CATALONIA'S INDEPENDENCE ECONOMIC FALLACIES
Catalonia has been the main political theme throughout the last four weeks, due to its illegal referendum and all the international repercussion it carried behind. Catalonia´s independence project has lost weight in its economic arguments and has decided to shift towards a populist and extremist model of politics. As libertarians we should be aware that the secession right is not always valid, as if it has to jump over the national Constitution to be applied, it will instead be a crime. During the last two decades in Catalonia, politicians have popularised the story that the Spanish government was critically hurting Catalonia’s economy and its welfare state. It has also been said that the Spanish state has prevented Catalan’s living standards and wages from increasing due to a reduction in productive capacity and capital inflow caused by much more attractive fiscal conditions in other CCAA as Madrid, where taxes are nearly 15% lower in some cases. Parties supporting independence have been constantly declaring that the Spanish government was deliberately acting 7 million people, and that they were constantly stealing Catalan voters through the Central Administration. Voters in favour of independence claim that the Spanish state takes away from Catalans nearly 16,000 million euros per year. But the lie has been going on for too long, now it’s time to deny it.
Against what some Catalan politicians declare, Catalonia is a prosperous and open economy (much more open that what some radicals, as CUP supporters, will like). It all started with the Spanish Industrial Revolution in the XVIII and XIX centuries, when Catalonia became Spain’s economic engine, but survived in the years 1930-1986 thanks to several tariffs, quotas and barriers to international trade that were imposed by Franco’s dictatorship in order to “protect” national markets. As a result of this totalitarian measures, Catalonia’s GDP grew over 50% of the Spanish mean in the 1960s, and even nowadays Catalan GDP per capita is 19% higher than the rest of Spain. Even if we compare it at the European level, Catalan GDP per capita is still 6% higher than the mean of the European Union. Results are not bad taking into account that “Catalonia is an exploited and harassed region” as Artur Mas and its predecessor Jordi Pujol have exclaimed on several occasions.
Looking at present and future times, what will be the situation for Catalan citizens and enterprises after independence? First of all, in the last two weeks, due to socioeconomic instability lived nowadays, we have been able to observe how more than 400 national and international firms have delocalised their headquarters from Catalonia to other points around Spain’s geography. These decisions have been widely thought, discussed and managed internally in those different firms, and their final decision of moving their headquarters is fully comprehensible, as even the Catalan president family have moved their company to Madrid. It’s just a matter of logic, as imagine just for a moment what could be the outcome of an independent Catalonia, out of the EU regulatory frame and corresponding not-intervened markets, without having any possibility of commerce all around Europe, and being governed by extreme left radicals who promote fiscal exploitation and capital controls. Well, just the perfect situation to invest in (note irony). Most Catalan politicians have lied several times saying that they will be able to stay in the EU, but several European leaders have said, that automatically after Catalonia’s independence, they will be excluded from the EU, and also refreshing their memory in terms of admission conditions for new countries, as the main European members have veto power towards new nations wanting to enter the EU.
Even though out of the EU, several pro-independence Catalan politicians think that they will be able to continue trading and maintaining the same production levels without difficulties, and that all bureaucratic negotiations, as trade agreements, will be solved in matter of months. Just to say, a mere free trade agreement as is CETA between the EU and Canada took more than 7 years to be signed. If Catalan voters wait that much time to trade, they will go back to subsistence and barter economy before. A recent study done by several economists of all ideologies shows that an independent Catalonia could reduce its volume of exports more than 65%, which will reduce Catalan GDP by nearly 15%, if public spending increases as CUP and PdeCat have programmed.
It is crystal clear that a decrease in productivity levels and value added generated will cause a reduction in tax revenue from corporations and wages, due to a devaluation of benefits and consequently salaries, which will generate greater deficit and an enormous debt mass that Catalan’s sons will be obliged to pay. Promises of increasing employment opportunities and rising wages through greater public spending on infrastructure and public services is a clear and widely repeated fallacy, which has always failed all around the world and throughout history. The impact this will have on demand for Catalan bonds will be terrific, as the lack of security, investment and economic development that will be latent at the country will frighten away investors, who won’t want to invest their money in bonds, which are already catalogued as “junk bonds” by S&P, Fitch and Moody’s. And then, we can promote another referendum to see who pays for the debt hole.
Finally, we have to take into account several other indirect economic consequences of Catalonia’s independence that can’t be quantified in any economic model or study, as the effects that headquarters’ changes will have on employment, capital outflows or the increasing cost of liabilities for firms. What we can be sure about is that all this circus will force foreign investment to delocalise its productive activities out of Catalonia, freezing all king of possible future FDI. Introducing a new currency, will be another possibility for the Catalan government in case it wants to devaluate to increase exports (which will force them to get out of the euro), magnifying their debts and devaluating people’s savings and deposits, which in the long term will end up starving the population, and who will pay for the Catalan welfare state? Because Pujol won’t.
Conclusions don’t always have to be long, and this one just serves to remember how Catalonia’s independence will have devastating effects on Catalan’s wellbeing and their future living standards. If Catalonia separates itself from Spain, prosperity won’t come back to Catalonia, and all the suffering won’t be worth the pride of being independent and revolutionaries. Being independent is always something vigorous and desirable, except when you are poor.
“Moderate nationalism and utopic liberalism are just a lighter for the pyromaniac. And then, we will regret the fire.” – Daniel Lacalle