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Spain The Franco Era, 1939-75
Spain emerged from the Civil War with formidable
economic
problems. Gold and foreign exchange reserves had been
virtually
wiped out, and the neglect and devastation of war had
reduced the
productive capacity of both industry and agriculture. To
compound
the difficulties, even if the wherewithal had existed to
purchase
imports, the outbreak of World War II rendered many needed
supplies unavailable. The end of the war did not improve
Spain's
plight because of subsequent global shortages of
foodstuffs, raw
materials, and peacetime industrial products. Spain's
European
neighbors faced formidable reconstruction problems of
their own,
and, because of their awareness that the Nationalist
victory in
the Spanish Civil War had been achieved with the help of
Adolf
Hitler and Benito Mussolini, they had little inclination
to
include Spain in any multilateral recovery program. For a
decade
following the Civil War's end in 1939, the economy
remained in a
state of severe depression.
Branded an international outcast for its pro-Axis bias
during
World War II, Franco's regime sought to provide for
Spain's well-
being by adopting a policy of economic self-sufficiency.
Autarchy
was not merely a reaction to international isolation; it
was also
rooted for more than half a century in the advocacy of
important
economic pressure groups. Furthermore, from 1939 to 1945,
Spain's
military chiefs genuinely feared an Allied invasion of the
peninsula and, therefore, sought to avert excessive
reliance on
foreign armaments.
Spain was even more economically retarded in the 1940s
than
it had been ten years earlier, for the residual adverse
effects
of the Civil War and the consequences of autarchy and
import
substitution were generally disastrous. Inflation soared,
economic recovery faltered, and, in some years, Spain
registered
negative growth rates. By the early 1950s, per capita
gross domestic product
(GDP--see Glossary)
was barely 40 percent
of the
average for West European countries. Then, after a decade
of
economic stagnation, a tripling of prices, the growth of a
black
market, food rationing, and widespread deprivation,
gradual
improvement began to take place. The regime took its first
faltering steps toward abandoning its pretensions of self-
sufficiency and toward inaugurating a far-reaching
transformation
of Spain's retarded economic system. Pre-Civil War
industrial
production levels were regained in the early 1950s, though
agricultural output remained below that level until 1958.
A further impetus to economic liberalization came from
the
September 1953 signing of a mutual defense agreement, the
Pact of
Madrid, between the United States and Spain
(see Military Cooperation with the United States
, ch. 5). In return for
permitting the establishment of United States military
bases on
Spanish soil, the Eisenhower administration provided
substantial
economic aid to the Franco regime. More than 1 billion
dollars in
economic assistance flowed into Spain during the remainder
of the
decade as a result of the agreement. Between 1953 and
1958,
Spain's gross national product
(GNP--see Glossary)
rose by about 5 percent per annum.
The years from 1951 to 1956 were marked by substantial
economic progress, but the reforms of the period were only
spasmodically implemented, and they were poorly
coordinated. One
large obstacle to the reform process was the corrupt,
inefficient, and bloated bureaucracy. A former
correspondent of
London's Financial Times, Robert Graham, described
the
Franco era as "the triumph of paleocapitalism--primitive
market
skills operating in a jungle of bureaucratic regulations,
protectionism, and peddled influence." By the mid-1950s,
the
inflationary spiral had resumed its upward climb, and
foreign
currency reserves that had stood at US$58 million in 1958
plummeted to US$6 million by mid-1959. The standard of
living
remained one of the lowest in Western Europe, and the
backwardness of agriculture and of the land-tenure system,
despite lip service to agrarian reform, kept farm
productivity
low. The growing demands of the emerging middle class--and
of the
ever greater number of tourists--for the amenities of
life,
particularly for higher nutritional standards, placed
heavy
demands on imported foodstuffs and luxury items. At the
same
time, exports lagged, largely because of high domestic
demand and
institutional restraints on foreign trade. The peseta (for
value
of the
peseta--see Glossary)
fell to an all-time low on
the black
market, and Spain's foreign currency obligations grew to
almost
US$60 million.
A debate took place within the regime over strategies
for
extricating the country from its economic impasse, and
Franco
finally opted in favor of a group of neoliberals. The
group
included bankers, industrial executives, some academic
economists, and members of the semi-secret Roman Catholic
lay
organization, Opus Dei (Work of God--see
Religion
, ch. 2;
Political Interest Groups
, ch. 4).
During the 1957-59 period, known as the
pre-stabilization
years, economic planners contented themselves with
piecemeal
measures such as moderate anti-inflationary stopgaps and
increases in Spain's links with the world economy. A
combination
of external developments and an increasingly aggravated
domestic
economic crisis, however, forced them to engage in more
far-
reaching changes.
As the need for a change in economic policy became
manifest
in the late 1950s, an overhaul of the Council of Ministers
in
February 1957 brought to the key ministries a group of
younger
men, most of whom possessed economics training and
experience.
This reorganization was quickly followed by the
establishment of
a committee on economic affairs and the Office of Economic
Coordination and Planning under the prime minister.
Such administrative changes were important steps in
eliminating the chronic rivalries that existed among
economic
ministries. Other reforms followed, the principal one
being the
adoption of a corporate tax system that required the
confederation of each industrial sector to allocate an
appropriate share of the entire industry's tax assessment
to each
member firm. Chronic tax evasion was consequently made
more
difficult, and tax collection receipts rose sharply.
Together
with curbs on government spending, in 1958 this reform
created
the first government surplus in many years.
More drastic remedies were required as Spain's
isolation from
the rest of Western Europe became exacerbated. Neighboring
states
were in the process of establishing the EC and the
European Free Trade Association
(EFTA--see Glossary).
In the process of
liberalizing trade among their members, these
organizations found
it difficult to establish economic relations with
countries
wedded to trade quotas and bilateral agreements, such as
Spain.
Spanish membership in these groups was not politically
possible, but Spain was invited to join a number of other
international institutions. In January 1958, Spain became
an
associate member of the Organisation for European Economic
Co-
operation (OEEC), which became the Organisation for
Economic Co-
operation and Development
(OECD--see Glossary) in
September 1961,
and which included among its members virtually every
developed
country in the noncommunist world. In 1959 Spain joined
the
International Monetary Fund
(IMF--see Glossary)
and the
World Bank (see Glossary).
These bodies immediately became
involved in
helping Spain to abandon the autarchical trade practices
that had
brought its reserves to such low levels and that were
isolating
its economy from the rest of Europe.
Spain traditionally paid close attention to events in
France
and was often influenced by them. In December 1958, the
French
government adopted a stabilization program in order to
overcome a
severe economic slump; this program included devaluation
of the
franc, tax increases, and the removal of restrictions on
most of
France's trade with OECD countries. The French action
removed
whatever doubts the Spanish authorities had harbored about
embarking on a wholesale economic transformation. After
seven
months of preparation and drafting, aided by IMF and
French
economists, Spain unveiled its Stabilization Plan on June
30,
1959. The plan's objectives were twofold: to take the
necessary
fiscal and monetary measures required to restrict demand
and to
contain inflation, while, at the same time, liberalizing
foreign
trade and encouraging foreign investment.
The plan's initial effect was deflationary and
recessionary,
leading to a drop in real income and to a rise in
unemployment
during its first year. The resultant economic slump and
reduced
wages led approximately 500,000 Spanish workers to
emigrate in
search of better job opportunities in other West European
countries. Nonetheless, its main goals were achieved. The
plan
enabled Spain to avert a possible suspension of payments
abroad
to foreign banks holding Spanish currency, and by the
close of
1959 Spain's foreign exchange account showed a
US$100-million
surplus. Foreign capital investment grew sevenfold between
1958
and 1960, and the annual influx of tourists began to rise
rapidly.
As these developments steadily converted Spain's
economic
structure into one more closely resembling a free-market
economy,
the country entered the greatest cycle of
industrialization and
prosperity it had ever known. Foreign aid played a
significant
role. Such aid took the form of US$75 million in drawing
rights
from the IMF, US$100 million in OEEC credits, US$70
million in
commercial credits from the Chase Manhattan Bank and the
First
National City Bank, US$30 million from the United States
Export-
Import Bank, and funds from United States aid programs.
Total
foreign backing amounted to US$420 million. The principal
lubricants of the economic expansion, however, were the
hard
currency remittances of 1 million Spanish workers abroad,
which
are estimated to have offset 17.9 percent of the total
trade
deficit from 1962 to 1971; the gigantic increase in
tourism that
drew more than 20 million visitors per year by the end of
the
1960s and that accounted for at least 9 percent of the
GNP; and
direct foreign investment, which between 1960 and 1974
amounted
to an impressive US$7.6 billion. More than 40 percent of
this
investment came from the United States, almost 17 percent
came
from Switzerland, and the Federal Republic of Germany
(West
Germany) and France each accounted for slightly more than
10
percent. By 1975 foreign capital represented 12.4 percent
of all
that invested in Spain's 500 largest industrial firms. An
additional billion dollars came from foreign sources
through a
variety of loans and credit devices.
The success of the stabilization program was
attributable to
both good luck and good management. It took place at a
time of
economic growth and optimism in Western Europe, which as a
result
was ready to accept increased Spanish exports, to absorb
Spain's
surplus labor, and to spend significant sums of money on
vacations in Spain and on investments in Spanish industry.
Data as of December 1988
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