Last week we read in a Morgan Stanley report that Spain will become next Germany. Such a surprising statement was written by Joachim Fels and Sung Woen Kang for their clients, advising to invest in our country.
That conclusion was based on two main facts: First of all, the Germany’s situation will increase their domestic demand, generating inflation and thus a decrease of their external competitiveness. On the other side, Spain labor costs are getting lower, increasing our competitiveness, while our exports are evolving strongly.
From my point of view this is an overly simplistic analysis. I am not going to talk about German economy, but I would like to highlight five key arguments against this idea:
1) Exportations: It is a fact that our Balance of Trade (exports – imports) is more balanced now. We still import more than we export, but the difference between them has decreased in 2012. Therefore, can we conclude we are doing things right? Well, the truth is that our exports have not changed a lot. They more or less keep the trend we have had in the long-term. The point is that, due to the lack of domestic demand, our imports have fallen to 2004 levels. You can find some interesting figures about it on this link.
2) Labor costs: That is not only the way to achieve a better competitiveness. It is one of the tools we have, but not the only way, as we will see. Lowering our labor costs may approach us to Germany, but also to Vietnam or China. Furthermore, it is not about copying other countries solutions. We have a big problem with our labor market, but we need to find a solution for our economy. Germany is an industrial economy, but we have an economy focused on services and not goods, something that usually we forget to take on account. We need to find our own path.
3) R&D Investment: While Germany is one of the top 10 leaders in R&D investment, we do not even appear. Among the EU countries, we are the 17th country in percentage of GDP spend in R&D, just behind Czech Republic (Source: Eurostat). Either we change our mind and encourage innovation, or we will never become Germany. Instead of that, Spanish government has reduced the R&D budget in a 20%.
4) Education: If you ask any Spanish person which is one of the main problems of the country he will probably answer the education system. Last PISA results showed that our performance is still below the OCDE average. The main problem here is that education has been used as a political weapon, not thinking about the nation’s benefit but just as a political issue. The main parties should agree on a major reform of education leaving out the most contentious issues, such as religion.
5) Corruption: The NGO International Transparency prepares every year a ranking evaluating the level of corruption including all the countries in the world. If we take a look to that ranking, we are in the 30th position tied with Botswana. Germany is in number 13th. Corruption is not only about morality, but also about the efficiency and juridical security of every country.
These are just a few things to think about if we want to become Germany. Of course, they are not the only ones, but they are key factors to have a successful economy. Do not misunderstand me; I want the best for my country, but that is not solved with low salaries. We need to give our best to become the next Germany. Are we ready for it?