The tide goes out in Spain

December 27, 2012

In his entertaining lectures at Columbia Business School, the economist Bruce Greenwald likes to employ cite the line often used by Warren Buffett: When the tide goes out, you can see who is not wearing a bathing suit. This is the feeling I have in Spain. In year five of the financial crisis, I can see which of my relatives and friends had no swimming trunks. The slow downward slide is horrendous for the people living it. Over and over we see the bewilderment of those who worked hard and paid taxes. They don’t understand why they are seeing their first-rate healthcare system being undermined, pensions and salaries cut, and their education system — still not up to par — being squeezed further, while being told they have to bail out the banks because that is what Germany insists on. The downturn is persistent enough that the country’s largest bookseller, Casa de Libro, had a shelf dedicated exclusively to books about the “crisi” (see picture).

Spain under Francisco Franco was often referred to “la vida en blanco y negro,” or life without color, because it was so grim and gray. Franco’s departure showed the pent-up energy and creativity of the Spanish people. It was but a short time before the economic disparity between Spain and the rest of Europe — large even before Franco but a yawning gap in the years of his dictatorship — dwindled. Barcelona, for instance, became a global center for design.

In this harsh new world, many people are now irrelevant to the daily functioning of the economy. Architects, graphic designers, book jacket designers–-these kinds of professions now seem like a quaint memory. No one needs them, and the fear is that, if and when the economy recovers, many won’t be needed then. The few friends who have jobs live with the threat of layoffs and repeated pay cuts.

In this new environment only the fittest survive. I’ve noticed that people writing about Spain tend to bring in their cousins as evidence for whatever point they want to make.  Well, two of my Madrid cousins didn’t go to college. They wound up in Amsterdam. One washed dishes in a hotel and the other sang on the street for change. Their mom was kicked out of a rent-controlled apartment in Madrid and now lives with a passel of other unemployed relatives in an old family house in a tiny town outside Seville. No heating or air conditioning, no car, and it’s a 20-minute bus ride to go get groceries. They would love to offload this white elephant, but no one is buying. Another friend inherited her mom’s apartment and before the crisis had the bright idea of buying a few fixer-upper apartments. She would spruce them up and resell them once the neighborhoods gentrified. We warned her not to buy more than one or two, but who listens to friends? Besides, in the days of the real estate booms in Spain and Ireland and the U.S., who could lose money investing in real estate? The naysayers were losing out on the opportunity of a lifetime!

She put down deposits on three or four apartments. Five years and multiple lawsuits later my friend (in her sixties) has lost everything. The good news is that after looking for a year she found a poorly paying office job.  “I don’t feel sorry for myself. I have food on the table every day, and that is more than many people in this country have now,” my friend said.

Where are the bright spots? Her daughter studied in Brussels and Germany and speaks multiple languages and now works for an international company. My friend Borja has set up a little business that writes memoirs for older people wanting their families to know about the past. If that isn’t a metaphor for Spain’s fate, then I don’t know what is. Happily, Borja reports that he has a regular stream of customers.

Of course, we can blame those who didn’t invest in their future, or who thought there was a free lunch in a real estate boom. Those who did the “right thing” and are managing can be smug — until they realize there are many others who did the seemingly right thing who are suffering. The hollowing out of Spanish society continues. Anyone who can leave is doing so, and so Spain is losing the educated people it needs the most and who would be the basis of its future prosperity — if and when it does recover. The existence of a few bright spots does not mean that Spain’s economy is functional.

In the past, life was full of vicissitudes. Farmers always had work to do, but droughts, collapsing prices, disease, floods could leave them destitute — no matter what they did or how hard they worked. Markets didn’t provide the insurance that would insulate them from these risks. As we moved from these primitive economies, the nature of risks changed. Now, it is individuals who face the prospect of no employment. Governments need to step in and provide the kind of social protection that people want and need. We can’t simply throw up our hands and say we accept a society in which the only people who get jobs are those with MBAs who speak five languages. When a few kids can’t get jobs, it’s not unreasonable to blame them:  They didn’t study hard enough, they chose the wrong subject, they haven’t searched hard enough for a job. When half of a country’s young people are unemployed, it’s no longer their fault.

Let’s be clear. Spain’s economy is in terrible shape and the reckless and irresponsible path of austerity the government is pursuing — a kind of austerity that is especially hard on those who are down and out — is already leading to social and political tensions and constant strikes and demonstrations. After all these years, it is astonishing that the Partido Popular has not learned a thing.

PHOTOS: Anya Schiffrin; Demonstrators march towards the Spanish parliament during a protest against the government’s austerity measures for the 2013 budget in Madrid December 20, 2012. REUTERS/Susana Vera


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You keep shifting financial responsibility to a nameless, faceless, penniless thing you call “government”…and demands this thing to stop being “reckless” and “irresponsible”. What individuals, specifically, are you aiming at? You too are an individual, living in a relatively wealthy country, with a relatively good job, with direct familial ties to these people in need…pull out your checkbook, and start giving to your own family in need…a tad beyond your capability, both financially and otherwise…stop trying to coerce non-family members into doing your job…shirking your own responsibility. Typical communist garbage…

Posted by sarkozyrocks | Report as abusive

This is so biased story. There is nothing said directly about such simple fact that for many years Spain as a whole lived far beyond its means, driven by the colossal construction boom and real estate speculation. Example of the person which bought the ‘3 or 4 apartments’ illustrates this clearly. Should now everybody feel mercy for the plight of this person? Or maybe she should be bailed out?

Would there be other solution than the ‘reckless’ austerity? Borrowing more money? Leaving euro and facing gigantic devaluation?

Stereotype that austerity is ordered by the Germans is nonsense. Apart of the financial problems, in the Spanish economy there are colossal structural problems. Flagship among them was/is legendary rigidity of the labor market. Austerity means thus returning to sanity and one can argue that the crisis in Europe gives unique opportunity to restore normal economy. It would be absolutely impossible to make economic reforms in conditions other than the current deep crisis. Now, people have to suffer but this is the price and lesson of the previous mirage.

Posted by wirk | Report as abusive

I fear for the people making derogatory comments on this thread. Sometimes exceptional good luck will create conceit. The humility will come when they get sick and old with nobody who really cares. I hope it doesn’t devastate them too much.

Posted by urownexperience | Report as abusive

Excellent article.

Technological progress is accelerating rapidly, more quickly than ever imagined.

The key concept is this: Computer technology is rapidly ‘organizing’ the human race. Like the complex organs of a huge body. Everything in life is being eaten quickly, organized, by computer programs written by millions of programmers. I am one of them.

This year the degree of organization of the human race jumped much faster than last year. Everything is becoming more and more wired up, more programmed, very quickly. Every nook and cranny of the economy.

And, unfortunately, this wiring up, a now recognizable and scary force of nature, favors those who possess capital. It’s a simple fact of nature.

And it forcefully and quickly enslaves the other 99%, relentlessly, day and night. Each day, more are ruined and enslaved.

So the children of the wealthy, who never did anything worthwhile, will be owning the manufacturing robots that are, this very day, December 27, being built and sold, for around $20,000 each, that are analagous to the first IBM PC’s coming to market in 1983. Who can afford to buy them? The wealthy.

This is why the political system of Spain, and America, and every nation in the world needs to be changed radically, now, before the wealthy make it impossible to even discuss political change.

In a military analogy, the wealthy is using superior technology.The common people don’t stand a chance without vigorous fast action.

Sticking to old ways, old rules and old legal documents is the surest way to lose.

There will soon be an epic battle, or the common man must expect a life of increasing want and desperation very, very soon. And the faster technology progresses, the faster will be the descent.

The common man and his savings are soon parted by the potent technology of the wealthy.

Posted by AdamSmith | Report as abusive

It is ironic that the banks – which were primarily responsible for the huge real estate bubble in Spain – are being bailed out. Meanwhile, individuals are not.

Look at what Iceland did. They let the banks go broke and bail out the individual “victims” of the financial crash.

One thing is for certain: if austerity continues in countries like Spain, with over 25% unemployment (higher than the Great Depression in the 1930s in the US), something will have to give.

There will be entire “lost generations”, or there will be a revolution.

Posted by LoveJoyOne | Report as abusive

@LoveJoyOne: Iceland was boxed into a corner by that decision. The government of Iceland (a country with the population of a medium-sized British town, or a small American city); attempted to let their banks go broke, but preferentially bail out Icelandic depositors, without bailing out other EU depositors to the same level. It was a bad move. Without such undertakings from before the crisis, they should have just let the banks go broke, run some social (employment) programs and creative fiscal/monetary policies. Iceland’s illegal move to preferentially guarantee Icelandic deposits and default on foreign deposits, was met with British and Dutch seizure of Icelandic government assets as collateral.

Ireland made a worse unforced mistake: at the height of the liquidity crisis, the government of Ireland (backed only by their tax payers) undertook to guarantee all deposits in Irish banks by anyone. These Irish banks were WAY over-leveraged, over-indebted, over-bought into sub-prime loans and risky business ventures including massive property speculation. It’s going to take at least another decade (perhaps three decades) to unwind Irish debt. They should have just let those banks go bust. We should have pressed “reset” on the economic system, and forced some serious social legislation into law at the same time to prevent non-wealthy, innocent pensioners from taking the hit (for example).

But instead, we must live in a world where the bankers are attempting to make minor adjustments and re-calibrations to a system that collapsed almost completely. They are doing so with the cover of the tax-payer, which they have compelled into their service under threat of near anarchy (through break-down of the economic and social order) if they don’t get their way.

What can we do about this?

• Start making some radical, bold reforms. Start thinking of proportions of available labor and talent, and doing our arithmetic on that basis; instead of staring at black and white columns with arithmetic (in trillions of dollars) that has no personal character. Start thinking in terms of proportions of potential sustainable demand… Start measuring the economy in terms of UTILITY instead of GDP.
• Enact serious social support, environmental protection, labor rights etc.; worldwide; or else back-pedal on globalization until we can force this legislation through. Repeal unemployment benefits and create labor exchanges that provide a base-line of available employment (demand for work) doing basic work (tidying parks, tending allotments, caring for the old); with a basic living wage guaranteed by the tax payer. (Dear readers: Please don’t complain about this suggestion without first understanding that IDLENESS is a tax upon all of us, future generations included.)

Posted by matthewslyman | Report as abusive

Ms Schiffren, You write beautifully but please read some Milton Friedman or George Gilder and learn to appreciate and understand where wealth and prosperity come from. You owe it to yourself and your readers…

Posted by mdtaylor | Report as abusive

The so obvious Banksters & corrupt financial institutions in Spain & every country, need to be flushed down the toilet, then we might see some world economic daylight.

Posted by EthicsIntl | Report as abusive

Franco was a very shrewd man. He would never have given up the peseta as a “gesture of European solidarity”. Modern, liberal, European Spain is bankrupt thanks to the “innovators”.

Posted by nixonfan | Report as abusive