Analysis FAES The question of market breadth

04/02/2019

Juan Velarde is Professor of Applied Economics, Honorary President of the Royal Academy of Moral Sciences and Emeritus Counsellor of the Court of Auditors.


The progressive expansion of market fragmentation clearly shows its consequences of slowing down economic activity, with Catalonia at the forefront. This is the catastrophic line of any politician who admits that key elements of the economic homogeneity of the whole territory are disappearing.

In the world of science, when someone prepares a proposition that is immediately accepted, except by the ignorant, he succeeds in not exposing it again, based on the fact that the question has already been debated by some significant scientist and there is no possibility of changing anything, be it the length of a circumference -2.π.r-, or that from Proust we know that Sulphuric acid is SO4H2, or that from Einstein energy is equal to mass by the speed of light squared (e=mc2).

The very same thing happens in the field of economic science. When Adam Smith opens the door for the Classical School -without which economic science would not have been created- in his work ‘Investigation of Nature and Causes of the Wealth of Nations’, he points out almost at the very beginning of his exposition (precisely in the first paragraph of chapter I of book I of this fundamental work) that ‘’the greatest advance made in the productive capacity of the work, and the greatest skill, dexterity and discernment with which it is directed or applied everywhere, seem to have been a consequence of its division’’. And immediately, in chapter III, he goes on to expand this initial postulate on the development of the economy. He points it out properly: ‘’ The division of work is limited by the dimensions of the market’’.

Since March 9, 19776, the day this work was published, this statement related to the breadth of the market and the increase in development was established forever, as undeniable as the length of the circumference or the energy in Einstein’s basic formula that I have previously pointed out.

And from there derives the conviction of the existence of a current link between an economic policy that does not take this into account and the failure of an economic development process. We immediately see this in an extraordinary contribution, which cannot be disregarded, made by Allyn Young in that wonderful article Increasing returns and the economic progress, published in The Economic Journal, December 1928, pp. 527-547. Schumpeter would later state in his History of Economic Analysis that A. Young means a lot with this article to explain the American economy; finding there the link that exists, for example, between the Marshall plan and the movement that led to the European Common Market.

In Spain it became very clear that its expansion required, first and foremost, a radical homogenization of the market and, thinking about the future, not only imagining the abolition of tariff barriers with neighboring countries (particularly with Portugal), but also the enlargement of the internal market, eliminating any obstacles, as happened with Carlos III when Campomanes imagined the six major fundamental roads linked to Madrid. The idea of breaking all ties with neighboring countries was clearly established for Spain after the 1970 Preferential Agreement, in addition to the prelude derived from the 1959 Stabilization Plan. However, the derivation of the link between a set of important political forces -those derived from the inheritance of Carlism, those generated by romanticism and those provoked, as Perpiñá Grau pointed out in 1935, by the alliance of corporate developments, interventionism and brakes on competition- was believed to contribute to the development of the regions where all this was considered. Since the nineteenth century, growing trends of this type emerged that, time and again, were inserted, starting with Cánovas del Castillo in the "Castiza Economy" model which, as it has been recently demonstrated ad nauseam, was one of the obvious causes that existed in Spain to slow down its economic development.

This is a path that has recently been progressively extended, and in some cases clearly shows, with Catalonia at the forefront, the consequences of slowing down economic activity. However, it is worth stressing that this brake on the homogeneity of the Spanish market exists if no line that slows it is radically altered.

Specifically, texts alluding to the above appear in the publication of the World Bank Doing Business in Spain 2015, through indexes that refer to the facilities or difficulties that, in order to implement business ideas, arise in various aspects in the Spanish autonomous regions. Facilities or difficulties that are related, either with construction permits, or with the facilities for contracting electricity, or with valuations on the greater or lesser legal difficulty, and all this in a set where the total lack of difficulties is evaluated with 0 while the existence of barriers impossible to overcome is evaluated with a 100. The variables are: opening a company, obtaining construction permits, obtaining electricity and registering properties. For a specific region, 400 would be an impossible reality to expand its market, and 0 that there are absolute lacks of difficulties. The importance of the table below shows, according to this information from the World Bank, from lowest to highest, the differences in barriers to the market which, I believe, deserve to be highlighted in the Spanish autonomous regions as a whole:

Extremadura

219,50

Aragón

264,01

Ceuta

265,60

Murcia

265,77

Galicia

268,39

Baleares

271,71

Melilla

274,43

Canarias

275,75

Cantabria

276,08

Castilla La Mancha

277,18

País Vasco

279,08

Asturias

281,19

Cataluña

282,84

Comunidad Valenciana

284,46

Comunidad de Madrid

285,03

Navarra

286,59

La Rioja

288,49


To update and derive statistical consequences from these figures would be very convenient and, above all, to calculate the variance and its evolution with respect to 2015 -year of the data provided- at present would have a clear interest.

Ignoring this would be like if a radical ignorant of Galileo's contribution were to jump on a balloon without a parachute because he had decided that the law of gravity did not exist. That is the catastrophic line of any politician who admits to specific parts of the Spanish territory that key elements of the economic homogeneity of the whole territory disappear.




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