Jesús Fernández-Villaverde Keynote Lecture

A grand strategy for Spain: the reforms our nation needs

The Rafael del Pino Foundation organised, on 6 October 2020, the Master Conference live on entitled "A great strategy for Spain: the reforms that our nation needs" to be given by Jesús Fernández Villaverde.

Jesús Fernández Villaverde is Professor of Economics at the University of Pennsylvania since 2007, Fellow of the Econometric Society and member of the National Bureau of Economic Research (NBER), of the "group of one hundred" and of the editorial board of relevant national and international publications. He holds a degree in Law and Economics and Business Administration from ICADE and a PhD in Economics from the University of Minnesota.


On 6 October 2020, the Rafael del Pino Foundation organised a conference by Jesús Fernández-Villaverde, Professor of Economics at the University of Pennsylvania, entitled "A grand strategy for Spain: the reforms our nation needs".
In the last 50 years, Fernández-Villaverde pointed out, we have not prepared for the next crisis, so when it came, we found ourselves in a very delicate situation. The new crisis has already come, although it has come from a new perspective that nobody thought of. In May last year I thought that the crisis might come more from the escalation of a conflict, such as Russia and Ukraine or the US and Russia. The sad thing about this crisis is that it has caught us unawares and, moreover, it has hit us harder than other countries around us.

In the COVID crisis, Spain is the country that has lost the most GDP. It has fallen more than Germany, the UK and even Italy. It has also fallen more than the countries that have achieved the great successes in health management, such as South Korea or Taiwan. We have also had more deaths per million inhabitants than anyone except Belgium, according to official data from the Ministry of Health. But if we look at the death figures, we see that there have been 50,000 more deaths than in previous years. This would put us ahead of Belgium. So Spain is the country that has lost the most GDP and has had the most deaths per capita.

Is this the result of bad luck or bad policies? If it were just the health crisis, it would be a case of bad luck. But time and time again we perform worse than our neighbours. For example, we have the highest youth unemployment in Europe. We also have the highest school failure rates. We lack leading universities. There is not enough investment in research and development. So even if the crisis had been caused for another reason, Spain would still be in a very delicate economic situation. In February, the public accounts were already very deteriorated, productivity has stagnated since the early 1980s, there are problems with the financial system, exports are not very diversified and are not of high added value. What is happening is a consequence of bad policies.

So far, we have been saved by the European Union. We came out of the financial crisis thanks to the policy of the ECB and the help of the European Stability Mechanism. There was no EU recognition of the 1-O pseudo-referendum in Catalonia. At the moment, the situation is not desperate because we are waiting for European funds to arrive. But having others pull our chestnuts out of the fire is not a solid future. Nobody knows what will happen to Germany in 2030, what the chancellor will be like then. What is perhaps more serious, we could end up in a situation where Europe tells us that this is as far as we have come and no more help is forthcoming.

Spain needs a great strategy for the future based on a broad social and political consensus. It must be able to reach an agreement with 60-70% of the population, with two hundred or more deputies, for this strategy to have continuity for the future. The problem is that previous reforms, because they were not built on consensus, collapsed when the government changed. To structure this strategy, Fernández-Villaverde set out a series of ideas which, he said, were his second or third preference, but which would enable this consensus to be reached.

A great strategy is the art of reconciling means and ends. A country that wants to have a future must have a strategy. Spain has been without one for a long time. Perhaps it is because we closed in on ourselves after losing our empire. The problem is that this attitude has cost us a lot in the past and is costing us a lot now. Edmund Burke says that a state without the means for change is a state without the means for preservation. If we want to maintain all that we have achieved in the last forty years, we must have the capacity to think that things that worked in the 80s do not work the same today, that there may be institutions that have been left behind.

A grand strategy consists of ends, means and tactics. You want them to be reconciled with each other, to make sense.

In the aims we must talk about what kind of society we want, what kind of Spain we want in 2030, 2040, 2050. Article 1.1 of the Constitution states that Spain is a social and democratic state governed by the rule of law. We want it to be one of the best in the world, to place Spain at the top of the rankings that measure the social and democratic rule of law.

Rule of law means that we are subject to the rule of law and not to the rule of men. It is also a state that is based on the guarantee and protection of the rights and freedoms of citizens. Everything else cannot exist without the rule of law. The number one country in this respect is Denmark. Spain is in 19th place, but it is not where we should be. It's not a bad ranking, but it's nothing to shoot for, either.

Living in a social state means that the state provides the prosperity that citizens need. It makes no sense to talk about freedom of expression if we do not have the money to buy books or newspapers. We also need basic goods for the development of human dignity, such as health care or education. These are not public services. They can be provided by the private sector. What the state has to do is to create the conditions for the provision of these basic goods. In the Human Development Index, which measures these aspects, Spain is in 25th place, a better position than it should be thanks to the fact that life expectancy is very high, the result of the Mediterranean diet and the climate.

How does our democracy rate? Spain is in 16th place, with a democracy that has some very important shortcomings. A democratic state based on the rule of law only exists on the basis of a market economy. In economic freedom Spain falls to a worrying 58th place. And there is a business framework that says how difficult it is to create companies, foundations. In this Spain is number 30.

With the average rankings, the country that comes out best is New Zealand. The second is Denmark. We have to aspire to be like them. Denmark does well because it has a lot of economic freedom. The market economy and the welfare state are perfect complements because the market economy generates enough income to have a generous welfare state. The latter allows people to invest, to take risks. As a country, we have to improve in all of the above indices. It doesn't matter which ranking we look at. Nations that do well do well in almost everything. This applies to Covid as well. New Zealand has had only 25 deaths in this crisis.

Once we have decided where we want to go, we have to think about what kind of means we need to make it happen. Instrumental means will allow us to lay the foundations for the reforms we need. We will not be able to solve anything before we reform the state to increase its capacity. Reform does not necessarily mean changing the size of the state, but rather achieving a state that is capable of doing things, that is to say, that when you have an epidemic, that state has the data to be able to deal with it. The only way to be able to manage a state in the 21st century is to do it through data. We don't have that capacity, the capacity is insufficient. That's why the state cannot do the things it has to do.

We also need a reform of the selection of civil service elites, a reform of the selection of political elites and a reform of territorial coordination.

The selection of the elites of the public administration should be based on the principles of independence, merit and equal opportunities. The public administration must be a professional administration, which implements independently and in accordance with the law the objectives set by the Spanish Parliament for the national administration and by the regional parliaments for the regional administrations. At present, only 65% of the senior officials of the State Administration and 35% of the regional administrations are appointed on the basis of objective criteria.

In the selection of the elites of the Administration, equal opportunities must be a priority, not only in terms of gender, but also socially, territorially... We must design selection processes based on empirical evidence, transparency and constant improvement. An independent public administration authority should be created, which would manage the supply of vacancies and objective selection systems. A senior public management agency should also be created, which would manage the people to be appointed to the management of public companies. Portugal and Ireland, with cultures very similar to Spain's, have created institutions very similar to these and improved the selection of public administration.

We also need to change how we are selecting political elites. For example, the structure and functioning of political parties. We need to change the electoral system, but that will not eliminate all the problems. It is about allowing more voter control of deputies or senators, about breaking the excessive power of party leaderships. We must reform the General Council of the Judiciary, which is totally controlled by the Congress of Deputies. To do this, we can begin to employ insaculación, the use of lotteries, to fill positions and eliminate the political struggle for positions, for example, in the selection of the members of the CGPJ.

Finally, territorial coordination must be reformed. The system of autonomous regions is not very clear and there are governments that have not been loyal to the central authority, or that use the autonomous regions for their territorial interests. It is necessary to reconcile the country strategy and the interests of the central administration with those of the territorial administrations.

What means do we need? For example, we need to achieve the sustainability of the welfare state, improve education and the labour market, reorient the structure of our exports, ... The problem is how we can achieve this. A good tactic could be built around three elements. The first is the space of ideas, explaining this over and over again until a consensus is reached. If we manage to fight the battle of ideas, sooner or later reforms will come because politicians will have no choice but to make them if those ideas have reached the people and the people ask for them.

Then there is civil society, which is where Spain fails the most. For example, it is very difficult to get donations for a foundation, or for other initiatives. It has to be us, as citizens, who take the initiative, not the politicians. We cannot live in a society where we believe that the only solution is the BOE.

Finally we have the problem of political action. If we can convince a small fraction of MEPs of these reforms that we need, we can bring about change.

The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio González, are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of the authors.

The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio J. González, are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.