Thus, even if our economy’s many strengths (a very small public sector, privatisation, low public debt, etc.) remain in place and there is no slippage in progress made, Spain will face more demanding situations for having forgone these two possibilities. Naturally, were we to backtrack on competition, for instance, or were the budget deficit to surge to unsustainable levels, our growth would be even more severely impacted, as occurred in the past decade in some European countries. The only possible means here of recouping the external competitiveness lost following the latest upturn is to increase our productivity. And higher productivity, in addition to requiring a priority focus on education and training, inevitably involves structural reforms in numerous fields. As we have limited time, I’ll refer exclusively to the reform of labour institutions, where the Banco de España researchers have made most valuable contributions. Also, this is surely the reform that can most contribute to resolving the problem most concerning Spaniards, namely unemployment. Yet while not mentioning them today, we should remember there are many other vital structural reforms needed, such as that of the rental market, boosting competition in services, railway freight transport, energy, public administration, etc., and that can also contribute to enhancing productivity and to a return to higher growth than the EU average. Clearly, inadequate labour institutions generate very harmful effects not only on productivity and economic growth, but also on employee welfare. Spaniards need little convincing of the problems unemployment poses, problems which assail us even when the business cycle is buoyant.

Such high growth may prove surprising given our economy’s shortcomings or weaknesses: a much lower level of educational attainment than other European countries, low capital stock, inferior technology and labour institutions which, as we shall see, do not generate the incentives needed to enhance individual and collective efficiency. Why, despite this, have we grown so much? Partly because we made more progress than the other countries in some areas, which has offset our relative shortcomings. First, the relative weight of our public sector is much lower than that of the other European countries. Consequently, the greater weight of the private sector accounts for the greater dynamism of our economy. Next, public spending has been decentralised in a manner akin to Germany after World War II, and, to date, that has allowed greater efficiency in the allocation of spending. Further, we have also been bolder than other countries in privatisation. In recent decades there have been many significant privatisations in practically all productive sectors, allowing us to push ahead more than other economies in infusing competition into many goods and services markets. Unlike in other countries, privatisation has been wholesale, which is essential for breaking the link between corporations and governments. Finally, up to 2007 Spain managed notable progress in terms of balancing public finances and reducing public debt. All these aspects might be viewed as some of the inherent virtues of the Spanish economy, which account for much of our favourable growth differential over the past 20 years.