Spain Gets Smacked by Economic Reality
From the desk of Soeren Kern on Fri, 2008-06-20 12:04
A national truck driver’s strike in Spain is gradually winding down, but it has managed to bring the already-troubled Spanish economy to a standstill. In doing so, it has also highlighted what happens when a welfare state goes wild.
Some 90,000 self-employed hauliers say they are protesting the soaring cost of diesel fuel, which has climbed to 1.30 euros/liter (about US$8 per gallon) from 0.95 euros one year ago. Skyrocketing fuel prices are, clearly, a big problem all over Europe, and many Spaniards identify with their plight.
But what really irks Spanish truckers is their exposure to the reality of market economics. They are angry that an economic downturn in Spain has reduced the demand for their services. There is now too much trucking supply for too little trucking demand, which according to the basic laws of economics implies lower transport prices.
So the truckers want the government to bail them out via artificial price supports. They are demanding that the government impose a market-distorting minimum transport tariff, a solution that would allow hauliers to continue with business as usual while passing the additional costs over to consumers.
The government has proposed setting aside 55 million euros to encourage early retirements from the over-saturated sector. But the striking truckers are not interested in compromise. Indeed, they are betting that the government will cave in to their demands. After all, the Spanish government always gives in to labor unrest.
In the meantime, the truckers have been determined to share their pain with the rest of Spain. The strike effectively shut down a large chunk of the economy because most goods in the country are shipped by lorry (due to insufficient rail-freight infrastructure). Many factories were forced to close production lines for lack of supplies. Spanish consumers panicked that they would run out of food and emptied supermarkets in towns and cities across the country. As for petrol: Some 75 percent of service stations in Barcelona ran out of gasoline within days of the strike; nearly half of the service stations in Madrid were closed.
But truckers are not the only Spaniards taking some extra time off. Indeed, job walkouts protesting exposure to market economics have become a national sport in Spain.
• Spanish fishermen, who have been on strike for more than two weeks, are demanding government subsidies that would limit the price of fuel to 0.40 cents per liter for the fishing sector.
• Civil servants in the Spanish judiciary system went on strike for more than two months in February, March and April, with demands for higher pay. The bureaucrats, who are already among the highest salaried workers in Spain, brought the country’s justice system to a near-complete halt when the government offered to meet their demands in two stages instead of one.
• In Madrid, more than 50.000 school teachers went on strike on May 7 that kept more than 700.000 students out of the classroom. Teachers are angry about the “privatization” of Spanish education. According to the OECD, Spain has one of the worst public school systems in Europe and private schools are indeed filling the demand for better educational opportunities. Some 8 out of 10 students in Madrid now attend private schools, compared with 7 out of 10 students who attend public schools in the rest of the country.
• In Madrid, some 20.000 healthcare professionals at more than 400 healthcare centers went on strike in March and April with demands for higher pay. The walkouts caused the cancellation of more than 320.000 doctors’ visits and 4.000 surgeries. In Spain, more than 42.000 patients are on waiting lists for surgery; thousands of patients have been waiting for more than 2.5 years to be treated. The demands for salary increases would cost the government more than 150 million euros a year, even though the average salaries for medical workers have already increased by 63 percent during the past four years.
• In Madrid, garbage collectors threatened to turn the Spanish capital into another Naples, Italy, which has become famous for its mountains of trash heaps. The garbage collectors finally returned to work in mid May after accepting a 5.3 percent pay hike. The government agreed to pay a bonus of 30 euros to those employees who are forced to work on November 3, the festival of San Martín de Porres, the patron saint for garbage collectors.
• In Madrid, some 8.000 municipal bus drivers went on a 30-day strike in April that affected some 1.5 million commuters a day. The bus drivers agreed to return to work after receiving a 100 euro pay increase plus additional subsidies to pay the dry cleaning bills for their uniforms.
• In Madrid, 1.800 parking meter readers are on strike for all of June after having rejected a 33 percent pay hike as “insufficient”. The walkout is costing the Madrid municipality some 400.000 euros a day in lost parking revenue.
• In Madrid, some 1.500 ambulance drivers have called for a strike to begin on 18 June. They are demanding higher wages and less working hours.
• In Barcelona, 2.800 municipal bus drivers have carried out repeated strikes since December 2007. They are demanding higher wages and less working hours. When the municipal (Socialist) government refused to meet their demands in April, the bus drivers began vandalizing their own buses.
• In Bilbao, the largest city in the Basque Country and a major seaport and industrial center, metro train drivers and municipal bus drivers are striking for higher wages and less working hours. Bilbao already has the most expensive public transportation system in Spain after Barcelona. The strikers are believed to have sabotaged at least 60 buses since their walkout began.
• In Zaragoza, Spain’s fifth-largest city which has just invested 1.5 billion euros to host the Expo 2008, more than 10.000 workers charged with cleaning public buildings, including the airport and the train station, have decided this is a good time to press the regional government for a pay raise.
• In Valencia, Spain’s fourth-largest city, metro train drivers have threatened to shut down the system for 12 days in June if the regional government does not meet their demands for higher pay.
According to the Spanish Confederation of Employers’ Organizations (CEOE), Spanish workers held 334 strikes during the first four months of 2008, which resulted in the loss of 14.3 million man-hours of labor. These figures represent a 72 percent increase over the same period in 2007. During all of 2007, there were 852 strikes in Spain that resulted in the total loss of 22.5 million man-hours.
Nor is this a new trend. According to a special report published by The Economist in March 2005, Spain ranked third among developed countries (after Denmark and Canada) for the number of workdays lost as the result of labor conflicts during the previous decade. Spain lost 254 days, three times more than the EU average of 73 days (calculated as the number of days lost per 1,000 employees). By way of comparison, the UK lost 20 days while Germany lost 10 days.
Considering all these grievances, it seems strange that Spanish voters in March gave Socialist Prime Minister Jose Luis Rodriguez Zapatero another four-year term in office. After all, pre-election polls showed that the majority of Spaniards knew full well that Spain was not on the right track (economically or otherwise).
Maybe they allowed themselves to be persuaded that everything would somehow be okay, thanks to Zapatero’s post-modern relativistic political discourse (which posits that all problems are by definition imaginary). Or perhaps they were bribed by the 22 billion euros (a whopping 2.1 percent of Spain’s GDP) in handouts that Zapatero promised to bestow upon them if re-elected.
In any case, Spain’s myriad market disequilibriums are coming home to roost, and all at the same time.
For example, Spain has been reeling from the collapse of a housing bubble that for the last 15 years has enabled the notoriously uncompetitive economy to post some of the highest growth rates in the European Union. Millions of Spaniards are now struggling to accept the fact that they were lulled into a false sense of never-ending prosperity.
At the same time, the generous financial subsidies that Spain has received since joining the EU in 1986 are drying up. During the past 20 years, Spain cashed in on some 100 billion euros (equivalent to nearly 1 percent of its GDP every year) by way of EU Structural and Cohesion Funds, which are designed to narrow the gap between the EU’s wealthy and poor countries. But now that Spain has reached a per capita GDP of 98.5 percent of the EU average (it was 72 percent in 1986), the country will begin paying more into the EU than it receives back.
The implication is that Spaniards will have to strike less and work more if they want to maintain their current standard of living. But that seems an unlikely prospect. Spain recently led a bloc (that included Belgium and Greece) that sought to prohibit British workers from working more than 48 hours a week. In an interview on Spanish National Radio, Zapatero said working 65 hours a week was “unacceptable” and “retrograde”.
He is worried that if Brits may choose to work more than Spaniards, Britain will have an unfair competitive advantage.
And what about the nearly one million illegal immigrants that Zapatero “regularized” in 2005 with the justification that they would pay into the financially unstable social security system? Many of them are now drawing unemployment benefits, so much so that the Socialist government wants to pay them to leave Spain if they promise to stay away for a minimum of three years.
Problem? What Problem?
Just before the March elections, Zapatero insisted that the Spanish economy would grow by 3.3 percent in 2008; since his re-election, however, the government has revised that figure downwards on an almost daily basis. Indeed, Spanish economic growth has slid to 0.3 percent in the first quarter 2008 from 0.8 percent in the last three months of 2007. The Spanish Banking Association says that Spanish growth will probably be negative in 2008. The Spanish economy grew by 3.8 percent in 2007.
But that’s not all. Annual consumer inflation jumped to a 13-year high of 4.6 percent in May. And according to the Labor Ministry, the number of registered jobless shot upwards to 2.35 million in May, the worst figure since post-Franco recordkeeping began in 1979. The National Statistics Institute says the unemployment rate jumped to 9.6 percent in the first three months of 2008 from 8.6 percent in the previous quarter, the biggest jump since the first quarter of 1993, when the Spanish economy slipped into recession. Some financial analysts fear the unemployment rate could spiral to 15 percent in 2009.
So far Zapatero’s post-modern approach to Spain’s economic crisis seems based on three reality-evading pillars: denial, passing the blame, and more denial. His Plan A has involved a pop psychology campaign advising Spaniards that “pessimism does not create jobs.” Plan B blamed “radical liberalism” which in euro-speak means the free market. Zapatero now wants to implement Plan C, a global advertising campaign in the world financial press designed to highlight his economic non-crisis management skills.
Spaniards, having grown accustomed to three decades of spoon-feeding by Socialist largesse, are in for a long, hot free-market summer.
A short version of this article was published by Pajamas Media on June 14, 2008. Soeren Kern is Senior Analyst for Transatlantic Relations at the Madrid-based Grupo de Estudios Estratégicos / Strategic Studies Group
well, look at the good side
Submitted by pashley on Sat, 2008-06-21 06:23.
the Spainish should see a return to the stability fund in no time. No doubt the Socialists will console their bankrupt countrymen with stories of life in the horrible capitalist Anglosphere.
Would someone finally write the definitive economic history of wealth transfers to governments to impoverish their country? We should update Reagan. He held that he could break the Soviet Union by competitive defense spending. From what we know now, subsidizing a communist fantasy is a very effective form of economic war.
Submitted by Frank Lee on Fri, 2008-06-20 16:31.
Thank you, Mr. Kern, for another fascinating article. It's strange, though, that we in America often read of how messed-up the European economies are, yet they always seem to muddle through with something approximating first-world prosperity. It makes me wonder how badly the American economy could tank and we'd still get by. Technology just seems to produce wealth regardless of human foibles. We are in the Matrix.
how we still get by
Submitted by Armor on Sun, 2008-06-22 14:10.
FL said: "we in America often read of how messed-up the European economies are, yet they always seem to muddle through with something approximating first-world prosperity. It makes me wonder how badly the American economy could tank and we'd still get by. Technology just seems to produce wealth regardless of human foibles. We are in the Matrix."
@ Frank Lee
I already knew of your neocon theory that immigration is a problem in Europe but not in the USA. Now, you say the same thing about the economy. In fact, some European countries are as wealthy as the USA (Luxembourg, Scandinavia, Iceland, Ireland, Switzerland, Netherlands...). Overall, I know that the USA is economically more successful than Europe, but you still have similar problems. For example, you are so much in debt that you can no longer borrow as much as you used to. At the same time, Mexican immigration hurts unskilled American workers and will necessarily bring the US economy closer to the level of Mexico in the future. Zapatero’s theory is that all problems are by definition imaginary. He isn't that far from Bush, who thinks there is no limit to the amount of money he can spend in Iraq, and to the number of Mexicans he can bring to the USA without the country becoming Mexico #2. In American cities where the whites have become a small minority, not all jobs have suddenly disappeared, and buses are still running. Maybe because of all the whites who still reside in the suburbs and attend to the cities' vital functions? I think there tends to be a long delay between bad economic decisions and the moment people feel the ill effects. If economic growth simply slows down, most people won't necessarily realize there is a link with bad economic management. But if we had a much stronger economic growth (with no parallel increase in immigration), I suppose the European birth rate would also be much stronger. I think western economies will not suddenly collapse due to immigration, socialist policies, and soaring oil prices. They will just stop growing. What is now being destroyed is the European social fabric and the potential for further economic development rather than the economy itself.
Submitted by Mystery Meat on Fri, 2008-06-20 15:48.
The answer to these problems caused by "radical liberalism" is simple: nationalization of all business and industry. Only then will the workers be insured of stability and economic prosperity.