Sec

tori

al d

istr

ibut

ion

of a

ctiv

e po

pula

tion

in

US

A a

nd S

pain

(%

)

0

10

20

30

40

50

60

70

1900 1910 1920 1930 1940 1950 1960 1970 1980

0

10

20

30

40

50

60

70

80

1820

1830

1840

1850

1860

1870

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

Agriculture

Agriculture

Industr

Industr

Servic

USA

SPAIN

Agricultu

Agricultur

Industry

Industry

Services

Services

AGRICULTURE• Structural change: from agriculture to industry

and services• Importance of agriculture

– Finance the rest of the sectors– Supplier of cheap labor force– To secure the supply of food (nutritious, healthy,

ecological)– Demand industrial goods and services– Preservation of rural environment– More international competition and liberalization

Traditional agriculture →→ modern agriculture

• Problems since 1950: low productivity, low agricultural income, conflicts in property

TRADITIONAL• Abundant and cheap

labor force• Low capitalized• SS ≤ DD• Irregular property

MODERN• More expensive labor

force• Very capitalized• SS > DD• New problems

• New problems– Agricultural surplus– Greater international competition– Environment

• The weight of Spanish agricultural sector is higher than in EU

• Agriculture sector very imbedded in national economy:– Inputs (fertilizers, machinery, seeds, gasoline)– Outputs (sales to wholesalers)– Bank financing

The loss of positions of agriculture sector in the Spanish economy, 1985-2005 (%)

Situation nowadays:

A. Production and income

B. Productive and commercial specialization

C. Productive efficiency

Variables 1985 1995 2005Agriculture GAV / Total GAV (current prices) 6.2 4.5 3.3Agriculture GAV / Total GAV (prices of 1986) 4.4 3.8 3.4Agriculture employment / Total employment 15.6 8.0 5.1Agriculture foreign trade / Goods and services foreign trade 10.9 10.3 12.0

A. Production and income

↓ Agriculture income• Higher dependence on

more expensive inputs• Amortizations of

capitalization > FAP• PCI > selling prices of FAP

↑ Agriculture income• Subsidies

• Lower occupation, so this increases per capita income>

Variables 1965 1975 1985 1990 1995 2003Final agriculture production (FAP) 100,0 154,8 205,4 100,0 99,2 129,3Intermediate consumption (IC) 100,0 220,1 319,0 100,0 98,0 124,2Gross added value (GAV) (in market prices) 100,0 128,1 158,8 100,0 99,9 132,1Income (deflacted by agriculture GAV deflactor) 100,0 136,3 170,3 100,0 98,5 107,7Income (deflacted by Price consumption index PCI) 100,0 111,6 81,2IC / FAP (%) 21,7 30,7 42,6 36,3 35,9 34,9Amortizations / GAVmp (%) 2,6 4,0 13,5Income / FAP (%) 77,3 68,2 55,5 56,6 56,2 47,2Subsidies / Income (%) 1,4 1,3 0,7

B. Productive and commercial specialization

• Supply adapted to demand• Specialization in meat, milk,

fruits and vegetables• Dependence in soybean, corn and barley

• The entry in EU provoked:– Higher (last) specialization– Higher competition taking advantage of comparative

advantages in meat, fruits, oil and vegetables– Danger of international competition (LDC´s)

C. Productive efficiency

• Apparent labor productivity =

= GAV / Labor force

• Productivity depends on:

1. Technology

2. Factorial allocation

1. Technology• GAV/Labor force = GAV/Agric Surface (AS) * AS/Labor force

Chemical-biological tech. Mechanical technologies

• In spite of having small plots, farmers have used a lot of mechanical technologies because they rent them and they are relatively cheap (with respect to labor force)

• Low productivity with respect to EU because they use chemical-biological technologies (+ for environment). This difference is diminishing.

YearsGAV/AS (€ 2004)

AS/Labor force (Ha.)

GAV/Labor force (€ 2004)

1965 364 7,1 2.5301975 489 9,4 4.5081985 627 14,5 9.1161995 769 23,1 17.7792004 901 25,2 22.688

2. Factorial allocation• Capitalization: mechanization, irrigable, etc.• Aged agriculture employment, familiar

lands, part-time work• 2 kinds of lands:

– Lot of very small plots (where predominate )– Fewer big plots, with higher productivity, wage

workers, dynamics, exposed to international competition

• Integration with the rest of the economy

COMMON AGRICULTURE POLICY

• Objectives:– Increase productivity– Guarantee the level of life of farmers– Stabilize markets– Guarantee the supply of population

• General principles:– Market unity– Community preference– Financial solidarity

EU budget 50%EAGGF

95%

5%

GUIDANCE section

GUARANTEE section

CMO´s

• Problems of CAP– A lot of surplus– Huge financial costs– Promote continental productions– Benefit bigger lands– Small funds to orientation section– Protectionism, complaints filed from outside UE

• Partial reforms in 1984:– Corresponsability tax– Quotas– Lands and animals retired

• 1992 reform:– ↑ guarantee prices– Substitute helps for production– Discourages chemical-biological technologies– Protect environment and rural places

• New reforms (1999, “2000 Agenda”)• Future projects

CAP reforms

INDUSTRIAL SECTOR

• Basic sector for economic development

• Spain: growth from 1950´s to 1960´s

• But afterwards lose importance, because of its higher dependence on the other sectors:– Agriculture sector efficient for traditional

industries– Services of high quality (financing, energy,

telecommunications)

CLASSIFICATIONS

• DEMAND– Income elasticity

• SUPPLY– Technological intensity

• MIXED– Advanced (office machinery, computers, electric and electronic

machinery, precision instruments, aeronautic and space, y pharmaceutics)

– Medium (chemical, rubber and plastic, mechanical machinery and material transport)

– Traditional (basic metallic, metallic products, non-metallic mineral product, food, paper, textile and confection, wood and other manufactures)

High

Low

High

Low

• Characteristics of advanced industries (compared to traditional industries):– Low intensity in labor and natural resources– Very intense in capital, technology and human

capital (high labor productivity, high added value)

– Greater dimension of establishments– More dynamic, competitive and globalized

markets (attractive sectors)– With more foreign capital

Evolution of industrial sector

• Compared with other sectors:– 1960-75: The key sector of the Spanish development,

pulling the rest of the sectors: ↑ L productivity, ↓ prices

(-) protectionism, local demand

– 1975-85: Industrial crisis, in supply (oil, wages) and in demand (local)

– 1985-2005: services take over the key economic role from industry. But is still + competitive, + inputs exporter and importer

• Compared to EU: very competitive sector (in spite of the serious crisis of 1970´s)

Role of industry sector in the Spanish economy1966-2006 (%)

Variables 1966 1975 1985 1995 2006GAV ind. / GAV total (current prices) 28.9 29.1 24.6 19.0 15.0GAV ind. / GAV total (constant prices) 21.4 25.9 20.2 19.0 16.3Industry labor force / Total labor force 22.0 25.3 20.2 17.8 15.1Industry exportations / Total exportations 34.0 46.2 52.9 59.0 52.7Industry importations / Total importations 74.8 55.3 52.3 73.2 60.0Industry exportations / GDP 3.2 6.2 11.9 13.3 13.8Industry importations / GDP 10.8 9.6 9.8 16.7 19.4

• Reduction of industry in Spain (services) : ↑ productivity, ↓ prices, internationalization

• Increase of industry comp. to EU (competition)

• Domestic demand increase more than industry: ↓ competition in some sub-sectors, ↑ importations

Productive and commercial specialization

1960 2004

Traditional ind. 70 % 59 %Advanced ind. 4 % 11 %

• Why does this specialization exist?:– Low entrepreneur dimension– Plentiful and cheap labor force and natural resources– Physical capital, human capital, and technology less

abundant, (because of economic backwardness)– Standardized technologies– Advanced industries controlled by foreign capital

Productive efficiency:LABOR PRODUCTIVITY

• Industrial growth <=> labor productivity, because:– Capitalization of establishments– Increase of technology and human capital– Specialization in advanced industries– Improvement in product quality and price

• Going down since 1975, because:– Decrease in product growth– Decrease in capital investment and technology– Increase in labor cost– Decrease in entrepreneur benefits– Deficient management training– Increase in the price of services

Industrial policy: towards lower industrial public intervention

• Autarchy (1938-1963): INI, industrial regulations, protectionism

• 1960-75: partial liberalization

• 1975-85: crisis, industrial re-conversion

• Since 1986: low intervention. Problems:– Lack of help to SME– Deficient technological policy– Low competitive services

SERVICES

• The most important sector in Spain and in rich countries (production and employment ≈ 60-70 %)

• Strategically importance :– Its efficiency affects other productive sectors

(banking, transports, telecommunications) or social wealth (health, education)

– The new economy: new technologies, productivity improvement, macroeconomic stability

• Difficulty to define

• Classifications:– Market vs. non-commercialized – Final consumption vs. intermediate consumption– Stagnated vs. progressive

• Problems:– A lot of non-commercialized services– Hard to weigh and compare the quality of different

services– Services produced inside the firm

General evolution of services in Spain

• Increase of nominal production

• Same real production

• Increase of prices

• Increase of employment

• Low productivity

• Isolation from international competition

Role of service sector in the Spanish economy1966-2006 (%)

Variables 1965 1975 1985 1995 2000 2006GAV serv. / GAV total (current prices) 43.2 46.9 56.9 62.8 66.4 67.2GAV serv. / GAV total (constant prices) 55.8 53.1 56.1 58.5 66.4 67.9Service labor force / Total labor force 32.4 40.4 50.2 61.0 64.4 66.6Service exportations / Total exportations 58.8 41.9 34.0 29.4 31.1 35.6Service importations / Total importations 5.8 8.2 12.0 16.2 16.7 20.3Service exportations / GDP 14.9 11.7 13.2 10.4 15.2 14.2Service importations / GDP 1.9 2.9 4.2 5.8 9.0 11.0

Evolution of Productivity and Prices in the traditional sectors (1985-2006)

Sector Productivity growth Prices growthAgriculture 4.9 2.8Industry 1.4 3.1Services 0.2 5.2

• Supply explains better than demand

• New technologies let services be more progressive if you can take advantage and assimilate them

Productive and commercial specialization

• ↑ non-commercialized services

• Commercial distribution:– Problems of price and productivity– Excessive regulation, small firms

• Hotel trade:– Big expansion because of tourism– Low productivity because of small firms

• Transport and communications:– Technological advances– Higher productivity and lower prices

• Trade specialization– High competitivity of tourism firms– Competitive disadvantages in the other

services, overall in financial services– Growing presence in computer services

Productive efficiency

• Very low productivity (↑ production ↑ employ)

• Causes:– Difficulties introducing technology– Scarce local competition because of high regulation

• Consequences: ↑ prices

Differences in productivity and price growth between services and industry in Spain, 1981-2004 (%)

Sector policies

• Very regulated historically• 1980´s, anti-regulation in theory and practice:

– Take away regulations– New regulations to obtain competition

• Measures:– Industry, reduce tariffs– Mobility of producers and consumers– Freedom of open firms– New technologies– European Union

Deregulation in Spain

• Starts in the second half of the 1990´s

• Gradual and unequal deregulation:– Telecommunications– Air transport– Commercial distribution– Pharmacies, petrol distribution