Spain’s transition from an impoverished economy in the Franco era to a modern, market economy at the end of the twentieth century is vital to understand the mechanisms in which all countries are able to enjoy the fruits of modernity and convergence. This paper discusses how autarkic economic policies in the Franco era plunged the Spanish economy into depression, and how Spain’s stabilization plan, coupled with the foreign economic policy of the Cold War, were able to bring the country out of its slump and into competition with the leading European economies in the twentieth century.
Throughout the first decade of the Franco regime, Spain’s economy was fully autarkic. This was partially due to Spain already being internationally isolated after the Civil War, but it was mainly due to Franco’s fascist ideology. Franco believed that Spain would only prosper after its rebirth as a fully economically-independent nation. By forcing autarky on the economy, Franco only further isolated Spain from other advanced European countries. Since an autarkic economy only exports, Spain had to begin producing all products that had historically been imported. And due to this absence of imports, new industries were hastily created. Owing to the underdevelopment and inefficiencies inherent to these new industries, Spain experienced scarcity and shortages in many key products. These scarcities were worsened due to large expenditures of resources during the Civil War. In addition, the war caused a loss of human capital, so productivity of the economy was stunted during the dictatorship to levels lower than before the Civil War even began. Low productivity, coupled with forced autarkic policies, had dire consequences and eventually led to a collapse of the entire Spanish economy. However, in the 1950s, Spain pulled itself out of its slump through large-scale economic reforms and an eventual opening to the world economy.
Spain ultimately industrialized as a result of Franco’s autarkic policies. Since Spain had to produce virtually everything it would consume, factories were created, oftentimes in sectors that were noncompetitive and inefficient. The oil industry was one of the most notable – and inefficient – sectors. Martinez Ruiz argues that because Spain had high “domestic resource costs” – or DRCs – during this time, there were significant welfare losses “resulting from the impact of trade-restricting of trade-promoting measures on relative prices.”
These new policies also militarized economic activity. According to Barciela, the Spanish government “assumed total control over working conditions, salaries and wages, and working hours.” Unions were eliminated and women were marginalized in the labor market. Women were no longer able to hold professional jobs under the regime, and were expected to stay home and watch after their children. The regime, which was supported by members of the Catholic monarchy, reinforced traditional family structures and gender logic, further moving Spain from the advanced European society it aspired to be.
These policies had many different effects on Spain’s economy. It caused divergence, economic stagnation, inflation, shortages, scarcity of currency, and negative growth rates. The food shortages created were arguably one of the worst consequences for society. The regime’s solution to the limited food and resources was a rationing system. This system started by giving ration cards to families as a whole and later transitioned to giving the cards to individuals. It included every food product, such as wheat, oil, sugar, flour, and other basic items. This system remained in place from 1939 to 1953. The system favored some populations over others, however.
More-populated urban areas received more food than smaller towns in the countryside. This was a strategic move by the government to keep the urban masses content (Del Arco Blanco). These populations posed the largest threat to the wellbeing of the regime, after all. This unevenness in food allocation spurred the movement of people from the rural countryside to the larger urban cities. For example, a study by the city of Almeria showed that the provisions in the city were almost three times greater than those the in the countryside. The rations in the countryside were 917.5 calories per day, while in the city rations totalled 2672.8 calories per day (Del Arco Blanco). There was clearly a very large discrepancy between the two locales.
As a result of the shortages, a black market emerged. It was another means for the population to get what they needed to survive, though prices were extremely inflated. This price inflation had a big hand in the increasing social and economic divide between the rich and poor. Only the wealthy could afford to buy products on the black market, and those selling in the black market profited greatly. So, as the saying goes, “the rich get richer, while the poor get poorer.” Moreover, many lower class citizens would get jail time for participating in the black market. This highly corrupt system continued for 15 years (Christansen).
The black market had substantial effects on the economy. Price elasticity for food at the time was low, since people would pay whatever they had to in order get what they needed to survive. This desperation for goods allowed vendors in the black market to inflate prices. The excess demand for goods was one of the factors that led to the emergence of the black market where buyers and sellers were both price takers. Inflated prices created inflation in the national economy which began to cause other issues. As a result, wages could not keep up with the inflation, so people began losing purchasing power. Interestingly, According to Thomas Chistansen, the black market played an important role in the agrarian sector of the economy. The consumption of wheat in the black market consisted of half of the total commercialized amount from 1939 to 1949. The black market was able to sustain itself both due to many consumers and producers, as well as the state’s inability to control it.
The Fiscalía de Tasas, a separate court made for black market crimes, helped keep some legal trade necessary for the economy to stay somewhat afloat. Food became a form of repression and control, and was one of the regime’s most powerful tools. It not only punished the Spanish population physically – it also contributed to a lack of morale and ability to resist the fascist regime. All other effects of the policies, as well as the shortages, were interlinked and created an inefficient and unstable economy.
The economy, in a very precarious situation, was headed towards a collapse, as indicated by its negative growth rates. The rigid labor market, inflation, trade deficit, poor support of traditional agriculture, and inefficient industrial firms all led Spain’s economy to its collapse after many years of struggle. At this time, Spain was had two options to save its stunted and failing economy. One was to mend the trade deficit and limit imports to the level of exports, and the other was to increase the volume of exports to the rest of the world.
Once it was clear that these self-sufficient policies were not working, Spain abandoned autarky. In addition, the Cold War relaxed Spain’s isolation and the country started to receive aid from the United States beginning in 1952, following President Truman’s normalization of relations with Spain (Calvo-Gonzalez). The U.S. was not concerned with Spain’s economic well being as it was with its own military prowess. This aid was given so that the U.S. could build military bases on Spain – a strategic area in Europe, but more importantly, on the condition that Spain would not fall to communism. Thanks to the influx of aid dollars, the Spanish currency shortage was relaxed, which led to an increase in exports and production. This also lessened barriers to foreign products and investment.
Throughout the 1950s, Spain experienced economic growth. The country entered the United Nations, were accepted into Bretton Woods institutions, and entered the Organization for European Economic Co-operation. This made foreign trade and investment that much more attainable. Spain began importing technology, as well, which quickened the economy’s growth. The country finally had the two things needed to converge – capital and technology.
The stabilization plan was put in place to help the economy further. Its main goal was to restrict demand and constrain inflation. This was ultimately done by liberalizing foreign trade and encouraging foreign investment. Initially, however, it had a deflationary and recessionary effect. There was a drop in real income and an increase in unemployment, which caused many Spaniards to emigrate. Though the plan took time to implement and function properly, it enabled Spain to avert a possible suspension of payments. While the plan was key for the future prosperity of the economy, there were some downsides. These included technological dependence, underdevelopment of the public sector, and little to no competitiveness of internal market-oriented sectors. Ultimately, the plan’s goal was achieved and Spain was able to move towards becoming a market economy.
In addition to foreign direct investment, Spain’s opening to world markets brought other benefits. Many imports to Spain during this time were financed in part to the growing success of tourism. In the 1960s, Spain was a relatively inexpensive tourist destination. Good weather was readily available, and was a highly marketable commodity. At the time, there were few places where Europeans – and Americans – could vacation cheaply. Tourism boosted Spain’s growing economy and acted as a source of foreign currency, which compensated for the country’s high propensity to import as well as its trade deficit.
Today, tourism remains an important sector in Spain’s economy. The 1992 Barcelona Summer Olympics catapulted Spain to where its tourism levels are now with the development of the beachfront and other attractions. Despite the growing uncertainty of the euro, Spain has converged with other Western European countries in terms of imports. Additionally, the Spanish economy is projected to continue growing due to “accommodative” euro area monetary policy. Spain continues to gain competitiveness, which in turn supports their exports (OECD). Despite Spain’s turbulent economic past, there is reason to have confidence in its future.
Towards the end of the first decade of the Franco regime, with an unhappy, starving population and a failing economy, Spain’s period of autarky came to an end. The structure of the economy was highly inefficient and eventually collapsed. However, with the implementation of the stabilization plan, and the opening to the world economy, Spain began to experience rapid growth. In addition, the Cold War relaxed Spain’s isolation from other European countries, as well as acting as the impetus for receiving foreign aid necessary for growth and convergence.
Overall, the period of economic autarky was a difficult time for Spain, but later proved to be a lesson well-learned. Countries and their economies need assistance from other states, most importantly with regards to market access. Franco and his regime clearly did not know the fundamentals of economics, and being that he was a military general he did not necessarily need to. Any economist – or even student of economics – would say that trade, and specialization in industries, is essential to growth. Collaboration with neighbors and proficiency in production is why market economies work.
Today, Spain finds itself at a crossroads. The future of the euro is uncertain, with the crisis of debt many Southern European countries find themselves trying to get out of. In addition to the crippling debt these countries struggle with, there is an ever-worsening issue of competitiveness. Recently, prices in Spain and other Southern European countries have increased more than prices have in Germany, the leader of the Union. This inability to compete constrains the very recovery of the Spanish economy. Spain has pursued austerity measures in order to reduce debt levels, though the country has not had much success with this approach. It is clear that Southern European countries are trapped, and only time will tell what will happen to the European Union.