One step forward, two steps back

Some 32 months ago, on November 22nd, 2009, I outlined the basis for my reticence to invest in my home country of Spain. Much to my regret, this decision is unlikely to be reversed soon as unfolding events actually mean that we are now further away from a solution to a problem of gargantuan proportions.

Admittedly, some things have changed in the last 3 years.

Central government has changed hands, with the ousting of the socialists and the return of the centre-right. Additionally our outdated, utopian, over-protective, entrepreneur-resistant labour laws have been revised and modified much to the dismay of our thoroughly self-serving trade unions. Tax rates, both direct and indirect have risen too, in an attempt to reduce the fiscal deficit.

And yet, the mood of the nation, (partially alleviated by the national football team as it makes its way into the European Cup semi-final), remains subdued and, on occasions, feels almost apocalyptic. Why is Spain seemingly unable to turn the proverbial corner?.

First and foremost, the actions taken by those with the ability to do so can be labelled as “baby-steps”. Labour law reform has been tepid and watered down by the fear of a monumental social backlash. Fiscal changes have moved in the wrong direction, further dampening any hope of a consumer or investment driven recovery. Moreover, the most important part of the public sector deficit equation, public spending, has only been marginally addressed.

Spain remains a decentralised, quasi federal state, bloated with 17, yes 17! local parliamentary bodies, provincial and municipal infrastructure whose purpose is frequently to serve as the source of political and petty regional disputes rather than effective governance. The mere mention of a drive towards a re-centralisation of power, on purely economic and common-sense grounds elicits such outrage that our political leaders have skirted the issue at a great cost.


Tragically, our nation seems intent on not learning from history or even from our neighbours, which to varying degrees, (no one has quite matched our unemployment rate of 24%), are enduring similar economic distress. While it is clear that nations like Germany, who, let’s not forget, was not in great shape in the early 1990’s as it absorbed the cost of re-unification; have kept real labour costs down over the last 20 years, and focused their efforts on productivity as the basis for competitive advantage, we on the other hand have experienced major wage inflation and a little in the way of productivity gains.


Add to this an unskilled workforce, a bloated and often duplicated bureaucracy, together with a private sector economy starved of technological innovation and you have a considerable mess in your hands.


Unless our political leaders are willing to put aside ideological constraints and adopt a more pragmatic approach, it will be a long time before I or, more importantly, other much larger potential investors place Spain on their sights.