economy

   The Spanish economy is a modern western-style economy based principally on the services sector, which generates just over 60 percent of the country's wealth, compared to about one-third generated by industry and construction combined, and about 5 percent by agriculture and fisheries. GDP per capita, estimated at $13,660 in 1996, has oscillated between 75 and 80 percent of the EU average. Regional imbalances are, however, more marked in Spain than in other EU countries, with a few regions (the Balearics, Madrid and Catalonia) being above the EU average whereas many others are far below. While the Spanish economy shares many characteristics with other western European economies, it offers certain moderately distinctive features. The services sector, despite a normal diversity and range of activities, is unusually reliant on the hotel and catering industry because of the exceptional importance of tourism. The industrial sector, of modest size overall, is dominated by motor manufacture, and the sector as a whole is largely in the hands of foreign multinationals. The agriculture and fisheries sector is the least typical, with an unusual diversity of cultivation (and a correspondingly large variation in productivity), and an unusually large fishing fleet that almost matches those of all the other EU countries put together. Agricultural development has been adversely affected by traditional land tenure systems, with farms that were either excessively large and under-exploited or too small to be economic (see also latifundia; minifundia).

   The modern Spanish economy has been characterized by rapid change, although it has been only partially successful in adapting to a changing international environment. Following the Stabilization Plan of 1959, the 1960s saw rapid and sustained growth up to the first oil shock of 1973, but Spain's dependence on imported oil and her excessive reliance on energy-intensive heavy industry meant that she could not absorb the increased energy costs. The state-owned National Industrial Institute, which had played the leading role in Spain's industrial expansion, found itself having to subsidize ailing industries to avoid largescale industrial collapse (see also industrial development). The ten-year recession was followed by another period of growth during the second half of the 1980s promoted by a wave of foreign investment, in turn induced by Spain's entry to the EEC in 1986. The need to adapt the economy to European legislation and to a much more competitive environment brought about a massive shake-out, with liberalization, deregulation and privatization becoming the order of the day. Some sectors have undergone substantial transformation, for example the banking and financial services sector, which has seen mergers and takeovers as well as significant foreign penetration in what had been an inward-looking enterprise (see also banks; Cajas de Ahorros). State monopolies, for example in oil refining and distribution, have had to be broken up. The modernization of the Spanish economy has therefore occurred in two wholly distinct stages: first, a period of rapid but uneven expansion during the last fifteen years of the Franco regime when the international climate was favourable; and second, a period of retrenchment, reform and restructuring when the international climate was much harsher. This second stage-which took place largely in the 1980s but which continued into the 1990s—has been difficult, as Spain struggled to modernize her ailing industries, solve her energy problem, control inflation, cope with growing unemployment, yet at the same time create the welfare state that the population expected and a socialist government wished to provide. That Spain emerged by the second half of the 1990s as a low-inflation, internationally solvent economy, close to fulfilling the Maastricht convergence criteria, is perhaps as much of an "economic miracle" as that of the 1960s which gave rise to the phrase. The achievements since the near-collapse of the late 1970s have been substantial, especially when we consider the highly protective environment in which the Spanish economy developed even after the partial trade liberalization of Franco's technocrats. The degree of openness of the Spanish economy today is remarkable, even if achieved at the cost of greatly increased foreign ownership of productive assets. Spanish industry has had to be scaled down with great job losses, but it is today more competitive than it has ever been. Loss-making state-owned companies have been greatly reduced in number, and some of these have good prospects of a return to profitability, notably the national airline Iberia. A gradual transfer of the state's interests in vehicle manufacture, oil and gas, telecommunications, banking, tobacco and electricity to the private sector has been successful both in raising revenue and in maintaining or improving profitability. Investment in the country's infrastructure has been very considerable, especially in the transport network, with major improvements to the country's primary road system through the construction of fast dual carriageways to add to existing privatelyrun toll motorways or autopistas (see also roads), as well as electrification of the railways and the development of a new high-speed line or AVE. In energy distribution electricity supplies are assured although still heavily reliant on imported oil for power stations; and a natural gas national grid is being developed, although, again, the gas itself has to be imported (see also nuclear energy). Water supplies are plentiful in years of normal rainfall but dry years cause shortages in the southern half of the country because of the enormous difficulty of transferring water between river systems.

   Spain's international trade has also experienced unprecedented growth since it joined the EEC, with a trebling of its value in ten years. Trade with the EU now accounts for 70 percent of Spain's international trade. This is attributable not merely to invisible trade (because of the importance of tourism) but much more significantly to the increase in trade of manufactured goods, Spain having become a major car exporter. In the four years from 1993 to 1996 goods exports went up by an average of 12 percent per annum. In addition to vehicles Spain exports a fairly wide range of manufactured goods, including building materials and fittings, nuclear reactors, machinery of all kinds, and processed foods. Despite the continuing significance of exports of wine, fruit and vegetables, Spain can no longer be regarded as primarily an exporter of agricultural products. Exports of manufactured goods now make a very important contribution to Spain's balance of payments, and although imported manufactures are higher, the gap is made up by earnings from tourism (see also foreign trade).

   Notwithstanding the emergence of Spain as one of the world's economic powers, occupying ninth or tenth place in the ranking, the Spanish economy displays a number of weaknesses and enduring problems. Chief among these is the high rate of unemployment, which at 22 percent in 1996 was the worst in the EU and double the EU average. It is probable that up to one-third of the allegedly unemployed do in fact find work in the "black economy", but unemployment nevertheless remains a major blackspot. The rigidity of the Spanish labour market has persisted despite partial attempts at dismantling Francoist labour laws, so that an increase in the labour force (the result of the 1960s baby boom and of a much increased demand for jobs on the part of women) has not been met by an equivalent increase in jobs: the number of persons employed has changed very little in twenty years, despite the growth of the economy. The result, inevitably, has been that unemployment has shot up from under half a million in 1974 (just before the first oil crisis had its full impact) to over three million in the 1990s. It is young people who have been hardest hit, and especially those with limited educational qualifications who have little chance of finding permanent employment. Labour market reforms in 1984 and 1994 were meant to encourage employers to take on labour by allowing fixed-term contracts and lowering dismissal costs on economic grounds, but the bureaucratic procedures involved have made employers wary, so that the end result of the new labour legislation has been greater insecurity of employment without a counterbalancing increase in jobs. Another troublespot is to be found in the heavy burden imposed on the Spanish economy by a generous welfare state and by a burgeoning public administration, the latter being largely the result of the seventeen regional governments creating a whole new tier of bureaucracy. Since the restoration of democracy the number of civil servants has gone up from under 1 million to 1.7 million. At the same time the vast improvements in health care, education (see also education and research) and social security provision have resulted in public expenditure racing ahead of income and increasing the budget deficit (see also national debt). Indeed overshooting the budget became a regular feature of the socialist administration that governed Spain from 1982 to 1996 and which showed scant regard for setting realistic targets for government income and expenditure. Controlling expenditure on health and social security is a major challenge. An ageing population, coupled to a low birth rate and an employed population that is stubbornly static, means that the ratio of pensioners to those in work is rising, creating problems in the state financing of pensions. The proportion of social security contributors to pensioners has already worsened from 3 to 1 to 2 to 1 in twenty years and this trend seems likely to continue. The health service is even more of a burden on state expenditure and has experienced rising costs which the government is trying to rein in by reducing the pharmaceuticals bill. Tax evasion and the underground economy remain areas where progress has been limited. Strict new directives to banking institutions and the introduction of personal identification numbers for fiscal purposes have made money laundering a little more difficult, but the prevalence of a cash economy greatly facilitates the conversion of illegal monies: many legal businesses in Galicia are widely thought to have been set up with profits from drug smuggling. Unemployment fraud is also thought to be high, but the very nature of the black economy with its myriad family and backstreet businesses which appear and disappear with lightning speed and where many find intermittent work, makes it virtually impossible to track down. More harmful is the relative ease with which perhaps two million Spaniards, many of them comparatively affluent self-employed business men and professionals, are able to defraud the tax authorities by not declaring their true income or cheating on VAT (see also taxation). This fraud by the better-off ultimately results in higher tax bills for those who, being on a payroll, have tax deducted at source. A further area of concern for the Spanish economy is that of geographical inequalities of wealth, a long-standing problem that had shown some modest signs of improvement but which the new emphasis on devolved regional tax-raising powers will make far more difficult to tackle from the centre. The poorest regions and provinces lag far behind the wealthiest ones, and only strong redistributive policies, transferring resources from the latter to the former (through investment and tax incentives as well as direct subsidies) could hope to narrow the gap. The political situation of the 1990s, in which renegotiation of regional financing became the price of support of the government by Basque and Catalan nationalists, as well as the need for reduced central government spending, made it difficult to implement policies of this kind (see also national income). Despite these various problems, none of which can be solved in the short term, the Spanish economy is in better shape—unemployment apart —than it has been since 1973. The internationalization phase, which has undoubtedly cost jobs, is more or less over and the economy has emerged strengthened. Labour costs remain on the high side but are moderating, while the budget deficit is gradually being reduced although public sector debt remains high and servicing it is costly. Within the European Union, the Spanish economy is a medium-size economy which has profited from membership through increased trade, a high measure of foreign investment, and aid from the EU's structural funds. A strong foreign presence in the economy makes it susceptible to decisions taken in distant multinational headquarters, but this is a modern-day inconvenience that applies to many other economies, including the British. Spanish business culture is not accustomed to operating in a highly competitive international environment, but developments, for example in banking or in the hotel industry, suggest that a more enterprising outlook is beginning to emerge (see also Caixa, La). Spain also continues to derive considerable benefit from a tourist sector which, despite previous gloomy prophecies of environmental disaster and tourist desertions, remains vibrant. Most Spaniards enjoy a standard of living comparable to that of the British and a quality of life that many consider to be higher. With the fourth highest life expectancy in the world, high educational indices, and a respectable per capita income, the 1996 UN ranking of human development accorded Spain tenth place out of 174 countries, the fifth of the fifteen EU countries and ahead of Germany, Italy, and Britain.

   Further reading

   - Chislett, W. (1996, 1997) Spain 1996. The Central Hispano Handbook and Spain 1997. The Central Hispano Handbook, Madrid: Banco Central Hispano (by far the best yearly survey of economic developments in Spain: lucid, accessible and informative).

   - Newton, M.T. with Donaghy, P.J. (1997) Institutions of Modern Spain. A Political and Economic Guide, 2nd edn, Cambridge: Cambridge University Press (geared to political rather than economic structures but does offer an excellent descriptive summary of public sector enterprises, financial institutions and economic relations with the EU).

   - Salmon, K. (1995) The Modern Spanish Economy. Transformation and Integration into Europe, London: Pinter (the best, most comprehensive general survey of the contemporary Spanish economy and its evolution).

   C. A. LONGHURST