by Michael Roberts
I flew back from Spain (where I was at a conference) just as the
results of the second Spanish general election of the year came out.
The incumbent conservative People’s Party improved its number of seats,
while the opposition Socialists managed to finish second ahead of the
Podemos-UL leftist coalition. The turnout was just under 70%, one of
the lowest in the post-democratic period. It was expected that Podemos
would move into second place, but it appears that the rush to the left
had faded at the last minute. Nevertheless, the PP cannot form a
majority government unless both the pro-market, pro-EU Citizens party
(which lost ground) and the Socialists back PM Rajoy. Last time, they
refused to do so.
But last time, the Socialists also refused to join with Podemos to
form a leftist government, because that would mean confrontation with
the EU over public spending and budget deficits, would encourage
separatism in Catalonia and the Basque country (where Podemos finished
first) and also might mean they could be swallowed up by Podemos. So it
is political stalemate again. The most likely outcome is that PM Rajoy
will form a minority government with the tacit backing of the Citizens
and the Socialists for a fixed period and on certain terms. The
uncertainty in Spanish politics may not match that of Britain after the
Brexit vote, but it is still there big time.
Despite its well-documented corruption (party kickbacks for
government contracts both national and local), enough people have been
prepared to vote for the PP, partly because the rich know that they are
the party of big business and the banks and will protect their interests
and partly because they were expected to revive the economy after the
miserable failure of the previous Socialist government.
But although there have been some signs of economic recovery under
Rajoy, it has been mixed at best and, at worst, has offered no relief to
the majority. The Long Depression since the end of the global crash in
2009 has exerted its icy grip over the Spanish economy as well, at
least for most people.
Despite a decline in 2015, the youth unemployment rate remains among
the highest in the EU. Total unemployment is now 21% but still almost
one out of two of active people aged between 15 and 24 remain
unemployed. And long-term unemployment remains double that of 2008. The
unemployment rate would be even higher except that Spaniards have left
the country to look for work elsewhere in Europe (the UK and Germany) or
even Latin America. The rate of net emigration has reached 250,000 a
year, draining the economy of some of the most educated and productive
young citizens.
Indicators measuring poverty and social exclusion are very high
compared to the EU average, and deteriorated further in 2014. The IMF
reported that “the improved labour market conditions during 2013 and
2014 did not translate into an improvement in social indicators in
those years. The crisis led to a sharp increase in the share of the
population at-risk-of-poverty and at-risk-of poverty or social
exclusion). These poverty indicators deteriorated even further in 2013
and 2014 despite the amelioration in labour market conditions. The rise
in the proportion of workers in part-time (from 14.5 % in 2012 to 15.6 %
in 2015) and temporary jobs (from 23.4% in 2012 to 25.7 % in 2015) in
recent years went hand in hand with an increasing risk of poverty among
part-time workers (from 18.7 % in 2013 to 22.9 % in 2014) and temporary
workers (from 17.5 % in 2013 to 22.9 % in 2014). Together with moderate
wage developments, this contributed to the overall increase in in-work
poverty observed between these two years.”
And as the EU Commission put it: “still high
unemployment and the risk of labour market exclusion, affecting in
particular young and low skilled people, hampers adjustment and implies
high social costs. Furthermore, low productivity growth makes
competitiveness gains hinge upon cost advantages, also affecting working
conditions and social cohesion. If protracted, it hampers the
transition of the economy to a more knowledge-intensive growth model.”
In other words, the only way things have improved for Spanish capital
is by keeping wages down and employing cheap labour rather than making
investments for new technology and higher productivity.
The EU Commission added that “Spain’s R&D intensity and
innovation performance keeps declining, against the backdrop of a
relatively low number of innovative firms…The average low skills’ level
of the labour force hampers the transition of the Spanish economy
towards higher-value activities. This in turn limits the capacity of the
labour market to provide opportunities for the high number of tertiary
education graduates in knowledge-intensive sectors.” That means no jobs even for those with degrees.
The IMF admits that economic growth in Spain during the last 15 years
has been largely due to investment in property – fictitious capital, as
Marx called it. Spain’s much-heralded economic boom saw 3.5 percent
real growth a year during the 1990s; it stopped being based on
productive investment for industry and exports in the 2000s and turned
into a housing and real estate credit bubble, just like Ireland’s Celtic
Tiger boom did. House prices to income peaked at 150 percent, nearly as
high as in Ireland. It has fallen back to 120 percent, but Ireland has
dropped to 85 percent. Housing construction doubled from 1995 to 2007,
reaching 22 percent of GDP in 2007.
During the property boom, credit grew at 20 percent a year, much
faster than nominal GDP at about 7 percent a year. Household debt
reached 90 percent of GDP. Nonfinancial corporate debt, including that
of the developers, reached 200 percent of GDP, the highest in the OECD.
The financial crash exposed that big time. Productive investment in
technology was below the euro area average before the crisis and is
still below the EU-28 average. The fall in investment between 2007 and
2015 entailed a drop in potential growth of nearly 1.5 pp. a year of GDP
for Spain. The total stock of private sector debt amounted to around
175 % of GDP in non-consolidated terms in the third quarter of 2015
(68.6 % of GDP as household debt and 107.2 % of GDP as non-financial
corporation debt).
While this remains above the euro area average, it is about some 40%
of GDP lower than the peak observed in the second quarter of 2010. Most
of the reduction is due to the fall in debt of non-financial
corporations since the peak. However, this ‘deleveraging’ by both
households and corporations has weighed on investment. “In
particular, high private and public debt, reflected in the very high
level of net external liabilities, exposes the country to risks stemming
from shifts in market sentiment and is a burden for the economy. While
the still negative inflation environment supports households’ real
disposable incomes and domestic demand, it also hinders faster
deleveraging.” (IMF).
The Achilles heel of Spanish capitalism is the long-term decline in
its profitability. Spanish capitalism was not a great success under the
military rule of General Franco in the post-1945 period.
Profitability
fell from the great heights of the golden age of postwar capitalism, as
it did for all other capitalist economies from 1963 onward, in a classic
manner, with the organic composition of capital rising nearly 30
percent while the rate of surplus value fell by about same.
After the death of Franco, Spanish capitalism temporarily reversed
the decline as foreign investment flooded in to set up new industries,
relying on a sharp rise in the rate of exploitation brought about by
plentiful surplus labor and a system of temporary employment contracts
(while freezing permanent employment), the so-called dual labor policy.
The rate of exploitation rose over 50 percent to 1996, accompanied by
the foreign-led investment boom in the 1990s. This drove up the ratio
of capital to labor (by 19 percent), as German and other capitalist
companies relocated to Spain in search of cheaper labor and higher
profits. That eventually put renewed pressure on the rate of profit.
From 1996, profitability dropped sharply as wages squeezed profits in
the boom of the 2000s. Spanish capitalists switched to investing in
property and riding on the cheap credit boom that disguised weakening
profitability in the productive sector.
As the IMF summed it up: “The pre-crisis period was characterized
by decreasing productivity of capital, measured as output per units of
capital stock, both in absolute terms and relative to the euro area
average. This is because capital flew to nontradable sectors, in
particular construction and real estate, characterised by higher
profitability but lower marginal returns. By contrast, investment in
information and communication technologies or intellectual property
remained below that of other euro area countries.”
This long depression is also beginning to break up the Spanish state.
Regional governments are deeply in debt and are being asked to make
huge cuts. Richer regional areas with their own nationalist interests,
as in Catalonia and the Basque Country, are making noises about
separation from Madrid. The Spanish depression is a result of the
collapse in capitalist investment. To reverse that requires a sharp rise
in profitability. Until investment recovers, the depression will not
end. And there is the probability of a new economic recession in Europe
ahead, while the political leadership of Spanish capital is still
uncertain.
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