The Spanish Crises

Benito Arruñada, "En España no hay una crisis, sino tres: la económica, la institucional y la de valores", Interview to La Nueva España, Francisco L. Jiménez (July 21, 2009, p. 24).

In Spain, we don’t have one crisis but three—a financial crisis, an institutional crisis and a crisis of values

“The only cause for optimism that I can see is in the quality of the individual, in the existence of people who are competitive, are keen to come out on top and do not have a parochial outlook, like Nadal, Gasol or Alonso”

Benito Arruñada is totally devoted to his work, and this became clear when he talked yesterday about having his umbrella stolen in Oviedo. The story came up at the summer course held in La Granda. He described the robbery as “inefficient”, a term that is frequent in economic jargon. “But how can a robbery be inefficient?” he was asked. “Because it was a foldable, travelling umbrella which is now incomplete (the robber did not take the case) and will be of no use to the thief”, was his answer. The story leads to more weighty considerations, some of which are given below.

BA. Why, if someone steals our umbrella or wallet, do we get tremendously angry but, when it is a member of the government that is wasting or even stealing the money we have paid out in taxes, do we rarely complain and sometimes even find excuses for them?

FJ. Good question. Do you have an answer?

BA. Well, I think it partly has something to do with a lack of awareness about what happens to our taxes, even a sort of widespread, perverse perception that we don’t really pay them at all, because the whole subject of taxation is opaque. In Spain, unlike countries such as the US, taxation is not at all obvious, it’s covered up. This happens with VAT which is charged on prices with very little specific differentiation, with fuel—how many people know that 48 % of fuel prices are taxes—or with income tax, which is cleverly manipulated by the Administration to withhold more at source, so that most taxpayers end up with a negative tax return, that is, they receive a rebate. So people get the idea that the Tax Office returns about one hundred Euros, without realizing that in fact they have paid much more than that during the year. Another reason, in my opinion, for the magnanimous way we treat our politicians is Spain’s firmly-rooted Catholic culture.

FJ. Could you explain that?

BA. Unlike the United States, with its Puritan cultural background, or other countries with a Protestant influence, in Spain, because of our Catholic roots, we tend to be more tolerant of fraud, or of “sin”, in general. We generate understanding, and forgive wrongdoers or criminals. There have been much-published cases—Farruquito, or the Rayan’s nurse. And there is outright rejection of competition because being competitive implies a larger burden of responsibility. And I don’t think there is a crisis. I think there are three – the financial crisis is obvious, but I don’t think it’s the worst. Thinks look gloomier for the institutional crisis and the crisis of values. Three crises in one, like a Russian Matryoshka doll.

FJ. According to sociological surveys, the financial crisis is worrying for Spaniards, but less so than for people living in neighbouring countries. Is that irresponsibility?

BA. Yes. We behave like ostriches, putting our head in the sand. But why? Because the State anaesthetizes us and ensures the propaganda machinery is well-oiled—thanks to our taxes—because it follows the model of the protecting family so, what the eye doesn’t see…

FJ. But there is a crisis, isn’t there?

BA. Spain was in a crisis situation long before 2008. The problems are old ones and can be expected to last for several decades more. That’s why the gap that separates us, in terms of convergence, from the more developed European countries, is getting bigger. This is because over recent years Spain has been idling and enjoying the good life, basing the idea of convergence with Europe on the sale of State-owned companies during an upward cycle, on EU subsidies and on excessive borrowing. A real case of convergence was that of Ireland. Spain is looking increasingly more like Portugal. At this rate, the “Argentinization” of the Spanish economy cannot be ruled out. In Argentina they too thought they were rolling in money, and look how what happened to them.

FJ. So what should be done?

BA. Well, firstly, public expenditure should be cut back or at least contained, especially now that public debt is being inflated in Spain with expenses that have not been properly thought out or that can be described as decorative, the sort we tend to like best. And that’s without mentioning peripheral debt—universities, regions, municipal authorities. The latter have specialized in setting up groups of publicly-owned companies which, taken together, represent a new, larger version of the former National Industry Institute (the INI, the industrial group created by Franco in 1941 imitating Mussolini’s IRI, which had been created in 1938). We have to re-structure markets—the labour market, which is still governed by regulations dating back to Franco’s times and dissuades entrepreneurs from hiring employees, penalizing the weakest groups (women, young people and immigrants); the rental market, an undeveloped sector in a country that has tens of thousands of empty homes; and the services market, where liberalization would boost jobs very fast.

FJ. For example?

BA. Two examples come to mind. Surely it is inefficient to have hypermarkets and shopping malls closed on the one day of the week when they could be at their fullest? So freedom for retail opening hours. Or petrol stations. They have a generous profit margin of 13 % [in fact, the average 2008 margin was 12.26% of the sale price, equal to 31,47% of the fuel cost, according to the energy regulatory authority], so the least they could do is open 24 hours a day, have staff available to fill our tanks, or make sure the toilet facilities are decent.

FJ. Any more suggestions?

BA. Nationalization of savings banks so that they serve everyone’s interests rather than just a minority, or cutting back excessive bureaucracy instead of fuelling it with policies that multiply the size of public services.

FJ. And what do you think about the Government’s anti-crisis measures?

BA. It is as bad to not do what you should, as to do what you shouldn’t. The three premises for the Government’s action are to increase public spending, to give an appearance of modernity—a great favourite with the Spanish public—and to not upset anyone in the process. And that gets us nowhere. They are also making very questionable tangible investments such as the new terminals at the Madrid and Barcelona airports and an oversized high-speed railway network. But things could be even worse. We already have the Plan E. After it, we’re bound to get plans F, G, H and so on.

FJ. Is there any cause for optimism?

BA. The Stock Exchange is doing well, which seems to suggest that unavoidable reforms are in the pipeline. And especially, the quality of individuals. Spain, which seems to provide quite the wrong environment for all the reasons I’ve just given, produces people like Rafa Nadal, Pau Gasol, Fernando Alonso… Outside Spain, people are rubbing their eyes and wondering how it’s possible. We can learn from these examples and from what they have in common—they are competitive, they have personality and are keen to win. The only barriers they have had to get over have been those of competition, they “work” in a system of equal opportunities subject to stable rules and, far from being parochial, they have a universal outlook.

More information: Lecture at La Granda (PPT presentation in Spanish), July 20, 2009.