THE SPANISH DEPRESSION

By Fernando Scornik Gerstein

The Spanish Government and the Spanish Political Parties talk about what

they call the Spanish recession. Actually, they like to say that we had a first

recession soon after the fall of Lehman Brothers in 2008/09 and a second

recession last year that is in 2012. The Government is now saying that this second

recession is coming to an end. That there are signs of recovery in the Economy. In

this the Political Parties of the opposition totally disagree. For the opposition we

are still in a recession and the signs of recovery only exist in the mind of the

Government officials.

As the Minister of Economy said there are indications of what he calls

“green sprouts”, the opposition leaders play jokes saying that it must be in his

private garden and nowhere else.

But let’s look to the Spanish reality: we have almost 6 millions jobless

people. A rate of 26% of the labour force! The rate for young people is of a 52% of

jobless young men and women. Only Greece exceeds this rate of 52%. The

unemployment in Spain is one of the largest in the world and certainly the largest

in the developed countries. The prognosis of the IMF differs also from that of the

Spanish Government. According to the IMF the fall on the GPD will continue and

unemployment rate will reach the 28% already in 2014. There are about 1 million

families with all its members’ jobless, living on charity and eating in the Public

places opened mainly by the Church, with long cues at the doors.

There are at least several hundred thousand families, living on the

miserable dole of one of its members.

The streets of Madrid, Barcelona and other important cities are full of

beggars and people sleeping in the streets. In the small rooms of the Banks open by

night to take money with credit cards you may find not one, but 2 or 3 people

sleeping. Nobody told me this. I have seen it. The GPD has been falling slowly but in

a persistent way. The confidence of the markets in the Spanish Economy is the

lowest in recent Spanish History and the Government that needs desperately to

borrow has to pay interest rates always near to the 5%. The Central Government

and the Autonomous Communities delays payments of purveyors for up to 5 or 6

months… when they pay at all!

Salaries have gone down and in spite of that is quite usual that companies

delay payment to his workers for 2 or 3 months. As you may imagine unemployed

people have in thousand of cases not been able to pay the mortgages on their

homes. Daily evictions and repossessions are to be seen all over Spain. Many

people committed suicide when facing the eviction; others had to be drag out of

their homes by the police. The situation is so stressing that many locksmith called

to change the locks of evicted houses declined to do it. The Police unions declare

that many policemen need psychological support to obey their orders.

There is no bank credit for small and medium size companies. Credit has

absolutely disappeared and as a consequence shops and small business are closing

daily and for good. The Banks, even those nationalized, use the money they receive

at 1% or half per cent interest from the European Central Bank not to give credit to

companies or individuals, but to buy Spanish State bonds with a premium of 4 and

half or 5% interest.

The Government has no authority over the Banks, who, of course, give

generous credits to the politicians. The Government has raised taxes, relying

heavily on an increased VAT. As a consequence of the bankruptcy of Real Estate

and construction companies, as well as the evictions there are now in Spain more

than 800.000 empty flats and houses, mainly in the hands of the banks that people

do not have means to rent or, even less, to buy.

Now I put forward this question: is this a recession? The answer is NO. This

is not a recession it is a painful and long DEPRESSION. How it is possible that the

4th largest economy in Europe has come to this disastrous situation?

The answer is there for those that really wish to see it: the Spanish

depression has been originated by land speculation. The price of property has

increased approximately 1000% since 1980 up to the begging of the crisis. The

National Rent available at market prices per inhabitant increased since 1980 up to

the begging of the crisis a 350%, that means that incomes increased 3,5 times

whilst the price of property increased 10 times.

Property became unaffordable, but the banks with the usual “generosity”,

gave 30 or 40 years mortgages. You had to work all your life to own what you

should have at the beginning of your working life.

The Spanish politicians and the Spanish media talk constantly – and blame –

the situation to the “speculation with the brick”. Some, intentionally, do this to

confuse not to clarify. Others do the same not with intention, only with ignorance.

We know that the brick, the materials do not increase in value; they start to loose

value as soon as the building is finished. We know and it is obvious, that what

increases in price is not the material, but the land. It is a devastating land

speculation that has taken Spain to this disastrous situation. How? Because the

taxes on the rent of land and the taxes on the plus values are, in Spain,

insignificant. The politicians do not mention this (the media of the rate of property

tax in Spain is about 0, 60% of an assessed capital value that represents, at most,

50% or maximum 60% of the market value) and when they talk about solutions to

the “speculation with the brick” (as they call it) they say ridiculous things. It

happens what Henry George said in “A perplex Philosopher”: “That thought on

social questions is so confused and perplexed, that the aspirations of great bodies

of men, deeply though vaguely conscious of injustice, are in all civilised countries

being diverted to futile and dangerous remedies, is largely due to the fact that

those who assume and are credited with superior knowledge of social and

economic laws have devoted their powers, not to showing where the injustice lies

but to hiding it; not to clearing common thought but to confusing it”. In this way

the fallacy that the speculation is with the brick, passes as a truth.

Spain is an empty country. It has 93 inhabitants per square km; Germany

has 230, Holland 497, Belgium 365, Japan 337, the UK 260, Taiwan 645, Singapore

7.546, and Hong Kong 7.173. How it is possible that in an empty country like Spain

is more difficult to buy a home than in Singapore or Germany or Taiwan? The only

answer is because ALL THE ECONOMIC POLICY HAS BEEN DIRECTED NOT TO

PREVENT LAND SPECULATION, BUT TO FAVOUR IT.

IN BENEFIT OF WHOM: THE Banks, the monopolist capitals, the corrupted

politicians.

Because we all know, it is now public, that corruption in Spain has been

rampant and “black money” came in a 90% from land deals.

There were some attempts to correct the situation, but they failed. The main

one, that unfortunately backfired, was the law approved by the conservative

Government of Aznar, law Nº 6 of the 3rd April 1998. It declared that all land was

able to be urbanized, exception made of that expressly declared non apt for

urbanization. The theoretical intention was to bring more land to the market and

as consequence push the prices down. But the law passed many faculties to the

Autonomous Communities that left the process of urbanizing land in the hands of

the so called “Urbanizing Agents”. The role of these “Urbanizing Agents” fell into

the hands of the Banks and Speculative Capitals that instead of allowing the access

of land to the market, they restricted. Once in the hands of the “Agent” land

increased 10 or more times in value. In 2008 a socialist Government passed a new

law leaving only “rural” land and “urbanized land”, but again the urbanizing land

process was left in the hands of the “Urbanizing Agents”, normally the Banks and

monopolist capitals. The price of land increased exponentially and represented in

the final product (the house or flat) 50% or even 60% of the market price. Who

finance this? Of course, the Banks, originating a spiral that was bound to end in a

crash. And the crash came and Spain is facing the consequences. And what are the

ruling classes doing? Looking for a viable solution? Of course not! They are simply

waiting for a new spiral to start again. So that the whole process would be

repeated. This is the sad history of the origin of the Spanish depression. So, what

do we need? We need a new political thinking bringing to the political arena the

always valid ideas of Henry George – his most brilliant advocate – but also shared

although with different proposals (they advocate direct land nationalization) by

great economists as Herman – Henri Gossen and Leon Walras and in our days –

with differences which are not essential and that imply a return to George – by

Joseph Stiglitz: we have to make land common property by taxing to the maximum

the rent of land and natural resources.