Portugal Bail-out request from the EU

The Portuguese Government has asked for the EU for assistance when it realized that borrowing was becoming unsustainable (NYTimes). That Portugal needs to be bailed out is evident, and in fact that step has been anticipated for some time now. Earlier in the year there were some hopes that China may be able to help Portugal, but it would seem that this was not enough. Portugal of course is not alone in its current crisis. Last May 80 Billion Euros were approved for Greece by the EU with additional 30 Billion Euro from the international monetary fund. In November Ireland had 85 billion approved for its own bailout. The exact amount to bailout Portugal is estimated between 75 billion Euros and 110 billion Euros – with 80 Billion Euros approved for three years. The crisis in Portugal is complex in the fact that the prime minister resigned last week (country going to general election in June after an election in January this year), a record high rate of un-employment and an economy that according to the national bank is going to contract this year. In Ireland the interest was kept high for the bailout as the government refused to raise its corporate tax percentage. What will be the price for this help in Portugal? This request for help constitutes a clear admittance of failure to navigate the national economy towards a safe haven. For those who had hopes that the government will save them, find them work, protect their interests and make the economy grow, that dream is over. It is now up to the Council of finance ministries to show that the eurozone can protect the unified monetary unit. As some experts argue the bailout deal offered by the EU is a heavy burden for many years and assures low economic growth rates and slow recovery. It is claimed that the poor are helping bailout the assisting banks – paying in future taxes and reduced economic growth to save the banks (external banks mostly) from losses at this point. There are two questions that are normally asked in such events: 1. How did this happen (sometimes phrased as "who is to blame?") 2. What can now be done to get out of this mess As an outsider, the first question holds no interest whatsoever, and therefore I would rather focus on the second question. This can be viewed as Portugal's finest hour. This is the time for the individuals in the country to get up and take action. It is well that the EU will probably assist in bailing out, but it is up to the people – more than the government, to see that the situation turns out for the good in the end. This should not be a narrow escape, but rather a step towards a much brighter future. When asked on several occasions: What is the secret behind Israeli Innovation? I used to answer: "the background of No-Alternative". The Portuguese people need to realize that one cannot expect others to bail it out, and that it is up to them to find ways, each one in his / her small way. This is the time to come up and: 1. On individual level take responsibility for one owns economic situation, without expecting others to provide for you. If you do not have a job thinks of ways to create jobs. Start your own business; cooperate with others who may be able to help and to be helped. 2. On national level – use the funds that will be coming in once the debt are being paid, and divert as much as can be towards the creation of tools that will allow anyone following number 1 above to do so. Use this opportunity to foster innovation and entrepreneurship. To create opportunities for small businesses to survive and grow. Create monetary tools, legal environment and general attitude that encourage such actions – via education, approach etc. 3. On international level – assure that the work the local citizens do, is not wasted on paying back loans at extortionist rates with internal prices of increased taxation leading to reduced growth. Demand to see the threatening inflation that requires higher interest rates – you are foreseeing a retracting economy, where is the inflation? To all that think that these are just slogans, or that this cannot be done, please look at Israel as an example. Insolated on the other side of the Mediterranean Sea, Israel managed to create opportunities for venture capital, for start-ups and technology parks, to increase the rate of technology transfer to industry and more. In the late 1980's Israel was not much different than Portugal (except for the crisis) is today. It was much worse, it had just come out from a huge inflation, had problems exporting its goods (mainly agro production) and had no venture capital, no technology incubators no start-up support mechanisms. It did have a good education system – and no other choice. Today, Portugal can benefit from its EU connection and learn from other EU best practices per each tool it chooses to develop. In a way the relative small size of Portugal is its main advantage. It is easier to make big changes in a smaller country than in a big one. It is up to its people, its real treasure, to show their true metal.

National Innovation infrastructure

Last week I spent some time at the University of Algarve in Faro (Portugal). It was a Conference on Sustainable Innovation, and the presentations were most interesting. It was my first visit to Portugal in over five years, and I was most interested in two aspects – the current economic situation; and the Innovation atmosphere in the country.
One of the presentation dealt with the spin-off activity of the university research results. It was most interesting to compare the roles of the Technology Transfer unit in Portugal with that of a Technology Transfer Company in Israel. The unit in Portugal has to run a competition in order to stimulate ideas and to find ideas or technologies to be commercialized. It than trains the entrepreneurs and helps them raise the funds, hosts them (for a fee) and when ready lunches them into the world. The unit does not hold equity in the firms. Of course such close mentoring means that the number of firms that can be taken care off is limited.
The Israeli TTC gets the ideas reported by the scientists in the university, it has to filter them, if ready for spinning, than it recruits a team leader, let him raise the funds or helps the team get into a technology incubator. The TTC will hold equity, an if possible also license the technology to the firm it span-off. Theoretically the TTC can Spin-off as many firms as there are ideas.
Why do the two entities follow different models? The obvious answer has two parts: on the one hand the natural tendency to seek commercialization of research results or of ideas is probably higher in Israel; on the other hand the infrastructure is more diversified, the technology incubators, the VC sector and other assisting tools are more prevalent in Israel allowing the TTC to focus on its main function.
The natural tendency is misleading, it is only partly natural. A major part of it lies in the local culture and education. Encouraging individualism, free thinking and non conservative solutions has been dominant in Israeli culture. Admiring the ability to improvise rather than plan, to give all you have to reach a goal is a basic characteristic of the culture. Portugal has stressed conformism and order, accuracy and planning.
If one goes back in time to the late 1980's, Israel was not much different. Small number of entrepreneurs, little supportive infrastructure etc., that means that the transformation of the Portuguese current situation to one more resembling Israel's can be achieved. How?
I would suggest the following:
It is important to recall that creating an infrastructure requires enough potential projects in the pipeline otherwise a sense of misfit is felt, which could lead to negative results. If you create a 100 venture capital funds that will not have enough projects, the failure to return the investment would assure that it would take a long time for the venture capital market to recover. Therefore there is no need to copy entire systems but rather let them evolve. First create the demand, educate for innovation, encourage project creation, than invite the assistive "tools" or build them according to demand.
What type of education? How can it be done?
For that in the next post…….