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Critical investigation and discussion behind the case of
the Guggenheim Museum Bilbao as a strategy for urban
regeneration
1. Discuss the economic history of Bilbao. How did historic events lead to the
need for urban regeneration, and which general management framework
inspired the regeneration plan?
The induction to the most notable development of the Bilbao economy began at the
tide of the Industrial Revolution in the second half of the 18thth century. The economy
within Bilbao during this period revolved primarily around mining of iron ore,
production of steel which was predominantly used in metallurgy and shipbuilding
(Gomez, 1998). In addition, the Industrial Revolution augmented trade between
Spain and Britain in the second half of the 19th century, who demanded a significant
amount of iron ore from Spain as the purity and ease of extraction of iron ore in
Bilbao was considerably higher than that of ore mined in Britain (Gomez, 1998). The
mining of iron ore within Bilbao and the city’s proximity to the Nervion River, made
Bilbao the focal point for trade and foreign investment from Britain and other
European countries which contributed towards further development of the city,
particularly in building railways and improving roads. This resulted in the Vizcaya
region becoming the most vitalised part of Spain as it came the greatest populated
Spanish region with the largest railway and largest number of registered ships which
not only assisted with trade but also in intensifying further economic development
within Bilbao (Gomez, 1998). Industrialisation flourished within Bilbao until 1939
when a change in political power begun. A general and dictator by the name of
Francisco Franco started the Spanish Civil War when he led a coup with other
military leaders against the Republican government to seize most of the western half
of Spain and began transporting troops to the mainland which led to the war. During
the Spanish Civil War, using the support of Nazi Germany and Fascist Italy, Franco
eventually overthrew the entire Republican government and assumed power as the
head of state (Burgos, 2016). With the Spanish Civil War and Franco assuming
political power of Spain, the economic development of Bilbao begun to suffer. Firstly,
the war was costly which crippled Spain financially and secondly, Franco introduced

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protectionist government policies which placed significant strain on trade with outside
nations due to embargos which forced the Spanish economy to become self-
sufficient and brought Bilbao Industrialisation sector to a stagnant halt (Gomez,
1998). This started a chain of events which led to numerous economic/social
problems from the 1970s in Bilbao which would eventually lead to the need for urban
regeneration within the city.
During the 1950’s till the mid-1970s there was a significant permanent increase in
the number of job available within the industrial sector and the Vizcaya region of
Spain was at an extremely low unemployment rate of only 3.5% by the point when it
reached 1975. However, by this stage the expansion of the Spanish economy had
almost met its pinnacle and it became apparent that the industrialisation levels of
steel were not going to be enough to satisfy Spanish demand in order to prepare for
the impending world economic crisis (Gomez, 1998). In 1975, the global economic
recession stuck Spain abruptly. Traditional industries began to become obsolete and
the unemployment rate rose to an all-time high of almost 25%. In addition, after the
death of Franco in 1975 and end of the dictatorship and municipal authorities
changed hands, the whole provincial economic collapsed due to severe
deindustrialization. Other problems included extensive traffic congestion within the
Bilbao city centre, urban dilapidation, high levels of pollution and a poor public transit
system (Plaza, 2008). These issues were handled by actualizing a substantial
reasonable public policy focused at profitability and diversity with a solid cultural
segment. Monetary and key redevelopment was joined with the regional
regeneration. A new subway system was constructed and improved sanitation
systems were developed. New infrastructure to suit residential, leisure and business
purposes was built as were new sea and riverfronts (Plaza, 2008). A seaport and
technological and industrially advanced parks were built away from the CBD.
However, the economic deciding factor was the development of the Guggenheim-
Bilbao Museum (GHB) in the 1990s and extra social ventures, for example, a concert
hall and centre for young musicians, in order to create public awareness of art and
culture in relation to tourism as a method for expanding the economy and
diminishing unemployment levels (Plaza, 2008).

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2. Critically analyse the contribution of the Guggenheim Museum to the regional
Bilbao economy. What has been the immediate and indirect effect of the
museum and which critical success factors can help to explain these effects?
The GHB first opened its doors to the public on the 16th October 1997 and initially
cost €166 million to build. As of 2008 the museum currently attracts on average
800,000 non local tourists annually which is compared to only 100,000 foreign
tourists visiting Bilbao prior to the opening of the GHB (Plaza, 2008). The immediate
effects resulting in increased tourism numbers to Bilbao can be reflected in a graph
as seen below (Plaza, 2000).
(Plaza, 2000)
The above graph depicts the flow of incoming tourists visiting the Bilbao region
between January 1995 and August 1998 as well as whether they are Spanish or
Foreign visitors. The increase in tourist numbers is certainly much more than merely
a display of incremental growth as not tourism numbers increased rapidly but also
over a very short period of time. In addition, as this increase occurred directly after
the construction and opening of the GHB, it is safe to say this attraction is the
primary motivator for tourism travel to this region. There has been an increase of

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43% of foreign travellers per month and an increase of 20.4% in the domestic market
(Plaza, 2000). Another impact to consider is the significant increase in
accommodation overnight stays by tourists in the Basque Country whose primary
purpose is to visit the GHB. The graph below measures the trend of overnight stays
prior to the construction of the museum in January 1996 up until December 2004.
The data has been seasonally adjusted accordingly (Plaza, 2006).
(Plaza, 2006)
As found prior with international and domestic visitors in general, since the inception
of the GMB into the Bilbao economy, there has definitely been a boom in overnight
stays by tourists within the local area. There has been a rise of 61, 742 overnight
stays per month which is equivalent to 740,904 annually. According to further data
researched by Plaza (2006), the number of visitors on average to the GMB each
month is 82,580 with 66,064 of these (80%) being from outside of the local region.
The other primary purpose of the GMB besides from a cultural basis is to generate
economic revenue both from on private and public scale (Plaza, 2006). With the
primary industry of Bilbao being focused within the industrial sector until the 1970s,
this meant with the recession after this time resulted in the economic structure within
Bilbao at the time collapsing and the loss of almost 25% of jobs within the previous
primary industry. This meant that one of the important aims of the GHB was to fill job

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gaps within the high level of unemployment due to the recession and other economic
factors. The first graph below shows the number of people employed full time within
the service sector in the province of Biscay from 1976 (just after the recession) up
until 2004. The other graph depicts the number of people employed within the hotel
sector in the province of Biscay from 1992 until 2004 (Plaza, 2006).
(Plaza, 2006)
(Plaza, 2006)
Looking at the two graphs there is visibly a direct correlation between the substantial
increase in people employed in the service industry and more specifically within the

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hotel sector. In addition, the increase in tourists wanting to stay overnight within the
region since the construction of the GHB falls in line with the number of people
employed within hotels in the area. This could viably be due to the fact as the tourist
visitor numbers increase so did the demand for available accommodation within the
area which led to the development of more accommodation infrastructure to meet
the high demand and in turn this led to high numbers of jobs within the hotel sector
becoming available within the area. According to Plaza (2006), the creation of
employment within the service sector grew by an average of 709 jobs, annually
between 1976 and 1997 as Bilbao transitioned from an industrial industry into a
service industry. After the creation of the GHB, the average jobs within the service
industry grew to 771 annually between 1997 and 2004. This pattern can be analysed
as due of the result of the opening of the GHB, the generation of 907 full time jobs
arose. Additionally, Greffe (2004) as cited in Plaza (2006) states that a method has
been formulated which determines for every 10,000 visitors, this creates 1.15 direct
jobs (within the museum itself) and every direct job creates 0.62 indirect jobs such as
in the fields of architecture, conservation and restoration. Furthermore, this leads to
3.84 induced jobs and 2.59 jobs within the tourism industry in general. Therefore, it
can be ascertained that 900,000 visitors, which is the increase of tourists between
1998 and 2004 (Plaza, 2006), would generate 834 new jobs in total.
The final impact to assess is the GHB’s return in investment in relation to revenue.
As initially mentioned, €166 million was the amount required to build the project, with
€126.5 million of this amount coming from the Basque Public Treasuries which is
money primary sourced from the public sector, which is safe to say is one of the
reasons outlining the critics objections behind ‘squandering so much public money
on something so irrelevant and exclusive’ (Plaza, 2008). The two important avenues
to consider within a project of this size is whether the Public Treasuries are going to
recover the investment and whether the predicted/expected revenue generated by
the GHB would be high enough to validate the initial investment. Additionally, even
more importantly the private sector needs to review how long this recovery of
investment would take. According to the GHB’s official report, the original investment
had already been recovered within the first 6 years (Plaza, 2008). However,
according to Plaza (2008), this return may not be completely accurate as the cash
flows within the report do not include both the operational costs and the investment

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amounts into new art within the museum. Additionally, as positive and negative
revenue streams much be discounted for the whole 20 years within the contract
between the Guggenheim Foundation New York and GHB which is not displayed
within the 2004 report. This leads to the conclusion that although it is clear the
investment will be regained within nine years after opening, the more accurate
figures within the report should factor in continual investment payments and include
the 8% discounted rate between the two contract parties involved (Plaza, 2006).
In order for a large heritage investment to be effective there are four key variables
which need to be met, these are also known as critical success factors (CSF). A
common mistake which destinations make is to use foreign benchmarks in order to
decide on the specifics within the attractions they decide to develop within the
destination. Although this sometimes can work, a proper marketing assessment of
that destination should be carried out first rather than using the assumption that the
same type of attraction will attract the same numbers of visitors than in a different
location or for that matter be as profitable or beneficial to the public (Plaza, 2008). A
prime example of this is the UK attempting to emulate the success of the GHB
attraction within Sheffield with the construction of the National Centre for Popular
Music, predicting the attraction would attract 400,000 visitors a year. Seven months
after opening only just over 100,000 people visited and the attraction went bankrupt
in the same year it opened (Plaza, 2008). The key four CSF’s are identified as
followed.
The first CSF is commonly identified within heritage investments. It explains that an
investment of this nature will only become effective in terms of creating new job
opportunities to the extent of how many visitors that attraction is bringing in. This
factor was definitely met by the GHB as both direct and indirect work opportunities
within the local area began to boom, merely months within the GHB opening its
doors which led to the attraction becoming an effective economic re-activator (Plaza,
2008). The second condition is to not only rely on the attraction on its own to be
effective. The destination’s economy needs to be diversified in order to create other
secondary attractions, accommodation, public transport infrastructure and such
investments which support each other in order to make the primary attraction more
effective in the short and long run. Bilbao was fortunate within this instance as the

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Basque industry previously traditionally had a more auxiliary character. This meant
with all the assistance the city received following the recession allowed extensive
development to be carried out with key contributing factors which help lead to the
GHB’s success including waterfront development, construction of parks, railway
development and construction of secondary cultural attractions such as the concert
hall for young artists (Plaza, 2008). The third CSF discussed is the level of
integration of the development zones’ markets. This means that in order for a key
attraction to be effective, the key target market(s) for that attraction should be
constructively merged with the markets of other industries within the destination. In
the case of Bilbao, although the GHB had been economically beneficial to the region,
at the present time only around 27% of business received by tourism facilities is from
the tourism industry whereas, Bilbao is primarily a city visited for non-tourist
purposes, generally business travellers (Plaza, 2008). However, this integration of
the two key markets within Bilbao are both beneficial to each other as they support
each other from a seasonal basis. The business travellers tend to visit mostly during
the weekdays in autumn, winter and spring whereas, the cultural and leisure tourists
usually travel during the weekends and summer months. This means the economy
within Bilbao is extremely manageable and sustainable as is its development (Plaza,
2008). Finally, the fourth fundamental CSF for a cultural or heritage type attraction to
be effective is the synergy between urban regeneration and productivity-related
policies. Both policies can be quite different but must work together in order to
overcome possible negative effects caused by urban regeneration. Urban
regeneration can sometimes have negative ramifications such as substantial land
increases, public tax inflation and reduction of competitive advantages. In order to
combat such potential problems production and urban regeneration within a
destination should go hand in hand. This means the more productive the economy is
overall, the less noticeable problems caused by urbanisation become. Subsidy by
private sectors will keep public taxation down and stabilize land value, increase
efficiency in human capital and increase competiveness. Fortunately for Bilbao, the
region it falls within is ranks number one in productivity within all Spanish regions
(Plaza, 2008).

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3. Based on the identified critical success factors, would you consider Auckland
to benefit from a Guggenheim-like investment?
Auckland is currently the most visited destination within New Zealand which receives
approximately 72% of all visitors to the country on an annual basis with Australia and
China being its primary international markets and secondary international markets
include the United States, Japan and South East Asia. Emerging international
markets include Indonesia and South America, primarily due to increased flight
connectivity (Auckland Tourism, Events and Economic Development Ltd, 2014).
Auckland is arguably the most urban tourism developed destination within New
Zealand (possibly next to Wellington) which makes this a key contributor to its variety
of different types of tourist attractions and activities Auckland has to offer visitors. As
developed a tourism destination Auckland is, the question to ask is would the city
actually benefit from a Guggenheim-like investment. As discussed prior, there are
key contributing CSF’s which should be met by any heritage type attractions in a
destination, and in the case of the GHB were all met which inevitably led to the
success of the attraction. However, does Auckland meet all these CSF’s?
The first factor to consider is would an investment of this magnitude create enough
direct and indirect job opportunities within Auckland in order to support the number of
visitors the attraction would receive. The first thing to look at is the level of
unemployment within Auckland and the key industry demand sectors. As of August
2015, the unemployment rate in Auckland sat at just above 6% with South Auckland
having a significantly higher unemployment rate compared to the rest of Auckland
and New Zealand, almost double the averages in other areas. Furthermore, these
tend to be mostly younger individuals who are poorly educated and are primarily
Maori or Pacific Islander (Ministry of Business, Innovation and Employment, 2015).
As a majority of employment would have to come from this region of Auckland it is
highly unlikely these unemployed would be able to fit the attributes required to work
in a heritage attraction such as an art museum. However, the distinct advantage this
majority group does have is the cultural element which is quite unique to New
Zealand. If the heritage attraction incorporated this culture into the architecture,
featured exhibits and other such features of the attraction, then this could create
unique employment opportunities for this majority unemployed demographic.

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The second CSF so consider, is does Auckland have enough secondary attractions
and/or tourism related infrastructure to support the investment of such an iconic
heritage attraction and if not what would else would need to be developed? In the
instance of Auckland, the flagship city contains a variety of different both primary and
secondary attractions as well as extensive network of both accommodation and
public transport options with more current and planned developments within these
sectors to take place. However, although these can be seen as a positive in regards
to tourism numbers, many of these features could work against such a heritage
investment. First of all, Auckland currently has approximately 20 different art
galleries/museums of notice which means with the sheer number of attractions
similar to that of the proposed attraction could limit the demand for such an
investment which may result in greatly reduced estimated visitor numbers.
Alternatively, this could work in the opposite manner with the new heritage attraction
stealing visitor numbers from the surrounding competition resulting in their
bankruptcy. In addition, it also raises the question of where such a large heritage
attraction would be built as there is little space to build such a large heritage
attraction within the CBD from scratch as most likely the museum would need to be
built on top of an existed site or as an extension of an existing attraction such as the
Auckland Memorial Museum.
The third factor to consider is could the development of a heritage attraction merge
harmoniously with other markets outside of the tourism industry. Initially the
attraction would need to be supported by the construction and tradespeople industry
which would be quite beneficial to employment within Auckland as in December
2015 it was found within Auckland construction had the strongest growth in number
of people employed (Ministry of Business, Innovation and Employment, 2015).
Additionally, the museum would be able to work in synergy with the arts and media
industry, both in the art work and exhibits the attraction provides and in the
marketing and promotion of the attraction itself, both on a domestic and international
scale. Investments and accounting services within the attraction would also involve
the finance and business sectors and employment within the attraction may be
sourced externally through universities and educational institutes which means that
industry may also be part of the development process.

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The final success factor to evaluate is the synergy between the public and private
policy with the development with such a large scale economic heritage investment.
An important point to consider is how much money would the creation of such a
heritage investment cost and more importantly where would the investment(s) for the
project come from? Auckland’s prominent public art gallery initially cost $121 million
to develop which was funded by a mix of central government and public/private
trusts (Clark, 2008). Since the gallery has opened until now, almost double that
amount has been invested within the gallery, mostly from the government. However,
this was back in 1888 and investments into such projects today are follow a different
pattern than over a century ago. Public and private partnerships are very important
today as the policy ideals of both parties need to fall in line with one another in order
for an attraction which both parties are key stakeholders within to be able to
smoothly develop. Furthermore, art galleries, particularly of this magnitude have a
huge range of external and internal investors to consider, especially in regards to art
exhibits who need to be convinced why they should display their work within that
particular museum and not another.
To conclude, it is extremely unlikely looking at Auckland as a tourist destination that
it would actually benefit from a Guggenheim-like investment. Although there is a
market segment within the tourism sector who are interested in such attractions, it is
not on large enough scale in order for a new such heritage attraction to be
sustainable at this period of time. According to statistics found by Lawton and Page
(2016), currently 44% of tourism attractions promoted within Auckland are outdoor
activities and 25% of attractions are adventure activities, neither of which fit within
this type of attraction. Only 8% of tourism attraction/activities within Auckland are
within the museum/gallery category which means it would be unlikely Auckland
would benefit at this time from such a heritage attraction, especially with the current
competition in the tourism market. Furthermore, one of the key contributors to the
GHB’s success was its location as Bilbao sits right in amongst an array of European
neighbours which contribute to the numbers visiting the Guggenheim. Although quite
accessible to the rest of the world, New Zealand sits quite a distance from the
tourism markets who would be interested in such an attraction and certainly
international visitors would not travel all the way to Auckland, New Zealand just to
see an art museum so the attraction would primarily need to focus on promoting to

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the domestic tourism market. In order for such a heritage attraction to be viably
sustainable it would need to feature multiple unique selling points and incorporate
other attraction elements to cater to a diverse array of tourist demands which set the
attraction well apart from the competition.

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References
Auckland Tourism, Events and Economic Development Ltd. (2014). Tourism Sector -
Bold plans for a thriving industry. Retrieved from Auckland Tourism website:
http://www.aucklandnz.com/invest/tourism-sector
Burgos, C. H. (2016). The Triumph of ‘Normality', Social Attitudes, Popular Opinion
and the Construction of the Franco Regime in Post-War Rural Spain (1936-
1952). European History Quarterly , 46(2), 291-310.
doi:10.1177/0265691416631900
Clark, H. (2008, March 6). Announcement of Funding for Auckland Art Gallery
Redevelopment. Retrieved from The official website of the New Zealand
Government: https://www.beehive.govt.nz/speech/announcement-funding-
auckland-art-gallery-redevelopment
Gomez, M. V. (1998). Reflective Images: The Case of Urban Regeneration in
Glasgow and Bilbao. International Journal of Urban and Regional Research,
22(1), 106-121. doi:10.1111/1468-2427.00126
Lawton, G.R., & Page, S. J. (1997). Analysing the Promotion, Product and Visitor
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reports/labour-market-analysis/labour-market-report/document-image-
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Plaza, B. (1999). The Guggenheim-Bilbao Museum Effect: A Reply to Maria V.
Gomez' 'Reflective Images: The Case of Urban Regeneration in Glasgow and
Bilbao'. International Journal of Urban and Regional Research, 23(3), 589-
592. doi:10.1111/1468-2427.00215
Plaza, B. (2006). The Return on Investment of the Guggenheim Museum Bilbao.
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doi:10.1111/j.1468-2427.2006.00672.x
Plaza, B. (2008). On Some Challenges and Conditions for the Guggenheim Museum
Bilbao to be an Effective Economic Re-activator. International Journal of
Urban and Regional Research, 32(2), 506-517. doi:10.1111/j.1468-
2427.2008.00796.x