Thursday, September 8, 2011

A Tale of How Spain Was Fighting With Its Own Economic Development

Once upon a time there was a country. It enjoyed many sunny days a year, beautiful beaches and colorful flamenco music, igniting the hearts of many of its inhabitants. Tapas with gazpacho kept them fed and sangria made them happier than, may be, they should be. It would be heaven on earth, had this little Mediterranean country, called España, a better government. The list of social and economic issues impeding its economic growth stretches from Paris to Tegucigalpa and on May 15 many Spanish people had to gather together on the central square of its capital and indignantly protest against the ruling regime.

The people of Spain also bear a part of the blame for the situation that the country has found itself in (see Spanish Youth and Cucumbers). The disillusioned, the revolutionary and the complacent have not done enough to be internationally competitive in the globalized world of today. Many Spaniards will vehemently object to being moved to a different city within the country, leave alone expatriation. With such attitudes it is difficult to imagine how they are going to develop the skills essential to manage business across the national and geographical borders. It always shocked me how the pharmacies work in Spain only from 10 am till 2 pm and then from 5 pm to 8 pm and still make money. A healthy siesta will always take prevalence over customer service; actually, I believe the phrase "customer service" should be eliminated from the Spanish context and substituted by the term "customer experience". If things continue as they are, soon someone will come up with a new business idea of outsourcing dealing with various call centers on behalf of the customer, because getting anything out of them (in case you manage to get through the numerous automatic switchboards and robotic messages) if you do not have the sufficient experience and patience is only comparable by intensity to giving birth, which in some instances yet might turn out to be less painstaking and irksome. 

However, the government can claim the first prize for the inefficiencies and dire faults in the societal tissue. Well, it's true that people have governments that they deserve, but I wish to hope that those who sit in the parliament or serve the administrative branch are part of the intellectual elite of the nation, charged with making things better, not worse. The current so much needed economic reforms are met with violence and rejection, which is an indication that the ruling few have entirely lost touch with their electorate, that they are unable to explain the necessity of severity measures and the previous attempts to handle the affairs were nothing but populist. Gayle Allard of IE Business School argues that the unemployment picture is getting bleaker. Only one look at the graph below would be enough to grasp the idea that not all is well. At soaring heights of 21.2%, the unemployment figures are even worse among those who are less than 25 years old - 46.2%:

Even if you have not attended a business school, you would intuitively agree with Peter Drucker's take on social corporate responsibility: the public sector is there to make money. Forget the rest for a moment. If there are frequent monetary (re-) injections into the economy, it generates a virtuous cycle as money tends to multiply itself. Even if a firm does absolutely nothing else with regards to CSR (corporate social responsibility), let us assume that making profit and complying with the relevant legislation would suffice. Spain seems to know better and is doing its best to keep the businesses from profiting.

What is the greatest asset of any company? It's human capital, right? Innovation and creativity do not come from complacency and spectator attitude. If a company wants to be successful and profitable, it has to get the best people. For centuries the prerogative to select and hire the professionals has been with the business and the government stayed away, since, frankly speaking, the bureaucrats have no idea whatsoever about running a particular business and even less so do they care about it. Therefore, it beats me why the Spanish authorities are trying to dictate the companies whom they should be hiring. You heard me right: whenever a company wants to hire a foreigner, it has to go through the motions of interviewing the "eligible" local candidates and providing the proof that those do not fit the job description. The process may last from 3 to 6 months. There is a special service (INEM) that checks its database for such candidates and does not grant a permission to proceed with the work permit until it is convinced that there is absolutely no one with a Spanish passport who can do the advertised job. Let's pause for a minute here:
  • Hiring foreigners is an expensive and generally burdensome practice. Why would a company decide to resort to such measure? Because there is nobody on the local market!
  • Always - I repeat - always a company will first scout the market with the help of search agencies and headhunters. Only after that step is done will they look abroad. So if the recruiters have not found anyone locally - there is nobody on the local market!
  • What sort of people will INEM offer? (1) Unemployed, (2) same as in the search agencies databases, and (3) rejected everywhere else. How can that candidate fit the job if all the headhunters have confirmed that… there is nobody on the local market!

It is my naïve logic, still I'll venture laying down my thoughts. Companies pay premiums for expatriate staff because they bring skills and knowledge unattainable locally. Being more qualified, these employees produce better results and pass their knowledge onto their local subordinates and colleagues. Better results lead to higher profits. Profit euros get reinvested into the economy creating more workplaces. Knowledge transfer and retention practices ensure upskilling of local staff up to the point that they can replace expatriates, driving fixed costs down and increasing profits, which get reinvested… you get the picture. The government does play its role, but its role should not be meddling, but rather regulating and supporting. All countries mark the playing field and establish the rules but then they give the business to make its own decisions within those regulations. Even the most stringent countries are at least reasonable when it comes to employment regulations, e.g. South Africa (linking labor force profile to state subsidization and governmental contracts eligibility) or Saudi Arabia (limiting expat tenure and demanding skills transfer). Those governments are also concerned with well-being of their citizens but they understand that companies need expatriate workforce for a reason.

Why does the Spanish government want to do it exactly in reverse?

It is undoubtedly honorable to be patriotic. It might also pay off to be nationalistic, particularly if you are a politician. It feels good to guard traditions and preserve the best of the past. But nobody has yet abolished common sense nor has cancelled logic. So being traditional, nationalistic and patriotic against the reason, logic and facts is at least irresponsible. At most - stupid. There is a limit in everything, even human vanity has it. I honestly, frankly and sincerely do not wish that Spain ends up like this unfortunate torero:


  1. I think one concern is that companies (at least in the US it's like this) use expats from lesser economically developed nations in the US to lower average salaries, and then to add insult to injury they then export those skills and people back to their offices in those countries. So basically it ends up being a net drain on the economy because Americans end up going in other fields because the salaries are lower and there are less open opportunities. So I think it can cut both ways. I wonder how many brilliant mathematical minds went into finance instead of computer science in the past decade since the dot com crash thanks to this.

  2. At least, the US recognizes the value of brain attraction. The fact that these brains come cheaper is a positive side effect for the companies as well as breeding an army of employees for further deployment back to their home countries. I do not see this situation as a threat for Americans though: rather a wake-up call, "Why aren't you as competitive as those foreigners?" Maybe if more Americans learnt Chinese or Swahili, there would be no need to bring someone from abroad.

  3. Well people in other countries are willing to work for much less than Americans, so it's not exactly a 1:1 comparison. I also think that there are lots of skilled people already in the US that end up getting a bad deal as a result of these policies. It's a tradeoff though - as long as the brainpower is being kept in the US or in some other way benefiting the country then I'm fine with it - but when it gets "scammed" by companies who want to pay half as much and then send the skills overseas where they can pay a tenth as much Im not sure how much I like that.

  4. Anthony, the labor market like any other is governed by the laws of supply and demand. If there are those who are willing to work for less, aol be it. Protectionist measures will only sleep the balance: that's happening in Spain now. And if you go protectionism all the way, why won't the USA relocate back to the country the production facilities from China and Mexico?



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