CHAPTER 16

Spain and Portugal: Economic Development by Reflection

The surprises are that the economies of both Spain and Portugal grew strongly from 1959 until the 1990s. How can that progress be explained, in view of the failure of the power-diffusion process in earlier centuries? Let us look for answers by examining the earlier backwardness and the later growth, for agriculture and industry separately.

Agriculture

Iberian agricultural backwardness persisted right up until the second half of the twentieth century. During the nineteenth century, greater output was caused mainly by increases in cultivated land, not much by productivity growth.

Growing food might have been more profitable than raising sheep to both peasants and landowners if they had worked out the institutional arrangements for it. Sometimes this happened. From 1450 to 1550 the Portuguese reclaimed land and introduced new crops, especially maize. [1] While these shifts occurred from time to time, until the eighteenth century they were unusual. The rulers might also have gained greater tax revenues through increased agricultural output, had they taxed it less. Both farmers and peasants could have earned more, too. But periods of attention to agriculture, as opposed to sheep raising, were not typical, and taxes were consistently extortionary, so agricultural output and productivity lagged behind industry, and agriculture and industry both lagged behind their counterparts in northwestern Europe. Although data are not reliable before the nineteenth century, historical references for earlier centuries confirm this observation. [2]

An increase in agricultural production in the eighteenth century responded to increase in population, some relaxing of restrictions, a relative shift from pasture to food growing and from subsistence to market, and increased land under the plow following the disentailment of private estates and the sales of church lands. [3] Nonetheless, productivity increased little if at all. Instead, rents were boosted and tenants forced off the land. In Galicia, "rents were raised and cultivation units persistently subdivided until thousands of relatively high-priced but uneconomic minifundia had been created." [4]

Farm productivity throughout the European continent also stagnated before the agricultural revolutions of the seventeenth and eighteenth centuries. But Spain, along with Russia, was the last of European countries to begin its agricultural revolution. [5] Tortella presents tables on agricultural output and yields in Spain compared with other European countries. His conclusion is that "the growth of output [in the nineteenth century] did not at all constitute an 'agricultural revolution' — far from it. . . . Spanish yields were very low at the beginning of the twentieth century; this implies that growth in output had only been possible because of a parallel expansion in cultivated land." [6]

The usual explanation of this retardation includes enormous taxation, the concentration of land ownership in a nonproductive nobility, the destructive practices of the Mesta, persistent wars, and the neglect of home production because of wealth from the New World. Accepting all this, one still may ask: So long as increases in output and productivity were physically possible with available technology — and certainly they were — why could not some institutional arrangements have been worked out between landlords and peasants or between Mesta and farmers that would have realized the possibilities, to the benefit of both parties? Why was a potential positive-sum move not made?

The answer might lie in risk. The great communication divide between landowners and peasants, the persistent denigration by landowners of the qualities of peasants, the belief that they were good for nothing except digging and hoeing, and the sheer terror of the lords about peasant rebellions probably prevented the parties from negotiating rent, tenancy, credit, and other arrangements that elsewhere fomented spectacular increases in agricultural productivity.

Until about 1950, Spanish agriculture scarcely kept up with population growth, [7] but the spread of mechanization has led to an outstanding increase in the years since then. [8] The share of the labor force in agriculture fell from 42 percent in 1960 to 23 percent in 1974. During those years, output increased on average 3.4 percent per year. [9] Was mechanization a one-time boost that will taper off? Or were other forces at work?

Industry

The decline of Spain in the seventeenth century is not difficult to understand. The fundamental fact is that Spain never developed to begin with. [10]

This summary verdict by Carlo Cipolla, a noted historian, which would apply equally well to Portugal, is blamed on Iberia's wealth from the New World. The massive inflow of specie set in motion a series of economic events — such as inflation and overvalued currency — that in turn encouraged Spanish consumption of imported rather than locally produced goods. Thus the incentive for local industry was lost, and the result was "bottlenecks in . . . the productive system (in particular, lack of skilled labor, standards of value unfavorable to craft and trade activities, the guilds and their restrictive policies). The increase in demand stimulated some growth . . . [but] a large part of the demand was met by foreign goods and services." [11]

In partial confirmation, another historian finds the traditional picture of utter collapse to be overdrawn, while at the same time confirming weaknesses "in the three major growth industries of the period — textiles, metallurgy, and shipbuilding" and losses of trade "to the English, the French, and the Dutch." [12] Import prohibitions, intended to foster industry, instead cut off essential supplies and limited export markets as well. "Spain either took foreign imports or went without manufactures altogether." [13]

The industrial slowness continued through the eighteenth century. [14] Valencia was an exception, whose driving force probably came from outside Spain. "The eighteenth century witnessed spectacular progress in the Valencian silk industry." [15] The explanation that massive inflows of specie and mercantilist economic policies delayed industrial development is correct but not sufficient. Despite all the American wealth and the collaboration of producers and banks such as the Fuggers and the Genoese, Spain was still short of the goods that Charles I and Philip II needed to conduct their wars in Europe. If there was a physical possibility of a positive-sum move — acquiring greater output with available resources — why were the economic policies and institutional arrangements not discovered and implemented, if only to meet the needs of war? Why were not the shipyards of Bilbao, the iron and steel industry of the Basque country, and the textile plants of Seville and Catalonia put to work more effectively? The failure of guild and industrial organizations to mobilize labor, to delineate rules to make and enforce contracts, to fashion modern corporations, and to develop an adequate money and credit system inhibited the integration of mining, shipyards, textiles, and other industries with their sources of labor and supplies.

Two examples, albeit from a later period: "The Ley de Sociedades por Acciones of 1848 (Joint Stock Company Law of 1848) . . . prohibited the creation, without government authorization, of joint-stock companies. [Only in 1856] new legislation facilitated the consolidation of capital and the creation of joint-stock companies." [16] Also, "two of the most striking aspects of the relative backwardness of Catalan industry [at the turn of the twentieth century] were the almost complete absence of joint-stock companies and the limited recourse to borrowing of industrial enterprises." [17]

Signs of industrial growth appeared early in the nineteenth century, which different historians evaluate differently. Harrison writes of cotton textiles as a "prime mover" in the mid-nineteenth century. He finds Catalonian industry strong at the beginning of the century but disappointing later, and railroads unprofitable because of industrial "backwardness." [18] But Baklanoff notes "impressive achievements" by 1900: "an iron and steel complex in the north, a textile industry in Catalonia, European leadership in the production of many metals, a small but expanding chemical industry, a flourishing wine trade, and an infrastructure that promoted the flow of goods, thus facilitating urban life." [19]

The most exhaustive studies of Spanish industry in the nineteenth century are those of Nadal and Carreras. Under the title, The Failure (Fracaso) of the Industrial Revolution in Spain, 1814-1913, [20] Nadal finds that from 1831 to 1874 Spain underwent an industrial revolution similar to, and possibly stronger than, that of contemporary northern Europe, stimulated primarily by disentailment, which concentrated wealth in a few capitalists at the expense of peasant farmers. [21] But it did not last, Nadal asserts, because the ownership and profits were too concentrated; no mass market accompanied it; and industrial demand was not enough to stimulate increases in agricultural productivity or urban employment. He concludes that "the transformations related to industrialization in Spain do not reach the significance and depth that they reach in other places." [22]

Carreras's data support Nadal's conclusions. For the century 1831-1935, Spanish industrial output grew by an average of 2.85 percent per year. With population growth averaging 0.67 percent, the per capita average annual increase was 2.17 percent. But the growth was concentrated in the period 1831-60, when it averaged 4.7 percent per year, with wide fluctuations. In those years, Spain compared favorably with France and Britain. In the rest of the century, however, Spain lost relatively to eight other European countries. [23]

Industrial growth continued during the twentieth century, especially under the Primo de Rivera dictatorship in the 1920s, [24] but it decreased with the depression of the 1930s and made little headway in the first two decades of the Franco dictatorship, beginning in 1939. Authors agree that this slowness was caused both by the autarkic policies of the Spanish government and the fact that industrial Europe and the United States isolated Spain to show displeasure with the Franco government.

Early in the Franco regime, industry was in some ways as centrally controlled as under Philip II. The policies of the National Institute of Industry "often seemed to reflect little more than the private whims of its directors." [25] Beginning with 1959, however, the Franco government was better received by and was itself more receptive to the rest of the world. So too in 1963, the Portuguese government under Antonio Salazar adopted a more open position. The Spanish dictatorship ended with Franco's death in 1975, and a democratic government ensued. The Salazar/Caetano regime was overthrown by a military coup in 1974, and a democratic government liquidated Portugal's remaining overseas empire.

From 1960 to 1990 Spanish gross domestic product (GDP) grew at an average of 4.58 percent per year in 1985 prices, while the Portuguese equivalent grew by 4.53 percent per year. [26] These are substantial percentages. Does this abrupt installation of democracy-cum-economic growth, without prior negotiation and inter-group compromise, negate the need for power diffusion?

Reflected Economic Development

In no way does the Iberian experience negate the force of the power-diffusion process as found in northwestern Europe and Japan. The economy turned sour in the 1990s. So which was temporary: the spurt of 1960-90 or the turndown of the 1990s?

The fundamental social structure has not changed. An attempted military coup in 1981, although it failed, shows that Spain is not a true democracy, economic or political, and the requisite balance of power is not yet in place. Economic growth began to taper off in 1991, [27] and the economic record from 1990 to 1994 (using the latest available information at the time of writing) is not good: "Gone are the vibrant growth and heavy investment that turned [Spain's] economy into one of Europe's most dynamic in the mid-1980s. . . . For now, all that remains is painful recession, a stubborn 21 percent unemployment rate — Western Europe's highest — and a bloated public sector." [28] Heavy government spending on social programs — far more than richer European countries can supply — plus a requirement that businesses give lifetime employment contracts, as well as charges of corruption, all hint at the lack of accountability charcteristic of less developed zones. [28]

Let us speculate first on reasons for the phenomenal growth during the preceding three decades and then on the reasons for the 1990 downturn.

Spain and Portugal have much in common with northwestern Europe. They are part of the Judeo-Christian tradition, as well as the Islamic. We have seen how the cortes (parliaments), law, and money and banking of the twelfth and thirteenth centuries were similar to institutions farther north. The Catholic religion, monasteries as repositories of learning, and recognition of the pope were all common points. Associations with the Habsburgs and Spanish domination of the Netherlands meant that Iberia was European. Trade skirmishes of the Portuguese with England, Netherlands, and France in Asia, and the wars of Charles I and Philip II brought both countries into contact with the north. Spaniards could hardly help seeing how commercial systems functioned in the Netherlands and France. Autarkic though they were, economic policies of Olivares in Spain were often similar to those of his arch-rival Richelieu in France. Governments in Spain continued this tradition. [29] For centuries Portugal was a trading partner of England, and English pirates preyed on Spanish ships.

Dynastic marriages and attempts at them, such as the ill-fated trip to Spain of England's future Charles I, must have provided a cross-fertilization of ideas. The Bourbon family of France started the dynasty that presides over Spain today, and the Napoleonic occupation must have further let Spaniards and French know how each other lived. Although Iberia is not usually associated with the Enlightenment, and although the Index inhibited, nevertheless writings from northern Europe infiltrated, such as treatises of the physiocrats and other reformers. [30]

Contacts accelerated in the nineteenth century. The Spanish industrial revolution paralleled that of northern Europeans (except England) in the mid-nineteenth century. Only later did it fail. Land reforms of that century mirrored those in northern Europe. "The law of May 1855, with a few exceptions, provided for the sale of all lands held in mortmain, including the common lands of the municipalities." [31] As in eastern Europe, however, these reforms did not lead to equitable land distributions or modern farming.

Economic liberalism, spreading in northwestern Europe, was copied in nineteenth-century Iberia. Foreign investment was welcomed into Spain from 1850 to 1913. [32] The Restoration governments (after 1874) tended at first toward free trade, with a Franco-Spanish commercial treaty in 1882. [33] Even the increase in tariffs by Conservative Spanish governments in 1891 and 1906 may have been influenced by German policies of that time. Three French credit companies were formed in Spain in the nineteenth century. [34] Technological improvements flowed freely across the Pyrenees. A Barcelona mill brought in the Watt steam engine, [35] and the Bessemer process for the conversion of non-phosphoric ore into iron was introduced into Vizcaya in 1856. [36] By 1882, the Siemens process had also been adopted in Vizcaya, and an Anglo-Basque shipbuilding consortium, Astilleros del Nervión, operated in 1888. [37]

Radical and socialist ideas also came from the north. "The growth of peasant self-consciousness in southern Spain was the consequence of the spread of anarchist ideas. These were imported into the Peninsula in 1868 by Bakunin's envoy." [38] Labor organizations reflected those elsewhere in Europe.

Interest groups, fundaments of a pluralist society, increased slowly in the eighteenth and nineteenth centuries. Most were similar to counterparts in northwestern Europe. [39] In the mid-1760s the nobility and church helped form agricultural societies. By studying publications of physiocrats and others, they brought agricultural improvements from northern Europe. "The Council of Castile received a number of petitions from towns and villages . . . who wished to set up their own Economic Societies." [40] (Note, however: They had to petition to do so).

In the nineteenth century, chambers of commerce and employers' associations, such as the Factories Commission, an agency of mill owners, and the Lliga de Defensa Industrial y Mercantil, [41] were formed in Catalonia. These groups proliferated in the twentieth century, to include the Portuguese Industrial Association, the Commercial Association of Lisbon, [42] the Unión Ibero Americana in Bilbao, Lliga Regionalista of Catalonia, Fomento de Trabajo Nacional, [43] Liga Marítima Español, Hullera Nacional, Central Siderúrgica de Ventas, Asociación Patronal de Mineros Asturianos, and many more. "With Primo de Rivera's dictatorship, the proliferation of these interest groups reached an apex." [44] The formation of political parties during the republics has increased the pluralism.

But pluralism has been limited, in that the interest groups represented mainly business, whose ownership continues to be concentrated in the elite families. Labor unions were repressed during most of this century. In 1904, peasant associations appeared in Old Castile, amid a wave of strikes, [45] but for the most part they have been ineffective, and the agrarian problem in the south remains.

Let us define reflected economic development as the gradual spread of the institutions of economic growth into neighboring areas of related culture. The Spaniards saw how successfully these institutions functioned farther north, and they copied them. Even during the Franco regime, Spain came to "reflect" northern Europe. The French system of indicative planning was copied, "down to the designation of the smallest bureau." [46] From 1957 on, tourism was promoted as a principal element of economic growth.

With all this cultural affinity and history, it is not surprising that by 1959 "an important segment of the Spanish business community favored some kind of association between their country and the European Economic Community." [47] Spain and Portugal both joined the EEC (now the European Union) in 1986.

But how have the institutions adapted? How can countries with the autocratic, hierarchical background of Spain and Portugal, with a persistent great divide between peasants on the one hand and business/government on the other, with a tradition for suppressing grass-roots, liberal institutions, with few vertical alliances and little pluralism or leverage within its history, suddenly blossom into modern European countries with high rates of economic growth?

It is not yet certain that they can. If the Iberian economies succeed, the explanation is surely that all categories of Spaniards and Portuguese have become over the centuries sufficiently familiar with northern European institutions to know how they function and to learn to put their trust in each other through these institutions. If they fail, however — and the news as of publication of this book (1994) is not optimistic — the reason must be that power diffusion and accountability have not advanced far enough. While we can identify the factors behind success or failure, we have no way to weight them, to predict which will be the outcome.

How far, geographically, will institutions be reflected? While those from northern Europe may have drifted into Iberia, they have not crossed the straits of Gibraltar. Is this because of cultural differences with Africa? Insufficient communication? Not enough trust? European institutions not wanted in Africa? Belief that economic development can be accomplished in other ways? Or is Africa excluded by an ethnocentric Europe? All of these, or a mixture, are possible. Power on the other side of the Mediterranean has remained concentrated; the state continues to interfere massively in economic endeavor; vertical alliances and leverage for lower classes are scant, and economic growth is limited. That slight waterway is a formidable dividing line.

Advances in Iberia before 1990 bring hope that distance-reducing technology may some day spread economic development by reflection. If so, the bitter experiments and wars of northwestern Europe and Japan may not be the price for the rest of the world. But the Iberian experience is recent, and most recently it has seemed tenuous. The turndown of the 1990s has revealed the familiar characteristics of underdevelopment: corruption, bloated budgets, lack of accountability, and high, stubborn unemployment. In a phenomenon that spans centuries, one must be wary of the events of one or a few decades, pre- or post-1990.

Notes