The Spanish Economy

Spain's been receiving a fair amount of coverage in the international press lately because of its economic situation and the growing fears it may not be able to meet its financial obligations. Many international economists such as Paul Krugman feel one of the underlying problems is high wages which makes the cost of Spanish goods and services uncompetitive in the global market place. I dunno. Far be it for me to argue with a Noble prize winner, but when I think of Spanish salaries, "high" wouldn't be the first word to pop into mind. In fact, most people I know find each year a little bit more of a struggle than the one before and when they think back to the time of the peseta, watch their faces light up in shock as they calculate the cost of living now versus what it once was.

Much of the press about Spain's economy has focused on its inability to devalue its currency now that it's in the Euro zone and what "austerity" cuts need to instituted to bring down its deficit. What surprises me is that there seems to be little coverage about Spainish productivity because basic economics says increasing it can help offset the deflationary salary pressure. After all, the Germans and Japanese don't earn less than the Spanish.

So what's the cause of the Spanish worker producing less than a Maltese and slightly more than an Estonian and Greek, despite having a much larger economy? The coverage often brings up Spain's two tiered contract system and rigid labor market that seems to promote "nonperformance incentive pay" and it's tough to argue it's not in need of reform. The question of how to do this and not completely screw the worker is a complicated issue and one which I don't pretend to have the answer. But again, what surprises me isn't what's being discussed but the lack of discussion. In this case, the third tier of the economy - the autonomo or freelance - and one which I do have somewhat of an idea.

Why is this area of the economy important? Well, if you're contemplating moving here armed with a service to offer, whether it be web design, coaching or translation, it's how you'll probably earn a living. As I've mentioned before, the paper work is a pain in the ass and the system itself is inherently regressive, creating the moral hazard not to pay it. Basically, right now, the company deducts the 15% income tax off your invoice and pays it to the tax authorities while you're responsible for a flat amount monthly or quarterly for social security. An easy and doable fix to improve it would be to bracket the income tax percentage based on earnings and deduct a flat percent for the social security. Of course, this would shift the onus onto the employer to file both amounts with the authorities and probably reduce the number of directors who become high-paid consultants, which is probably why no one talks about it.

But, like I said, there's little discussion about this type of reform in any of the national or international  coverage, nor is there much about ways to improve productivity, instead the focus has been on cutting wages and government spending - the last two things the economy needs when still mired in recession. Zapatero's recent suggestion to cure the Spanish economy's problems, meanwhile, was to extend the retirement age as if grandma doesn't have enough to do babysitting the kids while mommy and daddy work. The tragic farce of the accidental president continues and the only thing worse is the opposition.  Of course, Spain is not alone when it comes to this political predicament of dumb and dumber.

A pretty dire place, right? Well, it ain't Silicon Valley of the nineties, that's for sure, but it's not Argentina from the same period either, although I wouldn't put all my money in the banks here.  Still, Barcelona is Barcelona and if your work allows you to choose a location, it's not a bad place to call home. And if your job doesn't afford you that chance, a year long sabbatical from career goals and aspirations isn't always a bad thing if you can afford it or are willing to do jobs you thought you left behind in college. And on a more positive note, it hasn't only been doom and gloom about Spain in the international press. An American magazine recently ran a feature on a local Catalan chicken and shrimp dish.