Spain’s Economic Panacea (or not)

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Unsurprisingly, the talks between the government, business and trade unions ended early last Thursday morning without an agreement about labour market reform. Instead, Zapatero is going to issue it by decree.

For months now, murmurs of cutting the cost of firing people has been on the agenda of many newspapers and the murmurs swelled to a huge clamour during those negotiations. Making it cheaper to fire people is the great panacea for Spain’s economic problems now that the deficit is being tackled by government cost-cutting. Or so it would seem. Such a measure defies all sensible logic. Nearly everyone agrees that Spain’s main economic problem is the astronomical unemployment rate, which is at double the EU average, and that it is going to take a long time to create jobs for those 4 million people. How is making it cheaper to fire people going to help? If you look at how the unemployment has risen during the crisis, it becomes clear that the cost of firing people has not been a problem for many Spanish businesses.

The problem for many young people is that they struggle to get more than a temporary contract, unless they sit the examinations for a post in the public administration. They drift from job to job without much hope for their long term future and this undoubtedly fuels the other spectre which haunts the Spanish economy: productivity. If you’re given a temporary contract for a few months and not much hope of being rewarded for your work (this goes for the graduate contracts too –it’s easier for the businesses to continuously search for fresh meat than offer someone a long term contract), are you really going to be the most productive worker? Unfortunately Spanish businesses seem to think that precarious, temporary job contracts are better than offering someone a long term deal. It lines their pockets in the short term, but is detrimental to their long term growth.

So instead of talking about cheapening the process of firing people, let’s talk about making it easier to contract people, and penalising businesses for their overuse of temporary contracts (which the business representatives rejected during negotiations.) We can only wait and see whether this will be written into the decree on labour reform.

For more about young people and the economy, click here.

Cuts and Cars

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The topic of cuts and savings at state level continues to rumble on. Zapatero managed to pass his ‘Big Scissor Plan’ by 169 votes to 168. But the future doesn’t look that bright for him with respect to the prospect of passing next year’s state budget.

El País published this interesting diagram about the size of the public administration along with an article in passionate defence of the civil service and public sector. Between them, they make the Spanish civil service not seem as giant and unwieldy as we have been led to believe. What neither of them do is explain how they did the sums, which is something I’d be interested to read about, given that teachers and doctors in the UK don’t count as civil servants, unlike Spain. The subtle point within the article is that Spain is normal and in no way different to other European states. It sits quite happily in the middle of the civil service league table.

In other related news, it’s pleasing to hear that Aguirre and Gallardón have at last got the scissors out. They’ve both cut down on their fleets of official cars: from 125 to 77 and 167 to 57 respectively. This should be one of the issues when the eyes of the nation are fixed on the public purse. Why on earth do Gallardón and Aguirre need so many cars? How can provincial mayors be paid more than the Prime Minister? I don’t doubt, as the article emphasises, that there are many ‘thousandamonthers’ who work in the town and city halls, but they are small fry. The big fish are still out there and unfortunately, due to the structure of the Spanish state, they continue to work like provincial barons, lording around the areas that they govern, deluding themselves into thinking they are lord and king of everything they see. What are 167 cars (including two armoured ones) if not a modern day armada, a small and loyal army to call upon whenever the baron feels fit?

As a brief comparison, last summer I worked behind the scenes at Birmingham city hall: how many official cars were the in the car park? Four.

Scissors and Suits

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The Popular Party should have been delighted yesterday. Zapatero announced a drastic and severe plan to cut the national deficit in a bold and unexpected move, given that he has always rejected such action.

The measures are a combination of spending and salary cuts, mixed with the freezing of pensions that have been dubbed the ‘tijeretazo’ or ‘Giant Scissor Plan.’ The main victims are going to be the civil servants and public sector workers who are going to see their wages fall on average by 5% and frozen in 2011, along with the pensioners whose state pension will also be frozen at its current level. The cheques for each new baby will be shelved and general spending cuts in the public administration are planned, all of which will attempt to find €15 billion. Given the size of the civil service and public sector, which is around 20-25% of the active population, this is going to affect most families across Spain and the two main unions UGT and CC.OO. are already talking about strikes.

Why now? It’s clear that this is a knee-jerk reaction in response to the EU talks last weekend and the attacks on the Euro. Spain’s international economic credibility is low and Zapatero was left with no choice except to try and do everything possible to placate the shadowy gods of speculation.*

The problem is that these measures won’t address the fundamental issues at the heart of the civil service (its lack of productivity and the fact that it is too top-heavy) and the people consider it unfair for them to pay for a recession created by speculation and the construction bubble.

As for the leader of the opposition, he enjoyed his moment of severe criticism of the measures in the Spanish parliament yesterday. Rajoy continued to promote his delusional plan to save the Spanish economy through destroying the Ministry of Equality and eliminating the Third Deputy Prime Minister of the government. The Popular Party will only have the authority to criticise the government’s economic strategy when they apply their own philosophy to the public expenditure in their own Autonomous Communities. Practise what you preach.

Rajoy should have enjoyed the fact that the news story which was expected to make all of the headlines was pushed lower down the list because of the drastic economic adjustment plan. That particular news story was the reopening of the corruption case against Camps, the President of the Community of Valencia, for his acceptance of three suits. This is bad news for Camps. He, and the PP in general, had hoped that this particular case would be swept under the carpet so that they could continue to portray the Gürtel scandal as simply a few people and businesses who have taken advantage of the party. Camps is still at the heart of the scandal and despite his cries of innocence, there is evidence of the illegal financing of the Valencian PP.

Rajoy, nevertheless, continues to say that Camps is definitely the PP’s candidate for the regional elections this year. It’s a breathtakingly hypocritical move that they themselves are now putting pressure on the judicial system, given how the PP protested so vehemently against the demonstrations in support of Garzón.

An interesting day, all in all, between scandals and drastic measures. The PP should have been delighted that Zapatero managed to steal the headlines from Camps and he did it through announcing spending cuts that the PP has been demanding for months and months. The PP should have been clapping themselves on the back, but instead they launched a ferocious attack on the measures and the negative effects they will have on Spanish families, in a completely illogical u-turn. Or maybe not. In Spanish politics it’s not what your stance on certain issues is, it’s how you differ from your political opponents. The PP will never applaud any measure adopted by the PSOE even if they agree with it. Criticise for the sake of criticising, oppose whatever your opponent says, that’s Spanish political tactics.

*It’s interesting to note that whilst I write this the shadowy gods have rained benedictions down on the Spanish economy thanks to the severe measures. Spain has been graced with the rising of the international markets. The citizens will pay for the recession. Amen.

The Economy II: The ‘Thousandamonthers’

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One of the recent media phenomena in Spain has been the extension of the idea of the ‘mileurista’, or ‘thousandamonther’, someone whose monthly income struggles to breach €1000. The term has become a byword for long term employment insecurity, lack of prospects and advancement and, perhaps most crucially, well-qualified graduates in their twenties and thirties who have a job which is well beneath their actual skills and capabilities. The thousandamonther lives at home until he or she is in their thirties and can finally move out, or else moves abroad to find work in line with their qualifications.

This phenomenon is not a minor issue. According to Europa Press, nearly sixty per cent of salaried workers in Spain fit into this category. Obviously it is a huge problem for Spain and young people, who are beginning to feel that going to university will not guarantee them a good job. Currently, you either do the civil service exams (which goes for most public sector posts, including teaching) which offer a relatively well-paid job for life with protection virtually unheard of in the private sector, or you’re stuck as a thousandamonther for a least the foreseeable future: an engineer fluent in German working in Zara, for instance. Some escape abroad and, upon finding better working conditions, encourage others to follow them, which is also a depressing problem for Spain, but a problem which is never highlighted in the press. With so much focussed on immigration, nobody seems to note that Spain’s long tradition of being a country of emigration continues but in a new and worrying way. Rather than those who would leave at the beginning of the twentieth century to make their money in America and return to invest it in Spain (like how El Corte Inglés started) or those workers who left during the dictatorship for economic or political reasons, it is the well-qualified graduates who are leaving, a problem denominated ‘brain drain’ and which is usually associated with developing countries. It is these minds that Spain needs to move out of the recession and become an innovative and globally competitive country.

Another interesting dimension of the ‘thousandamonther’ phenomenon that merits further discussion is the culture of staying at home until you’re thirty. Personally, I am a ‘thousandamonther’ and if I lived at home with my parents, I would have a large disposable income. In other words, the figure of €1000 is an interesting one. It makes it difficult for a person to move out on their own into accommodation, yet at the same time they have a relatively large amount of money to spend each month. And in the modern world of consumerism, globalisation and advertising, this money is spent. Thus, a thousandamonther can experience a relatively good standard of living whilst he or she lives at home (for example multiple foreign holidays due to the explosion of cheap flights) but this is intrinsically linked to living at home with the resulting lack of independence and depressingly, at the same time, the €1000 barrier means that once the person leaves home, it will be difficult for them to maintain such a standard of living. €1000 means more than just a low wage, it means dependence on the previous generations.

Let’s move on to a slightly different but nevertheless closely related issue. Why is there so much job insecurity? Firing someone in Spain who has an indefinite contract is not cheap, so the usual practise nowadays is the use of temporary contracts, including the graduate contracts, which mean that graduates can be employed at 60-75% of the price of a ‘normal’ person for the same job. This is great for the top dogs and fat cats at the top of the pile, but a disaster for everyone else. There are complaints about the lack of productivity in Spain; perhaps if businesses were encouraged to hold onto their staff for longer, expertise would grow and the whole economy would benefit. Instead, people drift from temporary contract to temporary contract, hoping for the perfect job which will give them long term stability and security, as well as the ‘nómina’, the regular salary paid directly into a bank account, essential for buying a house and even opening certain basic bank accounts. This is why the dream of so many people is to work for the state.

The Spanish economy suffers from many problems, of which the ‘thousandamonther’ issue and the contracts are just two. With the rate of unemployment running at nearly 20%, posts need to be created as fast as possible. But that should not mean the reduction of workers’ rights again. Commentators and politicians recall those heady early Aznar years during which unemployment dropped sharply. They would do well to also remember that in that period the relative acquisition power of the Spanish worker dropped whilst temporary contracts increased. It was a myth of development, propelled by a property bubble which only benefited a few, whereas the reform is required now has to address the needs of many: the four million unemployed and the 25% of employed, but who remain in temporary employment.

You, you and me

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‘Between us, we can sort it out’ is my translation of the publicity campaign ‘Esto lo arreglamos entre todos,’ an attempt to haul the staggering Spanish economy out of the recession and place it firmly on the road to recovery through positive thinking and actions at grassroots level. Basically, if we all do our bit, Spain will recover, as nothing can resist the power of the people.

The first thing I thought when I heard about this viral publicity campaign was, can we really change this situation on a microeconomic level, from the bottom upwards? It sounds wonderful and empowering, but even if we all do our bit, will it actually work? I couldn’t help but recall the VAT decrease in the UK during 2009 from 17.5% to 15%, which was a government idea to stimulating consumer spending. It wasn’t a disaster, but it wasn’t the magic potion which revived the economy. In fact, in my experience, it did more at the end of 2009 when people realised that prices were going to increase (I remember a study in which the authors said that when prices fall people don’t buy, instead they wait for them to fall further –consequently the knowledge of a price increase is a bigger incentive.) In contrast, the tax on bankers’ bonuses was a bigger success than expected.

Secondly, the campaign has turned into something of a scandal as apparently the organisation behind the campaign is funded by big business, and apparently receives funds from the treasury, although I have found no concrete evidence about this.If you read the campaign website it sounds idyllically independent, an operation dreamed up by a husband and wife team. What better advert for the campaign than an everyday couple trying to change the world by themselves? Suddenly, when you understand the  backing, it becomes a cynical attempt to try and shift the responsibility for repairing the economic damage to the people. Trying to do it secretly, in this bottom-up independent way, is an absolutely appalling thing to do.

You and you and I. We’re going to save the Spanish economy. Is it really our responsibility? Is it our fault? This campaign is an implicit indictment of the system (both political and economic) and it’s inability, or rather unwillingness, to propel Spain out of the recession. What can the everyday person do if the banks refuse to give credit? What is needed is decisive action from the government to restructure the economy, stimulate employment and create a fairer system for all (I suggest starting with a crackdown on corruption.) I work in a local language academy. If unemployment is the key problem in the Spanish economy what can I do to solve the problem? I don’t provide posts for other people to work. I spend my money and do my bit but what is needed is more than just thinking positively; there needs to be decisive action by both the government and big business. The everyday person on the street is being asked to solve a problem not of their making. Does that mean if we don’t come out of the recession quickly it will be the fault of the people for not thinking positively enough?

‘La crisis que la paguen los ricos’ screams the graffiti around Oviedo, but it seems that every man and woman on the street is being forced to accept responsibility for the problems and to haul the country out of this mess. I’m sorry but this can only ‘be sorted out’ by a few, and unfortunately they don’t want to.

The Economy I: Bricks and Golden Eggs

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Where better place to start than with construction? Bricks and mortar have been the driving force of the Spanish economy with the skyline of every town and city broken by the skeletal sight of several cranes. Construction has produced a huge amount of wealth for Spain, for local government and of course for the developers and speculators. A wealth generator yes, but personally I believe it has led to a myth of economic development. The economy hasn’t developed in a wider sense and the idea that construction could keep on pushing the country forwards forever was always going to be impossible. Of course it’s very easy to say that now, but it was clear before the start of the recession that it was an unsustainable policy. Understandably the banks, politicians and developers kept working the golden goose until it collapsed. Why bother changing something that works well for them?

There are a million people in construction without work because of the recession. 350,000 new posts will be created the new project for the renovation of old buildings. This will be encouraged by reducing VAT for these projects, reducing taxes and costs and increasing particular loans. Attractive incentives, but who is actually going to fund these works? Is it really profitable for the developers to realise this kind of labour? Does this mean rehabilitating empty buildings to sell on? To whom? Or if they are already inhabited, will the occupants want to pay? What about the rest of the people?

It seems that all of the political parties are waiting for construction to pick up again. It won’t work. It’s an economic model that is fundamentally unsustainable in a country that has a million unsold and unoccupied flats. Spain is in an awkward position as this is affecting everyone: there are a million unemployed in this sector and many people from the middle class who thought they could make a fast buck buying and renting/selling a second property. Now that the bubble’s burst, they’ve got problems: they want to sell but no one wants (or can) buy. Or if they want to buy, the price is inflated because the owners need to recoup as much money as possible. Prices are high compared to salaries and there are too many flats –what is the point in building more? The younger generations are being held to ransom by the speculators. Add to this the fact that many homes in the south were being bought by foreigners. These foreigners have enough problems in their own countries with unemployment etc and won’t be looking to buy a second home soon. Similarly, the British expats are seeing their pensions steadily fall in value because of the euro and consequently life is getting more and more expensive, with the result that many want to return home.

What is needed is a fundamental shift in the focus of the economy. It will be painful and hurt a great number of people, but I feel it is necessary in order to give work to the 1,000,000 unemployed construction workers, get the economy moving again and create a sustainable economic model. This requires investment, not cuts. The biggest problem of the economy is unemployment and the idea of cutting public spending is an absolute no-brainer. What is required is targeted and controlled investment.

Construction has led to a myth of development. Many people have got rich with the construction boom, but that hasn’t developed the economy in any way. The people at the bottom continue to struggle along as best they can with astronomical mortgages. It has been a golden goose for some, but the eggs are no longer being laid. The problem is that the politicians, who for a long time have benefited from part of the construction contract egg, are not willing to shoot it.

The Anti-Recession Commission: ‘Come on people, let’s sort it out!’

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Today the cross-party Anti-Recession Commission meets for the first time in Madrid to sort out once and for all the problems that the Spanish economy is facing. To me it seems like a ‘Big Talk’ sketch from Mitchell and Webb: ‘Come on boffins, let’s sort it out now!’

I can only see two possible outcomes of this series of meetings (which will take up to two months, by which time how many people will be unemployed? Why hasn’t this been done before?) and here they are:

1. Absolute disaster. The diametrically opposed parties find it impossible to come to any agreement about anything as they fail to reach consensus on cuts and how to generate employment. Another two months is lost and the economy continues to stagnate.
2. A policy so-watered-down-it’s-transparent is published to a great fanfare. The PP have got their way in demolishing what the PSOE wanted to do whilst the PSOE can celebrate having at least reached a consensus on something. Two months have been lost and it’s unlikely the policies will work anyway.

Why won’t these potential policies work? Because it isn’t the PP’s interests to cooperate and rebuild the Spanish economy. They’re doing fabulously well (at least in their own eyes) sitting back and pointing out what is going wrong. The longer the recovery takes, the better for the conservatives. And then of course there’s the other reason why the policies won’t work: they won’t sort out the real structural problems with the economy because all the parties are afraid to do it (and because they benefit from this economic model.) That takes a great deal more explaining, and I’ll try to do so in the coming weeks.

The cross-party Anti-Recession Commission? Doomed (or perhaps programmed) to fail. I do hope I’m wrong.