Why «As Causas do Atraso Português», by Nuno Palma, is worth reading

Nuno Palma is an economist and economic historian at the University of Manchester, and this is one of the most debated books on the Portuguese economy in recent years (Dom Quixote, 2023). It starts from a simple question: why is Portugal a rich country by world standards, but a poor one within Europe?

The central ideas

• Institutions and human capital explain more than geography or culture. The book reads Portuguese economic history through two factors: the quality of institutions (how much power the state holds and who scrutinises it) and the education level of the population. The rules that shape incentives matter more than climate, Catholicism or the Inquisition.
• The lag is more recent than is usually claimed. The author dates the divergence to the 18th century, not the 16th. This directly challenges the traditional explanation of the “generation of 1870”.
• Brazilian gold was a “resource curse”. Easy wealth made imports cheaper than producing at home, deindustrialised the country and spared the Crown from negotiating with the Cortes (the old parliament), which opened the way to absolutism and favouritism. The expulsion of the Jesuits under Pombal left higher education badly weakened for decades.
• European funds repeat the pattern. In the final chapter, the author argues that European Union transfers now do what the gold once did: they provide resources without requiring reform, feed an industry built around the funds themselves and delay change in institutions and the economy. Along the way, he also dismantles the idea that the lag of 1974 is explained by the Estado Novo (the 1933–1974 dictatorship), a period in which Portugal converged with richer countries.

Why this matters to News readers

This is not a management handbook. It helps to explain the ground on which a Portuguese SME operates, and it leaves three practical lessons:

• A project has to make sense without the grant. If an investment only pays off with the subsidy, the risk lies in the subsidy, not the business. This is the business version of the book’s thesis. Incentives should strengthen a good project, not be the reason it exists.
• Training is an investment, not a cost. If human capital explains the country’s lag, it also explains the gap between companies in the same sector. Upskilling the team is one of the few advantages nobody can copy quickly.
• A market with clear rules protects those who compete well. When closeness to power wins over quality, the companies that do better lose. Transparent public procurement and real competition matter to SMEs first.

A caveat

Nuno Palma’s theses are debated by other economists, especially his reading of European funds. A review published in Brazil finds the historical part more solid than the diagnosis of the present. The book is worth reading as an argument, not as a verdict. Nor is it a reason to turn down support a company is entitled to: what changes is the order of the questions. The business comes first. Then come the incentives that make it stronger.