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Spain and the tragedy of the scales

Background data on the Spanish economy, even more than banking data on the crisis with all those toxic property assets, shows how, behind the crisis, there hides the inadequacy of the financial system to finding an ever-smaller optimum scale. Every rethinking, every alternative, has to begin with a refocusing in the short term on highly productive small and medium businesses, the Grand Alliance which will allow the dissipation of rents to materialize, and in the long term on the perspective of transitioning towards a P2P mode of production.

frutaThe data on the Spanish economy is significant: the data on the balance of payments and the strength of the export sector can only be explained by an rise in productivity with an effect that is equal to or greater than a substantial drop in salaries.

So, the question is why capital flowed from a business community that was more and more productive to speculative bubbles, bringing the overall economy to what many predict will be a point of no return.

The fact is that Spain and Italy concentrate their agrarian, industrial, and service productivity on medium and small-scale businesses. These businesses have made up for the increase in labor costs with ongoing technological adaption and process improvements, but precisely because they’ve done it well, they’ve been extremely efficient in their investment. There haven’t been any quick bucks made or major leveraging in the small and medium business sector. Its capitalization has been funded with working capital (which makes them very sensitive to banks “closing the spigot”).

But capital needs an exuberance that SMEs don’t offer, which is to say, it needs a scale that the little guys don’t have. It could only be intuited in the world of “the small,” as capital speculated on the creation of technological businesses that showed signs of scaling up and “cornering” massive markets. But as the data from capital-risk funds show, it didn’t work out: scaling those investment exchanges can only be done by eroding profitability almost down to the level of interest rates.

Capital in Spain, precisely because of the rapid and sustained productive development of the economic fabric, “had no place in production,” and because of that, foreign capital soon realized that it was gradually being reduced, and had been since the beginning of the decade. The only way forward was profits ensured by the artificial generation of scarcity. And for that, there was nothing better than urban planning that “assured” revaluation through the complicity of some perpetually underfunded municipalities. To maintain urban investments, they declared less land to be developable than was in demand at already artificially inflated prices. The State and the banks played along. And we won’t even talk about savings and loans, where they overlap. And that’s how capital, which dripped into the productive business community, gushed into the property bubble… just as, at the global level, it reinforced legislation on intellectual property, recentralized the Internet, and drove an asymmetric globalization: to capture huge economic rents to satisfy the needs of risk preferences divorced from the productive system and development.

Conclusions

Background data on the Spanish economy, even more than banking data on the crisis with all those toxic property assets, shows how, behind the crisis, there hides the inadequacy of the financial system to finding an ever-smaller optimum scale. Every rethinking, every alternative, has to begin with a refocusing in the short term on highly productive small and medium businesses, the Grand Alliance which will allow the dissipation of rents to materialize, and in the long term on the perspective of transitioning towards a P2P mode of production.

«Spain and the tragedy of the scales» recibió 3 desde que se publicó el Viernes 1 de Junio de 2012 . Si te ha gustado este post quizá te gusten otros posts escritos por David de Ugarte.

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