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The Periphery of the Center 8th Semester Project. 2013 Supervisor: Henrik Plaschke Mario Chaparro Vera (DIR) Alex Rodríguez Toscano (DIR, LAS) Aalborg University 1 Table of Contents Contents 1.Introduction……………………………………………………….…………………….. ........... 1 1.1Project formulation………………………………….…………………………… ....... 1 2.Methodology…………………………………………………………………........……. ........... 2 2.1Project……………………………………………………………….…..……… ......... 2 2.2Considerations on the theoretical approach……………………………..……… ......... 3 2.3Considerations on the analysis………………………………………………….. Error! Bookmark not defined. 2.3.1. Study Case: Spain…………………………………………………...……. ................................................................................Error! Bookmark not defined. 2.3.2. Macroeconomic variables………………………………………………… ................................................................................Error! Bookmark not defined. 2.4Validities…………………………………………………………………..…….. ........ 5 3.Theoretical Section…………………………………………………………………….. ............ 5 3.1Historical background, C-P dynamics & the Prebisch-Singer Thesis…….. ................. 5 3.1.1Historical background…………………………………….………… ............ 6 3.1.2C-P dynamics……………………..…………………... ................................. 7 3.1.2.1Technical Changes………………………………………… ........... 8 3.1.2.2Specialization & Structural Heterogeneity……………..… ............ 8 3.1.3Prebisch-Singer Thesis……..…………………………..…………................ 9 3.2The role of the different macroeconomic variables…………………………….. ....... 10 3.2.1Economic growth and Structural Changes…………………………. ........... 10 3.2.2Balance of Payments & Access to financing………………………. ........... 11 3.2.3Labor Market dualism……………………………………………… ........... 12 3.3Related theories and critics……………………………………………………... ....... 13 3.3.1Related theories………………………………….…………………. ........... 13 3.3.2Critics………………………………………………………………. ........... 14 4.Analytical Section………………………………………………….…………………….. ....... 16 4.1.Economic growth………………………………………….……………………. ...... 17 4.2Economic Structure………………………………………….………………….. ....... 23 2 4.2.1Agriculture……………………………………….…………………. .......... 24 4.2.2Industry & Construction……………………………………………. .......... 25 4.2.3Services…………………………………………….……………….. .......... 27 4.2.4Technology……………………………………….………………… .......... 31 4.3Balance of Payments……………………………………………………………. ....... 33 4.4Labor market……………………………………………………………………. ....... 44 4.4.1Characteristics……………………………………………………… ........... 45 4.4.2Employment by sector……………………………………………… .......... 47 4.4.3Temporality………………………………………………………… ........... 49 4.4.4Labor productivity…………………………………………………. ........... 50 4.4.5Earnings……………………………………………………………. ........... 53 5.Conclusion………………………………………………………………………………. ........ 55 6.List of references…………………………………………………………………………........ 57 3 1. Introduction “Nothing is as powerful as an idea whose time has come” Victor Hugo The economic development around the globe has always been uneven, making some nations become wealthier than others. Historically, these economic differences and, therefore, power disparities, have determined the relationships among the countries, where the most powerful had a clear advantage compared to the others in the terms on which they were going to trade. These disparities among regions had a divergent tendency, increasing the economic gap and modifying the power relations and, therefore, the terms of trade. Furthermore, the globalization phenomenon that has been expanding throughout the world has mainly been the enlargement of the free market system ideology, where the countries’ activities were based on the comparative advantage that they possessed on certain products. More precisely, this specialization consisted on raw materials, minerals and low-industry goods, that is, labor-intense products for the developing countries, and in the developed countries hightechnological, other industrial products and services, which are capital-intense products. In recent times, the situation has improved in some of the economies in which the implementation of these ideas occurred, through the Industrialization for the Substitution of Imports. But the N-S dualism still exists and, in the recent economic crisis, in general, and the consequences of it within European Union (EU), in particular, hold features of N-S relation, which will be our focus in this project, through Spain as a case study. 1.1. Project formulation: There are enough evidences, based on the differences of economic growth rhythms, the disparities of economic structures, the deficit or surplus on the balance of payments and the labor 4 and capital markets, to suppose that it exist a certain North-South division inside the EU. Considering the existent bipolarity within the EU we would like to investigate, relying on the structuralist concepts of C-P, whether Spain can be categorized as one or the other. 2. Methodology In this section we will state the foundations of the project. Firstly, it will be shown the aim of the project and the connexion between the different sections and concepts within them, in order to have a general view of the extent of the project and the aim of it. Secondly, we develop an explanation about the unit of analysis, that is, the Spanish economy through certain macroeconomic variables; and finally, it will be explained the limitations that the project design has. 2.1. The project. The aim of this project is the observation of the Spanish economic reality within the European context through the concepts and understandings generated by the Structuralist Theory of economics. This examination has been carried out through the analysis of a certain number of specific macroeconomic variables, which were studied in the LA context by the structuralist defenders, especially by ECLAC authors. These theoreticians established the basic concepts on the first half of the XX century and developed them in the following decades. Their purpose was to portray in an unprecedented way the relations between the LA countries and the industrialized nations. The output was a development theory based on the concepts of the separation of the world through a bipolar perspective, the Core and the Periphery. This dualist division is due to specific features, along with the dynamics which underlies between these two spheres, the dependency relations. In this article we relate these two main concepts, bipolarity and dependency, to Spanish reality, which is our case study. This is due to our belief that the certain features of that pattern highlighted by structuralism keeps on existing worldwide, in general, and in the EU, in particular 5 2.2. Considerations on the theoretical approach: structuralism The structuralist theory of economics generated a certain number of concepts that we think are highly valuable as theoretical tools in order to categorize economic phenomena, specifically in our case. We have accepted the ideas from the structuralist thoughts after having put them into question, that is, when we comprehend that they were an appropriate approach to our study case. The arguments for choosing this theoretical approach are numerous. Firstly, structuralism was focused on economic aspects, leaving out other considerations in terms of military, culture or environment, among others, which can be misleading when searching for causes. Moreover, there are a number of concepts that were born from the theory and which can play a key role when explaining dynamics between countries, such as: the core-periphery division and dependency, and additionally the model of economic growth, the structural and technological gaps, the dualism in the labour markets and the impact of economic cycles in a country. On the contrary, it has to be said that the theory has some specificities that can imply distortions due to a number of facts. Firstly, as every theory, it was developed in a specific time and space context, and consequently it could be problematic to extract it for another context. In addition, new processes have appeared during the last 60 years such as the improvement of technology and the reduction of its costs, the end of the capitalist-communist cleavage and the predominance of a neoliberal globalization, the increase of the financial capital flows and the gain of its importance worldwide, and the emergence and strengthen of new actors beyond the state that shaped the socio-economic reality such as civil society organizations (NonGovernmental Organizations, consumer groups, lobbies, etc). The differences among the LA countries that were analysed in the first part of the XX century, and the empirical case that we have chosen, Spain in the last decades, are significant. Therefore, some of the ideas originated in that context are not applicable, or at least they would explain in a lower degree the economic situation of Spain. An example of that is the deterioration of the terms of trade because Spanish trade with other European states is based on products that are similar in characteristics, that is, capital intense, human capital and technical progress. 6 2.3. Consideration about the analysis 2.3.1. Study case: Spain. Nowadays it is well known the controversy about the European cohesion in economic and political matters. Emerging debates, as the two-speeds in Europe, the N-S cleavage, or the need of two different Euro currencies, are being discussed in different forums. The EU and the integration of its institutions has been frequently defended in the less wealthy countries as a path to converge with the more affluent ones, but this idea can be questioned in the light of the latest facts with reference to the consequences of the recent crisis within the EU countries. In order to study the possible N-S dualism and, therefore, the divergent path among the country members, it has been established the relation between Spain regarding the EU. We consider the EU as the appropriate context due to the substantial connexion in economic, political, and historical aspects, and the degree of integration. Moreover, within this framework, Spain can be labelled as a Center country regarding the world structure but as a peripheral one considering the Center countries of Europe. 2.3.2. Macroeconomic variables In the empirical section our objective has been to check systematically a number of variables for the Spanish economy. Those factors have been (i) the economic growth, (ii) the productive structure, (iii) the balance of payments and (iv) the labour market. The choice of these variables has been mainly because they were basic for the development of structuralist ideas; consequently our objective has been to analyse the evolution and features of these variables in order to make the linkage between the theory and the empirical case. Within every variable it has been chosen the most relevant indicators regarding the main international statistical sources, observing the trends of the last decade (from 1999 till nowadays) in an attempt of reaching the most veridical portrait of the situation. Furthermore, the comparisons were made between Spain and the country’s most important trade partners, which are the main economies of the EU: Germany, France and Italy. It can be assume that these countries embodied the ‘north’ side of the so called cleavage in Europe. 7 To sum up, the results of the analysis will allow us to obtain valuable information through the comparison, and to state certain correlations but not direct causality relations due to the complexity of the variables. 2.4. Validities Focusing on construct validities, the project concludes by answering the main question, which was proposed in the problem formulation. For that purpose, we have chosen the theories that better approached our case of study, and within the analysis we selected the variables that were most relevant in order to answer the question and make the linkage with the theoretical section (Bryman, 2012). Considering the external validity, it is important to be aware of two issues: if the theory could explain the N-S dualism in other regions of the world, and if the findings, based on the Spanish case, could explicate the situation in other regions. In the first case, our belief is that the N-S bipolarization exists throughout the globe and within different regions and countries. Therefore, the theory used could partially enlighten the situations that other economies are passing through. Secondly, the results grounded in the Spanish economy, would be in serious troubles when describing the situation in other regions due to the great differences that the countries possess in the different variables analysed. Furthermore, the statistical validity for this project is satisfactory. That is, we consider that the statistics as well as the sources used are appropriate for the subject, and the results extracted from them are suitable, leading us to significant conclusions. Finally, we consider that the linkage among the variables, in causality matters, is reasonable and adequate. The selected variables possesses correlation between them and complements each other in order to have a better understanding of the subject and respond in a more appropriate way to the question posed. 3. Theoretical Section 3.1. Historical Background, C-P dynamics & the Prebisch-Singer Thesis 8 3.1.1. Historical Background In the first part of this section we are going to describe the socio-economic framework of the context in which the structuralist thoughts emerged. This is done in order to have a better understanding of the situation that partially contributed on their creation. The historical context was of a great importance on the development of structuralism. This was due to the fact that there were some events that changed the course of the socioeconomic history, as for example the two World Wars and the Crisis of 1929. This last fact was even more crucial than the wars in the development of structuralist ideas. This is due to the fact that, before the Great Depression, LA countries grew economically because of the constant increment of the exports to the industrialized nations, but during the recession period imports from the Core states decreased vastly, making obvious the fact that industrialization was a key aspect of development, that is, growing internally without that much dependence on external economic linkages. Another factor that can partially explain the development of structuralism was the two World Wars. In both cases the LA economies grew persistently due to the increase demand of primary products in which these nations had comparative advantages that was the element that determine the international division of labor. The reason why this fact was so crucial in the development of the structuralist theories was that exports from these states augmented rapidly making the nation’s economy grow. Although this increment was a positive aspect, it was linked to another issue that played a central role in the deterioration of these economies in the long-run. This factor was the specialization on the production of primary products, which deteriorated the terms of trade in the long-run, as it will be explained further in this section. The free market ideology is based the international division of labor and the comparative advantages among regions. In this sense, Latin-American countries had comparative advantage on the production of primary products and natural resources, which were laborintense, and the industrialized countries had comparative advantage on industrial commodities, high-tech products and other commodities that require great amounts of capital (Prebisch, 1948). 9 3.1.2. The C-P dynamics The structuralist theoreticians made the difference between the industrialized nations, that they called Center, and the developing ones, the Periphery, in order to analyze the diverse development of the economies throughout the world and, therefore, improve their understanding of the economic linkages amongst them. The Center countries are those where the technical improvements are developed or, at least, where these progresses penetrate first. Moreover, the expansion throughout the different sectors of the economic structure is quite rapid, producing a homogenous economic structure. These changes imply an augmentation of the productivity, which increases wages and, therefore, the internal aggregate demand. These technical changes also diversify the production structure of the economy. On the other hand, the peripheral nations import the technological progress from the industrialized countries due to their incapacity to create technical development. Furthermore, the imports of technological improvements are employed on the production of primary sector goods and those for the export sector. The fabrication of these products is, therefore, cheaper, so the prices decrease, and the country has to export a bigger amount to the Center nations in order to receive the same quantity of imports and keep on with the industrialization process, maintaining the balance of payments equilibrated. This is what Raul Prebisch called ‘development from the exterior1. In developed nations the economic growth is guided by technological changes. Since the tools for the creation of technical progress, such as human capital and capital accumulation, are highly concentrated in certain regions of the world. On the contrary, in developing nations, economic growth is driven by the capacity to adapt, with the mentioned delay, the technical improvements, or the ability to respond to the demand for commodities from the Center. Finally and consequently to this difference, there is a clear pattern of dualist dynamics. Raul Prebisch, ‘Problemas teoricos y practicos del crecimiento economico’, CEPAL review, Santiago de Chile, 1973. 1 10 3.1.2.1. Technical Changes There are differences between the industrialized countries and the developing ones in the creation process of technical progress, which generate economic asymmetries. This disparity implies repercussions in certain aspects, such as the productive structure and labor market. The international division of labor implied that certain regions with a low or inexistent industry specialized in the production of goods required by the industrialized nations in order to maintain their economic expansion through the diversification of their productive structure. Due to this fact, the technical progress originated in the developed countries is only transferred to the developing ones with the aim of improving the production of the resources that the former nations need for the advancement of their economies. The reason for this transference was because the technical progress on the production of primary products in the developing countries would lower the prices and, therefore, their costs. The cheaper imports lowered the costs of production of industrialized goods in developed nations and, thus, augmented the margin of benefits of producing them. Furthermore, the gradual expansion of technical advancements to developing countries was controlled by the industrialized nations, which monopolized the technical progress. The mechanism of the powerful nations for maintaining under control the transfer of technological innovations were capital accumulation, which basically came from the improvements of productivity and that were not equally shared with developing economies, and the development of human capital. 3.1.2.2. Specialization & Structural Heterogeneity The technological differences among countries bipolarized their productive structure. Some countries specialized in the production of primary goods while others specialized in the ‘productive diversification’ (Di Filippo, A. & Jadue, S., 1976). In this sense, the developing countries kept on with the dependency patterns towards the industrialized nations due to the need on their imports from the latter in order to industrialize and to diversify the consumption when the income increased. This asymmetry leads to the creation of a ‘structural heterogeneity’, which 11 responds to the biased assignment of technical progress to the export sector of developing nations. The introduction of technical innovations in the less developed countries created dualisms in the productive structure and in the labor market. In the first one by sharing sectors with high productivity, the ones that are modern due to the introduction of technical progress from the Core economies (mainly primary sector and other export industries), with other sectors with much less productive, the industries that used antiquated techniques. In the second case, the dualism in the labor market refers to the division where the introduction of modern techniques in the primary and export sector increased the labor productivity and, therefore, reduced the amount of workers employed on it. The abundance of workforce put pressure on the wages that decreased in the non-productive sectors, lowering the relative prices of the export commodities. (Rodriguez, O. 2001). 3.1.3. The Prebisch-Singer thesis Raul Prebisch and Sir Hans Singer arrived at the same time to the same conclusion: the tendency of the deterioration of the terms of trade in developing countries. This was explained through two different hypotheses that complemented each other (Ocampo, JA & Parra, MA, 2003): The first hypothesis was the negative effect of the income inelasticity of the demand of raw materials on the terms of trade for developing economies. This premise is exclusively applicable to the basic products (or at least the ones with a low elasticity on the income-demand). The hypothesis is based on the fact that economic growth tends to modify the productive structure of the countries, increasing the industrial sector and services. This issue is affected by the aggregate demand of primary products and the technological changes in manufactures, which are associated with the reduction of the raw materials costs. The developing economies are usually grounded on the production of raw materials and the industrialized ones are based on manufactures. Therefore, the developing nations will always grow ‘slowly’ compared to the 12 industrialized ones because if they grow rapidly the excess of primary goods will press the relative prices down. The second hypothesis was focused on the asymmetries on the labor markets between the Center and the Peripheral countries. This premise is applicable to every product and service produced in the industrialized countries. The hypothesis is based on the unequal distribution of the benefits of technical progress. In this sense the manufacture producers profited from technical progress through an increment of their incomes, while for the developing countries, the technical progress lower the prices of basic products. This asymmetry is the result of the functioning of diverse markets: (i) the product market, where industrialized nations have more power to fix the manufactures prices, and (ii) the labor market, where industrial workers are more organized so their wages are higher, and therefore, the product’s prices augmented. In addition to this point, there is also the view that emphasizes that in the long-run the excess of labor in the developing economies will generate a decrease in the wages and, consequently, a deterioration of the terms of trade. 3.2. The role of the different macroeconomic variables 3.2.1. Economic growth & Structural Changes As Ocampo stated in one of the ECLAC’s review2, “economic growth is invariably accompanied by changes in production structures, including changes in the composition of gdp and employment and in international specialization patterns” (Ocampo, J.A. 2011, p.23). In this sense, there are several reasons that can explain the link between economic growth and the changes in the production structure. One view defends that the diversification of the production branches opens new chances for the creation and transmission of technological progress and, therefore, the improvement of the different productivities. Moreover, another Ocampo, J.A. “Macroeconomy for development: countercyclical policies and production sector transformation”, CEPAL review 104, August, 2011. 2 13 connection between economic growth and structural changes resides in the fact that the generation of demand of a new production activity implies the formation of new ones that satisfies the former’s demand and, thus, the development of different activities (Hirschman, 1958). The main variable that changes the economic structure of a developing country is technical progress. That is, the ability of the countries to absorb the improvements from the industrialized nations and the adaptability on the response to the Center’s demand. The development process consists indirectly in passing from a productive structure where the primary sector and the low-industry sector, which are labor-intense sectors, have a great importance and contributes highly to Gross Domestic Product (GDP), to a structure where the primary sector and low-industry sector do not contribute in the production as much as the highindustry and services, which are capital-intense sectors. 3.2.2. Balance of Payments predominance & Access to financing The focus on the balance of payments was one of the main reasons why some LA countries suffered financial problem. This is due to the fact that the financial sector experienced boom and bust cycles, and because the external sector (exports and imports from the current account more precisely) were significant (Ocampo, 2011). The effects of the economic cycles are especially severe for the agents who are considered to have a high risk. These agents have facility for financing during the booms, but they are in serious troubles finding financing during the economic busts. At a national level, the Small & Medium Enterprises (SMEs) and low-income households are the ones that suffer the most the consequences of the cycles, while, at the international level, the developing countries are the ones that are more affected by them. In this sense, LA nations are placed in the high-risk category and, thus, they are exposed to the cyclical shocks (Frenkel, 2008 as quoted by Ocampo, J.A., 2011). 14 The volatility of the financing is reflected in the supply and maturity profile of the financing, which has procyclical characteristics. Risk degree is higher in developing countries due to the lack of credibility on the return of the credit and interests, generating problems on the balance sheets of the developing country’s companies. These cycles pressure policy-makers to follow procyclical monetary policies, as they lower the interest rates during booms in order to facilitate the financing and raise them during the busts with the aim of reducing it. Moreover, countercyclical monetary policies pressure the exchange rate, which fluctuates, modifying the national currency value and, therefore, the balance of payments that deteriorates during booms and improves during busts. 3.2.3. Labor Market dualism The international division of labor and the differences in technical development and economic structure led to a labor market dualism in the world, in general, and in LA countries, in particular. Within LA economies the introduction of technological progress, which was mainly done in the primary and the export sectors, segmented the labor market into two: the high-productivity sectors, in which the wages were elevated, and the low-productivity ones, whose workers obtained a low wage (Márcio Holland y Gabriel Porcile in Cimoli, M. 2005). In the first ones, the introduction of technical changes increased the labor productivity, creating certain alterations, such as an increment of average wages and, at the same time, the reduction of the demand of workforce in the sector. On the contrary, the sectors where the technical improvements has not arrived yet or in a weak way, that is, they use an antiquated technology in the production process, the labor productivity was low. Moreover, the wages stay steady (or even reduce) due to the collision of forces that takes the wages up or down. The modernization process creates a dynamic of transfer of workers, the high productivity sectors can not satisfies the great supply of labour, consequently producing a surplus that decrease salaries and increase the dependency patterns through an enhancing of the decline of terms of trade. 15 3.3. Related theories and Critics In the late 1960s different conceptions about the role of LA in the international sphere appeared. They were heritance from the original and main proposals of Raul Prebisch and the early ECLAC authors. Those theories were: the Dependency Theory, the World System Theory, and the Neostructuralism; having all similarities and differences regarding its predecessor. Consequently we will explain the similarities (A) and thereafter the critics and disagreements of each one of the theories (B), subsection including classical market approach critics. 3.3.1. Related theories The Dependency Theory encompasses the Marxist view, whose main proponent is A. Gunder Frank, and the Sociological one with Faletto and Cardoso as main authors. Both branches confirm the explanation of LA underdevelopment was due to the external factors, especially those related to the international economic system. The idea of defending the need of trade for an equal improvement of the economic conditions for every country does not take place. Through the mechanism already explained above, just the Core economies make profits from the world dynamic, whose main features are: the international division of labour, the country specialization and the monopolization of key technological sectors. Moreover, the capitalist system tended to the stagnation and, politically, to the impoverishment of the masses and to antidemocratic government (Guillén,2007). From this perspective, the main dynamics underlying the international economic system are: firstly for achieving a minor improvement of the conditions of LA, the countries have to be subordinated to the Core (Reyes,2009). Furthermore, the Periphery had its greatest economic development when the relations with the Core were weaker (Ibid.) The subsequent period, when the Core recovered, had a strong impact in the balance of payments and the stability of the peripheral countries. Finally, another idea is the correlation between the level of underdevelopment and the intensity of the historical links to the Core in the form of colonies, being the former deeper when the latter was stronger (Ibid.). 16 Considering the World System Theory , I. Wallerstein is the most remarkable author. His ideas take the legacy of the division of the world in different spheres along with the International Division of Labour and the role of technology. However the main features of this theory are slightly different to the structuralism, consequently explained in the critics section. Finally, Neostructuralism, whose main proponents are J. Ramos and Jose Antonio Ocampo, is understood within the work of the ECLAC during the end of the1980s till nowadays. Their research was considered as an opposition to the neoliberal policies accounted in the “lost decade” of the 1980s. The authors utilize the study of the variables through a similar approach to the structuralist, but without tackling the foundations of Neoliberalism. Further clarification is done in critics section. 3.3.2. Critics Considering the dissension of the different approach within the literature, those are the main arguments: from the Marxist conception of the DP, the Center (or Core) countries exploit the Periphery even within the industrialization of developing countries scenario. Industrialization perpetuates the imperialist expansion and strengths the foreign capital and, consequently, the control of the Core to the rest of the nations system, obtaining a surplus from Latin-American workers with the connivance of national elites. (Guillén, 2007). The road to development for the developing nations is through the complete disconnection breaking any relation with the Core. On the other hand, the Sociological approach proclaimed a more reformist way to development, the associated dependent development (Kay, 1998). They put into question the role of national bourgeoisie as an actor encouraging a holistic strategy for development in a country. They based their hypothesis in the study of the historical path of insertion of LA in the world, focusing on the role that the internal social groups had taken during that time, and how the social structure appeared during the process, perpetuated by the underdevelopment path. Also, authors as Celso Furtado or Osvaldo Sunkel have explained how dependency can be seen in cultural, financial and commercial activities. 17 Besides, the World System Theory, similarly to the Sociological approach to dependency, tackles the historical variable, drawing a cycle of hegemony along the history of capitalism. Within that cycle the focus went from the underdeveloped states to the analysis of each part of the system: Core, Semi-peripheral and Peripheral countries; breaking with the bipolar vision. The emergence of this theory is closely related to the globalization process understood as a timespace compress phenomenon, within the neoliberal market-leading organization of the society as base. To continue, the reformulation of the structuralist ideas by the Neostructuralist includes the following issues: firstly, the excessive importance and confident on the state as resource allocation agent; secondly, the underestimation of the exterior sector that took places during the whole process; and finally the need of short-term fiscal and monetary stabilization policies added to the long-term prospect that characterized the ISI strategy (Berthomieu,2005). Considering state, this one should be the provider of public goods, macroeconomic stability and the basic infrastructure in order to allow the correct functioning of the market (Guillen,2007). Moreover, the economy should tend to open, becoming export oriented economy. External competitiveness should be enhanced through improvements in productivity; a high and constant exchange rate for promoting selective exports; and selective restrictions in imports for the modification of the balance of payment’s equilibrium, but being far from the protectionist measures implemented in previous decades. Another aspect lied in the study of inflation: the structural explanation against the inertial one. Overall, Neostructuralism proposes a middle way between the state main role for the structuralists and the marginal role that plays for neoliberal authors (Guillen, 2007), who represent another set of critics towards structuralism. Structuralism appeared as an alternative explanation to the classic market economy and the theory of trade inserted in it. The main concerns were related to the great participation of the state in the economy, opposing to the principle of self-regulation of the market and private property as microeconomic foundation of the social order (Filippo, 2009). State represents inefficiency in several areas: in the allocation of resources due to manipulated interest rates and because of the creation of monopolies and oligopolies. Along with that, the problems in the 18 balances of payments: imports increased after the first stage of industrialization; and if traditional export decreased, a devaluation policy to incentive those exports would made more expensive the industrial production (Grunwald, 1970). Critics also underlies in regard of the national market due to the fact that in some countries the absolute size of population along with the structural factor, led to a weak expansion of internal demand (Grunwald, 1970); and a weak profitability of the economies of scale. In terms of financing, the domestic savings financed a limited part of the needs of capital, with the consequent increase of foreign debt. Finally another problem is the one related to the spreading of technology, being it still imported decades after the first policies were implemented (Ibid.); and the capacity of labour absorption of the new activities, leaving great parts of population in unemployment and self-employment situation in the informal sector. 4. Analytical Section This section consists in the examination of the economic reality of the Spanish economy in the last decade through the analysis of diverse macroeconomic variables. Furthermore, we will also state which of the features of the variables used in the analysis, correspond to a Peripheral nation and which are more characteristic of a Center country. The Spanish economic performance will be analyzed within the EU context because the country is one of the members. Due to this fact, the economic cycles are parallel in Spain and the rest of the nations. This is because the European countries are the main recipients for the country’s exports and they are also the main donors of imports. Furthermore, it is also remarkable the role of the political integration that these nations has experienced in order to have a better understanding of the nation’s economic situation. In addition to this, we believe that it exists a North-South dualism within the European nations. This is due to the different economic growth rates, the dissimilar economic structures that these countries possess within the EU27, the diverse balance of payments and the disparities that exist among the countries’ labor markets. 19 In the next part of the empirical section we will go deeper on analyzing the macroeconomic variables that will help us defining if Spain is a peripheral nation or a Center country. The Subsections that follow are divided in (i) the economic growth, where it will be described the Spanish GDP tendency and the components of this variable comparing them to the German case; (ii) the economic structure, in which we will comment about its configuration; (iii) the balance of payments, where we will go deep on studying the diverse tendencies of the spheres that shape this variable; and (iv) the labor market, in which we will analyze the existent dualism and the productivities in the different sectors. 4.1. Economic Growth The economic growth tendencies that the Spanish economy has experienced in the last decade possess different features among the period before the financial crisis and the one afterwards. As it is shown in Graph 1, in the first years of the last century the production multiplied almost by three, passing from 580,345 million dollars in the year 2000 to 1,593,421 million dollars in 2008, which was the pick. After that year and as a consequence of the global economic crisis, the GDP had a decreasing tendency, reducing until 1,350,907 million dollars in 2012. Graph 1: Evolution of the Nominal GDP in Spain between 1999 and 2012 (at current prices in millions of US dollars). 20 Source: UNCTADSTAT In Graph 2 we can observe the evolution of the GDP in Germany in the same period. We include this information in order to be able to compare the economic growth trend with what it is considered a ‘Center’ country in Europe. As we can note, the size of GDP is greater than in Spain and the tendency, before and after the financial crisis, is flatter. This results show that German economy depends less on the international framework. Graph 2: Evolution of the Nominal GDP in Germany between 1999 and 2012 (at current prices in millions of US dollars). 21 Source: UNCTADSTAT The percentage of growth in Spain in that period is represented on table 1, where we can appreciate an increasing tendency for the production rate in the first part, which fits with the description above of the GDP evolution, passing from an average of 7.734% in the period between 1999 and 2007 to an average of 0.06% for the period between 2008 and 2012. On the contrary, Germany grew more constantly but with lower rates over the whole period, experiencing fewer problems after the crisis. The average growth rate for this nation between 1999 and 2007 was 2.46% and the average after the crisis, between 2008 and 2012, was 1.76%. The divergence of tendencies appears as a result from the wider multilateralism that Germany has compared to Spain and the stronger export sector of high-valued products. Table 1: GDP percentage growth in Spain between 1999 and 2012. 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 7.5 8.6 8 7.2 7.4 7.4 8.1 8.4 6.9 -3.7 0.1 1.4 -0.8 3.3 Source: Statistics from the Economic Outlook of the Organization for Economic Co-operation for Development (OECD). 22 Table 2: GDP percentage growth in Germany between 1999 and 2012. 1999 1.9 2000 2.6 2001 2.8 2002 1.5 2003 0.7 2004 1.8 2005 1.5 2006 4.2 2007 5.1 2008 1.6 2009 -4.0 2010 2011 2012 5.0 3.9 2.3 Source: Statistics from the Economic Outlook of the Organization for Economic Co-operation for Development (OECD). The economic growth is based on the analysis of the GDP (GDP). This variable comes from the following equation: GDP = C + I + G + (X – M); in which C refers to private consumption (which includes Household and Non-Profit Institution Serving Households (NPISH) consumption); I denotes the Gross Investment (Gross Capital Formation (GCF) in our analysis); G indicates the Public Spending from the general government; X refers to exports to other countries; and M denotes the imports from other nations. In tables 2 and 3 it is shown the evolution of each of the GDP components. From the data we can appreciate some similarities between the economies of the two countries, such as for example that the component that contributes the most to the GDP in both cases, as it normally does, is the private consumption. Moreover, the GCF and the public spending have, more or less, the same percentage of contribution in both countries’ GDP. On the contrary, there are also some disparities among both nations. Firstly, there is a great difference between the size of the economies and, therefore, among the magnitude of the variables. Secondly, the net exports (that is, exports minus imports) over the whole period are positive for the German economy, but negative for the Spanish one. Finally, the public spending has reduced in the Spanish economy since the economic crisis hit the nation (in 2008), but has continued increasing in the German case for the whole period. Table 3: Evolution of the components of the GDP in Spain between 1999 and 2013 (at current prices in millions of Euros). 23 Year\Components C I (GCF) G X M 1999 345,366.00 145,695.00 99,616.00 154,677.00 165,412.00 2000 376,052.00 165,618.00 107,951.00 182,992.00 202,706.00 2001 402,392.00 179,380.00 115,816.00 194,142.00 211,333.00 2002 425,425.00 194,240.00 125,065.00 199,280.00 214,752.00 2003 451,445.00 214,624.00 135,610.00 206,084.00 224,681.00 2004 487,367.00 238,107.00 149,419.00 218,201.00 251,800.00 2005 525,267.00 268,575.00 163,358.00 233,387.00 281,289.00 2006 566,151.00 304,945.00 177,121.00 259,130.00 321,800.00 2007 604,654.00 326,236.00 193,059.00 283,331.00 354,119.00 2008 622,368.00 316,697.00 212,003.00 288,217.00 351,497.00 2009 592,404.00 251,575.00 223,603.00 250,667.00 270,189.00 2010 608,105.00 239,266.00 224,511.00 285,110.00 308,109.00 2011 620,012.00 229,054.00 222,721.00 321,819.00 330,251.00 2012 621,170.00 206,209.00 211,446.00 338,014.00 327,314.00 612,335.8 190,537.7 210,388.8 352,979.5 (f) (f) (f) (f) 2013 315,165.7 (f) Source: Table created by Alex Rodriguez & Mario Chaparro, extracting the data from Eurostat. (f) refers to forecast, that is, the prediction that this Organism made for 2013. Table 4: Evolution of the components of the GDP in Germany between 1999 and 2013 (at current prices in millions of dollars). Year\Component C I (GCF) G X M 1999 1,161,860.00 435,980.00 384,780.00 588,130.00 570,550.00 2000 1,195,040.00 456,590.00 389,570.00 683,550.00 677,250.00 2001 1,233,430.00 427,650.00 399,140.00 731,230.00 689,550.00 2002 1,240,580.00 385,340.00 410,380.00 760,570.00 664,670.00 2003 1,264,510.00 383,390.00 415,450.00 767,080.00 682,930.00 2004 1,283,610.00 387,120.00 414,200.00 846,440.00 735,670.00 2005 1,306,980.00 384,130.00 417,300.00 919,070.00 803,080.00 24 2006 1,339,540.00 419,620.00 424,690.00 1,053,140.0 923,090.00 2007 1,356,730.00 467,750.00 434,040.00 1,145,410.0 975,430.00 2008 1,389,620.00 476,430.00 451,920.00 1,191,190.0 1,035,360.00 2009 1,391,550.00 390,720.00 475,300.00 1,006,540.0 889,610.00 2010 1,433,160.00 436,540.00 487,600.00 1,173,340.0 1,034,440.00 2011 1,487,660.00 473,510.00 499,770.00 1,300,810.0 1,169,150.00 2012 1,521,590.00 455,250.00 515,430.00 1,362,590.0 1,210,960.00 2013 1,558,312.4 (f) 445,251.4 (f) 537,022.9 (f) 1,391,898.1 (f) 1,238,291.6 (f) Source: Table created by Alex Rodriguez & Mario Chaparro, extracting the data from Eurostat (f) refers to forecast, that is, the prediction that this Organism made for 2013. In this sense, even if the Spanish economy possesses one of the highest GDPs in the world (the 12th more precisely3), the size is less than a half of the German one. Moreover, from the larger fluctuations observed in the Spanish economic growth we can extract that the country is more vulnerable to international cycles, rising with a higher rate when the economic framework is favorable and reducing more when the global economy contracts. In this respect we can state that the Spanish economy possesses characteristics from Peripheral nations because, as Raul Prebisch noted, the effects of international economic cycles are especially severe for the agents who are considered to have higher risk, which is feature of these kinds of countries. Furthermore, as we can observe from the data analysis developed above, the consequences of the economic crisis have been greater in Spain than in Germany. This is due to the fact that Germany had a more developed economic structure and higher productivity (as it will be deeply analyzed in the following subsection) and, therefore, the country experienced a more stable growth during the boom and felt less the consequences of the crisis. Finally, the private indebtedness was lower than Spain, as we will show further in this section, and the nation’s investment on Development and Research (D&R) in Germany was larger than in the Mediterranean country. 3 The World Bank databases (http://data.worldbank.org/data-catalog/GDP-ranking-table) 25 4.2. Economic structure The Spanish economic structure regarding GDP per sector clearly shows the pattern of a developed economy. The 65, 5 %4 of the GDP (in current prices) is produced by services, 15,6% by industry, while construction contributes 8,4% to the total production. The primary sector formed by agriculture, cattle industry and fishing produces the 2,5%. Regarding productivity of the whole economy within the framework of the main trade partners, during the last decade Spanish Total Factor Productivity5 (TFP) has grown in a slower pace than its neighbours’ during the whole period, excluding 2009. Graph 3: TFP Growth in percentage, for the sample of countries, from 2000 to 2011 Total Factor Productivity Growth (ln difference, percent) 4.00 3.00 Growth % 2.00 1.00 Spain 0.00 Germany -1.00 France -2.00 Italy -3.00 -4.00 -5.00 Source: The Conference Board Total Economy Database™ The increment of the TFP in 2009 was due to the lower utilization of factors of production as a consequence of the economic crisis and the job destruction (Fernandez, 2011). In 4 INE (National Institute of Statistics), National Account statistics 2012. The 8,1% left represents net taxes “TFP growth is often defined as “technological progress”. It captures the effects of a set of heterogeneous factors, including the capacity of the economy to innovate and the impact of the quality of the institutional and business environment, such as the regulation of labour and product markets, on the productive use of capital, labour and other inputs” ( Mora-Sanguinetti & Fuentes, OECD 2012:12) 5 26 order to have a broader scope of the situation, the following subsections will analyze the economic structure of the Spanish economy in terms of activities and productivity. 4.2.1. Agriculture The primary sector has followed a declining trend, surviving thanks to the protectionist policies of the EU which have altered the world prices of commodities. The CAP (Common Agricultural Policy) has supported Spanish primary sector since the inclusion of the country in the EU until nowadays, mainly through subsidies, market support, direct aids, and rural development and decoupled payments6. The future program will distribute between the members more than 40% of the EU expenditures7. Following the words of the present ministry of agriculture, the 30% of the income of farmers has depended on the European funds 8, consequently the prediction for this sector is negative due to the reformulation of the requirements for applying to the funds along with the competence generated by the most recent EU enlargements. As it will be shown in our analysis of the current account of the balance of payment, agricultural products have a remarkable importance considering exports. 4.2.2. Industry and Construction According to the UNECE, Spain is listed in a low position regarding to percentage of GDP by the industry sector, solely above Luxembourg, Greece, and United Kingdom within the EU.9 The decreasing of this sector has followed a constant tendency for decades; however and similarly for agriculture, the products within this sector play an important role on foreign trade. 6 Web page of University of Dublin: “Exploring links between EU agricultural policy and world poverty “ (http://www.tcd.ie/iiis/policycoherence/eu-agricultural-policy/protection-measures.php) 7 OECD database (http://www.oecd.org/eu/evaluationofagriculturalpolicyreformsintheeuropeanunion.htm) 8 Webpage Newspaper “El Pais” 6/05/2013 (http://economia.elpais.com/economia/2013/05/06/agencias/1367856454_623384.html) 9 UNECE. Statistical database webpage: (http://w3.unece.org/pxweb/quickstatistics/readtable.asp?qs_id=11&lang=1) 27 Diagram 1. Percentage of GDP over total economy per country, 2010 % GDP Secondary sector.2010 35 30 25 20 15 10 5 0 29.3 23.8 19.3 15.9 15.5 7.4 Source: UNECE During the last decades and previous to the world economic crisis, the construction sector has created a great part of the national’s wealth, following the figures of the industry (12,6% GDP for 2006 reaching its peak10). The graph 4 shows the evolution of that sector in comparison to the EU. As a product of the real state bubble and the credit bubble, thousands of dwellings were built during consecutive years. Also a great impulse to the public civil engineering happened, developing a great number of infrastructures for transport, tourism, culture, etc; not always fulfilling the requirements on general interest and long-term economic viability11. Nowadays the sector suffers a great adjustment to its natural supply value provoking losses in terms of jobs, but increasing the productivity at the same time. 10 (INE) Webpage Newspaper “The Telegraph” 15/02/2012 (http://www.telegraph.co.uk/news/worldnews/europe/spain/9084202/Castellon-airport-Spanish-ghost-airportsunused-runway-to-be-dug-up-to-meet-regulations.html) 11 28 Graph 4: Production in construction over total economy for the sample of countries, 2010 Production in construction (%2010 = 100) 200.00 180.00 160.00 140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00 European Union (27 countries) European Union (15 countries) 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Spain Source: Eurostat Focusing on the productivity, the graph above represents the trends followed in the last years in comparison to the trends of the main trade partners: Graph 5: Percentage of growth in productivity by selected sectors and sample of countries, 2000-2009 MANUFACTURING ELECTRICITY GAS AND, WATER SUPPLY 10 20 5 15 10 2009 2008 2007 2006 2005 2004 2003 2002 2001 5 MINING AND QUARRYING 2009 2008 2007 2006 2005 -10 2004 -15 2003 -5 2002 -10 2001 0 2000 -5 2000 0 CONSTRUCTION 29 20 20 15 15 10 5 10 2009 2008 2007 2006 2005 2004 2003 2002 2001 -5 2000 0 -10 5 0 -15 -5 -20 -25 -10 Source: OECD Statistics (Stat Extracts, via OECD’s iLibrary) Graph 5 show the evolution of the growth of multi-factor productivity (%) for Spain (Orange), Germany (Green), France (Blue) and Italy (red) for the four subsectors. The decreasing trend for the Spanish figures is the common fact in all of them, independently of the crisis. The exception is the construction sector, whose trend shows its anomalous nature within the Spanish economy, reaching great levels of productivity related to the large job destruction. Before the economic crisis, Spain reached a lower level of growth in productivity than Germany in every sector, except for mining during various years, and for construction in the early years of the housing bubble. Considering France, both countries have similar trends and values, excluding manufacturing in which France achieved higher levels. In the case of Italy, there are disparities depending on the subsector, having Spain superior growth rates for manufacturing. To sum up this subsection, there is a latent problem for the Spanish economy due to the importance of manufacturing on foreign trade, subsector in which the country has stayed below its trade partners during the whole decade. 4.2.3. Services The tertiary or services sector is characterized by a great degree of diversity in terms of output of product and nature of its activities. As a result, it is shared the vision of the existence of duality within the sector between activities with low productivity, which are intensive in labour 30 and the ones with high productivity, which are capital intensive. The productivity for 2009 of the whole sector was two thirds the average of productivity of the EU-15 (Maroto,2009). Figure 1: Spanish.Gross value added at current basic prices (in millions of Euros), by subsectors of services sector, 2010 Spain.Gross value added at current basic prices (in G.WHOLESALE AND RETAIL millions of Euros).2010 TRADE; REPAIR OF MOTOR VEHICLES AND MOTORCYCLES H.TRANSPORTATION AND STORAGE I.ACCOMMODATION AND FOOD SERVICE ACTIVITIES 71,096, 16% 117,007, 26% J.INFORMATION AND COMMUNICATION 71,156, 16% 45,383, 10% 43,092, 9% K.FINANCIAL AND INSURANCE ACTIVITIES L.REAL ESTATE ACTIVITIES 37,980, 8% 69,191, 15% M-N.PROFESSIONAL, SCIENTIFIC, TECHNICAL, ADMINISTRATIVE AND SUPPORT SERVICE ACTIVITIES Source: EUKLEMS database. Those subsectors that on average have higher and increasing productivity as the subsector J,K and H (Maroto,2009) do not represent a large part of the production whereas the activities characterized in the opposite way as the ones encompass in the group G and I, conform a quarter of the total production of the services. Focusing on the trends about TFP (Value added based, with 2005 as base year) for the main European economies, it can be seen the following facts: for every subsector except G and K, there has been a decrement in the TFP, especially in H, I and M-N. The reason underlying that 31 tendency was the large use of factors of production, both labour and capital during the expansion years (2000-2008) of the Spanish economy (Fernández,2011) Graph 6: Percentage of growth in productivity by selected sectors and sample of countries, 2000-2009 G.WHOLESALE AND RETAIL H.TRANSPORTATION AND TRADE; REPAIR OF MOTOR STORAGE COMMUNICATION 130.0 140.0 120.0 130.0 2,009 SERVICE ACTIVITIES 2,008 J.INFORMATION AND 2,009 I.ACCOMMODATION AND FOOD 2,008 2,007 2,006 2,005 2,004 80.0 2,003 80.0 2,002 90.0 2,000 85.0 2,009 100.0 2,008 90.0 2,007 110.0 2,006 95.0 2,005 120.0 2,004 100.0 2,003 130.0 2,002 105.0 2,001 140.0 2,000 110.0 2,001 VEHICLES AND MOTORCYCLES 120.0 110.0 110.0 100.0 K.FINANCIAL AND INSURANCE 2,007 2,006 2,005 2,004 2,003 2,002 2,000 2,009 2,008 2,007 2,006 2,005 2,004 2,003 2,002 80.0 2,001 80.0 2,000 90.0 2,001 100.0 90.0 L.REAL ESTATE ACTIVITIES ACTIVITIES 32 2,009 2,008 2,007 2,006 2,005 2,009 2,008 2,007 2,006 2,005 2,004 2,003 2,002 2,001 2,000 60.0 2,004 80.0 2,003 100.0 2,002 120.0 2,001 115.0 110.0 105.0 100.0 95.0 90.0 85.0 80.0 2,000 140.0 M-N.PROFESSIONAL, SCIENTIFIC, TECHNICAL, ADMINISTRATIVE AND SUPPORT SERVICE ACTIVITIES 140.0 130.0 Axis Title 120.0 Spain Germany 110.0 France 100.0 Italy 90.0 80.0 2,0002,0012,0022,0032,0042,0052,0062,0072,0082,009 Source: EUKLEMS database. The crisis context would change the decreasing trend in certain subsectors because the TFP for Spain is counter-cyclical (Timmer etal., 2007, Boldrin et al. 2009)by Mora-Sanguinetti & Fuentes, 2012:16) due to large number of temporary workers in low-productivity activities, being those the ones fired in the recessive scenario (Mora-Sanguinetti & Fuentes, 2012). Furthermore, the productivity problems are related to the specialization in lowproductivity sectors, low uses of information, technology and communication (ITC) and the 33 inefficient use of human capital (Fernández, 2011) along with other political and administrative considerations. As a consequence, the gap between Spain respect the main countries within the EU in terms of GDP and standards of living could be wider if we have in account the divergent trends of productivity within the sectors and if those trends does not transform. 4.2.4. Technology The structuralist theory gave great importance to the technology as way of progress for the society, idea shared by the liberal thought too. In the Spanish case it can be observed different trends depending on the variable to study. Regarding the Diagram 2, the country invests remarkably less than their main trade partners, and also it is below the EU average. During the last decade the investment has increased, reaching a 1,39% maximum, starting to decrease in 2010 in the context of the economic crisis. Diagram 2: Research and development expenditure, by sectors of performance,% of GDP .2011 Research and development expenditure, by sectors of performance,% of GDP .2011 2.84 3 2.5 2.25 2.03 2 1.5 1.33 1.5 1 0.5 0 EU (27 countries) Germany Spain France Portugal Source: Eurostat databases The backward position can be seen in Graph 7 too, in which the trend, increasing positively and in a greater path than in the main countries, is still above the EU average. The lack of correlation between the level of education and the opportunities offered by the labour market can be one of the causes of this situation. Further analysis will be made in the Labour Market section. 34 Graph 7: Employment in knowledge-intensive service sectors. Share of total employment, € per person, for sample of countries, 2000-2008 Employment in knowledge-intensive service sectors. Share of total employment 40 35 30 25 20 15 10 5 0 Germany Spain EU (27 countries) Portugal France 200020012002200320042005200620072008 Sources: Eurostat databases Furthermore, in table 5 about the output of the economy, it is seen the share related to the innovation. In this case, Spain is above the average, and over France and Portugal. Table 5: Turnover from innovation % of total turnover geo\time 2004 2006 2008 EU (27 countries) 13,7 13,4 13,3 Germany 17,6 19,2 17,4 Spain 13,8 15,9 15,9 Portugal 10 13,3 15,6 France 11,7 : 13,2 Sources: Eurostat databases 35 However, the economic crisis is affecting strongly to the budget for R&D and it is predicted that the resources allocate to those activities will continue decreasing, impacting again in the increasing of the gaps respect the main European economies for the more important indicators. 4.3. Balance of Payments In this subsection we will analyze the balance of payments between Spain and the rest of the world. Firstly, we will compare the evolution of this issue with the German case in order to set a more appropriate context to examine, through this variable, the North-South dualism that we consider it exists in Europe. Secondly, we will go deeper on studying the components of the Spanish balance of payments, that is, the current account (goods, services and rents), the capital account, the financial account (from Spain to the rest of the world, from the rest of the countries to Spain and the financial derivatives), the reserves of the Bank of Spain and the national debt. Finally, basing on this feature and relating it to our theoretical section, we will suggest if the country is a peripheral nation or a center one. As it is shown in table 6, the balances of payments between Spain and Germany with the rest of the world differ in size and in sign. In the German case, even if in the first years of the period the nation experienced a negative balance of payments, due to specific political decisions taken at that time12, the evolution of the country’s balance is positive. This is due to the strong export sector that the country possesses in high-valued products and services, which exceeds the internal demand, but also because of the lower value of the imports, the increment of private savings, and the high productivity in the nation’s productive sectors. The balance augmented significantly in the economic expansion period, contracting in the two first years of the crisis due to the negative shock experienced in the region (in the commercial partners more than the internal one), and growing again in the following years as a result of the impulse of the export of goods and services and the solidity of the country’s productive sector. 12 Siebert, H. “The Germany Economy. Beyond the social market”. Princeton University Press, New Jersey, 2005. 36 On the contrary, Spain faced a negative balance of payments throughout the whole period mainly because the value of imports of goods and services was higher than the exports. The deficit incremented meaningfully during the economic expansion due to the increment of highvalued imports. It also was influenced by the lower value-added of the exports, due to the lower productivity in the export sector, the decrement of national savings and the disparities in the financial account. After the economic crisis the negative balance reduced as a consequence of the economic problems that the nation experienced, that is, the impossibility for importing as many products and services as before, due to the contraction of the aggregate demand for foreign products and services, and the decrease of incoming financial flows in the country, as we will show further in this section. Table 6: Evolution of the Balance of Payments in Germany & Spain from 1999 to 2012 Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Germany -25 834 -35 459 -12 42 669 40 525 102 368 112 591 144 739 180 914 153 634 141 538 155 992 161 196 185 425 Spain -16 967 -24 949 -26 823 -23 764 -27 476 -44 164 -66 860 -88 313 -105 266 -104 676 -50 539 -46 963 -39 787 -11 268 Source: OECD Statistics (Stat Extracts, via OECD’s iLibrary) As we can corroborate in Graph 8, the total exports decrease in the first year of the crisis, augmenting in the last period. In the same direction but under the level of 2007 (opposite to the export tendency), the total imports reduced in the first years after the economic shock in the region, experiencing an increasing trend in the last years. 37 Graph 8: Evolution of percentage of imports and exports of services from Spain to the rest of the world (with base on 2007=100) Source: Spanish National Institute of Statistics (INE, taken from the Ministry of Economy) In order to keep on contextualizing the Spanish trade performance we include diagrams 3 and 4, in which we examine the total exports and imports that the country has had with the main European partners in 2001 and in 2010, that is, before and after the recent economic crisis. In this respect, we can observe that the balance in 2001 showed a deficit in the balance with almost every country, except for Portugal. Contrary, in 2010, the balance varied depending on the nation that we focus, having surplus with France, Great Britain and Portugal, and deficit with Germany, Italy and the Netherlands. On the comparison among the mentioned years we can extract some features of the consequences of the crisis in the balance of payments. Firstly, we can observe a change of the sign in certain nations. This can be partially explained by the contraction of the aggregate demand for foreign products in Spain. Secondly, the difference in deficits among years has been reduced. This happened due to the increment of exports in every case due to the lower prices of the Spanish goods. Finally, the imports have increased in practically every case. This increment partially occurs as a result of the difference of time in the series. 38 Diagram 3: Spanish total imports and exports with the main European partners in 2001 (in millions of Euros) Source: Spanish National Institute of Statistics (INE database) Diagram 4: Spanish total imports and exports with the main European partners in year 2010 (in millions of Euros) 39 Source: Spanish National Institute of Statistics (INE database) On Diagram 5 it is shown the evolution of the Spanish deficit in the current account of the balance of payments. In the chart it can be seen that a great percentage of the deficit on the balance of payments is due to the deficit experienced in the current account of goods and services. This great deficit in the current account is the result of the lower prices of the country’s exports and the lesser volume of them. Moreover, the goods and services that the country imports, even if they are from the same sectors as it will be demonstrated, are more expensive and larger in quantity. Diagram 5: Spanish current account from 2003 to 2011 (in millions of Euros) 40 Source: Spanish National Institute of Statistics (INE, taken from the Bank of Spain) Due to the great percentage that the current account represents out of the total balance of payments we are going to go deeper on studying it, as it is shown in table 7, in which the main components of the account are displayed. On it we can observe that there exists a surplus on tourism and trips activities, which is the variable that contributes the most on this account. On the other hand, the deficit on rents is basically created by the deficit on the investment rents. Table 7: Evolution of certain components of the current and capital account in Spain from 2003 to 2011 (in millions of Euros) 2003 2004 2005 2006 2007 2008 2009 2010 2011 Net Net Net Net Net Net Net Net Net Current Account -27909.9 -44163.7 -66859.7 -84736.3 -105378.2 -105973.1 -54481.3 -47427.3 -37765.9 Trade balance -39838.8 -53660.2 -68603.2 -80142.2 -91245.8 -86723.5 -42175.5 -47778.8 -39701.4 Services 23300.9 21753 22239.7 22142.6 23076 26143.8 25503.4 27514 33997.2 1.Turism and trips 27037.2 26604.2 26433.1 27444.3 27700.9 28066.6 26038.7 26957.8 30604.1 2.Other services -3736.4 -4851.2 -4193.3 -5301.7 -4624.9 -1922.8 -535.3 556.2 3393.2 Rents -11603.6 -12139.5 -17103.3 -20983.1 -30141.5 -36033.8 -29787 -19849.5 -26134.2 1.Labor 54.1 -148.2 -177.7 -287.7 -277 -54.7 -129.4 -39.4 -115.2 2.Investment -11657.7 -11991.3 -16925.5 -20695.4 -29864.6 -35979 -29657.7 -19810.1 -26018.9 Current transfers 231.7 -117.1 -3392.9 -5753.5 -7066.8 -9359.6 -8022.3 -7313 -5927.6 Capital Account 8165.3 8427.9 8180.4 6174.6 4577.8 5474.4 4275 6289.2 5487.5 41 Current + Capital Accounts -19744.5 -35735.8 -58679.3 -78561.7 -100800.4 -100498.6 -50206.4 -41138.2 Source: Statistic databases from the Bank of Spain. Within the current account the highest contributor to the negative balance is the deficit on products. This is represented in table 8, in which we can observe the increasing negative ratio between exports and imports throughout the last decade. The deficit augmented until the financial crisis due to the larger size (in value) of the imports compared to the exports. This ratio reduced afterwards due to the contraction of the Spanish economy and the increment on the country’s export sector, as we can see in Diagram 6. Table 8: Evolution of Spanish total imports and exports of products and the ratio between them from 1999 to 2011 (in thousands of Euros) Imports 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Exports 139093706 104788627 169468101 124177336 173210117 129771013 175267866 133267678 185113677 138119047 208410704 146924723 232954466 155004734 262687190 170438627 285038313 185023218 283387764 189227851 206116175 159889550 240055850 186780071 263140741 215230371 X-M -34305079 -45290766 -43439104 -42000189 -46994630 -61485981 -77949732 -92248563 -100015096 -94159913 -46226624 -53275780 -47910370 Source: Spanish National Institute of Statistics (INE databases) Diagram 6: Spanish total imports and export of the main products in 2001 and 2010 (in thousands of Euros) 42 -32278.4 Source: Spanish Institute of Statistics (INE database) Services are the other main component of the current account of the balance of payments. In this case, the followed trend was similar to the product industry leading to a surplus in the last year, as we can observe in diagram 7, in which the Spanish total import and export of main services is represented. Diagram 7: Spanish total exports and imports of main services in the last term of 2012 (in millions of Euros) 43 Source: Spanish National Institute of Statistics (INE database) Opposite to the current account there is a surplus on the capital account, as it is shown in Diagram 8. This surplus means that the Spanish economy has been receiving more capital flows than the ones that the country has been dispatching abroad. In this sense and contrary to the current account, it means that Spain has obtained more borrowings or sold more of the national assets. These sales include the foreign direct investments, which can be Greenfield projects or fusions and acquisitions, portfolio investments, which refers to the purchase of bonds and shares, other investments, as for example loans of flows to banks, and bank reserves, which denotes the purchase or sales of foreign currencies from the central bank of Spain . The different contribution of these variables is shown in table 9. Diagram 8: Spanish capital account from 2003 to 2011 (in millions of Euros) 44 Source: Spanish National Institute of Statistics (INE, taken from the Bank of Spain) The financial account of the balance of payments is represented in Table 9, in which the evolution of the components of this account is shown. At a quick glance, we can determine that the investments from Spain to other countries have been lower than the ones received in the nation from the rest of the world during the whole period. Resulting from the deficit on the addition of current and capital accounts, that is, more Euros are going abroad than the foreign currencies are flowed in the country, the Bank of Spain credits the financial account through its reserves in order to equilibrate the final balance of payments13. The evolution on the reserves had follow a decreasing tendency, passing from positive to negative in the previous years to the crisis and increasing negatively in the years that followed. The positive sign means that there is a reduction of the reserves, and vice versa. Table 9: Evolution of the International investments, financial derivatives and reserves in Spain between 2003 and 2011 (in millions of Euros) Investments from Spain 13 2003 2004 2005 2006 2007 2008 2009 2010 2011 116851.5 123199.1 164292.4 169638.2 145407.2 41848.7 9640.8 -38868.6 30488.4 Dodge, E. “AP Macroeconomics and Microeconomics”. Mc Graw-Hill, 2005. 45 to other countries Investments from other countries in Spain 125536.1 152829 223304.8 251475.9 250795.9 151788.6 71376.8 -1973.6 71844.5 Financial Derivatives .. .. .. .. .. -862.9 329.7 17.1 2499.4 13625.9 5147 1439.5 -480.4 -164.2 -644.6 -1563.5 -813.6 -10009.7 Reserves in the Bank of Spain Source: Spanish National Institute of Statistics (INE, taken from the Bank of Spain) The Spanish companies and the national government searched for credits abroad in order to finance their operations. As we can see in Table 10 the national debt was decreasing (in percentage of the GDP) during the period before the crisis. But in 2008 started increasing largely achieving to surpass 80% in 2012 because part of the private debt became public. This increment was also due to the increase of the size of the nominal interests and the European monetary and fiscal policies integration, which make the country incapable to follow the correct policies and depreciate the national currency. Table 10: Evolution of the Spanish total debt and the percentage of it in the GDP between 1999 and 2012 Years DIC 1999 DIC 2000 DIC 2001 DIC 2002 DIC 2003 DIC 2004 DIC 2005 DIC 2006 DIC 2007 DIC 2008 DIC 2009 DIC 2010 DIC 2011 DIC 2012 Total debt Debt % of GDP 361775168 374033184 378246752 383434976 382031840 389141760 392497120 391054816 382306944 436984000 565082304 644692067 736468088 883872944 62.4% 59.4% 55.6% 52.6% 48.8% 46.3% 43.2% 39.7% 36.3% 40.2% 53.9% 61.5% 69.3% 84.2% Source: Bank of Spain (Eurosystem) 46 Finally, we can conclude by saying that the Spanish balance of payments possesses some of the features that the structuralist thoughts linked to the Peripheral countries. In this respect, the negative balance of payments during the whole period analyzed would be the most clear example. This is due to the fact that structuralist emphasized the dependency pattern that the Peripheral countries had with the Center ones, highlighting the deficit in the developing countries’ balances account. This could be explained by the higher value of the imports compared to the goods and services that Spain exports. Furthermore, from a structuralist view, the current account was significant in peripheral countries, as it is the case of Spain in recent times. In this sense, peripheral nations were highly dependent of trade. The following data, table 11, shows that trade in Spain is also a great contributor to economic growth. Table 11: Evolution of the ratio of trade in market prices to GDP between 2000 and 2011 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GDP 629,907 680,397 729,258 783,082 841,294 909,298 985,547 1,053,161 1,087,788 1,048,060 1,048,883 1,063,355 X M 182,992.00 202,706.00 194,142.00 211,333.00 199,280.00 214,752.00 206,084.00 224,681.00 218,201.00 251,800.00 233,387.00 281,289.00 259,130.00 321,800.00 283,331.00 354,119.00 288,217.00 351,497.00 250,667.00 270,189.00 285,110.00 308,109.00 321,819.00 330,251.00 ((X+M)/GDP)*100 61.23% 59.59% 56.77% 55.01% 55.87% 56.60% 58.94% 60.53% 58.81% 49.70% 56.56% 61.32% Source: created by Alex Rodriguez & Mario Chaparro, extracting data from the Bank of Spain and the Spanish National Institute of Statistics (INE database) 4.4. Labour Market 47 The structuralist authors gave a great importance to the dynamics of the labour market, as an evidence of the position that a country has within the centre-periphery division. One of the effects of dependency was the great amount of workforce unemployed in the labour market, that is, a surplus of labour and the dynamics that it generated. Moreover, the dualism that underlies within the labour market was the reflection of the differences of the economic structure: workers in high productivity sector received high salaries in opposition to workers in the low productivity sector who obtained low wages. In order to determine if those features are implicit in the Spanish labour market, certain number of indicators will be used. The Spanish labour market has a number of specificities within the European countries. To understand them, we will see the main characteristics of the labour market, the distribution of employment through the different sectors, along with the productivity, the short-termism and the retribution of the factor of production labour. 4.4.1. Characteristics To begin with, it is shown that the economic cycle strongly affect the unemployment rate of Spain in comparison to its European neighbours. This fact implies that a great percentage of the Spanish employment depend in subsector which suffered of great volatility in terms of demand such construction and accommodation and food activities. These causes also reside in the great percentage of temporary workers. These phenomena are going to be tackling in following parts in this subsection. Graph 9: Unemployment rate (% of the total active population), sample of countries, 2003-2012 48 Unemployment rate % of actives 30.0 25.0 Spain 20.0 Germany 15.0 10.0 France Italy 5.0 0.0 European Union (27 countries) Source: Eurostat databases The same causes behind the total unemployment rate are the ones behind the youth unemployment rate. This follows a similar pattern as the total one, but in a greater extent, with unemployment surpassing the 50% of the total active youth population. This fact has a remarkable impact in sociological terms. Graph 10: Unemployment rate under 25 y, annual average (% of total young active population) for the sample of countries, 2003-2012 49 Unemployment rate under 25 annual average, % % total young active population 60.0 50.0 European Union (27 countries) 40.0 Spain 30.0 Germany 20.0 France 10.0 Italy 0.0 Source: Eurostat databases 4.4.2. Employment by sector In this section it is studied the employment by sector, with the purpose of showing the percentage of workers regarding the importance of each sector. As we can observe the percentage of employment of each sector over the total active population amongst our countries share similar patterns. The greatest differences can be found in agriculture for Germany, with the lowest percentage while Spain has the largest, close to the EU27 average. Secondly, in the manufacturing subsector, both Germany and Italy reach almost a fifth of their workers employed within the subsector, while France and Spain perform under the EU27 average. Finally, for the wholesale and retail and accommodation and food services Spain achieved a greater percentage, remaining over the EU27 average, and practically doubling the rest of the country in the latter subsector analysed in this part. Table 12: Percentage of employment (% of total active population) by main e onomic sector for the sample of countries, 1st Q of 2012 50 2012 Q1 Agriculture, forestry and gas, fishing Mining and steam quarrying air Electricity, and Construction Manufacturing Wholesale and retail trade; conditioning repair supply motor of vehicles EU 27 4,83% 0,79% 0,39% 7,11% 15,72% 14,01% 1,64% 0,95% 0,24% 6,62% 19,94% 13,45% 4,45% 0,48% 0,22% 6,81% 12,64% 16,35% 2,85% 0,76% 0,10% 7,19% 13,02% 12,64% 3,57% 0,71% 0,14% 7,79% 18,73% 14,73% Germany Spain France Italy 2012 Q1 Transportation Accommodation Information Financial Real Professional, and storage and estate scientific and food service and activities communication insurance activities and activities technical activities EU 27 5,06% 4,32% 2,96% 3,03% 0,81% 5,08% 4,78% 3,82% 3,21% 3,32% 0,64% 4,96% 4,85% 7,19% 2,95% 2,52% 0,56% 4,73% 5,12% 3,65% 2,99% 3,27% 1,28% 5,44% 4,60% 5,07% Source: Eurostat databases 2,42% 2,85% 0,60% 5,97% Germany Spain France Italy 51 As a consequence of the figure showed above, Spain does not differ from its European neighbours in the most of the sectors, therefore the importance of those sectors considering that productivity would impact in a similar way in every country. However, on the one hand, the significant differences in the manufacturing sector situated the better performing countries in an advantaged position within the overall of the economy, due to the key importance of it; while on the other hand, the supremacy of Spain in the services sector shows that an important part of the Spanish workforce is employed in this subsector, whose outputs is relatively weaker than in other subsectors. 4.4.3. Temporality Another specificity of the Spanish labour market in comparison to EU countries is the high level of temporary workers. As it can be observed in the chart, the peak was reached in 2006, with almost a 35% of the total workforce; decreasing after that due to the effect of job destruction caused by the economic crisis, being the temporary workers the first in being fired (Bonhomme & Hospido, 2012). In spite of this new situation, the ratio of temporary workers is still clearly above the one of the main European economies. Graph 11: Percentage of temporary employees (% of total number of employees) for the sample of countries, 2003-2012 52 Temporary employees as percentage of the total number of employees (%) (% of total number of employees 40.0 35.0 Spain 30.0 25.0 20.0 Germany France 15.0 10.0 5.0 0.0 Italy European Union (27 countries) Source: Eurostat databases 4.4.4. Labour Productivity The importance of studying the labour productivity is due to two main reasons: on one hand the levels of productivity between countries can determinate the dynamics among them. On the other hand, the level of productivity within the subsectors of an economy can show us the argued dualism that conform the essence of a peripheral country. This phenomenon will be explained in the following parts: Firstly, considering labour productivity (defined as GDP per hour worked by the OECD14), Graph 12 shows that it has grown for every country in a moderate path, except for Italy. However, the growth has been more intense in Germany and France than in Spain, country that has the lowest labour productivity of the sample. Graph 12: Labour productivity in € per person for the sample of countries, 2000-2011 14 OECD Databases (http://stats.oecd.org/OECDStat_Metadata/ShowMetadata.ashx?Dataset=PDYGTH&ShowOnWeb=true&Lang=en) 53 50 45 40 35 30 25 20 15 10 5 0 Spain Germany France 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Italy 2000 € per person Labour productivity Labour productivity Source. OECD Statistics (Stat Extracts, via OECD’s iLibrary) This tendency is also patent in graph 13, in which the first years of the decade both France and Germany reached higher levels than Spain. However, the economic crisis had different impact in the countries. Similarly to other indicators that have been already analyzed in the case of Spain the crises increments the value of them, that is, labour productivity improves during the recession, and consequently it behaves as a counter cyclical variable. Graph 13: Percentage of Annual growth of labour productivity Labour productivity annual growth rate 4 -2 2011 2010 2009 2008 2007 -1 2006 France 2005 0 2004 Germany 2003 1 2002 Spain 2001 2 2000 % of growth 3 Italy Labour productivity annual growth rate -3 54 Source. OECD Statistics (Stat Extracts, via OECD’s iLibrary) Finally, Diagram 9 shows the Apparent Labour Productivity15 for the main subsector of the economy. The sector with highest productivities for the majority of the countries are electricity, gas, steam and air conditioning supply, mining and quarrying, information and communication and real estate activities. On the contrary, accommodation and food service activities are the sector with lower productivities. Diagram 9: Apparent labour productivity in Euros by NACE Rev. 2. 1 000 EUR. 2013, by main economic sector for the simple of countries Euros Apparent labour productivity by NACE Rev. 2. 1 000 EUR. 2013 400 350 300 250 200 150 100 50 0 Spain Germany France Italy Source: Eurostat databases In comparison with table 12, about employment by sector, it can be stated the following assumptions. From the four sectors with highest productivity, Germany has the highest percentage of employment in all of them except for the real state activities, in which France has the highest employment rate. Secondly, Spain has the highest employment rate in the sector with 15 Apparent labour productivity is defined as value added at factor costs divided by the number of persons employed. This ratio is generally presented in thousands of euros per person employed (Eurostat) 55 the lowest productivity. In addition, Spain is in the last position when we regard the employment in two of the four sectors: electricity, gas, steam and air conditioning supply and real state activities. Finally, Spain has its highest employment rate in one of the sectors with lower productivity as it is the wholesale and retail trade and repair of motor vehicles. As a result of those findings, for Spain, the weakest subsector regarding productivity has certain relevance in terms of employment and in the economy in general when comparing to their European counterparts. However, it cannot be confirmed the ideas of the structuralist thoughts, which legitimate the fact of a two rhythm economies in Europe, with activities with remarkably high productivity and other with lower. Although, it has to be considered that because of data correspond to 2013, the zenith of the economic crisis; this one has a strong impact modifying the trends as it happens similarly for the other variables. 4.4.5. Earnings The difference in the monetary retribution of workers is another cause that enhances the dualism of a labour market. As it can be seen in the Diagram 9, in which it is shown the difference between the 9th decile of workers by earnings and the 1st, they differ approximately a 3% for every country, except for Italy, close to 2%. The implication underlying these facts is that, even when considering a certain degree of differences between the workers of different deciles in each country, all of them shares a similar pattern, and thus it cannot be considered as a cause of dynamics of dependency between Spain and the sample of countries. Diagram 9: Gross earnings: decile ratios. Decile 9/Decile 1 for the sample of countries, 2002-2010 56 Gross earnings: decile ratios.Decile 9/Decile 1 4 3.5 3 Spain 2.5 Germany 2 France 1.5 Italy 1 0.5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: OECD Statistics (Stat Extracts, via OECD’s iLibrary) Furthermore, comparing these results to the data from the Spanish Central Bank regarding the ratio decile 9 and decile 1 for the country, the figure shows that the difference between deciles reached by far the 4% percent (unlikely the OECD date, in which the highest peak reached is 3,5. Graph 14: Salary distribution, ratio between deciles 9-1 in Spain by sex, 1988-2010 Source: Bonhomme & Hospido, 2012, p 4. 57 This trend is countercyclical due to the effect of the construction during the expansion context: incentivizing people with low qualification and education to get into the labour market for a relatively high wage, destroying this kind of employment during the depression (Bonhomme & Hospido, 2012). 5. Conclusion Human beings have bestowed a vast range of labels to the world and its regions throughout history, creating an infinite number of divisions since early times. Each name and category, as Center and Periphery concepts, in which a territory was defined, had a great relation to its features, that is, to the reality that they had in front of their eyes. What the structuralist did in the early first decades of the XX century was nothing but continue with the practice of defining those parts that are constantly reshaped and reformulated, but for the first time in a way that nobody had done before: going deeper on understanding the features of the existent divisions and the relations among nations that perpetuated the socioeconomic development divergences. The core idea is the C-P division. Putting in question the liberal theory of trade through the observance of decades, they concluded that the gap between the peripheral countries and the Center would never be reduced if the terms of commercial relationship patterns continued in the same way, remaining dependency patterns. Inspired by structuralist thoughts, our attempt has been to use their concepts and applied them to the current context, certainly continuing with the aim of labelling the world. It can be argued that structuralist left behind different aspects that have to be considered when defining the reality, therefore having limitations, which we mentioned in the methodology. However, considering their economic approach, the results were and are adequate for the chosen case study. In Spain, derived from our analysis, there can be found a certain number of features that shows correlation between a possible nature of Spain as peripheral country within the EU: firstly, the Spanish economy, although being developed according to its economic structure, it is strongly vulnerable to the international cycles (partially as effect of the construction sector) as the peripheral nation definition. These variables are altered even more remarkable in value when 58 they are compared to its European neighbours considered by us as the ‘North’, in which some variables behave in a countercyclical way as for instance the labour productivity or the wage dispersion. Secondly, the role of trade within the whole economy is relatively significant, fact that is relevant considering the chronic deficit in the balance of payments of the country and the weakness of a key sector as it is the manufacturing one. It suggests that certain dependency pattern is followed regarding the main trade partners. Thirdly, the average productivity in Spain is lower than the one in its trade partners, and this account also diverges in terms of productivity growth throughout the sectors. These phenomena imply that in the long-term Spain would worsen its situation regarding its neighbours, making impossible to decrease the gap between them, but probably not in the way the structuralist stated, through the decline of the terms of trade. However, the data regarding productivity does not show that the Spanish economy can be labelled as peripheral, due to it can not be found great differences in productivity between sectors as the structuralist stated. Furthermore, this can also be applied to the technical progress, in which Spain is not especially backward, even though the country scores lower in certain indicator such as expenditure in R&D as percentage of GDP. Fourthly, a different idea can be stated for the labour market. In Spain there are certain features as temporality, concentration of workers in low productivity sector, and wage disparities, which shows a strong degree of dualism within the labour market greater extent than in the European neighbours. This dualism has an enormous impact in numerous aspects of the societies; deepening the differences among them and generating a surplus of labour that lower salaries. To sum up, the study of our analysis through the structuralist ideas allowed us to be aware of the structural differences between the Spanish and the major European economies and how they would not be eliminated unless changes in certain key variables such as productivity would occur in order to diminish the gap and achieving similar levels of economic welfare. 59