One Nation's Isolation: A Study of Spanish Economic Growth (1939-1991)

Abstract

Contemporary Spanish economic history has been preoccupied with the theme of struggle. For decades after Franco's ascent to power, this struggle belonged to the government. Priorities on the official economic agenda were set and reset, showing the government's uncertainty concerning economic matters. Economic ministers introduced reforms, created and repealed laws, formed and dissolved interventionist organizations, colonized farmers and subsidized production, all, supposedly, to promote economic growth and prosperity. Some schemes were successful, some had mildly positive results, and some failed miserably. More than once, the sincerity of the economic planners came under question. It would be difficult to prove that Franco's first priority rested with economic matters. Dictatorships characteristically worry most about staying in place, and this regime proved to be no exception. The economic structures created under Franco contained an extremely complicated set of legal regulations rendered lethargic by a very complex bureaucracy - all of which have left their mark on present-day Spain. One of the prevailing themes in contemporary Spanish economic history is the constant struggle to modernize the economy. Purely domestic efforts to achieve this goal have met with repeated failure. Successful results were achieved only when help was accepted from beyond Spain's borders, and the nation opened up its economy to world markets. This has been done in increments. Ultimately, Spain's inclusion in international markets means more than just a boost in her export goods; it is absolutely essential to the whole of her economic growth. The main problem during the 1940's was Spain's international isolation. During World War II, the conflict between Allied and Axis powers rendered successful trade with Spain extremely difficult. Mter the conclusion of the war, the low international popularity of the Franco regime prompted the United Nations to impose an international economic boycott against Spain, which lasted until the early 1950's. Franco's response was to declare autarky to be in the interest of the nation. This isolation subjected Spain to even harsher conditions than would have been experienced from the aftereffects of civil war. Industrial and agricultural production in the 1940's was at a miserable level. By t;he time the 1950's came around, the regime had realized many of its mistakes in economic policy. Franco showed some desire to change, but was uncertain how to go about making these changes. The main problems were a high cost of living, the relative backwardness of Spanish industry, and the low productivity of the agricultural sector. An American-Spanish alliance, a product of the Cold War, allowed Spain to benefit from massive American aid, which took the form of food credits and various monetary gifts. The currency was stabilized, industry experienced impressive growth, and agricultural production finally reached pre-Civil War levels of production. Just as Spain's economy was beginning to get back on its feet, a report published by the OEEe (Organization for European Economic Cooperation) highlighted suggestions for economic improvements. Incorporation of these suggestions into a plan for economic recovery became known as The Stabilization Plan. The introduction of this plan combined with a tourist boom, high foreign investment, and emigrant remittances, to produce the "Spanish Economic Miracle." Agriculture was by and large modernized, industry experienced fantastic growth, unemployment dropped below 2%, and real average income grew by 156% in thirteen years. Life in Spain in the 1960's and early 1970's was generally good. The 1970's will be forever remembered in Spain as the decade of democratization. Many have claimed that economic growth during the previous thirteen years was a necessary prelude to this post-1975 democratic transition. The transformation of Spain from an authoritarian state to a democracy was not a result of sustained economic growth. Rather, economic growth significantly smoothed out this transition. By the time the transition to democracy was complete -- in the early 1980's -- Spain was in a serious stagflationary crisis. Inflation and unemployment surpassed 20%. These - the worst of economic problems - were born from Spain's exceptionally high dependence on foreign oil for energy needs, and her effective refusal to address the economic crisis until the democratic transition had been largely achieved. The first half of the 1980's was marked by a frantic attempt to curb unemployment and inflation before the country's historic entrance into the European Community. Spain, furthermore, needed to convince other member-nations that her entrance into the EC would benefit the Community as a whole. Since its addition as twelfth member of the EC, Spain has been the scene of impressive growth - double that of the EC average. The reduction of inflation boosted confidence in the peseta and this renewed confidence, in turn, enabled the Spanish currency to officially become part of the ECU in 1989. When this happened, foreign investment, already on the rise, was further encouraged. Present day economic questions in Spain are dealt with in the context of continuing integration into the EC. Spanish agriculture is in a painful process of specialization, adapting itself to serve the needs of the Community rather than Spain, alone. Industry is transforming quickly so that Spanish firms can compete with their French, German, British, and Italian counterparts. Of all Spanish sectors, the service sector has emerged from the decades of reconstruction as the undisputed champion. This sector now employs some 56% of the working population. Foreign investment is paramount to Spanish economic growth. Confidence in Spain's adaptive capabilities, in the government's commitment to growth, in the reliability of the peseta, and the nation's potential for further growth continue to lure investors into the Peninsula. An important year will be 1992. The Olympics will be held in Barcelona and the World's Fair in Seville. Madrid takes its tum as the "Cultural Center of Europe," and European integration, for the most part, will supposedly be completed. If investors are focusing on any place in Europe in 1992, it will be on Spain.