Friday, January 27, 2012

Captain, This Ship Is Sinking!

"Lo primero, el empleo" was the Partido Popular's slogan in Spain's recent elections. There's a "des" missing somewhere from that phrase. Today's unemployment figures here are once again dramatic. 22.85% of the workforce, 5.273 million people unemployed. There is now a serious expectation of Spain hitting the figure of 6 million unemployed, and that could even happen in 2012 on current trends. How distant now seems the time when a total of 4 million unemployed was regarded as an awful, unacceptable, prospect.

Is the 6 million figure alarmist? Well, let's consider what is likely to be the result in employment terms if the IMF's recent forecast of a 1.7% decline in the Spanish economy for this year turns out to be accurate? A deliberately provoked recession which can only lead to greater destruction of employment, and today's figures demonstrate clearly that the rate of that destruction continues to be enormous. But if that sounds bad, there is a further problem to consider. The IMF's estimate, and the Spanish government's own 1.5% estimate, don't take into account the likely effects of the additional 2% deficit reduction that is being demanded following the overshoot on 2011's deficit target.

Those extra 25000 million euros of cuts which have to be made if the deficit target for this year is to be met can only accelerate the terrible downward spiral. You cut more, your tax income decreases further whilst social spending on unemployment goes up. So you need to cut even more, your national debt increases instead of decreasing, you miss your deficit targets anyway and where do you end up? In the same position as Greece, Portugal and Ireland. It's not as if the outcome of all of this is a mystery any more, this has been happening in all the countries which have been "rescued" by the EU.

The Spanish government knows this will happen, and behind the scenes is believed to be attempting to negotiate a relaxing of the relentless drive towards austerity madness. Whilst officially denying it. Even the IMF, for god's sake, has finally woken up to what is really going on and warns that no good will come of this. The Bank of England, of all institutions, releases a report on the need for a new international framework to stop one financial crisis after another from wrecking the prospects of economic recovery. It's probably at least 20 years late but hey! 

However, those who continue to sail complacently towards Fantasy Island on the always tranquil waters of the Sea of Fiscal Consolidation and Structural Reform remain oblivious to the perfect storm that is forming. Meanwhile Captain Rajoy was about to help the most disadvantaged passengers off the ship when he slipped and fortuitously fell into a passing lifeboat. Now he sits in a deckchair on the shore with his copy of Marca on his lap telling people that he will do what needs to be done. It's a terrible, man-made, shipwreck.


Anonymous said...

Down here in the socialist republic of Andalucia we would welcome 23% unemployment.
You kind enough, recently, to post some of your ideas. On reform of banking who could not disagree but his has to be done with care so that liqidity remains sufficient to support those who can grow their businesses or buy a house.
Tobin tax - unless all world financial centres do it this is just a way of increasing the migration of jobbs to the east.
Investment in education and research - big yes.Spains record on infrastructure investments is bad and with reducing EU money not a good idea.
Tax increase on low to middle incomes - a big no. In fact increasing the personal allowance by €1k a year will encourage people to work and, because of the propensity to spend of those on lower incomes, be positive.
A big attack on tax avoidance schemes is a big yes.
No to more increases in consumption taxes but a closer look at taxing properties - they don't move to tax havens!
A big yes to cutting bureaucracy.
Pay freezes on thos above average wage.
Stop giving money to the Unions.
Make it easier to start businesses and to hire and fire.
Don't cut social spending to the disadvantage but do sort out the black economy cheats.
Sack the entire judiciary and stary again!

Supply side reform is a necessary - destoying the corporatist structure, no to national wage bargaining, stop giving taxpayers money to the Unions.

What ever happens Spain cannot "fart against thunder" - all us Europeans have to accept we are going to be worse off because we cannot go on for ever borrowing money. Stop blaming the past - focus on the now.

A big role for Government is to try to alleviate the pain on the disadvantage and make sure that those who can afford it pay their fair share. But to do this without discouraging wealth creators.

Sorry I could go on ... I was an economist and as George Bernard Shaw once said "If you laid all the economist in the world end to end you would still not reach a conclusion."

Graeme said...


Let's start with the easy one. I'm sure that in the right-wing neo-liberal paradise of Valencia they would also be delighted to have unemployment as low as 23%. It's funny, though, that governments are only held responsible for unemployment levels where the left is in power. In the rest of the country the guilty party has to be, of course, the trade unions. Never mind that they are not the cause of the crisis, when we need someone to shift the blame to, they're available.

On reform of banking who would disagree? Well the banks and the politicians they support. Otherwise it would have happened. It would be easier to be worried about preserving liquidity for businesses and property buyers if that wasn't actually at the heart of the need for reform. The banks aren't doing that any more, they've found easier ways to make money. I don't believe the transactions tax will lead to loss of jobs, not useful ones anyway. The EU has the power to enforce this on those financial institutions that want to operate within its frontiers, what seems to be lacking is the will.

The main thing which is shifting jobs at the moment is a disastrous set of policies which are returning us to the same rate of employment destruction that existed 3 years ago. Amazingly, with 6 million unemployed on the horizon, the mythology of how difficult it is to fire people in Spain still persists. This factor, incidentally, comes way down the list of the issues employers cite for not hiring. As for sectorial wage bargaining it was the head of the employers association who pointed out a few weeks ago that companies can avoid that by the very simple mechanism of reaching their own agreements, nobody stops them from doing it.

So let's blame the unions for everything by not addressing the causes of the crisis...guaranteeing in the process that it continues. Funny, also, the skewed focus on money given to the unions. Funny because the employers associations also receive huge sums of public money - but we never hear about it. We can actually probably reach an agreement on this. For different reasons. I think trade union leaders do a far better job of representing their members when they depend more directly on the contributions from those same members.

However, the first to renounce public subsidies MUST be those that criticise them. They wouldn't want to be accused of hypocrisy on the issue after all? Aznar's foundation, the FAES, is the political think tank that receives most public money. Astonishing given their espousal of neocon recipes. All those ultra TV channels where they shout for hours on end about the unions receiving public money should be forced to bid in open auctions for their licences, with the proceeds going to help reduce the deficit. Somehow, I suspect that blast of free market reality might be too much for them.

It's not about blaming the past, it's about understanding it and (re)learning the lessons from it. Trying to ignore the causes of the crisis has led us into what the Spanish call a 'huida hacia adelante' where the only solutions proposed to a problem are more of what is already failing to solve it. All of us Europeans are not becoming worse off, the 'we all have to make sacrifices' argument could perhaps be dusted off when those at the top of the pile put an end to the huge wage increases they still award themselves just for, er, being there. Perhaps a reward for the enormous public subsidies they've managed to obtain since the crisis began?

Anonymous said...

When I talk about structural reform what I would like to see is the destruction of corporatism. Employers organisations, trade unions, many public sevants - all have a vested interest in preserving the status quo.

We wont disagree about the takers taking too much but we have to recognise all the interests parties who will tolerate that to keep their patch undisturbed.

Lets talk about the tomato. Subsidised Andalucian farmers are screaming against the importation of the tomato from Morocco.

These self same people have for years employed illegal imigrants, many from Moroco, and paid them less than the minimum wage!

A few, unsubsidised, local entrpreneurs are selling the technology of high yield growing around the world.

Thats the way to go...


Graeme said...


The problem I have is that your example is not really about corporatism at all. The modern day slavery of Almeria and other areas occurs because of a lack of proper regulation. It's what happens when you allow employers to do what they want. Yes they want protection too, but this is just like agriculture in the deregulated US where immigrants are also working in terrible conditions and their employers expect the government to leave them alone and protect their market. This sort of situation is one of the reasons why trade unions exist, we can't rely on employers and governments to guarantee civilized working conditions.

Food production in any case is a tricky problem. I don't think its a good idea for heavily subsidised tobacco or cotton produced in rich countries to put African farmers out of business. But neither do I think its a good idea to fly food half way across the world just because it's cheaper to produce in poor countries and because we all want to buy things that would otherwise be out of season.

It's all a result of the "do as we say but not as we do" attitude that the EU and the USA have adopted in trade talks, perhaps the main reason why those talks have failed in recent years. The terms of trade are being set by the economically powerful who attempt to impose them on the rest. It's just not a perfect market and it never will be.

ejh said...

all us Europeans have to accept we are going to be worse off because we cannot go on for ever borrowing money.

But in fact, all Europeans aren't actually worse off, are they? Some are better off, and remarkably enough they tend to be the ones who were well off in the first place.

You really would think that after the disaster of 2008, people would be more cautious about all the "wealth creators" rhetoric, wouldn't you. But they're not, and the reason is it's not really economics, it's ideology, and an ideology that's proven itself remarkably impervious to real-world results. It's not unique in that, naturally, but it is the one that's responsible for the present crisis, and for that reason I don't have a lot of patience with it.

Meanwhile, as for this making it easier to hire and fire malarkey - are the most successful economies in Europe those which have followed that prescription? Manifestly not.

moscow said...

Hi everybody,

In this debate I am on Andrew's side. No surprises there. Can't follow up on the Spain's bad record on infrastructure, though. If anything Spain has overspent on infrastructure. Sure, there are areas which still need investment (railway freight transport) but as it happens I remember well what Spain looked like 20, 30 and even 40 years ago.

@Graeme. I will start by making a concession. I really thought the PP was not going to touch abortion. Well, I couldn;t have been more wrong. And now they are starting about Gibraltar again, which ZP has wisely ignored. I hope they do their reforms and then do us a favour and leave. I now I am sticking my neck out, but I think Rajoy's tenure will be short-lived. If the economic mess was what destroyed ZP, what makes anyone think the PP will be inmune?

It is easy to caricaturise structural reform as the same neo-liberal hell bent Texan no-state no-tax ideology that has lead us to this crisis and to many others in the past. If you want to hear more of that you can read the Colin Davies' daily whinge or other blogs that defend the idea of the market above all.

AS there are too many issues and time is short I will concentrate on one: collective bargaining. The only reason some people in the CEOE still defend it is because they will lose their jobs when it gets scrapped. That is a sympton of everything that is wrong about Spain (and Italy). Vested interests doing everything they can to leave everything as is. Simply crazy. I also, would like to mention that you still do not (you are in the majority here) what the Germans have been doing over the last 30 years to change their economy. Labor reform has been better thought out than those done in Spain, but the overall direction is the same, and in many ways harsher than anything attempted in Spain. My time is up.

Graeme said...

Experience tells me, Moscow, that 3 months after the 3rd labour market reform in 2 years you'll be back saying that what is needed is yet another reform. In the meantime Portugal is about to go down the Greek road, despite having done everything required of it, and Spain continues to shed jobs without any apparent difficulty. Your notion that Spain will become like Germany by entrenching insecurity into its labour legislation is one that I doubt even you believe. What I find really hard to understand is how you manage to ignore such a potentially catastrophic context by talking about everything that is going on as if its just a quiet reform process. This is tunnel vision, and that has to be why each successive failure is just shrugged off with the answer being more of the same.

moscow said...

please, don't make assertions about something I never said. Of course, Spain will not become a bit more like Germany only by liberalizising. That is only part of the equation. There is the other side of the equation which is that there has to be long-term investment in education, R&D and all the rest. I never said anything different. But the job market in Germany has become more precarious for many - a lot more part-time jobs which have trebbled, mini-jobs and more diffculties to get unemployemnt benefit (Hartz IV and all that). What the Germans haven't done and which is what the Brits have done (and to a much lesser degree the Spanish) is exterminate their industry. They continued developing it by investing in their workforce among other things. If what you are saying is that the temp contracts in Spain should be eliminated I would agree with that, but not without making "indefinite" contracts cheaper. Everybody wins out of that. The employers and believe me in the long term the employees as well. I think you are too traumatised by what happened in Britain and somehow automatically translate that to Spain. Spain is too statist, too corporativist, there is too much localism and cult of the family for it to go the same path as the UK. And I think that is good because what Britain has done over the last 30 years is suicide - just wait when the markets wake up to the "reality".

Graeme said...

Perhaps it's because you only mention the other little details like education, R&D and the art of producing things as if they were secondary factors. In any case, if we take the situation as you have framed it then the logical conclusion has to be that Spain is going to follow the UK's model. Because that investment in education isn't happening, if anything the reverse is starting to occur. The same with R&D. Meanwhile, a provoked recession will leave the Spanish economy with less productive capacity rather than more - the jobs being lost now and the companies closing are not those left over from the bubble. So what are we left with out of the package that is needed to be the next Germany? Cheaper, more insecure, labour.