Very unequal realities underlie the visions shared by the European left. Understanding the specificity of the Spanish situation in the current crisis requires taking into account at least two key issues: first, the decline of the society of labour which took place in the 1980s amidst the general euphoria of democratic consolidation; and second, the role played by real-estate capitalism in the financialisation of the Spanish economy and the subsequent survival strategies of the middle and popular classes. 

The monetarist grand coalition at the time of democratic transition 

In Spain the neoliberal counter-revolution was characterised by a particularly political subtlety because it intertwined with the strategy of the centre-left which at that precise time was engaged in building a sort of welfare state much longed for by the Spanish people.

The dismantling of the Spanish society of labour cannot be understood without taking into account a central reality: the grand coalition between economic liberals and late “Francoists”. Very early on, the former embraced economic liberalism as a strategic stance against what they took for an historically and culturally obsolete state interventionism. Paradoxically, although the “Francoist” state was in fact interventionist in political and cultural affairs and heavily reliant on repression, since the early 1960s economic policy was in the hands of an extremely liberal elite trained in the USA. By the mid 1970s, when the public sector already amounted to 30% of GNP in most developed nations, in Spain it remained at 12%, even three points below Portugal under Salazar’s dictatorial rule. 

This convergence between the “atlanticist” sectors of late Francoism and the liberal democrats consolidated the embrace of monetarism among the Spanish elites even while admitting the need for a European-style welfare state. This alliance was able to enforce a classic “reformist” transition in the critical years of the democratic transition. Given this early (neo)liberal bias the answer to the crisis of Fordism consisted in sacrificing the “society of labour” and replacing it with an economy highly dependent on finance and short-term foreign investment. The welfare state was built without a productive foundation strong enough to make it sustainable in the long term. 

Real economy and rent economy in Spain’s history

The relations between productive economy and rent economy have a special significance in Spanish history. The enduring blockade of the country’s development since the early modern age has its origin in the long wars against Moslem rule which resulted in a draining away of the productive classes due to the deportation of the “Moriscos” and the Jews. The world of labour was weakened as the military and the aristocrats gained power. Precious metals sustained this regime even though the kingdom lived on the brink of bankruptcy until capitalism knocked at its doors in the 19th century.

The Civil War resulted in a kind of restoration in terms of the dialectics between an economy of rents and a productive one even if in a very different historical framework. The Second Republic had proclaimed itself a “democratic republic of workers of all classes which is organised according to a regime of liberty and justice”. Beyond the actual military defeat of the working class, the fascist forces liquidated its very spaces of socialisation, particularly those of the more qualified segments concentrated in the more developed provinces. Francoism was very aware of the political significance of labour in Spanish history, not only in view of its strong Republican militancy but especially due to its capacity substantially to alter the balance of forces between classes. 

This historical background helps make sense of the monetarist coalition of the transition. The early financialisation of the Spanish economy and society ended the short spring of labour of the early 1970s and caused a gradual return to the society of rents which in its turn became more and more dependent on international financial centres.

Since the mid-1980s the relative weight of finance and real estate has been growing. The successive “socialist” governments abstained from industrial policy or any other active intervention in the country’s productive structures and promoted the sale to foreigners of the most dynamic portions of public and private industry, in many cases through speculative operations. On the other hand, a very active policy was carried out to protect national ownership of financial institutions, rescuing many banks which had fallen victim to the banking crisis.

Ugly capitalism 

The results of this attack on the society of labour and by extension on the country’s productive economy have been very far reaching. First, job quality and working conditions were downgraded in record time to the benefit of the less innovative Spanish entrepreneurs. Second, value chains have been split and scattered all over the territory through a very aggressive outsourcing policy. Third, employment has concentrated in environmentally unsustainable sectors such as construction, mass tourism and car making. Highway transportation has become a key factor for mobility in a spatially dispersed and ill-planned territory. This allows for dualisation of the labour market and consumes lots of space, lengthens commuting time and causes high levels of energy consumption and carbon dioxide emissions. It is not mere capitalism but ugly capitalism. 

This model has resulted in an extraordinarily flexible economy approaching the ideal of an open economy as advocated by neoliberal theorists. The country managed to achieve a surplus in public budgets even in the context of a chronic unemployment rate never going below 10% thanks to being one of the countries with the lowest social expenditures in the EU. It was also able to create in short time half the new jobs in all of Europe in the period 2000 – 2006, although it later destroyed them at an even faster rate. This is why Spanish openness is systematically praised by international financial organisms.

The dark side is that low productivity is not compatible with Spain’s consumption level, resulting in the largest trade deficit in the world, more than 10% of the GNP. Moreover, favouring rents over the productive economy has long-term consequences. The more profitable public firms were privatised (Repsol, Endesa, Telefónica, Banco Hipotecario, etc.) only to pay for a couple of years of welfare, a method which is unsustainable as it lacks a sizable productive economy behind it. Nationalistic conflicts, which since the 19th century have overlapped with the conflict between a rent economy largely prevalent in Madrid and a more productive orientation in the Basque Country and Catalonia, have hardened, causing an upsurge in secessionism.

Neoliberalism creates insecurity, degrades the quality of life and destroys the environment. However, when there is no social majority capable of defeating it the popular classes must find strategies to survive. Neoliberals are fully aware of this, and they devise policies reinforcing these adaptive mechanisms in order to retain hegemony. The great contradiction within the Spanish left is that the welfare state has been built with funding rooted in neoliberal orthodoxy. But this financialised welfare has left a deep cultural footprint especially in health care and education. The long neoliberal winter cannot otherwise be explained. 

The problem lies in the medium term unfeasibility of this unholy alliance between rentiers, unproductive entrepreneurs and the popular and working classes.  Better education sharpens the acute contradiction between a growing qualified workforce and the lack of democracy at the workplace. Millions of relatively skilled and well educated young people in Spain have got no chance of getting decent jobs. Casualisation causes young people to live with their parents longer, lowers the birth rate and makes the education provided by the public system unproductive. This situation is being confronted by the Spanish government with a reform of higher education aimed at curtailing the access of the popular classes to the university, using the Bologna Plan as an excuse. The result will be the destruction of one of the most cherished achievements of the democratic transition, which is being justified by the lack of demand for highly qualified workers on the part of Spanish employers.

Real estate and popular finance

Another crucial factor underlying this lasting hegemony of the centre parties during the neoliberal winter has been the role played by real estate and the Spanish system of popular finance. Until now the Spanish banking system has managed not to be dragged into the turmoil of the international financial crisis. Spanish particularities are twofold: on the one hand, the Spanish banking system has so far been able to avoid the destruction of over-accumulated capital; on the other hand, the real-economy crisis which is resulting in rapidly disappearing jobs has preceded the financial one, which is the reverse of the way the crisis has developed in the core capitalist economies.

This apparent solidity of the Spanish financial system can be explained in several ways. First, Spain suffered two severe bank crises: one of them threw 58 banks into bankruptcy between 1978 and 1985; the second took place in 1992 to 1993, also connected to a housing bubble and with unemployment rising to 24%, when the then largest Spanish private bank, Banesto, went bankrupt. Due to these experiences the Bank of Spain toughened anticyclic risk-prevention measures, surveillance was heightened and the mandatory provisions for the FGD (Deposit Guarantee Fund) were raised well over the average levels in other developed capitalist countries. Even though the possibility of depleting these reserves under current conditions does not justify much optimism, it is true that these measures have temporarily protected the system from the financial crisis.

A second reason for this apparent stability can be found in the relative weight of the Savings Banks (cajas) in the Spanish financial system. Since their creation in the 19th century, cajas have retained a substantial degree of mutualism and remain strongly tied to municipalities, thus resisting any intention of subordinating them to big finance. Only after the Civil War was it possible to place them under a kind of state control.  Democratic transition returned them to looser regulation making them almost the only economic space where democratically elected representatives sit in governing bodies. Local and regional governments choose between 20 and 60% of the seats and even the workers’ representatives hold between 5% and 15%. Although the Popular Party made some moves toward privatisation, allowing the issuance of “cuotas participativas” (a sort of preferred stock), not even the political right dared changing their juridical constitution and their relationship with local and regional interests.

The 46 cajas’ influence is not only large but has grown in the last years. They hold 52% of deposits and employ 120,000 people in 22,400 branches, the densest network of retail banking in Europe. This does not mean that they are immune to crisis. They cannot be because they are not supported by a robust enough productive economy. First of all, the lack of other productive activities has rendered the municipalities financially dependent on taxes and revenues from real-estate development. Since local governments sit on the cajas’ boards they have forced them to engage in many financially and environmentally wild operations. Credit to housing activities has multiplied tenfold in the last eight years while the net assets of the cajas has only doubled. This can provoke a serious problem of insolvency if developers begin to default. Symptoms are already present: prices have dropped by 20% and the stock of unsold flats is expected to amount to 1.5 million by the end of 2009.

Second, as cajas cannot raise capital as easily as private banks can, they will be forced to rely on state aid sooner than their competitors. This is already happening (March 2009): cajas, both large and small, have used up to 70% of the liquidity facility provided by the Treasury.

Third, many cajas have relied on foreign finance through Mortgage Backed Securities sold in European capital markets during the bubble years, and this debt is reaching maturity. Probably these credits will be difficult to revolve in the current situation. Lastly, the FGD can be easily depleted if any of the large cajas need to use this facility. In this case the supposedly healthy Spanish financial system will also fall victim to the crisis.

The Spanish government has for some time been preparing public opinion for an eventual intervention in some cajas. Some of them have begun a process of merging in anticipation, after the international agencies have revised their risk rating. Some experts believe that the situation of the Spanish financial sector can become even more critical than the American one if housing prices keep falling. This could explain the recent initiative of the smaller and medium sized cajas which have created an asset holding company centralising unsold property and controlling its marketisation to avoid a price collapse. Financial engineering with the balance-sheet evaluation of these “junk” flats can also postpone the slump.

The honeymoon between the popular and rentier classes

The housing-plus-finance complex explains fairly well the current social and economic situation in Spain, its historical origins and present vulnerability. The thin welfare policies in the Franco era forced Spanish families to invest in real estate for more than five decades. A house was more than a home, it was saving for the future. The crisis of the society of labour made more acute this dependence on real-estate investments. The result is a quite unique situation: 90% of families own their homes and 77% of these are fully paid for. Price escalation and bubbles caused by the rentier classes have strangely also benefited sectors of the popular classes. High housing prices have not only postponed the age of emancipation for Spanish youth but also have helped in “capitalising” Spanish households whose net assets have topped 500% of GNP. Houses amount in Spain to 88% of non-financial wealth, the largest percentage in the OECD countries except for New Zealand. This helps alleviate social inequities without resorting to big finance in a country where the society of labour is minimal. This option of house-as-savings financed by cajas provides families with a better safety net as compared to other countries with precarious labour markets where financial assets play a more decisive role in the survival strategies of families.

The ideological mirage caused by such a situation is evident. Generalised property and solidarity networks among relatives provide the collateral for loans. Two thirds of the houses are second residences bought as investments to balance the lack of job security; in case of foreclosure one can move to one’s parents’ second residence and nobody is left on the streets. 

But things have radically changed in the last months. Private debt has risen in a short time from 40% to 80% of GNP while the net assets backing that debt have fallen from 500% to 350%. This signals the end of real-estate-based popular capitalism, the alliance between rentiers and workers.

The crisis of the historic monetarist bloc

Current forecasts are predicting that the drop in GNP is going to be the sharpest since the Civil War and that unemployment will affect nearly 20% of the total active population in 2010. It is the third time that this much celebrated “flexible” entrepreneurial system has ruthlessly contracted since the democratic transition. Zapatero’s government, clearly surprised by the crisis as have been most of its western partners, is reacting in similar ways. The public deficit is escalating and is expected to rise to 6% after the fiscal injection provided by the government. Even family solidarity has its limits, as there are already 800,000 households with all their working age members on the dole.

Behind the ideological mirages generated by real-estate capitalism, the fragility of the society of labour is pushing working class families to speculate with real estate in the same way as working class families in other countries are driven to financial gambling. This rent economy relies entirely on debt in an ever growing dependence on the financial sector. The peseta could not stand up against speculation and indebtedness in the 1980s, but the introduction of the euro and the low interest rates provided by the ECB made it possible subsequently. The neoliberal EU has thus contributed to maintaining the historic problems of Spain, reinforcing the monetarist alliance which took hold during the democratic transition. 

Here lies the substantial meaning of the current crisis for the country’s underlying social and political dynamics. What is new is not the fast growth of unemployment nor the intention to profit from the conjuncture, in expanding casualisation. Neither is the financial crisis new, having already come to Spain twice in 1978 to 1985 and in1993. What is new is that the housing crisis can hit the cajas too hard this time and put an end to this very particular Spanish system of popular and regional finance. But even this does not imply a radical change in historical trends. The real historical turn lies in the possibility of a generalised take over of international finance by states and the breaking of the class power of global finance. Spanish big finance will then lose one of its main supports and with it a substantial part of the power accumulated since the (last) defeat of the society of labour in the mid-1980s. This will bring down the monetarist historic bloc responsible for the passive revolution and create chances for a new alliance based on rebuilding the society of labour.  

While in France bank mergers and public money injections go hand in hand with a growing presence of the state in management, and in Germany a law has been passed allowing not only the nationalisation of banks but even the expropriation of stakeholders, in Spain, as in the USA and the UK, the rentier class has not yet been cornered by other fractions of the dominant bloc. The crisis can weaken this power depending on the existence of an alternative, i.e. on the ability to forge a new historic bloc around the society of labour. 

A new historic bloc

Not only the very existence of a new historic bloc but its colour, its internal balance, are open to the future. An alliance between organised and unorganised labour, non-conformist sections of urban professionals – including the “no global” movement – and some innovative entrepreneurs could initiate a momentum for more ambitious goals in a socialist sense. But if this transformation occurs from the top down, as a new pact among political and new economic elites, eventually including the more conservative section of unionised labour, the outcome can be a passive revolution much in the fashion of what happened in western countries after the last world war. Perhaps this formula is already unconsciously taking shape in the minds of the centre politicians who have rejected monetarist dogma and now speak of “refounding capitalism” and of a “second Bretton Woods”.  

In my opinion even if the Spanish left proves unable to lead such an alternative it will nevertheless be in better shape to regroup in the middle term and so have another chance. Provided, of course, the crisis does lead to an extremely adverse situation, which could be the case if the national conflict is exacerbated or the extreme right gains substantial support. In any case, if the monetarist grand coalition breaks up this will itself be an historic step forward and will force a revision of the consensual map drawn during the transition of 1978, including the very constitution of the state.

The creation of a new economic model relying on productive labour would seem to be an unavoidable step in any strategy seeking more ambitious socialist goals or even a meaningful environmentally friendly transformation. It would be a mistake to think this can be achieved by merely raising real wages or reducing work time. It is not a matter of better salaries for the same jobs with little creative and no decision-making content nor is it a question of better qualification through public education. The question in Spain is to substantially enlarge the number of jobs providing for decision-making capacities and creative content. This could give an impulse for a democratisation of the economy. It is in this very sense of democratisation that the left should leave its imprint on the upcoming economic restructuring.

A public sector supported and controlled by a dense social fabric of citizens should act as a catalyst for this process creating a political leadership and generating a large part of the new quality jobs. But it should ally with the most innovative sectors of entrepreneurs including the Basque ones. The latter would seem to be key allies not only because they tend to specialise in activities with high added value but as a valuable aid to the Spanish left in its confrontation with the reactionary Spanish bourgeoisie in order to build a new shared identity. Mass tourism and new housing construction should lose their currently excessive share in GNP to renewable energies, especially solar energy, quality social services, education, research and development, ... Private banking should be subject to public control and to productive interests. In a similar way, houses must cease to exist as exchange values and become affordable houses to rent with public guarantee. This would provide a powerful incentive to the emancipation of the youth, to rising birth rates and would enhance total factor productivity. Civil society must expand its participation in the management of the cajas which should become more transparent and accountable. Growing employment and progressive taxes would foster municipal finances, freeing them of their dependency on real-estate. This would put a check on both corruption and environmental disasters. 

Spain is confronting another challenge: redefining its economic geography. Internal markets, not foreign ones, should be the major economic thrust – specifically, the role of local economic circuits based on municipalities and groupings of these. The municipality is at the core of Spanish popular and democratic traditions, being the easiest level on which to engage people in public affairs. But this requires locating workplaces near homes and developing new sustainable infrastructures in the neighbourhoods. This will reduce energy expenses and greenhouse emissions, lower commuting time and reconcile work with leisure and family life. A deep change in the habitational and economic geography is needed; a transformation that will take two generations and will create innumerable jobs.

Europe and the Spanish left 

This project must be coordinated on a European scale. It is very difficult for it to succeed if other countries persist in carrying out policies aggressively oriented to external surplus. Higher wages will not create jobs in Spain but in the productive centres in Europe, unless the other countries expand their own internal markets increasing wages and cancelling neo-corporatist competitive strategies. Otherwise, current imbalances will increase even further.

This is a serious challenge for the European left, including the unions. A more concrete definition of European solidarity is needed: a better adjustment of trade balances and an abandonment of the neo-competitive projects currently cherished by the ETUC. This means that better jobs must not only grow but must be better distributed throughout all Europe. The uneven concentration of productive activity has consolidated during the past decades of neoliberal rule. A common project cannot be articulated in Europe unless this productive geography changes and political, economic and technological decisions are diversified to more regions. Of course this calls for a coordination of fiscal policies and other democratisation measures which have been advocated by the European left for a long time. The crisis is generating centrifugal motion and a tendency toward protectionism. The left should reject this, but this does not mean rejecting the need to make local economic circuits more resilient. Cosmopolitanism and solidarity are compatible with local social and economic vitality and a less export-oriented economy.