"The country is bleeding": a harsh report criticizes the current Catalan economic model

BarcelonaA harsh report on the state of the Catalan economy, prepared by several economists, criticizes the country's productive structure because several business sectors end up being, de facto, "highly subsidized" by the rest of the economic fabric. This current model has represented an "impoverishment" of Catalan society and a continuous loss of productivity of the business fabric compared to Europe in the last 25 years. "The country is bleeding out," summarized the report's coordinator, executive and engineer Xavier Roig.

In recent decades, it has been celebrated that the Catalan economy has been growing more rapidly than those around it," points out the Phoenix Report —presented this Friday in Barcelona—, which highlights, however, that these good figures have been due especially to "extremely rapid population growth" and not to a productive improvement of Catalan companies. This has caused the gross domestic product (GDP, the indicator that measures the economic activity of a territory) to rise, but the GDP per capita (which measures the growth of productivity and the general wealth of the population) to stagnate or fall.

The dominant discourse has been one of a certain triumphalism because we have grown more than the United States and Germany, but the interpretation we want to avoid to give the most realistic reading possible," declared the economist, Modest Guinjoan, co-author of the article along with Miquel Puig —who, like Guinjoan, is a former professor at the Universitat Pompeu Fabra (UPF) and former high-ranking official of the Generalitat— and Xavier Cuadras, professor at the UPF and former director of Idescat (the statistical agency of the Generalitat). Furthermore, the UPF economics professors Jordi Galí, Guillem López Casasnovas, and Jaume Ventura have acted as advisors.

In 2000, the GDP per Catalan was 6% lower than the European average, but in 2024 it was 6% below: "We have growth that impoverishes," summarized Ventura. This divergence from the continent's standards is due to the fact that, in the last quarter of a century, "in some cases Catalonia has experienced a process of relative specialization towards low-productivity sectors," indicates the document.

The study emphasizes precisely the loss of productivity as the keystone to understanding this impoverishment, which for some years now —as Roig has pointed out— "is beginning to be noticed in many public services of daily life." Productivity, in fact, is one of the main elements to consider. This economic indicator measures the efficiency of a company or an economy: how much labor (workforce) and how much capital (machinery, offices, factories, vehicles, tools, etc.) are needed to produce goods or services. The more is produced with less capital and labor, the more productive a company or territory will be. At the same time, it is an indicator that is closely linked to a country's prosperity: the richest countries with the highest levels of social well-being are also among the most productive in the world.

In this regard, the study shows how Catalonia is clearly below any comparable European economy in terms of population and productive fabric, both at the state level —small countries like Belgium, Switzerland, Austria or Finland— and regional —Lombardy, Piedmont, Upper Bavaria or Rhône-Alpes—. But it has also lost momentum compared to the European average, as it is currently approximately 12% below the continent's average and 25 years ago it was 7% below.

Sectors "subsidized"

The report does not, however, indicate that this loss of productivity has been caused —as has happened in other parts of Europe— by a deindustrialization of the country: "Catalonia has not undergone a relative deindustrialization process," it says. What has occurred, therefore, is a strong creation of jobs with a "binary character." On the one hand, new employment has been concentrated in "high-productivity sectors," such as the chemical and pharmaceutical industries, telecommunications, scientific research, or professional services (e.g., consultancies, engineering firms), which pay high salaries.

But at the same time, "low-productivity sectors" have grown even more, such as the "food products industry, auxiliary services, and hospitality." Among these, the report highlights what it calls "highly subsidized sectors." Subsidized sectors are those in which "the average wage is so low that the worker does not generate, throughout their life, sufficient fiscal and social resources to finance the most basic public services they enjoy," according to the report. "The customer of these sectors thus benefits from a hidden subsidy from the rest of society," adds the study, which places the salary limit for entering "subsidized" sectors at around 27,500 euros gross in 2023, a figure that for 2026 it places at around 30,000 euros.

However, the authors add nuances. "Every welfare state has an implicit subsidy for low incomes; sectors with low wages are not paying their workers enough, but this happens everywhere," Puig highlighted. Furthermore, some sectors "may make sense" to have lower remuneration because they provide a service to parts of the population that need it, such as care for dependent people, or because they have a positive territorial impact, such as agriculture, he added.

This is why the study focuses mainly on those "highly subsidized" sectors that also benefit clients who do not live in Catalonia. In this regard, two have stood out above all: tourism and the meat industry. In the first case, because a very large part of the tourism business is due to the arrival of foreign visitors, especially the so-called "sun and beach" tourism. In the case of the meat industry, because they export more than 80% of their production. "Highly subsidized sectors represent 35% of employment and 40% of job creation. They are growing very rapidly and we find it very worrying," Puig added.

The demographic impact

The dynamism of these sectors is largely explained by the possibility of hiring cheap labor, especially from other countries. The Catalan population has grown by almost two million people in 25 years, but if there had been no immigration, it would only have grown by about 200,000 people, the report's authors explained. This has increased the number of workers by 1.1 million in this period, but the unemployment rate is higher now than in 2000, as is the number of unemployed people.

This demographic increase has also affected wages. "The very strong growth in population, both natural and through immigration, tends to put downward pressure on wages. Average wages have risen, but they would have risen much more if there had not been this demographic explosion," said Galí. In Spain, the average real wage has risen by 5% since 2001, while the average in advanced economies is 40%.

"We are not making an anti-immigration or anti-tourism plea; the problem is the production model," reiterated López Casasnovas. According to the authors, the situation "has a solution." In fact, the study proposes various measures that do not, for the most part, require "long negotiations in Madrid," but can be implemented by town councils, provincial councils, and the Generalitat. "The solutions to the problem are tough, but they do not require surgical solutions because the country is bleeding to death," said Roig.

These include the preparation of a fiscal balance by economic sector to determine the added value they contribute to the economy and how much they receive from administrations, the elimination of tax advantages for the most subsidized sectors (especially the reduced VAT for tourism and curbing fixed-term contracts to slow seasonality), transforming tourist establishments into housing, increasing the minimum wage, making knowledge of Catalan mandatory for public-facing jobs, and reviewing taxes such as wealth tax, which currently offers rebates to the largest fortunes while fiscally penalizing high-earning professionals.