Independence, to do what?

Up until today, the debate on the economic impact of an eventual independence of Catalonia has centered itself in an almost exclusive manner on two issues: the dividend that an end to the fiscal deficit with Spain would mean, and the cost of a possible boycott of Catalan products. These are, without a doubt, two important factors and they must be taken into account when evaluating the economic profitability of independence. But the emphasis on these two issues reflects an attitude similar to that of a passive investor or stockholder who focuses solely on how their shares or dividends might increase or decrease after a business has changed hands. This attitude would contrast with that of the investor who is actively involved in a company, and who recognizes that they have been given an opportunity to have an influence, through their decisions, on the profits the company will generate and, thus, on the return on their investment.

In the case of an independent Catalonia, this opportunity means the possibility to design the institutions and regulations a new State from scratch, and it also means having at our disposal a wide array of economic policy instruments that are currently under the almost exclusive control of the Spanish Government and Parliament. This would allow us to define our own policies and a new regulatory framework for the labor, fiscal and financial sectors, among others, as well as the functioning of all the areas of public administration, with no more additional restrictions than those coming from European regulations. Given the importance these decisions would have on determining how prosperous the new State would be (and thus, the attractiveness of the pro-sovereignty option), it would be a good idea to enrich the current debate with proposals that answered the following question: independence, to do what?
Here I must confess that the prospect of a Catalonia-State is not something that I feel unconditionally attracted to. To better understand what I mean, and carrying this argument to the extreme, if independence turns Catalonia into a new Cuba or North Korea in the Mediterranean, I think that we should just forget about the whole thing. If I am attracted to the pro-sovereignty option it is because of the opportunity and possibilities that it offers. In all fields, but especially in the field of economics. To make it crystal clear, I am attracted to the opportunity and the possibilities that the building of a new State offers, a State that has, among its basic objectives, that of achieving a maximum sustainable growth and that, therefore, designs its institutions and regulations in accordance with this objective from day one. When it comes to the economy, this objective will surely garner a wide consensus as long as we leave aside ideologies and partisanship, and look beyond legitimate discrepancies when it comes time to define the specific policies to be implemented. Among other reasons, because I don’t believe that there is a credible alternative if we want to bring an end to the unemployment affliction (the most perverse source of inequality) and maintain a quality welfare State.
The report Doing Business, published annually by the World Bank, offers us a way of measuring our potential in this sense. In their latest edition they situated Spain in position 44 (out of 183 countries) of their global ranking based on “ease of doing business” (with Puerto Rico and Columbia ahead of it, and followed by Rwanda and Tunisia). In some of the sub-indicators the situation is appalling (for example, Spain is ranked 133 in terms of ease of starting a new business). This report and other similar ones, such as the World Competitiveness Report, only confirm what is evident for any business manager: the Spanish institutional framework is far from being ideal for the generation of wealth based on productivity.  The building of a new State offers, therefore, a unique opportunity to start, from scratch, an ambitious and engaging process that looks to the future without being weighted down by the past.
In my opinion, the economic attractiveness of an independent Catalonia would be further increased if the following principles (without this being an exhaustive list) were taken into account in the building of this new State:
1. The need for a new public administration model based on the principles of austerity, efficiency, and quality service to citizens. To satisfy this need would require, in my opinion, the introduction of business management criteria into the way we run our public administration, with strict accountability and incentives based on individual productivity. The obsolete, discriminatory and anti-economic figure of the civil servant, like that of the feudal knight, should become a thing of the past. The management system for the Catalan Government’s research centers, based on management autonomy, accountability, and incentives linked to the excellence of results offers a widely recognized model of success that could make up the core of the future Catalan administration.
2. The supreme importance of simple, fast, and efficient administrative and legal procedures that maximize a person’s legal protection and fully guarantee their rights. Any resources that could be invested in this field would see an immense social return.
3.  The need for a flexible labor framework, with a single indefinite contract that puts an end to the current duality, and where the role of the courts is not to “decide for companies,” but instead that is restricted to guaranteeing respect for established procedures and for a lack of discrimination.
4. A taxation system for companies and workers that favors foreign investment and the attraction of talent. The end to the fiscal deficit and a prioritization of the battle against fraud should offer enough leeway for this new tax regime.
5. The adoption of English as a third official language, emphasizing its role as a language that connects us to the world, including the connection between international companies and professionals and the administration. To do so would require an intense literacy campaign with the collaboration of the media and the schools. This would also be, without a doubt, a key element in the internationalization of Catalan companies and the reduction of their excessive dependency on the Spanish market that, despite the advances in the last few decades, still is disproportionate considering the relative insignificance of this market in the global economy (0.6% of the world’s population and 1,7% of the world GDP, once Catalonia is excluded).
6. A quality welfare State that is generous to the underprivileged, but with few distortions and disincentives, and that relentlessly fights fraud.
In summary, and to draw this article to a close: I believe that it is important to recognize that the independence of Catalonia, in and of itself, could make us richer (because we would end the fiscal deficit), but not necessarily more productive. This second aspect would require us to make good use, the day after the celebrations are over, of the unique opportunity and the enormous possibilities offered by the building of a new State. Whether we are prepared for this challenge or not will depend exclusively on us, and we will no longer be able to lay the blame on others. In the end, maybe that would be the best gift that independence could bring us.
La Vanguardia - 2012-10-14

English version published at In Transit

Jordi Galí

Jordi Galí is Director of the Center for Research in International Economics (CREI), Professor at Universitat Pompeu Fabra and Research Professor at the Barcelona GSE. He obtained his Ph.D. from MIT in 1989. He is a Research Associate at the National Bureau of Economic Research (Cambridge, MA) and the CEPR (London). He has held positions at Columbia University and New York University. He is currently the President of the European Economic Association. His research focuses on business cycles and monetary policy.
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