Needed: A New Model Economy

The Centre for Economic Research (Centre de Recerca Econòmica - CRE) has put the Balearics economy on red alert. I don't know if alerts had previously been issued but red should have been the colour since the turn of the century. The CRE knows this. In March this year it made an announcement that has now produced its red-alert warning, one to the effect that the economic multiplier effect of tourism has been shrinking since 2000. Put simply, this has meant loss of competitiveness; tourism numbers have risen but revenues and jobs have not risen in line with these increased numbers.

The CRE believes that the current model of tourism in the Balearics is out of date. It is difficult to argue with this. In fact, it has been out of date for very much longer than the years of this century. You can go back to the start of the nineties to find evidence of a percentage of tourism (around 10%) that constituted a net loss. In March the CRE put forward the case for concentrating on more profitable tourism, which would almost inevitably mean fewer tourists but ones with greater spending power.

Such a shift in emphasis has been previously considered. Five years ago the Antich government proposed this as part of its "Plan Turismo 2020". The problem with this plan was that there never any plan as such, though in provisions of the current government's tourism law there are clear nods in the direction of the principle of fewer but greater value-adding tourists. 

The pursuit of tourism profitability explains the expectations for Russian tourism. The director for Spanish tourism in Moscow has identified the fact that Russian tourists typically spend the equivalent of up to 40% over and above the cost of their holiday package. Or put another way, they spend at least 50% more than tourists from other countries.

Much as Russian tourism will grow over the next few years, the CRE has implied that there are the limits to this new tourism's capacity to adjust the current model of Balearics tourism. It is right to do so as it would be a case of short-termism to place so much emphasis and hope on a remodelling of the tourism industry without a simultaneous development of other parts of the economy. It is the lack of economic diversity that really concerns the CRE and it is one that should concern everyone and should have been concerning them for years.

In 2008 the IMF warned that Spain would be the country worst affected by the credit crunch. One can argue that it hasn't been the worst affected but such things are relative. Among what the IMF had identified, and which was pretty obvious, was the problem created by over-reliance on certain industries, notably tourism and construction. Such over-reliance was far greater in the Balearics than in Spain as a whole, and despite reassurances from regional government as to tourism's role in moving the Balearics out of recession or a state of very limited growth, these reassurances are weak when the capacity for growth that tourism offers is as feeble as the CRE suggests.

Short and medium term there may be a bounce because of tourism from the new markets, but it is the long term which counts and this entails diversification. The trouble is that this diversification, where it has ever been seriously addressed, suffers from vagueness as to what it might actually comprise.

Another of the Antich 2020 plans was for innovation and development. In that the ParcBIT technology park in Palma has grown over recent years, then one might suggest that this was a more successful plan than for tourism. Yet it remains unclear where Mallorca's technology is heading. Even more unclear is what it might mean in terms of employment or business creation. The island's talent will continue to be attracted to the mainland centres of industry rather than fanny around on Mallorca, while an absence of finance will prove an obstacle to entrepreneurship. But even if businesses are created, will they be anything more than small and so employ small numbers of people?

Diversification can mean all sorts of things. In the 1960s it meant one thing and one thing only - tourism - and the consequent loss of manufacturing and agricultural diversity. What Mallorca and the Balearics need is an overall industrial strategy, but who will develop it? The current government? This would be most unlikely when the minister ostensibly in charge of business affairs is the same one who is going around applying financial cuts. The CRE has pointed to structural failures in the Balearics economy. It might also add that there is a structural failure in government.


Any comments to andrew@thealcudiaguide.com please.