advocate. There may be some reasonable curbing of executive compensation in listed companies where shareholders are basically powerless, but that is a different governance matter.

Let us exemplify with one of the richest man in the world. Would it make sense to have limited Warren Buffett’s wealth? If we had done so, he would not have created so many jobs and profits through his smart investments and society would be poorer without his $300 billion company. However, he is a very wise man and has decided on his wisdom to donate most of his fortune to charity.

Some will dispute whether that is the best use of his wealth. Some would prefer that he had given his money for research, environment, sports, culture or whatever, while others may say that the government should decide, not him.

How the inheritance money should be spent is an interesting question to debate but not relevant to decide whether to like or dislike capitalism or to bring back through the backdoor a destructive class warfare as advocated by Marx.

In conclusion, common sense suggests that governments should exercise moderation on taxing inheritances and give the taxpayers enough say on where governments will spend their wealth. We do not need to go back to the old divide.

Wednesday, 30 April 2014

Condecorações Inoportunas

O Presidente da República condecora hoje António Mexia presidente da EDP. De momento não me ocorre nenhum serviço público relevante prestado pelo condecorado, mas seguramente que a Presidência invocará alguns. No entanto, o momento parece-me infeliz.

Numa altura em que a Troika procura fazer cumprir a sua promessa tímida de reduzir as rendas excessivas no sector das energias, condecorar o principal lider da oposição a essa redução é no mínimo incompreensível.

Mas não só. Acontece também que no imaginário popular esse gestor é dos mais bem pagos no país e aparece aos olhos do povo como o símbolo da ganância e indiferença perante os sacrifícios impostos à generalidade dos Portugueses.

Têm duvidas? Vejamos os fatos comparando os biénios pré e pós Troika.

Entre 2010 e 2012 a evolução dos preços da energia em Portugal comparada à dos outros preços ao consumidor e à do preço do petróleo foi a que podemos observar no seguinte gráfico.
Como podemos constatar, em Junho de 2013 os preços do Petróleo tinham caído 10% mas os preços da energia pagos pelo consumidor Português tinham aumentado 10%, enquanto os preços dos restantes bens permaneceram quase na mesma nos primeiros dois anos pós Troika.

Entretanto, o que aconteceu às remunerações desse quando comparadas com, por exemplo, um professor universitário. O último recebeu ilíquidos no biénio pré Troika 119.1 mil Euros e no pós Troika 99.6 mil Euros, tendo sofrido um corte salarial de 16.4%. Nos mesmos biénios António Mexia recebeu, respetivamente, 2358 e 2257 milhares de Euros pelo que teve um corte de apenas 5.1%.

Será que tamanha diferença se explica pelo desempenho das empresas dirigidas por esse gestor? Os números mostram que não. Nos mesmos biénios os resultados por ação da EDP subiram apenas de 58 para 59 cêntimos.

Que a Presidência da República tenha ignorado estes factos é no mínimo incompreensível

Porém, as consequências são graves a três níveis:
a) Transmite uma imagem de subordinação do poder político ao poder económico, dando à Troika um pretexto para esquecer mais uma vez o objetivo de redução das rendas excessivas no setor energético;
b) Agrava o sentimento de injustiça que o povo sente na distribuição dos sacrifícios impostos pelo programa de ajustamento; e, sobretudo
c) Desprestigia a Presidência da República enquanto último garante dos Portugueses, aparecendo cada vez mais alheada do povo e da realidade.
Pessoalmente, tendo integrado da Comissão de Apoio à reeleição do Presidente da República, entristece-me vê-lo aproximar-se do final do seu mandato numa posição que me faz lembrar a de Américo Tomás no regime anterior ao 25 de Abril.

As condecorações, tal como outros gestos simbólicos, valem pela oportunidade com que são atribuídos. Por isso, não podemos deixar de considerar esta condecoração como tão inoportuna que até parece uma afronta aos Portugueses.

P.S. Numa versão anterior deste post tinhamos incluido o nome de Ferreira de Oliveira, Presidente da Galp, que na notícia que ouvimos na rádio confundimos com o de Faria de Oliveira. As nossas desculpas ao visado por este equivoco.

Friday, 28 March 2014

Indexação das pensões ao PIB: Tropelia ou ignorância?

Apenas uma pequena nota sobre a intenção do Governo de indexar as pensões ao crescimento económico e à demografia. A notícia despoletou uma onda de reações sobre a forma como foi feito o anúncio e as intenções subjacentes ao mesmo. No entanto, ninguém se pronunciou sobre a substância da questão.

Se a intenção for a elaboração de um calendário para repor os cortes feitos nas pensões em função do crescimento económico isso é perfeitamente razoável.

Porém, se a intenção for indexar indefinidamente as pensões ao PIB então estamos perante um enorme disparate económico. Porquê? Qualquer aluno do 1º ano de economia tem obrigação de saber como funcionam os chamados estabilizadores automáticos. Por exemplo, o subsídio de desemprego e outras prestações sociais funcionam como estabilizadores automáticos para atenuar os efeitos negativos sobre a procura agregada resultantes de uma redução da atividade económica. Por isso se chamam de anti cíclicos.

Fazer o inverso, isto é, reduzir as pensões (e já agora porque não os salários?) quando a atividade económica desacelera ou recua iria agravar ainda mais essa contração. Isto é, seria pró cíclico e transformar-se-ia num desestabilizador automático!

É conhecido que alguns dos nossos atuais governantes e respetivos assessores tiraram cursos duvidosos em escolas de baixa reputação, mas por favor consultem alguém que saiba antes de proporem a primeira ideia que lhes vem à cabeça. O país não aguenta mais!

Friday, 21 March 2014

A maldição dos Fundos Estruturais

A generalidade dos Portugueses acredita que os fundos estruturais da União Europeia são bons para Portugal, mas serão mesmo? Aparentemente sim. Quem não fica satisfeito com as belíssimas autoestradas que nos permitem viajar comodamente pelo país fora.

No entanto, quando comparamos o desempenho económico do país com o de outros países da chamada coesão verificamos no gráfico abaixo que Portugal foi o país que menos se aproximou da média Europeia ao fim de 25 anos de Fundos Estruturais. Na verdade, estamos praticamente na mesma relativamente ao resto da Europa, apesar de anualmente recebermos cerca de 2 mil milhões de Euros em transferências líquidas da União Europeia.
Fonte: 25 Anos de Portugal Europeu, Augusto Mateus, ed. Fundação Manuel dos Santos.

Como autor de um modelo para medir os efeitos da integração Europeia e de alguns estudos empíricos sobre coesão feitos na década de 1980, é natural que me sinta bastante dececionado com os resultados obtidos por Portugal. Por exemplo, em Economic Coehsion in Europe: the impact of the Delors Plan, no Journal of Common Market Studies de Setembro de 1990, eu estimei que os fundos estruturais poderiam contribuir com cerca de 0.2 a 0.3% para o crescimento do PIB em Portugal. Então o que é que correu mal?

Como referia nesse texto as transferências financeiras só podem beneficiar o país recebedor se não houver uma aceleração da propensão a importar e se os termos de troca em relação a outros países não forem afetados adversamente. De outro modo os benefícios das transferências podem ser eliminados ou mesmo transformados em prejuízo, nomeadamente se o ritmo dessas transferências tiver um efeito pró cíclico. Esse risco é tanto maior quanto mais longo for o período durante o qual se recebem essas transferências.

Sem entrar nos aspetos técnicos que são complexos, o problema pode ser ilustrado com uma analogia muito simples. Imagine-se que um clube de bilionários aceita no seu seio um membro com poucos recursos. Incomodados com a pobreza do novo membro, e sem querer ferir a sua suscetibilidade, no primeiro aniversário da sua adesão decidem oferecer-lhe um Volvo. Agradecido, o beneficiário vende o seu velho Fiat e passa a viajar mais e melhor embora as suas finanças se ressintam um pouco. Vendo a satisfação do beneficiário, no segundo aniversário os bilionários decidem oferecer-lhe um Ferrari para ele poder substituir o Volvo. O beneficiário ficou satisfeito mas rapidamente se apercebeu que a sua manutenção seria difícil porque o dinheiro da venda do Volvo não chegava e teria de pedir um empréstimo ao banco, passando a andar angustiado com as suas dificuldades financeiras. No aniversário seguinte os bilionários decidiram ir mais longe e oferecer-lhe um avião. Desta vez ele ficou receoso porque teria de manter uma tripulação e não podia vender o Ferrari. Consultou o seu banco, mas este vendo como o cliente tinha progredido nos últimos anos, descansou-o propondo-lhe uma solução financeira que lhe permitia transferir para o futuro esses custos. Sossegado, decidiu aceitar alegremente a prenda e passou a viajar de avião. Porém, contrariamente à sua expectativa de uma nova prenda ainda maior, no aniversário seguinte os seus colegas deram-lhe apenas uma prenda simbólica enquanto as prestações da tal solução financeira começaram a aparecer e ele teve de declarar falência.

Portugal, ao fim dos primeiros dois ou três Quadros Comunitários, estava numa situação semelhante ao do beneficiário dos milionários quando recebeu o Volvo. Porém, depois passou a investir em projetos cada vez mais megalómanos, sem qualquer retorno a curto prazo e sem capacidade de sustentar o nível de vida a que se habituara e que tinha sido aumentado de forma artificial.

Tal como os bilionários viram a sua boa ação transformada num desastre, também a União Europeia tem de ponderar se os fundos estruturais em vez de uma bênção são de facto uma maldição para os seus beneficiários.

Friday, 14 March 2014

Reestruturação da dívida pública: sim, não ou talvez?

Esta semana, na sequência do chamado manifesto dos 70, debateu-se com grande alarde se Portugal pode reduzir a sua dívida pública para níveis sustentáveis sem fazer uma reestruturação. Os campos dividiram-se entre o Governo que continua a dizer que nunca o fará e os signatários do manifesto que advogam a sua necessidade.

Formalmente, o Governo tem sempre de negar qualquer reestruturação para evitar a contaminação imediata dos juros. No entanto, Passos Coelho parece acreditar genuinamente que é possível evitar essa reestruturação. Avaliação oposta fazem obviamente os signatários do manifesto, entre os quais se encontram três reputados ex-ministros das Finanças (Silva Lopes, Bagão Félix e Ferreira Leite). Em qualquer processo de reestruturação de dívidas sejam elas pessoais, empresariais ou soberanas é normal que as partes envolvidas façam avaliações distintas sobre a sua indispensabilidade, pelo que não se justificaria o alarido atual.

Já quanto à oportunidade do momento escolhido para o debate também é normal que cada parte tenha calendários diferentes. Por exemplo, para um Governo, que está a preparar uma ida ao mercado a breve prazo, este é certamente o pior momento para debater tal tema. Já os signatários do manifesto entendem que este é o momento ideal, pois foi relançada a nível Europeu a proposta para a criação de um mecanismo de reestruturação e mutualização parcial das dívidas soberanas. Mais uma vez temos de respeitar as prioridades de cada um e não as usar como o principal argumento do debate.

Porém, o retomar de um debate sereno é indispensável, para não ficarmos prisioneiros do sim ou do não. Pois, na verdade, existe uma terceira via que pode ser a melhor para o país. Existe o talvez. Isto é, deixar para mais tarde uma decisão sobre a necessidade de reestruturação se as alternativas propostas falharem.

Por isso, entre a insensibilidade de um Governo que não se importa de continuar a empobrecer o país para não penalizar no curto prazo os credores e a imprudência dos signatários do manifesto que menorizam os custos de uma eventual reestruturação e o risco de se ficar na dependência de uma decisão incerta de Bruxelas, prefiro uma solução de iniciativa nacional que não necessite de uma reestruturação.

Que solução seria essa? Sem entrar em pormenores técnicos, pois o Governo não me contratou para isso, direi apenas que em termos gerais ela poderia ser negociada com os nossos parceiros da União Europeia nos seguintes termos: a) antecipação imediata do recebimento da maioria das verbas previstas para Portugal nas perspetivas orçamentais da União Europeia para o período 2014-2020 (cerca de 20 mil milhões de Euros) que seriam usadas exclusivamente para amortização da divida; b) negociar uma reorientação dos empréstimos do BEI para o financiamento do investimento público (cerca de 10 mil milhões de Euros), c) reformulação do programa de ajuda aos bancos para um modelo semelhante ao Espanhol e abandono do disparate de criar um novo banco de fomento (financiados em 15 mil milhões pelo programa da Troika), e d) caso não seja criado nenhum mecanismo de mutualização parcial da divida, negociar um prazo mais alargado para reduzir a divida para os 60% do PIB.

Os benefícios desta estratégia seriam enormes. Com as medidas a) e c) reduzia-se imediatamente a divida pública direta dos atuais 210 para 165 mil milhões de Euros (isto é, abaixo dos 95% do PIB) e evitavam-se os efeitos perversos que essas transferências têm na economia Portuguesae (obras megalómanas sem qualquer rentabilidade, distorção da concorrência e promoção da corrupção e subsidiodependência). O financiamento do BEI ao Estado (cerca de 2 mil milhões anuais) permitiria reanimar o investimento público indispensável. Finalmente, uma maior flexibilização do programa de redução da divida pública permitiria adequar a mesma às necessidades de um crescimento mais rápido da economia, indispensável para assegurar a sustentabilidade a longo prazo da divida pública

Em suma, simultaneamente, Portugal podia acelerar o crescimento económico de forma a recuperar do seu atraso em relação à Europa e recuperar a sua credibilidade junto dos mercados.

Wednesday, 12 February 2014

Programa Cautelar: Sim ou não?

A opinião pública Portuguesa está dividida entre os mais cautelosos, que defendem que Portugal devia recorrer a um programa cautelar, e os arrojados que advogam a chamada saída limpa do programa de ajustamento para retomar a onda despesista e/ou camuflar o falhanço do programa da Troika.

Infelizmente, os mais prudentes não têm razão. Em teoria um programa cautelar é uma boa ideia, mas na realidade tais programas podem trazer mais desconfianças do que certezas.

A política de programas cautelares foi introduzida pelo FMI na sequência da crise Asiática de 1998, através das chamadas Contingent Credit Lines, mas em 2003 ninguém ainda tinha recorrido a essa medida que entretanto foi abandonada. A principal razão para a sua não utilização foi atribuída pelo FMI ao facto dos países elegíveis temerem que o recurso a essa medida fosse interpretado pelos mercados como um sinal de fraqueza e não de solidez.

Tal receio é fundado, como podemos ilustrar através de uma analogia simples. A Troika, tal como qualquer professor, tem vantagem em subavaliar o mau desempenho dos seus devedores (alunos) de forma a convencer os mercados (empregadores) a financiar (empregar) os participantes no seu programa.

Por exemplo, se este ano tivesse utilizado a minha exigência habitual mais de 60% dos meus alunos teria chumbado e no próximo ano o meu trabalho quase duplicaria. Em alternativa, podia passá-los de forma limpa, isto é subindo as notas entre 7 e 9 para dez sem quaisquer condições, ou dar-lhes 10 valores condicionados à frequência de aulas suplementares. Esta solução parece a mais razoável, mas na verdade era pior para mim (mais aulas) e para eles (menos oportunidades de emprego) porque os empregadores iriam interpretar a frequência de aulas suplementares como sinal de fraqueza e preteri-los no seu recrutamento.

Em conclusão, embora a “passagem administrativa” de Portugal no seu programa de ajustamento não augure um futuro brilhante para o nosso país, é preferível deixá-lo livre para tentar encontrar uma saída da crise ou voltar a pedir um novo programa de ajustamento dentro de três a cinco anos. Infelizmente, o programa de investimentos públicos já anunciado para o próximo QREN é mais uma lista de “elefantes brancos” sem qualquer rentabilidade, que agravará as disparidades regionais e faz antever que não evitaremos mais programas de ajustamento no futuro.

Monday, 20 January 2014

O dogmatismo dos “recém-convertidos” às exportações

Os nossos governantes não se cansam de proclamar o bom desempenho das nossas exportações. Infelizmente, os números não justificam esse entusiasmo (ver tabela abaixo). Mas mesmo que o justificassem, podiam ser enganadores se considerados isoladamente.


Tal como na religião, também os recém-convertidos ao milagre das exportações enveredam pelo dogmatismo, ignorando que todas as políticas (incluindo as boas) têm as suas limitações.

Em geral, o crescimento relativo das exportações traduz um aumento da especialização da qual podem resultar benefícios significativos. Então porquê ser cético em relação ao entusiasmo dos novos convertidos? Porque as exportações e o investimento estrangeiro tanto podem ser bons como maus. O mesmo pode ser dito em relação aos chamados bens e serviços não-transacionáveis (todos aqueles que só podem ser consumidos localmente).

Pessoalmente estou à vontade para criticar a confiança cega nas exportações porque fui, provavelmente, o primeiro académico a escrever um artigo(1) propondo um modelo de crescimento baseado nas exportações. Artigo que até esteve na origem do rancor vitalício do meu “Salieri” pessoal. Mais recentemente, publiquei neste blog um modelo simples para mostrar porque é que as exportações não são todas iguais.

Porém, como distinguir as boas das más exportações? Os políticos invocam frequentemente critérios enganadores para agradar aos vários lobbies. Entre estes destacam-se o apelo à exploração dos recursos naturais, a promoção de novas tecnologias, a eficiência energética ou qualquer outro tema da moda que caia bem junto dos eleitores. Nenhum desses argumentos é suficiente para justificar o favorecimento das exportações e pode levar a políticas erradas.

No entanto, existe um critério simples e universal para avaliar as exportações. São boas todas as exportações que permitem uma remuneração elevada dos fatores (capital e trabalho) utilizados na sua produção. Podemos ilustrar esta regra através de um exemplo simples, imaginando que os Portugueses tinham de escolher entre investir numa nova fábrica de sapatos ou numa nova refinaria de petróleo cuja produção se destinava na totalidade para exportação.

A refinaria poderia exportar refinados num valor anual de mil milhões de Euros enquanto a fábrica de sapatos apenas exportaria duzentos milhões de Euros. Será que o volume de vendas é suficiente para preferirmos a refinaria? Claro que não, pois esta também teria de importar o petróleo para ser refinado. Será que se em alternativa optássemos por estimar o valor acrescentado de cada um dos investimentos já podíamos saber qual escolher? Também não!

Para percebermos o porquê, imagine-se que os dois investimentos tinham o mesmo valor acrescentado. Por exemplo, 100 milhões de Euros sendo que no caso da fábrica 30 seriam pagos ao capital e 70 ao trabalho e vice-versa na refinaria. Independentemente de ambos os investimentos gerarem o mesmo valor acrescentado, nós não os podíamos avaliar sem saber quanto é que os trabalhadores e os investidores teriam de investir nos dois casos. Imaginemos mais uma vez que os investidores na fábrica e na refinaria tinham de investir 300 e 700 milhões de Euros, respetivamente, de modo a que o seu retorno de 10% fosse igualmente idêntico. Neste caso, a vantagem relativa das duas alternativas teria de ser decidida com base na remuneração dos trabalhadores.

Se admitirmos que a fábrica emprega 4000 trabalhadores e a refinaria 1000, então a sua remuneração média mensal seria de 1250 e 2142 Euros, respetivamente. Admitamos ainda que 1250 Euros da remuneração dos trabalhadores da refinaria podia ser imputada ao seu esforço e responsabilidade mas que os restantes 892 correspondiam a um retorno (de 10%) no investimento que estes tinham efetuado na sua educação e formação. No caso da fábrica suponhamos que os trabalhadores não precisavam de formação, pelo que as remunerações finais dos fatores utilizados (capital, capital humano e trabalho) nos dois investimentos seriam idênticas.

Quer isto dizer que mesmo recorrendo à análise da remuneração relativa dos dois projetos não conseguimos escolher o melhor investimento? Neste caso extremo não, e teríamos de decidir com base na valorização relativa do maior emprego ou das melhores oportunidades para os trabalhadores rentabilizarem o seu investimento em capital humano.

No passado, esta possibilidade teórica conjuntamente com a possibilidade dos investimentos terem externalidades diferentes foram com frequência utilizadas para justificar que para além da análise financeira se fizesse também uma análise económica baseada nos chamados preços-sombra. Infelizmente, dada a dificuldade em calcular estes últimos a análise económica foi muitas vezes abusada para justificar opções desastrosas. Assim, a análise das boas e más exportações deve incidir sobre a remuneração financeira do capital e trabalho utilizados, diferenciando apenas, quando tal se justificar, a nacionalidade dos mesmos.

Embora o critério da remuneração financeira seja fácil de aplicar, a questão subsequente está em saber quem o deve aplicar e com que finalidade. Por exemplo, competirá ao governo ou a qualquer outra entidade externa decidir se é melhor a fábrica ou a refinaria? Claro que não! Isto porque num mundo ideal a concorrência entre investidores fará com que estes acabem por escolher a alternativa que assegura o melhor retorno ao capital e na maioria dos casos essa alternativa é também aquela que garante a melhor remuneração do trabalho.

Às autoridades cabe promover esse mundo ideal, isto é, velar para que não existam distorções que favoreçam as fábricas ou as refinarias nem discriminem entre investidores nacionais e estrangeiros. Se ainda assim houver casos extremos de externalidades e/ou situações de divergência entre o interesse do capital e do trabalho, o seu papel deve limitar-se a só corrigir tais situações quando as mesmas não causarem novas distorções. Por exemplo, promovendo a formação do capital humano em geral ou infraestruturas ambientais.

Em conclusão, as autoridades deverão usar a rendibilidade do capital e do trabalho nacionais incorporados nas exportações para monitorizar a sua evolução e ajuizar sobre a sua maior ou menor valia. Mas, não devem “embandeirar em arco” em relação ao seu crescimento em valor nem tentar orientar a alocação de capital entre o sector dos bens transacionáveis e o dos não-transacionáveis correndo o risco de escolher gato por lebre.

(1) Marques Mendes, A. 1988. "The case for export-led growth", Estudos de Economia 9, 1: 33 - 41

Monday, 23 December 2013

Dress codes and individual freedom: Topless vs. Burkas

In many countries politicians try to rule about what is acceptable or not in terms of dressing in open public places. Frequently, legislators are moved by political and religious prejudices and fail to distinguish between the various dress codes and the distinct nature of public places.

Currently the debate is mostly about the use of burkas and veils by women. In the past similarly heated discussions were about topless, barefoot and mini-skirts. Then as now, many justify the prohibition on the grounds that its use offends other people´s beliefs and moral values. Namely, that they encourage the oppression of women or the lust of men.

Whether these are true or not (they may be true) they should not be an acceptable reason to limit individual freedom. Indeed, any offence taken is the result of one’s moral and religious beliefs. But, one of the basic freedoms is the freedom of religion. Therefore we cannot use one’s freedom to prevent other people’s freedom.

Acceptable limits to individual freedom may be universal or apply only to designated professions or places, and their justification varies. Nevertheless, one should only apply universal limits to individual freedom if it may endanger other people’s life or property, not its moral beliefs. For instance, the public use of balaclavas or burkas may be prohibited only if there are reasonable grounds to assert that they pose a threat to our security.

However, in restricted places it is acceptable that the operators of such places impose specific dress codes, such as uniforms for schools or the military, formal dress for some concerts and casual for others. The objective of such dress codes is to facilitate identification or to signal specific characteristics.

Humans’ dressing varies not only with income, tradition, climate or circumstances but also with the desire to signal specific messages. For instance, in egalitarian institutions without a dress code such as universities, it is often observed that finance professors dress formal while sociologists may dress in rags. The first wish to signal the financial relevance of their field while the later may wish to signal their left leaning politics.

Yet, there are some types of signalling that we may consider controversial. Among the most controversial is the signalling of mating desires. The arousal of sexual interest in humans is stimulated by displaying some parts of the body. Therefore, some types of dressing (topless, mini-skirts, etc.) can be designed to display such parts and be used to signal a mating mood. Here we confront two distinct possibilities. First, to argue that if society forbids sexual relations in public it should also ban the signalling of mating desires. The second is to argue that signalling is not the same as soliciting and therefore the public exhibition of such body parts should be free.

In general, the second argument seems more reasonable. Especially if one bears in mind that the interpretation of the signalling may diverge substantially between issuer and receptor due to tradition and personal circumstances. For instance, the male reaction to a topless female is substantially different whenever he is before a young or an old female and whether he is in the beach or in a night club.

So, we may conclude by saying that, under liberal principles, the ban of some forms of dressing in free public spaces can only be justified in the case of unequivocal danger to people and property. Prohibitions based on whim, fashion or religious beliefs do not qualify as legitimate restrictions of individual freedom. However, in delimited public spaces more restrictive dress codes may be applied. For instance, if, within his power, the director of a public school decides to ban mini-skirts or burkas he should be entitled to do so. Another completely different matter is the civilized expression of disapproval or dislike in relation to some outfits. In a polite manner we may criticise friends and acquaintances.

Friday, 20 December 2013

A armadilha dos subsídios

A proliferação dos subsídios em Portugal é típica dos países subdesenvolvidos. Isso só por si seria razão suficiente para nos deixar desconfiados sobre uma possível relação de causa-efeito entre ambos. A própria experiência regional na União Europeia parece confirmar essa relação (vidé caso do Mezzogiorno Italiano). No momento em que Portugal pede emprestados 5 mil milhões de Euros para criar mais uma máquina de subsidiação (o famigerado novo banco de fomento), importa relembrar porque é que os subsídios generalizados são nefastos.

A União Europeia é corresponsável pela peste de subsídios de toda a espécie que alastra em Portugal. Subsídios que podemos agrupar em subsídios ao consumo e ao investimento para melhor avaliar o seu impacto na economia. Importa porém salientar que no caso dos subsídios Europeus não se trata apenas de tirar ao Paulo para dar ao Pedro mas sim de tirar ao Schmidt para dar ao Silva. Isto é, trata-se de uma transferência internacional. Poderemos então invocar neste caso o ditado de que a cavalo dado não se olha ao dente?

Claro que não. Esse raciocínio esconde a primeira armadilha dos subsídios – o problema da dependência. O malefício da subsidiodependência pode ser evitado pela tradicional máxima de que em vez de dar um peixe ao pobre é preferível ensiná-lo a pescar. Porém, em muitas situações é necessário dar temporariamente o peixe até que o pobre aprenda a pescar. Na verdade, se o subsídio for “one-off”, por exemplo um convite para jantar num restaurante de luxo, a oferta de uma viagem a Estrasburgo ou a frequência de uma ação de formação, não existe o risco de habituação e de promover atividades (e.g. formação) cuja rentabilidade está totalmente dependente da continuidade do subsídio ao consumo. Infelizmente, não é essa a realidade. A União Europeia e Portugal têm continuado a financiar ano após ano o mesmo tipo de beneficiários, criando milhares de subsídio dependentes.

A segunda armadilha está nos subsídios ao investimento em atividades pouco rentáveis e/ou não autossustentáveis. Podemos distinguir nesta matéria quatro tipos de financiamento:

a) O financiamento de projetos rentáveis para os seus promotores, mas não autossustentáveis sem uma subsidiação perpétua dos seus clientes. Entre os muitos exemplos existentes salientamos as empresas de formação já referidas e as PPPs;

b) Subsidiação de investimentos megalómanos e sem qualquer rentabilidade económica ou financeira, que não geram sequer receitas suficientes para assegurar a sua manutenção futura. Por exemplo, o investimento de milhões de Euros na construção de um túnel para permitir o acesso a uma dezena de habitantes do Curral das Freiras ao Funchal, quando existiam soluções mais económicas tais como a construção de um elevador panorâmico;

c) Cofinanciamento de projetos privados, invocando a teoria da adicionalidade e das “indústrias nascentes”, apesar de à escala mundial a experiência de proteção de indústrias nascentes se ter revelado desastrosa. Entre nós temos centenas de fábricas e hotéis que podem comprovar o mesmo resultado nefasto. Porém, basta usar o seguinte raciocínio para constatar que tais subsídios podem mesmo inviabilizar outros investimentos. Imagine-se que eu pretendia investir num pomar de fruta que só começará a produzir daqui a cinco anos. Nas condições acuais eu sei que esse investimento será rentável porque a procura estimada é suficiente para eu escoar a minha produção. Porém, se outro investidor entretanto conseguir um subsídio ao investimento de 50% ele poderá aumentar a produção dessa mesma fruta e inviabilizar o meu investimento. Perante esse risco eu acabo por desistir de investir;

d) Uma outra forma perversa de subsídios é pôr os consumidores a pagarem diretamente (sem passagem pelo orçamento de estado) os subsídios através de tarifas mais elevadas aos concessionários de monopólios. O caso mais relevante de obtenção de rendas excessivas em Portugal é o das energias renováveis. Aqui, substitui-se um sistema de produção elétrica menos dispendioso por um mais caro.

Finalmente a terceira armadilha dos subsídios resulta da distorção de concorrência que os mesmos provocam. Um simples exemplo serve para ilustrar as suas consequências. Imagine-se que um investidor para viabilizar o seu investimento num hotel precisa de uma taxa de ocupação de 50% e de cobrar 40 Euros por noite. Porém, se outro investidor conseguir um subsídio ao investimento de 50% ele poderá oferecer o mesmo serviço a 35 Euros e baixar a taxa de ocupação dos concorrentes eliminando ou diminuindo a rentabilidade do investimento dos restantes investidores.

Em suma, a prática generalizada de subsídios ao investimento, ao crédito ou ao consumo resulta na redução do investimento e/ou em más decisões de investimento, perpetuando um ciclo vicioso de pobreza e dependência que podemos descrever assim: + subsídios + défice + endividamento + impostos + incerteza – investimento rentável – investimento autossustentável – produtividade – competitividade – emprego + pobreza + subsídios.

Thursday, 28 November 2013

Bitcoin madness: I wrote to the FED and the ECB and they are playing ostrich

Judging from the current media frenzy surrounding Bitcoins, one wonders if almost four hundred years after the tulip mania in the Netherlands humanity is as gullible as ever when it comes to get-rich-quickly speculation.

What is remarkable this time is that the speculation is global and the object of speculation is not a venture or a commodity but a virtual form of private fiat money, notwithstanding the fact that the debate on the free issue of money was closed almost a century ago when central banks were given the monopoly of issuing fiat money.

Indeed, contrary to what some economists and central banks say, Bitcoins are not a form of virtual of real money and the scheme has the hallmarks of a gigantic Ponzi scheme – anonymous/dubious issuers promising returns that are too good to be true to be achieved through undisclosed (but implicitly illegal) sources.

If nothing is done to stop this scheme, the madness of crowds may reach proportions similar to the infamous Mississippi and South Sea bubbles and we might see again a situation where “puritan ladies” begin selling their jewels and virtue to buy Bitcoins.

This should not be happening now, since we are supposed to be protected by a plethora of financial regulators paid by taxpayers. So, I decided to search the site of some of them to check what advice they had for us. I limited my visits to the sites of the FED and ECB because they have the monopoly of issuing the two major currencies – the Dollar and the Euro, respectively – and play a key role in their corresponding payment systems.

In the FED’s site I could not find a single reference to Bitcoins while the ECB site had a single link to a policy paper with an academic tone and a badly disguised sympathy for private “virtual” moneys like the Bitcoins. So, I decided to email them to question the legality of private virtual moneys in the following terms:

Dear Sir/Madam,
Would you please confirm if the following operations are legal?
1) To pay and accept payment in Bitcoins
2) To trade Bitcoins against the USD/Euro
3) To issue Webcoins, a money similar to Bitcoins, except that it will be issued by mining real goods
4) To establish an electronic brokerage or exchange to trade Bitcoins and Webcoins against the Euro and other currencies.
I would appreciate an answer ASAP.
With kind regards
Marques Mendes

So far the FED has not answered (see note at the end of this post) my email of the 27th November, but the ECB replied promptly by directing me to the paper mentioned above as follows:

Dear Mr Mendes,

Thank you for your interest in the European Central Bank.

The ECB's position on virtual currencies such as Bitcoins is outlined in this report:
http://www.ecb.int/pub/pdf/other/virtualcurrencyschemes201210en.pdf.

With kind regards,
EUROPEAN CENTRAL BANK
DG Communications and Language Services
Press and Information Division

Both played ostrich by not replying directly to my specific questions on the legality of such currencies. Yet the answer should be easy.

Indeed, Bitcoins cannot even be categorized as a temporary currency substitute like the chips used by casinos, the token notes used by monopoly game players or the pieces of metal used by some farms to pay harvesters. The reason being that at the end of the day there is no issuer obliged to convert the Bitcoins into legal money like there is for chips, tokens or pieces of metal.

The sponsors of Bitcoins claim that it is not a Ponzi scheme, because like the growing of tulips in the Netherlands, there is no central organization and anyone can create Bitcoins by “virtual mining” a mathematical algorithm that generates the encrypted codes used for transfers among peer-to-peer electronic networks. This, is obviously a fallacy because someone has to hide the codes. The process of mining Bitcoins is just like the popular garden game of hide-and-seek messages in Easter eggs played by children. In fact, it is less competitive and worthy because in the end players do not even get something with value like the eggs.

Bitcoin promoters are equally fraudulent when they claim that Bitcoins can be exchanged through peer-to-peer networks anonymously like the legal notes and coins. In fact, a central organization (bitcoin.org) is needed to support the network software and the peer-to-peer participants have to date stamp them so that a trail is inevitable.

Moreover, peer-to-peer networks do not provide any type of anti-fraud guarantee to their users. As a payment system, its security is even less than that of informal payment networks like the Hawala system used in Asia and India. Hawala is based on the performance and honour of known money brokers whose honesty users can check, not on some anonymous internet counterparty.

Any fiat money must be issued by known issuers on whose reputation rests its value. Of course its issuers may be central banks or private entities and these may be more or less creditworthy. Indeed, we can even foresee the existence of competing issuers. However, using as a medium of exchange fiat money issued by anonymous entities it is a complete stupidity that any half-witted regulator should be able to understand.

In conclusion, Bitcoins or any similar faceless Webcoins (the Web here stands for Worthless Economic Bullshit) must be considered as a fraud.

P.S. If I were in any doubt about the fraudulent nature of Bitcoins, that doubt would be over on the 6th of January 2014 when someone went through the trouble of writing an email to me pretending to reply from the FED and directing me to a bogus organization (Coindesk) based in the UK which claims that Bitcoins are legal "depending on what you’re doing with it".

Wednesday, 13 November 2013

Managerial Capitalism and Utopian Socialism

A recent visit to the model village of Saltaire in England brought me childhood memories of life in a textile one-company town and the following thoughts: a) what is common between today´s management capitalism and XIX century utopian socialism; and b) will management capitalism fail for the same reasons?

The two types of business organization are different but they share similar ideals and features. Namely, they aim at providing a secluded life-long environment for its workers. Also, such firms engage in fulfilling many of the daily needs of their workers and family in terms of housing, education, culture and vacations. Moreover, in distinct ways, their leaders portray themselves as paternal figures devoted to the well-being of the local community.

Obviously, management capitalism does not goes as far as requiring that all its workers reside in the vicinity of the company because such firms are now multinational companies. Likewise, they reserve the family-like status to just a minority of its workers and managers. Equally, nowadays there are no well-meaning heirs or founders running the business. Instead, directors are co-opted through internal power struggles.

Nevertheless, these differences may not be enough to save managerial capitalism from the fate of utopian socialism. The later failed mainly for the following reasons: a) the collectivization of personal lives around the factory prevented individual freedom and brought psychological misery and apathy; b) seclusion and paternalism killed the entrepreneurial spirit of its members; c) the perpetuation of hereditary elites denied equal opportunities in promotions and professional mobility; and d) big, all-encompassing organizations, demand planning and bureaucracies which are driven by self-perpetuating objectives killing competition and initiative.

In spite of its differences modern managerial capitalism has the same features and problems. The consequences of such features are illustrated in many ways.

For instance, a culture of success through long hours and international mobility pushes people into feeling old and thinking about retirement at 40 or even earlier in their lives. Workers lose their drive for innovation at an age when they could still look forward to enjoy 30 more years of fruitful work. The same applies when at such an early age workers are already overwhelmed by fears about job security. Equally, in terms of job promotions, if one fails to join the right power group or does not seek promotion-for-promotion based on Peter´s Principle he or she will feel excluded from the inner-circle of a self-perpetuating leadership. Likewise, planning and bureaucracy are the mortal enemies of the conglomerates that managers dream about.

Just as utopian socialism could not overcome these problems, it is unlikely that managerial capitalism will do so. Therefore, it seems to me that it is not a matter of if but when will managerial capitalism meet the fate of utopian socialism. However, while the limitations of utopian socialism were immediately visible after one or two generations those of managerial capitalism may last longer. If for no other reason than because managerial capitalism is so intertwined with the political system and state capitalism. Still, its fate will be the same: it is doomed to fail!

Monday, 12 August 2013

Legalidade e ética nos negócios: O caso SLN/BPN

A notícia do Expresso de 10/8/2013 sobre a aquisição por Rui Machete de acções na SLN com um desconto de 54.5% relativamente ao valor pago pela FLAD (Fundação Luso Americana) a que presidia reacendeu a polémica sobre uma operação semelhante envolvendo o Presidente da República Cavaco Silva. Sem pretender alimentar a polémica, irei usar este caso para ilustrar as dificuldades na definição duma fronteira entre legalidade e ética no mundo dos negócios.

Em qualquer negócio é legítimo a cada uma das partes oferecer ou pedir contrapartidas em negócios associados. Na verdade é cada vez mais comum os vendedores oferecerem brindes ou descontos e demais incentivos para atrair compradores. Por exemplo, os jornais oferecem livros, os laboratórios farmacêuticos oferecem viagens e alguns restaurantes servem refeições gratuitas a celebridades.

Em termos económicos, tais incentivos são equivalentes a comissões ou descontos e é indiferente que sejam concedidos por iniciativa do vendedor ou por exigência do comprador. São pois legítimos e legais quando concedidos/aceites de livre vontade.

No entanto, quando esses incentivos são desproporcionais ou não revertem em favor do comprador final coloca-se o problema de saber se são eticamente aceitáveis. Por isso, qualquer juízo de valor sobre as aquisições de Cavaco Silva e Rui Machete deve ser baseado nessa perspectiva.

Em termos de proporcionalidade, é importante lembrar que a aquisição de determinados clientes ou investidores pode trazer vantagens indiscutíveis ao vendedor. Por exemplo, se a SLN/BPN estimasse que personalidades como Cavaco ou Machete lhe permitiam atrair mais 5 ou 10 investidores então faria todo o sentido que oferecesse a estes um incentivo equivalente ao que pouparia em comissões numa colocação feita através da banca (e.g. 1 a 5%). Com base nesses valores podemos considerar como razoáveis descontos entre 11 e 30%.

Assim, o desconto de 50% concedido a Cavaco Silva seria equivalente a uma comissão de 5% sobre 10 novos investidores. Embora elevado o desconto pode ser considerado aceitável se admitirmos que o seu prestigio como ex-Primeiro Ministro atrairia mais investidores. Já no caso de Rui Machete um desconto de 55.45% não pode ser considerado como razoável, excepto se admitirmos que foi uma contrapartida pelo investimento significativo feito pela FLAD na SLN/BPN.

Se foi esse o caso, então a contrapartida devia reverter para a FLAD e não para o seu Presidente. Como o não foi, a menos que a FLAD tivesse autorizado a operação, estaríamos perante não só uma imoralidade mas também uma ilegalidade. Para percebermos a gravidade da situação imagine-se que mandámos um moço fazer umas compras e o merceeiro faz-lhe um desconto mas ele não nos devolve o dinheiro. No mundo dos fundos de investimento (para estes efeitos a FLAD pode ser equiparada a um Fundo) esta apropriação indevida do dinheiro dos investidores é controlada quer proibindo os gestores de cobrar comissões nos investimentos que fazem quer regulando as situações de co-investimento para que os gestores não usufruam de condições mais favoráveis do que as dos investidores. Por isso, para ajuizar sobre a ética do negócio feito por Rui Machete é indispensável saber se o mesmo foi ou não acordado com a FLAD.

Em suma, tendo em consideração os valores publicados nos jornais, o negócio de Cavaco Silva pode ser considerado como eticamente aceitável, mas pouco escrupuloso. Já no caso de Rui Machete, se não houve um envolvimento explícito da FLAD, então o seu negócio pode ser considerado não só como eticamente reprovável mas também ilegal.

Notas: Quanto à participação de Rui Machete nos órgãos sociais da SLN/BPN a mesma é normal e razoável se feita em representação da FLAD. De facto, por razões prudenciais, qualquer investidor significativo numa empresa não cotada deve exigir um lugar nos órgãos sociais para poder acompanhar o seu investimento.
Também no que respeita ao direito de revenda, a negociação de “puts” ou “repos” é normal e desejável quando se investe em sociedades não cotados. Porém, se a remuneração garantida tiver implícita um prémio de opção muito diferente dos valores prevalentes no mercado então o excesso de remuneração deve ser adicionado ao desconto de compra.

Tuesday, 2 July 2013

E agora Passos?

A actual crise política é uma oportunidade para abandonar a política desastrosa do actual governo.

Só perdeu por tardia, mas isso pode comprometer as soluções futuras, se não houver uma rebelião dentro do PSD que expulse Passos e sua clique de Jotas para evitar o descalabro total do PSD nas próximas eleições.

Por agora não tenho nada a acrescentar aos posts já aqui publicados em:

Novembro 2012 http://marques-mendes.blogspot.com/2012/11/a-irracionalidade-suicida-do-psd.html
Janeiro 2013 http://marques-mendes.blogspot.com/2013/01/a-cobardia-de-passos-coelho-e-miopia-do.html
Abril 2013 http://marques-mendes.blogspot.com/2013/04/o-impasse-portugues.html

Monday, 13 May 2013

Is the informal economy part of market capitalism?

Expressions like informal sector or informal economy and many similar expressions (e.g. underground, black market, shadow economy, under the table, "off the books", "working for cash" or moonlighting) are used to describe all activities that typically are undeclared for one (or all) of the following intents: payment of taxes, law and regulation or statistical reporting. Such activities are often paid in cash and are estimated to represent about 20 to 40% of GDP in developed economies and less developed economies, respectively (the percentages in terms of employment are higher).

Since they involve mostly self-employed, small businesses and part-timers one would imagine that they are part of the competitive market sector. Indeed, some even think of them as the best entrepreneurial antidote to the entry barriers often found in the formal sector. However, this would extend its rationale too far, because the informal economy includes activities that in terms of amounts and moral values are substantially different. We can appreciate that by classifying some of those activities in six groups defined on the basis of the amounts transacted and the legality of the activities as shown in the following table.

The colouring used highlights the degree to which the various activities are similar to formal and open competitive markets. Potentially only the yellow and orange activities may be included in the market capitalism sector, because free and competitive markets demand equal opportunities in the face of the law. There is obviously scope to transfer through legislation some activities from the red coloured areas into less serious offense categories. For instance, some governments may legalise and regulate the sex and soft drugs trade. Indeed, in some countries the tax authorities sometimes advocate such policies to raise tax revenue.

However, in itself this does not guarantee that they may be added to the market capitalism sector because many cannot be carried out in an open and competitive manner. In fact, this problem also affects many of the activities in the orange group because of problems of information asymmetry. For example, if someone discovers a loophole in the tax code he or she cannot advertise it otherwise the tax authorities will move to close it.

To simplify, we will assume that only activities that fit in the yellow group are part of market capitalism. And, because there are so many activities in this category we assume that they will add up to a substantial part of the market economy. So, let´s examine what drives the growth of this sector.

The economic rationale for those involved in these activities is basically two-fold: economies of scale and abnormal profits. Economies of scale usually derive from two situations – either the participants are too poor to pay the minimum “overhead” imposed by the formal sector or their demand is insufficient to cover such costs. In most advanced economies the “overhead” costs typically include sales taxes, personal and corporate income taxes, compulsory employee insurance, accounting and administrative requirements that easily cost as much as the net salary of those employed in the formal sector.

For example, those on low income often are forced into inefficient household production of junk food at a cost of $4 because they cannot afford the $5 price of a burger at the local McDonald. However, they would be better off by paying $2.5 at the street corner from someone working in the informal economy. Likewise, imagine a middle class neighbourhood where every resident has a small garden that only requires 4 hours of work per month. So, a full-time gardener would need to sign in 40 residents. What if there are only 20 residents? Well, he could still live as a part-time gardener in the informal economy with a net income equal to what he would earn net in the formal economy working for 40 residents.

Without exception, governments fail to appreciate the relevance of an adequate balance between activities carried out in the household sector, the informal sector and the formal sector using two contradictory arguments – the need to promote a level playing field (the informal sector is a source of unfair competition for the formal economy) and the need for social policies to protect the weak working in the informal sector and the low paid sectors in the formal economy. The policies used to squeeze the informal sector include both a stick (persecution, fines and taxes) and a carrot (fixing a minimum wage or granting a minimum income for the unemployed on condition that they do not carry out any paid activity).

Such policies are often ineffective, contradictory and very costly. Yet, a common sense policy would simply aim at reducing the formal economy “overhead” on both sides. That is, creating a semi-formal sector with a small overhead (e.g. 25%) and reducing the current overhead costs of the formal sector by another 25%.

Unfortunately, the current level of sales taxation is high and rising creating a strong incentive for those seeking abnormal profits in the informal sector to risk a lose-lose war with the tax authorities. Nevertheless, there is much to gain from a quasi-formal sector by empowering the poor to rely on their own initiative and entrepreneurship rather than on government hand-outs. Therefore, creating such sector is also part of the fight to promote market capitalism as a pillar of human well-being.

Wednesday, 8 May 2013

Left and Right today

Now that capitalism is almost the only economic system worldwide (with a few bizarre exceptions in North Korea and Cuba) does it still makes sense to talk about left and right? Can we distinguish the various types of capitalism using the left and right categorization?

If one uses the left and right categorization to depict a spectrum of opinions that we may represent through a statistical distribution then it still makes sense to talk about the left and right tails of such distribution.

However, we should recall that this categorization originated during the French Revolution to designate where the pro-monarchy (right) and anti-monarchy (left) seated in the French National Assembly (parliament). Later this designation was generalized to other divisions over single issues. In particular, it was extended to describe those in favour of the status quo (conservatives) and those in favour of moderate/drastic reforms (progressives/ radicals).

Historically, the most important split in the XIX century was over the emerging economic system of capitalism. Since this new system affected most aspects of society, it no longer represented a single issue divide. It became a split over a portfolio of visions usually designated as ideologies until the collapse of communism in 1989.

Yet, once a portfolio of visions becomes too diversified, it loses its internal coherence and no longer can be represented by a single distribution with a left and right tail. If I pick a number of divisive issues in economics, politics or moral I may end up sometimes on the right and others on the left.

For example, one of the current raging debates in economics is over the question of government economic stimulus. Typically, the supporters of the status quo sit on the right and the interventionists sit on the left. However, the interventionists are also divided into two opposing camps over the use of pro-cyclical (fiscal austerity) and anti-cyclical (fiscal expansion) policies. Can we split these into left and right?

As an economist, I believe that government intervention must be always counter-cyclical, but should be used only to smooth extreme volatilities in the business cycle. So, with unemployment above 15%, when looking at the labour market, I find myself on the left side. But, with interest rates close to zero, when looking at the bond market, I find myself on the right side against further monetary easing. So, should I average these two distributions and become a centrist? Not really, because these two visions are not necessarily incompatible.

Likewise, I am a strong supporter of market capitalism as the main driver of progress. But it does not mean that I do not accept a limited role to other forms of capitalism like managerial capitalism or state capitalism. Can I grade their relative roles in terms of left and right? Clearly not.

In conclusion, in general terms, in the absence of a coherent portfolio of ideologies we no longer should characterize ourselves as leaning towards the left or the right. But, over single issue divisions one should not be afraid to sit on the tail of the distribution. Under this eclectic approach, do we risk becoming a weathercock turning opportunistically with the prevailing wind? Yes, but it is a risk that should be mitigated by a scrupulous respect for our values and it is a risk worth taking to enjoy the greater benefits of freedom and variety.

Monday, 22 April 2013

The Reinhart-Rogoff controversy: some microeconomic evidence

The duel between pro-austerity and pro-stimulus advocates is now being fought on the relationship between economic growth and debt/GDP ratios, following the Reinhart and Rogoff finding that there was a "tipping point" around 90 per cent of debt-to-GDP ratio when the correlation between debt and economic growth would become negative.

Their finding was questioned by Herndon-Ash-Pollin who estimated that the strength of the negative relationship was actually much stronger at low ratios of debt-to-GDP. Recently Dube, using the same set of data, estimated that current period debt-to-GDP is a pretty poor predictor of future GDP growth at debt-to-GDP ratios of 30 or greater but it does a great job predicting past growth which he claims is a tell-tale sign of reverse causality. That is, recession leads to increased spending and greater government borrowing not the other way around. Krugman joined the debate on Dube´s side but cautioned about claiming any causal relationship, or, if it existed, it would be pretty slim.

The debate is not over and, most likely, macroeconomists will continue sabre-rattling with lags and correlation studies to discuss the direction of causality and the location of the “tipping point”. In my view, it is unlikely that they will arrive at any unequivocal conclusion at the macroeconomic level for three main reasons. First, if we assumed a closed economy with a single firm we would end up with an accounting identity between total assets and their financing that would prevent any causality conclusions. Second, since leverage amplifies both gains and losses, any relationship must be very sensitive to the business cycles. Finally, the microeconomics of debt financing is too complex to build a one-way macroeconomic theory.

Yet at the firm level it must be easier to find if there is such a tipping point. There are basically three ways in which we can use debt-financing – to finance consumption, failed investments (including gambling) and profitable investments. In the long run only the third use is sustainable, but in the short run the three types of spending have a positive multiplier effect on economic growth. Elsewhere, I have shown why at the corporate level debt financing has simultaneously contracting and expansionary effects on investment, with the positive generally offsetting the negative effect depending on lender’s mark-ups and borrowing limits.

The corporate level is the right place to find out if and where there is any tipping point in the spectrum of leverage, because if there is one it should be close to the maximum debt-capacity financiers impose on the basis of several debt coverage ratios. Moreover, we may extrapolate those results to the macro level under the following, not very extravagant, assumptions: a) the shares of labour and capital in total income are relatively stable; b) an ever increasing number of companies do not pay dividends so that the growth of equity is a good proxy for economic growth; and c) listed companies give a good representation of the entire business sector.

Since profitable companies should use leverage to increase the return to their shareholders, the correct way to verify if they benefit from increased leverage is to check if the elasticity of equity in relation to debt is greater than one or at least positive. Since at SADIF Investment Analytics we cover more than 20,000 stocks worldwide we quickly pulled the quarterly growth rates of equity and debt for the last four years which allow us to gauge the relationship between equity growth and debt-financing.

We used data from countries that in the popular imagination epitomise the three types of use for debt financing. Americans are often seen as reckless shopaholics pursuing consumption-led growth policies, Euromeds (Portuguese, Spaniards, Italians, Slovenes and Greeks) are generally perceived as castle-in-the-air investors in loss-making projects in transportation and alternative energies generously financed by the EU/EIB and Germans are traditionally depicted as successful thrifty mercantilists. The distribution of firms and the median equity elasticity in each quadrant of the equity and debt growth space is given below.

The median equity elasticities highlighted in the table seem to validate the popular view on the use of debt financing since the Germans have the highest value and the Euromeds the lowest. The only discordant note is that the percentage of firms with a positive elasticity is much higher in spendthrift America than in thrifty Germany which weakens any macroeconomic extrapolation.

To test the location of a possible tipping point I plotted the equity elasticity against the extra debt capacity measured as the spare level of debt capacity as a percentage of total outstanding debt, so that we can measure the leverage spectrum from left to right in the chart below for the USA.
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The expectation is that elasticities rise as firms deleverage or leverage towards their maximum debt capacity (0% extra-capacity). The maximum of the quadratic functions fitted are indeed close to zero (i. e. -1.7% in the US and 7.3% in Germany). However the function is meaningless for the Euromeds and the coefficient of determination is too low for the other two countries.

So, in conclusion, this microeconomic evidence suggests that it is not possible to settle the debate on the correlation between growth and debt without allowing for the business cycle and the microeconomic complexities of debt financing.

Wednesday, 17 April 2013

O Impasse Português

Já aqui explicamos por várias vezes as razões pelas quais o programa de ajustamento para Portugal falharia, tal como falhou. No entanto, a visita intercalar da Troika e o falhanço da tentativa atabalhoada do Governo para associar o Partido Socialista às adaptações do programa em curso levam-me a voltar ao tema para explicar o drama da situação Portuguesa.

O drama resulta de termos dois intervenientes igualmente errados sobre o que propõem para Portugal. De um lado temos o Governo/Troika apostados em fazer uma consolidação orçamental a qualquer custo e do outro uma oposição a não querer austeridade em nenhuma circunstância. Em termos simples direi que uns querem mais tempo, mais dinheiro e mais facilidades e os outros acreditam que a “fada mágica” do crescimento nascerá de uma pátria anoréxica em vias de desfalecimento. Nem uns nem outros percebem que não é assim que se recupera uma empresa ou um país.

Em linguagem técnica, os economistas do Governo/Troika continuam a ignorar os efeitos nefastos sobre a procura agregada nacional e o emprego do corte dos rendimentos nominais, denunciados por Keynes nos anos de 1930, e vêm propor menos despesa pública e mais cortes de rendimento para os funcionários públicos e pensionistas. Não percebem a diferença entre o efeito multiplicador do despedimento selectivo dos funcionários públicos em organismos e funções marginais do Estado e uma baixa generalizada da remuneração dos funcionários públicos.

Os Socialistas tentam ressuscitar a ideia Keynesiana de que em situações de desemprego extremo seria mesmo aceitável pagar a uns para abrir buracos e a outros para os tapar. De facto, acabo de ouvir a conferência de imprensa dada por António José Seguro após reunir com Passos Coelho e a Troika e quando questionado sobre políticas concretas de crescimento as duas únicas que citou foram a reabilitação urbana e o investimento em eficiência energética. Na verdade são ambas medidas do tipo abrir e tapar buracos para agradar aos lobbies da construção e das energias renováveis que estiveram na origem da actual crise, porque se esses investimentos forem realmente rentáveis os seus donos encontrarão forma de os financiar. A sugestão Keynesiana do abrir e tapar buracos só foi feita para períodos muito curtos e em circunstâncias onde houvesse margem para agravar o endividamento externo e os défices orçamentais; que não existem em Portugal.

Para facilitar a compreensão das consequências da ignorância do Governo/Troika e da oposição Socialista, o leitor imagine que o Governo em vez de gastar 5 dos 87 mil milhões pedidos à Troika num novo Fundo/Banco e os 12 mil milhões de Euros ainda disponíveis no QREN até 2015 em projectos de utilidade duvidosa decidia gastar 15 mil milhões desse montante para financiar o despedimento de 20% (cerca de 120 mil) funcionários públicos. Essa verba daria para lhes pagar um subsídio de desemprego equivalente a 90% do seu vencimento durante dois anos e ainda dar um subsídio de 50 mil euros a cada para criarem o seu próprio emprego ou empresa. O efeito sobre a sustentabilidade das contas públicas seria permanente e algum desse dinheiro seria mesmo recuperado através dos impostos pagos pelas empresas criadas por esses funcionários.

Em resumo, a compatibilização da consolidação financeira com o crescimento só é possível se houver coragem para combater a ignorância e tibieza do Governo/Troika e da Oposição em Portugal.

Thursday, 14 March 2013

Warren Buffett on Dividends and Management Capitalism

Every year I wait eagerly Warren Buffett´s letter to Berkshire shareholders to benefit from his wisdom on investment. I consider him one of the great champions of shareholder-oriented policies and usually agree with him. However, this year I fundamentally disagree with his contradictory statement on dividends. Let me explain why.

Although concluding that “We like increased dividends, and we love repurchases at appropriate prices”, he relegates the payment of dividends for last, after share repurchases (a form of earnings distribution that he opposed in the past). His view replicates the logic of the so-called pecking order theory of financing which states that firms prioritize the various sources of funds on the basis of how easily they can be accessed. Likewise, Buffett advocates that CEOs should first look to deploy the company earnings on current operations, after look for acquisitions unrelated to their current businesses, then consider repurchasing their own shares if the price-to-book value is below 1.2 and finally pay a dividend.

This use of earnings will inevitably transform CEOs into asset managers and strengthen what I call management capitalism. I define management capitalism as a system where managers may choose the investors rather than the other way around.

Management capitalism is mostly found in the regulated sectors of the economy (banking, transportation, utilities and other former state-owned companies), but also among public companies where capital has been so diluted that the former owners or their heirs no longer have a controlling interest in the business. For example, Berkshire is the single largest shareholder in Coca-Cola but owns only 8.98% of the company and appoints 2 of the 22 directors.

To simplify we may include in the management capitalism sector all public companies whose float exceeds 80% and the largest shareholder owns less than 15% of the total stock. Using these criteria, 3/4 of the 41 companies in Berkshire´s portfolio of listed companies are in the management capitalism sector. This bias in his portfolio is partly explained by the fact that he only invests in large cap stocks. Equally, his preference for CEOs with the profile of a private equity fund manager may be reasonable in his special case. Since he runs his huge portfolio with a team of only 23 people (including support staff) it is obvious that he has to rely on his CEOs as a kind of portfolio managers.

However, managerial capitalism is inferior to market capitalism because it relies on collusion with government policies (namely to inhibit the payment of dividends and distort competition), carries excessive governance costs, is highly exposed to agency problems, undermines competition and has fewer shareholder-oriented CEOs. Those that do not pay dividends often aggravate these problems.

Unfortunately, the alternative to dividends advocated by Buffett does not solve these problems. He argues that instead of receiving an annual dividend, investors pursuing an income objective would be better off by selling annually the number of shares needed to cash in an amount equivalent to the desired dividend. He gives an example assuming no-taxes and constant returns on equity and price-to-book ratios. Under such conditions the sell-off is obviously better. He adds two more advantages of sell-offs, namely that sell-offs do not impose a cash-out policy upon all shareholders and are more tax-efficient.

However, with rising capital expenditure one must expect diminishing returns on equity. For illustration, in the Buffett example, if the return on reinvested earnings after 10 years had fallen to ¼ of the starting return, the sell-off advantage over dividends (about 4%) would be halved. Given the overriding tendency to grow big at all costs there is a major danger that such returns may even turn negative.

Buffett himself, in his 1989 letter, recalling the lessons learned in his first 25 years as an investor, alerted that: “(2) Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds; (3) Any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops”.

There is a possibility of controlling this trend, acknowledged by Buffett in his 2012 letter as the pursuit of intrinsic value. That is, to require that net worth grows faster than investment. I checked how his current portfolio of listed stocks had performed on this count over the past four years and the result is not brilliant – less than half (17/41) had a positive elasticity of net worth in relation to capital expenditure and only two companies had an elasticity greater than one. So, if a major shareholder like Buffett cannot enforce this rule imagine how hopeless the average investor is.

Overall, the (uncertain) advantage of sell-offs over dividends is too small to compensate for the greater inefficiency of management capitalism in relation to market capitalism (the present value of his 4% estimated advantage is less than 1.6%). Moreover, it does not justify complacency with the frequent collusion between management capitalists and tax authorities to discriminate against dividends.

So, I am left wondering whether the recent softening of Buffett’s stance in relation to share repurchases and dividends has contributed for his weakening performance and if we risk losing a supporter of shareholder-oriented managers. However, I still hope that he will prove me wrong.