For a long time, Portugal was isolated within Europe, due both to its location on the western fringe of the continent and to policies that focused more on exploiting resource-rich colonies than on cooperation with neighbouring nations. In the long term, this had dramatic consequences as – much like neighbouring Spain – Portugal failed to restructure its economy when the flow of South American treasure began to ebb in the mid-18th century.

The Marquis de Pombal, then “First Minister”, attempted to respond to this development: he founded Europe’s first “business school”, curtailed the influence of land owners, nobility and the Church and, in 1758, established the royal silk manufactory. Private glass and iron-working operations followed. But in the agricultural sector, modernisation was inconceivable: with agriculture dominated in the south by arch-conservative large land owners and in the north by innumerable subsistence farmers, agricultural productivity remained low. No profits were generated, and as a consequence, a significant domestic market did not become established and investment capital was lacking. The country was thus hit all the harder by the declaration of independence in 1822 of Brazil – Portugal’s most important colony.

As Portugal was also almost entirely lacking in natural resources, only a few scattered islands of industry developed at the end of the 19th century based on the use of domestic natural resources.Textile production was the most successful, in particular the manufacture of woollens in Covilha. The tungsten mines near Fundão were another example, as were the expanding tobacco and cork processing, and paper, ceramics and glass manufacturing. In the mid 19th century, construction of a railway network commenced: the first trains connected Lisbon and Porto in 1864, with a link to Spain following in 1866. As the new industries settled primarily in the capital and in the Porto region, no new jobs were created in rural areas. The population grew dramatically, and tens of thousands were forced to emigrate.

Agriculture remained the backbone of the Portuguese economy until well into the 20th century. Improved cultivation methods and gradual mechanisation boosted production and an export trade in wine, fruit and cork developed, although grain imports were still necessary. The qualified workers and capital required for industrialisation were lacking. The fact that Portuguese foreign trade was dominated by Britain for a long time proved to be a further obstacle: much as the Portuguese economy had exploited the colonies as markets and raw-material suppliers, Great Britain exported technically advanced industrial goods to Portugal and in return procured agricultural products.

The isolationist policy of the dictatorial Salazar regime from 1932 to 1968 stifled progress for a long time, as the former economics professor once again focused on colonial exploitation. However, he succeeded in balancing the notoriously lopsided national finances and stabilising the currency. Additionally, labour costs were low, which made Portugal attractive to foreign investors. When the dictator finally loosened the reins over the course of the 1960s, the long-delayed industrialisation began. The steel corporation Siderurgia Nacional expanded; Lisnave built new shipyards in Lisbon and Setenave in nearby Setúbal; paper factories, petrochemical companies and electrical equipment manufacturers emerged. The economy remained dominated by a small elite of a handful of families intermarried with the large landowners, but finally the process of structural change was completed.

When the dictatorship was overthrown in the Carnation Revolution of 1974, the pent-up desire for social change broke loose. In the agricultural south, numerous large landowners were expropriated, their roles taken over by cooperatives. The government in Lisbon gradually nationalised the key industries and the banks. But the socialist experiment did not last long. Drops in agricultural production gave the old elite a weapon for reversing most of the land expropriations. As the government had increased the wages and at the same time massively expanded its administration to carry out the new tasks of the state, a large hole once again emerged in the state’s finances. An austerity policy with wage cuts was instituted in 1976, and the subsequent years saw a re-privatisation of most industrial operations. In 1986, Portugal finally met the requirements for accession to the European Community, marking a long-overdue end to the era of isolation.

Related Links
ERIH Link List