Last Tuesday, January 30th José Emilio Boscá Mares, Professor of Economic Analysis at the University of Valencia and associate researcher at FEDEA, gave the conference 'The Challenges of the Spanish Economy', inaugurating the 2024 conference cycle that the Chair of Business and Humanism organizes together with Popular Bank to meet the training and ongoing updating needs demanded by the Valencian business community.
José E. kicked off the day with a powerful statement: "You've probably seen the positive GDP growth data on the news. And while the official figures are accurate, there are shadows lurking beneath them."
Conference on the Challenges of the Spanish Economy: Productivity and Fiscal Structure.
Productivity was the main topic of the first part of the conference. According to José, the first thing to understand is that any country's economic growth depends largely on its ability to increase the productivity of its production factors. Being productive means producing more in the same amount of time as others.
In general terms and in comparison with the rest of the Eurozone countries, The Spanish economy in recent years has been hampered by a stagnation of per capita income, increasingly moving away from the European Union average, thus making economic convergence with it impossible. Over the last 15 years, Spain has fallen by 831% in this variable.
The 2008 and then COVID-19 crises played a role, but data shows that other countries have recovered more quickly. While Spanish GDP has grown by 2.51% in 4Q, a more realistic variable is GDP per capita, which in Spain has grown by 3 or 4 percentage points over the last 15 years.
What is GDP per capita? It's divided by the population and can be broken down as shown in the figure.
In line with this and focusing on 2023, Spain has a GDP per capita 16.8% lower than the Eurozone This is explained by the country's lower productivity (13.81 TP4T less productive). Additionally, in Spain, there are 9.51 TP4T fewer employees, but people work 6.61 TP4T more hours than the regional average, meaning that the lack of convergence (growing more than rich countries) is offset by working more. In short, there is a productivity problem that has been dragging on for years, increasingly distancing itself from the productivity levels of the European Union.
How can low productivity in Spain be explained?
It can be summarized in five key areas: a lack of training and skills in human capital; the underdevelopment of innovative capabilities; low levels of technological implementation; a functioning business structure with a high presence of small businesses and a shortage of medium-sized, large, and newly created companies; and finally, a complex, bureaucratic institutional, regulatory, and labor framework lacking in performance evaluation.
What should we do to increase productivity in Spain?
Committing to improving human capital training, investment in R&D, and entrepreneurship. Accelerating the digital transformation of the productive sector and the administration. Reducing administrative and regulatory barriers. Taking advantage of the ecological transition and Spain's potential in renewable energy. Implementing a tax reform that seeks a better balance between efficiency and equity and evaluating public policies are some of the proposed measures. It is important to highlight that As a country increases its productivity, it can afford to reduce working hours and enjoy more leisure time.
On the other hand, national debt was discussed, differentiating between household debt, non-financial institutions, and public administration debt. These variables are important because they determine a country's capacity to maneuver in the face of crises.
Spain had the highest debt level in 2008. Since then, companies and households have deleveraged, currently reaching levels below those of the Eurozone. Conversely, public debt increased from 35.81% of GDP to 111.61% of GDP between 2007 and 2022, an increase of 75.8% of GDP. Spain has gone from a private debt problem to a situation where all foreign debt is owed to public authorities.
In 2023, most European Union countries will find themselves with more public spending than revenue, as seen in the photo.
Compared to Germany, this country appears to have greater discipline in reducing the gap between revenue and expenditure and avoiding fiscal deficits, making it clear that economies like Spain, Italy, and France need to take action because maintaining these levels of public debt is unsustainable.
In Spain's case, 2022 closed with a deficit of 64.3 billion (4.81% of GDP). Where should we cut without affecting basic services?
The evidence for the EU shows that The size of government correlates with the efficiency of the public sector. A increasing the efficiency of the public sector (measured by government effectiveness, regulatory quality, rule-of-law, control of corruption), It allows you to better manage more resources and increases well-being. and with it the predisposition of society to increase tax pressure (willingness to pay taxes) and the size of the public sector.
What should we do to avoid problems with the sustainability of public accounts?
A fiscal consolidation process is needed, with measures on public revenue and expenditure that do not harm the productive fabric, while also implementing structural reforms and improving the efficiency of public administrations to increase the potential growth of the economy.
Consolidation plans based on public spending cuts or reduced transfers cause mild recessionary effects in the very short term, but they disappear very quickly.
Adjustments based on tax increases have historically caused much greater production losses, with their negative effects being more persistent over time.
In Spain, although both measures are being considered, it is very important not to harm productive public investment and incentives for private investment.
