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The following OECD assessment and recommendations summarise Chapter 4 of the Economic survey of Spain published on 23 January 2007.
Increasing the economy’s capacity to innovate will enhance productivity
The persistent weakness of productivity growth for over a decade is, quite rightly, one of the authorities’ main concerns. Admittedly, it has not stopped the buoyancy of the economy or prevented it narrowing the gap with the most affluent countries, but the underlying increase in available labour is inevitably going to tail off in future with the achievement of full employment, the slowdown of immigration and the impact of population ageing. Accordingly, OECD long term scenarios point to a marked diminution in potential growth over the coming years if there is no appreciable improvement in productivity trends, risking an interruption, or even a slight reversal, in the process of convergence with the euro area average in the course of the next decade. In response, the government is trying to ensure that the country catches up in terms of innovation, especially in the private sector, and enhances its capacity to absorb new technologies.
The reform of R&D and innovation policy appears well thought out
To develop the economy’s research and innovation capacity the authorities have devised a comprehensive, three-part reform strategy whose aim is to step up the effectiveness of R&D and innovation policy proper, as well as its framework conditions, and to upgrade the quality of education. This multidimensional approach is welcome. The Ingenio 2010 plan, which is the first part of this strategy, is particularly detailed and generously funded, with the civilian research budget set to double during the present parliamentary term. It proposes a number of instruments to increase the focus and funding of government research, stimulate technology transfers by encouraging public/private partnerships and enhance the incentives for private-sector research and the diffusion of new technologies. Because of the multiplicity of existing obstacles and the varying forms of innovation activity, this approach seems appropriate and it is already producing positive preliminary results. Careful evaluation of the effectiveness of the different types of financial incentives employed is called for however. Promoting technology centres, which rely on demand by end users, is a useful way of encouraging a culture of innovation while simultaneously limiting the risks of wastage. Improved transparency and co ordination of the programmes devised by central and regional governments would avoid duplication, make it easier for SMEs to access information and reduce the danger of these measures becoming nothing more than industrial policies favouring local firms.
Efforts to improve the quality of education are timely
The reforms under way in education, which make up the second pillar of the strategy, involve improving schooling from early childhood right up to the tertiary level, not forgetting adult training. Generally speaking, these reforms go in the right direction. The recent revision of the compulsory school system increases schools’ independence, so that they can adjust more easily to growing student diversity, and backs this up with significantly increased budgetary resources. This should lead to better results and to lower failure rates. The authorities also acknowledge the need to further develop the continuous training system and the skills in the use of new technologies among a substantial portion of the population. Recent changes have sought to strengthen the management of the relevant oversight bodies and to facilitate SME access to the funds set aside for this purpose. That said, the programmes offered are often too long and unsuited to firms’ needs. Joint employer/government financing of specific continuous training projects would no doubt help to ensure the efficiency of such spending. More generally, greater efforts are needed to improve the functioning of training markets by improving the system of recognition of skills and easier access to training leaves.
An ambitious reform of the university system has been proposed
Measures reforming university education were also recently launched to boost Spain’s relatively poor performance as exemplified by international rankings or, less directly, the lower-than-average private returns to higher education. What is needed is to move from a system based on input regulation to one based on better output appraisal linked to funding mechanisms. The government proposal rightly increases university independence, notably as regards staffing and curriculum planning, and aims at strengthening performance appraisal. For this purpose, the statistical information on the functioning and performance of universities is being reviewed in order to ease the evaluation process, while an extensive dissemination of this information is also planned. The research assessment system will also be improved, with a view to fostering applied research and transfers of knowledge and technology to firms through financial incentives. These proposals, which are awaiting examination by Parliament, are laudable. Evaluation is vital to encourage benchmarking, increasing the possibility of discriminating among university degrees and stimulating competition and student mobility. In this connection, the projected increase in grants and loans repayable on the basis of income is also welcome, but it should be complemented by a rise of university fees, which would be a useful addition to the tertiary sector’s rather limited resources.
It will be necessary to overcome resistance to reform
This reform is likely to meet with opposition resulting first, from some insiders reluctant to the spread of a culture of appraisal. Yet the universities have to look beyond the particular interests of the academic community and their own sphere and seek better to meet the needs of society, especially firms. Second, it must be ensured that the decentralised framework of the Spanish system, with the regions controlling and funding universities, will not stand in the way of the development of a culture of nation-wide evaluation and competition. Encouraging healthy emulation is however necessary for obtaining more from the investment in human capital and creating attractive centres – for foreign researchers and students too – as has happened in the case of business schools. Finally, the widely held view that university is a public service to which everyone is entitled could also be an obstacle to higher tuition fees. Yet increased charges can be justified on both equity and efficiency grounds. Despite the aforementioned shortfall, tertiary education nevertheless yields significant private and social returns, and, as in other countries, few of those attending university come from underprivileged households. Moreover, higher fees should also prompt students to make the most of their studies and finish them sooner.
A more fluid labour market is needed for permanent workers
There has recently been progress in making the framework conditions for innovation – the third pillar of the strategy – more favourable. For example, measures have been adopted to stimulate business creation and facilitate initial funding, and efforts are ongoing to reduce those labour-market rigidities that hinder the business reorganisations often needed when adopting new technologies. The May 2006 plan to reduce the market segmentation between permanent workers – heavily protected against redundancy – and those with temporary contracts did so by limiting recourse to the latter and improving incentives for permanent contracts, mainly through higher budgetary support. Additionally, the access of a wider group of workers with temporary contracts to permanent jobs was made easier. However, these reforms in fact only slightly reduce the cost differential with temporary contracts and may therefore not do enough to make the market much more fluid for permanent workers, even if the share of temporary jobs does diminish. Yet greater flexibility with regard to permanent contracts is essential if such workers are to lose their reluctance to change employers, firms to become more open to technological change, innovative industries to emerge and better quality jobs to be created. A single employment contract that gradually increases severance payments based on length of service would achieve this essential flexibility. In addition, as is done in Austria, employees could be provided with individual severance insurance accounts into which are paid contributions that the employee can use in case of dismissal. This would remove the present uncertainty surrounding the application of employment protection legislation and increase the mobility of permanent workers. Performance would also be improved by effective activation measures to compensate for permanent workers' reduced protection. In some fashion, a better balance has to be found between employers’ need for flexibility, employees’ goal of security and adequate protection against unemployment.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded (also available in Spanish). It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Spain 2007 is available from:
For further information please contact the Spain Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Claude Giorno and Eduardo Camero under the supervision of Peter Jarrett.