0.2% a year. A Spanish government study disagreed, finding that productivity rose during that period, but only by around 0.3% a year, and that half of the country’s economic growth came from immigration.
Part of the explanation for the poor productivity figures is that many new jobs were in low-value-added businesses.
Another reason is the quality of Spanish education, which seems to be declining. William Chislett, of the Royal Elcano Institute, a think-tank, points out that one in three secondary pupils now drops out, double the EU average, and that 70% of 14- and 15-year-olds in Madrid fail their maths exams.
Teachers complain that their profession has lost status. School management has been transferred to regional governments without introducing national standards or a national inspection system. The debate about schooling in the past four years has been mainly about Mr Zapatero’s insistence on civics lessons, which many feel is a side issue.
The state of the universities is little better. Spain has three world-class business schools, IESE, IE and ESADE, all privately run. But no Spanish university appears in the list of the world’s top 150 compiled by Shanghai’s Jiao Tong University. Spain’s public universities, which make up the vast majority, are trapped in a rigid, bureaucratic system that offers few
incentives to strive for excellence, says Mr Fernández of Nebrija University (which is private). Rectors are elected by assemblies of students, professors and administrative staff and are not accountable to anyone else, but in practice they lack the tools to manage their institutions. The result is a paradox. “Universities have autonomy: they can do whatever they want as long as they do the same as everyone else,” says Xavier Vives, an economist at IESE. Universities have been handed to Ms Garmendia’s new ministry. She agrees that their governance needs reform and that they should be encouraged to specialise. But she may lack the political weight to achieve this.
Productivity faces other constraints as well. For a start there is too much red tape, To make things more complicated, some aspects of the regulation of business are now handled by regional governments. Some parts of Spain, such as Catalonia, have laws to restrict shopping hours and block out-of-town stores, aimed at preserving small food shops (many of which are now run by Chinese immigrants) and preventing suburban sprawl (from which Madrid, more liberal in these matters, now suffers). But this comes at a cost. José Luis Escrivá, BBVA’s chief economist, thinks that such restrictions on retailing are one reason for Spain’s higher inflation; he notes that Catalonia tends to have higher inflation and slower growth than Madrid.
Spain has built an impressive network of motorways and high- speed trains, known as AVEs. Mr Zapatero boasts that by 2010 it will have more kilometres of high-speed railway than any other country in Europe, and that every Spaniard will live within 50 kilometres (30 miles) of an AVE station by 2020. The
punctual and comfortable AVE links Madrid and Barcelona in just 2 hours and 40 minutes.
But Spanish companies find that it can cost up to three times as much to get their goods to the French border than from there to Poland, says Jordi Canals, the dean of IESE. That is partly because of Spain’s difficult geography, but also because nearly all goods go by road rather than by rail. It would have been more sensible to upgrade the existing railway network for both freight and passenger trains rather than to build the expensive AVE network. A train from Barcelona to Bilbao, for example, takes at least nine hours in grubby carriages built in the 1960s. In theory the AVE network could be used for freight trains at night. The government says it will introduce competition on the railways and privatise RENFE, the state railway company. But nobody expects this to happen soon.
Spaniards as individuals are almost unfailingly friendly and kind. But when they have to serve customers, something strange often happens: they become defensive and unhelpful. The ministers say they hope to use the EU directive on competition in service industries to shake up these industries and expose them to more competition. The first step is a bill to cut back red tape for these businesses.
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Slow justice
They would do well to move on to the judiciary. “We’re still to a large extent in the 19th century,” says José Antonio Martín Pallín, a retired justice of the supreme court. The courts still follow a procedural code dating from 1882. Evidence is mainly in writing, with little oral testimony and many opportunities for delay. A typical civil case can take up to eight years, says Mr Martín. For example, it took ten years for the courts to decide that Marbella’s urban-development plan violated environmental-protection laws: this ruling now requires some 30,000 homes to be demolished.
Things move so slowly partly because of a shortage of judges, but also because the courts have stuck to the relaxed working hours they got used to under the Franco regime. Administrative staff in the higher courts work only in the mornings but are paid for a full day’s work.
Problems in the labour market also bear some of the blame for Spain’s low productivity. The country’s trade unions are unusually moderate, having learnt that unreasonable wage demands in the 1980s led to unemployment in the early 1990s. Mr Sebastián claims that wages in real terms have not increased over the past decade, despite the rapid growth in employment. That is partly because of reforms introduced by Mr Aznar but mainly because of increased flexibility thanks to immigration. The upshot, though, has been a dual labour market: some 30% of the workforce are governed by temporary contracts and have no job security, whereas the other 70% enjoy protection that makes sacking them expensive and difficult. This arrangement holds down both wages and permanent employment.
Moreover, permanent workers are used to annual pay increases indexed to inflation under nationally negotiated agreements. A manager at a Spanish industrial company with factories abroad points out that his workers in Germany have agreed to longer hours with no extra pay, and that those in America have accepted a pay increase below the rate of inflation. Unless his Spanish trade unions follow suit, he says, he will have to lay off workers.
The government has begun a “social dialogue” with the unions and the private sector. Mr Fidalgo, of the Workers’ Commissions, a formerly communist trade union, talks so eloquently about the need to make the economy more competitive that you might mistake him for a World Bank official. But he does not think that labour needs to become more flexible. His main concern is to make sure that the government finds the money to pay unemployment benefit (which it has said it will) and to reform the state
employment service.
Mr Zapatero says that the government will not implement any changes that do not have the support of both unions and business: “Any reform without that understanding is not very useful.” That suggests the talks may not achieve much. Some firms will doubtless make local agreements with the unions; certain car factories, for example, are imposing shorter working hours. But there is a strong possibility that increased competitiveness will be achieved through job cuts.
Many of the steps required to make the economy more efficient are outlined in the government’s 2005 national reform plan, but Mr Zapatero’s detractors claim that he has been slow to implement this. Most of the obvious structural reforms had already taken place before he came to office: for example, the central government has little left to privatise. Much of what is now needed involves offering the right incentives—
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to run universities and schools better, to hire rather than fire workers and to become more efficient. Such reforms are not easy politically, and do not produce quick results, argues a former minister in Mr Aznar’s government. He worries that Mr Zapatero is sending the wrong message to Spaniards—“the idea that you don’t need to worry, we’ll cover your needs”.
In August the prime minister chose a political rally to announce a 6% increase in pensions, even though the government might have done better to husband its reserves to cope with an ageing population now that immigration is tailing off. “The issue of reforms is not always linked to economic growth, as it should be,” concedes Mr Solbes. “The prime minister is more sensitive to the issue of social rights.” Recession may change Mr Zapatero’s priorities. But for the moment Spain’s best hope of recovery lies with an impressive array of multinational businesses.
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