Following my last article, in which I compared unemployment in Spain with that in Germany and concluded that the main issue is not the level of unemployment, but the distribution of work over the population, I received some interesting comments, all related to the supposedly low productivity of the Spanish people. As you may have seen, according to many statistics the productivity of the Spanish economy is significantly below the one of other European countries.
You will not be surprised that I think there are many reasons to assume that these statistics don’t really measure what they should. Let me give you an example.
Some years ago, I advised the owner of a home for the elderly in a sales process. Just so there are no misunderstandings: this is the type of place in which people live who can’t live alone any more, who need assistance to get dressed to shower, to eat, etc. The home was located in Benidorm, over half of the clients living there were Dutch nationals. We found a Dutch operator and one of the reasons this company was specifically interested was the cost structure of the Spanish company, of €1,900 per client per month. These clients were living in individual rooms and had to be helped to take a shower every day. In the Netherlands, he explained, not only were costs around 30 per cent higher, but also the showering service was reduced to once a week. What does that say about productivity?
Some months ago, we were working on selling a Spanish industrial company to a German buyer. The German buyer was surprised to see that the output (per unit and employee) of the Spanish plant was higher than his own. He did not buy it, however, because buyers don’t like Spain too much currently.
Now these may be just two examples, so let’s have a look at the largest employer in Spain: the Spanish public administration. Being a Dutch national living in Spain, I have some view over the level of service the Dutch and the Spanish governments supply to their populations. Here's an overview:
- Education: the Dutch system is in my view clearly better, but this has little to do with money. The main difference is that the Dutch system differentiates children on their capacities when they start secondary school, whereas in Spain this is postponed until they are 16.
- Healthcare: statistics are favourable overall for the Spanish system and my personal experience is that the Spanish system is far better than the Dutch, at the level of service you get.
- Security: Spain wins here as well. There are lower levels of crime and there are more police on the street.
So let’s say that overall, the service levels supplied by both governments are similar.
Now, let’s look at the costs: in the Netherlands, the total government expenditure was 50.1 per cent of GDP in 2011, whereas in Spain, this stood at 43.6 per cent. The difference is 6.5 per cent less GDP for the same services, which is quite a gap. But as productivity is not measured by output in units, but by output in euros, have no doubt that the Netherlands is much higher in productivity league tables than Spain.
Focusing on government expenditure, it will be difficult to address Spanish problems, as in today’s article in Cinco Dias (23 July), where Javier Barrio, a financial analyst, claims that many Spanish problems would be solved if the responsibilities of the regional governments would be recentralised. Barrio says that this would “create a state more like France, which would reduce expenses significantly”. He will be surprised to note that in France, government expenditure stood at 55.9 per cent of GDP in 2011. That is hardly the way to go. However, the view that the recentralisation of power would reduce expenses is widely shared in Madrid.
Please allow me one sidestep in local politics, which are widely misunderstood in Europe: the regional governments are responsible for healthcare and education. Some, such as Catalonia and the Basque country, are also covering security (police and justice). However, the overall budget deficit of this level of Government is 3.2 per cent of GDP and their debt levels are low (in the range of 20 per cent of GDP). The balance of the deficit (over five per cent and debt (60 per cent) lies with the central government. The idea that regional governments are the problem is generated by politicians in Madrid who are incapable of reducing their own expenses and who are supported by their loyal local press. I wish policy makers in Brussels and Washington would recognise this.
So if we want to do something about the Spanish budget deficit, it’s the revenue, stupid, which stands at 35.1 per cent of GDP in 2011, more than ten per cent below the eurozone average. Why do we speak so little about this and so much about austerity measures?
So much about Spanish productivity, concerning my own: this will definitely improve (as measured by output) as I will start my vacations next week. I’ll be back in a few weeks.
Maarten de Jongh is managing partner at Spanish advisory firm Norgestion.