Spain: Bricks, bubbles and bankruptcy

Wildcat Germany on the credit crisis, class struggle and to the construction industry in Spain in late 2009.

Submitted by Steven. on December 14, 2009


In the current crisis we see the implosion of a development model fuelled by subsidies and credit. The crisis marks the end of an epoch which began in the post-Franco transition period and which led to Spanish integration first into the European then into the global market. But the crisis is also marketed by the media as a major event, re-staged daily like some collective experiment in which everyone tries to find their respective new roles. The politicians seem unsettled in a situation which ever more obviously relegates them to the role of extras in a play where manipulation of the electorate becomes harder and they run the risk of being marked out as scapegoats at the first opportunity. The media constantly advise us to look out for special offers when shopping, the minister of trade and industry recommends buying national products, while there is perpetual lamentation over the collapse of the credit-financed demand which had been of major importance for the Spanish economic miracle.
Spain: Bricks, Bubbles and Bankruptcy

National Economy and the Experimental Lab of Crisis Management
Now this nightmare replaces these jolly good years when everyone knew that the whole thing was rather crazy and that it couldn't go on forever. The whole country seemed a gigantic boom machine, albeit one that produced some worrying side effects, like the tendency to mess up the countryside with ugly concrete boxes - for the second home at the sea front, for the growing population, for the asset-seeking savings from around the globe, for the black money laundering. 'Back then', when Spain consumed as much cement as the four biggest European national economies together; when a third of Europe's 500 Euro bills were in circulation in Spain in order to grease the palms of corrupt politicians, civil servants and construction bosses; when the municipal kitties were overflowing thanks to the income from turning soil into building land.

During the last decade the GDP grew by 3.5 percent on average, a growth rate well above the EU average. Therefore it was bearable that the EU subsidies - 118 billion Euros since 1986 - ran out after 2006, and it didn't matter much that the country fell behind its global competitors due to productivity not keeping up with wage increases.1 The growing indebtedness and the trade deficit (10 percent of GDP) were financed by endless global capital flows looking for profitable investment. The fairy tale ended with the collapse of Lehman Brothers, if not earlier, and all efforts of appeasement promising a soft landing finally appeared ridiculous.

Between 1993 and the beginning of 2008 the employment figures increased from 12 to 20 million. For the first time since 1978, in July 2007 the unemployment rate dropped to under 8 percent, about 1.76 million people. However, over a third of the new jobs were temp contracts (in the construction sector more than half), a fact which now becomes one of the reasons for the rapidly increasing unemployment, which according to official announcements is currently at 14.4 percent (3.3 million people). Every day 6,400 people become unemployed. In the construction sector unemployment has doubled within a year's time (307,000); in the manufacturing sector unemployment increased by 43 percent (120,000); in the service sector by 38 percent (492,000). At least 80,000 workers have seeped into the informal economy. About 29.5 percent of the youth aged under 25 are without jobs.

At the beginning of 2009 70,000 workers were already affected by short-time work or redundancy, including 18,000 people employed by car dealers. The automobile sector employs around 9 percent of the total national workforce. At first only those on temp contracts and the indirectly employed workers got the sack. Due to the deep divisions within the workforce between permanent and casual workers, the protests have so far remained relatively marginal. Apart from a few exceptions, most actions and demonstrations have remained isolated and under the control of the unions. In many cases mobilisations lead only to a reduction of the core workforce through social compensation plans and early retirement schemes.

The government tries to play the role of a crisis fire brigade, like every other government at the moment. Nearly every week new support schemes are announced for the financial sector, the real estate companies, the municipalities and commerce. Among these measures are multi-tiered moratorium agreements for those outstanding mortgages which are unlikely to be settled, along with attempts to fine-tune migration - which is justified politically by presenting it as a pre-emptive move against the racist threat from the political right.

State debt has increased to nearly 40 percent of GDP. Mortgage debts of private households alone amount to one trillion Euros; for repayment the average household has to spend nearly 50 percent of its annual income. Real estate and construction companies have accumulated debts of 400 billion Euros. The sum of bad debts quadrupled to a total of 60 billion Euros in 2008.

The Chances of Crisis: Lowering of the Wage Level
Government analysts and representatives have started talking about the emergence of a 'chance' to introduce overdue structural reforms. Spain should finally overcome its 'sandwich' status' meaning that the country's wage level in the less capital-intensive sectors cannot compete with the low wages in Eastern Europe and Asia and the technologically advanced sectors are squashed by the superiority of the more 'mature' national economies. In recent years financial resources seeped into the construction sector; there was little left for technological innovation. Now there is a lack of funds even for urgently required investment in education, research and development and infrastructure. All 'analysts' agree on one issue: the wage level has to be lowered.

The construction boom actually contributed to the fact that despite the relatively modest wage increases, available household incomes grew considerably ' due to growing employment, cheaper credit, growing property holdings and various tax reforms.2

In January 2009 the Standard & Poor's ratings agency's assessment of the creditworthiness of the weakest national economies of the EU downgraded Spain, among other countries, and thereby increased the cost of refinancing. If these countries want to escape looming state bankruptcy they have to lower reproduction costs massively and directly. The ratings agencies themselves are a (heavily disputed) tool in the struggle for the reorganisation of the global power structure - the political and economic collapse of the capitalist world system undermines the legitimacy of the agencies, which present drastic austerity measures as the 'cost of the excesses of the past'. On the other hand, the fact that structural adjustment is 'enforced' by supra-national institutions like the IMF, the World Bank and ratings agencies allows governments to camouflage their own responsibility and role. The difficulties for development of a European governance - and for interstate solidarity in general - are situated in this context.

So far the Socialist government has shied away from a head-on attack against the workers. In similar situations in the past the government devalued the peseta, which amounted to a discount on the entire Spanish working-class on the world market, but was easier to enforce than a direct cut in incomes. Again and again the reduction of the legal severance payment of 45 daily wages per year of employment is put on the agenda, but this measure seems still too risky to the government.3 Tax increases would further hamper internal demand. Cuts in state spending are currently not feasible. Public services, particularly the health service, already struggle with functional difficulties, partly because they have not been adjusted to population growth.

Though the total volume of the wage replacement benefits has increased considerably, these are hardly sufficient to cover basic needs: a cut in benefits would also accelerate the loss of mortgage repayments. If anything, all that can be expected is a 'modernisation' of the welfare system in order to increase the turnover of the unemployed by means of further control and job schemes (also in order to whitewash the unemployed statistics: 700,000 unemployed on job schemes are not counted as unemployed, a situation similar to that in Germany).

This is the reason why the wages and the performance demanded for them are at the centre of conflict for the time being. In the private economy the attack is in full swing; overcapacity is reduced and consequently there are waves of short-time work and redundancies. Recently the government even felt obliged to admonish the employers "not to take advantage of the crisis".4 Experience has shown that a massive cut in core workforce tends to provoke more militant mobilisations. In recent years - particularly in response to job cuts in the automobile industry - these mobilisations became a common ritual in order to hike compensation pay. Young people in particular aim at getting out of the factory with high compensation pay instead of 'fighting for their jobs'. But once the alternative to losing the job is having no job at all, it will become likely that such conflicts will gain in ferocity. This is why more and more 'analysts' recommend a return to the 'concerted' agreements of the 1970s - agreements between unions, employers and the government named "Pactos de la Moncloa" after the seat of government - as the best possible way to lower incomes.

Construction Boom and Migrants
The Spanish economic growth model shows parallels to that of Ireland, and in certain ways to all anglo-saxon economies. In 1999 the Euro currency union provided a new basis for the boom phase which had begun in 1994 and continued since then. The Spanish peseta was converted at an undervalued rate, which gave Spain a few years of competitive advantage. At the same time the prospect of monetary stability created the base for making debts. Negative real interest rates and inflated financial markets facilitated the rapid expansion of the construction sector, whose share of the GDP grew from 5 to 13 percent within a decade. Since the 1970s, and in particular during the crises of 1984 and 1992, Spain's modernisation has expressed itself in the growing importance of the service and public sectors in terms of overall employment and the considerable decrease of numbers of people employed in agriculture and industry. This transformation, also termed as tertiarisation, reduced the number of strategic sectors determining the economic cycle to a minimum. Industries account for 16 percent of all employment, and the construction sector 13 percent. In constrast 'trade and finance' and 'other services' employ 30 percent of the total working population respectively. The employed and 'economically active' part of the total population increased to a new record level of 60 percent. Increasing female employment on the official labour market and labour migration are seen as the reason for this high total employment rate.

The number of people with registered residency in Spain increased by 720,000 on average between 2002 and 2008, and 90 percent of population growth stemmed from migration. In 2004 Spain absorbed one third of all migrants coming to the EU ' mainly from Morocco, Latin America and Eastern Europe. The frenetic building activity of up to 800,000 new flats per year was only made possible by massive labour migration.
The Construction Sector...
The major construction companies all started as family enterprises. They developed within the sleaze of business and political parties, and became global players through aggressive use of financial levers. Five of the ten biggest construction firms have their headquarters in Spain. Already some years ago they started to diversify their business segments in order to be prepared for the looming economic collapse.

About a fifth of the sector's total workforce and more than a third of total turnover are concentrated in only 1.1 percent of all construction companies. Below this level of enormous concentration the construction sector is characterised by many small and medium-sized companies: 90 percent of all construction companies have fewer than eleven employees. The average number of employees is actually only 5, topped up by large numbers of (officially) self-employed workers. Construction companies come and go: 2,036 companies were shut down in 2007 alone and 20,729 were newly set up against a background in which the total number of construction companies was over 500,000. The cascade-like employment structure and the ramified chains of sub-contractors enable the companies to hire and fire nearly just-in-time and on demand, similarly to the situation in the transport sector.
...and its Workers
Between 1995 and 2006 employment in the construction sector more than doubled to 2.6 million people, which amounts to 13 percent of the total employed population. 30 percent of the workers are aged between 16 and 29 years, which makes construction the sector with the youngest workforce. According to official statements, 25 percent of the workers are migrants, which is the highest figure compared to other sectors as well. Between 500,000 and 1.5 million people are said to be working in the overall illegal labour market, generating 23 percent of GDP. 16 percent of all illegal migrants work on construction. The composition in terms of qualification: admin workers and technicians account for 20 percent of the work-force, skilled workers for over 60 percent, unskilled for 15 percent. 44 percent of all work contracts are time-limited, 20 percent of all workers are self-employed. Wages vary considerably. Skilled building workers get around 1,400 to 1,600 Euros monthly, which is below the general average wage of 1692 Euros at the end of 2008. (All wages mentioned are before tax.) Technicians or specialised building workers earn significantly more. Before the economic crash there was a huge demand for technicians, which enabled them to ask for high bonus payments. Nevertheless, the hourly wages in the construction sector are still ranging at the bottom ranks. In 2005 (no more recent data available) in construction the average hourly wage was 8.73 Euros, compared to 10.43 Euros in industry and 9.61 euros in the service sector.

The level of union representation among building workers is said to be very low. Only rarely does news about labour conflicts in the construction sector become public. Several times the extremely high rate of accidents caused short local walkouts. In 2005 the level of fatal accidents reached its record high - 308 people died in the industry that year, comprising 31 percent of all fatal work accidents in the country. Since then every year 250 to 300 workers have lost their lives on the sites.
The Crash
About a third of the turnover of the construction sector comes from residential building, and investments in the other branches are to a large extend related to after-sales services for the residential building. Over-production of newly built flats reportedly amounts to over 1 million already. Nevertheless, the actual impact of the crisis will only kick in with a delay, given that projects whose construction has been started are usually also finished. In 2007 nearly 10 percent more flats were built than in the previous year, while the number of building applications already fell by 16 percent. In 2008 the building applications collapsed by 80 percent. The first massive wave of redundancies hit project planning and commercial services.

The state intends to soften the slump by subsidising mortgages or rents or by manipulating land prices. Investment projects are supposed to stimulate building activity in the non-residential construction sector.
Migrants and Youth without Social Safety Net
Despite its central significance for the past economic cycle there haven't been any vigorous impulses towards a political recomposition of the working class emerging from the construction sector. This is seemingly due to the precarious work organisation and to what for migrants amounted to relatively high income, which became available thanks to extended working times and easy credit. Construction work is divided into different trades. Different work tasks are performed by different work gangs, which in most cases spend only few weeks on the site. This low level of cooperation, compared to the factory, explains the low productivity on one hand (surveys allege that productivity is 30 percent lower and that 15 percent of the total costs arise from re-working) and on the other hand the essential difficulties for any workers' initiative.

During the last years social changes have taken place and this text can only provide first thoughts for comprehending them. In contrast to the perspective from the countries of origin (see recent article on Romania on the wildcat website) it seems that most of the migrants will stay here in Spain, because a return does not seem beneficial. Most of them are on limited-time contracts, the crisis affects them harder than the local population, and therefore they are more forced to look for alternative sources of income.

The exclusion of the younger generation from the labour market is another aspect requiring a deeper analysis - and the obvious element of refusal attached to the high level of youth unemployment. The events in Greece caused an immediate ringing of alarm bells in Spain. Will the student movements result in impulses which aim beyond education policy (Bologna agreement)?

The often-cited social networks which fulfilled their stabilising role in any crisis so far are in a state of advanced dissolution. The record growth of the prison population is one of the indicators. In 2001 there were 45,000 people locked up in Spanish jails; today the number has increased to 72,000. With a ratio of 160 per 100,000 people in prison Spain has the second highest rate in the Western world, behind the USA and ahead of GB (137 to 100,000).

After the traumatic experiences triggered by the end of the boom there will be processes of reorientation. The main question comes to the fore: How can we defend social reproduction against the unchained violence of its economic structures?
Wildcat Germany, February 2009. Text taken from, lightly edited by libcom for spelling

  • 1The higher relative rate of inflation, compared to other EU countries, is an expression of the considerably steeper increase of nominal unit labour costs. The Berlin-based DIW (German Institute for Economic Research) announced on 31st of May 2007: "Compared to the average of the Euro zone, unit labour costs in Spain increased by 16 percent in the period between the beginning of the monetary union in 1998 and 2006". Ignacio Buqueras, president of the national commission for the rationalisation of working times (ARHOE) puts it more bluntly: "In terms of productivity Spain is at the bottom of the league. This is because Spaniards believe that mere physical presence at the workplace can be counted as work".
  • 2 Thomas Fricke, in an article published on 22nd of October 2004 in the Financial Times Germany: "Spain's economic boom has reached an advanced stage resembling the end of the New Economy boom. Everything seems possible and affordable, in employment terms as much as in other respects. Companies earn so much that they pay for jobs which in Germany would have fallen prey to crisis related restructuring long ago. At times you can see two women working behind the same supermarket checkout while fruit and vegetables are weighed one by one by yet another workforce. The end of self-service. There is a huge mass of more or less unskilled people doing more or less useless jobs. No wonder that Spain's annual productivity increase has been below 1 percent for some time now."
  • 3 According to a World Bank survey, costs for redundancy compensation payments in Spain stand 56 on a scale of 100; this compares to 25 in the OECD, 0 in the USA, 22 in the UK and 69 in Germany.
  • 4 After threatening short-time work, redundancies and relocation of production to the second European plant in Slovakia, and after offering a two year 'production location guarantee' in return, Sony was able to force the 1,000 people employed in the television manufacturing plant near Barcelona to accept 40 hours of unpaid extra work in 2009/2010, an annual flexible working-time account of 60 hours and a pay freeze till 2010. On top of that 185 jobs in the logistics department are being outsourced and 93 people are leaving 'voluntarily'. In addition the Catalan government has assured Sony of subsidies for technological development. Nissan is threatening to sack half of the 3,332 workers employed in the plant close to Barcelona. The negotiation process has got stuck; production stopped for some time because a Seat manufacturer went bust.