In recent issues, the New Left Review has covered the collapse in Europe’s peripheral economies: Ireland, Iceland, and now Spain. The articles provide detailed insights into how the dynamics of contemporary global capitalism have worked themselves out in these specific cases.
The Spanish crisis is described by two Madrid-based economists, Isidro López and Emmanuel Rodríguez, as a crisis of “asset-price Keynesianism”, a term they borrow from economic historian Robert Brenner. What they mean by this is that Spain’s growth, over a number a decades, has been based on the rising price of property. With home ownership extending to a massive majority of the population (87% in 2007; cf. UK and US where the figure never rose above 70%), household income has been driven above all by property values. The IMF’s figures give the ‘wealth effect’ of rising house prices in Spain as an average increase of 7% in private consumption between 2000 and 2007 (cf. 4.9% in the UK, 1.8% in Germany). This has created over time an economy oriented around the development of property by construction companies and the funding of home ownership by local banks (cajas). The legislative conditions for further building were provided by local governments and the federal government in Madrid. Over time, Spain’s demographic and social development has reflected this economic model. Immigration into Spain served to administer to the needs of an increasingly prosperous middle class. Familial ties were maintained as the basis for inter-generational transfers of wealth. Even infrastructural development has been driven by the concern to open up new land to property development. López and Rodríguez describe all this as the “financial-property development circuit” (p14).
The underbelly of this particular model of economic development is an ugly one. Most significantly, wealth effects through rising house prices have served as a substitute for alternative ways of generating rising incomes. Over the period of 2000 to 2007, average real wages in Spain fell by 10%. López and Rodríguez note that “the entry of 7 million new workers in the labour market produced an increase of only 30% in the total wage bill” (p12). Spain’s labour market is also well-known for both chronically high youth unemployment and a general precariousness marked by the prevalence of seasonal work and temporary contracts. This helps explain why the staggering rise in unemployment in Spain since the beginning of the current crisis in 2008 has not led to societal collapse or revolution. Unemployment rose above 20% in 2010, the highest in the Eurozone, but without tearing Spanish society apart.
A key point made by López and Rodríguez is that the role played by property prices in Spain is not a contingent development, spurred on by the evils of neo-liberalism. They date this growth model back to Franco, who in the 1950s had already identified the attractions of ruling over property owners rather than proletarians (p6). Spanish growth since then was focused on property development, construction and tourism. Absent from Spain’s development has been a domestic manufacturing base. Spain was then integrated into the wider European economy on this basis of partial de-industrialisation. López and Rodríguez argue that little has changed over time, with the “financial-property development circuit” only deepened and refined as Spain has won access to cheap credit through Eurozone membership. Now that the crisis has struck, there is little for Spain to fall back upon.
What is striking about the current Eurozone crisis is the inability of peripheral economies – Spain, Greece, Ireland – to consider life outside the Eurozone. They prefer the searing austerity measures over the dizzying alternative of a national strategy. López and Rodríguez’s article gives some indication of why: the economic model of Europe’s peripheral economies is entirely based upon their role within the wider European division of labour. Without revisiting fundamentally some of the assumptions made about their growth models, there is nowhere else for them to go.