An economy with sidelights and the four intermittent positions.

Last week I was invited to participate briefly in on radio RTE’s program to address how the government-forming process may be affecting Spain’s economy. We’re especially interested here because after their last general elections, Ireland is facing a situation very similar to the Spanish one without an easy possibility of forming a government. They rightly fear that a period of interim government can affect the economy significantly if it adds up to a possible ‘brexit’ that would hit this small country the hardest.

Under this concern, the Irish consider it interesting to find out how Spain is standing and how it turned out for other countries in a similar situation. Cases such as the Belgian or Italian were discussed, for example. In my answers about Spain I merely limited myself to put together the hypothetical Spanish recovery where I justly think it should be focused and what are the points putting it in doubt. In addition, of course, an unstable political situation that caused the fall of international investment in key sectors and involving a lack of direction in setting up active policies necessary to addressthe change in the financial model.

First of all I consider that the speech about ‘recovery’ is a dangerous speech. It is attached with pins and can create a false perspective that will cause frustration in the medium term. Things don’t fix themselves on their own or by infused science. When the unemployment rate is reduced from 25% to 20.5% one cannot consider seeing the light you see at the end of the tunnel because that percentage reduction is largely due to the mass departure of migrants returning to their countries home to find no work and the flight of hundreds of thousands of young people abroad in search of opportunities. Moreover, a recovery subject to the so-called austerity has vented family and social structures, has created a submerged middle class and a showcase poor class as it happened in Greece and Portugal for example. This is not getting out of nothing; it is entering another phase and not necessarily a better one.

I’m not saying they are not producing elements for improvement. There are, but it is important not to distort reality in the interests of whom explains it. First because it is better to take action and secondly to avoid creating false expectations.

First, it is important to note that any official discourse about employmentand creating jobs massively should show clearly how they intend to do it. In this case it serves neither the official discourse of the caretaker government that guarantees millions of jobs thanks to the recovery path initiated or bombastic speeches from the rest claiming that employment is created with fiscal policies only.

We are not heading for a higher employment. It’s quite the opposite. There will be continuously less employment because automation will be continuously more efficient. This will be exponential and where there are now three people doing something soon there will be a software or a robot doing the same. In just five years what is coming is an important reduction in the workforce, not its increase. Against this we must work not only doing speeches that will be impossible to meet and preparing for a new scenario.

Besides, there are other elements that cast doubt on that recovery. The risk of making them chronic depends on these people agreeing and implementing the basis to get the world started. No matter who, but it is urgent to do so. Every month spent in the world of your Lordships is a year of loss in competitiveness compared to the real world.

Stiglitz listed a few months ago in Davos the points in which Spain was misinterpreting the situation and that have now grown exponentially due to the interim phase of a government that cannot make complex or strategic decisions.

In this video from the Davos session, Stiglitz explains the points that quarantined the Spanish recovery and place it face to face directly with a harsh reality that could be worse than what we’ve experienced so far. In it, he highlights the following:

1. The enormous growth of poverty.

One in four Spanish workers is poor according to the International Labor Organization. The number of people earning less than 60% of the average wage increased by four percentage points between 2000 and 2014, from 18% to 22.2%. The number of households that do not have official source of income reached a record high of 770,000.

If it were not for the so-called underground economy — a real scourge for the growth of a country in the medium term — the Spanish social fabric would have broken completely during the hardest years of the so-called ‘crisis’.

2. Progressive deactivation of the population.

Unemployment has fallen in the four years from 26.5% to 20.5%, but the active population continues to decline at a significant pace. The main reason for this contraction is the mass exodus of foreign workers and the brain drain. The recession has resulted in the largest migration in the history of Spain according to the Bank of Spain prowling on an annual average of one million since 2010.

3. The invisible generation.

Most new jobs are not for young people. Almost one out of two doesn’t make it. In addition, the lucky few have a salary in freefall. According to the OECD, the average monthly wage of young Spanish workers fell from 1,210 euros in 2008 to 890 euros in 2013. What is the same as a drop of 35% in real terms.

4. Chronic precariousness.

Using data from 2014, the percentage of part-time work in Spain rose from 12% in 2008 to 17.4%. Instead of creating more jobs these are being cut into ever smaller pieces. Since 2013 Spain has created mini-jobs like hotcakes. Stiglitz said that according to statistics from the Ministry of Labor itself, the contracts signed each month normally do not usually reach more than 10% in terms of permanent jobs.

5. A lost decade.

While talking about GDP growth, the actual level of production recorded in 2014 for example, after a year and a half of ‘recovery’ was still 5% below the level recorded in 2008. Given the evolution of this and other indicators, one can speak of a ‘lost decade’ when describing the post-Spanish crisis period. Losing a decade is relatively easy. Winning it is more complicated. That’s the real stake here, to win or lose another decade.

6. The future is not built by inertia.

Funding for research, development and innovation were reduced from € 321 per capita in 2009 to € 279 in 2013. The creation of poles of attraction of talent that left and to entice another to link it to building a modern country channeled to the times that we live in the West, remain deadlocked. Large industries are key, small technology companies also. Everything should be under a national plan that covers where we must invest, with whom, how and fast. Knowing what is needed is the key. In Ireland 147 startups per day are created, two of every three new jobs are directly related to new technologies or knowledge. In Germany, the weight of exports lies in the large and well-structured tissue of medium-sized enterprises despite having large multinationals.

Creating a new economic model is not a fast thing but we must begin now or there will be no effective time to do so. From being a member of the first economic division of the world being able to play the ‘Champions’ we went to being in the second division in a few years. We have had options to ascend at some point but the team is not being renewed and the youth team is being neglected. If we fall to second division, as it happens in football, there might be no option to return to play in European competitions anymore.

Inequality and poverty have reached unprecedented levels. What caused that, even though the macro figures presented during the elections were impeccable, the election results were an important gibberish. And they will again be if elections were repeated as things stand.

Converting a monumental crisis into an opportunity of difficult transformation was an option. The other was to create a biblical disaster. The difference is only in whether those that should mark the guidelines were in tactical subjects or strategic issues. The first thing reaches a maximum of four years ahead. The second thing requires better insight and a look at the next few decades. For that, we continue with the fog lights and the four intermittent lights turned on the platform of a highway in which others already drive at full speed.

(Leer en español aquí)