IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
Portugal is traditionally a leftist country. Since the Carnation Revolution in 1974, in which the Left threw out the fascist government of Marcelo Caetano, it is fashionable in Portugal to be leftist and being labeled socialist. If a proof was needed, in the 2011 elections, all 6 parties in parliament claimed to be leftist parties, and all the three parties who signed the Troika memorandum (yes, the ones who signed it were: PS, PSD and CDS/PP) have Social or Socialist in its very name.
April. In preparation for Worker’s Day, the unions asked to all major companies if they intended to open on that day. As the distribution companies answered positively, the respective union replied by calling for a strike on that very day. Also, they launched a small budgeted campaign asking consumers to boycott those stores if they open.
April 30th. According to Portuguese legislation, any worker working on a holiday must receive double pay. But Pingo Doce (Portuguese for Sweet Drop), the largest supermarket operator in Portugal, decided to do more and take a bold move.
Basically the move consisted in: (i) Open with a 50% discount on all items, for all customers paying more than 100 Euros; (ii) Pay not double but triple salary, and offer a day off later to any employee willing to work on Worker’s Day; (iii) Remain open till all customers were satisfied and offer a dinner to the employees afterwards. These rules were communicated to all the stores on April 27th but only publicized on April 30th for maximum effect.
May1st Morning. Propelled by the Social Networking sites, the news caught fire: Pingo Doce was offering a 50% discount. No account, no card, no complications needed, just pay half at the exit. In a country hard hit by an ongoing economic crisis, in a day when everyone had nothing special to do, you can guess how successful that was. Google “confusao pingo doce” for some raw videos on this.
May 1st Afternoon. News sites and media fueled the fire at lunchtime. Lines became epic, fights erupted, police was called to some stores, stores kept replenishing at extra-fast rates, social media and blogs boiled of images and videos. Television went live from supermarkets, not from the traditional old-fashioned manifs on city centers.
May 1st Night . Unions were disappointed with their rallies and cried for government to take action. The respective minister – Cristas, a woman from CDS/PP, the party more to the right in Portuguese parliament but herself a proved socialist – promised to take action to avoid further similar “unexpected” promotions.
ASAE – an “authority” for economic issues – started to investigate “dumping suspicions”. Sweet Drop claimed it was all done on a solid legal footing. The Gauche Caviar was all over the media and the blogosphere criticizing the zombie crowds that answered to the calling and praising the poor workers who “had” to work in such conditions.
May 2nd. The headlines on the web were “Pingo Doce smashes Unions, Communist Party and Left Block”, “Pingo Doce 15-0 Unions”, “May 1st – Worker’s Day or Consumer’s Day”, “Bittersweet May 1st” or “Three stores closed after fights” (in Portugal there is no tradition of events such as Black Friday, and that certainly played a role).
Many persons thanked Pingo Doce for alleviating May’s budget and told their personal stories. IKEA and Ryanair launched similar 50% campaigns, but without great success. An economic newspaper that some days earlier offered its daily edition (a 100% discount) severely criticized the 50% discount in its editorial.
May 2nd – The Left. The Socialist Party demanded ASAE quick but rigorous results on the dumping case. The extreme Left in the parliament called the event a “humiliation for both workers and consumers” that was made against competition law and demanded the presence in the Parliament of two ministers. The Gauche Caviar on the blogosphere continued to complain how evil Pingo Doce was and how awful the working conditions were for its employees on that day, claiming consumers are "undead", crawling behind a promotion hungry as they eat the crumbs of capitalism. All leftists forgot to mention the increased purchase power of the lower classes, precisely the one that most benefited from the event.
May 3rd. The leader of European People’s Party Portuguese representatives was quoted in a newspaper has having said the campaign was not “particularly suitable”, not because of the event itself but because of the chosen day, criticizing also the un-preparedness of the staff (by all accounts, Pingo Doce did not expect such a spectacular response). Several Pingo Doce employees made public they were not forced to work: they were just offered great conditions to endure a hard day of work and were happy to have helped so many people in need, while earning 3 days of extra salary when compared to the workers that decided not to work. ASAE alleges there were instances of “dumping practices” in three products – rice, oil and whisky – what immediately fueled outrage on distribution margins on other products. (ASAE never before took only 1 day to go through such a large amount of data, including hundreds of prices, analytical accounting procedures and a myriad of producer prices).
It was later known that on May 3rd Pingo Doce decided to pay not 200% of salary as obligated by law, not 300% as promised, but 500% for “all the extra work”. And not only that, workers that worked in that day would have the same 50% discount consumers had on May 1st, but for a whole week - May 7th to 11th - as working employees were not allowed to use the May 1st discounts and that would have been unfair.
May 4th. The Agricultural Market Observatory made public that the distribution have margins superiors to 50% on several food items, a fact they were monitoring for a while. On the very same day the Portuguese Association of Distribution Companies discredited the report on statistical grounds, a claim that the state institution had yet to answer. It deserves notice that in the same report the Observatory asked for tougher regulation that could deliver equalized margins in all the supply chain (regardless of perishability rates and of who supports those costs).
The relevant Union leader, Manuel Guerreiro, claims the government is “responsible” for the “price war” between Pingo Doce and Continente and asked him to act promptly to defend both workers and consumers from such price reductions. “All companies must remain” because the status quo “creates employment” and their existence “preserves consumer rights”. The Union also demanded Sunday and holiday forced closings, tighter licensing practices to distribution stores, greater contract and accounting transparency and a better control by the government on inventories and sales. How forced closings and tighter licensing practices would increase consumer rights and how the government can help exchange-listed companies on better control practices was not detailed.
May 5th. The Left Block demanded tough legislation to end the “distribution dictatorship” and asked Pingo Doce to do 50% discounts in products with raw “margins of 80% or 75%” (yes, that would turn buying and selling prices from 100 and 180 to 100 and 90, creating a raw negative margin, not allowing Pingo Doce to pay for transport, accommodation, refrigeration, rents, investments interests or even salaries and in the end creating unemployment, but the Caviar left is all about “principles”, not about “numbers”). In Portugal, contracts are most often just general agreements with important details left to handshakes. This happens in many areas because government rules are so intrusive, burdensome and even contradictive that it would be really impossible to cope with all the legislation involved. The Left Block is also pushing to introduce legislation to enforce all rules on distribution, effectively forcing distribution companies to increase lobbying practices and image promotion. The main area is producer-distribution contracts, which should be “written, public and verifiable” to protect production and allow the prices to be “fair and the most serious”. Regarding government reception to these proposals, the Agriculture Minister, Miss Cristas, was considered as a positive partner and the Economy Minister, Álvaro Santos Pereira, was considered as an obstacle.
On that same day Miss Cristas told reporters she was working with PARCA – Platform for Monitoring of Relations in the Agricultural Chain – to promote “self-regulation” to end “legislative gaps” so as to achieve a greater “equilibrium” in the sector and guarantee “admissible, fair and rigorous” relations. By June the Ministry web page will start to show data on price formation revealing how much each participant profits through the supply chain, so that later laws can be written to enforce the “equilibrium”.
May 7th. Manuel Guerreiro, the Union leader, files a class action against Pingo Doce for discrimination regarding the May 3rd decision to give a 50% discount for the workers that worked on May 1st claiming that rule does not respect the rights of the workers who were on holiday or took a day off on that day. The possibility of colleagues buying items for others was not explored.
The union counted between eight and ten thousand of “discriminated workers” and told reporters that one of the motives for the class action was the lists containing their names published on the stores. They were also referred as “strikers”, although there is a slight possibility that some may not have work purely based on their shifts.
May 9th. Alexandre Soares dos Santos, owner of an empire of which Pingo Doce represents only 4%, gave a major interview. During the interview, he declares that he did know about the discount before hand but didn’t know the date and that the scale of what happened caught Pingo Doce by surprise – a claim easily confirmed by the lack of preparation of the stores to the flood of consumers, especially in the morning. He also claimed he was a scapegoat being targeted to cover up the lack of support to the May 1st demonstrations; what he considers an unfair connection as any worker could have gone to Pingo Doce in the morning and to the demonstrations in the afternoon. Regarding its suppliers relations, Soares dos Santos said he did not and will not pass his costs to them, as he had intended from the start. He also shared the discount resulted in sales of 43 or 27 million, depending valued at pre-discount value or after-discount value, and that the objective of increasing sales and market presence was achieved – and the objective was sales, not profit. He finally told the reporter he would be willing to quit its salary and he would never fire any of his workers. When asked about new campaigns, he answered Pingo Doce will not repeat the 50% discount, but will continue with an “aggressive price policy”.
Aftermath. Portuguese Stock Index includes banks, telecommunications, energy, construction, highways and distribution. All of them but distribution depend heavily on the state for both sales and regulation. On the distribution sector, the two main companies are SONAE and Pingo Doce’s parent company Jerónimo Martins. The first one bought the state favors by “self-regulating” the group’s newspaper, Público. Jerónimo Martins is by far the freest from the state: sales are not only mainly from individuals but increasingly from non-Portuguese individuals. To add insult to injury, the group launched PORDATA, a service that provides free statistical data to all, unlike its state counterpart, Statistics Portugal. This independence, this openness, this freedom clearly has been irritating the Caviar Left for some time. The next months will be important to determine if next May 1st will be Worker’s Day or Consumer’s Day.
Portugal, like most Latin countries, is a strong nanny state where the left has won the media debate to a level that all parliament parties defend interventionist policies, with some variations on depth and underlying social values. But as Margaret Thatcher once said, Socialism is only possible until the state runs out of other people’s money and Portugal is at that point. This is an opportunity to demonstrate that in Economics it is not true that “Resources are unlimited, Needs are limited and in need of stimulation” but rather than “Needs are unlimited, Resources are limited and should be spent as efficiently as possible”. And efficiently according to the subjective value theory, not according to the Marxist value theory, i.e., with the center place giver to the consumer, and not to the worker. Portugal may be in the middle of this transformation. One can always hope.