MADRID | Nobody seems to pay much attention to bad news these days. The stock market shows a bullish bias, recovering from the lows it plunged into driven by fears of utter collapse. Yet, recession has intensified its slide, the second quarter showing a 0,4% GDP decrease. With no prospects of redressing the downturn till the middle of next year, at the best, future outlook doesn’t provide much room for optimism.
Sluggish production will throttle income, consumption and investment, denting banking solvency still further. Plans to relieve pressure on sovereigns are indeed welcome but they will hardly help heavily indebted households and enterprises in overcoming hard days ahead. A credit-crunch implosion might have being avoided at very the last minute by combined ECB-rescue fund efforts. But banks refurbishing their badly mauled balance sheets are in no position to conduct the kind of lending policy that might definitely dispel enterprises’ anxiety over refinancing flows to keep them running.
Spain is in hard need to deliver some stimulus to its ailing economy, in a moment when budgetary constraints rule out any expenditure-driven move. It will be forced to make a better use of meagre resources. Yet, there is ample room to enhance productivity in the public sector, both in the way services are run and in doing away with pilfering fiscal advantages and subsidies.
Extensive outsourcing, properly enforced, would save taxpayers’ money and increase productivity in a sector living for too long in placid doldrums. True enough, labour intensive activities offer slim prospects to derive high productivity gains. Yet market-oriented managing of public services would avoid blatant misallocation of resources and much reduce the bill.
Dismantling unnecessary tax benefits inducing sharp distortions would help to redress corporate taxation discomfiture. IBEX companies pay 11% on average, while small and medium size companies are charged with more than 20%. Such benefits do not foster activities that otherwise would be undertaken by beneficiaries. They only serve to lower the tax bill. The same goes for most subsidies. Being given for free with no burden sharing on behalf of receivers, they represent an open invitation to profligacy and misuse of hard-to-obtain resources.
In the long run, Spanish administration badly needs to shift its penchant to foreclose markets and offer fat benefits to a short list of fortunate firms. Competition policy trails behind badly hindered by excessive sector advantages bestowed through the official journal. Intervention in key sectors lifts barriers on new entrants and refrain market forces from targeting investment in a more efficient way.
Doing away with such hurdles, scrapping fragmented regulation that makes it easier to export a good rather than selling it in another Spanish region, enforcing true competition in short, seems the only way to anchor a sustainable growth. Otherwise, Spain’s chances to underpin economic development might be lost for longer than expected.