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OECD Secretary-General

Launch of OECD 2014 Economic Survey of Spain

 

Remarks by Angel Gurría, OECD Secretary-General

Madrid, Spain, 8 September 2014


As prepared for delivery


Ladies and Gentlemen:


It is a great pleasure to be back in Madrid to present the survey that the OECD produces every two years on the Spanish economy.


This document notes the significant progress made during that time. After two successive recessions, the economy is again growing and creating employment, generating confidence in the markets and in society.


The survey stresses the significant structural reforms that have been implemented in recent years. They are paying off and will continue to do so in the years to come.


The macroeconomic environment has improved significantly, with four successive quarters of growth and a recent upturn in domestic demand, especially where private consumption is concerned. In the second quarter of this year, there was positive year-on-year growth in employment for the first time in six years. Our forecast is that this recovery will gradually accelerate over the next two years.


It is now time to look forward and focus efforts on ensuring that the recovery is sustained and beneficial to all. Spain must stay the course, implement reforms in depth and tackle the huge challenge of unemployment, while at the same time laying the foundations for the change that the country’s economic model requires.


Our report focuses on how to boost growth and jobs through productivity and competitiveness, focusing particularly on a higher performing business sector. Let me share with you some of our key messages in this regard.


Combating unemployment: priority number one

Getting nearly 6 million unemployed people back to work is Spain’s most pressing challenge. It is an economic challenge, but it is also a social challenge: combating unemployment is the best antidote to the poverty and inequality that have increased all too predictably in recent years. Access to a decent job is also key to promoting social cohesion and personal fulfilment.


More than half of unemployed Spaniards have been out of work for more than a year, and only around half have more than lower secondary education. Good jobs will require ongoing training and up-skilling.


However, spending on activation has increased by only 10%, despite the huge increase in unemployment. Spain spends 0.9% of its GDP on active employment policies, 1.5 times more than the average spending for OECD countries, and yet, unemployment is three times greater. Activation policies need a turbo-boost, and we are working alongside the Government to that end, especially by improving co-ordination between public administrations and between unemployment, recruitment and training services.


Some progress has been made in this field. Recent initiatives, such as drafting skill sets so that the unemployed can receive tailored assistance from the employment services, or the pooling of best practice between regions, are all steps in the right direction that need to be applied universally. This is also true for the new educational pathways being set up for secondary school students which seek to lower drop-out rates and raise educational attainment.


We at the OECD are of the view that it is time to go an extra mile in terms of activation policies and matching education to labour market needs. This involves not only improving skills but also providing skills that are useful for the jobs of today and tomorrow.


As the Spanish economy becomes increasingly globalised, it will require new skill sets that must be incorporated into the new educational pathways, particularly where vocational skills are concerned. In response to this need, the OECD is working closely with the Government on a National Skills Strategy to fill the gap we have noticed in this area: we are developing relevant skills, making better use of the expertise that already exists and improving the interface between supply and demand.


From bricks to brains: moving towards a knowledge economy

A second key message of the survey is that, to generate high-quality, sustainable, well paid employment, Spain needs to shift to a new economic model based far more strongly on creating and exploiting knowledge. In short: moving from bricks to brains.


In the report, we have analysed the important contribution that the private sector can make to this field. Unfortunately, business R&D spending is still very low in Spain. The country’s innovation system has improved but would be much strengthened by greater stability of research funding, better career opportunities for research staff, more specialisation and economies of scale in universities and research organisations, and increased use of performance criteria for allocating funds.


In addition to public spending on RD&I, the Government can help to improve the regulatory framework by taking further measures to incentivise innovation, such as improving insolvency procedures, promoting non-bank financing alternatives and, crucially, implementing the Market Unity Law – the key to reducing regulatory fragmentation within Spain. Spain ranks 19th of the 29 countries on the OECD goods and services market regulation index, indicating that there is plenty of room for improvement.


Where taxation is concerned, reducing corporation tax will help to attract greater investment. Cutting employers’ social contributions for low-skilled workers could boost both job creation and competitiveness. Support must also continue for taxation and regulatory policies that foster more environmentally friendly technologies and methods of production. This will make it possible to tap into Spain’s privileged position to benefit from greener employment and growth.


One key factor in boosting the knowledge economy is to create new businesses and foster entrepreneurship. According to the OECD, Spain ranks 28th out of 29 countries for barriers to entrepreneurship. It is therefore essential to reduce the obstacles that currently stand in the way of business creation and business growth. This is not a cultural issue, as is sometimes claimed: Spaniards are just as competent and just as entrepreneurial as anyone else, but they need the right framework, support and incentives to take risks and embark on a venture.


One aspect that we highlight in the survey is that the Spanish business sector is characterised by an unusually large number of very small, locally focused firms with low productivity. There are only a few medium-sized and large companies. Reducing red tape, improving regulations, broadening sources of finance and supporting entrepreneurs would all boost competition and encourage or allow firms to grow and flourish.
By combining more and better innovation with more dynamic entrepreneurship, Spain would refocus the value chain on higher-technology product lines that have greater value-added and require more human capital. Exports have led the recovery, and would become a genuine engine for sustainable growth supported by more trade with fast-growing emerging countries.


Reforms, reforms and more reforms

Before closing, I would like to note the importance of maintaining the momentum for reform that has made it possible to turn things around in Spain. All serious, effective reforms are difficult and come at a political price. But without them it would not have been possible to restore market confidence in the Spanish economy, as is very clearly illustrated by the stabilised banking sector, the fall in the spread, the costs of finance and the resumption of investment.


We live in a globalised economy where productivity, specialisation and the exploitation of comparative advantages are key to competitiveness. At the OECD, we have supported reforms like the labour reform which reduce the minimum growth threshold required to create new jobs. We are also supporting the Reform of Public Administrations, along with measures that seek to reduce or abolish excessive constraints and rigidities in regulations governing markets for goods and services.


But these reforms are not an endpoint; indeed, they are barely the starting point for addressing significant ongoing challenges such as weak growth, high unemployment and, of course, the difficulties that so many people face in trying to make ends meet. That is why we will stand alongside the Government and Spanish society as you pursue your course of reforms to create a stronger, more sustainable and more inclusive economy.


Ladies and Gentlemen:

Ortega y Gasset said, “Living is a constant process of deciding what we are going to do.” (“Vivir es constantemente decidir lo que vamos a ser”). Now that we have extinguished the flames that had engulfed the house, together let us craft solid foundations for the building we wish to construct. If Spain is to become a higher-performing economy and a more inclusive and prosperous society, the reform roadmap will need constant adjustment and updating as new challenges arise.


You can be confident that the OECD will continue to work with you towards this shared goal of devising, promoting and implementing better policies for better lives.
Thank you very much.