Bernardo M. Villegas
Articles  >> more topics
Following Economic Footsteps of Spain (Part 2)

             It is interesting to note that the Plan of Stabilization that jump started the rise of the Spanish economy from the “sick man of Europe” to the Iberian tiger actively targeted  a major inflow of foreign capital into Spain by facilitating foreign investments in the country and by granting amnesty to all Spaniards who had illegally accumulated wealth abroad and who were willing to repatriate such wealth; capital held abroad by Spaniards could be brought back to Spain without fear of government prosecution.  The framers of the Plan of Stabilization clearly understood that a massive entry of foreign capital into Spain was the most effective way of obtaining external equilibrium.  A similar situation exists in the Philippines today:  we cannot continue the Build, Build, Build program started during the Duterte Administration without a massive dose of Foreign Direct Investments.

            The “technocrats” did not have an easy task in introducing more market-oriented reforms as they tried to open the Spanish economy to more free trade and investments.  Some of the leading decision makers surrounding the authoritarian leader Franco were reluctant to embrace a true market economy.  Given the fact that these men loyal to Franco had careers anchored to the large apparatus of government intervention, that their power and prestige were tied to their ability to allocate resources and extend credit, their strategy was to liberalize the Spanish economic activity while retaining significant government control over such activity.  They were willing to allow a slow liberalization of Spanish economic life but they were strongly opposed to any democratization of the existing political regime.  This delicate balancing between economic liberalization and authoritarian political control seemed to have also been the magic formula for the success of the East Asian economic tigers like Singapore (under Lee Kuan Yew), Taiwan (under Chang Kai Sek ) and South Korea (under Park Chung Hee).  Unfortunately, the authoritarian regime of President Ferdinand Marcos continued to a great degree the inward-looking, protectionist policies of the 1950s and 1960s.  In fact, as late as the early 1980s, the Marcos Government was still trying to build the so-called Eleven Major Industrial Projects that symbolized an import-substitution industrial policy.  To make matters worse, the Constitution framed during the Administration of President Cory Aquino enshrined numerous restrictions against foreign direct investments that were finally removed only in 2022 during the last year of the Duterte Administration. 

            The government technocrats appointed by Franco in the 1960s embraced what was then known as “indicative economic planning,” as developed by the French, as a way to retain state control (dirigisme) despite the trend toward economic liberalization.  The formulation of three-year indicative plans allowed a large bureaucracy to retain power and prestige and to claim credit for the fact that during the decade 1960 to 1970, the Spanish GNP increased at an impressive rate of 7.5% per annum, what was then the highest annual rate of GNP growth in the whole of Europe.  During that same period per capita income in Spain rose from $300 to $1,500. A similar decade in our recent economic history was the period from 2011 to 2019—immediately before the pandemic when Philippine GDP grew year after year at an average of 6 to 7 %, as a result of strong economic fundamentals brought about by at least thirty years of institution building and the reform of anti-market policies.

            The method of planning, even the organizational structure of the planning agency, was copied from the French model, although the administration of these plans was very much influenced by old Spanish traditions.  The plans were the product of the Commissariat for the Plan, initially a small agency attached to the Office of the President, and subsequently transformed  into a large “Ministry for the Planning  of Development.”  Interestingly enough, when I returned from my studies in the U.S. in 1964, there was the Program Implementation Agency (PIA) under the Office of the President which evolved eventually into the Presidential Economic Staff (PES) under the Marcos Administration.  These were the agencies being run by our own version of technocrats in the 1960s and 1970s such as Armand Fabella, Cesar Virata, Sixto Roxas III, Alex Melchor, Jess  Estanislao and others who made sure that the plans that were being formulated by the National Economic Council (NEC) were actually being implemented.

            The organizations that were managed by the technocrats appointed by Franco in Spain formulated the Development Plans for the periods 1964 to 67, 1968 to 71 and 1972 to 1975.  The principal goal of the plans was to increase productive private investments and largely ignored income distribution and the reduction of regional imbalances, particularly because the latter measures were thought of as slowing down the increase in private investments.  Because the government technocrats could not request for increases in public investments, they chose to follow a model of growth which was based on an unequal distribution of income and on regional imbalances.  Plan I was especially characterized by this model of unbalanced growth.  In Plans II and III, there were attempts to give more importance to social objectives and to the redistribution of personal income as well as to regional planning in order to help the poorer regions of the country.  However, those who framed the plans were loyal to the strategy of unbalanced growth and to the belief that rapid growth in the wealthier regions of Spain would eventually trickle down to the poorer ones.  They adopted the French concept of “poles of growth “, standing for the idea that the government would invest in the development of infrastructures in such poles and grant tax benefits to firms that establish themselves in those areas.  The poles were areas that were most likely to succeed as they already had experienced industrialization, not economically backward regions.

            These plans, efficiently implemented by competent technocrats in the 1960s and 1970s, built the strong foundations that catapulted Spain to First World category by the beginning if the new millennium. As Erick Spitaller and Michael Galy wrote in “Spain:  Landmarks in Economic Development—1939 to 1992” recent success of the Spanish economy is frequently attributed to the benefits from economic integration into the European Community, which Spain joined in 1986.  As I myself witnessed in the early 1960s, the foundations of the long-term industrialization and modernization of the Spanish economy were actually laid much before when, as happened in the China of Deng Xiao Peng, autarky and inward-looking economic policies were replaced by more market-oriented ones.  The origins of the success of the Spanish economy may be traced back to earlier years and the benefits from EC membership are best seen as reinforcing favorable trends  already in effect. 

            Most significant among the real game changers were the “orthodox” stabilization and reform programs under the auspices of the International Monetary Fund in 1959, the “heterodox” adjustment program pursued on transition to democracy in1977 (after the death of Franco) and the differences in the response to policy to the oil crises of the early and late 1970s.  On the whole, the approach to financial stabilization was radical, and that to structural reform gradual.  By mid-1980s, Spain had largely accomplished the transition to a modern economy and prospects were favorable for sustainable expansion over the medium term.  The mutually reinforcing effects of those circumstances and the subsequent process of integration into the EC spurred the further progress of Spain.

            What gave a solid foundation to the rapid modernization of the Spanish economy was the very introduction of the Build, Build, Build program of vital infrastructures early in the market-oriented reforms.  As previously mentioned, the efforts to endow the economy with efficient infrastructures was symbolized by the popular label given to Franco by the Spanish public during the sixties:  he was referred to as the “gran sapo” or the great frog because he was jumping from one dam to another to inaugurate hundreds of them all over the country. The focus on infrastructures paid off as efficient infrastructures served to attract more investments, first in large-scale agriculture (oranges, grapes, olives, kiwi, etc.), manufacturing (especially automobiles and trucks), and services (Spain in any given year has more foreign tourists than Spaniards).  There are many lessons the Philippines can learn from the economic journey of Spain to First World status, except probably in the precipitous decline in fertility that can be attributed to social and moral reasons affecting the nuclear family.  In this regard, though, the rapid aging of Spain presents a singular opportunity for the Philippines to provide its former colonizer with much needed human resources—as long as we are able to avoid falling into a similar fertility decline in the coming decades.  For comments, my email address is