Teresa Garcia-Milà: "A financing model that doesn't allow all autonomous regions to sign up will fail."

BarcelonaTeresa Garcia-Milà (Barcelona, ​​1955) has taken over from Jaume Guardiola as the head of the Círculo de Economía (Economics Circle) for the next three years. The economics professor has earned the title of being the first woman to preside over the organization in its 67-year history and asserts that she intends to continue the initiatives developed by the previous board. Garcia-Milà, who has a more academic profile than her predecessors, points to the challenge of productivity and the need to redefine the regional financing model as key pillars for the Catalan economy in the coming years.

What are the priorities of this new stage of the Circle?

— I've inherited a very long history of work from the Círculo and have been closely linked to the previous board. Therefore, I'm very interested in continuing everything that's been done, because it's very valuable. And the Innovation section, chaired by Xavier Vives, a person who is an authority on this topic. I've put a lot of enthusiasm into it; it's an initiative that came from the previous board, but I'm committed to strengthening it. think tank and one action tank. In the Circle, although sometimes they call us think tankWe believe we're not there yet, because we don't have the depth to work on the issues internally. But we want to go a little further, and with the IPI, what we want is for there to truly be a team that produces new thinking, but also one that's accompanied by action. We don't want to limit ourselves to just analyzing the issue, the productivity problem, and how we can improve productivity and innovation. Once this has been identified, we want to see what actions we can take.

What have you extracted so far?

— In the end, productivity affects everything; many of the problems that exist in the economy are linked to productivity. The Cercle was wise to identify the central issue of productivity in Catalonia and throughout Spain, but especially in Catalonia, because we have lost ground relative to Europe and also to other autonomous communities. Key aspects have been identified, such as sectoral composition. If we produced high-value-added products and nothing else, we would have extremely high productivity. But we have tourism, which is an important sector, which we don't want to lose, but it has relatively low productivity. There are also services: there are more and more services for people. We want these services because, furthermore, older people need to take care of them. And much of this activity is covered by immigrants. We want to continue to have this.

Is the problem quality?

— Exactly. In fact, it was the Cercle that brought this political discussion to the table. Until then, all politicians said that the GDP of Spain and Catalonia is growing much more than any other European country. And it's true. The problem is that the denominator is also growing. Because we're growing in production, we're integrating many new workers, many of them immigrants, and a significant portion of these end up in low-productivity sectors. So, we know that one element of the problem is the sectoral composition; we also know that the size of companies has an impact. That is, with the same size, Catalan companies are just as productive as German ones. But as you increase in size, when economies scale, you become more productive. Here we have many very small companies, and fewer medium-sized and large ones. Therefore, this is another issue that has been identified. We are trying to analyze why innovation policies are not fully implemented, and this is an issue that will drag on. We are also convinced that Catalonia has a foundation and a foundation capable of developing value-added activities. We are strong here. And within Spain, I would dare say that we are the strongest region in research in many areas.

What should we do from now on?

— Develop and innovate. We must bring scientific knowledge into production. And this is what will allow us to pursue higher value-added activities. I believe we have the potential because the foundation is there.

Is there a problem of lack of investment?

— Yes, too. Note that we have many startups, but what we lack is the ability to scale them and become companies, what they call unicorns, which are companies that already have a certain size and a network. And here, the issue of financing is important. In this sense, it would be very important for Europe to take the step of creating the single capital market, which they now call the Savings and Investment Union. There should be free movement of capital. A significant portion of the investment that reaches these companies is American, but in reality, many European savings end up being positioned in American investment funds that later return... This cannot be. We must be able to ensure that European savings reach European companies.

At the ceremony to hand over the presidency of the Círculo, you said you wanted the institution to have a greater presence. How so?

— This is always the aspiration of all presidents. We've written many opinion pieces, and what the Círculo aspires to is to improve economic and social progress. We won't pursue particular interests, but rather the global interest. And this involves presenting proposals and actions to the governments. We believe that here in Catalonia they already listen to us and we have a very fluid relationship with both the Catalan government and the City Council. Sometimes they listen to us and sometimes they don't, it depends. In Madrid, the central government also listens to us and is attentive to what we do, but perhaps more indirectly. But society outside of Catalonia knows us less. I'd like to present some of the opinions we also have in Madrid, Bilbao, and Valencia.

This is the first time in 67 years that there has been a female president. Is this the beginning?

— This is always the beginning. If you look at the history of the Círculo, in the early images, all are men. It wasn't until 1971 that the first female member, Magda Ferrer Dalmau, became a member after more than ten years of asking for it. Since then, we've made great progress. There was already a significant presence of women on the boards, but since Javier Faus, the boards have been equal. Where we need to make the most progress is in recruiting more female members.

One of the hot topics of this term is regional financing. What is the Círculo's position at this time?

— The Cercle published a rather in-depth article in 2018, and a second one not too long ago. What the governments tell us on July 14th will be very important. The Cercle's position is based on the idea that the current model is outdated and very inefficient. It must be substantially changed; we don't believe in small adjustments to the model. We believe we should move toward a federal model, in the sense that the autonomous communities have not only the responsibility for spending, but also the responsibility for revenue. What we propose is a model in which the tax bases are shared and, therefore, the autonomous communities can impose taxes and design them based on personal income tax, but also corporate tax. Why not? There are ways to do it well. Obviously, there must be a common VAT, because it's the norm, but there is room to do things autonomously. And, in this sense, our proposal is to share tax bases; therefore, each branch, the central government, and each autonomous community impose taxes on this tax base in their own way and collect them. Our proposal is that each level of government collects the taxes it owes. Once you have this, you then create the level of solidarity. And here, how much solidarity? This will be a political agreement. We're not getting involved here. If done well, and it should be done well in this case, the level of solidarity will be ordinal.

— The current financing system has two steps. The first is a redistribution, which is ordinal. And then there are a series of transfers that come from who knows where that break this ordinality, and create a disastrous result. If you remove all these transfers and look for well-defined solidarity, you'll have an ordinal model. What's proposed in Catalonia is that all revenue be collected by Catalonia. And what we propose is that each government collect what corresponds to it. That way, you don't have to make transfers. You keep what's yours and then you set up solidarity. This is what exists in Canada, for example. Perhaps an agreement could also be reached where this basic model we propose is shared by all the autonomous communities. Personally, I think, and we've discussed it at length within the Círculo, that a proposal for regional financing that doesn't allow all the autonomous communities to participate will fail; it's not viable. But there may be some specificities. Perhaps Catalonia ultimately says, "I'd like to collect all the taxes and we'll make a transfer." If it's well-defined, there's no problem.

The Círculo hasn't commented much on the airport expansion. What do you think?

— The Círculo believes that the airport expansion is very important for Catalonia. We must increase capacity for transoceanic flights; this is highly relevant. Precisely because of this value-added activity, we need very direct connections, because it will make a huge difference given all the talent moving around the world. Therefore, targeting these transoceanic connections is very important. What will be very important, and which I believe is not yet in the agreement, will be the routes. We must focus and monitor them together, ensuring we have the routes that Catalonia and Barcelona truly need to grow.

Let's talk about the takeover bid. Círculo has said from the outset that it wouldn't welcome the BBVA-Sabadell merger going ahead. Do you foresee any eventual outcome?

— I don't know how it might end, but the Círculo's position hasn't changed. Aside from the general interest, the Círculo felt that the Competition analysis hadn't been sufficiently comprehensive because it had taken into account a very narrow definition of SME, between three and four banks. The only four banks that serve all of Spain and with all types of products are the ones we know: Santander, BBVA, CaixaBank, and Sabadell. This will be lost. And it's important to have this type of activity. What did it want to strengthen us the most? Over the years, Madrid has grown significantly. It hasn't grown at the expense of Catalonia; it has grown at the expense of many other neighboring regions that it has absorbed.