ABSTRACT
In its 1997 World Development Report, the World Bank emphasized the important role that institutions play in economic development. The message was straightforward and to the point: correct policies will not succeed without efficient institutions. Portugal was in no different position to many developing countries where the state had played an important economic role in erecting protectionist barriers, managing government-run businesses, and introducing regulatory red tape. Close links between government, the civil service and large industrial concerns may have worked in a closed, corporatist system, but was ill-suited in the era of the Single European Market and spreading globalization. As it moved closer to Europe, Portugal began a transition, as yet incomplete, to a more efficient and responsive state system. In fact, the debate over the relationship between the state and the economy began earlier in Portugal than almost anywhere else. It remained a controversial political issue because the 1976 Constitution enshrined a highly interventionist role for the state and sanctioned the ‘irreversibility’ of a large nationalized sector. It took longer for a shift in attitude to take place among the political elite because the large state sector became synonymous with the ‘conquests of the revolution’, which for many years remained politically ring-fenced and protected by a leftof-centre majority. A consensus in favour of state shrinkage finally emerged in the late 1980s (Leite Viegas 1996).
