Spain INDUSTRY
Steel mill at Aviles in Asturias
Courtesy Embassy of Spain, Washington
Industrial Development
Spain's rapid industrial development dates from about
1960,
but the underlying structure that made it possible
resulted from
a concerted effort by the government to reconstruct and to
modernize the economy after the destruction caused by the
Civil
War. In the initial post-Civil War period of the early
1940s, the
immediate need was for economic self-sufficiency because
World
War II had disrupted international trade patterns. After
the war,
most of the rest of Western Europe faced reconstruction
problems,
which left little surplus foreign capital for Spain. In
addition,
a political and economic boycott by the victorious Allies,
the
result of Franco's pro-Axis leanings, left Spain dependent
on its
own resources. The result was the slow, forced development
of a
diversified industrial sector, which would not have been
economically justified if Spain had been able to trade
freely
with its neighbors. The high operating costs, the low rate
of
exports, and the inflation that consequently befell the
Spanish
economy made the 1940s a difficult period for the country.
In the 1950s, Spain, which had not been an original
participant in the Marshall Plan, received considerable
aid from
the United States as part of a military basing agreement
signed
in 1953. Industrial development subsequently became more
rapid,
but it was still hampered by the country's continued
isolation
from the more quickly recovering economies of Western
Europe.
Inflation, fairly well under control in the rest of
Europe, was
rampant in the 1950s, and foreign exchange reserves
declined
because of Spain's continuing inability to export its
products.
The turning point for the economy, particularly for its
industrial sector, occurred in 1959, when a stabilization
program
went into effect. This program marked the end of Spain's
economic
isolation. Its outmoded system of multiple exchange rates
was
abandoned, and the peseta was devalued by 42.9 percent.
Import
duties and quotas were progressively lowered or removed,
and
exports were encouraged by subsidies, export credits, and
other
promotional efforts. The result of these initiatives was
the
structural transformation of Spanish industry during the
1960s.
The manufacturing sector grew in real terms at an annual
rate of
10.3 percent between 1958 and 1969. This growth was led by
the
motor vehicle and the chemical industries, both of which
were
stimulated by foreign capital and technology. The annual
growth
rates of these two key sectors were 24 and 14 percent,
respectively. In the same period, labor productivity grew
by
nearly 8 percent per year.
Both domestic and export demand significantly
contributed to
the industrial growth of the 1960s and the early 1970s.
The
export of manufactures rose from 43.5 billion pesetas in
1960 to
191 billion pesetas in 1973, or from about 30 to 63
percent of
the country's total manufacturing output.
The slowdown of the world economy caused by the
increase in
oil prices in the 1970s began to affect Spain in the
second half
of 1974. Unique among Spain's major industrial sectors,
mining
had been in trouble even before the price hike. It had
continually experienced the slowest rate of growth during
the
period of expansion, and it reached its high point
relatively
early, in 1972. Construction was affected by the oil
crises
because of its relation to the booming tourist trade,
which also
suffered reverses in 1974. Within the manufacturing
sector,
textiles were particularly hard hit, and both the
automobile and
the shipbuilding industries faced reduced sales and
cancellations. Rapidly rising unemployment and continuing
inflation also indicated that the boom in Spain's
industrial
growth had stagnated.
The economic boom of the 1960s and the 1970s had left
Spain
with a large steel-producing capacity and had made it into
one of
the world's largest shipbuilding nations. By the
mid-1970s, both
of these industries experienced a production capacity glut
as a
result of sharply reduced global and domestic demand.
Industrial
retrenchment, however, was postponed during the 1970s.
Sheltered
to some degree from the first oil price shock by a cut in
taxes
on oil products--and cushioned by a high inflation rate,
the
persistence of negative interest rates, and protectionist
tariff
barriers--steel, shipbuilding, and other heavy industries
continued their heavy investment in new capacity despite
the
downturn in world demand and the increasingly competitive
international environment. Excess capacity in these
industries
coincided with rapidly rising labor costs and, as a
consequence,
with reduced competitiveness and profit margins.
One of the by-products of the country's economic
difficulties
was a sharp reduction in industrial employment. In
addition, the
1980 recession finally forced the government to permit
Spanish
oil prices to rise toward world levels, while interest
rates
declined.
The first attempt at industrial restructuring was
embodied in
a 1981 law dealing with industrial reconversion. It proved
difficult to implement, and a large part of the funds
allocated
for reconversion was siphoned off to cover losses among
publicsector industrial companies. A more concerted attack was
launched
in 1983. The following year, a white paper on
reindustrialization
was issued, followed by a new law, the aims of which were
to
raise productivity and to restore industrial profitability
by
downsizing in order to restructure financial liabilities
and to
eliminate excess capacity and overmanning. To
counterbalance
these cutbacks, investment was directed toward new
technologies
for use in sectors that showed promise for greater growth
and
profit potential.
Development and expansion were encouraged in such
industries
as food processing, consumer electronics, defense systems,
and
other "growth" sectors. The industrial reconversion
program was
accompanied, however, by considerable worker discontent
and by
violent incidents. The initial financial costs of the
program
were high, but over time they were expected to yield
considerable
benefits.
By the mid-1980s, the economy had begun to emerge from
a
prolonged period of stagnation and crisis. The GDP
commenced its
expansionary growth, rising by 2.3 percent in 1984 and by
a high
of 4.7 percent in 1987. Meanwhile, industrial output had
succeeded in shedding its sluggishness and had embarked on
a
vigorous cycle of growth. Industrial production grew by
0.9
percent in 1984, by 2.2 percent in 1985, by 3.5 percent in
1986,
and by 4.7 percent in 1987. Observers projected that
output would
somewhat decrease in 1988 and in 1989, but that it would
reach
growth levels of 3.8 and 3.7 percent, respectively, in
these
years. Despite a modest decline in the mid-1980s, Spanish
economic and industrial growth continued to be the
strongest in
Western Europe. Indicating an expanding economy, capital
goods
production increased by 9 percent in 1985, despite a
previous
decline in 1984. In the manufacturing sector, metal
fabrication
and the production of precision instruments increased from
1.8
percent in 1984 to 4.1 percent in 1985. Nevertheless,
production
increases in minerals and in chemicals were a minimal 0.2
percent
in 1985, compared with 3.3 percent in 1984. Auto assembly
output
soared, but iron and steel production and shipbuilding
experienced sharp declines. Traditional export-oriented
activities, such as petroleum refining, and textile, shoe,
and
leather production were suffering from reduced
competitiveness.
In what probably would turn out to be the peak of the
economic boom, all major economic sectors posted healthy
production gains in 1987. In the wake of renewed
investment
demand, construction grew by an estimated 10 percent, and
overall
industrial growth was 4.7 percent.
Data as of December 1988
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