Jul 10, 2012 1:01 PM GMT
Spain should serve as an example to those for instance who claim that the US should bring jobs home by fiat and reduce imports - but it won't. They aren't looking for evidence for their views so much as blithe affirmation.
As Europe's leaders attend one emergency meeting after another, the political high drama shouldn't make us lose sight of the fact that if the debt crisis is to be solved, Southern European companies need to change how they compete. Nowhere is that more evident than in Spain, whose elites fret over interest rates while protesters in the streets call for closing the borders and a return to barter.
Almost no one there is talking about how to make the real economy more productive. According to our research with IESE Business School colleague Bruno Cassiman, Spanish labor productivity (real output per worker) went up by only 15% between 1990 and 2010, vs. 25% in Northern Europe. Meanwhile Spanish costs per worker went up by 120%, vs. 60% in Northern Europe. That means labor costs per unit produced in Spain rose three times faster than in Northern Europe -- the region that includes its two largest trading partners, France and Germany. Italy and Greece have fallen behind the productivity curve as well.
How can Spain compete with this cost disadvantage? First, forget the idea that closing the borders would help. Over the past two decades Spanish companies in sectors where products and services can be traded internationally raised their productivity five times more than their counterparts in purely domestic sectors. Raising prosperity through trade will require Spanish firms to upgrade. Consider the wine sector. Spain is the world's second-largest wine exporter but has focused on volume rather than value. In 2010, Spanish wines were exported, on average, for only $1.36 per liter, compared with $1.74 per liter 10 years ago. Moving upscale and thus being able to charge what other leading producers do seems the most plausible way to boost productivity.