The barometer of the Círculos

The “Barometer of the Círculos”
June of 2014

TABLE OF CONTENTS
Letter from Círculos ……………………………………………..………………….iii
Executive Summary………………………………………….....................................2
Introduction and Principal Results ………………..…………………………………2
Market Dynamism ………………..………………………………………………….6
Basic Resources ………………..……………………………………………………11
Labor Market ………………..………………………………………………………17
Financial Market ………..………………………………………………...………...24
Management Dynamism ..………………………………………………...………...29
Contribution of the Administrations..………………………………………...……..36
Conclusions ………………………………………………...……………………….41
Recommendations………………………………………………...…………………43
Annexes…………………………………………………………...…………………47

INDEX OF GRAPHS
Graphic 1. Composition of the Barometer..........................................................4
Graphic 2. Aggregated Results of the Barometer 2014 ......................................5
Graphic 3. Elements that Make the Products and Services of Spanish
Companies Attractive .........................................................................................7
Graphic 4. Most Relevant Reasons for Investing Abroad...................................7
Graphic 5. Competitive Strengths and difficulties of the Spanish Economy......9
Graphic 6. Basic Resources: Comparison of General Indicators with Other
OECD Countries ...............................................................................................11
Graphic 7. Basic Resources. Perceived Valuations on the Círculos Barometer
...........................................................................................................................12
Graphic 8. Need for Improvements in Prices and Management ......................13
Graphic 9. Most Relevant Measures to Improve Education in Spain ..............14
Graphic 10. Most Relevant Public Actions to Improve Innovative Ability of
Spanish Companies ..........................................................................................16
Graphic 11. Percentage of Workers in Temporary Employment. Average 2000-
2012...................................................................................................................17
Graphic 12. Labor Market. Perceived Valuations on the Círculos Barometer. 18
Graphic 13. Impact of the Recent Labor Reform Measures on the Efficiency of
the Work Market ..............................................................................................19
Graphic 14 Most Important Reforms to Improve the Labor Market Situation in
Spain .................................................................................................................20
Graphic 15. Financial Market - Relative Position of Spain in the Global
Ranking of Countries (2008-2013) ...................................................................24
Graphic 16. Financial Market. Perceived valuations on the Círculos Barometer
...........................................................................................................................25
Graphic 17. Main Problems Affecting the Spanish Financial Market .............25

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Graphic 18. Perception of Compliance with Maximum Payment Deadlines to
Legally Established Suppliers ..........................................................................26
Graphic 19. Financing Sources Used by Companies .......................................27
Graphic 20. Company Dynamism. Perceived Valuation on the Círculos
Barometer..........................................................................................................30
Graphic 21 Initiatives Taken with Regard to Entrepreneurship .......................31
Graphic 22. Obstacles to the Acceleration of Procedures and Formalities ......33
Graphic 23. Contribution of Administrations. Perceived Valuations on the
Círculos Barometer ..........................................................................................36
Graphic 24. Most Important Initiatives to Ensure an Adequate Control of
Public Deficit ...................................................................................................37
Graphic 25. Areas of Greatest Concern Regarding Corruption for Company
Activity .............................................................................................................39
Graphic 26. Most Beneficial Tax Reforms for Spanish Company Growth......40
Graphic 27. Comparison of the Barometer Results and Similar Variables of
Other Indexes ....................................................................................................48
Graphic 28. Profiles of Those Polled. Principal Activity of Company ............49
Graphic 29. Profiles of Those Polled – Number of Employees in their
Companies ........................................................................................................49

iii

Letter from the Círculos
The Barometer of the Círculos project has two purposes: to identify and track the principal
strengths and competitive weaknesses in our business climate, and to propose concrete
measures and structural reforms to correct these weaknesses.
The Barometer of the Círculos will come out annually and will quantify the opinions of top
Spanish managers about key aspects of our economy. The yearly development of the criteria in
the Barometer will give the Spanish economy some yardsticks to measure its development,
with regard to both the situation at a given moment and to structural conditions.
The Barometer is developed around three elements that distinguish it from other indicators
about the comparative competitiveness of countries:
 It takes as its starting point the results for Spain of the principal indicators about
comparative competitiveness among countries. It thus identifies the most important
conclusions of these sources and integrates them into a homogenous measurement so
that they can be taken as comparative reference with the analysis of the Barometer
itself.
 It generates information and analysis based on the opinions of a wide range of
businessmen and managers in Spain who are members of these Círculos. This is
something unique, a result of the very nature of the Círculos, which are able to access
a very interesting sample of the Spanish business world and high levels of business
and management responsibility.
 It generates practical results that are useful when taking decisions, both by investors
and public institutions. To this end, it provides clear and rigorous conclusions about
competitiveness relative to the Spanish economy, and about areas of business where
the Public Administrations and the companies themselves should take action.
We hope that successive issues of the Barometer de los Círculos will generate wide debate that
bring transparency and objectivity about the competitiveness of the Spanish economy, as well
as useful ideas for its continued improvement.
Finally, we wish to express our gratitude to the sponsoring bodies (DKV Seguros Médicos,
Fujitsu, Santander and Telefónica) whose cooperation has made possible the publication of this
Barometer.
José María Bergareche Busquet
President, Círculo de Empresarios Vascos
Mónica de Oriol e Icaza
President, Círculo de Empresarios
Antón Costas Comesaña
President, Círculo de Economía

1

Executive Summary

2

Spain is one of the great economic success stories of recent decades, with an
increase in per capita income in real terms of more than 70% between 1977 and
2012. At present it is a large economic power, both for the size of its domestic
market and its membership in the European Union, which is one of the two largest
economies in the world. The importance of Spain in the international economy is also
the result of the success of its exporting companies and multinationals, many of
which are global leaders in their sectors. The position of Spain and its companies in
the world economy is a guarantee of a high quality of life and a future full of
possibilities.

Over the past decade Spain has undergone one of the greatest turnabouts in
economic activity in its history. After a period of growth based on internal demand
and the construction sector, the economy is being transformed through a very
important adjustment as companies adapt to the new reality and the unprecedented
development in the area of exports and innovation. This change is not turning out to
be an easy one. The Spanish economy is going through a period that will determine
its future for decades. More than ever before, what we do today will define the
wellbeing of tomorrow’s Spaniards.

THE BAROMETER OF THE CÍRCULOS

The Círculo de Empresarios, the Círculo de Economía and the Círculo de Empresarios
Vascos, as independent forums of businessmen and civil society, feel it is essential to
collaborate in this transformation of the Spanish economy that has come about
because of the country’s economic crisis. It is in this context that the Barometer of
the Círculos has appeared: it seeks to help diagnose the situation of Spain’s economy,
define the process for transforming it, and examine the changes that will be
necessary to make that a lasting transformation.

We consider that the changes that are coming about –through globalization and the
omnipresent appearance of new technologies– make it necessary to accelerate
Spain’s transformation, something that will require that all the country’s social and
political forces –including civil society– work together.

Given the magnitude of Spain’s problems –especially its debt and unsustainable level
of unemployment– we believe it is necessary to reach agreement about a diagnosis
and set out the main lines of action to generate the competitiveness that will allow
us to rise in the global ranking. In this way it will be possible to mobilize the country
toward regaining prosperity and maintaining the bases for the Welfare State that we
have achieved together. These are the context and aims of this project.

The Barometer shows the way Spanish businessmen perceive the strengths of the
country’s economy: those aspects that make it a center of attraction for global
business and are the basis of our future growth. But to consolidate these strengths,
the Barometer also identifies areas where we must still improve as a society. The aim
is to show in a constructive way where we are now, and the areas in which we must

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improve –whether at the most basic level or in our perception of the management
context– to consolidate our economic future.

The Barometer is centered on five aspects of economic activity: (i) the present
perception of Spain as a market and production center in the global context; (ii) an
evaluation of the potential of our basic strengths in physical infrastructure, human
recourses and technology to consolidate future growth; (iii) an evaluation of our real
estate, labor and financial markets as focus points of economic activity;
(iv) those factors that determine our long‐range growth such as the quality of
education, entrepreneurship, and the functioning of the markets for goods and
services; and (v) the contributions of the Public Administrations to the development
of our competitiveness.

MARKET DYNAMISM

Expectations for growth in domestic demand are moderately optimistic, in line with
the most recent forecasts for growth released by analysts and official organizations.
Nevertheless, most of company growth will come in the international context: in
both exports and, to a lesser degree, increased investment overseas.

The main strengths of our economy for attracting foreign investment continue to be
the size of the Spanish national market, our geographic location, and the possibility
of using company activities in Spain as a platform for reaching other markets. But to
attract more productive investment in the short term, it should be noted that foreign
companies are concerned about the perspectives for growth in domestic demand
and macroeconomic and political and institutional instability.

BASIC RESOURCES

Overall there is satisfaction with the quality of Spain’s physical infrastructures.
Nevertheless there are seen to be important deficiencies in the management of
these infrastructures, as well as in the mechanisms for setting prices and in the way
decisions are made about new investment. The energy field, especially the electric
sector, is seen as the industry most in need of better management and cost control.

As for human capital, there is a high level of top technicians, principally engineers,
and Spanish managers. But there is a generalized perception that the level of
education is an important vulnerability for the Spanish economy, and something that
could worsen over the long term. The most important deficiencies are considered to
be a lack of knowledge of foreign languages and the low quality of professional
training as preparation for employment. Companies must take a greater part in
designing courses of study, selecting candidates and financing dual vocational
training.

There is no pessimism about the country’s innovative capacity. While it is recognized
that little money is spent on research and development, Spanish companies get high
marks for their innovative potential through technological improvements in defining

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products and processes. Companies must take a greater role in public R+D. Measures
to promote and finance public‐private initiatives and tax incentives for R+D are
preferable to direct measures by the public sector, such as an increase in public
funding on R+D or incentives through public purchases.

LABOR AND FINANCIAL MARKETS

Reactions to the recent labor reforms –especially to the lowering of costs for
dismissing workers and the encouragement of part‐time employment– have
generally been positive, although there is concern about the way courts might rule
on some of the less precise aspects of these reforms, such as objective appraisals of
the causes for firing workers. Nevertheless there are still important problems for
management when it comes to moving workers around, either geographically or
within the workplace, and in linking wages to individual productivity. In this sense,
the role of the trade unions and management is seen as negative, especially by
making it more difficult to sign collective contracts on the company level.

The availability of a qualified work force and the costs of salaries are seen as an asset.
It is felt that unemployment, especially among youth, is the problem of greatest
priority. Urgent measures must be taken to generate employment through training
contracts and part‐time work. It would also be beneficial to link salaries to worker
productivity and to reduce the costs for management by lowering its obligatory
contributions to workers’ social security programs.

The international perception of our financial sector has suffered notably. Overseas,
there is a low opinion of the Spanish financial market. Traditionally, non‐bank
sources of financing have been vulnerable, and in recent years the weakness of the
banking sector has made access to credit difficult.

Late payment in commercial transactions has been reduced somewhat, although it is
still seen as a serious problem, and there is a generalized failure to comply with
existing laws. The problem is most common in the Public Administrations, in spite of
the positive effect of measures to pay suppliers to the public sector.

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MANAGEMENT DYNAMISM

There are high marks for the level of competition in the Spanish market, which
contributes to management dynamism, but there is a less positive opinion of the
authorities responsible for overseeing this competition. The capacity of companies to
adapt to changing conditions, and the capacity for growth of efficient companies, are
seen as key factors in their success, although they are undervalued by society as a
whole.

Society does not sufficiently value entrepreneurship, which must be stimulated by a
change in aptitudes and attitudes toward entrepreneurs and risk‐taking. There
should also be a greater contribution to business dynamism on the part of the small
and medium‐sized companies.

Government regulatory requirements are considered an obstacle for
entrepreneurship, and are especially noxious to business growth. Economic policy
should shift more toward favoring this growth, instead of just creating companies:
tax incentives should be linked to growth more than to the mere creation of
companies or their size.

PUBLIC ADMINISTRATIONS

Along with the financial market, the functioning of the Public Administrations is the
economic aspect that is most poorly rated in the Barometer. It is thought that the
poor functioning of the Administrations has a structural cause, one that has been
aggravated by the economic crisis. The priority should be to improve the efficiency of
the Public Administrations, reduce their size, and optimize their functions –on all
their different levels.

While it has been painful, adjustment of the public sector has been less than that in
the private sector, and the cuts have been overly horizontal, without prioritizing
essential aspects for long‐term growth. Improving the Administration and public
services does not necessarily mean choosing between private and public
management, but rather assuring that when there is public management it has the
appropriate instruments, comparable to those in the private sector.

There is a poor opinion of the Spanish judicial system, which is considered
unpredictable in its sentences and the time it takes to reach them. It would be good
if judges received specific training in technical aspects of business management.

Any tax reform should take into account its effect on companies and their
competitive surroundings, both inside and outside Spain. Fiscal measures should
foment competition among businesses, not harm it. In this sense, there should be a
fight against fraud, and a reform of the corporation tax, with a reduction in tax rates
in exchange for the elimination of deductions and bonuses, and an increase in
indirect rather than direct taxation.

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Corruption is not seen to be much more serious in Spain than in neighboring
countries. But it is having an appreciable negative effect on how our economy is
perceived. Corruption, because it generates suspicion, could cause vicious cycles that
lead to an excess of ex ante regulation or ex post control which, in some cases, could
become indiscriminate and arbitrary.

There must be no tolerance of fraudulent adjudications and favoritism in
administrative decisions. The illegal financing of political parties and labor unions,
along with the embezzlement of public funds, have also been a source of concern
and should be tackled with stronger fines, control mechanisms and greater demands
for transparency.

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1. Introduction and Principal
Results

Spain is one of the world’s great economic powers both for the size of its domestic
market and its membership in the European Union, which is one of the two largest
economies in the world. It is also one of the great economic success stories of recent
decades, with an increase in per capita income in real terms of more than
70% between 1977 and 2012. The importance of Spain in the international economy
is also the result of the success of its exporting companies and multinationals, many
of which are global leaders in their sectors.

Nevertheless the drive and leadership of the Spanish economy was truncated to a
large degree six years ago by one of the longest and deepest economic crises
suffered in modern Spain. Between 2008 and 2013 the Spanish economy contracted
by 6.5% and 3 million jobs were lost, some 15% of the total number of people who
were employed in 2008. As a result, a total of 6 million were unemployed in 2013,
making us the European Union country with the second highest rate of
unemployment, after Greece, something incompatible with our ambitions to be an
advanced society.

The severity of the crisis has brought about a sectorial adjustment of the greatest
importance. Starting from a situation where economic activity was linked to internal
demand and the real estate sector, the economy is being transformed through an
unprecedented development in the area of exports and innovation. This adjustment
is not turning out to be easy. Spanish salaries have in general shrunk, with a
reduction in the nominal unit labor costs of 7% since 2009, which has returned us to
a position relative to the average in the euro zone similar to the one we occupied in
2000. At the same time, between 2008 and 2013 the export of goods and services
increased from 26% to 34% of the GDP.

Thus there is a perception that the end of this period of economic recession may be
at hand. However there is no consensus about whether we have taken advantage of
the crisis to consolidate a more competitive economy over the long term, something
that would allow us to confront in a lasting way a setting that is increasingly
demanding, both inside and outside the European Union.

At this key moment, the Círculos want to contribute to the construction of Spain’s
future by providing clear and precise information about how our traditional strengths
are being secured and how our structural imbalances and deficiencies are being
resolved. The Barometer of the Círculos seeks to do this by providing an annual
indicator of development, including both events at a given moment and overall

3

structural aspects of the economy, as well as making recommendations on how to
improve its competitiveness.

From the point of view of methodology, the Barometer of the Círculos works by
means of three instruments. First, a selective review of the principal economic
indicators that are periodically published about competitiveness, compared by
countries, and their most important conclusions. Second, an on‐line survey, which
this year was answered by 154 Spanish managers, most of whom are members of
one of the three Círculos. Each year this survey measures the opinion of managers
about the strengths and weaknesses of our economy and the principal regulations
that have recently been applied or will be in the near future. And third, a series of
individual, in‐depth interviews with more than 20 directors of companies that are the
leaders in their respective sectors. These interviews make it possible to validate the
results of the on‐line survey, while at the same time detecting relevant nuances
about the origin of competitiveness at companies that are leaders in the Spanish
economy, and about priorities in general economic policy.

The Barometer is based on five sections that provide a full vision of the principal
aspects that affect competitiveness and business dynamism in Spain. Graph 1 shows
the five sections, as well as the variables that are analyzed in each one of them.

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Graph 1. Composition of the Barometer

• Functioningof justice
• Efficiencyof public spending
• Corruption
• Tax burden
• Effectof use of subsidies
• Effectof publicmanagementcompanies
• Developmentof internal
demand
• International activity
• Foreigninvestment
MARKET
DYNAMISM
BASIC
RESOURCES
PRODUCTIVE
FACTORS
BUSINESS
DYNAMISM
CONTRIBUTION
OF PAs
• Qualityof infrastructures
• Price of infraestructures
• Management efficiency
• Qualityof businessinnovation
• Extentof use of ICTs
• Qualityof formal education
• Language fluency
• Learningability
PHYSICAL INFRASTRUCTURES
HUMAN RESOURCES
TECHNOLOGY AND INNOVATION
• General efficiency
• Availabilityof skilledworkforce
• Costof skilledworkforce
• Functionalmobilityin the company
• Geographicmobility
• Contributionof social partners
LABOR MARKET
FINANCIAL MARKET
• Access to financingby meansof capital
• Access to credit
• Creditdevelopmentin the last12 months
• Compliance withpaymentdeadlinesbyPA.
• Compliance withpaymentdeadlinesbycompanies
• Contributionof entrepreneurshipto
development
• Contributionof SMEsto dynamism
• Relationbetweenefficiencyand
companygrowth
• Regulatorybarriersand bureaucracy
• Competitioninthe sector
• Supervisionof competition
• Companiesadaptation

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The results of this initial edition of the Barometer show, in first place, a more positive
juncture and a high degree of consensus about the early, though moderate,
improvement in the principal indicators of economic activity. Likewise, as the
recovery gains ground, the Spanish economy is seen to have solid strengths such as
the quality of its infrastructures and a trained work force, along with the size and
location of its domestic market. Finally, the Barometer has detected structural
weakness and urgent problems that need to be resolved without delay. Outstanding
among the former are the inefficiency of our Public Administrations, the high levels
of unemployment, and professional training that is not very competitive. Urgent
action must be taken to consolidate the tax code, reorder the Administrations to
reduce public spending and increase their efficiency, and improve financial markets.

Graph 2 shows the average scoring obtained by the total number of variables
included in each of the sections in this first edition of the Barometer. As can be seen,
the Market Dynamism section earns the highest average score, 4.9 in a range of 1 to
7. It is followed by Company Dynamism, 4.4; and Basic Resources, 4.0. The sections
receiving the least approval are Financial Market, PA Contribution and Labor Market,
with an average score of 2.9, 3.0 and 3.3, respectively. As reflected in the Barometer,
Spain has obvious strengths in some areas, and clear weaknesses in others, which
confirms that there are economic and institutional imbalances that need to be
corrected.

Graph 2. Aggregated results of the Barometer 2014. Result of the
evaluations, from 1 to 7, for the sections of the Barometer

Note: The range of measurements is from 1 to 7. The midpoint of the range of measurements is 4.

In the following six chapters we will analyze these aspects in greater detail, and in the
final chapter concrete recommendations will be made on how to overcome the
weaknesses that have been detected.
Labor market (3.3) Financial market (2.9) Company dynamism (4.4)
Market dynamism (4.9) Basic resources (4.0) PA contribution (3.0)
1 7
4
3
2 6
5
1 7
4
3
2 6
5
1 7
4
3
2 6
5
1 7
4
3
2 6
5
1 7
4
3
2 6
5
1 7
4
3
2 6
5

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2. Market Dynamism

In the section Market Dynamism, the Barometer reflects expectations for growth,
both in internal demand and exports and overseas investment. It also identifies the
most attractive markets for Spanish companies and the advantages and
disadvantages of Spain as a destination for foreign investment.

Expectations for increased internal demand are moderately positive, in line with the
most recent predictions about growth provided by the Bank of Spain: growth of 1.2%
and 1.7% of GDP for 2014 and 2015, respectively. There are even greater
expectations about growth in overseas investment, and above all for an increase in
international activity by Spanish companies.

The preferred overseas destinations of Spanish companies are, in first place, Latin
America, followed by Europe –the euro zone, Eastern and Western Europe– for both
export and overseas investment.

When it comes to exporting, the competitive advantages of Spanish companies are
above all related a good quality/price ratio, an appropriate adaptation to demand,
and technological aspects. Competitiveness in price, however, is not considered to be
such an important factor for Spanish products and services in international markets,
which indicates that, increasingly, competition involves producing products and
services with greater added value, and that increased competitiveness in the
economy has been effective. In this sense the nominal unit labor costs in Spain have
dropped by 7% since 2009. This has brought us back to levels similar to those that
Spain had in 2007 and has returned us to the same competitiveness relative to the
euro zone that we had in 2000. This improved competitiveness has mostly been
achieved through a reduction in the number of salaried workers and through
improvements in productivity; the contribution of reduced salaries to the
improvement in competitiveness has been only 2.6 percentage points of the 7 points
of total improvement.

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Graph 3. Elements that Make the Products and Services of Spanish
Companies Attractive

Source: Own compilation with data from the 2014 Barometer of the Círculos survey.
Note: The percentages are calculated according to the number of persons surveyed who have chosen
that option as one of the three most relevant.

The reasons why Spanish companies make direct investment in foreign countries
have more to do with the potential for growth than with the specific business
conditions in those countries. When asked about their principal motives for foreign
investment, the businessmen surveyed stress the potential for growth and
profitability in those overseas markets, followed by the possibility of diversification
and the need of growth. They assign considerably less importance to aspects such as
the conditions of the labor market in those countries or acquiring technology or
other inputs, as can be observed in Graph 4.

Graph 4. Most Relevant Reasons for Investing Abroad

23%
22%
21%
16%
9%
5%
4%
Other
Relation price/quality
Adaptation to the needs of local demand
Technology
Price competitiveness
Design
Spain brand
27%
20%
16%
13%
10%
7%
5% 2%
Marketwith more
growth/ profitpotential
than that of Spain
Diversification
of marketsGrow to achieve
critical global mass
Platform for thedevelopment of
activity in other markets
Better business environmentin
destination market
More attractivelabor market
conditions
Capture of technology or other
importantinput
Other

8

Spain as a center of international activity

There has also been an analysis of Spain’s strengths and difficulties in attracting
investment and activity by foreign multinational companies. Companies here that are
affiliates of foreign firms were asked to explain why their parent companies decided
to choose Spain. Almost half of the respondents stressed the size of the Spanish
market, the country’s geographical location, or the possibility of using its activities in
Spain as a platform for reaching other markets. Less important were other aspects
such as labor costs, the quality of life or the infrastructures.

Other reasons for some multinationals locating part of their activity in Spain:
improvements stemming from the recent labor reform law, the existence of quality
suppliers, and the pool of skilled workers on different levels, e.g.,
telecommunications and informatics engineers.

9

Graph 5. Competitive Strengths and Difficulties of the Spanish Economy

Dificultades competitivas


As for the difficulties of the Spanish market in attracting foreign investment, what
most concerns those reps of foreign companies here are the macroeconomic and
political‐institutional instability, and the perspectives for economic growth. They also
stress the high level of unemployment, which has a negative effect on Brand Spain.
Other aspects that need to be improved regard taxes, the functioning of the labor
market and labor costs, and bureaucracy. But corruption is not one of the principal
concerns of foreign investors in deciding to set up operations in Spain.

The businessmen also stress aspects that would discourage foreign investment here,
such as a competitive disadvantage with regard to other countries in energy costs,
19%
13%
13%
12%
10%
8%
7%
5%
4%
3%
4%2%
Sizeof market
Geographic location
Platformfor thedevelopment
of activities in other markets
Workforceskills
Labor costs
Infrastructures
Quality of life
Spanish language and cultural closeness
R+D+I framework
Incentives and subsidies
Other
Fiscal framework
19%
16%
11%
10%
9%
9%
8%
5%
4%
3%
3%3%
Perspectivesfor economic growth
Bureaucracy and functioning of internal market
Political‐institutional instability
Macroeconomic instability
Functioning of labor market
Fiscal framework
Labor costs
Other
Corruption
Incentives and subsidies
R+D+I framework
Workforceskills

10

the regulatory uncertainty and arbitrariness in this and other sectors, the lack of
unity of the market, and the tax system.

These results are consistent with other reports about competitiveness, such as the
Global Competitiveness Report of the World Economic Forum (GCR), whose 2013‐
2014 edition stresses the most problematic aspects for doing business in Spain: apart
from access to financing, they include bureaucracy, labor legislation and tax rates. In
other reports, such as the Barometer of the Business Climate in Spain (1),
bureaucracy and aspects of the labor market are also perceived as problematical for
potential foreign investors1
.

Thus in general terms there seems to be moderate optimism about economic
activity, and while there continue to be occasional events and structural aspects that
work against foreign investment –such as the economic crisis and political‐
institutional instability– both the survey and the interviews that were carried out
reflect the capacity of the Spanish market for producing and providing goods and
services of high added value in the global context.

1 Barometer of the Business Climate in Spain from the Perspective of
the Foreign Investor (2012). Invest in Spain/ICEX, International Center
for Competitiveness, IESE.

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3. Basic Resources

Under the heading Basic Resources, the Barometer analyzes aspects of production
having to do with physical infrastructures, education and the innovative capacity of
the Spanish economy.

Spain obtains good results in most of the indicators of international competitiveness
that are periodically published with regard to the quality of its physical
infrastructures, but poorer results with regard to the quality of the educational
system and the capacity for innovation.

Graph 6. Basic Resources: Comparison of General Indicators with Other
OECD Countries

Source: Own compilation with original data from the Global Competitiveness Report, 2013.
Note: For each indicator there is a range of evaluation from “1” (worst) to “7” (best).

Spanish managers confirm those general perceptions about the quality of our basic
resources. As demonstrated in Graph 7, the evaluation of the quality of the
infrastructures in positive, whereas innovation and, principally, education are more
negative. The evaluation of management and the price of physical infrastructures are
substantially lower than that of its quality. In the case of education, proficiency in
foreign languages is notably low.

Graph 7 also makes it possible to compare the evaluation obtained in the Barometer
for Spain with the results obtained by other countries in the most important studies
(the Global Competitiveness Report, or GCR, and the World Competitiveness
0
1
2
3
4
5
6
7
8
Quality of
infrastructures
Quality of
education
system
Innovative
capacity
Spain
OECD average
Country highest ranked

12

Yearbook, WCY). For those variables for which there is information, we depict the
values obtained for the OECD average and for two concrete countries: the OECD
country with the best score in each variable and a country with a balanced evaluation
for the whole of the variables –in this case Holland. The evaluation of Spain is clearly
inferior, with the exception of the quality of its infrastructures, and also more
unbalanced.

Graph 7. Basic Resources: Comparison of General Indicators with
Other OECD Countries

Source: Own compilation with data from the 2014 Barometer of the Círculos survey, the 2013 Global
Competitiveness Report (World Economic Forum) and the 2014 World Competitiveness Yearbook
(IMD).

1
2
3
4
5
6
7
General quality of infrastructures
Price of infrastructures
Efficiency in management of
infrastructures
Quality of formal education
Language fluency
Learning ability
Quality of innovation in companies
Level of use of ICTs
Spain (Barometer) Average OCDE (WEF/IMD)
Country with best valuation (WEF/IMD) Balanced country: Holland (WEF/IMD)
CHE
CHE
CHE
SWE
LUX

13

PHYSICAL INFRASTRUCTURES

In spite of general satisfaction with the quality of physical infrastructures in Spain,
there are seen to be important deficiencies in their management as well as in the
mechanisms for setting prices and in the taking of decisions about investments.
These deficiencies are of a general nature, but are most pronounced in the energy
sector.

In this sense, Graph 8 shows that the energy sector is the one that the greatest
percentage of those people surveyed includes among the infrastructures that need
improvements in prices and management. This message is particularly clear among
the managers of industrial companies, for whom the price of energy has become one
of the principal problems: they feel their foreign competitors get prices closer in line
with their competitive needs. They also stress that the unpredictability and lack of
transparency in setting energy prices lead to the general perception of uncertainty in
the Spanish economic setting.

Graph 8. Need for Improvements in Prices and Management


EDUCATION

There is a general perception that education is an important vulnerability in the
Spanish economy, and one that could get worse in the long run. The most important
deficiencies are seen to be a lack of knowledge of foreign languages and the low
quality and recognition of professional training.

Nevertheless, some strengths have been detected in Spanish training. In particular, it
is felt that the quality of the top Spanish technicians, principally engineers, and
managers is high, even when compared to our principal competitors.

24%
13%
18%
18%
11%
7%
8% 1%
34%
19%12%
9%
8%
8%
7% 3%
Energy infrastructures
Telecommunications infrastructures
Airports
Railroads, cargo
Ports
Highways
Railroad, passenger
None
Improvement in
management Improvement in price

14

To improve the quality of education in Spain we must encourage the values of
entrepreneurship during primary education, improve the quality of the teachers,
make sure education is appropriate to market needs, and get companies to
participate in education. Greater public financing or more private management of
education are considered to be less important.

In short, it is very important for companies to get involved in education, not only in
the design of the programs –particularly in dual vocational training– but through
greater control of the funds that the companies contribute to worker training
programs, which last year totaled some 2 billion euros. While management
participation in education is easier in countries with a greater such tradition, like
Germany, it is also true that Spain has a certain tradition in this area: its schools for
apprentices, which in recent years are being lost due to greater centralization in
regulated education. A good example of business participation in training in Spain are
the programs of “training with the obligation of hiring”: the companies train workers
through public financing, principally from the different regional autonomous
communities, in exchange for a firm commitment to contract these trainees in the
future.
Graph 9. Most Relevant Measures to Improve Education in Spain

Source: Own compilation with data from the Barometer of the Círculos, 2014.

22%
18%
18%
17%
10%
7%
7% 1%
Promoteentrepreneurship valuesfrom
elementary school on
Improvethequality of teaching staff
Adaptdegree offersto the market
Increasecompanies participation
in formal education
Greater privatemanagement
of education
Increasepublic spending on
education
Improvescholarship and aid policies
Other

15

Best International Practices I.
Adapting diplomas to the needs of the market in Querétaro,
Mexico

INNOVATION

Spanish executives are not especially pessimistic about the country’s capacity for
innovation. This is because, to a large degree, they do not associate innovation with
just spending on research and development but also value the innovative potential of
companies in defining processes and products.

Among the initiatives of the public sector that they consider most effective in
improving the innovative capacities of Spanish companies, these managers stress
measures that will promote the participation of companies, specifically through their
support and financing of public‐private initiatives and tax incentives for R+D. They
assign less value to direct action by the public sector such as increases in public
spending on R+D, the improvement of grants and contracts, or incentives by means
of public purchases.

Through the creation of the Aeronautical University of Querétaro (UNAQ), the
Mexican city of Querétaro has found an important place in the world
aeronautics industry.
Although the UNAQ was officially created as a public institution on November
23, 2007, its origins date back to the middle of 2005, when the government of
the State of Querétaro, supported by the federal government, took part in an
international competition to attract Bombardier Aerospace, a Canadian
manufacturer of aircraft and a leader in the sector. The arrival of the company
attracted many auxiliary firms and led to the creation of the first aeronautical
production cluster in Mexico.
Immediately a team of professors was formed to give courses in aeronautical
production. Today the UNAQ offers the business sector training and
consultancy services, designs programs and courses depending on specific
company needs, and forms teams to implement them.
Source: Own compilation based on different public sources

16

Graph 10. Most Relevant Public Actions to Improve Innovative Ability of
Spanish Companies


Best International Practices II.
The system of dual training in Germany

23%
20%
18%
13%
10%
9%
7% 0% Encourageuniversity‐company
collaboration in research
Fiscal incentives for D+I
Co‐financing public‐private
research programs
Concentration of public support to
applied research in some specific
sectors
Improvefinancing of
scholarshipsand work
contractsfor researchers
Increasepublic spending for R+D in
basic research
Promotepublic purchase of
innovativecompanies
Other
Approximately 66% percent of German students follow a system of dual
vocational training. This assures that the worker will be prepared for the
position he will occupy in the company, reduces the initial necessary training,
and increases productivity. For the students, it improves their chances in the
labor market and gets them a certificate; along with the practical orientation,
they receive a grant.
The system is based on training at the company (3-4 days each week) and at
the school (1-2 days per week). There are 348 different kinds of dual training,
and they are continually updated and adapted to the needs of the companies
(45 of them having been created since 2001).
The federally legislated Vocational Training Act regulates joint action in this
area by companies, trade unions, the Länder and the federal government. The
majority of the system is financed by the companies.
Source: Own compilation based on different public sources

17

4. Labor Market

The Spanish labor market has traditionally received very negative reviews, both in
absolute terms and in comparison to neighboring countries, and has continually been
out of balance. For example, the Spanish unemployment rate has been over 25% for
the past two years, whereas the average in EU countries is less than 11%, and only
five countries surpass 15%. Likewise there are evident anomalies such as the fact that
Spain is the only euro economy that, between 2007 and 2012, carried out a labor
adjustment to achieve improvements in productivity, with a significant reduction in
the number of workers, while at the same time increasing the number of average
hours per salaried worker.

On the other hand, the average percentage of workers in temporary employment
over the past decade was greater than 30% in Spain, while the EU average was 15%.
In addition, part‐time work is much more rare in Spain, where the average between
2000 and 2012 was 11% of the work force, while the EU average was 18%.

Graph 11. Percentage of Workers in Temporary Employment. Average 2000‐
2012

Source: Own compilation with Eurostat data.
Note: The estimated value is the simple average of the percentage of workers with temporary contracts
with relation to the total workers between 2000 and 2012.

0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
European Union‐28
European Union‐27
European Union‐15
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Croatia
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
Holland
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom
Iceland
Norway
Switzerland
Macedonia
Turkey

18

The Barometer confirms that the situation of the Spanish labor market is worrisome,
but has detected a generally positive perception regarding some aspects of the way it
works. As can be seen in Graph 12, the perception about the efficiency of this market
is slightly below the average yet is more positive about such aspects as availability
and the costs of the qualified work force. Nevertheless, there are continuing negative
evaluations regarding the possibility of moving workers around, both geographically
and with regard to their tasks in the firm, and especially of the role of the social
agents, both trade unions and management.

Even more interesting, it has been discovered that the larger companies, which are
generally subject to labor agreements, have maintained good relations with the
unions, which has allowed them to make the necessary adjustments in their work
forces and adapt their needs and competitiveness to market situations. In some
cases, given the fact that many workers have lost their jobs in the adjustment, this
has been achieved at a high cost.

Graph 12. Labor Market. Perceived Valuations on the Círculos Barometer


Evaluation of the recent labor reform is generally positive. Its most highly valued
aspects are the promotion of part‐time employment and the reduction of costs when
dismissing a worker. Nevertheless there is still room for improvement in this area, so
as to approach European levels: in Spain the cost for unfair dismissal under an open‐
ended contract fluctuates between 33 and 45 days of salary compensation for each
year of work (with a maximum of 42 months), whereas the average in the EU‐15 is 21
days for each year worked (with a maximum of 24 months).

1
2
3
4
5
6
7
General efficiency
Availability of skilled
workforce
Cost of skilled workforce
Functional mobility in
the company
Geographic mobility
Contribution by social
partners

19

The least positive evaluations of the labor reform have to do with uncertainty about
the way the courts can rule on the causes for dismissal, and about the new modes for
contracting workers following the application of the reforms.

Graph 13. Impact of the Recent Labor Reform Measures on the Efficiency of
the Work Market


Nevertheless, there is a perception that some labor aspects can be improved.
Outstanding examples: measures to strengthen the link between salaries and
productivity, and a reduction in employer contributions to the National Insurance
fund. Secondly, the managers have positive opinions about improvements in active
policies of employment and, to a lesser degree, the simplification of contract models.

1 2 3 4 5 6 7
The offer of new types of contracts for young
people and entrepreneurs
Objectification of the cause for dismissal in
order to decrease the arbitrariness of the …
Flexibility of “opt‐out” causes
Promotion of part‐time recruitment
Reduction of dismissal costs

20

Graph 14. Most Important Reforms to Improve the Labor Market Situation
in Spain


Although the Barometer has detected an improvement in labor relations at the large
companies, this does not seem to be the case at the PYMEs (the Spanish acronym for
small and medium‐sized companies), which in general have found more difficulties in
adapting collective bargaining to their specific needs. On the other hand, there is still
general concern about the high rate of unemployment, especially among young
people, and about the difficulty of relocating workers who are out of work. For this
reason, it is felt that measures should be taken to find jobs for the unemployed, even
if by means of part‐time contracts, job sharing, or less attractive salaries.

19%
19%
18%
13%
12%
11%
5% 3% Wages linked to productivity
Reduction of social contributions
Improvementin active employment policies
Simplification of contractmodels
Increased sanctions aimed at the
black economy
Strictrestrictions for access
to/reduction of unemployment
benefits
Decreasein temporary work
Reduction of the minimum wage
and others

21

Best International Practices III.
The part‐time work system in Holland

Holland has a rate of part-time work (49.8%) that is far higher than the
average in Europe (20%) and Spain (14.7%). This is the result of joint
measures on the institutional, business and social levels:
• The Wassenaar Arrangement, from 1982, allowed workers to retain their
jobs by lowering their salary in exchange for a reduction in the work day. It
was agreed upon by the institutions, trade unions and companies. The 1996
law against discrimination related to work time achieved equal treatment
between part-time and full-time workers, in proportion to the time worked,
in terms of salary, social reductions and vacations (something which has
still not been applied in Spain).
• The salary difference between part-time and full-time jobs, in proportion to
the time worked, is 7% in the private sector and practically non-existent in
the public sector.
• For its part, the Government increased funds for infant care to mothers who
wanted to work part-time, thus facilitating their incorporation into the work
force. (In 2011, 51.6 % of the women in managerial posts were part-time
workers.)
• The great majority of part-time work in Holland is voluntary, and is not
imposed by the company.
Source: “The part-time work system in Holland and its application in Spain”. Sandalio Gómez,
IESE.
Note: Eurostat data relative to 2012.

22

Best International Practices IV.
Active policies of employment in European countries

Different European countries such as Denmark, the United Kingdom and
Belgium have instituted active policies to create employment, some of them
aimed especially at resolving the problem among young people.
 In Denmark, the government provides urgent assistance to young people of
18 and 19 in finding work just a week after they have received their first
unemployment benefits, and it also offers salary subsidies to private
companies if they hire people between 18 and 30 who have been on relief
for more than a year. In addition, young people between 15 and 17 are
required to present a training plan that describes what activities they are
going to engage in. If the young people do not satisfy this obligation, their
parents can lose their welfare benefits for the child.
 In Belgium the government gives salary subsidies to companies that
contract people with special difficulties, including young people. They
range from 750 to 1,000 euros per month for contracts of between 12 and
24 months. In addition, the “start-up bonus” apprentice contract has been
introduced, with incentives for people under 18 who want to acquire
professional experience: it guarantees salaries of 500 euros per month for
the first and second year, and 700 euros for the third year, as long as the
last two years come after the period of obligatory minimum education.
 The Work Programme in the United Kingdom is a large-scale outsourcing
plan whose principal feature is a structure of financial incentives to reward
private sector firms that find work for the long-term unemployed, depending
on the results obtained. In addition, a substantial part of the payments are
made once the person has been working for 13 or 26 weeks.
Source: “Active policies of employment for young people: Where are we going now?” Dalia
Ben-Galim, Asunción Candela Terrasa, Carmen de Paz Nieves.
Fundación Ideas, 2012. www.Gov. uk.

23

Best International Practices V.
Graduating the minimum salary in European
countries

Several European countries, such as the United Kingdom and Holland, vary
the minimum salary so as not to harm those groups of workers who are
potentially less competitive. Thus in the UK the minimum hourly wage is
different for people under 18 (3.72 £), for those from 18 to 20 (5.03 £) and for
those older than 21 (6.31 £).
Source: Own compilation with different public sources

24

5. Financial Market

The most recent international indicators of competitiveness reflect a very poor
opinion of the Spanish financial market. In addition to the vulnerability of non‐
banking sources of financing, recent years have brought a weakness in the banking
system and the difficulty of access to credit.

As indicated by Graph 15, over the past five years the relative evaluation in the
Global Competitiveness Report of some of the most important indicators in Spanish
financial markets has deteriorated substantially, in some cases falling to the last
places in international rankings. This contrasts with the evaluation of other economic
aspects, such as infrastructures or the labor market, whose indicators have remained
more stable, although in the latter case with a negative rating. This decline is
doubtless related to the restructuring of the banks, especially the consolidation and
injection of public money into the old savings banks and their conversion into normal
banks.

Graph 15. Financial Market ‐ Relative Position of Spain in the Global Ranking
of Countries (2008‐2013)

Source: Own compilation with original data from the GCI, 2013.
Note: The position of Spain relative to the global ranking of countries (on a scale of 0 to 100).
The results of the Barometer confirm this view. As shown by Graph 16, all aspects of
the financial market earn negative reviews, especially access to credit and the
payment periods of the Public Administrations.

0
10
20
30
40
50
60
70
80
90
100
2008 2009 2010 2011 2012 2013
Financing risk capital, WEF
Financiación mercado de valores, Financing equity market, WEF
Bank solidity, WEF
Facility access to credit, WEF
Relative position in ranking
(normalized from 1 to 100)

25

Graph 16. Financial Market. Perceived valuations on the Círculos Barometer


Those surveyed in the Barometer identified the principal problems in the financial
markets: a lack of alternative mechanisms for finance other than the banks, and the
weak balances of those banks. This was followed by the competition for funds on the
part of the public sector. The low credit rating of borrowers is perceived as being far
less important.

Graph 17. Main Problems Affecting the Spanish Financial Market

1
2
3
4
5
6
7
Access to financing through
capital
Access to credit
Development of credit last 12
months
Compliance with payment
deadlines (PA)
Compliance with payment
deadlines (companies)
24%
23%
19%
19%
14%
1%
Structuralweaknessof financial
sourcesother than banks
Balance weakness of main
banking institutions
Strong competition by the
public sector to cover its
financing needs
Excessive paymentand collection
deadlines
Unsound demand
Other

26

With regard to complying with payment periods, the law and other steps to reduce
slowness in paying by the Public Administrations were seen as positive steps, though
there still remains much to be done. There is the clear perception that the problems
of arrears has been very severe, but that there is now a certain improvement. It is
believed that the problem is particularly centered in the Public Administrations, and
that it is less serious in the private sector. Nevertheless a generalized slowness in
paying is a serious concern. The problem appears to be smaller in multinational firms
because they have strict internal rules regarding compliance with established
periods, and the smaller firms are obliged to play by the rules, least in their relations
with these large companies.

Graph 18. Perception of Compliance with Maximum Payment Deadlines to
Legally Established Suppliers

For each indicator there is a range of evaluation from “1” (worst) to “7” (best).

During the next 12 months there is expected to be a slight restructuring in the
sources of financing available to Spanish companies, which can be considered an
improvement in their conditions of liquidity and a greater confidence in the future.
Graph 19 illustrates this aspect by comparing the most commonly used sources of
financing over the past 12 months with those that are expected to be used in the
coming 12 month. Short‐term financing, including financing by means of suppliers
and the value chain, will be less important in company accounts. But there will be an
increase in long‐term financing through bank loans, as well as by other means, such
as cash flow, the issuance of debt, venture capital and financing from the parent
company in the case of the multinationals.

1 2 3 4 5 6 7
Regional government
Local government
Central government
Small companies
Large companies

27

Graph 19. Financing Sources Used by Companies

that option as one of the three most relevant

0%
5%
10%
15%
20%
25%
Last year
Next year

28

Best International Practices VI.
Alternative sources of financing in
France

In France, some 55% of the small and medium-sized companies get their
financing from sources other than banks, a figure far higher than the 22% in
Spain (although significantly below the 70% in the United States). These
sources include the alternative capital market, the issuance of debt and the
securitization of lending.
A notable case is Alternext, a capital market for small and medium-sized
companies, which has almost 200 firms with a market capitalization of more
than 8 billion euros. Some of the large institutional investors, such as Allianz,
JP Morgan or Natixis, are part of it. Public funds have also been created to
invest in the small and medium-sized firms, and some of them also participate
in Alternext, such as FSI-France Investissement.
The requirements for an initial public offering on Alternext are not very
arduous (two years of audited accounts, approval of the prospectus, and a
minimum free-float of 2.5 million euros.) The total amount raised in 2012 was
1.3 billion euros.
There are important income tax deductions for investors from specialized funds
who invest in small and medium-sized companies and maintain their
investments for at least five years. These tax incentives can be as high as 25%
of the capital invested, with a top limit of 20,000 euros per person.

29

6. Management Dynamism

The section of Management Dynamism includes public and private aspects that
reflect the functioning and competitiveness in the Spanish goods and services
markets. These include the levels of competence and effectiveness in supervision,
the contribution of the small and medium‐sized firms and their capacity for growth,
the level of entrepreneurship, and also the obstacles that bureaucracy and regulation
mean for developing markets.

The evaluation of the different aspects included in the Management Dynamism
section, while generally positive, is mixed. Thus the level of market competition is
seen as high –the companies can adapt to changing conditions and the efficient ones
can grow– but the official supervision of this competition is not see as very positive.
Somewhat less positive are aspects relative to the role of entrepreneurship in Spain’s
economic development and the contribution of the small and medium‐sized
companies to managerial dynamism. The aspects least valued are the regulatory
requirements and administrative charges, which are thought to be excessive and an
obstacle to growth.

for Spain with the results obtained in other indexes for the OECD average: for the
OECD country with the best score in each variable and for a country with a balanced
evaluation for the whole of the variables –in this case Sweden. The evaluation of
Spain is clearly inferior to that of the other countries, with the exception of the
opinion about its level of competition in the markets.

30

Graph 20. Company Dynamism. Perceived Valuation on the Círculos
Barometer

Source: Own compilation with data from the 2014 Barometer of the Círculos survey, 2013 Global
Competitiveness Report (World Economic Forum), and 2014 World Competitiveness Yearbook (IMD).

Entrepreneurship continues to be one of the subjects pending in the Spanish
economy. This is consistent with other international studies. The impresarios
surveyed feel that there is not greater entrepreneurship in Spain principally because
of inappropriate regulations and because the educational system does not study the
entrepreneurial spirit. But they also attribute a large part of this lack of
entrepreneurship to cultural aspects, such as the lack of social recognition of
impresarios and the fear of failure that exists in the Spanish culture. However, the
lack of public programs to support entrepreneurs is not considered to be among the
more relevant problems.

The businessmen are not particularly critical with the lack of entrepreneurial
initiatives, nor about entrepreneurship within companies, nor in the participation of
company incubators or industrial estates. Nevertheless, the IMD World
Competitiveness Yearbook, in evaluating worldwide management practices, placed
Spain number 57 out of 60 countries with regard to the entrepreneurship of its
managers.

These impresarios give only moderate marks to recent measures taken in Spain to
promote entrepreneurship: they consider that the most effective one was the tax
reform to favor new companies, followed by the reduction of administrative
requirements and by adequate training.

1
2
3
4
5
6
7
Contribution of
entrepreneurship to
development
Contribution of SMEs to
dynamism
Connection efficiency and
growth of companies
Regulatory barriers and
bureaucracy
Competition in the sector
Supervision of competition
Adaptation of companies
Spain (Barometer) Average OECD (WEF/IMD)
Country with best valuation (WEF/IMD) Balanced country: Sweden (WEF/IMD)
ISR
CHE
CHE
JPN
DEU

31

As for promoting sources of financing, much more importance is given to risk capital
and business angels than to such organizations such as the Alternative Stock
Exchange Market or the Alternative Fixed Income Market.

Graph 21. Initiatives Taken with Regard to Entrepreneurship

It is necessary to distinguish between efforts aimed at the creation of new companies
and efforts seeking the growth of small and medium‐sized companies. The
businessmen surveyed believe that on occasion the measures are more directed
toward creating companies than toward the rapid development of the most
successful ones, and that some of these measures even have a detrimental effect on
their later growth.

When it comes to enhancing the growth of companies, the financial markets are
considered one of the main problems, because it is felt that they are not willing to
take risks to help small firms develop. Again, this is consistent with other
international studies such as “Entrepreneurship at a Glance 2013”, from the OECD,
which states that risk capital in Spain is less than 0.02% of the GDP, and is not
especially centered around the growth of startups. In other European countries, such
as Sweden or Ireland, the percentage of risk capital as a percentage of GDP is three
times as large, and a considerable part of it is invested in the growth of companies,
not in their creation.

Those surveyed feel that other aspects that limit the capacity for company growth in
Spain are regulatory barriers and the inflexibility of the labor market. Nevertheless
there are also problems directly attributable to the companies themselves, such as a
lack of ambition by the leadership.

1 2 3 4 5 6 7
Alternative Stock Market (MAB) and Alternative
Fixed Income Market (MARF)
Greater facilities for the creation of companies
Training in entrepreneurship subjects in formal
education
Reduction of requirements and administrative
burdens
Support of capital risk and business angels
Reform of tax system in favor of newly created
businesses

32

Best International Practices VII.
Entrepreneurship in Israel

The Barometer has also sought to analyze the main obstacles to business creation
and development in Spain, while stressing the need to streamline the procedures for
obtaining licenses and permission, as seen in Graph 22. In the opinion of those
surveyed, the principal problem is the duplication of requirements on different
administrative levels, along with the discretional nature of the administrative
decisions taken. Among these different administrations, the most inefficient is
considered to be the regional autonomous governments.

Israel is considered a world-class example of entrepreneurship. Indeed, it has the
highest percentage of venture capital investment as a percentage of GDP, 0.5%,
easily surpassing the second country, the United States. Several factors have
made Israel “The Startup Nation”.
• Government resources: the government gives financing to new companies and
also supports entrepreneurs by creating associations and programs that put them
in contact with investors.
• Universities: Israel has some of the best technological universities, such as
Technion in Haifa. These universities are a meeting point for young entrepreneurs
who later do business together.
• Mentors: the first generation of innovators, now approaching retirement, serve
as mentors and investors for the leaders of the new generation.
• Army: in Israel, most people serve in the army before going to university, and
become proficient in technology and communications, skills that they use later in
their entrepreneurial projects.
• Culture: in Israel there is a culture of promotion and support of
entrepreneurship and leadership, supported by all the institutions and areas of
society.
Source: “Why Israel is a Startup Nation” http://www.techinasia.com/israel-startup-nation

33

Graph 22. Obstacles to the Acceleration of Procedures and Formalities


22%
20%
19%
16%
13%
6%
4%
Duplication of requirementsbetween
differentadministration levels
Inefficiency of regional regulations
and their application
Discretion in administrative decisions
Inefficiency of state regulations and
their application
Inefficiency of municipal
regulationsand their application
Excessive control by
Commissioners for Oaths
(notariesand registrars)
Other

34

Best International Practices VIII.
Efficiency in the Administration through the use of
ICT

South Korea has speeded up relations between its Administration and companies
and citizens thanks to the use of ICT. It is one of the world’s leading countries in
access to ICTs (first in the ranking of the International Telecommunication
Union). To do this the country has applied many measures:
• E-Government: the government has integrated IT applications in its services,
with regard both to companies (G2B) and private individuals (G2C).
• Starting in the mid-1990s, the government established three master plans for
the development of the information society, thus leading to the Act on Promotion
of Information, Cyber Korea 21 and e-Korea Vision 2007. Advanced information
infrastructures were created, information systems were introduced in public
services and the private sector, and the growth of the IT industry was promoted.
• The Ministry of Information and Communication was created and plays a
central role in the design, implantation and coordination of ICT policies and e-
government initiatives. Coordination measures among informatization policies
were promoted among all the different government ministries and agencies.
• The Informatization Promotion Fund was created, and the government financed
projects in the private sector.
• The Information Infrastructures Initiative established all the infrastructures and
networks necessary for the development of the ICTs, although they were based on
a closed system rather than international standards.
• Internal demand was stimulated through different government measures such
as free access to Internet in schools, free Internet training programs, the
distribution of computers at low prices, etc.

35

Best International Practices IX.
Intelligent regulation: transparency, consultations and motivated regulation
in the United
Kingdom

“The Red Tape Challenge” is a program developed in the United Kingdom to
reduce the burden of regulation. If companies or individuals file a complaint
against a regulation, the government must demonstrate the need to maintain it
(with burden of proof being on the Administration).
Through an on-line forum, the Administration promotes discussion about
regulatory proposals, seeking suggestions and arguments from citizens,
companies and associations. The different ministerial departments then have
three months rebut these arguments, and then seek the approval of the
Reducing Regulation Committee. If it is not achieved, the regulation will not go
into effect. To assure transparency, the results of the process are published in
the on-line platform.
More than 30,000 suggestions have been made by companies or private
individuals to eliminate or modify more than 3,000 norms, with an approximate
annual saving of 1 billion euros.
Source: www.redtapechallenge.cabinetoffice.gov.uk

36

7. Contribution of the Administrations

Along with the financial market, the functioning of the Public Administrations is the
economic aspect that received the worst assessment on the Barometer. And while it
is affected to a large degree by temporary factors, there exists the perception that
Spanish Administrations function poorly because of structural problems.

The Barometer survey assigns negative evaluations to all aspects of the functioning of
the Public Administrations, with the worst going to corruption and inefficient public
spending.

for Spain with the values obtained in the other international indicators consulted for
the OECD average, for the best country in each variable and for a country with a
balanced evaluation for the whole of the variables –in this case New Zealand. The
evaluation of Spain is clearly inferior for all the variables.

Graph 23. Contribution of Administrations

Source: Own compilation with data from the 2014 Barometer of the Círculos survey, 2013 Global
Competitiveness Report (World Economic Forum), and 2014 World Competitiveness Yearbook (IMD).

1
2
3
4
5
6
7
Functioning of justice
Efficiency of public
spending
Corruption
Tax burden
Effect of use of subsidies
Effect of public managing
companies
Spain (Círculos Barometer) Average OECD (WEF/IMD)
Country with best valuation (WEF/IMD) Balanced country: New Zealand (WEF/IMD)

37

The Spanish justice system also receives poor marks. The principal concern is the lack
of predictability in its decisions, both in the time it takes to issue them and in their
content. Another complaint is that some judges lack technical training, for example
with regard to accountancy and other areas of business management.

The greatest priority to control the public deficit involves the size and efficiency of
the Administrations. The most important way to control this would be to reduce the
size of the Public Administrations, make them more efficient and optimize and
coordinate their different powers. There is less preference for raising taxes and
reducing services.

Graph 24. Most Important Initiatives to Ensure an Adequate Control of
Public Deficit


There is a broad perception among the business executives that the adjustment to
the public sector, while painful, has been smaller than that in the private sector, and
that the cuts have been too horizontal or generalized, because a distinction was not
made between efficient and non‐efficient resources and services. Example: in a
context in which support should have been shown for the reassignment of
productive resources among sectors, there were inopportune reductions of budgets
to support exports, R+D and training.

In this sense, the executives do not seem to assign sufficient value to the
adjustments in the public sector, where salaries have declined on average by 6%
since 2009. This rate is greater than that in the private sector where, as we have
observed, the adjustment has been achieved by a reduction in jobs and
improvements in productivity rather than by wage cuts.

There appears to be no consensus among the executives about the need to
substantially reduce and redesign the services that define the Welfare State, nor
whether an improvement in the Administration and public services should be
30%
27%
24%
7%
5%
4%3%0% More efficiently designed public
administrations
Reduction in the size of public
administrations
Redistribution of powersof
differentadministration levels
Increasein indirect taxes
Increaseof direct taxes
Reduction of basic services
Other

38

achieved by choosing between private or public management. Where there is a clear
consensus is that, when there is public management, it should be more efficient and
possess management tools similar to those in the private sector. Some of these tools
would be: greater flexibility in incorporating and managing public resources –
including human resources and infrastructures– and the possibility of setting
different prices depending on the urgency and specificity of the services provided.

Best International Practices X.
Private methods in the human resources management of public services,
Sweden

The Barometer also registers the opinion of top managers about corruption in Spain.
Specifically, they feel the most noxious corruption in business involves the fraudulent
awarding of contracts and favoritism in administrative decisions. In second place, the
illegal financing of political parties and trade unions, followed by the
misappropriation of public funds.

Among OECD countries, Sweden’s Public Administration is one of those most
open to market conditions. It is an attractive model for managing public human
resources because of its permeability and flexibility for finding the most
qualified person for each post at just the right time. It also makes it possible to
establish the appropriate economic incentives for promoting productivity and
penalizing inappropriate behavior.
On one hand, the hiring system is heavily based on the merits of the candidates
for the position being offered, and these candidates are generally found
through the work market (rather than from among bureaucrats who have
passed some generic selective tests). Private contracting services are used to
draw up shortlists of candidates. The higher-ranking posts are usually filled
from outside the firm.
In addition, the system of wages depends more on the concrete job, with salary
differences determined by factors such as the salary of the previous employee,
the market prices, the level of responsibility and the profession. Wages are
reviewed annually and depend on job performance and results.
Finally, except for high posts designated by the government, promotions
depend on individual evaluations and suffer no hierarchical restrictions.
Source: OECD

39

Graph 25. Areas of Greatest Concern Regarding Corruption for
Company Activity


Quantitatively, corruption in Spain is not perceived to be much more serious than in
surrounding countries, in part because its principal focus, real estate activity, has lost
importance in the country’s economy. Nevertheless it is thought that corruption is
having an important negative effect on how the Spanish economy is assessed. This is
confirmed by the 2013 “Corruption Perceptions Index”, from Transparency
International, which scores countries on how corrupt their public sectors are seen to
be, with the more corrupt countries lower down on the list: Spain occupies 40th
place in a total of 175 countries. (Ireland and France are in positions 21 and 22
respectively; Portugal is 33, Poland 38, Italy 69 and Greece 80).

The risk of tolerating current levels of corruption is that this would produce a climate
of general mistrust, which in turn could create a vicious cycle: an excess of ex ante
regulation or ex post control that, in some cases, could become indiscriminate and
arbitrary.

18%
17%
16%13%
9%
9%
6%
6%
6%
Fraudulent awarding of public contracts
Favoritismin public
administration decisions
Misappropriation of public fundsIllegal financing of political parties
Taxfraud by companies
Bribes to public servants
Illegal financing of social agents
Favoritismin legal decisions
Fraudulentpracticesbetween companies and
others

40

Finally, Spanish managers feel that any tax reform should take into account its impact
on Spanish companies with regard to their competitive environment. They consider
that the best measures to increase tax revenue are, first, to fight fraud and reform
the corporation tax, with a reduction of rates in exchange for the elimination of tax
deductions and refunds. These options are preferred over others like a reduction in
direct tax rates in exchange for hikes in other kinds of taxes.

Graph 26. Most Beneficial Tax Reforms for Spanish Company Growth


24%
23%
14%
13%
12%
7%
4%
3%
Plan of action against fraud
Lowering of corporation tax
with the suppression of
deductionsand reductions
Reduction of social contributions with an
increasein VAT
Introduce greater transparency in tax
contributionsand tax distribution
Homogenization of tax rates in the
wholeof state territory
Lowering of the corporation taxrate with an
increasein VAT
Lowering of corporation taxratewith an
increasein personal income tax
Other

41

8. Conclusions

Spain has made enormous economic progress in these more than 35 years of
democratic coexistence, with an increase in per capita income in real terms of more
than 70% between 1977 and 2013. This achievement is the fruit of more than three
decades of effort on the part of everyone: workers, impresarios and Public
Administrations. But after more than six years of deep economic crisis, doubts are
emerging about whether our past strengths will be enough to achieve another 35
years of growth in a global environment that is much more competitive.

The Círculos that have promoted this Barometer feel that this is achievable, but only
if we tackle structural weaknesses that, because of the urgency of the crisis, had not
been addressed with the necessary depth and perseverance. These weaknesses
affect basic aspects in the functioning of a market economy where we are different
from our more competitive European partners: the educational system, the
institutions of our labor market, and the functioning of our Public Administrations.

Our first priority should be the creation of employment, especially for young people.
Recent reforms, principally in the labor and financial markets, receive a positive
evaluation but are seen as still insufficient to generate the sustained employment
that Spanish society requires.

The Barometer has identified some of the aspects that must still improve if we are to
reach that objective:
 Unemployment is the greatest concern, and fighting it must be the main
priority of Spanish society.
 For the job market to function better, there must be a closer link between
the salary and productivity of each individual worker, and a reduction in the
employer contributions to Social Security.
 Training, especially of a professional nature, should be improved, and should
include dual training that is jointly financed and managed with the
companies.
 Se considera importante que los valores y habilidades asociados al
emprendimiento formen parte intrínseca de todas las etapas formativas.
 It is important that the values and skills associated with entrepreneurship be
a basic part of all stages of training.
 The high cost of energy is one of the greatest concerns to these
businessmen, principally in the industrial sectors.
 The financial vulnerability of Spanish companies must be reduced. They are
excessively indebted, are too dependent on the banking sector, and are late
in paying, especially the Public Administrations.
 These Public Administrations should be reduced in size and optimize their
work on different levels, thus avoiding a fragmentation in the internal

42

market. In addition, they should be less arbitrary and more predictable, in
both what they do and with regard to the time periods they set to do it.

We businessmen realize that we must help improve all these aspects in our areas of
responsibility: we must generate business and create jobs, improve the
competitiveness of our companies, stimulate and encourage excellence among our
workers, and support innovation and entrepreneurship so as to increase economic
dynamism and contribute to the harmonious development of society.

We are also willing to help our social partners and the Administrations to improve
the deficiencies identified in this Barometer. Specifically, over the short term we
commit to thoroughly analyzing professional training in Spain, and to proposing ways
in which companies can help develop integral, international dual training.

Over the past 50 years Spain has undergone the greatest economic development in
its history, and among us all we have the capacity to assure that the next 50 years
will be equally exceptional.

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