Coverage of the sovereign debt crisis in Spain tends to oversimplify fairly complex issues. The situation of Spain – both too big to fail and too big to bail – is attributable to interlocking issues that are ill-understood and require the separation of fact from myth.
The most obvious – and most reported – factor in Spain’s economic downfall is the real estate bubble. Two key facts are to be kept in mind when explaining it. One is the conversion of “black money” pesetas into euros through real estate – “black money” pesetas could not be exchanged to euros through the banking system. That practice further exacerbated the real estate market bubble, as did as well the speculation in local real estate by local governments. The objective of partitioning lots and selling them little by little was to drive up prices. The profit allowed local politicians the construction of sporting facilities, for example, and secured votes for almost three decades. This is sometimes explained away as a consequence of a young democracy that did not have many public sport facilities and needed them.
Another casualty of being a young democracy is the underfunded public universities, the only choice for many families – much like the problem with public schools in the US. Few people attended higher education under dictatorial Franco. Those that could, and did, lived very well as a result. In consequence, and given the post-dictatorship expansion of educational opportunities, many blue-collar workers pushed their children to attend overcrowded public universities, instead of pursuing vocational education. This massive access created a huge pool of overeducated and underemployed citizens.
The chasm between training and skills stems from the structure of the Spanish university system. Students are taught by professors who earn low wages and, in many cases, hold other jobs. Classes are large, instruction is theoretical, rules for changing majors are rigid, and internships or other opportunities for practical work experience during the college years are few and far between.
Besides real estate and educational competitiveness, labour competitiveness is often mentioned but not fully explained. Observers seldom mention that the “low” (read: “official”) unemployment rate in Spain was always over 10 per cent, with the exception of the 2005-2007 period. That is changing, however slowly. For some time already, new labour laws have allowed employers to hire temporarily for long periods of time, without having to transition to a more permanent hire entitled to a severance package. Furthermore, this year, the retirement age has been increased to 67 without much social unrest. Thus, there are excessive rights for some, and abuse for others (to say nothing of the exploitation of illegal workers). Overall, salaries are still lower than in other European countries, yet price levels do not reflect that difference.
In addition, the bureaucratic nature of the European Union impedes what would be the answer to this problem, the transnational nature of labour. EU rules make such free movement difficult, as do linguistic and cultural differences. Differing standards of academic accreditations pose further barriers, as some degrees are not recognised by public institutions of other countries, only by private ones. Yet, emigration remains an option and a need for many Spaniards. Overall, the EU adds stability to Spain and currency, and imposes some discipline. That discipline is needed today, given the leadership crisis.
Despite all the mentioned factors, the ugly stereotype endures that Spain’s problems stem from cultural attitudes. Tagging Spaniards as generally lacking work ethics is as mistaken as believing that they all dance flamenco or take siestas. It is like assuming that Americans who incur financial trouble due to health, mortgage or employment issues must be lazy, greedy and/or stupid because America is the land of opportunity.
Spaniards are as productive and as competitive as any European nations’ workforce when given proper incentives and compensation. And, of course, the issue is also not about how many hours one works, but how one works them. When the now-defunct Arthur Anderson was a dream employer, the Spanish team would beat the other European teams in terms of productivity. So, while there are life enjoyment priorities, it is the environment as well. Not all the blame is to be attributed to the people. It is just that some give up, like people in the US too after hitting a wall, and there are lazy ones everywhere. The incentives have vanished in Spain now, and the social elevator is closing.
Spain is not suffering mostly on account of cultural differences. Such differences exist, but there is much more to the story.
Laura Gonzalez is an assistant professor of finance and business economics at Fordham University.
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