Dec 022011

I thought I would start this little article on work in Spain by telling you a few salient facts about Spain;

Work in Spain

Work in Spain

1) Unemployment currently stands at 22.9%. I estimate a rate of 25-26% within a year if nothing is done due to the swinging cuts being proposed.

2) To set up your own business costs an initial monthly cost of at least 450 Euros with an on-going monthly cost of 350 Euros, even if you do not require office space or a place of work. Compare this with the Uk where self employment costs 120 pounds per year or Holland where it is 240 Euros per year!

3) If you are self-employed, you do not qualify for any unemployment benefit if things don’t work out.

4) Entrepreneurs risk everything on starting up a business because if the business fails then they are labelled failures and never again will they be able to get funds for a second attempt – as they are placed on the credit blacklists for the rest of time. Most business successes are born out of previous failure. It is highly unusual for someone to hit a home run first time out. The penalties for failure are too onerous in Spain and discourage experimentation. People stick to proven formulae rather than trying something new.

5) Spanish business generally looks for short term, huge gain rather than long term, sustainable growth (known in Spain as: “La Cultura del Pelotazo”.

6) Banks do not lend because they cannot borrow and if they do lend then the interest rates are punitive.

7) There are currently between 800,000 and 3 million properties for sale in Spain. The discrepancy in the figures shows just how badly regulated the industry is.

8) Spain is currently losing population as more people emigrate to look for work or return to their country of birth, after losing their jobs here.

9) Spain has just been named the 31st least corrupt country in the World. All I can say to that is that there must be some pretty ropey countries out there. I would suggest that well over 50% of politicians are corrupt (and if I was in a polemical mood I would suggest that figure is nearer to 90% – or higher)

10) The new government hasn’t got a clue how to solve any of the above problems. Or rather in their electoral programme there was nothing shown about how they would face up to these issues.

11) The Spanish deficit is totally unsustainable without a large devaluation of the currency and a spurt to exports and investment into the country.

12) The black economy in Spain is estimated to make up to 30% of the real economy. Obviously this is because of the disincentives to declaring the money, the cost and the bureaucracy and time involved – together with a common incentive to get one over the government.

Ok, so there are 12 things that need facing up to and that is without going into the smaller problems that can be found in virtually every town and village throughout the country.

So how does Spain change?

Some thoughts:

Why Work in Spain Must Change

Why Work in Spain Must Change

1) It needs to be easier to set up a business in Spain. Young people in Spain are highly educated, they are almost forced through University due to the lack of opportunities elsewhere, although they do not, in general, have the entrepreneurial spirit because the educational system is not set up to provide them with it (is it anywhere, really?)

The reasons for not being entrepreneurial in Spain are the impediments put in their way before anyone can open a business here. The temptation of many is to start work in the black economy and then, once they earn enough, to “go legal”. This is work on the “never-never” and ‘going legal’ rarely happens.

2) In order to make it easier, the new government needs to open up cheap financing to new businesses by guaranteeing to underwrite any losses. An easy ‘to get at’ fund from central government, not embroiled in ridiculous bureaucracy and paperwork, is needed to stimulate the productive area of the economy.

3) It needs to get rid of the “autonomo” self employed payments for the first year and then introduce them slowly into the system from year 2 onwards, to give the business owners the chance to get established in their markets.

4) There should be a better use of Civil Servants who are allowed to waste the majority of their day, and unfortunately are complicit in it, on coffee breaks and avoiding contact with the public, so that they help businesses in the private sector to grow and prosper – rather than being an impediment to growth of small businesses.

5) The government needs to invest in R+D and make it tax efficient for companies to do so. It shouldn’t take two years to get a license for research, as in the case of what happened to this company in Extremadura.

6) The civil service, at an administrative level, needs to be completely overhauled. It is inefficient, badly run and the systems and practices in place are from the mid 1900’s. It needs a hammer taking to it and then building up from scratch.

7) The government needs to stop pandering to property developers and banks and needs to start thinking about its citizens – after all they are elected to act in the interests of the people not big businesses.

8) Many of the properties that are empty in the country should be taken on by the banks and rented at really low rates to people having a problem finding a home at a decent price. Those rentals should be based on an ability to pay and backed by a central government fund for non-payers. Once the people living in them are earning more then they can pay more. If they earn less – then they should pay less.

9) Rather than bailing out the banks, those same banks should be working for the public good. After all many of the banks in trouble were Cajas (building societies) that have, at the heart of their reason for existing, a requirement to act as social agents within their communities.

10) All politicians convicted of fraud, however small, should be banned from politics for life. They shouldn’t be able to get off with charges because the labyrinthine justice system has taken too long to bring the cases to court.

11) The judiciary should be depoliticized in order to give the judges free rein to dispense justice. All politicians accused of corruption should be tried by jury not just a judge – who may not be impartial and in many cases is a friend of the politician being tried.

12) Repossessions of property should be stopped immediately. The banks should be forced to come to payment agreements with the mortgage holders as repossession does neither party any good. The return of the property to the banks as full payment of the debt on primary residences should be the norm rather than the current system of indebtedness for the rest of the life of the person evicted (once repossessed). This would also free up the justice system which is currently totally overwhelmed by repossession orders from banks.

13) Spain should leave the Euro. This is a polemical solution, of course, but I do not foresee any of the above happening unless there is a chance of growth and, within the structures of the Euro at the moment, there is no chance of Spain getting out of the problem. Spain needs to be able to export its goods at a cheaper price and bring investment into the country which will happen, if the value of the currency drops. Property sales to foreigners would also increase substantially, if the prices came down across the board by 20-30%. Due to devaluation people would still be getting the money to cover their mortgage payoffs, without being in debt for the rest of their lives. Of course, there are downsides to this such as inflation – but I think the potential benefits easily outweigh the costs.

That’s my manifesto anyway. Now what do you agree or disagree with, what do you think and what would you add or take away?

Related Reading

1) What the general election results means for expats in Spain

2) Social Media and the Art of Self Deception

A Toast To This Post

A Toast To This Post

I was reminded by David Carrolon about the Españistan video. You must see it. So here it is with subtitles. How Spain got to where it is today. This bit is NSFW by the way.

  15 Responses to “Why Work In Spain Must Change”

  1. If that’s your Manifesto, I look forward to your name appearing on the next ballot papers

  2. Not allowed. Cannot even vote! Despite spending more than half my life here. Then again who would I vote for. None of the above doesn’t appear. 🙂

  3. Hi Graham,
    Excellent post and all scarily true. It looks like several countries will be leaving the Euro very soon and more than likely very suddenly (Jan 1st anyone??), i expect Spain to be one of those countries.

    While the peseta will attract some foreign investors, this is not a long term solution. And Spain is very good at looking only short-term. There is a serious lack of vision and long-term planning on practically every level.

    The problems in Spain that you have mentioned above such as the costs of setting up a business and the inept civil service don’t show any sign of going away soon. Not many politicians have the courage to face down the funcionarios. Over 2 million plus family members = a lot of votes.

    Nobody has any ideas how to solve the problems, not even the new Government elect. Have you ever witnessed such a weak election??

    Cuts will only damage the country more while saving money to pay the debts but not investing in the future, leaving us with more stagnation.

    And after all that, i still love living in Spain. Just very glad most of my business is International. 3 years in recession, only 3 more to go.

  4. It’s impossible to cut out of a recession David. Therefore I agree, things will get more stagnant. The election was shocking. Might I suggest nobody tried to win 🙂 as they will be unelectable for a generation or two after the next four years of “austerity”

    I also love living here still.

  5. All that you say is terribly obvious. But I think that all these impediments are put there with a purpose: to keep things the way that always have been.
    Think with a feudal mind: civil war was won by the ones who wanted the “old Spain” to prevail, and the so called “transición” was not a real change from dictatorship to democracy. All the establishment stayed at the same positions and their children, now grown-ups, received their unaltered heritage.
    Obstacles to entrepreneurship are set precisely to stop the low classes to prosper. I know lots of people who say that they do not want to start a business because they say that “they don’t want any problems”. They don’t even want to think about it.
    And the ones who, like me, tried to start a business… well, the bank asked me such conditions to get finance that had I had those conditions, I wouldn’t have needed to ask for financing in the first place!

  6. Good informative post but I would like to add a couple of points.

    Regarding the £120 figure you mention as annual self-employed cost, it should be noted that this is only a part of the amount you pay. The rest is, more logically, based on your earnings (after expenses). To put it into context though, in order to pay the same in the UK as you do in Spain you would need earnings of approximately €3500 per month.

    The best way for Spain to recover in my opinion is to create, as you say, a culture where people can “try” being self-employed. I too have had the thought that the “autonomo” payment should be scrapped for the first year even if only for those who have been unemployed for a certain time. This way the government wouldn’t lose anything as those people are not currently contributing to social security anyway.

    In relation to the government it has now been two weeks since the general election. Two weeks and Rajoy still has not said one word about his policies for recovery. Two weeks and he hasn’t even said who will be responsible for the economy in his government. It would be good to see both the PP and PSOE working together for the good of the country but you just know that it will never happen.

    The situation prior to the election was more or less:
    PSOE: We want to do this?
    PP: We wouldn’t do that?
    UNIONS: We won’t let you anyway?

    and apart from the order of PSOE & PP I can’t see there being any change.

    I do not feel that Spain should leave the euro. The only way it has recovered from recession in the past is by, almost immediately, devaluing the currency. By not having this option this time it will hopefully force the country to make the social changes it needs for the future.

    I feel it would be good for Spain to receive a bail-out from the EU as then they will be told what they have to do for recovery because unfortunately I cannot see them working it out for themselves. The only problem would be I can also foresee a situation such as in Portugal or Greece of regular strikes against any measures as opposed to Ireland where they have seemingly accepted the situation and got on with it.

  7. A fine seasonal wish list. I like the radical aspect of the property suggestions, though I think there may be some hostages to the law of unintended consequences in there. As someone with Argentine, Irish and Russian family background and connections, Spain’s problems don’t seem extreme or unique in comparative terms. Spain’s export performance (and way beyond fruit & veg) is pretty impressive, it’s worth remembering, maintaining its global percentage despite rise of Brazil, Russia, India, China et al.

    Sure, things could and should be a lot better, in Spain and pretty much everywhere – except Germany, no doubt. Leaving aside broader arguments about the iniquities of late capitalism, it could also be said that if you move somewhere you just get on with things – as you obviously have. Would the British welcome a sweeping critique of their government, economy and society from those that have moved there?

  8. Good points Jose Manuel. The banks and the conditions they demand are ridiculous. We need a cooperative bank backed by government to help out. That isn’t going to happen soon though is it?

  9. If the price to pay for change was just staying in the Euro Ian then it would be a good idea. However I cannot see the changes coming from within. As you say they may come from without by external pressures.

  10. There would definitely be unintended consequences as the quixotic nature of the Spanish might force ;-). I can do a sweeping critique of the coalition in the Uk too if you like 🙂

  11. Graham, all in all very true, I’m saddened to see my own country in such as deplorable state, largely thanks to clowns that call themselves politicians.
    I agree with all the points made in this article and the suggested solutions. I wish we could take the Iceland case study as a model and replicate it in Spain, where we would basically leave the banks in the gutter once they go bust, and rebuild the economy in a way that reliance on banks would not be required. But I guess that being in the EU means that central Europe directives have to be followed. Thanks for post, it’s all good reading. Perhaps you could even add the Españistan video to give it a humorous touch.

  12. That is a good idea. Will do now

  13. I´m with Tumbit, when can we vote you in Graham!

    I accompanied 3 different people to the voting station (I too, for some reason, am not included on the register), and none of them actually ticked any boxes on the voting forms.
    When I asked…one said.. “if you don´t tick anything then your vote goes with the majority”, another said.. “no-one does at these elections!” and the 3rd person I didn´t even bother asking cos I knew she didn´t have a clue what she doing anyway!
    and I must admit in the few minutes I was stood waiting, no-one went into the voting booths, they all just picked up the papers off the table and put them in the envelopes.
    I guess there must a “majority” of people who do vote somewhere?!

  14. That’s weird but I also saw a voting slip from a friend of Matthew Bennett in Murcia. It arrived at the house of the voter with the x already in the 3 boxes of the PP. Can’t say I understand that level of corruptness/stupidity.

  15. […] (If you have read the first in my trilogy of articles about Spain and the economy here “Why Work In Spain Must Change” you will see various ideas in […]

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