A picture of a packed football stadium

Photo by Vienna Reyes on Unsplash

This article originally appeared in the Portuguese publication Eco Online It has been translated into English with the author’s permission. Original article by the economist and MP Carlos Guimarães Pinto.

If there is one thing that Portugal needs, it is to attract people who earn well and have accumulated wealth, even if this increases statistical inequality.

The government loves the SNS12. It is true that we have people dying waiting for surgery. It is true that the pandemic has put even more people on the wait list and that, due to ideological prejudice, there seems to be little interest in using the capacity installed in the private sector to fill these gaps. It is true that when the nursing council (Ordem dos Enfermeiros) complained about the conditions in which nurses worked, the government began a persecution that culminated in an investigation. It is true that when the medical council (Ordem dos Médicos) decided to investigate what had happened in Reguengos de Monsaraz3, the government started a war against doctors, with the prime minister as a spearhead. The government loves the SNS and everything related to the SNS, except that small part of the SNS that are its users, doctors and nurses.

There are few industries that the Portuguese follow as well as football. There are also few of which the Portuguese are so proud. And with good reason for that. Football must be one of the few industries in which Portugal competes toe to toe with the countries of Central Europe.

It is also an industry in which, unlike the rest of the economy, the countries of the East are still a long way from catching up on us. This is only possible because football is, by its nature, a competitive industry which means that many of the factors that delay the rest of the economy cannot be applied to football (although others, unfortunately, not even the nature of football can keep away).

Unlike other industries, in the game of football there is no room for exchanging places on the squad for favours. A political party can even help a club a lot, but that club will never start the prime minister’s overweight nephew at left-back. Those that the manager considers to be the best among the players that the club can afford, are always the ones on the pitch. Even when that competition is tainted by refereeing favours (something that, for all legal purposes, I’m not implying exists or has ever existed in Portugal), no club can afford to not put good players on the pitch.

Any child from a poverty-stricken neighborhood who actually knows how to play football will always have a better chance of making the starting lineup than the leader of a local PS[2] chapter. That is why football is also an industry where meritocracy is most visible. Any boy, born in any social environment, of any ethnicity, can aspire to become a millionaire in football, even if he cannot aspire to do so any other way (and girls cannot, yet, have that aspiration in football).

Unfortunately, although they like and follow a lot of football, the Portuguese rarely learn lessons from football for the rest of the economy. The importance of a competitive environment for growth, social mobility and the elimination of prejudice is one of these lessons. But there are more lessons that can be learned and the recent novella over the signing of Cavani4 is an excellent opportunity to learn something.

The first lesson has to do with taxation. Cavani, like Casillas and Schmeichel before him, would bring great added value to both the club that signed him and Portuguese football. It is complicated to estimate exactly how much, because a lot would depend on his performance, but it is certain that his coming would bring more attention to the Portuguese championship, and to everyone who plays here. Many would win. From Gil Vicente’s5 left-back who, thanks to the increased attention to Portuguese football, could be lucky enough to have a scout watching a game that would give him a millionaire contract in the second-tier of Chinese football, to the textile company that produces Benfica’s t-shirts.

Apparently, the club and the player had already agreed the net salary, but the deal fell through because the tax burden necessary to pay that net salary was unaffordable for the club. In the end, the club and its fans lost out, Gil Vicente’s left-back lost out, the textile company lost out, they all lost out, except for Cavani himself who will easily find another club offering a similar sum. An entity that also lost out was the Portuguese state, which will receive absolutely nothing from Cavani’s salary. In economics, this is called the deadweight loss of tax, that is, all the costs that the tax burden brings to the economy resulting from what never happens (contracts, investments) due to the weight of this tax burden. It’s called deadweight because those potentially involved lose everything, but the state does not obtain any tax revenue either.

Cavani’s case is an extreme one, and it is very easy to appeal to feelings of social justice for a guy who earns €10 million a year. But we could think of a company that needs to retain a key engineer, and that to pay them 4 thousand euros a month (a low salary for a good engineer anywhere in Europe) needs to spend 10 thousand euros a month between salary, income tax and social security contributions. We can think of all the companies that are unable to retain this talent, and all the talented professionals who later end up abroad adding value and creating new jobs in other countries. Or, even worse, those who become unmotivated and unproductive because they feel that their talent is not adequately compensated. We can think of the impact on our productivity, which punishes companies that create well-paid jobs.

But there is another lesson. A lesson on inequality. As soon as Cavani arrived, he would immediately increase all inequality statistics, both income and wealth. He would earn as much in one year as a factory worker in several centuries. Inequality in the country would increase, but this would not mean that the poor would be worse off.

There are inequality drivers that actually make the poor worse off. When the Portuguese state guarantees better teaching conditions for children in wealthy areas than for children in poor areas, it is generating unjustified inequality. When the government collects taxes to finance their friends’ businesses it is creating unjustified inequality. When a thief robs a person in the middle of the street, he is creating unjustified inequality. Inequality is a problem when it results from a process in which one coercively takes from some to give to others (I gave a good example of this here at Eco two weeks ago). When inequality appears because someone who creates value keeps a part of that value created, there is no harm to the poorest. On the contrary, when income or wealth is acquired through voluntary processes, the accumulation by some can only be done to the benefit of others. If tomorrow a scientist invents a vaccine for a certain virus and became a millionaire due to it, inequality will increase, but it can hardly be said that the poor are losing out.

If there is one thing that Portugal needs, it is to attract people who earn well and have accumulated wealth, even if it increases statistical inequality. Because only then will we be able to improve the lives of everyone, especially the poorest. As anyone comparing the salary and standard of living of a cleaner in Portugal and Luxembourg will realize, there is no one who benefits as much from attracting capital as the poorest. There is no ideological prejudice capable of reversing this reality.

  1. Serviço Nacional de Saúde, the Portuguese National Health Service ↩

  2. The government was led by a social democratic party at the time of writing, under a minority government with a confidence and supply arrangement with the Communist and Left Bloc parties. Confusingly called the Socialist Party, known by its initials in Portuguese: PS. ↩

  3. A small town at the centre of a recent scandal involving the government and the medical council. ↩

  4. It was reported that the Portuguese football club S.L. Benfica made a significant, yet ultimately unsuccessful, effort to try and sign Uruguayan international Edinson Cavani over summer 2020. ↩

  5. Small football club from the town of Barcelos that competes in the Portuguese top flight. ↩