Tuesday, December 31, 2019

What's Wrong with The Economy of Spain?

What's wrong with the economy of Spain? Two things, Spanish politicians and the Spanish that put up with the status quo. The economy of Spain had been in bad shape since the end of the real estate boom of the 1990s. It became even worse after the 2008 World financial crisis, which severely affected both an overspent government's budget and over-credited banking system of Spain. Its GDP growth rate doesn't exceed that of population growth and stays under 1%. In fact, this rate has been out of the negative zone only since 2014. The Spanish unemployment rate is currently 20% (down from its pick of 27% in 2013), which is nearly the highest in Europe. Spain is in the deflation zone since 2014, with the rate fluctuating around -0.5%, which depresses investments. As a result of crisis' alleviation measures Country's debt had shapely risen from 40% of GDP in 2008 to 100% in 2016. It looks like Spain's economic crisis won't be going away soon. Welcome to The Atlantis Report. Spain is the 5th largest economy in the EU, something like the 14th biggest economy in the world—more or less on a par with Russia, for instance—and in terms of GDP per capita, recent measurements suggest that Spain has overtaken Italy. So let’s qualify that assumption that the economy of Spain “sucks.” Let’s just say Spain has a functioning economy that faces certain challenges. With that out of the way, let’s look at the challenges faced by the Spanish economy: an oversized and sclerotic public sector (i.e., government jobs), where everyone has a job for life and is paid twice as much as they would ever get in the open market. what’s more, in the public sector 90% of the real work is done by 10% of the people. Most public employees don’t really do much, or are given “busy work” to keep them occupied. lunatic labor laws based on nineteenth-century socialism, which necessarily mean that employing someone is a more serious commitment than getting married. laughable company laws and tax rules that severely discourage enterprise by anyone who isn’t already a millionaire. a deeply ingrained cultural suspicion of business enterprise even as an idea. The assumption is that if someone is making money from private business, he or she must be screwing someone over. most people curtail their ambitions and focus on getting a job that’s steady, even if deathly dull and low-paying. the notion that government should take care of everything and is to blame for anything that goes wrong. Nearly 75% of Spain's economy is based on services, followed by 17% in industry and energy. Construction then takes 3rd place with 5.5%. From a more anecdotal view, it's pretty safe to say that a significant part of this “service” economy lies in activities related to leisure and tourism, both domestic and international alike, such as restaurants and bars, hotels, travel, etc. Even the news reports in Spain always spend time reporting on the hotel occupancy rates around the country during high tourist season (which varies from region to region). More facts… In 2018 Spain received 82.8 million international tourists only surpassed by France and the US. And given that 92.3% of trips taken by Spaniards where within Spain; it gives you an idea of how much the Spanish economy is affected by both international and domestic tourism, and the ability for those tourists to spend more money per capita per day during their holidays. The failure of the tourist industry ( and its related real estate market) to adapt since the 2008 economic crisis. Like Florida, Spain relied on the wealth brought in by masses of tourists from modern wealthy economies. Palma and Ibiza have some of the smartest, most honest, most hip people in the world tourist market, and they continue to do well. Mainland tourism, especially along the Costa del Sol, has the same lack of imagination as most of central Florida (Daytona and Tampa). They take tourism for granted. If France, Brazil, and Las Vegas are smart enough to learn from the tourist model of Ibiza, what is the matter with mainland Spain? So let's look back to some history: During the Golden Age, Spain was essentially like today's Saudi Arabia. That was Spain. For the 200 great years of silver shipping in from the Americas, Spain’s noble families lived quite well. Except for the hyper-inflation, but beyond that, they lived quite well. The ordinary people did not. For the last 260 of the past 300 years (since the Golden Age), Spain was almost always mediocre to awful, especially compared to her neighbors. When John Adams wrecked his ship off the coast of Spain and had to walk across Iberia, through France to get back to the Netherlands, he wrote feverishly about how grotesquely poor the people were — and this was but a century past Spain’s prime; even then, the Spanish Empire was still at its maximum extent. No colonies had broken free at that time. It’s worth noting that most people are just totally unaware of how economically undeveloped the Mediterranean region was all the way up until the 1960s. As Tony Judt wrote in “Postwar,” the UK and the Netherlands were the only totally industrialized nations. Even in Belgium, France (outside the north and A.L. regions), and Germany (outside of the Ruhr/Rhine industrial region), life was much less industrialized. The common form of transport was horse-drawn carriage and train. Outside of Italy’s Po River valley, there were few cars, no highways, and south of Rome, almost no running water anywhere. So, back to Spain. While yes, Spain’s economy is quite anemic, the country’s general prosperity (of the masses) has never been so high in all of its histories. Byzantine labor laws and a hefty tax burden probably are partially to blame for that anemic growth. But ultimately, if you ask Spanish people, they would prefer that to what the US has. It isn’t that they don’t want to work or have more money. It’s that all nations strike a bargain with reality. In the US, our bargain (that isn’t really working as of late) is “fast growth, lots of jobs, but less security.” In Spain, the people have largely said, “We want a lot of time off, slow growth is okay, but we want the security of having a life while we’re actually —ya know— alive.” You’ve got ONE and only ONE life on this planet. The Spanish people seem to get that. Geographically speaking, Spain is not the average European country like France, Germany, or Britain. The Pyrenees mountain range between Spain and France and the Cantabrian Mountains in Northern Spain, prevent rain from reaching the Spanish heartland. Spain is not a rainy country except in the North, where it rains a lot. No rain means they don’t have wide and navigable rivers like the German or French have. The only exception was the Ebro River, but even then is not as wide as the Rhine, for example. The second difference is height. Spanish land except for the coasts is at a high altitude, so crops are inferior, and rivers are faster and so not navigable. Duero river is at the height of no less than 600 meters in Spain and 200 meters or less in Portugal. In fact, it descends from 600 meters to 200 meters in a few kilometers. Both Spain and Portugal use that slope to build several big dams that provide electricity. This is why Duero river (Douro River in Portuguese) is not navigable in Spain and is navigable in Portugal. So the trade was always rare and expensive. If you rely on trolleys to trade, the goods would be expensive, only sea-trade or river trade was cheap before the invention of trains. No trade means no big cities inland. Third difference, the average distance from the coast. Other countries like Italy or Britain have all the cities close to the port. Madrid is almost 400 km away from the closest port. Yes, there were institutional mistakes. Spain could have spent American silver making some rivers navigable like Tajo and Guadalquivir, and extending irrigation. Charles the Third did it with the Imperial Channel and Canal de Castilla, but it was too little, too late, and never, I repeat, never, Spain would have had lands as productive as Holland, France or England. Of course, the solution was to trade, as other poor countries did. Not doing so was the Spanish mistake, as the base (the land) was not as rich as Flanders or Holland. Probably the worst thing that happened to Spain was discovering the New World. Two things happened in 1492, Columbus we know about, but the Spanish Catholics also defeated the last of the Moors and “took their country back” end the Reconquista (Reconquest) a centuries-long period in which Christian monarchs chased out the Moslems. Even during those wars, under the Andalusian Moors, the Muslim/Christian/and-sometimes-Jews worked together, great universities, technology, military/navy, and industry. After 1492, Catholicism came back with a vengeance. They spent hundreds of years suppressing Muslims and Jews in the Inquisition. Their obsession with religious orthodoxy either sucked up all of their intellectualism or chased away (or killed) their best brains. But the worst part was once it had colonies, Spain turned into a nation of exploiters. It was easy for them to exploit undeveloped countries with their 15th-century technologies, and they became the biggest and most cruel in the slave industry from the Americas to the Philippines. They didn't keep up their militarily, ultimately losing the sea to the British. Then their industrial and technical leads evaporated because it was easier to take gold from other countries than earn it through work. After 1492 there are very few examples of Spanish military victories. They were walked over by everybody from the British to Napoleon. They probably would've lost their own civil war except some side had to win. It probably wasn’t just a bad coincidence, but Spain’s 16th Century zealotry led to it missing the Reformation and Enlightenment. With a couple of better Kings and a few fewer bishops, Spain had arguably the best geographic location of Western Europe. Hard to invade through the Pyrenees, and they could have easily controlled the western Mediterranean and the Atlantic Ocean out to the Azores. Instead, they got messed up with the popes and usually took the losing Catholic side in European wars. To the original question: Spain didn’t have the culture or government to play in the 18th, 19th, and 20th century Europe’s Industrial Revolution. The other European empires had mainly got out from under their religious shackles by then. In Conclusion: The Spanish economy has been pretty consistent with other southern European countries like Italy, Portugal, and Greece in terms of unemployment and lack of investments. For the moment, Spain is still doing better than Greece, but it has the potential to do so much better. In 2015 the economy grew 3.5%, which is the highest rate since the recession began. So while it is still currently not so hot, the Spanish economy does seem to be getting back into shape. This was The Atlantis Report. 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