Abstract
When the Great Financial Crisis struck in 2007–8 its impact was global but not uniform. That is some states weathered the storm better than others. And among those worst affected were the peripheral states of Europe (Portugal, Ireland, Greece, and Spain which became known by the unfortunate acronym, in English at least, of the PIGS). The general structural features of the crisis in the Eurozone have been extensively analyzed (for instance by Lapavitsas et al. 2012). And there is considerable literature on national cases, with Greece overrepresented because of the extremity of its crisis and the brutality with which it was treated by the European Union (see Varoufakis 2017). There is less on Spain’s experience, and The Political Economy of Contemporary Spain is a welcome addition to the literature, filling a useful place in our understanding of post-crisis and austerity politics. It provides an in-depth look at Spain written by economists who are well grounded in economic theory and analysis but, being heterodox economists, are prepared to integrate and contextualize their economic insights with some political analysis. That said, more emphasis on the political components of Spain’s political economy might have provided a more complete picture of Spain in the era of austerity. For example, analysts like Henning (2017) have argued that, within an overall context of austerian similarity, there were differences between Spain and other peripheral European countries and these were, partially at least, attributable to domestic politics (notably, higher German confidence that the Partido Popular (PP) government under Mariano Rajoy would implement tough measures and thus allow Spain formally to avoid the imposition of the full Troika program). However, this is a minor complaint in what is a volume rich in empirical detail and theoretical insight.
Before the crisis, of course, Spain’s economy was depicted as being a miracle economy, along with other flawed angels like the Celtic Tiger roaming Ireland’s formerly placid economic pastures. Spain had one of the fastest growth rates and job expansion rates in Europe. The vacuity of the economic miracle depiction of Spain is exposed in this volume that relates pre- and post-crisis developments in a rigorous way leaving little doubt about their interconnectedness. Organized into chapters on the Spanish growth model, the country’s insertion into the international political economy, finance, the labor market, and inequality, the book positions Spain in its pre-crisis posture and explores the contradictions in the miracle growth model. Though the authors’ investigations are rooted in an interest in structural adjustment programs imposed in Latin America, and a hunch that things might not look so different in Spain (and elsewhere in peripheral Europe), their conclusion is that the crisis was not an exogenous shock but had deep roots inside Spain’s political economy.
The book’s central theoretical thrust focuses on internal devaluation: that is, downward pressure on wages (broadly defined to include payment for work done, the social wage in the form of social programs, and deferred wages including pensions). The authors note an ideological convergence between Spain’s two main political parties—the social democratic Partido Socialista Obrero Español (PSOE) and the conservative PP. The two are not identical, but the adaptation and adoption of neoliberalism by the former meant that one looked in vain for an alternative view of how to manage the pre-crisis economy or on how handle the crisis once it began.
Spain’s pre-crisis economy was dominated by the construction industry and finance aided by the state through supportive public policies. The construction industry fed off two developments. First, a private housing boom was triggered (average annual increases of over 10 percent in the decade before the crisis, enabled by finance, especially after accession to the Eurozone made cheap credit available and encouraged soaring mortgage demand). Rising asset prices in turn facilitated further indebtedness as bubble-inflated assets were used to “secure” further debt. Second, there was an expansion of public sector infrastructure (partly driven by debt, partly by increased state revenues derived from the real estate boom). The “miracle” was debt-driven (mostly private) with associated low-skilled and precarious jobs being overrepresented in employment growth.
Investment was concentrated in these sectors rather than in technology or in sectors where productivity would be enhanced. The result was a lack of international competitiveness and, when this was exposed by the crisis, there was a lack of options in dealing with imbalances. Membership in the Economic and Monetary Union meant that the option of currency devaluation no longer existed.
The employment and social impact of the crisis was huge—3.5 million jobs lost from 2007–13, mortgage foreclosures and evictions, massive youth unemployment, wage freezes and cuts, etc. Notwithstanding all this, the solution to the crisis, after a brief experiment in stimulus in line with international practices, was a turn to austerity and internal devaluation (i.e., suppression of living standards) from 2010, also in line with international practices. Although the authors are right to emphasize the internal contradictions of the Spanish model, the degree to which crisis responses mirrored those internationally might have received more attention. Although varying in specifics, certain measures—like public sector layoffs and wage freezes, tinkering with the pension system to increase contribution years and the age of retirement, restricting access to health care for undocumented immigrants, sell-offs of public assets, labor market reforms to decentralize and weaken bargaining and to increase firms’ abilities to bypass negotiated agreements—were part of the common narrative of austerity. Spain was an early entrant to the constitutionalization of austerity: an amendment to the country’s constitution locked in fiscal rules limiting deficits and debt and in effect prioritized repayment of the public debt (by now vastly expanded because of crisis-driven revenue shortfalls in relation to expenditures, financial bailouts to the private banking sector, etc.). As the authors point out, none of this had a positive impact on the underlying structural problem of the Spanish economic model that they identify; nor did the measures work even in terms of their own rationale of restoring competitiveness and economic growth.
The final two chapters in the book, on labor markets and inequality, develop the thesis of wage suppression most systematically. The pre-crisis labor market showed the flaws of the growth model that were to be exacerbated once the crisis struck. These included an overconcentration of employment in low-productivity sectors such as construction and tourism, and a segmented labor market in which flexible forms of work were growing at the expense of those characterized by permanence and security. Manufacturing employment as a share of total employment was lower than that in the EU15 group of countries and, reflecting the relative weakness of Spain’s welfare state (despite significant growth in the pre-crisis period), employment in the health and education sectors was less than in the European comparison group. Notwithstanding its depiction in some international studies as having had a rigid labor market, the direction of legislative and regulatory change regarding labor markets was towards further flexibility. Union membership was low, though this was offset to a degree by wider collective bargaining coverage that was the product of the transition period between the Franco regime and its democratic successor. Some groups—youth, women, and migrants—had especially low membership levels.
Three major labor reforms have taken place since the crisis—in 2010 and 2011 (under the PSOE government), and in 2012 under the PP. While the last was the more forceful, all attempted to create greater flexibility (for employers) and were designed to ease wage pressure as a route to greater competitiveness. Without being solely responsible for these developments they contributed to the normalization of precarious employment through the greater use of temporary contracts (estimated at 90 percent of new contracts in the post-2008 period) and the growth of part-time employment within these. Similarly, the wages share of national income has declined, and that going to profits has increased.
In terms of the social wage and deferred wage components of total wages, fiscal austerity and public sector restructuring play a greater role. The results are clear—rising inequality as reflected in indicators like the Gini index (admittedly not necessarily the best indicator but one that does tell its own tale). Before redistribution in the period 2007–16, Spain’s Gini rose from 0.454 to 0.507; after transfers, it rose only from 0.319 to 0.345. The latter figure makes the country one of the most unequal in Europe (after Estonia, Latvia, Bulgaria, Romania, and Lithuania). The worst effects are concentrated among the young, the old, and non-EU migrants. Social provision is especially dependent on the unpaid labor of women.
This book is a valuable addition to the literature. The Spanish case is not as well known as some of the other austerity experiences in Europe, and there is a wealth of empirical material here which, being theoretically grounded, represents a significant advance on our understanding of how austerity works in practice.
