Spain became a democratic country only fifty years ago, through a paradigmatic transition process from Franco's autocratic regime to becoming one of the freest and most advanced modern democracies in the world. Just eight years after the approval of the democratic Constitution of 1978, Spain joined the European Union (EU), and by the year 2000 the country also became part of the European Economic and Monetary Union. The European dream (and the Maastricht requirements) led to an extremely deep and fast transformation of the country in terms of democratic freedoms and economic liberties. That is, the most important reforms in Spain took place before 1995, and thus are already accounted for at the beginning of the period covered by the Freedom Index. Although many reforms and improvements in the Spanish institutional framework have been undertaken in the last thirty years, the profound transformation of the country during the 1980s and early 1990s needs to be underscored for an adequate interpretation of the data compiled in this Atlas.
This is particularly relevant when trying to explain the evolution of the economic subindex since 1995. A close look at the different components shows that the scores on trade and investment freedom, as well as on property rights protection, have been high throughout the period, and it is the radical improvement in women's economic freedom that single-handedly drives the overall positive trend of this subindex. Both tendencies are accurate. On the one hand, the bulk of the regulations and policies related to trade and investment are determined at the EU level, ensuring a common and extremely open environment for all member states, both within the Union's borders and with the rest of the world. Additionally, European institutions make it very difficult for national governments to interfere in foreign investment, and very significantly reduce expropriation risks. Therefore, property rights protection is relatively high, and the mild deterioration observed in this component between 2005 and 2014 probably just captures some isolated disputes between the government and some large companies regarding subsidies to green energies that peaked in the 2008-10 period, together with the temporary uncertainty generated by the sovereign debt crisis of 2010-12.
On the other hand, the radical progress made in women's economic opportunities, autonomy, and independence is one of the most important developments in recent Spanish economic history, and the effects have been astonishing. As Figure 1 below shows, female labor force participation increased from barely 40 percent in 1991 to 70 percent today, completely closing the gap with respect to the EU average. Educational attainment among current generations is higher for females than males, and there is no significant inequality in terms of access to the labor market for recent graduates. Nonetheless, it is clear that policies aimed at helping families and especially women in their work-life balance have not progressed accordingly and the gender gap has mutated into a very significant maternity gap. To be sure, this is a generalized problem in developed societies, but it is undeniable that some countries are able to tackle it better than others. I believe that today, this factor explains the noteworthy gap observed in Figure 1 with respect to the most advanced countries of the world (8 percentage points below Denmark or 12 below Sweden). The very substantial extension of paternity leave is certainly an important policy tool in this respect and Spain has passed a series of reforms in the area, already achieving equalization. Anyhow, it is still very common that women are pushed to part-time jobs after having the first child, which is, in most cases, not the result of a voluntary expression of their preferences, but the only option to continue their professional careers while having a family. Overall, it seems clear that, after a very successful integration of women into the labor market, Spain needs to continue implementing policies in the areas of more accessible childcare and work flexibility so mothers can develop professionally on equal terms with their male counterparts.
The political subindex situates Spain as one of the most democratic countries of the world. The components measuring the quality of elections and civil and political rights receive very high scores throughout the 1995-2023 period, with very minor fluctuations. This is especially relevant given the political rollercoaster of the last decade, and most importantly when one recalls that Spain endured in 2017 the most serious challenge to the democratic institutional framework in decades, namely, the Catalan independence crisis. The culmination of that process was the unilateral declaration of independence by which the Catalan government tried to subvert the Constitutional order and exchange it for a different "Catalan" set of independent laws, ignoring the legal and democratic procedures to do so, without the necessary majorities in either the Catalan parliament or the national Congress in Madrid, and consciously disobeying several Constitutional Court rulings on the matter, in order to unilaterally proclaim the independence of Catalonia from the rest of the nation. The response on the political and judicial fronts was certainly firm and strong, at all times according to the legal provisions and constitutional powers granted to the different branches of power. This is well captured by the absence of any significant movements of the judicial independence component included in the Freedom Index. Nonetheless, the outcome of the process involved the imprisonment of several political leaders, which is undoubtedly an exceptional situation in developed and well-established democracies. The very recent clemency measures exercised by Pedro Sánchez's government have generated a heated debate among the Spanish public but are probably a reasonable step to normalize the situation.
Besides the very particular situation in Catalonia, the Spanish political atmosphere shares various contemporaneous features with many other established democracies in Europe and North America. In particular, the emergence of extremist parties at both sides of the political spectrum and an increase in populist rhetoric and conduct are certainly worrisome. One of the effects of the greater political fragmentation that started in 2015 is the growing difficulties in approving laws and relevant reforms in parliament. This explains the significant upsurge in the use of emergency legislative instruments that emanate directly from the executive (real decreto ley), and are only ratified by parliament after their implementation, in a process that limits public debate and impedes the possibility of introducing amendments or changes. Originally envisioned as an exceptional instrument to be used in very restricted situations, the different governments in the last decade have turned to this tool as a way to circumvent the legislative process and overcome a situation of parliamentary weakness. To give a sense of the issue, during the fourteen years of Felipe Gonzalez's presidency (1982-96), 130 norms of this kind were passed. Pedro Sánchez, who has held the presidency since June 2018, has already passed 167 such decrees. There is no doubt that this tendency, together with other legislative strategies like the practice of proposing omnibus laws that contain a wide variety of heterogenous and unrelated measures, erodes the legislative and controlling powers of parliament, which could explain Spain's relatively low score on the legislative constraints on the executive component of the political subindex.
Among the components of the legal subindex, I think clarity of the law, and bureaucracy and corruption are the most relevant for understanding the Spanish situation in relation to the rule of law. Regarding the former, the quantity and ambiguity of Spanish legislation, much higher than in neighboring countries, is certainly a matter of concern. The very decentralized quasi-federal system designed in the 1978 Constitution has proven beneficial in many aspects, but has also produced undeniable overregulation, generating economic inefficiency and legal uncertainty. This problem especially affects small and medium-sized businesses, which find it really difficult to navigate the legal system and comply with all its requirements. Even more so when there is a clear lack of proper coordination mechanisms between different levels of government, as during the pandemic crisis.
The massive real estate boom of the 1990s and early 2000s produced numerous adverse economic distortions that will be addressed in the next section. The real estate boom fueled political corruption, especially among local governments in charge of granting construction permits. Upon joining the Eurozone, the very favorable economic conditions produced by lower risk perceptions and easy credit worked as a mirage, making it difficult for citizens and voters to extract the signals from the economy they needed to judge and control political leaders. Uncovered corruption scandals seemed to have few electoral consequences for the parties or individuals involved. The financial crisis painfully exposed the situation, and widespread corrupt practices became apparent, infuriating a citizenry that was suffering the severe effects of austerity policies while newspapers were filled with political scandals and excesses. There is excessive politicization of some parts of the state apparatus, especially in the regional and local bureaucracies, as well as among top public officials in supervisory or regulatory agencies. These officials, who should have detected and prevented the situation, failed to do so, probably influenced by political considerations. Demands for a substantial regeneration of the system led to the emergence of two new parties on the extreme left (Podemos) and center (Ciudadanos) of the political spectrum with a clear anti-corruption agenda. Anyhow, during the last decade, change has been very modest on this front and very few initiatives have been put forward to reduce abuses of influence by political parties on independent agencies.
Finally, the quality of bureaucracy does not seem to be much worse in Spain than in other comparable countries, but there are three factors that may generate a certain degree of inefficiency: aging public servants; the low level of digitalization, especially of publicly available data for the evaluation of public policies; and the sometimes perverse incentives associated with lifetime jobs typical in the public sector. A modernization of the administration, with a special focus on these three areas, would unquestionably be beneficial for the country. Unfortunately, the political costs of such reforms make them improbable in the near future.
In economic terms, from the 1970s to the mid-2000s Spain followed a solid path of convergence with the EU average. From being about 30 percent below the mean income per capita in the EU, the gap was closed to 9 percent in 2006. However, the trajectory started to diverge since the financial crisis, and today Spain's income per capita is about 15 percent lower than the EU's average.
It is not clear that the implicit assumption of the European Economic and Monetary Union -- that if low productivity countries were stripped of the capacity to devalue their currency, they would be forced to make institutional reforms favoring efficiency gains through human capital accumulation, improved technology adoption, etc. -- has worked as expected. This push from outside certainly helped Spain to drastically reform the country during the 1980s to enter the European Economic Community and then to meet the Maastricht requirements to join the euro. But once these goals were accomplished, the drop in the risk perception for the country led to high amounts of capital inflows and cheap credit, and a relaxation of the political constraints, which fueled a giant real estate bubble. Just to give an idea of its magnitude, at the peak of the boom in 2007, about two-thirds of the houses built in the EU were built in Spain, and about one in every four male workers was employed in construction-related activities.
As became apparent during the financial crisis, Spain's fast catch-up growth was not founded on solid grounds but was based on a low productivity economic structure with severe imbalances. Some of the factors causing the low levels of productivity of the Spanish economy include: a bias toward low value-added sectors such as tourism and related services, proliferation of small firms and businesses, relatively low human capital accumulation, and a segmented labor market (temporary versus permanent workers). As a result, the recovery from the crisis was extremely painful and slower than in neighboring countries, taking the country ten years to recover the pre-crisis level of income per capita. Once again forced by external factors, some relevant liberalizing reforms were implemented following the banking bail-out by the "troika" (EU, International Monetary Fund, European Central Bank) in 2012, the austerity measures helped to contain public debt, and growth and job creation reignited for a few years until 2019.
The economic effects of the pandemic were significant, but Spain's recovery has been surprisingly strong. Despite having a very difficult governance situation and a precarious and unstable majority in parliament, Sánchez has managed to stay in power and pass some relevant reforms in a large left-wing coalition. These include the already mentioned extension of paternity leave, a cumulative minimum salary rise of more than 50 percent with no substantial negative effects on the economy or job creation, and a new labor regulation that has improved the situation of temporary workers. Unfortunately, other much-needed structural reforms have not been pursued in the last decade, as I will point out in the final section.
The evolution of inequality has two important specificities. First, it is closely linked to labor market performance. The fundamental source of inequality in Spain is between those with permanent and relatively stable jobs and those who are endlessly switching between employment, underemployment, and unemployment. The extreme volatility of unemployment in Spain, which reached 24 percent in 1994, went down to 8.2 percent in 2007, rose again to 26.1 percent in 2013, and is today around 12.5 percent, reflects the volatile evolution of inequality observed in the data. Second, children and youth in particular suffer from this pattern, and it is very discouraging to see that Spain performs significantly worse than other OECD countries in terms of infant poverty and youth unemployment, despite some policies implemented to tackle this problem in recent years.
The treatment of minorities is inseparable from the immigration debate. From the mid-1990s to the Great Recession, Spain received more than four million immigrants, a remarkable inflow for a country with a population of around forty million in 1995. The absorption process has proven very successful by all standards, compared to other countries in Europe, due to a combination of good integration policies and a cultural factor, as a very large share of the immigrants came from Spanish speaking countries of Latin America. In general terms, social unrest associated with immigration is very low in Spain, and this is something to celebrate. But at the same time, being one of the EU's border countries with North Africa generates a constant f low of migrants trying to cross to Spain illegally at the Moroccan border, as well as by sea in small boats, which many times ends in catastrophic loss of life. The eruption of an extreme-right political party with a hard, sometimes outright xenophobic, discourse on illegal immigration is contributing to the increasing perception of immigration as a problem in Spain, and it has proven extremely difficult to reach a consensus on adequate policies regarding the close to 400,000 illegal immigrants already in the country.
The universalization of education in Spain was a great milestone in the 1980s, but the lack of a profound modernizing reform in the last three decades has exposed numerous structural deficiencies in the system. This is a clear example of a real political topic that very much matters to the average citizen, but because it is so politically loaded, it is only used by the political elites as a political weapon, endlessly postponing necessary reform. The incentive scheme to attract good students to the educational profession, which has proven the cornerstone of the best systems of the world, has not been addressed in the numerous educational laws passed since 1990. Moreover, according to comparative data from the Organisation for Economic Cooperation and Development (OECD), the system is not managing to truly succeed in the two most important academic objectives: generating excellent students; and improving the situation of vulnerable students. In fact, poor students are four times as likely to repeat a school year as rich students. Additionally, the fact that educational spending is decided by regional governments generates substantial differences in levels of investment per student, creating unacceptable inequalities of opportunity among children living in different areas of the country. An interesting fact observable in the data is the high dropout rates (among the highest in the EU) in the 1995 -- 2008 period, produced by a kind of "Dutch disease" attributable to the construction boom that pulled thousands of young Spaniards to leave school early to work in the housing sector. A few years later, they found themselves in an extremely precarious situation, combining unemployment with very low human capital. Fortunately, since 2010 Spain has managed to significantly reduce dropout rates, advancing towards convergence again with the European average.
The Spanish healthcare system is internationally recognized as one of the best of the world, with a combination of efficiency and low expenditure that has produced outstanding results in the last four decades. Moreover, the quality and excellence in some areas like transplants is a source of national pride. The relatively large shock produced by the COVID-19 pandemic in terms of excess mortality was, in my view, due to the fact that Spain was one of the first countries to be severely hit, and thus was not as prepared as those who could learn which policies and measures had been effective elsewhere. The lack of integrated digital information and insufficient coordination between regional administrations and the central government, caused by excessive politicization, were arguably detrimental as well, but probably were not the main factor.
Spain has taken advantage of its unparalleled natural environment and conditions to produce green energy, especially solar and wind power, which has allowed the country to become one of the leaders in renewable energies and the green transition. Moreover, recent research has documented a clear disconnect between GDP and pollution levels in the country, evidence that environmentally sustainable economic growth is a real possibility for developed nations.
Since the promulgation of the democratic Constitution of 1978, Spain has experienced the largest improvement in prosperity in the country's modern history. The country's current position in the Freedom and Prosperity Indexes corroborates this fact. Nonetheless, the reform impulse seems to have slowed in the last decade, and it is imperative that it is reinvigorated if the country is to take advantage of the opportunities lying ahead to continue improving the standards of living of its citizens. I am particularly concerned that the important windfall of resources represented by the NextGenerationEU funds -- of which Spain, together with Italy, is the largest beneficiary -- may translate into insufficient structural reform. The relaxation of political constraints thanks to the apparent easy availability of resources, both external and internal, could easily lead to a complacency trap, hampering the reform impetus. Given the divergent productivity trajectory of Spain vis-à-vis the EU and the growing spending and investment needs, Spain needs to ensure sustained increases in productivity for the next decade, and this will require some fundamental reforms.
Medium-term fiscal sustainability is a central area of concern, especially regarding the pension system, due to the extremely challenging demographic prospects for Spain. The flip in the population pyramid projected in the medium term will produce a dramatic rise in the proportion of the population above sixty-five years old, from the current 35 percent to 75 percent by 2050. The Spanish pay-as-you-go pension system has produced deficits since 2010, and these can only increase unless a rigorous reform is put in place. Unfortunately, this is a politically thorny issue and reforms of the system in 2021 and 2023 have gone in the opposite direction, eliminating previous restrictions to limit the system's growth -- such as demographic or economic growth considerations -- and ensuring the automatic update of pensions with the price index.
First and foremost, the educational system requires a profound overhaul with the clear aim of improving its quality at all levels, with a long-term vision that necessarily requires an ample political consensus. Some central aspects of such a reform should involve: (1) the selection process for teachers and professors, in order to attract the most talented, improving their remuneration and social recognition; (2) a decided commitment to excellence, especially at the university level, extending the incentives for top researchers to return and stay in Spain; (3) a focus on improving the effectiveness of active labor market policies so they actually help to redeploy workers into sectors where the demand is rising, such as tech or clean energy; and (4) a significant expansion of educational reinforcement for students with learning difficulties and especially those from marginalized and less favorable social backgrounds.
The current political fragmentation is a strong source of concern for Spain. The two parties in the center of the political spectrum (Social Democrat and Conservative), which have alternated in power since the 1980s, now have meaningful competition coming from their respective extremes. This has led to a pernicious increase in polarization and poses serious impediments to reaching transversal agreements indispensable to push forward structural reform. The capacity to reach agreements among those with different political views, epitomized in Spain during the democratic transition, needs to become a reality again. This, however, should by no means stop governments pushing forward small incremental policies to help advance in some key areas such as education.
The reduced tensions in Catalonia nowadays cannot lead to the conclusion that territorial conflict in Spain is a problem of the past. A reform of the federal system consecrated in the Constitution should contribute to setting up clearer rules regarding the relative powers of the regions and the central government, the financing system, common public services and their minimum standards, and the establishment of the necessary coordination mechanisms to ensure the efficient collaboration of all levels of government. The current strategy of bilateral negotiations between the central government and each of the regional administrations does not seem optimal, as the national government's dependence on small Catalan and Basque parliamentary groups is likely to produce agreements involving a reduction of interregional transfers that will inevitably be rejected by poorer regions. Once again, only a consensus among the two majoritarian parties seems to be a potentially successful path on this front.
Finally, there are non-negligible signs of institutional erosion produced by the current government's insufficient respect for formal and implicit agreements regarding the independence Toni Roldán Monés of important agencies and institutions. I am not naïve on this matter. It is clear that no public agency is perfectly independent since it is led and formed by individuals who obviously have political opinions. However, the president appointing some of his former cabinet members as general attorney, Constitutional Court justice, or governor of the central bank could lead to a dangerous slippery slope of institutional deterioration if those patterns are established as a point of departure by future governments.
Toni Roldán Monés is the director of the ESADE Center for Economic Policy (EsadeEcPol) and visiting professor in practice at the School of Public Policy of the London School of Economics (LSE). Prior to joining ESADE, Roldán was a Member of the Spanish Parliament, and economics spokesman and head of policy for Ciudadanos, a centrist party. Roldán has worked as a senior political risk analyst at Eurasia Group, the European Commission, and the European Parliament.