Spain’s Low-Cost Miracle

After the glance back into Spain’s past last time, I thought a look into that country’s future might be in order. First off: you’ve perhaps heard of the new political party there Podemos, but have you heard of Ciudadanos?

The name means “citizens,” and that is another recently formed politial party there. The writer of this piece in the Spanish edition of the Huffington Post, César Ramos, is a politician from the mainstream leftist PSOE party (the Spanish Socialist Workers’ Party – formerly of Felipe González). Yet he sees potential in this new political formation, mainly to put an end to the monopoly of the Popular Party (Partido Popular, now in power under Prime Minister Mariano Rajoy) of the political space on the Right.

At least Señor Ramos, as a PSOE delegate, would wish for that to be true. From its Wikepedia page it seems that Ciudadanos is more of a regional party for Catalonia, founded to counteract the anti-Spanish feeling there. On the other hand, there is this:

Ciudadanos is said here to be able at least to expect enough votes in the upcoming Andalusian regional election, not to win it, but to affect the outcome in favor of the PSOE. By the way, this particular La Información article is unintentionally funny in the way it writes the party name Ciudadanos just like a regular word – so that, for example, the picture caption (to the same picture you see there in the tweet) has the PSOE Andalusian Governor Susana Díaz meeting with ciudadanos meaning just ordinary citizens, when you’re tempted to think instead that it means that she’s meeting with members of the competing party! (OK, so it’s only me who finds this funny . . .)

Back to the HuffPoES piece, Ramos’ comments about Podemos are also interesting: he thinks Left-inclined voters who strayed to that party are likely to return to his PSOE because “with the passage of time and the loss of virginity from the distinct cases of Monedero, Errejón, etc. they see that this formation is not as pure as it seems.” And indeed, cursory Internet research reveals that Juan Carlos Monedero, #3 in the Podemos ranks, was recently accused of taking up to €1.5 million from some Venezuelan foundation that he did not declare on his taxes.

But enough of that. It seems that the Spanish economy is looking much better these days: what about that?

This analysis of “the questionable return of the ‘Spanish miracle'” is from the Madrid correspondent for the French business newspaper Les Echos, Gaëlle Lucas. And it is true that Spain recorded 1.4% GDP growth last year and is predicted to achieve 2.4% this year. (Note, however, that Ireland was last year’s EU champ with 4.8% growth.)

So what is behind this Spanish success? It’s mainly a successful internal devaluation. What that means is that, in the boom years through most of the 2000’s, Spanish costs rose so much as to make the country’s goods and services way uncompetitive in international markets. With the financial crisis, something had to be done to get those back into line: with no option to do that the traditional way, i.e. via a currency devaluation (because of course Spain is in the Eurozone), the only other way was this “internal devaluation,” whereby costs beat a necessary retreat on their own, in the form of lower prices, wages, etc. This is inevitably a much slower and more traumatic process, but now Spain has done it. In fact, prices for Spain’s export goods have actually decreased since 2012.

You’d think that to be an impressive accomplishment; but Ms. Lucas is not impressed. For, in her analysis, the low-cost route is about all Spain has going for it – and even then it’s hard to imagine the country ever becoming low-cost enough to challenge the world’s true low-cost production locations, namely those on mainland Asia but also, closer to home, still most of the Eastern European countries. The true key to long-term economic success is high value-added, she reminds us, and while Spain has been busy cost-cutting it has badly neglected investment for the future, such as in education and company R&D.

Gambling Addiction Narrowly Avoided

That’s why Spain’s recovery is “questionable.” But there is one particular point brought up in this article that really intrigued me: at one point Spain was actively chasing that will o’ the wisp of an economic booster that so many American local governments have tried to resort to: gambling! Yes! A gargantuan hotel-and-gaming-tables complex called “Eurovegas” was to be constructed at a location just outside of Madrid – financed by Sheldon Adelson, the notorious American billionaire gambling magnate with an ongoing project to use his billions to purchase outright both the American and Israeli political systems! (Also see here.) The project was to have created up to 250,000 new jobs, in a country with the unemployment rate regularly above 20%, with youth unemployment regularly above 50%, but it collapsed in December 2013 when Adelson withdrew his support after he found he could not bully the Spanish authorities into granting the exemptions he wanted from various pesky local laws. (It’s worth noting here that Adelson’s company is under investigation by both US federal and Nevada authorities for bribery improprieties in connection with his Macau gambling resort.)

Ah, Spain! That you would be so feckless as to resort to the easy, corrupt option! At least with that one you got it right in the end – almost despite yourself. (But OK, you refused to bow down in obeisance to an American billionaire.) Best of luck going forward!

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