FUTURE TRENDS FORUM XVIII
Proposals for Employment Creation in Spain
“Never waste a crisis.”
Dear citizens of Spain, Europe and the rest of the world, Economists, policy-makers, and business leaders from around the world gathered recently in Madrid to discuss the employment situation in Spain. We have come up with some big ideas that we would like to share with you. Yours sincerely, Future Trends Forum Bankinter Foundation of Innovation
The Future Trends Forum creates insight about innovations that will change business and society. Created in 2003 by the Fundación de la Innovación Bankinter, every six months it gathers some of the most important figures in entrepreneurship, innovation, government and venture capital from around the world, to discuss and debate a particular theme. Short speeches are delivered, which are made available to the public. There are also debates and group discussions. To encourage frankness and honesty, the discussions are not recorded. Quotes from these appear in this publication, on the condition of anonymity. What you read here are not finished articles, but instead summaries of the some of the ideas and discussions that were aired at the Future Trends Forum XVIII in Madrid, June 2012. The theme was “Proposals for Employment Creation in Spain”.
SPAIN IS DIFFERENT
Big Idea 1: A New Vision
WHO CREATES THE JOBS?
Big Idea 2: Rethink Spanish Labour Markets
JOB HUNTING OVERSEAS
Big Idea 3: Rethink The Bankruptcy Regulations
TIME TO RE-REGULATE?
Big Idea 4: Rethink Education
WE NEED TO TRAIN PEOPLE BETTER
Big Idea 5: Make Spain More Competitive
OVERHEARD AT FTF
Big Idea 6: Improve Access To Capital
THE FOURTH SECTOR OPPORTUNITY
Big Idea 7: Create New Spanish Language-Based Connections
SYSTEMS OF FLEXICURITY
Big Idea 8: Encourage Entrepreneurship
COUNTERPOINTS 34 ABOUT THE FUTURE TRENDS FORUM
Unemployment In Spain
SPAIN IS DIFFERENT by José García-Montalvo professor of economics, Department of Economics and Business, Universitat Pompeu Fabra, Spain
High proportion of homeowners vs rentals In 1992, mortgage interest was 14 to 15%. At the beginning of 2000s, it was 2-3%, enough for a person of a low salary to get into a house that they would have to pay for into retirement and beyond. This led to a very high level of frustration not seen before when the economy began to dip.
“Everyone is suffering from underemployment during this crisis. But here are some problems that make Spain different. Specialization of economy During the “wonder decade” 1996–2005, Spain grew very, very fast, much faster than the USA and the UK. But it had a decreasing productivity growth. It was growing because we were putting in lots of hours, but weren’t investing in technological capital—just a bunch of bodies with spades and shovels.
Rigidity of labor markets Wages can’t be reduced easily due to legislation and the power of the unions.
Low geographical mobility When asked, “Would you change your city of residence for a city where you could have a job?”, 60-65% of Spaniards say “no.” In the US, the answer is always “yes.” Spaniards say they would reduce their wage by 15-20% just so that they can accept work in the city where they currently live. That’s a huge number, and means there’s a mismatch of jobs and demand.
No coherent retraining programs Currently, 704,900 Spanish workers have been unemployed for 3 years or more, 15.4% of all unemployed people. Business failure has a stigma People don’t try because they don’t want to fail. Failure should be seen as opportunity to try again.”
Educational mismatch During the boom, young people dropped out of education and went into the construction sector. They are underqualified now that the jobs have left the construction industry. Meanwhile, 44% of workers aged 24-29 years who have a university degree are not currently working in a job that requires that education. That’s double the OECD average, and can lead to low job satisfaction. 6
Big Ide a 1: A New V ision
In order to reform successfully, you have to give up something. When your country has a sense of vision, people will cooperate and be prepared to make those sacrifices in recognition of the broader direction you’re trying to take. We need to have a vision that will encourage investment. We had a dictatorship, a transition, and an economic boom. Now is the time to understand who we are, and where are we going. We need to have some guidance.
Spain’s current core assets • It’s a good place to live, and a good place to work. • It has a highly educated workforce and a solid infrastructure. • It has an attractive lifestyle and culture, including worldclass sports, fashion, media, language, culinary skills. • It has a multiple set of energy sources: LNG, gas, water, wind and sun. • It has a large agricultural sector.
Key questions to answer • What is Spain good at? • Where does Spain fit in the new global economy? • What are its industries and capabilities that we want to express, both to the Spanish people and globally?
Potential future capabilities • A centre for high-tech, renewable energy development. • A hub of new agricultural technology. Africa presents a huge opportunity to export new soil and infrastructure tech. • Management of huge infrastructure and construction projects.
WELC OME T O SPAIN UNLIMITED.
WHO CREATES THE JOBS? by Karen Wilson senior fellow, Kauf fman Foundation. Switzerland
“Innovation is a hot word right now. But innovation does not create companies and jobs. We need entrepreneurs who can convert innovation into jobs. How do we create entrepreneurs? There is no one-size-fits-all model to creating and encouraging an entrepreneurial eco-system. Everyone is trying to create Silicon Valley— but that developed over many decades, and not from top-down measures, such as incubators and so on, but bottom-up actions. These things almost happen by accident. They evolve over time because of a set of factors and key people who play a role connecting the players in the ecosystem. It’s important to note there are a lot of different forms of entrepreneurs in a thriving ecosystem. The three main ones are the self-employed, the Small and Medium Enterprises (SMEs), and the High Growth Firms.
Here in Spain, for example, High Growth Firms are 6% of the market in terms of number of firms, they only hire 5% of employees—and they represent 45% of new jobs across the country. Firms under five years old between 1980 and 2005 were responsible for nearly all new net job creation. That is not to be confused with youth entrepreneurship—research shows that the average age of entrepreneurs is over 40; these are high-skilled, older people. However, many might have started companies when they were younger—it is important to get young people thinking about entrepreneurship and trying things, but they probably aren’t going to be the ones creating the jobs. The role of public sector in all of this is in managing regulatory and administrative barriers, labor laws, and granting access to finance. It’s very important to have a vibrant financial system.
The self-employed aren’t claiming benefits, but they won’t hire more people.
In Europe, a lot of public money is going into trying to fund these firms. The largest investments in startups in Europe are done by Governments. However, that closes off the market. We need to leverage private money, and the role of public sector should be to incentivize that, not to replace private money with its own.”
The majority of SMEs—more than 60%—aren’t interested in growing. And then there are High Growth Firms, also known as the Gazelles. They only form 2-5% of the population, and the growth phases change over time—but we know that these high-growth firms create the majority of jobs and economic growth. 10
Big Ide a 2: Re think Sp anish L ab our Marke t s
Spain has recently put into effect substantial labour market reforms. But for Spain to participate competitively in the global market, it needs to adopt a new labour market philosophy entirely. The current employment protection legislation removes the incentive for a company to invest in its own employees, and for employees to invest in themselves. Unemployment is a great opportunity for Spain. There is a big workforce ready to work. How can we make that happen?
Challenges • In Spain, the unions represent only people with permanent contracts, and they negotiate only with large firms. What they agree upon then becomes binding for an entire industry. • We have a fully protected group of workers who can huge severance pay so they’re never going to be fired because it’s cheaper to close the company than to fire everyone. The result of this is that, in the face of a crisis, the easiest thing for firms to do is to lay off the youngest, most able workers. How can we move to a system where the labour relations are more representative of the workforce in general? • Some companies want to be better, faster, more innovative. And there are people out there who can help them. There needs to be more visibility for those looking for work, and those looking for skills to come together.
Small ideas • In 2001, German firms negotiated wage reductions in exchange for job guarantees. Spain can learn from that. The three parties—unions, employers and government— can come together to push for a productivity bargain. • Spain reduces the negotiation power of the unions, and make the negotiations focus on individual employers and employees. • Spain creates “Mittelstands”— regional hubs, in the style of those in Germany, which bring together clusters that focus on different industries. In these areas, big organizations help support small ones, sharing knowledge, skills, best practices.
• The government writes a new kind of contract for all workers—you begin as temporary contractor, then you win security with the company as you work, and if you are fired, the maximum severance would be 30 days. It creates the right incentives for the labor market. • The government introduces new tax incentives for hiring. • Government unemployment benefits are only available when your company severance pay has run out. • A new system of positive assistance is supplied by the government, in order to help all unemployed people get new jobs.
THE UNIONS , THE EMPLOYERS , THE EMPLOYEE S , THE EDU C ATION SEC T OR AND THE GOVERNMENT NEED T O C OME T OGE THER T O CRE ATE A NE W SOCIAL C ONTR AC T.
The most popular destinations were UK, USA, France, Germany and Ecuador.
JOB HUNTING OVERSEAS
Big Ide a 3: Re think T he B ankrup tc y Reg ul ation s
Spain needs more flexible personal bankruptcy rules. The current system makes people risk averseâ€”if you walk away from your house, you are still liable for the difference between the value of the mortgage and what the bank got for the sale of the house.
A solution Spain implements an Americanstyle foreclosure system, which allows people to have a fresh start. Itâ€™s good for labor mobility and it would give hope to those in difficult situations. To make this work, there would need to be some level of bankruptcy protection and further recapitalization so that the rest of the economy was not affected by this change.
A MA J OR CHANGE IN PERSONAL BANKRUP T CY L AW WOULD SIGNIFIC ANTLY INCRE A SE DEMAND.
70% of Spaniards say that the government does not sufficiently regulate company practice. The only country with a higher response is China.
TIME TO RE-REGULATE?
Big Ide a 4: Re think Educ ation
Despite high unemployment, there’s lots of frustration from companies who can’t find the people they need. We need to think about new kinds of educational institutions. Small ideas • Spain retrains all gatekeepers in public and private education to a new mindset based around new technologies and businesses. • Spain recruits different people into education, people who have other experiences outside of the classroom and can give different aspirations to children. • Businesses require senior staff to mentor young people. • People in Spain perceive “vocational education” as being about training plumbers. In Germany, young people don’t think that way. We have to educate people both young and old that vocational training is also valid for accountancy, management, or the legal system, and is an equally valid way of getting into almost any kind of company.
• High school dropouts are offered vocational apprenticeships, with tax incentives given to those companies that offer them. • A far more visible and transparent system is created to show what jobs are available, what skills are needed for them, and where those skills can be obtained. • Wage records are attached to educational histories so students can see the exact future value of their course, so they can make informed choices about value for money in education, and educational institutions are held accountable for the quality of their degrees. In order for this to work, students need to be paying for some element of their education. • Universities create alumni systems to mentor new graduates and help them find employment.
AC CE S S T O TARGE TED EDU C ATION AND TR AINING LE ADS T O LIFELONG EMPLOYABILIT Y. 17
WE NEED TO TRAIN PEOPLE BETTER By Peter Cheese ceo, Chartered Institute of Personnel and Development, UK
“The biggest issue today is that employers can’t find people with the skills they need. We can’t expect to solve the problems if we don’t take that on board as employers, and train people in new skills. A recent Accenture report showed that 80% of employers report freezing or reducing training spend, while almost half report skills shortages. Approximately 15% workers in Spain were trained by their employers in the last year. In Nordic regions, that number is 40-50%. This is what needs to happen to increase employment: Employers need to step up, not just point fingers They are good at recruiting in their own image. We need to think more broadly how we recruit more diverse workforces, not just as a corporate social responsibility. There are real reasons to have a diverse workforce—more innovation, more representation, more engagement. But you have to have flexible working practices for that, such as home and remote working, job sharing, part-time working, older people sharing work with younger people for knowledge and skills transfer. We are about to see a vast growth in freelancing and contracting, as most young people say they want to work for themselves—we need to take advantage of that, and have freelancers who also feel part of the broader corporate vision.
We need to improve mobility and transferability There are currently a lot of challenges to mobility, including comparability of qualifications across borders. We could do more with mobility if we could better understand the skills we’re dealing with. We also need smarter regulation, such as an EU Blue Card, making it easier to move high-skilled workers around Europe and into Europe. In Spain, people don’t leave their home town. Maybe employers need to take the work to them, as well as encouraging people to move. Strengthen the skills ecosystem We need a better understanding of what skills are needed. What is Spain going to be famous for in the future? What are its core skills? What future skills will we need? This requires greater collaboration between employers and the education system—and it needs to work two ways. For far too long, business has been pointing the finger. Business needs to get into the mix and define what skills they need, including into primary schools, bringing business people into schools and giving young people an exposure to their thinking. Children don’t know what it is to work. They know what it is to be a TV personality and a footballer —and so that’s what they say they want to be. We have to build this cultural shift that it’s a good thing to be an entrepreneur. It’s not about more education, it’s about smarter education. Vocational education is not just about trade skills, it’s about building apprenticeships into legal firms, financial services, and so forth. When austerity measures hit Finland in the 1980s, they went counter cyclical—they increased investment in education, while also defining what they wanted from education, and so they built a system based on technology skills. That can happen here.” 19
Big Ide a 5: Make Sp ain More C omp e titive
Globalization has changed the rules and we are still understanding what that means. What legislation could help Spain compete more effectively with the rest of the world? Small ideas • A ‘global entrepreneur visa’ allows anyone who invests half a million euros in local companies to live in Spain. • Parts of Spain are declared “Special Economic Development Zones”, with a unique framework of labor laws for forward thinking, socially beneficial companies. New businesses admitted to these zones that have less than 5m euros of revenue can employ at will, with no compensation necessary for hiring and firing. This creates a laboratory for experimentation, while promoting Spain as a world-class hub for
social entrepreneurship. • Unique lines of capital are offered to complementary overseas companies if they start new businesses in Spain. • New government-to-government strategic alliances are created in places with demand for areas in which Spain is strong, including a mechanism to enable export of expertise and talent on a collaborative basis. • Domestic regulation is scrutinized sector by sector to reduce barriers to entry, and to eliminate tolerance for the current system of under-the-table contracts. • A strong foreign investment agency is created, with the flexibility to negotiate unique deals, such as tax holidays, for multi-national companies willing to invest.
“ SPAIN IS ON SALE ”—SPECIAL DEBIT C ARDS OFFER 80 CENT S T O THE E URO FOR NOR THERN E UROPE ANS WHO VISIT.
OVERHEARD AT FTF
The rules were created for a different situation. / Are we overrating university? / The wonder decade was a mirage. / In Chinese, the word ‘crisis’ is made up of two words: “danger” and “opportunity”. / How do we create a robust social safety net without free riders? / We have to let companies fail. / Is it too easy to go to university in Spain? / We need higher wires and smarter safety nets. / Diversity presents a challenge. Diverse teams are either the best or the worst. / We need to shift the system away from protecting existing jobs, to one that makes it easier for people to move from one job to another. / Labour mobility in Spain is a problem—but that also means people have family support, which means that the situation is at least sustainable. / Spain is taking the big decisions. The problem is that we are running out of time to be able to execute them. / The nature of work is changing. We need to stop rearranging deckchairs on the Titanic. / There is no such thing as over-education. / When I walk
the streets of Madrid, I don’t get the feeling that this is a country in crisis. / In the USA, because we print our own money, I think we will inflate our way out of the problem. In Spain, because of the euro, that can’t happen. / When Germany adjusted its economy, it didn’t get rid of its welfare state, it reformed it. / We are not ready for globalization. / There is currently 18% unemployment in Europe. That means 25 million people, plus 15 million “discouraged workers”, that is young people in education, older people who can’t find work, and mothers who stay at home because they can’t get back into the workforce. It’s a huge waste of talent and capability. / We need to think about education as an investment. If it doesn’t have a return on the investment, it’s a broken system. / It’s important to be countercyclical in our thinking. / You can’t waste a crisis—you should have a real transformation, choose what labour market you want, and make legislative changes in that direction.
Big Ide a 6: Improve Ac c e s s To C apit al As the banking sector restructures, businesses and individuals are suffering from a lack of access to capital. Small ideas • Build up the non-banking sector, including venture capital, as alternative providers of capital. • Stock options are taxed as income only when they are realized, not when they are created (as is currently the case), to encourage more capital to enter the market. • Spain has a large stock of gold,
and the price of gold is at an all-time high. Special goldbacked euro bonds are issued, to allow Spain to borrow at a much improved rate, and increase market liquidity. • The government co-finances venture funds. When venture capital puts money in, the government agrees to put in money as well.
NOW IS THE TIME T O INVE S T IN THE FU T URE .
THE FOURTH SECTOR OPPORTUNITY By Heerad Sabeti co-founder and trustee of the Fourth Sector Network
These fourth sector enterprises are sometimes described as “For-Benefit”, enterprises moving into socially positive areas normally occupied by NGOs and governments.
“We need a creative capitalism where business and non-governmental organisations work together to create a market system that eases the world’s inequities.” - Bill Gates “…the traditionally valid distinction between profit-based companies and nonprofit organizations can no longer do full justice to reality, or offer practical direction for the future. In recent decades a broad intermediate area has emerged between the two types of enterprise… It is to be hoped that these new kinds of enterprise will succeed in finding a suitable juridical and fiscal structure in every country.” - Pope Benedict XVI
For example, while profitable and commercially successful, the Danish pharmaceutical company Novo Nordisk is driven primarily by its mission to rid the world of diabetes and is committed to ensure all its products and operations are “economically viable, environmentally sound and socially fair.” Fourth sector enterprises create quality jobs, spur economic growth, solve pressing social and environmental problems, and leverage private capital to do so. They currently account for 5-15% of U.S. GDP, and 10-20% of American jobs.
“We have a wide range of complex financial, social and environmental crises hanging over us at the same time, on an unprecedented scale. A fourth sector is emerging where businesses, governments and NGOs converge to try and solve them.
There is overwhelming evidence that a growing number of entrepreneurs, consumers, employees, and investors are favoring fourth sector enterprises. Governments, markets, and economic developers are paying attention to this phenomenon. What is needed now is to remove the structural barriers that have constrained economic activity to the traditional three sectors, allowing the fourth sector to thrive.”
Over the past few decades, the boundaries between the public (government), private (business), and social (non-profit) sectors have been blurring as many pioneering organizations have been blending social and environmental aims with business approaches. 26
Big Ide a 7: Create New Spanish Lang uage -Ba sed Connec tions Is the Spanish language and the reach of the former empire an opportunity for expansion? Small ideas • Spanish is the second language in the USA, and is seen as the language of the future—American youngsters need to speak Spanish but there aren’t enough teachers. A program is set up to bring Spaniards to the USA to teach Spanish, where they can then learn English, and increase their own employability.
• Employment offices overseas are connected directly to those in Spain, giving Spanish people visibility of opportunities. Companies are given tax incentives to sponsor increased worker mobility. • A form of national service or Peace Corps is created for young people to travel and to improve the infrastructure in Latin America, sharing expertise and gaining new contacts and experiences overseas.
EL E SPAÑOL—THE L ANG UAGE OF THE FU T URE .
SYSTEMS OF FLEXICURITY By Dan Finn professor of social inclusion, University of Portsmouth, UK
“Periods of prolonged unemployment have scarring effects on the people involved. These effects stay with them for the rest of their lives, and damage their earning prospects. If current policies in Spain stay the same, these people are going to be out of work for many years. We have to respond to the immediate crisis in ways that also address the longer-term problems. We’re dealing with inflexible labour markets and systems, an aging population, the changing nature of the modern family, the social safety net, and a low-skilled workforce. What we learned in the economic downturns of the 1980s and 1990s was that unemployment fell in different rates in different countries. Those with more flexible labor markets recovered more quickly. How easy is it to hire and fire? How do you re-engage the unemployed, and reequip people to get jobs as soon as they can? We need to aim to build systems of “flexicurity”, where there is some job security and a pro-active safety net. There are different national pathways to flexicurity. Here are three areas worth thinking about: 1. Radically redesign of outof-work benefit It’s relatively generous in Spain, but we need to change how it works. In Canada and Japan, unemployment benefit is called Employment Insurance. In the UK, it’s called Job Search Allowance. Your responsibility is to look for work, and the government has a responsibility to help you do that. Unemployment benefits come with expectations.
2. Redesign the agencies and institutions that deliver benefits We’ve learned that the design and delivery of benefit systems is linked to unemployment. Shift these systems away from processing and payment, and towards being employment-focused service deliverers. They are then judged in terms of how many people they get into jobs, not how well they manage their budgets. 3. Introduce competition We have large public employment services that do things in traditional ways. There is an emerging sector of innovative for- and non-profits who should be encouraged to deliver services and help people get back into work. In France, they introduced competition—and found the public sector performed as well as the private sector, because of the threat to their business. Here are some lessons we’ve learned from other countries: Do not over-deregulate In the 1980s in the UK, the Thatcher government had a bonfire of the regulations, and it became very easy to hire and fire. But it didn’t work. One of the problems was that they did nothing with the benefit system, and that then became part of the problem. People were encouraged to take early retirement and take disability benefits instead of trying to find work, to reduce the numbers. Instead, introduce smart regulation. Scandinavian countries show us that high levels of social spending aren’t incompatible with flexible markets. Systems of “flexicurity” work best This system, first developed in the Nordic countries, means some job security, with a proactive safety net for those who lose their jobs.”
Big Ide a 8: Enc ourage Entreprene ur ship The Spanish mentality does not look favorably on entrepreneurship. This needs to change. Small ideas • A national campaign is developed to promote both for-profit and for-benefit entrepreneurship. • New regulations make it easier for entrepreneurs to start businesses. • A few hundred million euros are put aside for a new, fiveyear program to recruit 100 entrepreneurs from outside Spain. The program gives them rights and privileges to live and work in Spain, along with a mandate to create 100 companies, and generate jobs.
• Entrepreneurship is integrated into the education system from 3 years old onwards. Instead of teaching boring mathematics, children are taught basic accountancy. • A recent survey reported that 75% of Spanish young people wanted to work in civil service; in the USA, only 17% of young people gave the same answer. A new mentality will be fostered, removing the stigma around failure and encouraging the idea that your value to the world is in what you create and what you do, rather than becoming a part of the system.
LE T ’ S MAKE SPAIN INT O A C OUNTRY OF ENTREPRENE URS.
Radically deregulated labour markets won’t be accepted at a time of austerity.
Higher education is about more than making foot soldiers to capitalism.
Good policy is bad politics.
There are winners and losers, and particularly at this moment in the global economy, the distance between the two is bigger than it has been for a very long time. And it’s getting bigger.
Consumers want the Fourth Sector to exist. Companies want consumers to think that’s what they’re doing. But we have to be careful not to buy the hype. I don’t think it’s a reality.
If it’s left to the government, nothing will be done.
Sometimes it’s better not to reform if there’s too much resistance, because it can create chaos.
You need to have the right attitude to make these ideas work. You can’t make big ideas without thinking, “Who is getting screwed by whom?”
There is a risk in saying, “Never waste a good crisis.” You have to make sure you don’t use it simply to put forward your particular agenda, if it is not the best solution to the crisis.
It might have been economically possible to fix Spain’s monetary policy two years ago. It’s probably impossible today.
ABOUT THE FUTURE TRENDS FORUM by Juan Rosas managing director Foundation of Innovation, Bankinter
Every six months, the Fundaci贸n de la Innovaci贸n Bankinter brings together the experts of its Think Tank to focus on trends in innovation that will affect us in the near future. This time, our experts chose to use innovation as the main instrument to combat the increasing levels of unemployment in developed economies. As you can see from this publication, the Future Trends Forum explored various innovative strategies to tackle the issue. They analyzed the role of various implicated factors (legislators, companies and innovation), and the emerging trends of entrepreneurship and self-employment.
To arrive at the conclusions you can read about in the final report to be published by the Fundaci贸n in November, the experts at the Forum studied various case studies from regions around the world to reveal those with the best job growth and stability, the trends that help create companies with a high job-retention rate, and the changes necessary to help workers adapt to learning new skills. They then drew out various conclusions and recommendations focused in particular on the situation in Spain. This conclusions will be published in the autumn through a series of conferences across Spain, with an intention to contribute to solving the unemployment crisis in Spain. To conclude, I would like to reiterate my thanks to all of our experts, the genuine motor of our Fundaci贸n, and to our followers who continue searching for the opportunities that the future will offer.
Unemp loy ment In Sp ain Source: Google Public Data Based on data from Eurostat
3,480,000 FEB 1994
3,222,000 MAY 1995
2,849,000 JAN 1986
2,389,000 OCT 1991
1,950,000 JAN 1983
5,621,000 APR 2012
2,647,000 OCT 1998
2,260,000 AUG 2003
1,754,000 MAY 2007
4,013,000 MAR 2009
Editor Andrew Losowsky www.losowsky.com Art Director Santos Henarejos www.santsserif.es Published by the Fundaci贸n de la Innovaci贸n Bankinter To obtain more copies, email firstname.lastname@example.org To see our digital edition, visit www.fundacionbankinter.org Copyright 2012 All rights reserved
FUTURE TRENDS FORUM XVIII
Proposals for Employment Creation in Spain
“Never waste a crisis.”