Yesterday I spent three and a half hours brainstorming on how to turn Spain around with presidential candidate Alfredo Rubalcaba. He understands that the answer to unemployment is entrepreneurship. I appreciated that he listened carefully to my ideas for increasing employment. Spain has the highest unemployment rates of all OECD nations (20%) and this problem was the focus of our meeting.

Spanish citizens have 3 choices this November. To go with Rajoy, to go with Rubalcaba, or to vote for lesser parties and hope one day they become meaningful actors in Spanish politics. What I decided to do is to promote one simple and I believe powerful idea to grow employment to both Rajoy and Rubalcaba. I started with Rubalcaba today, the candidates with less chances to win. The plan is that during 2012 the Spanish government does not demand that companies pay social charges for all employees hired beyond the level of employment they had in 2011. It is an incentive to grow employment, to promote new and increased hiring only for 2012. It’s a jump start for the economy. The idea is explained in Spanish below. I believe this measure will make the difference that may make entrepreneurs start businesses and grow existing businesses. Rubalcaba reacted well to it and said his economists would study it.

Here is the plan

I know most Spaniards believe there is no hope that Rubalcaba will get us out of the crisis. Most Spaniards however also believe that there is little hope that his rival Rajoy will get us out of the crisis. But personally I believe that there’s nothing that is so wrong with Spain that cannot be fixed by what is right in Spain. I am more optimistic than most.

On Rubalcaba himself I can say, after having met Felipe Gonzalez, Aznar, Zapatero, Rajoy and him, that he is different from the other politicians. He is the only one trained as a scientist and educator. He is more of an administrator and thinker. He is a Chemistry professor and it shows. Would I wish Spain had other choices for President? Of course I would. I recently met with embattled David Cameron and in spite of his dubious choice of friends and poor handling of the riots he is a more impressive global leader. I never met Angela Merkel but I got a sense from what I see about her that Rubalcaba is more like her in terms of personality. But a government is not just a president, it’s a president and a team. And even though I find Rajoy an unimpressive candidate I could still end up favoring if he announces a better team than Rubalcaba before the election.

Now Rubalcaba speaks English and that is more than can be said about anyone else who’s run this country. In the end a President has to be the number one promoter of the country. Both Rajoy and Rubalcaba are Spanish characters not particularly appealing to foreign leaders or investors. None of them are like Jordi Pujol for example who was amazing at promoting Catalunya around the world. But between the two, Rubalcaba is slightly better as he can communicate without an interpreter and is more aware of what makes a country succeed in a globalized world. Rubalcaba seems a pragmatist, a person willing to try and fail hoping to get policies right in the end. I identify with that. People expect politicians to get things right but if in business being successful involves being right only slightly more frequently than being wrong I don’t see why decision making should be different in politics. In general when I confronted Rubalcaba with obvious mistakes of the Socialist Party, like the Ley Sinde, he did not try to defend the indefensible. Indeed he agreed to my proposal of bringing some of the tech entrepreneurs who were heavily involved in the 15M movement that brought millions out to the street protesting against the incompetence of all politicians himself included. In that sense he is very different from dogmatic Aznar who still thinks that invading Iraq was a great plan.

What really and concretely happened to this country is that it went from building 800K new homes a year to building 100K and around 12% of the labor force ended up unemployed. That explains 80% of what is wrong here. The rest of the industries were hurt in this crisis but not as badly as the construction industry. Spain can be turned around if we focus on growing the rest of the economy. So far what happened here is that the growth of Spain was fake, based on increasing debt and not sustainable sectors of the economy. My plan promotes employment in whatever sector may end up hiring without having government try to guess exactly how to grow the economy.

I am happy that Rubalcaba said he would have an economist specialized in tax revenues study my plan. Common sense tells me that my plan is a net revenue generator for the government from day one. Why?

Because it only applies to new employees and only on businesses that increase their work force compared to 2011.

Because there is a pool of 5 million unemployed and net job increases must come to a great percentage from this pool.

Because government stops paying the unemployed the moment they join a business and this produces immediate savings.

Because even if the government does not immediately get social charges they will get social charges over time and anyone making financial projections on tax revenue collections will have this into account. As a result rating agencies will see positive trends on tax collections and ratings will improve, this will lower the cost of borrowing for Spain. Shirking the debt premium produces enormous savings.

Because as soon as somebody is employed this person starts consuming and pay VAT and all sort of consumption taxes, gasoline etc that help tax revenues.

Because my plan provides an opportunity for the millions in Spain who work illegally to negotiate a transition to legality that will cost nothing to the employer during the first year and some will emerge from the underground economy in a way similar to a tax amnesty. It is an attack on the underground economy based on incentives that could be more successful than the failed Socialist Party plan based on increased fines that was put in place.

Now one way in which this plan would cost the government money is if ONLY those employers who were going to hire anyway hire, nobody else is attracted by the incentive and then the government loses 2 and a half years of social charges and some severance packages. But from an informal survey to my entrepreneur friends and the question, would you start a business or grow a business further if during 2012 you don’t have to pay social charges and if the business fails you don’t have to pay severance packages the answer from everyone was a resounding yes.

Note: if you feel that this article lacks content you are right 🙂 While with Rubalcaba I agreed not to disclose a lot of the ideas that were part of the brainstorming.

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Ali Parandeh on August 18, 2011  · 

Dear Martin, I have been following your blog and company for quite some time now. Your proposal to save the Spanish economy and create more jobs by far is the best and interesting one that I have been bragging about for a long time.
As an entrepreneur, I find having to pay the social security, IRPF and all the company taxes just unbearable to the point that at times we just outsource to other countries, in order to save. Where would Spain rather have the money? Going to Spaniards in Spain or outside to India and China?

If only the Spanish government could see that by not even removing but just reducing the horrendous social security charges and the pay off charges to employees, they would be doing themselves a huge favour. As you’ve mentioned for one, the fact that people will get an income it would mean that they start spending and paying taxes, secondly they don’t have to claim unemployment which must be a huge relief. However the Spanish authorities have seriously got something wrong as for being an Entrepreneur in Spain you need to be either loaded or crazy. Having spent all my savings and remortgaging my property to just pay staff and social security costs, I have to claim to be the latter.
Unfortunately Spanish authorities and the politicians do not see this simple side. All the talks about their help to small companies and entrepreneurs are nothing but hot air promises and we can tell you from experience.
I was actually in the process of writing a letter to the Seguridad Social and Hacienda and offering them one of two options. They either help small companies like mine and reduce social security costs and taxes, or a group of my friends and business associates, will just close and take our business elsewhere. So would they rather have hundreds of people at work getting paid a salary and taking in a little less social security? Or would they rather be rigid and have hundreds of top technicians, managers and programmers on the street collecting unemployment!

The sad thing is I know what the answer is. I will vote Rubalcaba and hope that you and him can bring some sense into this economy and government and help entrepreneurs and businesses flourish in a country that could do with promoting businesses rather than hindering them!

Ali Paradeh, BSc, MIAP, PhD
CEO Urbytus-
Websites for communities of owners, in Spain and around the world.

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anna on August 18, 2011  · 

You are starting to sound like Berlusconi, what’s good for my business is good for the country 😉

Anyway, I see problems of unfair competition. If a firm has done all its hiring, in comes a competitor and automatically gets lower salary costs. Not nice. Creates uncertainty too.

And I don’t think Spanish social charges are that extraordinary for Europe. You say that a worker that has a net income of 1600 euros a month costs the company 2500 euros. A Swedish worker receiving the same net income costs the company approximately 2600 euros.

However I doubt that anyone working full-time in Sweden has such a low net salary (1600 euros). The lowest salaries are quite high. The cheapest engineers or programmers you can get (fresh out of school) cost companies from 4200 euros a month. No aguinaldos though.

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jiddane on August 19, 2011  · 

Rubulacaba was Zapatero’s team. End of story. He’s also the Karl Rove of Spanish politics.

Companies are not NOT hiring employees because of the costs of employment. They are NOT hiring because of lack of consumer demand, because consumers have no money and are highly in debt, they have no cash and aren’t spending any more. Thus, companies with profits are simply sitting on the cash. Unfortunately, Spain’s biggest problem is the ECB. Without its own currency, Spain has no way of using monetary and fiscal policy to jump start the economy. Spain needs Europe’s help for a strong stimulus program. Thanks to German, this will not happen and Spain will suffer a few long, long years of deflation (lower salaries, lower social costs – consolidating Spain as a cheap labor market and decreasing consumer demand).

It’s not going to be nice.

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José Luis on August 19, 2011  · 

jiddane, I fully concur with your lucid comment. It is true that the Spanish Socialist Party uses the same noisy campaign strategies that enabled Karl Rove to place Bush ¡¡¡twice!!! in the With House. We will also have to follow the proposals of the Nicolas Berggruen Institute ( Mr. Berggruen, the bohemian billionaire, is now the owner of the Prisa group and the Institute he presides caters to people like Felipe Gonzalez or Cebrian (also Condolezza Rice or Rodrigo Rato), “pragmatists” in the line of Alfredo P. Read carefully what he has in mind for California. That is what the Prisa Group (Rubalcaba, Felipe González, Cebrian) will try to sell for Spain:

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Elliott Block on August 19, 2011  · 

I have no knowledge of the specifics of the Spanish situation.

In the US, the govt reduced the Social Security contribution for all employees from 6.2% to 4.2% for 2011 only. The strategy was to put more $ in workers’ net pay so that they would have more $ to spend. The trouble is that governments always speak about the billions of dollars that will result, but in truth the individual employee only receives several hundred $ per year and that doesn’t make the worker more likely to spend. However, it did not reduce the employer contribution of 6.2% so there is no incentive for companies to add employees. I agree with Ali Paradeh that social security charges are high, but beyond that are all the regulations that add to companies’ costs and frustrations. I also agree with jiddane that companies, large or small, add employees when they anticipate the need for additional employees, with government costs a secondary consideration. Unfortunately, the US and European governments do not have leaders, only politicians. Obama only blames Bush, but has no stimulus plan. He needs to quickly propose a bold, decisive plan that he should’ve done a year ago. He needs to stop campaigning and lead. His Treasury Secy blames everyone, but forgets that he was at the NY Fed when Lehman was sacrificed. Obama should’ve agreed with the Republicans to cut more $ in the future in exchange for a strong, real stimulus plan providing immediate nongovernment jobs. You can’t cut back at a time of crisis & you cannot be indecisive. Much of the $ from the ballyhooed 2008 plan was not actually spent. Merkel and Sarkozy were worse this week when the whole world waited to see what would result from their meeting. The big disappointment was that they announced that they want to introduce a transaction tax! Instead, they should’ve said that France & Germany will lead the ECU to do whatever has to be done to stimulate the European economies and that they would not let any ECU member fail.

In the 1970s, we had a biomedical division in downtown Baltimore that took advantage of a program where the city & state reimbursed the employer for 100% of the first 6 months’ salaries if it hired individuals who had been out of work for at least 6 months. It took people off government unemployment funds and potentially led to continuing jobs beyond the reimbursed 6 months in a depressed downtown neighborhood. We kept the production facility there and did not relocate even though that was a probability before the program was instituted.

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Ali Parandeh on August 20, 2011  · 

Anna’s comment is an interesting one. Whose to say what’s good for one’s company is good for the country, but one fact and beleif still remains amongst many of my colleagues and myself. While we want to hire and create jobs, the obstacles for doing so are greater and less rewarding. In fact, I recently had a meeting with someone who had taken a keen interest in investing in our company and vision and we spent some time reviewing the situation, however he was finally put off by all the issues and problems in running a business in Spain and the extremely high cost of social security in Spain, adding to that the number of plubic and then local holidays, and finally the 45 days per year compensation. When considering that many countries try to create and incentivise investment and business startups, Spain has the lowest realistic (disregarding the hot air government propaganda) incentives for any business.

So, the result is that work is sub contracted to countries like China, India, Peru and even the US where there are plenty of people working for a fraction of the cost.

So what’s good for “my company” may not be the solution for “the country” but as Elliot Block has given a clear example of a working model, a decent incentive and taking into account what companies really need is a proven way of creating jobs and helping the economy.

Politicians and governments need to wake up to the fact that not creating decent incentive is adding to their burden as many jobs can be outsourced and as Martin Varsavsky’s previous articles, it also pushes many companies to look at illegal employment, cash deals and so on.

I do hope that forward thinkers, the likes of Martin Varsavsky and hopefully Rubalcaba bring a new era to Spain’s current government backward mentality.

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José Luis on August 20, 2011  · 

Ali, with all due respect, “Rubalcaba” and “forward thinker” is an oximoron. Part the terrible shape in the Spanish educational system comes from the law he enacted in the 90’s, the LOGSE. He also has been, for eight years, responsible for “the hot air government propaganda”. As for Martin’s proposals, part of them make sense, I hope Mr. Rajoy is receptive to them…and that Martin finds his team better than Rubalcaba’s. At least, Mr. Rajoy has announced a government of the best, a far cry from the obsessively quota oriented Zapatero.

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Ali Parandeh on August 21, 2011  · 

Buenas tardes Jose Luis, I take in what you say about Rubalcaba and having lived in Iran, France, UK, Spain and having been exposed to a multicultural / multinational life, I also find Spanish educational system of a lower standard compared to that of the German, northern European countries and even the Iranian.
There is a very interesting article in the Financial Times (Weekend 20/21Aug, page 7) on Larry Page, where Mr Levy quotes that Mr Page is frustrated with general lack of ambition in the world. About 5 or 6 years ago, Time magazine published an excellent article on “what drives ambition” which would also confirm Anna’s comment that what’s good for my company may not necessarily be good the country.
However the point here, I believe is not so much the mistakes Rubalcaba or Zapatero have made. I believe that the important is the team of forward thinkers they take on to listen to, in order to bring about more change and it is change that eventually brings about progress.
Between 1994 and 2000, I played a fair role in the introduction of the internet into Iran. It was not so much the forward thinking of the Iranian leader, rather that of a few politicians that surrounded him and that as forwarder thinkers and reformists, allowed the team around them to make it happen. During that time, I managed to publish 5 books of which 3 were; “Introduction to internet”, “Internet for Business” and “Internet for Research” respectively. The interesting fact here is that my publisher was one that specialized in more religious titles and was more conservative than a reformist, however this act brought about a change of mind within the conservatives for the better.
So maybe it is not so much who really gets elected, but more about the forwarder thinkers who surround and advice the politicians who may sometimes be nothing more than merely the driver.

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José Luis on August 22, 2011  · 

Buenas tardes Ali…I think we are reaching a consensus here. What is important is the team more than the candidates. Even Martin points out he would lean to Rajoy is he perceives a better team on that side…as I would “forgive” Rubalcaba’s serious past mistakes if he produces a solid team for government in Spain. I congratulate you for your efforts in bringing about changes in Iran.

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Mark N on August 23, 2011  · 

Anything that reduces the cost of hiring labour, is to be welcomed in times of high unemployment. I think also, that measures need to be taken to entice people (even if foreign investors) into buying up property again. Of course, part of the reason for the current recession was the property boom, but the government can always start to reverse measures if things start to heat up too quickly again. One thing I’d propose (at least for a couple of years) is reduce income tax on rental incomes to a low figure of say 5% or 7%. If this results in more expenditure on painters, bricklayers, plumbers etc you can then start to see employment figures picking up – tourist numbers are already picking up, so let’s try and encourage the rentier class to improve their properties and rent them out.
Another thing I’d propose is the offsetting of domestic staff against personal income tax (or is this already available?). In the cities there are many black market hirers of gardeners, nannys, cleaners, even English teachers. Make it worth their while for those hiring to declare this (as they then pay less income tax). But also introduce a reduced autonomo fee, for those who earn < 300 Euros a week, so they feel they are not being excessively penalised for going legal.

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Ali Parandeh on August 23, 2011  · 

Buenas tardes, Jose. I am sure that Rubalcaba is also aware of his past (or what you and I are calling mistakes) and I have no doubt Rajoy has got his own share, no less than you and I. I beleive however that the most important is the openness to change.
Change always comes from within. If I want to change then I can help others change and if anyone (Joe Blog or a politician) takes that in, they will also bring about the progress required. The past fives years, I have dedicated my life to working on a program for “comunidades de propietarios”. If you search the web there are plenty of different versions, but the one thing that I have noticed is that how we are on a daily basis moving away from the people closest to us and like you and I talking to those who we don’t even know. A “Comunidad de propietarios” is a small country within itself and one can learn alot from it. It has a President, committee, a budget and all the ups and downs of economy. The similarity of the case is that many communities are unaware of the talent that lives and the brains that live next to and within them. Communication is key to success and as big as the resistant is to change, I hope that I can bring about some positive changes to community living in Spain and eventually the world. So hopefully Rajoy or Rubalcaba can also take to better use of the brains within Spain (if I may say our country).

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José Luis on August 23, 2011  · 

Ali…you have earned your right to be Spaniard. Do not take that on a condescending way. I think our future lies on trying to entice motivated people like you to work here. Immigration and free exchange of ideas have benefited Spain in the last 30 years (Martin was a pioneer in breaking up Telefonica/Movistar monopoly). New comers like you will help us breaking up our “civil war” dynamics. Today, Mr. Zapatero agreed with a year old demand from Mr. Rajoy: a constitutional amendment to limit the national debt. There is hope after all for a president that a couple years ago declared he could not negotiate with the opposition based on ideological reasons. Too bad his change of mind had to be induced from Brussels.

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Ali Parandeh on August 25, 2011  · 

Thank you Jose 🙂 !

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Arquitecto Técnico Sevilla on August 26, 2011  · 

Spain needs major reforms. Rajoy or Rubalcaba not the right person.

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Julien Denoyer on September 4, 2011  · 

I personally find Spanish politics rotten…I remember watching TV when I first came to Spain, not understanding a word of Spanish and seeing the opposition on TV, just as much if not more than the actual president of Spain…criticizing Zapatero and everything else about the government in place without giving a better solution for the issues at hand. I felt shocked and disgusted; this kind of behavior is like wild fire in Spanish politics. The government acts like an 18 year old with his first summer job pay check…the government can’t help you and I feel like people depend too much on it. Work hard, save hard and be opened minded. I’ve lived in Madrid for over 4 years and have never been unemployed, even though I did not speak a work of Spanish until 6 months ago. My salary went from 15K to 30K and I’ve even started a little online retail business which brings me a further 300-700 euros a month. All this to say that working hard and relying on yourself and not the government is a smarter choice.

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Juan on September 6, 2011  · 

De verdad, tienes un ego que no te cabe en el barco. De todas maneras, hay que ser muy millonario como tú para seguir siendo del PSOE. En primer lugar, rubalcaba el co-culpable de hundir España no podemos creernos que arregle esto; y tu idea, pues no funciona. Sólo promocionaras la creación de empresas ficticias para no pagar seguridad social y hacer el mismo trabajo que otras … esto sólo se arregla haciendo que la economía sea más libre, circule el crédito, la inversión y el consumo con liberalizaciones de todo tipo y sobre todo laborales. Las ideas socialistas de subvenciones, lo siento, no funcionan

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Juan on September 6, 2011  · 

Verdaderamente das unas pocas ganas de vomitar con tu defensa del PSOE, el malo ZP, pero Rubalcaba habla inglés (no me hagas reir). Sólo los millonarios de izquierdas como tú, que teneis el dinero a buen recaudo, seguís apoyando a estos incompetentes corruptos del PSOE. Debias estar en el barco con los “millones” de indigndos; algunos milesya; y los inocentes del primer día, en el segundo sólo quedaron los de las juventudes del psoe, de iu, y los antisistema … los empresarios hight tech. Chico, como haces reir del ridículo de lo que escribes

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