I had dinner last night with a 28-year-old Spanish computer science researcher who is visiting a lab here in Boston for two months. He said that the economic situation in Spain is terrible. I asked what the root of the problem was, in his opinion. “We are a country of 47 million people but we’re broken up into 17 states, each of which has its own parliament. So there are a total of 18 parliaments. There are a huge number of politicians and each politician has a large collection of advisers. When construction was booming there was enough tax revenue to support all of this government, but now construction is finished and there isn’t enough money. The government has raised the value-added tax on everything to 21 percent. Previously it had been anywhere from 5 to 18 percent. This has driven a large portion of the economy underground and people will accept only cash in order to escape the 21 percent tax. People with university degrees are leaving to take jobs in the U.K. and Germany, which is a huge loss to Spain because their education was massively subsidized. I paid only 600 euro per year for my university education. You can fly back to Spain from Germany once per month for 50 euro each way.”
I thought that the conversation was interesting because it highlights the fact that the European Community coupled with airline deregulation has made it much easier for skilled workers to move around. A country that got in trouble in the old days could count on the fact that most of its young educated people would stay around to help dig out of the mess. Today those young people can scatter very quickly, each one taking a $200,000+ state investment in education with him or her.
[http://politicalcalculations.blogspot.com/2012/05/spain-very-different-fiscal-crisis.html has an interesting chart.]
Today’s NYT article has more on this:
http://www.nytimes.com/2012/09/04/business/global/money-and-people-leave-spain-as-economic-gloom-deepens.html?_r=1&pagewanted=all
As someone living in Spain, I can tell you that guy is *spot on*. But it seems that only Spaniards who have left Spain seem capable of recognizing that tremendously inefficient government organization, and spending/subsidizing more than you take in (and coupled with the massive corruption that forms in such an environment), is unsustainable.
Shengen (free movement of workers in EC) has been around since 1985.
Anecdotally mostly from South American friends I’ve heard of many Spaniards going to South America and Mexico (Argentina, Uruguay, Chile). From Portuguese friends I’ve heard of Portuguese going to Brasil – though I understand that’s harder – immigration-wise.
http://www.ft.com/intl/cms/s/0/f2018cf0-9467-11e1-8e90-00144feab49a.html#axzz25WvOPEhl
If there’re no jobs in your country and it’s easy to get out and come back, than leaving is good for you, and you help clear the labor market at home and maybe you will contribute by sending money home to family or come back to visit with more money, and maybe eventually return with more money and more skills so in the end help rebuild your country after all. This happened before (think Philippines, Mexico where a large portion of income is money sent from abroad as well as mass emigrations followed by many returns… yes even Mexico)
The problem is it’s not so easy even within Europe. Not everyone has learned each other’s language – at least the right language at the right time, there are family or family business/property reasons etc.
For example there’s much more movement between US states but it has declined significantly, post migration employment outcome is not better, destination states don’t have better employment or income rates (Usually are neighbor states/counties)
http://research.stlouisfed.org/publications/review/11/05/169-186Hernandez.pdf
http://www.nd.edu/~awaggone/papers/migration-msw.pdf
I think an open market for citizens plus gov’t bankruptcy laws are a great idea. After the educated citizens leave and the country fails, put it into receivership, wipe out its creditors, auction off its assets (public land, infrastructure, people), start another government and try again.
He forgot to mention a nasty side effect of this situation. During the good years of the boom in Spain the safest and easier way to earn “good money” and keep your parents quiet was to get a permanent job as civil servant. If you get this kind of job in Spain is impossible, I repeat IMPOSSIBLE, to get fired. Even if you kill someone and go to the jail, the job will be out waiting for you!
Every year you have your automatic pay rise and the government cannot do anything to improve your productivity, in the last years they even added a bonus for the people who get at the job on time! (automatic pay rises every year, not related to your productivity, is considered in Spain a right).
The effect of this kind of jobs was the total destruction of the entrepreneurial ecosystem. It was just plain stupid to create a company in technology when you can get good money in construction doing nearly nothing or get the dreamed job as public servant and be respected by your family and friends.
In the last 5 years Spanish government has nearly increased their workforce (with this permanent impossible-to-fire jobs) by 40%.
All the people that are leaving Spain now (me included, now I’m happy with my family in London) were people with infra-salaries working in IT with knowledge that can be “exported”.
Instead of seen the graduates as the path to recovery, Spanish governments and society consider them a liability. The Spanish businesses cannot absorb the number of young graduates that the Universities were/are producing and the result was a death spiral of low salaries (800~1200 EURO/month).
The rest of the young people in Spain are trapped.
Spain is one of the countries of the UE with the lowest knowledge level of foreign languages and many young people decided that studies were not valuable and stop studying during the boom.
The sad thing is that most businessmen are still trying to push very old industries and business, that are going to get extinct in the next decades. This is possible thanks to the incredible number of subsides that the government has been “helicoptering” (does the verb exists?) around like crazy for many years.
The first question that a «entrepreneur» make in Spain is: «when am I going to get my subsides?». They don’t even try to get money from investors. And the government only gives subsides with the condition of hiring tons of people. The result are companies with low grade/cheap graduates and employees. Productivity/talent is expensive and doesn’t requires the dozens and dozens of people that will get you subsides. It’s crazy how the success of a new company in Spain is always measured by the government by the number of new employees. I still remember this expression: your company is a «employment deposit».
So, now the Spanish government has:
– a big workforce that cannot be fired,
– an enormous number of unemployed people who get subsides to survive,
– and subsides for businesses for not killing the creation of new companies.
And this is why Spain has such a big deficit