On Why the USA will get over its crisis and Spain may not
Published by MartinVarsavsky.net in Economy with No Comments
I am in Madrid for 8 days. Fon HQ are here, and so is my holding company. I also have great friends, a nice home, and my children who are visiting for Thanksgiving.
I love Spain regardless of the sorry condition the country is in. There is something special, historic, unique about this country. Life here is still good. The crisis has not increased crime or made life in any way uncomfortable for those who still have their jobs. But I just wish people here were more focused on getting out of the crisis and less focused on tribalisms and mutual accusations. Most commentary I read says that Spain is in the mess it is in because of something that somebody else did. Few Spaniards consider themselves the reason why Spain is in the mess it is in, but millions who over borrowed and now can’t pay are that very reason. Nobody who I read or speak to says, “well I overextended myself in real estate, I made a huge mistake, I lived beyond my means. I had a choice to buy or not to buy property, to get a mortgage or not get one. And I was ambitious, and greedy, and had a poor understanding of the economy. Now I have to pay and I don’t know how.”
Because in the end the Spanish crisis is the result of millions of individuals and thousands of companies going into debt in order to get homes, second homes, rental properties that now nobody wants. The rest of the economy is working well, but it has to finance the 25% of the economy that is stalled because construction came to a standstill. So credit died for everyone else. For us at Fon, if we weren’t able to raise funds in the USA or the UK we would not be able to grow. But other than an R&D credit we got from the Basque government few have appetite here to finance technology (the Basque region is by far the best managed part of Spain now). If a project does not have a few tons of concrete in it, it just does not get financed. And most times not even those do. All the credit available still goes into the black hole of construction and bad banks.
And on top of this there is now the dismembering of Spain. The parts of Spain that are threatening to become independent. Mainly Catalonia. But the Catalans have an economy that is extremely poorly managed. As badly managed as that of Madrid. The economies of Madrid and Barcelona suffer from exactly the same problems yet the Catalans think they will do better alone. While I respect their desire to try it out, I don’t think they would succeed in a generation. Catalans also have too much reliance on infrastructure as a main source of, first employment and now, unemployment. They also have enormous quantities of uneducated young people who need to be retrained for jobs other than construction. I can only imagine an independent Catalonia adding costs, hiring more people in government, building an army and other non sensical moves that make the financial hole Catalonia is in even deeper. But instead of joining forces to fight similar problems, Madrid and Catalonia are accusing each other of a number of absurdities. It’s as if a couple who had a child with cancer argued rather than focusing on the child. Pretty sad and discouraging.
In the meantime there is the USA in our lives. We moved there at the beginning of September and it’s been absolutely amazing. Teaching at Columbia, expanding my angel investing activities, making Fon grow globally. The atmosphere is vibrant, there is opportunity everywhere I look. It is paradoxical to listen to Americans talk about how poorly the economy is doing. If only they knew how it is in other parts of the world. How a country, a pretty developed economy as Spain, an economy the size of Texas, in which life expectancy is still higher than that of the USA, can put all its eggs in one basket, and go into a death spiral with unemployment shooting from 8% to 25%. The US economy is vibrant, extremely diversified, creative. Yes for decades now the USA has been living beyond its means and that explains a sort of fake growth that occurs when countries say their GDP is going up but so is their total debt. I have always argued that GDP growth should be discounted by credit expansion. In this sense the USA is going through a process similar to that of Spain except that so far it still has credit. The USA has to slowly borrow less, spend less, collect more, close that trillion dollar budget deficit, close the trade deficit. It has to do what Clinton did, balanced the budget, and Bush with his unnecessary wars and credit expansion, destroyed. That is Obama’s job for his second term. But if you ask me, I think he will pull it off especially with the help of this new trend in which the USA, thanks to shale gas and oil, will become energy independent and therefore much more competitive than China and the EU in terms of manufacturing. I see a return of robotics based manufacturing to the USA as a result of cheap energy. I am optimistic that the USA will make it beyond the fiscal cliff.
For Spain the jury is still out. What is missing here is entrepreneurship activity. Yesterday I read that Spain is offering nationality to all the Sephardic Jews it expelled in 1492 when Jews were 10% of the population of the country. This measure is more than symbolic. Something tells me that because if there is one thing us Jews are is entrepreneurial that this country would not have 25% unemployment and 50% youth unemployment if 10% of its population was still Jewish. But now it may be too late. Bombs and all, Israel, the “start up” nation, is a better magnet for Jews around the world than a Spain without credit to get companies started. Until most people in Spain realize that a welfare state is not an inherent human right but something that nations earn as a result of the wealth created by effective entrepreneurial activity, I am not optimistic that Spain will emerge out of the crisis.
It was agonizing being a Jew in Spain when Israel invaded Lebanon, when it attacked Gaza and when it shot the Turkish boat. I was against those three acts, as I felt that Israel was over reacting and responding with much more violence than it had received. Still I had a feeling that the tremendous anger of many in Spain was too targeted towards Israel and Jews in general, that it had an antisemitic undertone.
Now that I see how Spain doesn’t react in any comparable way to the massive killings of Syrian civilians by Bashar Al Assad, in a war that has already left over 25K dead, I am coming to the conclusion that I was right, many in Spain are just antisemitic.
It is not that Israel does not commit injustices, it does. And it is estimated that around 1000 people died in the Gaza attack and around 1300 in Lebanon and that is way too many, especially since most were civilians. So I want to make it clear that I opposed those wars.
But the number of casualties in Syria is shocking in comparison and nobody in Spain has done any demonstrating comparable to the massive protests against Israel. Because it was incredible how much Spaniards went to the streets to protest against Israel on each of those three events. I had to hear people call me “genocidal” just because I am Jewish, call all Jews Nazis and other attacks. My children were harassed at school over these incidents as if all Jews were part of them. Still I thought that I had to be understanding because Israel was committing injustices.
But now that I see how little people care about Bashar Al Assad killings I am coming to the conclusion that if Israel kills it’s huge news in Spain, now, if an Arab dictator does commit something that is closer to the definition of genocide however, there are no massive demonstrations in Spain. But if Israel boards a Turkish ship it is front page news and material for huge demonstrations. Not that Spaniards are physically violent because they generally are not, but they are extremely vocal in their dislike of Israel. A Spaniard will say horrible things about Israel and about Jews and it will feel normal. Indeed in Spanish of Spain (not of Latin America) calling somebody Jewish is an insult.
I love Spain but if there is one thing that it is hard in this country is to be Jewish, something that only 1 person in 2000 is. There is tremendous prejudice. Spain is a country in which most have opinions about Jews but most have never met a Jew in person. I wish more went to Israel and then see that while Israel it is clearly a country that has to improve a great deal is is light years ahead of its neighbors.
For the record I have visited Israel, Lebanon, Jordan, Egypt and Syria.
Here’s an article I wrote in Spanish about the challenges of being Jewish in Spain http://www.elmundo.es/elmundo/2008/07/21/lapurezaestaenlamezcla/1216636800.html
Here I emphasize that there is a great deal of cultural prejudice in Spain and it is not at all only a Jewish problem.
Here is the report of the Observatory for Antisemitism in Spain for the year 2011.. And here is their web site.
Here is a survey of Antisemitism in Europe that ranks Spain very poorly.
For Spain to avoid default in its national debt two unrelated events must happen: one is that EU guarantees Spanish national debt lowering country risk, and the second one, which is even harder,is that Spain regains competitiveness.
Regaining competitiveness is the biggest challenge for Spain. To achieve this the country must focus on liberalizing its growing companies. I propose that all start ups be given 3 years in which their employees do not pay social charges nor receive forced severance pay in order for government to recognize the risks that VCs and entrepreneurs take in investing in new companies. This would be applied in start ups of up to 10 people and only while they are not profitable so it would have a negligible effect in the social security system overall initially and hopefully a very positive effect when start ups begin contributing. For those unfamiliar with the system Spanish social charges plus all other taxes, these can take up to 45% of what a person who costs €3000 per month to a company takes home. But so far PP, the conservatives now in power, has done little for new and growing companies focusing instead on measures that make firing, not hiring, cheaper.
I am normally quite an optimistic entrepreneur but right now I am sorry to say, I am not. We can still avoid the perfect storm, but it looks harder every day. Still as we know markets do turn around, and if Spanish unemployment numbers turned around, so would financial markets.
This post could be a book and it is about a subject that I still need to address in Spanish. The substance of this post is easier to explain in English because the English/American culture is a culture in which the role of business in society is much better understood than in Spain. Indeed, the biggest obstacle I see with the Spanish crisis is that most Spaniards, voters and government included, don’t really understand how wealth is created. They don’t understand how capitalism works and, therefore, how it sometimes does not work. They don’t understand the concept that a rising tide lifts all boats (economic expansion) and a falling tide…lowers all boats (recession). So as Spain goes into record high unemployment of 25% and youth unemployment of 50% the emphasis is not in improving the workings of the Spanish economy but in blaming each other.
In Spain it is more common to complain about what others are doing poorly than focusing on the “what can I do to help” that is needed for all Spaniards to collaborate to restart the economy. Many Spaniards unfortunately suffer from a serious case of “blinding envy” of others and thus have a false understanding of the economy. Envy makes them see the economy as a pie of have and have nots. Instead of realizing that a shrinking GDP makes everyone worse off, they think that if they are doing worse is because somebody else “stole” what they used to have, that if they are doing worse then somebody else is doing better. They don’t get the concept that everyone is worse off! As a result, Spaniards are constantly looking for the few people who are doing better and crucifying them. But these are the entrepreneurs who could save Spain. Instead they are convinced that either foreigners or rich Spaniards ended up with what they used to have. Spaniards in general, have a lack understanding of entrepreneurship, of innovation, of job creation, of wealth creation of how hard it is nowadays to compete in a globalized economy. Interestingly they get it in football and Spain has some of the best football teams in the world, but they don’t in normal life. Their best entrepreneurs, people like the founders of Zara or Mango, some of Spain’s most successful multinationals, live in hiding for fear of what the average Spaniard may think of them. Amancio Ortega (Inditex) one of the wealthiest men in the world and his famous picture in which he looks as a convict, is an “only in Spain” story. Entrepreneurs are seen as people who get what is not due to them, not as wealth creators, but as thieves. For me as the founder of Viatel (partly in Spain), Jazztel, Ya.com and now Fon all in Spain, it is painful to read my own Twitter line and see how confused the average Spaniard is about the subject of entrepreneurship and job creation. I am tired of getting called “rico de mierda” people focus on what I have and not on what I do for the economy. Nor what all other entrepreneurs do. Having a daily twitter conversation with around 30K Spaniards has given me a great insight as to what people think on subjects such as compensation, social charges, labor flexibility and other crucial aspects of wealth creation.
And in this mix, the government does not help: the Socialists want to spend their way out of the crisis, the Conservatives want to cut their way out of the crisis. Nobody seems to understand that it is the type of spending that has to change, not the level. That less spending and more investment is needed. That Spain needs to invest on what works in Spain and less in what is dying in Spain. But the new economic plan seems tailored to old industry. The conservatives made it much easier to fire, but equally hard to hire.
As things stand Spain is in a much deeper crisis than any of the larger economies of Europe and as much as it is an economic crisis, it is a crisis of understanding. Without agreeing on the root of the problem: a lack of entrepreneurs, entrepreneurship, business imagination combined with a labor force that is to a great extent trained for an obsolete industry, construction, Spain will not turn around. But I don’t see anyone marching on the streets promoting new business creation. What I see is a lot of people trying to cling to a past in which Spain borrowed and build white elephants. A past that is gone forever.
I end my post with a link to the plan that I presented to Cristobal Montoro. I still consider it a great plan for 2013 but it was not taken seriously by the conservative government.
And here is another article in which I explain in more detail what is wrong with Spain that is different than what is wrong with the rest of Europe.
One of the reasons Latin America is doing better this decade is because a lot of its elite has been educated at the best universities in the world, mostly in the US. One example is Marcos Galperin who built Mercado Libre into a multibillion dollar market cap Nasdaq giant, something that I think would have been hard for him to do without a US education. And there are many, many others. For decades now the Latin American elites were educated in the US and now they are finally in charge of the most productive sectors of the local economies.
Maybe Spain should do the same. The Spanish education system kills the imagination of the best and brightest students. I know this because we have had to re educate many of these students at the companies I started in this country including Jazztel, Ya.com and Fon. We have companies that are also universities in a sense, whose graduates go and build other companies that are more in tune with the digital era. There are some exceptions, especially in business studies with IE and IESE ranking very well globally but the average education available to Spaniards is very mediocre with no Spanish Universities in global rankings.
Now it so happens that it is not that expensive to send Spanish students to study abroad. Some Spanish corporations already give grants for this. Indeed just today I signed a recommendation letter for a Fon employee to study at Stanford partly financed by Caja Madrid and I hope they take him. But this could happen at a much more massive scale if the focus was Northern Europe. Studying in the UK with a pound at 1.19 is not as expensive as it used to be. Tuition is low for the quality of education they give. Indeed you can get a whole education in the UK for the cost of a year of studying in the US. Sending thousands of Spanish students to study in the UK, in the Netherlands, Germany and other Northern European countries who are doing better than Spain, could be a way to leapfrog many of the antiquated and dated Spanish professor body who with some notable exception is destroying a generation of Spaniards. It is also a good investment since education runs a big deficit and an 18 year old who studies abroad gains this education. Yes, there is a risk that they may stay but if they do it is not brain drain which is what happens when a country invests in a university education, as India many times does, for the graduates to end up in the US or other nations.
We live in an era in which industrialization is being superseded by digitalization, and Spain is not ready to educate its population for this change. The result is the highest unemployment rate in the OECD: 22%. A structural unemployment that is based on a misfit between the skills of the population and the jobs available in the marketplace. There is no unemployment in the tech sector in Spain, but there are not enough highly educated candidates for those jobs. We have to fix that and fix it before this country falls apart. Sending our best and brightest abroad could be part of the solution. We can’t wait for the education system to be fixed. Not with the lifetime jobs that we have provided to the mostly incompetent and untrained professors who populate it. And this is not true of Spain alone but of a lot of Southern Europe.
Published by MartinVarsavsky.net in Economy with No Comments
This moved me. It is a make believe restaurant in Vigo in which unemployed parents in Spain take their children to “eat out”. They take turns as volunteers. It is really a charity that makes children believe that their parents can afford to take them out to a restaurant. I felt so bad for those parents.
If you don’t live in Spain and you come here and go around you would be surprised. Spain is actually a wealthy country in global terms and it doesn’t look poor when you travel around here. But since the construction industry collapsed unemployment grew from 8% to 21%. Basically all of those who worked in that industry are having a very hard time finding a new role in the economy for themselves. The collapse of real estate had a tremendously negative multiplier effect. It is a huge part of the population that is in such bad shape and it will probably take a decade for unemployment to go down to where it was in 2008. In the meantime initiatives like this help alleviate the pain of those who have fallen into poverty.
In the midst of the euro crisis I would like to share a contrarian view. As opposed to most I am actually optimistic on the euro, and while aware that the euro project may actually implode, I think the opposite will happen and the euro will come out strengthened as a result. Now what I am less optimistic about is how long it will take Southern European countries to reinvent themselves, and in this article I will focus particularly on Spain but many of my arguments apply to Italy, Portugal and Greece as well.
In the case of the Euro I believe there are two possibilities. The first is the abyss, a return to the old times with a fragmented Europe where each country has its own currency. The second, more optimistic scenario, is a new Europe that is more united and better organized, with clear rules. I believe the second scenario is more likely simply because these past days the yield on German 10-year bonds was higher than that of the UK for the first time since 2009. This was a wake-up call for the German government, which is finally realizing that the country is not immune to the crisis and that the market is no longer unconditionally willing to purchase their bonds. This is not happening because Germany is a bad debtor, but because German debt is issued in Euros, a currency with an uncertain future. And as soon as German politicians start paying more to finance their country’s debt and are forced to provide less social services, they will change their current course and help shore up the Euro. At the same time, and I see this as something positive, the Germans will insist that the new Europe become more German, with rigorous controls in place. They will also create a real European Central Bank, a lender of last resort that will provide liquidity as the Federal Reserve did in the USA, but within a system of rules that will control the level of public and private debt within the EU.
So while aware of the perils I am positive that we will not see the Euro collapse, and that Spain and Italy will again be paying around 3% for their debt in a matter of six months. This is why I believe that buying Spanish and Italian bonds at 7% may very well turn out to be a good investment. I also think it’s absurd that nowadays people would rather deposit money in banks and earn much less interest than what the government of Italy and Spain are paying to finance themselves. Especially considering that these governments are the ones that take on failing banks.
Once the financial problems of Europe are solved, Spain and Italy will have to deal with a much more complicated issue, namely their lack of competitiveness. In the case of Spain the challenge is the highest unemployment rate of the OECD now at 21% and on its way to 23%. And the main reason for this unemployment rate is how un-competitive most Spanish employees, politicians and businesspeople are, compared to those of other countries. Spain, while leading in a few industries related to construction and infrastructure, is mostly a laggard in every other sector. As the current rankings by the World Bank show, Spain and Italy are not very competitive in terms of the overall ease of doing business (Spain is 44th, Italy 87th). And it gets even worse when looking at the ease of starting a business, in which Spain occupies the 133rd spot on the list and Italy the 77th. As comparison, the UK is 7th and 19th in the two respective rankings.
I spend a third of the year in Spain, and the other two thirds in the rest of Europe, the USA Latin America and Asia. Building a global business allows me to realize that there are problems pertaining to Spain that are intrinsically Spanish. At the same time, there are a number of Spanish virtues that are intrinsically Spanish and will help the country get out of the crisis. For example, Spanish people are less likely to believe in utopias and know how to tighten their belt during tough times. They are also more realistic as voters and citizens. Zapatero was bad, Rajoy is mediocre, but at least Spain does not elect a crook like Berlusconi as president.
However, one of the biggest flaws of the Spanish culture is its difficulty to produce excellence, and excellence is the only thing that will lead to recovery of Southern Europe in the long term. I could give many examples of this, but the most obvious one are the Spanish universities that are incredibly bad on an international level, they don’t show up in any of the meaningful rankings. Spain has the 12th largest economy in the world, yet it has nothing to show for in the educational field except for some private universities like IE and IESE. In the last decades, we haven’t received any Nobel Prizes in scientific disciplines, and we haven’t made any important scientific discoveries compared to France, Italy and Germany. Neither does it have a high level of technology, nor is able to live off our own innovations. The lack of excellence is a cancer that afflicts the entire Hispanic culture. Imagine how the world would be if tomorrow it decided to live only with what has been invented in Spanish?
In Spain we have a population that is not well educated enough to compete in a globalized world. A huge portion of the population is only prepared for one of two industries: construction or tourism. One of the industries, construction, is already dead. The other industry, tourism, only creates seasonal and badly-paid employment. I believe that if someone were to examine unemployment in Spain, they would conclude that most of it is derived by the fact that an enormous part of the population was educated to do something related to construction, an industry that no longer exists and that will never be nearly as big as it used to be. And considering the importance of tourism, the low level of English spoken by the vast majority of Spaniards is a real shame – this is true when it comes to waiters and other staff, and even the Prime Minister-elect, Mariano Rajoy, whose inability to speak English inhibits him from fully understanding the world around him. In Spain it sometimes seems like people take pride in ignorance. It’s hard to explain this unless you live outside of Spain or know the North American, British, French, German, Scandinavian and Japanese cultures of excellence well. It’s as if wanting to be really good at something, wanting to stand out and to be better than the others turns you into a pariah in this country.
When looking closer at the origins of Spain’s problems, it becomes clear that only a small part of the local crisis is related to the international crisis. Let’s assume that about a third of unemployment was caused by the international crisis. The rest, which takes us to the sad figure of 21%, has to do with the lack of training of the average Spaniard, a proper training that could enable them to do something genuinely meaningful. There is also a lack of incentives for companies to make up for the government’s shortcomings in education and adequately train their employees, which would ultimately benefit the entire country. Another problem, and one that contributes to the extremely high youth unemployment in particular, is the forced severance pay system, which hinders young people from being admitted into the workforce. Young people also lack access to housing, as even with the crisis, prices for real estate and rents are still out of proportion and will probably remain at their high levels since so many people are trapped by their mortgages. Being young in Spain is sad. The few jobs this country has are held by older people who are not going to leave, even if this makes the overall situation even worse. That’s why the best are leaving the country.
The underlying problem in Spain, meaning the disconnect between what its labor force can do and what the global market needs, is a problem that will take at least a decade to solve. It’s also a problem that will be solved by companies, if anyone is to do it. But for companies to solve this problem, the government needs to get out of the way. Nowadays, many people in Spain are so-called “mileuristas” – people earning 1000 (mil, in Spanish) euros per month or less. But in reality, the term “mileurista” is a misrepresentation, since a person earning 1000€ per month in fact costs the company 2000€, twice as much as she actually receives. The other half is squeezed out by the government in form of social security contributions, income taxes, value-added taxes, etc. Of course these people also receive many services from the government in return, such as healthcare and education, but the government has already reached its limit as to what it can take away from employees in the form of taxes and how many jobs it can create. The budget deficit is huge, making it easier nowadays for companies to get loans than for the government, in which no one trusts any longer.
In this situation, it’s not that companies need help, but the government needs to stop forcing them to be job creators and agents of the welfare state at the same time. They shouldn’t have to pay enormous social charges for every job that they create, and they shouldn’t have to make high severance payments if things go wrong. What companies need is a government that doesn’t drown them in taxes and other covenants. A government that is laissez-faire in terms of business, at least when it comes to job creation. It’s terrible being an entrepreneur in Spain, I already wrote about the subject, you can be ruined for life as your liability is unlimited. The only thing that compares to this is having a mortgage in Spain, under the unbelievable pro-bank rules that exist here. A person cannot simply give up ownership of the home they used as collateral for the loan, as is possible in the USA, but remain slaves of the bank for their entire lives or until they somehow find a way to pay off their debt. Something has to be changed now to give back mobility to the Spanish so they can move to where the jobs are. In Spain, unemployment is regional – low in the north, and high in the south.
I know that in other countries companies are also required to be social agents, this is the case in the Scandinavian countries, but the difference is that there, companies have a more educated and ethical population at their disposition thanks to the successful measures of their governments. Also the entrepreneurs from those countries are much more educated and ethical than the Spanish. In Spain, the problem of poor education and lack of ethics is fairly widespread: businessmen, politicians and workers are all affected. That’s why this country needs to reinvent itself and change, which could finally happen because of this crisis. Spain lived through decades of artificial growth, partly because the same system used to measure GDP growth falls into the fallacy of considering debt as growth, but this is over and due to the crisis, people are rethinking the system and want to improve.
What Spain needs is a government that doesn’t penalize job creation, so that companies can hire more and take more risks. It’s not so much Spanish companies that are involved in a huge mess right now, but rather the government itself. And only way for the government to fix its problems is with the help of companies, who nowadays pay less for their debt than the Spanish state, a state that nowadays lives on charity from the European Central Bank. If it weren’t for this institution buying Spanish debt, Spain would have no credit since its citizens have lost trust in their government and will not invest their savings in it.
What I hope is that the political party now in power, the People’s Party (PP), will manage to unleash the forces that will pull the country from ruin. Creative forces, forces that help build a new country. The past party, the PSOE, could have done this, but now it represents the status quo; those who are part of the problem, not the solution. It represents big business, big banks, state officials, unions. The PSOE should represent those who are unemployed but want to work, but instead it represents those who have jobs and housing and want to maintain their privileges while blocking out the others. It represents those who do not want to lower housing prices or increase productivity and make us more competitive so that more people could have jobs and housing. It represents state officials who can’t be fired, no matter what they do, and incompetent workers who hide under the concept of “unfair dismissal” that always blames the employer. In Spain, a salesperson who does not close any contract in a month, but works in a team that closes 10 a month can’t be fired for being useless. This happened to me at Jazztel. Even in such a clear-cut case where an employee is unable to carry out his job, the employer gets blamed when he fires that person. This is simply unacceptable. There has to be a way of suspending people, just like there was in school. There has to be a way of promoting the good guys and moving the bad out of the way. There has to be a way of cultivating excellence, of competing on a global level and winning. In Spain there are incredibly good employees. I see this at Fon, which from this country has created the largest WiFi network in the world with a great team. This country has its clusters of excellence, as the case of Fon, Inditex and other companies shows, especially in the sector of alternative energies where Spain is among the leaders of the field. But so far, these are still small islands in a sea of mediocrity. And it’s about time to change this. Building a business in Spain is still a struggle against a society and a government that does not understand the entrepreneur – this is not how it should be.
Now my case
I have 5 children ranging from a few months to the age of 21 years. My oldest daughter, who studies at Columbia University and is graduating in few months, already has several job offers in the United States. But she’s thinking of starting her own business instead. But not for a moment has she considered starting that business in Spain. And why would she, when countries like the US or the UK are welcoming entrepreneurs with open arms. Everything is easier there, and the appreciation for the work of entrepreneurs is also much higher. And herein lies the challenge for Spain’s government. The most educated part of its workforce is drawn to other countries where their skills are highly sought after, and at this point in time there are not many incentives for them to stay in this country. The government needs to prevent a brain-drain by making it much more attractive to work in this country and innovate, both from the perspective of entrepreneurs as well as that of employees.
I came to Spain and started Jazztel, Ya.com and Fon here, but it seems like my days in Spain are also numbered. The governments in Ireland and the UK have been trying to attract me and convince me to move to their countries, and they are succeeding. They know that the new arms race is not won by those with the most atomic bombs, but by those who have the most “atomic entrepreneurs,” entrepreneurs with ideas that create jobs. That everything depends on a dynamic, creative and strong economy. But here, in this country that I love so much and where I raised my older children and now bring up my young, I get insulted for being successful, I get too many people calling me “rich bastard” to feel comfortable, and the government is not putting any effort into keeping me here, grow Fon and start new companies.
In Ireland and in the UK, the Prime Ministers gladly receive visits from and listen to entrepreneurs. Both David Cameron and the Irish authorities invited me over. Here, Zapatero completely ignored all entrepreneurs. But this was not so much his fault. Zapatero saw that the average Spaniard didn’t understand the role of entrepreneurs and businessmen. They don’t see them as what they are, job creators, but as rich thieves. As a result, Amancio Ortega, a national hero, now lives like a “fugitive” in his own country. He doesn’t show up anywhere because being the richest man in Spain isn’t an honor, but a shame, despite the fact that Inditex is the source of tens of thousands of jobs. If he were English, Amancio Ortega would be knighted, Sir Amancio Ortega, and he would receive the same kind of appreciation and recognition as other English or North American entrepreneurs. What Zapatero does by mistreating those who create wealth is to respond to a public that does not realize that unemployment and minimum wage jobs would decline if Spain had many entrepreneurs competing among each other for employees’ skills. As a society, if we keep biting the hand that feeds us, we will go hungry. While we remain a society where future Amancio Ortegas live in hiding or leave the country, we will continue being the champions of unemployment. I hope that the PP realizes this and will do its best to change it. The PSOE didn’t see it, which left us in our current situation. But as most entrepreneurs, I am an optimist and I believe that there is nothing that is so wrong in Spain that it can’t be changed with what’s right with the country. The Spanish people want and deserve something better. I will continue having Spain as a reference for building companies, and depending on how the situation evolves, I will be more or less around this part of the world that I love so much. I hope that Spain will finally realize its problems and, by standing united, will manage to reinvent itself.
Is the Spanish Culture to Blame for the Country´s Crisis?
Published by MartinVarsavsky.net in Economy with No Comments
I have been debating with my Spanish followers on Twitter about why Spain has the highest unemployment rates of all developed nations – 21% for the population as a whole and 46% youth unemployment. To put Spain´s unemployment into perspective, the EU´s average rate of unemployment is less than half of Spain´s.
In my view, Spain´s high unemployment is as much the product of poor financial/ investment decisions (over investment in real estate) as it is one of the country´s culture. The main cultural weakness of Spaniards, and indeed Latin Americans in general, is to take little or no ownership of their problems, instead blaming others for their shortcomings. Of course, this kind of culture also has its positive side: countries in which people tend to blame others for their problems usually have low suicide rates and a general positive outlook on life. The flip side is that this attitude is very hard to change and it is not conducive to a country reinventing itself in the face of failed economic strategies. This can help explain why Spain is so much behind the EU when it comes to unemployment. Spain needs to reinvent itself, and in order to do that, a culture of self responsibility is essential.
To me, if Spain has such high unemployment rates, it is because the Spanish government, Spanish entrepreneurs and business leaders and Spanish workers are uncompetitive. I say this after having hired thousands of Spaniards and having built Jazztel, Ya.com and Fon in Spain. Yes, there are responsible and hard working Spanish government employees, imaginative and hard driven Spanish entrepreneurs and highly ethical Spanish workers, but they are less common to find than in Germany, for example.
When you talk to Spanish people, they will quickly agree that Spanish politicians are mediocre, that Spanish “empresarios” are “unos chorizos” or scumbags but few would agree that there is something wrong with the way that Spanish people think, organize themselves and work.
Unfortunately, the average politician, businessperson and employee are all to blame for Spain´s poor economic condition. They are to blame as a group, as a culture. This is a nation where one in five are out of work and where one out of three young people have no future – this needs to be fixed. But this can’t be fixed if the average Spanish person does not realize that they are both part of the problem and an essential part of the solution. What is common here is to believe that Spain is the way it is because of a few who have somehow kidnapped the country into perennial underperformance in terms of unemployment.
Spain is a country with huge potential, but low entrepreneurship. The average Spaniard focuses energy and attention on old, ailing industries like infrastructure and real estate, and banks tend to only lend for these activities. Spaniards don’t see the risk in borrowing the equivalent to five times their annual salary to buy a home. This means that many are tied to mortgages that will sink them into debt for life, because of this, they can´t even move to where there is work.
Spaniards are among the Europeans who live the longest lives, yet they are the ones who call in sick to work the most. In Spain there is a yet to be measured but enormous underground economy, with a very large number of workers who collect both unemployment insurance and a regular salary. Tax cheating is rampant. Moreover, Spaniards love colossal and useless infrastructure projects. They vote for politicians who give them something, even if it has no practical use. These are the same politicians who approved colossal public works like the T4 terminal, a $10bn project. They spent public money building airports that no one uses and roads that nobody takes. Take the Castellón Airport, for example, built at a cost of $213m but that still hasn´t received a single flight. Meanwhile, Germany and other European countries gave Spain gifts of billions through the EU and a lot of this undeserved money was misused.
Will Spain´s problems be fixed? I certainly hope so. I am an immigrant to this country, by now a Spanish citizen who built three significant companies here and have five Spanish children. Spaniards are now saying: “el problema no es la crisis, es el sistema” or, the problem is not the crisis, it’s the system. But this “system” works for the Netherlands, Germany and many other new EU countries such as Poland. My answer is, “el problema no es el sistema, somos nosotros.” The problem is not the system, we are the problem.
“Spanish Revolution” of 2011 explained
Published by MartinVarsavsky.net in General with No Comments
Friends outside of Spain have been asking me about the ongoing movement that has become known as #spanishrevolution. Here’s the summary of what this movement is about:
People have become increasingly frustrated by the many problems in Spain: over 20% unemployment rate and over 30% youth unemployment rate, incompetent politicians unable to deal with the effects of the crisis, extremely high housing prices both for rental and purchase, a mortgage system that ties mortgage holders for life to the bank if the real estate is sold for under the loan amount, and a general discontent with the status of the political landscape (especially the effective two-party system of the center-right People’s Party and the center-left Spanish Socialist Workers’ Party). The #spanishrevoution is an internet movement that was started by leading figures in the internet including top bloggers and internet entrepreneurs to harness the distress of the Spanish people into action ahead of this past weekend’s elections. The most active supporters of the movement have moved from the internet to the streets gather in camps at key locations of many Spanish cities, like the Plaza del Sol in Madrid, where they discuss the changes they want to bring about and are planning to stay for the time being. Each camp is autonomous, there is no central organ coordinating the movement and many sleep in public squares in protest.
The #spanishrevolution did not start as a unified movement, but is rather the result of an informal merger between different movements with similar, but not equal, goals. There seems to be broad consensus that the protests on May 15th (aka the 15M movement) organized by Democracia Real Ya (DRY) were the spark that ignited #spanishrevolution. The tagline of Democracia Real Ya is: we are people, not commodities in the hands of politicians and bankers (in Spanish: “no somos mercancía en manos de políticos y banqueros”). You can read the manifesto of that movement in English here. The protests were a huge success: more than 80,000 all over Spain took to the streets to protest against citizens being left behind during the crisis and against corruption.
DRY proposed to follow the lead of two role models; Iceland and the Arab revolts. In Iceland, citizens were able to make use of democratic powers to put some of the persons responsible for the crisis behind bars and to initiate important constitutional reforms. What DRY wanted to leverage from the Arab revolts was the incredible catalytic effect provided by the social networks, the mobile networks and internet in general.
Some of the most important figures/initiators of the 15M movement are Fabio Gándara (who has been part of the movement since the beginning), Jon Aguirre Such (DRY’s spokesperson) and Olmo Gálvez (whom El País calls a social networking “crack”). It’s interesting to point out that all three of them are quite young, between 26 and 30, and didn’t know each other until shortly before 15M. The people who have joined #spanishrevolution, however, are very heterogeneous, covering all age ranges, professions and social classes.
After the May 15th protests, a small group of participants decided to camp out at the Puerta del Sol in Madrid (known as #acamapadasol). More and more people joined #acampadasol, and eventually the “acampadas” spread out to other cities all over the country on the 18th, fueled by a surge of outrage that spread like wildfire after police removed the peaceful protestors from Plaza del Sol. By that time, #spanishrevolution had already been born. While there are no exact numbers, it is safe to say that there are tens of thousands of people who have been or are at #acampadasol, and many more in other cities. Most of the sit-ins had food delivery donations and some even had their own daycare. They also received legal assistance from two lawyers, David Bravo and Javier de la Cueva. The movement has even found supporters in other countries, with protests popping up in cities like Berlin, Paris and New York to show solidarity with the movement in Spain.
While DRY never “officially” merged with #spanishrevolution and still wants to be a movement of its own, it basically has the same goals and therefore supports the movement. There was another movement that is often mixed with #spanishrevolution, called #nolesvotes. Fon my company, supports #nolesvotes by giving out free Foneras and passes so people have free access to the internet during their sit-ins. #nolesvotes translated means “don’t vote for them”, referring to all the political parties that passed a ridiculous law (the Ley Sinde, on which I will not elaborate here) which was a slap in the face for the rule of law in Spain. Just as with DRY, #nolesvotes, started by the lawyer Carlos Sánchez Almeida, is/was a separate movement, but again had goals that overlapped with the general idea of #spanishrevolution. Most people don’t make a distinction between the individual movements anymore and rather see them as unified under the concept of #spanishrevolution now. Leaders of nolesvotes include my friends and partners Ricardo Galli and Eduardo Arcos, fellow professor at IE Enrique Dans and leading Spanish entrepreneur Julio Alonso.
On a side note, some people also voted with chorizos inside the envelopes. A chorizo is a typical Iberian sausage, but the term is also used to refer to corrupt politicians. While the initiative #votachorizo prompted voters to print out a picture of a chorizo, some literally put a slice of sausage in the envelope to voice their discontent with corruption and incompetence in Spain’s political landscape.
In the end, what started with a few ideas and different initiatives on the web has become a huge movement on the streets all over Spain and in many other countries. As I already mentioned, most of the initiators didn’t know each other at the beginning and only met in person a couple of weeks before the 15M event. The main platforms enabling them to join forces were social networks like Facebook and Tuenti, and of course platforms like Twitter and hundreds (or even thousands) of blogs that supported the movements and spread the word. The sit-in at Plaza del Sol even has its own TV channel, with a mind-blowing 11 million accumulated views so far. Around 45 million people live in Spain.
The local and legislative elections of May 22nd gave encouraging results for the #spanishrevolution. Like an internet start up it seems to have reached its first million people as that is the number of people who have not voted the large 2 political parties. On this election the vote for alternative parties and the votes “en blanco” or for nobody in particular grew by a million. Now PP supporters like to argue that this was really a strong defeat of the ruling socialists whose votes went down by 1.6 million and a win for PP whose votes went up by 400K but this does not explain why PP did not get all or most of the votes of PSOE. While the exact effect of #spanishrevolution on the election will not be known what is clear is that small parties and general discontent grew at the expense of the ruling party and so did the conservative opposition.
Here are two excellent articles in Spanish about the topic that I used to prepare this post, one by El País and another by Alt1040.
- Protests: Has the Revolution Come to Spain? (time.com)
- Spain Protests Rock Nation, Tens Of Thousands Fill The Cities Over Joblessness (huffingtonpost.com)
- The Lede: Protesters Rally in Madrid Despite Ban (thelede.blogs.nytimes.com)
- Spanish voters head to the polls, as city square protests continue (guardian.co.uk)
- Update on “Spanish Revolution” protests: riot police surrounding protesters in Madrid (boingboing.net)
Media and the math of racism
Published by MartinVarsavsky.net in General with No Comments
In Spain 1 immigrant in 1000 is a convicted criminal. That means that for every 999 immigrants Spain gets one immigrant who ends up as a convicted criminal. That means that 99.9% of immigrants are not convicted criminals. And yet, because there are very few criminals in society overall, it happens that 60% of all the convicted criminals in Spain are foreigners. And Spanish media repeats that number to the point that it is beginning to feed racist sentiments. If you read it lightly it could be understand that 60% of immigrants are criminals, not 1 in 1000. That is the worrying math of racism. Should media say that 99.9% of immigrants are honest and sell few newspapers, or should it say that 60% of the criminals are foreigners and sell many? The math of racism feeds media the wrong way.