The European Union produces a regional competitiveness index every three years. The latest one, for 2016, comes replete with a colour-coded map. Deep purple denotes low or negative competitiveness. A bright green shows the highest levels of competitiveness. On the purple to green with a sort of grey in between spectrum, there is almost no green in the Mediterranean. In Spain, of two regions with shades of green, the more vibrant is for Madrid. The Balearics Islands are in the purple zone. Not as low as Sicily, nearly all of Greece, Romania and Bulgaria, but in the slightly less purple category. In other words, not terribly competitive.
The competitiveness is evaluated according to three dimensions. Basic covers institutions (such as government), macroeconomic stability, infrastructure and basic education. Efficiency deals with higher education and lifelong learning, labour market and market size. Innovation is for technological readiness, business sophistication and actual innovation.
Of these, the Balearics score well on only two. Health is one. The other, and there will be some relief here, is basic education, which does therefore offer a brighter perspective than the normal gloom that surrounds the education system. But any positivity is not carried on to higher education. In all, the islands find themselves in 200th place out of 263.
The usual other Spanish suspects join the Balearics towards the bottom of the ranking - Andalusia, the Canaries, Castile-La Mancha, Extremadura, Murcia and the north African cities of Ceuta and Melilla. These are ones which, for instance, have levels of unemployment higher than the rest of Spain. The Balearics are different in this respect, yet the region does not find itself well ranked for labour market efficiency. Nor are business sophistication and innovation particularly good. Lack of competitiveness therefore defines the Balearics.
And there is a further definition, one given by the report. Regional competitiveness is the ability of a region to offer a sustainable and attractive environment for business and residents to live and work Attractiveness for residents is unquestionably a factor in the Balearics. But a positive physical environment is as much a weakness as it is an intangible strength. It has bred a mono-economic culture of distorted tourism seasonality and other distortions - social, wealth and incomes, property ownership, land usage.
The apparent strength of the Balearic economy - 4.1% growth in 2016 - disguises so much. The inefficiency of the labour market, as highlighted by the report, is one of the most obvious. Improved employment there has been, but it is not stable employment. Nor is it well paid. The fact that economic growth has not been matched by improved pay suggests that an ingredient of growth - consumer demand - is limited. And where it exists, its source is more likely to be foreign - tourists and property owners.
Factors of Balearic growth are inconsistent. High levels of investment (private sector) are not matched by the public sector. The government, island councils and town halls are constrained by Madrid's requirements, while the government loses a significant proportion of its tax revenues through the funding which goes to poorer regions, such as Extremadura. This has a knock-on impact on the likes of infrastructure, which are not compensated for by Madrid investment.
But investment can run up against institutional impediments. Legal certainties are regularly referred to because business, e.g. the hotels, builders, are anxious about them. These stem from amendments to regulations at all levels; amendments either made or flagged up as possibilities. A different type of investment - in human capital - is lacking, as can be seen from the low numbers pursuing different forms of higher education. This has an impact on the capacity to innovate, while investment in innovation (where the government is concerned) is vastly lower than its rhetoric suggests. The current administration makes much of its commitment to innovation, yet the budget for this (Biel Barceló's department) is only one-tenth of the whole.
Exports in the form of tourism are the main lifeblood of growth, and given the apparent deficiencies in areas identified by the EU report, one is inclined to conclude that the Balearics achieve good rates of growth despite the obstacles presented.
The EU explains that a growing number of regions use the index in order to compare themselves with others and to identify strengths and weaknesses to shape their development strategies. There is also at the back of it a tool for Brussels to identify where funding is more pressingly required. But ultimately, very little of what the index reveals is either new or surprising. Putting things bluntly, northern Europe is competitive, while southern Europe isn't. How long have we known that?
And in the Balearics, how long have we known about economic reliance on tourism, about an absence of innovation, about patchy educational achievement, about institutional capriciousness? Still, there is always the attractive environment. If only competitiveness was just a factor of landscape, sea and sun.
Showing posts with label Competitiveness. Show all posts
Showing posts with label Competitiveness. Show all posts
Friday, March 24, 2017
Tuesday, January 20, 2015
Law Of Confusion: Opening hours
In 2012 the national government introduced a round of measures designed to liberalise the retail sector and opening hours. An experiment in fourteen cities across Spain, including parts of Palma, that allowed shops to adopt all but unlimited opening hours all year round (to include Sundays and holidays) tested the impact of opening-hours liberalisation in cities with a large tourist presence. According to statistics compiled by the Universidad Nacional de Educación a Distancia (open university), liberalisation would add 0.78% to national GDP, which translated as 8,263 million euros and 16,272 jobs.
The system was thus to be extended to what were already known by the acronym ZGAT (zonas de gran afluencia turística - areas with large tourist influx). ZGAT municipalities across Spain (some towns or cities can have more than one such area) were to be able to decide whether or not they wanted to liberalise opening hours by declaring themselves all-year-round ZGATs. This measure was adopted in the Balearics under the region's Commercial Law approved in October 2014. Under this law, opening hours are normally restricted to a maximum of ninety hours a week for all working days (including Saturdays) and a maximum of sixteen days a year of Sunday and holiday opening, but ZGATs, which already had liberalised Sunday/holiday opening hours in the summer, were to be allowed to apply these to the whole year.
In Mallorca there are a number of towns which are not ZGATs, meaning that the potential for all-year liberalisation does not apply to them. In eleven municipalities, Palma being one of them, ZGAT is applicable to only certain parts of the municipality. In nineteen others, ZGAT applies to the whole town, one of these being Alcúdia. It, as with other ZGAT areas, operates opening hours according to two seasons, the summer season starting on 15 March and finishing at the end of October. As a ZGAT, shops in Alcúdia have been able to open much when they like during the summer, a situation which will continue. But only certain types of shop will now be permitted to open on Sundays and holidays during the winter, because Alcúdia town hall has rejected the notion of making the town all-year-round ZGAT.
An immediate impact of the town hall's decision has been, or appears to have been, that the two Eroski supermarkets that had been opening on a Sunday are now closed and will be until March. Notices direct customers to the store in neighbouring Sa Pobla, a town which, rather bafflingly, is a ZGAT and, because its town hall has declared it to be, an all-year-round ZGAT, to boot. Alcúdia's rejection came after small businesses lobbied against liberalisation. With one eye on the next election perhaps, the town hall sided with the small businesses, mayor Coloma Terrasa noting (and tellingly so, one feels) that now was not the time for liberalisation.
Small business associations across the island have been up in arms over ZGAT extension, claiming that it is designed to help only the larger retailers, those with shopfloors of more than 300 square metres. This size limit is a further aspect that has to be considered. There are general exceptions when it comes to Sunday opening restriction, such as with newsagents and, subject to certain provisions, shops under 300 square metres.
The Eroski supermarkets in Alcúdia are an interesting case. One presumes that it is the town hall's rejection of all-year ZGAT that has led to their closure, but then how was it that they used to be open on Sundays in winter? I don't have an answer to that, but the small business association in a different town, Manacor, has claimed that there has been an abuse of ZGAT.
It needs stressing that objections to ZGAT extension are based on competition and not on a notion of keeping Sunday special. Whether larger supermarkets being open on Sundays in winter would make a great deal of competitive difference is a moot point. Whether it is necessary for them to be open at all on Sundays is another. Areas of large tourist influx? In winter? Alcúdia isn't, but it is more likely to have what tourists are around than a town like Sa Pobla. With the best will in the world, it attracts comparatively few tourists in summer, begging a question as to why it has ever been a ZGAT. If Sa Pobla might be an anomaly, then Vilafranca most definitely is. How does it qualify as a ZGAT and an all-year one, its town hall having adopted the measure? If it can be a ZGAT, then why not, for example, Artà?
The law is confusing in application and consequence. One rule for one town, one rule for the next. If it was improved competitiveness that the government was hoping for, then this is no way to achieve it.
* The decision by Alcúdia town hall has now been reversed, so Alcúdia is an all-year ZGAT and the large supermarkets are able to open on Sundays and holidays all-year round.
The system was thus to be extended to what were already known by the acronym ZGAT (zonas de gran afluencia turística - areas with large tourist influx). ZGAT municipalities across Spain (some towns or cities can have more than one such area) were to be able to decide whether or not they wanted to liberalise opening hours by declaring themselves all-year-round ZGATs. This measure was adopted in the Balearics under the region's Commercial Law approved in October 2014. Under this law, opening hours are normally restricted to a maximum of ninety hours a week for all working days (including Saturdays) and a maximum of sixteen days a year of Sunday and holiday opening, but ZGATs, which already had liberalised Sunday/holiday opening hours in the summer, were to be allowed to apply these to the whole year.
In Mallorca there are a number of towns which are not ZGATs, meaning that the potential for all-year liberalisation does not apply to them. In eleven municipalities, Palma being one of them, ZGAT is applicable to only certain parts of the municipality. In nineteen others, ZGAT applies to the whole town, one of these being Alcúdia. It, as with other ZGAT areas, operates opening hours according to two seasons, the summer season starting on 15 March and finishing at the end of October. As a ZGAT, shops in Alcúdia have been able to open much when they like during the summer, a situation which will continue. But only certain types of shop will now be permitted to open on Sundays and holidays during the winter, because Alcúdia town hall has rejected the notion of making the town all-year-round ZGAT.
An immediate impact of the town hall's decision has been, or appears to have been, that the two Eroski supermarkets that had been opening on a Sunday are now closed and will be until March. Notices direct customers to the store in neighbouring Sa Pobla, a town which, rather bafflingly, is a ZGAT and, because its town hall has declared it to be, an all-year-round ZGAT, to boot. Alcúdia's rejection came after small businesses lobbied against liberalisation. With one eye on the next election perhaps, the town hall sided with the small businesses, mayor Coloma Terrasa noting (and tellingly so, one feels) that now was not the time for liberalisation.
Small business associations across the island have been up in arms over ZGAT extension, claiming that it is designed to help only the larger retailers, those with shopfloors of more than 300 square metres. This size limit is a further aspect that has to be considered. There are general exceptions when it comes to Sunday opening restriction, such as with newsagents and, subject to certain provisions, shops under 300 square metres.
The Eroski supermarkets in Alcúdia are an interesting case. One presumes that it is the town hall's rejection of all-year ZGAT that has led to their closure, but then how was it that they used to be open on Sundays in winter? I don't have an answer to that, but the small business association in a different town, Manacor, has claimed that there has been an abuse of ZGAT.
It needs stressing that objections to ZGAT extension are based on competition and not on a notion of keeping Sunday special. Whether larger supermarkets being open on Sundays in winter would make a great deal of competitive difference is a moot point. Whether it is necessary for them to be open at all on Sundays is another. Areas of large tourist influx? In winter? Alcúdia isn't, but it is more likely to have what tourists are around than a town like Sa Pobla. With the best will in the world, it attracts comparatively few tourists in summer, begging a question as to why it has ever been a ZGAT. If Sa Pobla might be an anomaly, then Vilafranca most definitely is. How does it qualify as a ZGAT and an all-year one, its town hall having adopted the measure? If it can be a ZGAT, then why not, for example, Artà?
The law is confusing in application and consequence. One rule for one town, one rule for the next. If it was improved competitiveness that the government was hoping for, then this is no way to achieve it.
* The decision by Alcúdia town hall has now been reversed, so Alcúdia is an all-year ZGAT and the large supermarkets are able to open on Sundays and holidays all-year round.
Friday, May 31, 2013
Jobs For The Boys
Apologies for lateness - internet woes!
According to the "Urban Dictionary", "bish bosh" means "an improper or unfinished piece of work due to laziness", while "bish bash bosh" describes "the efficiency of a process you have just explained" as in one, two, three steps, it's as simple as that, bish bash bosh.
I don't know, on the one hand, that laziness is a fair criticism, but there was some unfinished work at the Balearics education ministry. It does, on the other hand, appear to be a case of being as simple as that in securing another post in Balearics government circles for those who leave unfinished work behind. To what and to whom am I referring? What else and who else than "The Return Of The Mighty Bosch" (or maybe Boosh would make more sense).
Bish bash bosh, simple as that, Bosch is back. Job's a good 'un. Unlike the job that wasn't a good 'un at the education ministry and which resulted in the Mighty Bosch being given his P45 and replaced by someone likely to be more amenable to following the government's education language policy. The presidential ink barely dry on the dismissal notice and Rafael Bosch has found new gainful employment - this time at the newly-created ministry for the economy and competitiveness. He is to be an advisor on competitiveness. Good for him.
WARNING, WARNING, cliché coming up. Jobs in government are like the managerial merry-go-round in the Premier League (the merry-go-round being the cliché in case you aren't up to speed with footballspeak). Bosch is to the Balearics Government as Mark Hughes is to the Premiership. No use at QPR, for some inexplicable reason he gets the gig at Stoke City. All jobs for the boys or, in Hughes's case, having a persistent agent.
Rafael probably doesn't have an agent and he doesn't seem to need one. Just hangs around the corridors at the Consolat de Mar and waits for the first competitiveness-advisory task to be cobbled together into the form of a job description. And presumably, competitiveness in the Balearics isn't dependent upon a language policy. If it were, then there would surely have been no advisory role for Rafael. But then, is there not at least some element of language that plays a part in Balearics competitiveness? Is Castellano not a language that offers the potential for greater competitiveness? Hmm. Can the Catalanist Bosch (Catalanist according to the Círculo Balear's strongly anti-Catalanist Jorge Campos, that is) be trusted to pursue competitiveness with full Castellano vigour? I'm sure he can be.
Rafael having found a way of being able to continue to pay the mortgage, what of others who were recently shuffled out of the Bauzá cabinet? Will they also be returning? What role might there be for Josep Aguiló, who was ostensibly in charge of competitiveness before getting the heave-ho? Governmental advisor for paper clips and staples perhaps?
Perhaps Bosch might help the new boy at competitiveness, Joaquín García, make more of a fist of things than Aguiló did. For the ex-minister, competitiveness appeared to amount to little more than lowering wages but any failings he had in competitiveness terms weren't really his fault. He was also bean-counter-in-chief, and so looking after the centimos was his main priority. Bauzá was right to recognise that Aguiló's portfolio was too broad and so has created separate ministries - one for the economy and one for bean-counting - but the consequence of this is that the new bean-counter-in-chief, José Marí, is going to have the count the half a million euros more cost of the various new jobs for the boys, of which Bosch's is one.
And among these new jobs is provision for not one but two press officers for García (the other new and separate ministry is social services which have been spun out of the health portfolio). Two press officers? Why are two press officers needed? What does even one of them do? Is the Balearic Government so vast that it requires all these press people knocking around the place in the different ministries?
The opposition has, naturally enough, latched onto the fact that Bosch's appointment is representative of an increase and not a decrease in public spending on governmental posts. Austerity for some but not for others. Perceptions, perceptions, always perceptions. There may be sound reasons for these new appointments but there is an unmistakable feeling that these reasons may include jobs for the boys.
Any comments to andrew@thealcudiaguide.com please.
Index for May 2013
Aina Cifre: Pollensa painter - 25 May 2013
Alchemy - 18 May 2013
Balearic Government cabinet re-shuffle and new jobs - 3 May 2013, 31 May 2013
Blue flags - 24 May 2013
Catalan and Mallorquín - 21 May 2013
Chemists and tourists - 23 May 2013
Diplocat and Catalonian independence - 1 May 2013
ESRA flower show - 17 May 2013
Gibraltar and UEFA - 26 May 2013
Ironman in Alcúdia: inconveniences - 12 May 2013
King's royal yacht - 19 May 2013
Low-cost tourism - 4 May 2013
Magalluf troubles - 7 May 2013
Majorca Daily Bulletin: MBE award dinner - 11 May 2013
Manacor-Artà train - 6 May 2013
Naturism in Mallorca - 5 May 2013
President Bauzá's secretary - 20 May 2013
Protests over beach matters - 27 May 2013
Puerto Alcúdia beach path asphalt - 8 May 2013
Religious studies and education reform - 30 May 2013
Roads: unused and unfinished - 16 May 2013
Rumours and hotels - 28 May 2013
Salvador Dalí - 10 May 2013
Seasonality and winter tourism - 13 May 2013
Senegalese man dies of TB - 14 May 2013, 29 May 2013
Tax and mistrust - 22 May 2013
Tenancy act revision and holiday lets - 9 May 2013, 15 May 2013
Tourism promotion and Balearics' island councils - 2 May 2013
According to the "Urban Dictionary", "bish bosh" means "an improper or unfinished piece of work due to laziness", while "bish bash bosh" describes "the efficiency of a process you have just explained" as in one, two, three steps, it's as simple as that, bish bash bosh.
I don't know, on the one hand, that laziness is a fair criticism, but there was some unfinished work at the Balearics education ministry. It does, on the other hand, appear to be a case of being as simple as that in securing another post in Balearics government circles for those who leave unfinished work behind. To what and to whom am I referring? What else and who else than "The Return Of The Mighty Bosch" (or maybe Boosh would make more sense).
Bish bash bosh, simple as that, Bosch is back. Job's a good 'un. Unlike the job that wasn't a good 'un at the education ministry and which resulted in the Mighty Bosch being given his P45 and replaced by someone likely to be more amenable to following the government's education language policy. The presidential ink barely dry on the dismissal notice and Rafael Bosch has found new gainful employment - this time at the newly-created ministry for the economy and competitiveness. He is to be an advisor on competitiveness. Good for him.
WARNING, WARNING, cliché coming up. Jobs in government are like the managerial merry-go-round in the Premier League (the merry-go-round being the cliché in case you aren't up to speed with footballspeak). Bosch is to the Balearics Government as Mark Hughes is to the Premiership. No use at QPR, for some inexplicable reason he gets the gig at Stoke City. All jobs for the boys or, in Hughes's case, having a persistent agent.
Rafael probably doesn't have an agent and he doesn't seem to need one. Just hangs around the corridors at the Consolat de Mar and waits for the first competitiveness-advisory task to be cobbled together into the form of a job description. And presumably, competitiveness in the Balearics isn't dependent upon a language policy. If it were, then there would surely have been no advisory role for Rafael. But then, is there not at least some element of language that plays a part in Balearics competitiveness? Is Castellano not a language that offers the potential for greater competitiveness? Hmm. Can the Catalanist Bosch (Catalanist according to the Círculo Balear's strongly anti-Catalanist Jorge Campos, that is) be trusted to pursue competitiveness with full Castellano vigour? I'm sure he can be.
Rafael having found a way of being able to continue to pay the mortgage, what of others who were recently shuffled out of the Bauzá cabinet? Will they also be returning? What role might there be for Josep Aguiló, who was ostensibly in charge of competitiveness before getting the heave-ho? Governmental advisor for paper clips and staples perhaps?
Perhaps Bosch might help the new boy at competitiveness, Joaquín García, make more of a fist of things than Aguiló did. For the ex-minister, competitiveness appeared to amount to little more than lowering wages but any failings he had in competitiveness terms weren't really his fault. He was also bean-counter-in-chief, and so looking after the centimos was his main priority. Bauzá was right to recognise that Aguiló's portfolio was too broad and so has created separate ministries - one for the economy and one for bean-counting - but the consequence of this is that the new bean-counter-in-chief, José Marí, is going to have the count the half a million euros more cost of the various new jobs for the boys, of which Bosch's is one.
And among these new jobs is provision for not one but two press officers for García (the other new and separate ministry is social services which have been spun out of the health portfolio). Two press officers? Why are two press officers needed? What does even one of them do? Is the Balearic Government so vast that it requires all these press people knocking around the place in the different ministries?
The opposition has, naturally enough, latched onto the fact that Bosch's appointment is representative of an increase and not a decrease in public spending on governmental posts. Austerity for some but not for others. Perceptions, perceptions, always perceptions. There may be sound reasons for these new appointments but there is an unmistakable feeling that these reasons may include jobs for the boys.
Any comments to andrew@thealcudiaguide.com please.
Index for May 2013
Aina Cifre: Pollensa painter - 25 May 2013
Alchemy - 18 May 2013
Balearic Government cabinet re-shuffle and new jobs - 3 May 2013, 31 May 2013
Blue flags - 24 May 2013
Catalan and Mallorquín - 21 May 2013
Chemists and tourists - 23 May 2013
Diplocat and Catalonian independence - 1 May 2013
ESRA flower show - 17 May 2013
Gibraltar and UEFA - 26 May 2013
Ironman in Alcúdia: inconveniences - 12 May 2013
King's royal yacht - 19 May 2013
Low-cost tourism - 4 May 2013
Magalluf troubles - 7 May 2013
Majorca Daily Bulletin: MBE award dinner - 11 May 2013
Manacor-Artà train - 6 May 2013
Naturism in Mallorca - 5 May 2013
President Bauzá's secretary - 20 May 2013
Protests over beach matters - 27 May 2013
Puerto Alcúdia beach path asphalt - 8 May 2013
Religious studies and education reform - 30 May 2013
Roads: unused and unfinished - 16 May 2013
Rumours and hotels - 28 May 2013
Salvador Dalí - 10 May 2013
Seasonality and winter tourism - 13 May 2013
Senegalese man dies of TB - 14 May 2013, 29 May 2013
Tax and mistrust - 22 May 2013
Tenancy act revision and holiday lets - 9 May 2013, 15 May 2013
Tourism promotion and Balearics' island councils - 2 May 2013
Wednesday, March 20, 2013
The Export That Isn't: Tourism
I have had reason before to question the credentials of Luis de Guindos, he who has the title of minister for the economy and competitiveness but who does his very best to demonstrate that he shouldn't be minister for either. Let's be fair though to Sr. de Guindos. He may not have noticed something, so let's just go back, for example, three years to 2010. What, as reported by the World Bank, contributed 15.4% of Spain's total exports in that year? Did Sr. de Guindos not notice? Has he not noticed since? The 15.4% was the percentage of exports through tourism.
There has been an arcane debate about whether tourism is an export or not, a debate I don't intend to bore you with, but it is one that has now been won and has come down on the side of export. The World Bank recognises tourism as an export, the UN's World Tourism Organization recognises it as such (tourism, according to the WTO, ranks fourth in global export categories), the US Government recognises it also - 168,000 million dollars were contributed to the US economy in 2012. And even the Spanish Government recognises tourism as an export. Maybe.
In an address in Madrid in January, Taleb Rifai, the secretary-general of the WTO, said that "here in Spain (and the WTO is based in Madrid), the government identified tourism as the country's main export sector as it took office". When the national government launched its national tourism plan, Soraya Saenz de Santamaria, the deputy prime minister who does a very good impression of in fact being the prime minister, emphasised the importance of tourism. It is "the policy of the state", she said. However, there is someone in the Spanish Government who seems to be unaware of this state policy. Luis de Guindos. Or maybe he is aware, just that, and he is only minister for the economy and competitiveness after all, he manages to overlook tourism's export role.
The Spanish Government's one bit of good economic news over the past couple of years has been the strength of exports. De Guindos pitches up from time to time at press conferences, says how marvellous the export sector is and totally ignores tourism. He talks about everything else but the sector which, by only a small margin, is the second largest contributor to Spain's exports. In 2012, tourism contributed 43,306 million euros, beaten only by a category of capital equipment (43,732 million euros). As a percentage of total exports, tourism had risen to 16.2%.
The astounding fact is that the data for the performance of different export sectors come from, yes, de Guindos's ministry and these data are used for the calculation of Spain's balance of payments. So why does the minister repeatedly fail to recognise tourism as an export? It's a very good question, the answer to which is that I haven't a clue. And nor do any other commentators. There are guesses as to why, and principal among them is that, though the government talks a good tourism talk, it doesn't walk it, as in making tourism a priority economic sector. So much for state policy, if this is true.
Another guess is that the government is a bit too embarrassed to admit to the contribution that tourism makes when it is doing what it can to reduce this export competitiveness - increasing IVA, increasing airport taxes, these sorts of far-sighted policies. It puts up the tourism minister Soria to say how wrong the Balearic Government is for imposing a tax on car hire, and so attempt to appear to be righteous and to be emphasising state policy, while at the same time failing to recognise that its own policies might not be the most advantageous for tourism.
It is through exports that the government will manage to effect some positive growth. It will not do it any other way. But, and I've said this previously, it is hard to see how this could be sustained. When, if, recession comes to an end, pressure will be brought to bear to reverse the downward trend in labour costs, i.e. there will be pressure for wage and salary increases. While these would have an impact on tourism, the impact would be greater in other export sectors; tourism is remarkably resilient compared with some other parts of the economy. The government, therefore, should be doing all it can to not just ensure tourism growth but to ensure its grows more quickly. Not in two or three years time but now. But then, and despite state policy, if the minister for the economy and competitiveness is unaware of tourism, then how can it?
Any comments to andrew@thealcudiaguide.com please.
There has been an arcane debate about whether tourism is an export or not, a debate I don't intend to bore you with, but it is one that has now been won and has come down on the side of export. The World Bank recognises tourism as an export, the UN's World Tourism Organization recognises it as such (tourism, according to the WTO, ranks fourth in global export categories), the US Government recognises it also - 168,000 million dollars were contributed to the US economy in 2012. And even the Spanish Government recognises tourism as an export. Maybe.
In an address in Madrid in January, Taleb Rifai, the secretary-general of the WTO, said that "here in Spain (and the WTO is based in Madrid), the government identified tourism as the country's main export sector as it took office". When the national government launched its national tourism plan, Soraya Saenz de Santamaria, the deputy prime minister who does a very good impression of in fact being the prime minister, emphasised the importance of tourism. It is "the policy of the state", she said. However, there is someone in the Spanish Government who seems to be unaware of this state policy. Luis de Guindos. Or maybe he is aware, just that, and he is only minister for the economy and competitiveness after all, he manages to overlook tourism's export role.
The Spanish Government's one bit of good economic news over the past couple of years has been the strength of exports. De Guindos pitches up from time to time at press conferences, says how marvellous the export sector is and totally ignores tourism. He talks about everything else but the sector which, by only a small margin, is the second largest contributor to Spain's exports. In 2012, tourism contributed 43,306 million euros, beaten only by a category of capital equipment (43,732 million euros). As a percentage of total exports, tourism had risen to 16.2%.
The astounding fact is that the data for the performance of different export sectors come from, yes, de Guindos's ministry and these data are used for the calculation of Spain's balance of payments. So why does the minister repeatedly fail to recognise tourism as an export? It's a very good question, the answer to which is that I haven't a clue. And nor do any other commentators. There are guesses as to why, and principal among them is that, though the government talks a good tourism talk, it doesn't walk it, as in making tourism a priority economic sector. So much for state policy, if this is true.
Another guess is that the government is a bit too embarrassed to admit to the contribution that tourism makes when it is doing what it can to reduce this export competitiveness - increasing IVA, increasing airport taxes, these sorts of far-sighted policies. It puts up the tourism minister Soria to say how wrong the Balearic Government is for imposing a tax on car hire, and so attempt to appear to be righteous and to be emphasising state policy, while at the same time failing to recognise that its own policies might not be the most advantageous for tourism.
It is through exports that the government will manage to effect some positive growth. It will not do it any other way. But, and I've said this previously, it is hard to see how this could be sustained. When, if, recession comes to an end, pressure will be brought to bear to reverse the downward trend in labour costs, i.e. there will be pressure for wage and salary increases. While these would have an impact on tourism, the impact would be greater in other export sectors; tourism is remarkably resilient compared with some other parts of the economy. The government, therefore, should be doing all it can to not just ensure tourism growth but to ensure its grows more quickly. Not in two or three years time but now. But then, and despite state policy, if the minister for the economy and competitiveness is unaware of tourism, then how can it?
Any comments to andrew@thealcudiaguide.com please.
Thursday, March 14, 2013
The Recovery Will Not Be Realised
Alfredo Pastor is professor of economics at the IESE Business School. He is also a former secretary of state for the economy - in the last PSOE government of Felipe González. It was interesting, therefore, to find an article of his in "The Bulletin", one entitled "Reasons to believe Spain's recovery is not far away". The reasons why Professor Pastor believes recovery might be in the offing include greater competitiveness through lower labour costs, a growing export market and some hints of business confidence creeping back.
There are some signs of recovery and it would be wrong to talk down the possibility of an improvement in the overall economic picture if not this year then next. BBVA bank has suggested that negative growth of minus 1.1% in 2013, slightly less bad than had been predicted, will be matched by plus 1.1% in 2014. It wouldn't be a huge improvement, but it would still be an improvement. BBVA, like Professor Pastor, emphasises export performance, but the economist Edward Hugh, generally a pessimist rather than an optimist, has made a comparison with the experience in Hungary where, despite good export performance, its economy keeps slipping back into recession. In Hungary, the country's current account balance is in the black. Spain's is moving this way, too, which sounds like a reason to be cheerful, but this disguises the size of the country's external debt.
Because of this debt, gains that are made from having a trade surplus thanks to export performance are used to service the debt. Greater competitiveness because of lower labour costs (internal devaluation) leads to better export competitiveness but doesn't necessarily mean economic growth, or growth that is anything other than small or even sustainable.
The Spanish Government is pinning its hopes on there being some growth, even if it is very moderate, and on this having a positive impact on the 26% unemployment rate. But unless export growth were to be more spectacular, it remains difficult to see how this unemployment is going to be tackled. Despite Professor Pastor's belief that confidence may be coming back, even if it is only trickling back, is this confidence among exporters or among those involved with the domestic market? The retail sector, for instance, is depressed and is likely to stay depressed. It may even become more depressed. And the reason for this is that there are potentially more recessionary measures yet to be taken.
The EU's budget enforcer, Olli Rehn, has suggested that Spain's deficit targets, ones that the government keeps missing anyway, could be eased, but the fact is that the country's fiscal position is currently unsustainable. More cuts and more tax increases are going to be needed at some point. Indeed, the EU has also suggested that there is room for a further rise in IVA (if not to the higher, general rate then to the lower rate, the so-called tourist rate). The political fallout from a rise in the tourist rate might prove too much for the government and for its supporters in the tourism industry who would desert it. But if the higher rate were to rise, then demand would be squeezed even more, meaning a further brake on any possible growth.
The miserable truth is that although taxes have been raised, although cuts have been swingeing, the deficit targets are still not being met, while, as a consequence - and perversely enough - of attempting to curb the deficit as swiftly as the government has been attempting to, the economy has been contracting because of the squeeze on demand.
Growth may return next year but as the government has been hell-bent (mainly because it had no other option) on pursuing a policy of internal devaluation through lower costs, this will also, both in the short and longer-term, have a depressive effect. Salary and wage reductions, some in the order of up to 40%, mainly in the public sector but certainly not exclusively, will do nothing to stimulate demand, and with credit squeezed as well (though movements on banks' recapitalisation may just takes the brakes off to a degree), it is almost impossible to see from where growth, other than any from exports, is likely to come and even more impossible to see how it might be sustained.
Professor Pastor is optimistic that the political situation re Catalonia will not lead to violence (and one can interpret this how one wants). Let's hope he's right. I happen to agree with him, but can there be the same optimism where social discontent is concerned? There is only so much a people can put up with, and while the financial economy might be showing an improvement, in the real world, there is none.
Any comments to andrew@thealcudiaguide.com please.
There are some signs of recovery and it would be wrong to talk down the possibility of an improvement in the overall economic picture if not this year then next. BBVA bank has suggested that negative growth of minus 1.1% in 2013, slightly less bad than had been predicted, will be matched by plus 1.1% in 2014. It wouldn't be a huge improvement, but it would still be an improvement. BBVA, like Professor Pastor, emphasises export performance, but the economist Edward Hugh, generally a pessimist rather than an optimist, has made a comparison with the experience in Hungary where, despite good export performance, its economy keeps slipping back into recession. In Hungary, the country's current account balance is in the black. Spain's is moving this way, too, which sounds like a reason to be cheerful, but this disguises the size of the country's external debt.
Because of this debt, gains that are made from having a trade surplus thanks to export performance are used to service the debt. Greater competitiveness because of lower labour costs (internal devaluation) leads to better export competitiveness but doesn't necessarily mean economic growth, or growth that is anything other than small or even sustainable.
The Spanish Government is pinning its hopes on there being some growth, even if it is very moderate, and on this having a positive impact on the 26% unemployment rate. But unless export growth were to be more spectacular, it remains difficult to see how this unemployment is going to be tackled. Despite Professor Pastor's belief that confidence may be coming back, even if it is only trickling back, is this confidence among exporters or among those involved with the domestic market? The retail sector, for instance, is depressed and is likely to stay depressed. It may even become more depressed. And the reason for this is that there are potentially more recessionary measures yet to be taken.
The EU's budget enforcer, Olli Rehn, has suggested that Spain's deficit targets, ones that the government keeps missing anyway, could be eased, but the fact is that the country's fiscal position is currently unsustainable. More cuts and more tax increases are going to be needed at some point. Indeed, the EU has also suggested that there is room for a further rise in IVA (if not to the higher, general rate then to the lower rate, the so-called tourist rate). The political fallout from a rise in the tourist rate might prove too much for the government and for its supporters in the tourism industry who would desert it. But if the higher rate were to rise, then demand would be squeezed even more, meaning a further brake on any possible growth.
The miserable truth is that although taxes have been raised, although cuts have been swingeing, the deficit targets are still not being met, while, as a consequence - and perversely enough - of attempting to curb the deficit as swiftly as the government has been attempting to, the economy has been contracting because of the squeeze on demand.
Growth may return next year but as the government has been hell-bent (mainly because it had no other option) on pursuing a policy of internal devaluation through lower costs, this will also, both in the short and longer-term, have a depressive effect. Salary and wage reductions, some in the order of up to 40%, mainly in the public sector but certainly not exclusively, will do nothing to stimulate demand, and with credit squeezed as well (though movements on banks' recapitalisation may just takes the brakes off to a degree), it is almost impossible to see from where growth, other than any from exports, is likely to come and even more impossible to see how it might be sustained.
Professor Pastor is optimistic that the political situation re Catalonia will not lead to violence (and one can interpret this how one wants). Let's hope he's right. I happen to agree with him, but can there be the same optimism where social discontent is concerned? There is only so much a people can put up with, and while the financial economy might be showing an improvement, in the real world, there is none.
Any comments to andrew@thealcudiaguide.com please.
Tuesday, February 21, 2012
The Competitiveness Trap In Mallorca
For years, I have been beating the drum for the need for greater economic diversification in Mallorca. I have also been critical of a lack of competitiveness. I take no credit for having drawn attention to either as they are obvious.
Over the weekend, there was a gathering of the great and good (sic) of various business bodies and the regional government. They called on Brussels to recognise problems caused by the insularity of the Balearics. They referred to problems for competitiveness created by elevated transportation costs. They cried out for major investment in research and development. They insisted that there had to be diversification away from a reliance upon tourism.
It makes you want to scream. None of these issues are new, especially calling on Brussels to put its hands in its pockets. Apart from previous aid from Brussels, the other issues have either been handled badly or simply not been handled at all. What really makes you want to scream is the fact that Josep Aguiló, the government's finance and business minister, was there, trotting out mantras that would not now need to be trotted out if any meaningful action had been taken in the past to address the lack of competitiveness, R&D and diversification.
It would be instructive to learn from Aguiló what he actually believes competitiveness to mean. Perhaps he concurs with Air Berlin's Álvaro Middelmann, who implied that Balearic taxpayers were being ripped off by paying for mainland infrastructure and that transport (and transportation) systems in and for the Balearics are inadequate.
The greater costs of both import and export because of higher transportation costs are a further obvious factor. So why are the great and good only talking about it now? And what are they going to do about it? The answer is probably nothing, other than to hope that Brussels might come calling.
Balearic taxpayers were paid an inadvertent insult by President Bauzá when he made such a thing of bigging up the high-speed rail link from Algeciras to the French border. It will help to lower transportation costs to the Balearics, he said. Well, let's hope he's right because a conclusion one can draw from Middelmann is that he appears to think that it won't benefit the Balearics, and if you were to choose between a businessman who regularly speaks common sense and an ambitious politician only too willing to be seen allying himself with fellow PP leaders on the mainland, then I would suggest you choose the former.
While lending his support to the AVE train, what is Bauzá doing for Mallorca's transport system? He took a ride on the inaugural electrified train to Inca and gloried in the celebration of something set in motion by a previous government. Other than this?
He will argue that his hands are tied by the man with the money box, namely Aguiló. And to the question as to what Aguiló believes competitiveness to mean, the answer will be the same as his masters in Madrid. Lower wages. Reduce the pay packets of those already receiving a pittance for performing mainly McJobs in the tourism industry, and tourism will receive a boost and Mallorca's troubles will be over.
Except of course, he is wrong. Price competition isn't the same as competitiveness. Not competitiveness as it applies to a country or to a region or to an island. Competitiveness comprises among other things - and I borrow from Harvard professor Michael Porter here - good education, good roads, sound economic policies, trusted institutions (to include the legal system), privatisation and, perhaps above all, the right mentality for economic progress engrained in the local culture.
How many of these elements exist in Mallorca? The public education system is lousy, some roads are good, but many are not, economic policies have been anything but sound, the legal system is way too politicised, there is privatisation but could be more, the mentality is one of so long as there's enough to pay for a good fiesta, then the rest can go hang.
Lowering wages will achieve nothing in terms of improved competitiveness. The opposite is the case, because they do not contribute to higher living standards. Competitiveness equals productivity and maximising returns on all products and services and on human resources. And where the latter are concerned, the best are getting the hell out of the Balearics.
It's the same old story. Tourism is all there really is. The private sector might be able to do something about diversification and R&D, but if it comes up against a mentality that seems incapable of looking beyond a Brussels sugar daddy and that for years has failed to address these issues, then it won't.
Any comments to andrew@thealcudiaguide.com please.
Over the weekend, there was a gathering of the great and good (sic) of various business bodies and the regional government. They called on Brussels to recognise problems caused by the insularity of the Balearics. They referred to problems for competitiveness created by elevated transportation costs. They cried out for major investment in research and development. They insisted that there had to be diversification away from a reliance upon tourism.
It makes you want to scream. None of these issues are new, especially calling on Brussels to put its hands in its pockets. Apart from previous aid from Brussels, the other issues have either been handled badly or simply not been handled at all. What really makes you want to scream is the fact that Josep Aguiló, the government's finance and business minister, was there, trotting out mantras that would not now need to be trotted out if any meaningful action had been taken in the past to address the lack of competitiveness, R&D and diversification.
It would be instructive to learn from Aguiló what he actually believes competitiveness to mean. Perhaps he concurs with Air Berlin's Álvaro Middelmann, who implied that Balearic taxpayers were being ripped off by paying for mainland infrastructure and that transport (and transportation) systems in and for the Balearics are inadequate.
The greater costs of both import and export because of higher transportation costs are a further obvious factor. So why are the great and good only talking about it now? And what are they going to do about it? The answer is probably nothing, other than to hope that Brussels might come calling.
Balearic taxpayers were paid an inadvertent insult by President Bauzá when he made such a thing of bigging up the high-speed rail link from Algeciras to the French border. It will help to lower transportation costs to the Balearics, he said. Well, let's hope he's right because a conclusion one can draw from Middelmann is that he appears to think that it won't benefit the Balearics, and if you were to choose between a businessman who regularly speaks common sense and an ambitious politician only too willing to be seen allying himself with fellow PP leaders on the mainland, then I would suggest you choose the former.
While lending his support to the AVE train, what is Bauzá doing for Mallorca's transport system? He took a ride on the inaugural electrified train to Inca and gloried in the celebration of something set in motion by a previous government. Other than this?
He will argue that his hands are tied by the man with the money box, namely Aguiló. And to the question as to what Aguiló believes competitiveness to mean, the answer will be the same as his masters in Madrid. Lower wages. Reduce the pay packets of those already receiving a pittance for performing mainly McJobs in the tourism industry, and tourism will receive a boost and Mallorca's troubles will be over.
Except of course, he is wrong. Price competition isn't the same as competitiveness. Not competitiveness as it applies to a country or to a region or to an island. Competitiveness comprises among other things - and I borrow from Harvard professor Michael Porter here - good education, good roads, sound economic policies, trusted institutions (to include the legal system), privatisation and, perhaps above all, the right mentality for economic progress engrained in the local culture.
How many of these elements exist in Mallorca? The public education system is lousy, some roads are good, but many are not, economic policies have been anything but sound, the legal system is way too politicised, there is privatisation but could be more, the mentality is one of so long as there's enough to pay for a good fiesta, then the rest can go hang.
Lowering wages will achieve nothing in terms of improved competitiveness. The opposite is the case, because they do not contribute to higher living standards. Competitiveness equals productivity and maximising returns on all products and services and on human resources. And where the latter are concerned, the best are getting the hell out of the Balearics.
It's the same old story. Tourism is all there really is. The private sector might be able to do something about diversification and R&D, but if it comes up against a mentality that seems incapable of looking beyond a Brussels sugar daddy and that for years has failed to address these issues, then it won't.
Any comments to andrew@thealcudiaguide.com please.
Thursday, January 05, 2012
Not Rocket Science: Spain's R&D
"R&D is an essential factor in improving competitiveness. If Spain wants to continue to grow and generate employment we have to be capable of generating our own knowledge."
These were the words of the then deputy prime minister of Spain in 2007. The new government, as part of its cutbacks, has announced a 7% reduction in expenditure on R&D (usually in Spain referred to as I+D for innovation and development).
At times of economic hardship it is common for businesses to cut back on expenditure that does not have an immediate positive impact on the bottom line; R&D being one of the first things to go as policies of short-termism come to dominate. Short-termism is about all that the Spanish Government is currently concerned with, but to reduce R&D investment is a massive mistake.
Successive governments, both nationally and regionally (in the case of the Balearics) have talked a good talk when it comes to R&D. But talk is about all they have done. A reason for a lack of competitiveness in Spain and the Balearics is that spend devoted to research is well below that of most European countries. In 2006, prior therefore to the words of Maria Teresa Fernandez de la Vega, the former deputy PM, Spain's investment was slightly more than 1% of GDP. Sweden, the European leader, devoted over 3.5%.
Things didn't really improve under the last government, despite a national plan, supported by thirteen national programmes of R&D and five strategic actions plus something called AVANZA2, itself divided into five areas, and umbrella projects suffixed Eureka this, Euro, Inno or Econ that. It is not, therefore, that there is a lack of intent. But intent is one thing, actually doing anything seems to be quite a different matter.
The consequences of the under-investment in research are clear enough. In addition to uncompetitiveness, it results in a lack of economic diversity and a lack of opportunity for those who have the requisite skills and who then decide to take them elsewhere. The Spanish "brain drain" takes talent abroad, and within the country itself it takes it to the traditional centres of industry - Madrid, Catalonia and the Basque Country - and away from regions that can ill afford to lose it, such as the Balearics.
While Spanish and regional governments can be blamed for spending too little, they can also be blamed for failing to address a general culture of innovation. Spain's main research body, the National Research Council, was established in 1939. Its origins are, in this respect, telling, as they come from a time when the government (i.e. Franco's) oversaw all business and economic activity. The country has never really comes to terms with not being led by government and being reliant upon it for both direction and funding.
The first and, as far as I am aware, still the only private business R&D centre in Spain is that of Telefónica. Think what you will about Telefónica, but it is just about Spain's only truly world-class company. When a German neighbour and I were once chatting about Spanish business, the question cropped up as to what "great" companies Spain had. We got as far as Telefónica, and that was it.
There is no comparison with Germany and its high levels of competitiveness. In addition to Germany's world-class companies like Siemens, the bedrock of the German economy is the Mittelstand, the medium-sized engineering business, often privately owned and one imbued with a culture of training and research. I had experience of one such company. It was a world leader in its field and its willingness to invest was impressive.
The culture is of course very different to Spain where, with the property and construction boom having imploded, tourism is, as always, looked to for salvation. And the new tourism secretary of state has pretty much said as much. When there isn't much else, it's hardly surprising though.
The national and regional obsession with tourism, as demonstrated by the amount of attention that is paid to tourism by the media, reflects the fact that there is so little else. The expectation is always that tourism will come good, and it usually does, but in so doing it reinforces the inertia that prevents real progress, as with R&D. Tourism, when you think about it, is, or certainly was, pretty easy. Stick a hotel and a few restaurants up, make the beach look nice and Bob was your uncle and hopefully still is. It isn't rocket science, which is just as well, because Spain and Mallorca simply don't do rocket science.
Any comments to andrew@thealcudiaguide.com please.
These were the words of the then deputy prime minister of Spain in 2007. The new government, as part of its cutbacks, has announced a 7% reduction in expenditure on R&D (usually in Spain referred to as I+D for innovation and development).
At times of economic hardship it is common for businesses to cut back on expenditure that does not have an immediate positive impact on the bottom line; R&D being one of the first things to go as policies of short-termism come to dominate. Short-termism is about all that the Spanish Government is currently concerned with, but to reduce R&D investment is a massive mistake.
Successive governments, both nationally and regionally (in the case of the Balearics) have talked a good talk when it comes to R&D. But talk is about all they have done. A reason for a lack of competitiveness in Spain and the Balearics is that spend devoted to research is well below that of most European countries. In 2006, prior therefore to the words of Maria Teresa Fernandez de la Vega, the former deputy PM, Spain's investment was slightly more than 1% of GDP. Sweden, the European leader, devoted over 3.5%.
Things didn't really improve under the last government, despite a national plan, supported by thirteen national programmes of R&D and five strategic actions plus something called AVANZA2, itself divided into five areas, and umbrella projects suffixed Eureka this, Euro, Inno or Econ that. It is not, therefore, that there is a lack of intent. But intent is one thing, actually doing anything seems to be quite a different matter.
The consequences of the under-investment in research are clear enough. In addition to uncompetitiveness, it results in a lack of economic diversity and a lack of opportunity for those who have the requisite skills and who then decide to take them elsewhere. The Spanish "brain drain" takes talent abroad, and within the country itself it takes it to the traditional centres of industry - Madrid, Catalonia and the Basque Country - and away from regions that can ill afford to lose it, such as the Balearics.
While Spanish and regional governments can be blamed for spending too little, they can also be blamed for failing to address a general culture of innovation. Spain's main research body, the National Research Council, was established in 1939. Its origins are, in this respect, telling, as they come from a time when the government (i.e. Franco's) oversaw all business and economic activity. The country has never really comes to terms with not being led by government and being reliant upon it for both direction and funding.
The first and, as far as I am aware, still the only private business R&D centre in Spain is that of Telefónica. Think what you will about Telefónica, but it is just about Spain's only truly world-class company. When a German neighbour and I were once chatting about Spanish business, the question cropped up as to what "great" companies Spain had. We got as far as Telefónica, and that was it.
There is no comparison with Germany and its high levels of competitiveness. In addition to Germany's world-class companies like Siemens, the bedrock of the German economy is the Mittelstand, the medium-sized engineering business, often privately owned and one imbued with a culture of training and research. I had experience of one such company. It was a world leader in its field and its willingness to invest was impressive.
The culture is of course very different to Spain where, with the property and construction boom having imploded, tourism is, as always, looked to for salvation. And the new tourism secretary of state has pretty much said as much. When there isn't much else, it's hardly surprising though.
The national and regional obsession with tourism, as demonstrated by the amount of attention that is paid to tourism by the media, reflects the fact that there is so little else. The expectation is always that tourism will come good, and it usually does, but in so doing it reinforces the inertia that prevents real progress, as with R&D. Tourism, when you think about it, is, or certainly was, pretty easy. Stick a hotel and a few restaurants up, make the beach look nice and Bob was your uncle and hopefully still is. It isn't rocket science, which is just as well, because Spain and Mallorca simply don't do rocket science.
Any comments to andrew@thealcudiaguide.com please.
Tuesday, March 22, 2011
Underground, Overground, Infrastructure Isn't Free
It is easy to forget just how much Mallorca has developed in a relatively short period of time. The island's "industrial revolution" is not even 50 years old; mass tourism in terms of massive tourism across Mallorca didn't become fact until the '70s. It is unsurprising, perhaps, that the infrastructure to support this revolution has taken time to become a reality.
Gas, natural gas, is the latest infrastructure development. The connection from the mainland came on-stream in late 2009. One of the things holding up the creation of the network is the inevitable process of getting agreement from all parties, not least owners of land who will be affected by the installation of pipes. The first phase of taking the gas into the regions, from Palma to Andratx, has run up against exactly this obstacle.
Objections are not solely being made on grounds of environmental disruption. There is also the safety angle, and the objections seem bizarre, quaint even, for those of us used for years to natural gas in the UK. Local fears are of the unknown, of the new-fangled. Yet, you couldn't get much more old-fangled than what natural gas would ultimately put an end to - butane supply. Natural gas would have an enormous benefit not just because of its convenience; it would mean an end to hernias and pulled back muscles. The "butaneros" of Mallorca may find themselves out of a job, and so may many a chiropractor.
Natural gas would have an additional benefit, that of putting a stop to the butane scams. Two separate actions by the police forces are currently ongoing. For this reason alone, the arrival of natural gas will be a huge bonus, as it will also be if it means not seeing the flames flicker and then go out on the hob and having to go outside in a howling gale and horizontal rain in order to mess around with changing the gas bottle.
The supply of gas has not, as yet, run up against a different obstacle, one facing electricity cabling from the mainland. How exactly does it happen that a town hall, Sagunto in this instance, can suddenly turn round and say that the supplier, Red Eléctrica, does not have permission to occupy land in the mainland municipality and also has to pay a tax in order to continue work on laying the cable to the Balearics? The how probably has something to do with this latter aspect. Some bright spark at the town hall eyes up the opportunity for some extra revenue.
Whatever the infrastructure development, there is some hassle associated with it. A new road, such as the so-called "via conectora" in Palma to take some strain off of the creaking road system around the city, becomes mired in objections. The siting of train lines encounter similar squabbles. Re-development of Playa de Palma, ditto. It makes you wish for the old days when a Franco-esque official would have come along one day, nailed the order for works to commence to the head of a passing peasant and the next day sent in the boys with the shovels.
And back then, whatever was built would have been as cheap as chips. Today? How much might we end up paying for natural gas? Don't bank on it being cheap. Don't bank on it being operated in a fashion that might be competitive and with the consumer first in mind.
Telecommunications are another element of infrastructure which has come on in leaps and bounds. Sort of. Time was, really not so long ago, the start of the '90s, that parts of the island weren't able to moan about Telefonica because they had no lines to moan about. Parts of the island still can't, because phone lines can't be laid across some of it. But where it is, the service is neither inexpensive nor satisfactory. Let me give you a personal example.
For some time there has been a problem with my ADSL. It has finally emerged that I have been paying for three megabytes (only three) which cannot be adequately supplied because of the distance I am from the exchange. I have, in fact, been getting little more than one megabyte. The internet provider, Orange, does at least see my argument, that perhaps I am entitled to some form of recompense.
Regardless of this, internet provision is absurdly expensive. And one also has the honour of forking out for Telefonica's line rental when the phone itself is barely used. This rental brings you to another sort of rental, that of the "potencia" contract for electricity supply.
Can anyone explain this to me? It seems to have no rhyme nor reason, other than to stuff the coffers of Endesa. It was not something I paid much attention to (I seem to be one of the few people in Mallorca never to have had much of a problem with electricity bills, while my "potencia" is low) until some correspondence I received and some checking with neighbours highlighted the apparent iniquities with this charge, to say nothing of why it is made in the first place.
Yes, Mallorca has developed greatly in a relatively short period of time. Developed in terms of constant objections, expense, uncompetitiveness and the Heath Robinson; current-day utilities don't get much more Heath Robinson than faffing around with a butane bottle. Not yet 50 years of industrial revolution. In another 50, they may just have got round to something like reasonably priced efficiency.
Any comments to andrew@thealcudiaguide.com please.
Gas, natural gas, is the latest infrastructure development. The connection from the mainland came on-stream in late 2009. One of the things holding up the creation of the network is the inevitable process of getting agreement from all parties, not least owners of land who will be affected by the installation of pipes. The first phase of taking the gas into the regions, from Palma to Andratx, has run up against exactly this obstacle.
Objections are not solely being made on grounds of environmental disruption. There is also the safety angle, and the objections seem bizarre, quaint even, for those of us used for years to natural gas in the UK. Local fears are of the unknown, of the new-fangled. Yet, you couldn't get much more old-fangled than what natural gas would ultimately put an end to - butane supply. Natural gas would have an enormous benefit not just because of its convenience; it would mean an end to hernias and pulled back muscles. The "butaneros" of Mallorca may find themselves out of a job, and so may many a chiropractor.
Natural gas would have an additional benefit, that of putting a stop to the butane scams. Two separate actions by the police forces are currently ongoing. For this reason alone, the arrival of natural gas will be a huge bonus, as it will also be if it means not seeing the flames flicker and then go out on the hob and having to go outside in a howling gale and horizontal rain in order to mess around with changing the gas bottle.
The supply of gas has not, as yet, run up against a different obstacle, one facing electricity cabling from the mainland. How exactly does it happen that a town hall, Sagunto in this instance, can suddenly turn round and say that the supplier, Red Eléctrica, does not have permission to occupy land in the mainland municipality and also has to pay a tax in order to continue work on laying the cable to the Balearics? The how probably has something to do with this latter aspect. Some bright spark at the town hall eyes up the opportunity for some extra revenue.
Whatever the infrastructure development, there is some hassle associated with it. A new road, such as the so-called "via conectora" in Palma to take some strain off of the creaking road system around the city, becomes mired in objections. The siting of train lines encounter similar squabbles. Re-development of Playa de Palma, ditto. It makes you wish for the old days when a Franco-esque official would have come along one day, nailed the order for works to commence to the head of a passing peasant and the next day sent in the boys with the shovels.
And back then, whatever was built would have been as cheap as chips. Today? How much might we end up paying for natural gas? Don't bank on it being cheap. Don't bank on it being operated in a fashion that might be competitive and with the consumer first in mind.
Telecommunications are another element of infrastructure which has come on in leaps and bounds. Sort of. Time was, really not so long ago, the start of the '90s, that parts of the island weren't able to moan about Telefonica because they had no lines to moan about. Parts of the island still can't, because phone lines can't be laid across some of it. But where it is, the service is neither inexpensive nor satisfactory. Let me give you a personal example.
For some time there has been a problem with my ADSL. It has finally emerged that I have been paying for three megabytes (only three) which cannot be adequately supplied because of the distance I am from the exchange. I have, in fact, been getting little more than one megabyte. The internet provider, Orange, does at least see my argument, that perhaps I am entitled to some form of recompense.
Regardless of this, internet provision is absurdly expensive. And one also has the honour of forking out for Telefonica's line rental when the phone itself is barely used. This rental brings you to another sort of rental, that of the "potencia" contract for electricity supply.
Can anyone explain this to me? It seems to have no rhyme nor reason, other than to stuff the coffers of Endesa. It was not something I paid much attention to (I seem to be one of the few people in Mallorca never to have had much of a problem with electricity bills, while my "potencia" is low) until some correspondence I received and some checking with neighbours highlighted the apparent iniquities with this charge, to say nothing of why it is made in the first place.
Yes, Mallorca has developed greatly in a relatively short period of time. Developed in terms of constant objections, expense, uncompetitiveness and the Heath Robinson; current-day utilities don't get much more Heath Robinson than faffing around with a butane bottle. Not yet 50 years of industrial revolution. In another 50, they may just have got round to something like reasonably priced efficiency.
Any comments to andrew@thealcudiaguide.com please.
Monday, January 03, 2011
Is The Price Right? Yes and no
What was I saying yesterday? The year has barely started and the recurring theme of prices, their alleged excessiveness and their control is already being aired. As every year. And as ever, the discussion is littered with anecdotal evidence that can be cited to support an argument of excessive prices. My personal favourite remains the one about the cost of a packet of paracetamol. Five euros at a supermarket, lamented a tourist letter-writer. An example of rip-off Mallorca. Yes, it was a rip-off, but more importantly the supermarket had no right to be selling the drug; the example was the right symptom but the wrong diagnosis.
For all the talk of high prices, the Balearics' consumer price index is one of the lowest among the regions of Spain. The most recent data related to price increases, those for November, show that the Balearics' increase was in the lower range. Statistical information, though, does not give the whole picture, certainly not when anecdotes can be dragged out to contradict it. For the most part, the debate is biased towards individual experiences of price, be it for a meal, a coffee, this or that product which are then used as a basis for a call for someone to do something; this something often being the demand for price control.
Price regulation does exist to an extent. In the case of tobacco, for example, it is not only prices that are subject to control; so also is the distribution chain. It is an example of price regulation that might be said to work. It doesn't create a shortage of supply or any obvious black market, two disadvantages of price control in the form of a price cap. Generally, as with the control of all medication through chemists alone, the market mechanism functions to the benefit of the consumer, eliminating any need for a more liberalised market.
Could a price-control approach be applied more widely? To the bar and restaurant sector, for instance? It's hard to see how. Unlike the sale of tobacco through the licensed tobacconists, bars and restaurants are too diverse. Even items such as a coffee are far from being homogeneous. There are too many types of coffee, too many types of bar in too many different locations with too many different circumstances.
Price controls can bring with them certain downsides. One is a loss of quality, assuming the cap is set too low (and set too high would make a nonsense of the attempt at control). Another is the sheer complexity and cost of enforcement. Yet another is that controls run counter to the principle of the free market which, by and large, Mallorca and Spain abide by. And the free-market element has an historical political factor. Current-day market liberalism is the culmination of dismantling any vestiges of what once existed under Franco - that of price control and centralised, statist regulation of most economic activity.
The market dictates, which is how it should be. That a coffee or a plate of steak and chips might seem expensive (or cheap) is the consequence. When President Zapatero, quizzed about the price of a coffee on Spanish television, gave his reply of 80 centimos, he also offered the caveat of "it depends". And it does depend. Depends on the market and on the bar or restaurant owner being allowed to fix his own prices. If he gets them wrong, that's his problem. No one else's.
It is not for government to intervene where it has no right to intervene, and one thing that the local government can do little about is the in-built disadvantage of Mallorca in terms of its isolation and its limited resources, land most obviously. Nevertheless, it is here that government should be more involved.
The costs of this isolation cannot be underestimated. The director of the small to medium-sized businesses organisation (PIMEM) has said that transport alone adds some 30% to the cost of production in Mallorca. And transport cost applies both to businesses importing as well as exporting. For the local producers, they also have to factor in the cost of land.
The vice-president of the local chamber of commerce has called for an end to the speculative acquisition of industrial and commercial land that has pushed the average cost per metre to buy a plot and establish a factory to roughly six times as much as it would be in, for example, Aragon on the mainland or over a third more than in somewhere even more isolated, the Canaries.
A further pressure on cost comes from what PIMEM's director has described as the "minimal installations for goods transportation at competitive prices and the lack of competition between shipping companies". This, combined with other factors, goes a long way to explaining why there is a lack of competitiveness in Mallorca, which has seen its industrial base decline by nearly 30% since 2005 (far greater a decline than in any other part of Spain). It also goes towards explaining why certain prices in Mallorca, because of the island's geographical competitive disadvantage, are what they are.
Any comments to andrew@thealcudiaguide.com please.
For all the talk of high prices, the Balearics' consumer price index is one of the lowest among the regions of Spain. The most recent data related to price increases, those for November, show that the Balearics' increase was in the lower range. Statistical information, though, does not give the whole picture, certainly not when anecdotes can be dragged out to contradict it. For the most part, the debate is biased towards individual experiences of price, be it for a meal, a coffee, this or that product which are then used as a basis for a call for someone to do something; this something often being the demand for price control.
Price regulation does exist to an extent. In the case of tobacco, for example, it is not only prices that are subject to control; so also is the distribution chain. It is an example of price regulation that might be said to work. It doesn't create a shortage of supply or any obvious black market, two disadvantages of price control in the form of a price cap. Generally, as with the control of all medication through chemists alone, the market mechanism functions to the benefit of the consumer, eliminating any need for a more liberalised market.
Could a price-control approach be applied more widely? To the bar and restaurant sector, for instance? It's hard to see how. Unlike the sale of tobacco through the licensed tobacconists, bars and restaurants are too diverse. Even items such as a coffee are far from being homogeneous. There are too many types of coffee, too many types of bar in too many different locations with too many different circumstances.
Price controls can bring with them certain downsides. One is a loss of quality, assuming the cap is set too low (and set too high would make a nonsense of the attempt at control). Another is the sheer complexity and cost of enforcement. Yet another is that controls run counter to the principle of the free market which, by and large, Mallorca and Spain abide by. And the free-market element has an historical political factor. Current-day market liberalism is the culmination of dismantling any vestiges of what once existed under Franco - that of price control and centralised, statist regulation of most economic activity.
The market dictates, which is how it should be. That a coffee or a plate of steak and chips might seem expensive (or cheap) is the consequence. When President Zapatero, quizzed about the price of a coffee on Spanish television, gave his reply of 80 centimos, he also offered the caveat of "it depends". And it does depend. Depends on the market and on the bar or restaurant owner being allowed to fix his own prices. If he gets them wrong, that's his problem. No one else's.
It is not for government to intervene where it has no right to intervene, and one thing that the local government can do little about is the in-built disadvantage of Mallorca in terms of its isolation and its limited resources, land most obviously. Nevertheless, it is here that government should be more involved.
The costs of this isolation cannot be underestimated. The director of the small to medium-sized businesses organisation (PIMEM) has said that transport alone adds some 30% to the cost of production in Mallorca. And transport cost applies both to businesses importing as well as exporting. For the local producers, they also have to factor in the cost of land.
The vice-president of the local chamber of commerce has called for an end to the speculative acquisition of industrial and commercial land that has pushed the average cost per metre to buy a plot and establish a factory to roughly six times as much as it would be in, for example, Aragon on the mainland or over a third more than in somewhere even more isolated, the Canaries.
A further pressure on cost comes from what PIMEM's director has described as the "minimal installations for goods transportation at competitive prices and the lack of competition between shipping companies". This, combined with other factors, goes a long way to explaining why there is a lack of competitiveness in Mallorca, which has seen its industrial base decline by nearly 30% since 2005 (far greater a decline than in any other part of Spain). It also goes towards explaining why certain prices in Mallorca, because of the island's geographical competitive disadvantage, are what they are.
Any comments to andrew@thealcudiaguide.com please.
Thursday, September 06, 2007
I Been Laid Off From Work
August unemployment levels in Mallorca were the highest for more than ten years. You might think with all that seasonal work that summer would be a time of high employment. Yes and no. The current set of unemployment figures are related not to seasonal work but to the ending of various construction projects. It isn’t necessarily doom and gloom as there are plenty of potential projects in the pipeline; indeed planned investment in public works, as set out in official bulletins, is up by nearly 60%, while the private sector, including hotel modernisation, is knocking out good figures as well
But the rise in unemployment highlights an underlying weakness of the Mallorcan economy. The non-residential construction sector has buoyed both the local and the national economy for the past decade or so. European money and advantageous interest rates have assisted the modernisation of infrastructure - roads, hospitals, schools etc. - that has transformed the island and much of the mainland from what was little more than Third World status at the start of the 1990s. So construction has been both necessary and vital in creating the economic boom of the past few years.
There are though clouds on this economic horizon, notably the interest-rate situation, turmoil in the credit markets and the potential for bust in the economy as a whole. Though planned investment in public work is high, it doesn’t necessarily follow that it will be implemented. Both government and the lenders (the banks) are facing a squeeze. “ ‘Spain's economic growth will slow down next year as turmoil in credit markets undermines investor confidence and stokes uncertainty’, Pedro Solbes, finance minister, said yesterday.”
Though the Zapatero government has sought to tighten public spending, politicians of all hues, at national and local levels, have generally adopted a spend ideology which, though it has created many benefits, has neglected structural deficiencies within the national and local economies and the business sector as a whole. In the Balearics, the level of investment in research and development is the lowest of any part of Spain; productivity has fallen every year since 2000 (with the exception of 2003); and training and development is lacking. These are not problems confined to the Balearics. " ‘Spain has not tackled a fundamental problem, its declining productivity,’ says Jordi Canals, dean of the IESE business school in Barcelona. ‘We are stuck in the middle, a high-wage economy with no ability to innovate.’ “
Taken as a set of competitiveness indicators, these leave much to be desired. Were there to be a drive to attract inward investment (apart from the sideshow of the residential real-estate sector), such lack of competitiveness would be a serious obstacle. While the average salary in the Balearics is a little above 18,200 euros net, the additional social costs (social security is typically around one-third of salary) are also a deterrent to such an investment. The question arises though, investment in what?
Take away construction and tourism and there is not a lot left. Sure, there are plenty of support industries and others, but they are highly dependent upon activity in these prime sectors. Even the agriculture industry faces its own problems with respect to cheap imports. While poor harvests are hard to prevent, technological investment and increased productivity can help to create the circumstances for greater competitiveness. It is not as though all these imports come from cheap sources. The almond market faces competition from, of all places, California.
A downturn in any one of these sectors is harmful. Were there to be simultaneous downturns in each sector, Mallorca would face difficulties. Add, if you will, climate change to this potentially volatile mix, and there is scope to question the island’s sustainable economic model unless there is diversification. But into what?
(Acknowledgements for some of this: FT.com, Ultima Hora.)
SOMETHING COMPLETELY DIFFERENT
I do, from time to time, look at what is being said on the myriad holiday froums lurking on the internet. I wouldn’t normally lift like this, but I can’t help it. Here is what someone said the other day:
“Why do the British like to go all the way to Mallorca to spend the day drinking in a bar watching reruns of Only Fools and Horses? With their big bellies jutting out and no tops on, it so does not look nice.”
I don’t know the answer to that. All I would say is that I am quite heartened that someone else raises the Fools and Horses thing (10 August: It’s Coming Home, It’s Coming Home ...).
QUIZ
Yesterday was Jimmy Nail. Today’s title - it’s the first line from a song by?
(PLEASE REPLY TO andrew@thealcudiaguide.com AND NOT VIA THE COMMENTS THINGY HERE.)
But the rise in unemployment highlights an underlying weakness of the Mallorcan economy. The non-residential construction sector has buoyed both the local and the national economy for the past decade or so. European money and advantageous interest rates have assisted the modernisation of infrastructure - roads, hospitals, schools etc. - that has transformed the island and much of the mainland from what was little more than Third World status at the start of the 1990s. So construction has been both necessary and vital in creating the economic boom of the past few years.
There are though clouds on this economic horizon, notably the interest-rate situation, turmoil in the credit markets and the potential for bust in the economy as a whole. Though planned investment in public work is high, it doesn’t necessarily follow that it will be implemented. Both government and the lenders (the banks) are facing a squeeze. “ ‘Spain's economic growth will slow down next year as turmoil in credit markets undermines investor confidence and stokes uncertainty’, Pedro Solbes, finance minister, said yesterday.”
Though the Zapatero government has sought to tighten public spending, politicians of all hues, at national and local levels, have generally adopted a spend ideology which, though it has created many benefits, has neglected structural deficiencies within the national and local economies and the business sector as a whole. In the Balearics, the level of investment in research and development is the lowest of any part of Spain; productivity has fallen every year since 2000 (with the exception of 2003); and training and development is lacking. These are not problems confined to the Balearics. " ‘Spain has not tackled a fundamental problem, its declining productivity,’ says Jordi Canals, dean of the IESE business school in Barcelona. ‘We are stuck in the middle, a high-wage economy with no ability to innovate.’ “
Taken as a set of competitiveness indicators, these leave much to be desired. Were there to be a drive to attract inward investment (apart from the sideshow of the residential real-estate sector), such lack of competitiveness would be a serious obstacle. While the average salary in the Balearics is a little above 18,200 euros net, the additional social costs (social security is typically around one-third of salary) are also a deterrent to such an investment. The question arises though, investment in what?
Take away construction and tourism and there is not a lot left. Sure, there are plenty of support industries and others, but they are highly dependent upon activity in these prime sectors. Even the agriculture industry faces its own problems with respect to cheap imports. While poor harvests are hard to prevent, technological investment and increased productivity can help to create the circumstances for greater competitiveness. It is not as though all these imports come from cheap sources. The almond market faces competition from, of all places, California.
A downturn in any one of these sectors is harmful. Were there to be simultaneous downturns in each sector, Mallorca would face difficulties. Add, if you will, climate change to this potentially volatile mix, and there is scope to question the island’s sustainable economic model unless there is diversification. But into what?
(Acknowledgements for some of this: FT.com, Ultima Hora.)
SOMETHING COMPLETELY DIFFERENT
I do, from time to time, look at what is being said on the myriad holiday froums lurking on the internet. I wouldn’t normally lift like this, but I can’t help it. Here is what someone said the other day:
“Why do the British like to go all the way to Mallorca to spend the day drinking in a bar watching reruns of Only Fools and Horses? With their big bellies jutting out and no tops on, it so does not look nice.”
I don’t know the answer to that. All I would say is that I am quite heartened that someone else raises the Fools and Horses thing (10 August: It’s Coming Home, It’s Coming Home ...).
QUIZ
Yesterday was Jimmy Nail. Today’s title - it’s the first line from a song by?
(PLEASE REPLY TO andrew@thealcudiaguide.com AND NOT VIA THE COMMENTS THINGY HERE.)
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