Productive model: right-wing for capital, left-wing for labour
The latest issue of the Catalan Economic Review, directed by Antoni Garrido, is dedicated to analyzing its first forty years. The launch of the REC is associated with Spain's entry into the European Economic Community. All works offer important retrospective views.
The Catalan economy has expanded greatly in real gross domestic product, but in per capita terms the trajectory is disappointing. From 1975 to 1985, the Catalan economy, like the Spanish one, experienced a decade of crisis. GDP was not growing, and GDP per capita was not either. What did grow, and significantly, was unemployment, to the point that productivity per employed worker and per hour of work also grew. Unemployment benefit was the first major social measure of the first democratic governments, and it quickly became one of the most important public expenditures, reducing the negative impact of unemployment through strong public debt.
Fortunately, the announcement of Spain's entry into the European Economic Community relaunched growth expectations. Spain could not receive community subsidies (agricultural) until after the first seven years, but it received an extraordinary wave of foreign investment that bought at bargain prices many Spanish companies that could not overcome the crisis or could only do so by conquering the European market. Local companies had to assume the substantial investments indispensable in production, management, and commercialization, but they did not have enough financial muscle to do so. These years (1986-1992) were the last major wave of investment in productive capital experienced in Catalonia. Between the post-Olympic crisis and the entry into the euro (1-1-1999), it is observed that the gains were due to the expansionary impact of the sustained fall in interest rates, which was the prelude to the real estate bubble.
The next wave of investment – the one derived from the entry into the euro and the European Central Bank's simultaneous policy of low interest rates – was what fueled the real estate boom, which allowed for a lot of new construction, but led to a financially unsustainable bubble. When it burst, its effects were devastating and wiped out the bulk of the Catalan financial fabric, especially the savings banks, and brought unemployment to historic highs. New regulations made access to mortgage credit difficult for many years (until the present day and probably much longer). Massive real estate investment was the main attraction for immigration, to the point that real GDP per capita grew very little, and productivity, not at all.
The financial and sovereign debt crisis halted economic progress, although thanks to the massive destruction of employment it gave the statistical illusion of an increase in labor productivity (fewer employed people did almost the same job as before). The exit from the crisis was slow and when it seemed to have been completed, the pandemic again dealt a severe blow to the Catalan economy, as it did to all tourist economies. The post-pandemic Catalan recovery, which appears intense, is nothing more than a recovery of pre-pandemic real GDP per capita and labor productivity levels. In fact, the cycle of the real estate bubble and its subsequent crisis, and that of the pandemic, have had slow recoveries. The Catalan economy has not progressed, in terms of prosperity per capita, since the beginning of the century. Seen in perspective, we can affirm that since the first integration into the EEC was completed, there has been no real engine of growth that has translated into sustained increases in real prosperity per capita. Productive investment has grown too little. Labor remuneration has not grown at all. We find ourselves in a situation where we have little capital – it is aging and neither renewed nor expanded – both public and private, and labor remuneration has collapsed after a succession of labor reforms that have progressively worsened conditions for new entrants (young nationals or immigrants).
What needs to be done to get out of the deadlock of stagnant productivity? In my opinion, we need to combine – simultaneously, and this is very important – policies that encourage capital investment and policies that increase the cost of labor. In other words, right-wing policies for capital – that attract it and encourage it to invest – and left-wing policies for labor – that guarantee higher remuneration. That is, the opposite of what has been done in the last twenty years, during which left-wing policies for capital have dominated, scaring it away, and right-wing policies for labor, which have devalued it. This obviously requires a great pact for the country, which goes beyond the scope of Catalonia's self-governance powers and requires consensus at the state level.
