Spanish Economy and unemployment

Spain, like Ireland, is coming off a major boom straight into catastrophe. Unemployment has risen by about 2 million (yes 2 million jobs lost) in about two years and the over-reliance of the economy on building and construction and tourism is being fully exposed.

Of course, as and when other European economies pick up tourists will return. The glut in housing though is more difficult to see how this wil disappear without getting a large number of people back into work.

Several factors exacerbate this. Firstly, is the way in which labour contracts work - there are permanent contracts with very large redundancy penalties, and there are temporary contracts which are very liberal. When a downturn hits, it's the temporary contractors that go first, irrespective of the quality of the people (and should the upturn come it's likely that far fewer people will get permanent contracts in the future).

Secondly, there is the problem of paperwork and culture. Business, the idea of working for yourself, of having a go at building something up and taking a risk isn't a common cultural idea. Jobs are what other people provide. And if you do think about running a business then the state and the system make sure you have to jump quite a number of hurdles to make it happen. No being made redundant on Friday and becoming a freelance working from home on Monday. Actually I'm not sure even if the idea of working from home is recognised here. Most of the entrepreneurs and people looking to build something up that we've come across have actually be South American or other expats. Obviously there are small businesses and retailers, but I don't know if the Spanish dream of having their own business in the same way they would in the UK or US.

With 4 million people unemployed though, someone has to free these people to create the businesses that will be the employers of the future. The internet for instance allows people to build businesses from home - but Spain isn't very Internet sharp (particularly with regards to online shopping - there is no Amazon.es or MediaMarkt.es with a selling shop). Education is also not directed towards ideas of business. I met a young bookkeeper who had little idea of how a business works, and still thought the world should run on paper. Spain will need to address just how far behind it is on the rest of the world.

So what can Spain do? Firstly, we're entering austerity territory. Spending, civil servants pay will need to be cut and asking for more money would be extremely tough. From my experience Spain could do worse than use this as a way of making the state machinery work more efficiently. Reduce the paper trails and speed up Government saving money and making the service better.

Secondly, lift the VAT/IVA threshold to get people making money and building things up. Liberate the labour laws so it becomes possible to hire without needing to register the job 10 days beforehand and streamline the creation of businesses encouraging people to start projects from home. Things like chip and pin would help reduce fraud, as would better credit scoring. And getting people to pay on time (especially the government).