In planning for the future, one of the best ways to determine
workable strategies is to
learn from the experience of others. In today's world, many countries stand out as examples of
nations for whom economic transformation has been swift. Spain is one of these countries. By
moving from complete dictatorship and near economic autarky in 1975 to a "middle income"
status in the late 1970's, to membership in the Organization for Economic Cooperation and
Development (OECD) by the 1980's, and finally, by becoming one of the ten largest economies
in the world today, Spain demonstrated to the world that it was capable of quick economic
transformation (Botero, 3). Still, with pressure from the European Union (EU) to loosen labor
legislation, recent losses in foreign investment, and inadequate public service and social
security, Spain has discovered that its rapid evolution may have left it with an overly fragile
system. This fragility may cost Spain its OECD ranking as the world becomes more and more
competitive and as Europe struggles to maintain its power against the Americas and East Asia.
Its difficulties and its successes make Spain an excellent development model. From
Spain's development we can gather many lessons about what role a government should and
should not play and how to promote economic growth effectively. Other countries in search of
development and facing the same dilemmas as Spain, can thus look to Spain for guidance in
The United States, certainly, is one of the most developed countries on earth, and yet,
areas of this country are still 100 miles from the nearest doctor or 15 miles from the nearest
paved road. In fact, West Virginia stands out as an example of a state that requires
development assistance. With its education system ranked 48th in the nation and a projected
job expansion of under 5,000 new positions a year into the year 2000, West Virginia may be
"almost heaven" in song, but it is a virtual graveyard for economic growth (Wright, 211).
West Virginia, like Spain, is discovering that it cannot compete against states with less
rigid industrial sectors and better health, welfare, and education systems. Since the fall of the
Soviet Union, the pendulum of change has been swinging toward capitalist, free-market
systems. In order to gain competitiveness in today's world, both Spain and West Virginia need
outward-looking, free-market based governance to assist them in developing with the rest of the
world. Without these characteristics, the ever-increasing speed of development of other
countries may again leave them behind the pendulum of change.
In a struggle to find development policies that are feasible and useful, the most
necessary step is to specify what is meant by "development." The economic profession noted
long ago that income growth or "economic growth" is not a sufficient indicator of development in
a country. Unfortunately, as many development theories exist as do economists. There are,
though, some similarities among these disparate viewpoints. As defined by the World Bank,
"development" consists of improving living standards, equal opportunity, political freedom, and
civil liberties (WDR, 1991, 131). Of these, the "living standard" is the most tangible and of the
utmost importance to economists because it can be broken down further into the fields such as
material consumption, education, health and environmental protection.
While it is impossible to address this complicated "development process" completely,
the focus of this thesis will be on the first part of the World Bank's definition: living standards.
More specifically, I will consider some of its component fields, namely, material consumption,
health and education. Material consumption, as explained by the World Bank, does not refer
to the household consumption function, but rather to the availability of final goods and services,
including investment, to the consumer. Clearly, these factors of development are interrelated
and integral to the process. Without each of them, any attempt to develop can result in a fragile
system that is vulnerable to even the slightest economic strain.
To study material consumption one must track the production sector to assess the
availability of goods and services for general consumption. Production, though, does not alone
create a picture of consumption. While productivity is important in the development process,
open trading policies and competitiveness are also important factors. Because these things are
determined by the governing bodies, one must also account for the activities of the government
in aiding development. Are taxes restricting national savings and consumption by cutting into
disposable income? Does the private individual pay a burdensome amount of taxes? Does
this affect investment and savings on the part of the individual and industry? Does the
government provide an atmosphere that spurs competition and promotes free trade? All of
these factors together form the basis for a country's ability to consume.
The health element of development is, arguably, the most vital. The availability of
doctors and clean water are two of the areas in which a country can address the basic human
needs of its citizens. Without health and sanitation standards, a country cannot begin to
educate or increase the productivity of its citizens. Tied closely to health is infrastructure.
Access to clean water and energy is largely related to the quality of a country's infrastructure.
On a more advanced level, infrastructure is absolutely essential for economic growth, especially
in the productive sector. Without trains, highways, phone lines, power lines and up-to-date
communication methods, no country has a chance to succeed. These health and
infrastructure issues form the basis for continued development.
With decent health and infrastructure, a country can turn to educating its people. To
divine a country's level of education, it is necessary to account for the amount of resources
devoted to education, the quality of the education, and the availability of education to the
general public. Additionally, for a society to gain benefit from its educational system, it has to
provide enough opportunity for educated people to succeed. Skilled workers are subject, in
their careers, to the same market forces of supply and demand. If there is no demand for their
skills or if supply is too high, these upper echelons could move out of the country or out of the
productive sector and create a "brain drain" effect, negating the emphasis on higher education.
Both Spain and West Virginia, hereinafter "countries," are surrounded by successful
larger economic regions with which they are integrated. Spain and West Virginia are similar in
other social and economic ways as well. Of course, there are certain differences between the
countries, such as budgetary restrictions and sovereignty issues that make them distinct. For
the purposes of this paper, however, these issues are irrelevant since I will be comparing each
country within the context of its greater economic whole. More specifically, in my statistical
comparisons, I will compare: a) West Virginia with the United States, and b) Spain with either
the OECD or the "high income nations" as defined by the World Bank (depending on statistical
availability.) Thus, similarities that may not usually be apparent in the comparison of a
sovereign nation and a state of the United States will come to the foreground.
Additionally, I will be comparing Spain and West Virginia over a time period of twenty
years. I begin in 1975, the end of the Franco dictatorship in Spain and the end of the Vietnam
War in the United States (and West Virginia). I have tracked each indicator until the most
current statistics available, to show trends in the development process of the two countries.
To track consumption, the first part of the development definition, I have created a
two-part system which focuses on the role of the government first and the structure of the
country's production second. This section will explain how consumption is affected by the
government and the productive sectors in each of these countries. These two sections
comprise the "hands off" section, which will describe the areas in which, in my opinion,
government has been too influential in both cases.
The next two sections are the "hands on" sections, which focus on areas in which the
government, in my perspective, can and should be involved. These areas are infrastructure
and human capital. Included are statistics on health and welfare, education and population
movement. The purpose of these sections is to demonstrate how Spain and West Virginia
have focused on human capital and infrastructure. In this way, I will cover the "health and
education" part of the World Bank's definition of "development."
I will also note what the numbers could not possibly tell: the story of Spain in its own
country context. The danger in doing any comparative study across cultural lines is
out-of-context translations, or incorrect assumptions made without the knowledge of how a
culture functions. Having experienced the Spanish culture firsthand, I hope to eliminate any
doubts in this area.
With the insights gained from these areas of analysis, I hope to develop a list of
suggestions for development in West Virginia. Since Spain is a relevant model for West
Virginia's planning, this development plan should be concise and workable. While I cannot
cover every aspect of development at this level, I hope that I can illuminate some areas in which
the government of the State of West Virginia can improve the pace of development to become
more competitive into the twenty-first century.
Some of my hypotheses regarding this development are as follows: I have found in
both countries that the government has had some negative effects on development. For
example, the government in Spain is guilty of collecting burdensome taxes from individuals and
businesses. This fact has created a bureaucracy that is too large to function efficiently and that
grows constantly due to its self-aggrandizing measures. In West Virginia, too, the government
is the only dynamic sector, and I think we can see from Spain's example that this type of growth
is not healthy. Also, the government as a practical "upper class" causes the weakening of the
middle class. When a large government collects too much money and attempts to sustain a
welfare state, it stabilizes the poor population and discourages upward mobility. The rich and
well-educated then enter the government and join the "upper class," which becomes corrupt
because it collects too much money and has too much power. The middle class, which is
generally the most dynamic and upwardly mobile in developed countries, is eliminated. In West
Virginia, this is also evident. West Virginia receives more welfare checks than most states, and
certainly has found government to be the best place to get out of poverty, and then out of West
Spain and West Virginia are also disadvantaged in terms of what the government has
provided them. Infrastructure is poor in comparison with other developed nations and
education is lacking. School attendance and per-pupil spending are low in comparison to other
countries. Because of the problems the large governments have created, the most educated
people are the most determined to leave. In Spain, they leave the dying productive sector to
enter to government, and in West Virginia, they leave the state. There is no incentive to stay,
and the "brain drain" sucks away the opportunity for development. The "brain drain" creates a
vicious cycle of poverty that will be difficult to break without focusing on complete and stable
development, especially when global competitiveness is suffering as well.
Since no country needs to provide all of its own goods nowadays, utilizing comparative
advantage and stressing competitiveness are two keys to rapid economic growth. The
government, certainly, has a role in this process, since it must take the first steps in opening up
the labor market and fully joining the world market. Spain and West Virginia have both hidden
behind their geographic barriers: the Pyrenees in the case of Spain and the Appalachians in
the case of West Virginia. Isolationist attitudes, however, will get them nowhere. Becoming
more competitive and playing on their strengths, Spain and West Virginia can deal more
effectively in the world.
To illustrate these points, I have organized my paper in the following manner. In
Chapter 2, I begin with my analysis of the statistical indicators in the "hands off" sections.
These sections are structure of government and structure of production. I will discuss the
results in terms of Spain first and then will note pertinent facts that the numbers do not describe
well enough. Then, I will discuss these findings in terms of West Virginia and its potential to
learn from Spain. In Chapter 3, I discuss the statistics for the "hands on" sections of
infrastructure and human capital. I will discuss these statistics in the same manner as the ones
in Chapter 2. Chapter 4 will include my conclusions about Spain and West Virginia and the
benefits that comparative study yields.
Structure of Government
The statistical indicators I have chosen for the first section are centered around the way
the government works in Spain and West Virginia. The focus of this section will be on the
comparative disadvantages of the government in development. It has become clear in the last
decade or so that the role of the government, if the nation is to develop properly, should be to
"complement and support the private sector" (1992 WDR, 131). It is my conjecture that
burdensome tax and labor structures and overinvolvement in the private sector are signs of a
government that is misallocating its resources, failing to concentrate on its areas of
comparative advantage, and, hence, 'slowing down' development.
The four areas of statistical comparison for this section are government spending as a
percent of GDP, tax revenue as a percent of GDP, transfer payments as a percent of total
government expenditure, and the budget deficit. Tables and charts for these statistics can be
found beginning on page 26.
Tax revenue as a percent of GDP is a telling indicator. In most years between 1975 and
1990, for Spain, the total tax revenue as a percent of GDP hovers just under 20 percent. In
the 1990's this figure has risen to about 30 percent. Tax revenue taken by the government,
though, falls very close to being the entire total current revenue. In fact, among the OECD
members, Spain has the lowest portion of non-tax government revenue. This, in itself is not
necessarily bad, but it does create problems when viewed in conjunction with other factors.
Government spending is one of these factors. Note that government spending in
Spain has been rising steadily since 1975. Spending has been no less than 27 percent of GDP
since 1980, and, in comparison with the OECD countries, Spain is well above-average. (The
OECD average for most years is close to 28 percent, and Spain, at its highest in the mid-1980's
hovers around 35 percent.) These sets of numbers support the fact that the government in
Spain is overly large. Even with relatively low real GDP in comparison with the OECD, Spain's
government remains large with no signs of possible shrinkage in the future.
Perhaps the most interesting statistics, though, are those on transfer payments. In
Spain, transfer payments in the 1980's hit a record of 64.2 percent of total government
expenditure. This number is not only a record for Spain, but also for all of the OECD countries.
The budget deficit, while not applicable to West Virginia because of its status as a state, is very
important in Spain. Note in Table 4 that for the last 10 years, Spain has been running a deficit,
much of which is financed by foreign investment.
The problem of the deficit is that it hurts long-run growth. The government has only a
limited number of methods by which it can finance the deficit, most of which are very restrictive.
The two ways of financing the deficit are selling securities to private individuals or printing
money to pay off the deficit. Selling securities to individuals means that the individuals have
less money for savings, and the government is "crowding out" investment (Hyman, 918).
Interest rates rise and investment goes down. In the long run, growth will be slower due to
decreased capital stock brought on by the drop in investment. If the government chooses to
increase the supply of money instead, there are different implications. With the increased
supply, inflation would increase and, therefore, investment would fall due to its higher cost. As
many of the indicators throughout this thesis indicate, Spain cannot afford to lose investment
nor private capital stock, nor to increase inflation.
The genesis of the deficit problem in Spain began in the 1980's with the need to "catch
up" with the rest of Europe and the socialist movement ("One Speed", 52). Even today, the
Spanish are known for their policy of "social pyramiding" so that social security and welfare
benefits can continue. More specifically, the Spanish government is currently considering a
policy to create financial incentives for having children because they are worried that the current
negative population growth rate will leave them with no workers to support the current
population as it ages. More children will broaden the tax base and continue to support the
welfare state, according to the Spanish government. Of course, extra people may only
contribute to the ranks of welfare recipients, if Spain continues to fall behind in competitiveness.
Spain was behind on leaving the authoritarian society and on forming a welfare state, and now it
is behind on creating a more free-market, capitalist system.
The welfare state did, for the record, create some positive social changes in Spanish
society. By looking at the income distribution changes found in Table 5 and Chart ____, you will
note the redistribution of income to the lower 40 percent of the population in the 1980's.
However, this redistribution was almost entirely reversed in the late 1980's, as the 1988 figures
show. Unfortunately, the 1988 numbers are the most recent available.
One of the side-effects of the welfare state is the self-aggrandizing government. The
Spanish government feeds upon itself rather than working to support a growing private sector.
For example, Spain has the highest rate of combined direct and indirect taxes in all of Europe,
and the Spanish government collects close to 75 percent of cash register receipts from private
business (Vilella). Most of this money is collected to support the welfare state. The average
small business does not have a chance with that kind of tax system. The government in Spain
grows by making it profitable to be in the government. Since it wields so much power in the
private sector, it is easy for rising young minds to consider the government as the best place to
go. Entrepreneurial skills are dead in Spain. Furthermore, those that enter the government
often end up involved in corruption because it is so easy to receive payoffs from a business in
return for offering beneficial legislation or tax cuts for that business. Again, the small business
is kept out of the running, since it cannot afford the immense burden of bribery at the
government level. To get a true picture of just how much stake the Spanish government has in
business ventures, consider that Chambers of Commerce in Spain are not privately run, but are
government run and membership is mandatory (Vilella). Since the numbers might fail to make it
clear how the government oversteps its boundaries, creating an unsustainable welfare state, it
is helpful to note these facts.
West Virginia knows of this burden as well. The government is the only arena
producing jobs, due to the efforts of Robert C. Byrd to improve the state. Government spending
in West Virginia as a percent of the state's income ranks West Virginia as 25th in the nation
(See Table 1) . We are fairly competitive on spending. In education, though, West Virginia is
ranked 48th, our infrastructure is on the lower end, and our economy is certainly not booming.
Where does this spending go? It goes, in ever-increasing amounts, to welfare payouts. You
will note that West Virginia's numbers for transfer payments, found in Table 3 are not
remarkable. But the percent of transfer payment monies is steadily rising, perhaps due to the
creation of a welfare state much like Spain created in the 1980's. As you can see by
comparing the figures in Table 3, West Virginia does not appear to spend much in comparison
with the US and Spain on welfare payments. The federal government, however, helps West
Virginia to make some transfer payments, so that the state does not absorb this burden entirely
to itself. Thus, the percentage of government money West Virginia spends on transfer
payments is only in addition to the percent the federal government gives West Virginia already.
A budget deficit, of course is not possible for West Virginia. States are not permitted to
run budget deficits according to federal law. West Virginia can, however, ask for more funding
from the federal government to increase state spending. West Virginia has done exactly that,
and has received funding. This money has been primarily devoted to financing some transfer
payments, namely Aid to Families with Dependent Children (AFDC) and improving
infrastructure, which creates temporary government jobs. (census, )
Of course, it is important to note in this section on government that West Virginia is
known for two things: poor people and pork barreling. The result of this, much like in Spain, is
the polarization of classes. The income distribution in West Virginia looks much like Spain's
(See Table 6). The larger upper and lower classes and the lack of a middle class are evident.
Since West Virginia's income distribution figures are scarce, it is helpful to note the percentage
of people below the poverty line in West Virginia. The most striking fact is that West Virginia
has had, since 1975, at least 5 percent more people below the poverty line than the national
average. (See Table 7.) That gap has been closing slightly in recent years, but the recession in
the early 1990's caused some damage.
Also, the government is large and overly bureaucratic. This is certainly evident at
Marshall, where the bureaucracy is much larger than one might expect for a school of only 13,
000. Other signs of this bureaucracy are the small indicators of wealth, like the new Fifth Street
bridge, WVU's personal transit system, and the Robert C. Byrd Institute. All of the projects,
though, created only temporary government jobs, which, as is evident in Spain, are
unproductive. They also add nothing to make the state more competitive in the business
Structure of Production
The analysis contained in this section should complete the picture of a government
ready to stifle any hope of competitiveness. Moving away from the government to see what is
actually occurring in the business sector will demonstrate what is available for consumption by
the people in Spain and West Virginia.
This section will be divided into two parts, dealing with long-run and short-run factors in
the structure of production. First, let us consider the short-run. This section focuses on real per
capita GDP, the structure of each country's production, the unemployment rate and the labor
force participation rate.
Real per capita GDP in Spain is among the lowest of the OECD members and is
consistently about half of the OECD average. (See Table 13.) This indicates that Spain is not
only uncompetitive, but is making no real progress in bridging the gap between it and other
nations. As a sidenote, inflation in Spain is very rapid; it is generally almost two times as high as
the average OECD rate (OECD report). This, combined with the deficit continues to weaken the
economy and forestall long-run growth.
The next indicator, structure of production, includes the distribution of GDP into
agriculture, industry, and services. See Table 8. Remember that government employment is
recorded in the service sector. The structure of production in Spain is quite stunning. Unlike
most nations, it has made what appear to be remarkable advancements in converting to a
service economy. As you can see in Table 8, Spain's service sector has grown consistently
since 1975, reaching a recent peak of 86 percent of GDP in 1990. Additionally, only 5 percent
of the economy is agricultural, and Spain has almost no hunger problem. What is most
amazing is its industrial sector, which has been passed over in almost every aspect. Spain has
never been an industrial giant and it continues to develop without this crucial step in
advancement. Note also that the structure of production for the OECD is more balanced and
has seen more gradual change. Spain in an attempt to move further into the service sector and
create more government, unwittingly creates a fragile system that may collapse in the future.
Unemployment in Spain has been the topic of most economic articles about the country.
Unemployment has currently reached almost 25 percent, a record rate within the OECD. See
Table 9. Some of this unemployment is due to the beginnings of labor law change. The EU
and the IMF have recognized Spain's need to free up its labor market and have put pressure on
Spain to do so. Spain's response has been half-hearted at best, but some of the changes have
caused shocks to the market that are expected to recede after further liberalization. The
balance of the unemployment problem is due to the hard times that hit Spain, and most of the
western world, in the early 1990's. Spain did not, in the early 1990's have a system strong
enough to weather the storm of the recession. This, as aforementioned, is due to the fragility
and hollowness of its economic transformation.
Furthermore, the unemployment rate does not reveal information on those not actively
seeking work. Therefore, the so-called "discouraged worker" or the person who has stopped
looking for work, is passed over in the statistics. The labor force participation numbers provide
insight into Spain's continuing problem. Labor force participation (see Table 10) is very low in
Spain, due to large numbers of people who enjoy unemployment benefits rather than seeking
The Long Run Component
In this section, I will focus on only two items: gross domestic savings and gross
domestic investment. National savings and investment are crucial to long-run economic
growth, and therefore, development. We have already noted the burdensome taxes placed
upon the Spanish people. These burdensome taxes "reduce the share of income devoted to
saving and to direct investment by small entrepreneurs" (Schultze, 200). Additionally, heavy
taxes on business are necessarily borne by individuals, "either directly or as the taxes are
passed on in the form of higher prices and lower wages" (201). Clearly these heavy taxes
affect savings and investment by great amounts. Why is this important? "A rising tide lifts all
boats" applies directly to the economic growth of a country. A growing economy raises average
incomes and eases the lot of the poor or those who might be most severely affected by cyclical
changes (224). A growth in productivity and, therefore, real wages, which tend to grow in line
with productivity, is directly related to savings and investment. While there are other factors
such as education of the work force, to be discussed later, that add to this growth, savings and
investment activity is key in equipping a labor force with the capital it needs to increase
I define gross domestic savings and investment, in accord with the World Bank. Gross
domestic savings is "GDP minus total consumption," while gross domestic investment is
"outlays on additions to the fixed assets of the economy plus net changes in inventories" (WDR
1990, 245). Consider this in the form of the GDP identity. Since GDP=C+I+G+(X-M) and
savings (S), as defined by the World Bank is equal to GDP-(C + G), then S-I=(X-M). In other
words, savings minus investment equals the trade balance, which is exports minus imports. As
you can see in Tables 11 and 12, savings has consistently been smaller than investment. This
yields a negative number for Spain and correlates directly to their trade imbalance. So, with
investment greater than savings, this means that the Spanish people have a trade deficit, and
hence are importing investment funds. This foreign investment, in some measure, takes the
benefits of growth away from Spaniards. They are forced to pay some of the profits of growth
to their foreign benefactors. While this is not a problem if GDP growth is high enough to afford
them the luxury of sending some of the profits to foreigners, Spain has not seen enough growth
to rationalize exporting some of the wealth. Additionally, very recently, foreign investment has
been pulling out of Spain. Companies like Colgate-Palmolive, Gillete, and Suzuki have already
left. (Valente, A1.) Therefore, Spain may find itself with little investment in its already stagnant
In addition to problems with savings and investment, productivity statistics demonstrate
Spain's largest long-run problem: lack of work incentives. With almost certain guarantees of a
lifetime job and no substantial increases in wages, there is no reason for the average employee
to be productive or innovative (OECD report). As a result, productivity has fluctuated since
1975, but has remained low and declined throughout most of the last three decades, especially
in the mid-1980's (during the creation of the welfare state) and in the early 1990's (OECD).
Already disadvantaged by the stereotypical Iberian heritage of laziness and corruption,
the Spanish people have been given a system that creates no incentives for entrepreneurial
skills or for productivity. Since most jobs in Spain are under indefinite contract and nepotism is
rampant, the Spanish have no reason to fear losing their jobs. Indeed, the largest law sector in
Spain is labor law because legislation is entirely pro-labor. It costs companies much more than
the employee's salary to go through the process of firing (Vilella). As a result, job flexibility,
upward mobility, and productivity suffer. The EU and the IMF, both aware of this phenomenon
in Spain, have tried to force Spain to move towards free firing and hiring (Economist.) Of
course, with the unemployment rate at upwards of 25 percent, Spanish business and
government are reluctant to let this happen. As a result, Spain is stuck in a Catch-22 in terms of
employment. The labor restrictions fuel unemployment, as would the loosening of those laws,
at least initially.
West Virginia, too, has its problems in the productive sector. Looking at table 13, you
will note that West Virginia's real per capita income is well below that for US. In fact, it is almost
perfectly parallel to Spain's situation within the OECD. West Virginia has some of the same
productivity problems as Spain as well.
In considering West Virginia's structure of production, several areas are worth noting.
Although West Virginia's production looks nothing like Spain's, it does have some inherent
similarities. West Virginia's structure of production is unusually concentrated in agriculture, at
least compared to the United States. The decreasing industrial sector and stagnant service
sector, though, are the most interesting aspects. West Virginia, like Spain, never industrialized
enough. The industrial sector, comprised mostly of coal mines in West Virginia, has been
declining since 1975. Of course, many West Virginians hope for the return of the coal mines.
Instead of focusing on attracting more up-to-date service-oriented industries, West Virginia
relies on outdated sectors, like agriculture and obsolete industry.
In terms of unemployment and labor force participation, West Virginia is also very similar
to Spain. Unemployment figures for West Virginia are higher than the national average and
participation rates are lower. (See Tables 10 and 10b.) In fact, participation rates are the
second lowest in the United States. Discouraged workers have become the hallmark of West
Virginia's employment situation. Surprisingly, Spain has even lower participation rates than
West Virginia. Clearly, both countries have serious long-term employment problems that cause
people to drop out of the work force.
Additionally, while West Virginia does not have the same problems with its legal
structure, there are some areas in which productive industries are discouraged. Just as in
Spain, where restrictive labor laws keep foreign and domestic investors out, in West Virginia, to
some extent, the strong labor unions perform this same function. Businesses desire to settle in
areas where labor is productive and cost-effective. Neither Spain nor West Virginia can
provide this laissez-faire environment where business can flourish. As one writer in the
European put it, "the way to revive [Europe's] economies is not to provide page after page of
restrictive employment laws, but to free people to run their businesses and to provide the
biggest market for them to sell into" (European, 10).
Chapter 3: Hands On
The third development section will shift the focus of this thesis. While I have mostly
been discussing areas in which the government is unwelcome or unneeded, this section will
focus on areas in which the government is vital to the success of the country, the areas in which
the government does have comparative advantage. The next set of indicators, under the
heading of infrastructure, will deal with how well information and people can travel across Spain.
Mobility of people and information determines the fluidity of a population and, in some measure,
how productive is the economy. Perfect information flows are the goal, and Spain and West
Virginia are both far from achieving infrastructure levels necessary for such flows.
The indicators in the infrastructure section are percent of the population with access to
safe water, kilometers of paved roads, and percent change in energy consumption versus
percent change in energy production. The first two areas yielded disappointing results in Spain.
One hundred percent of the population has access to safe water. This is not surprising
because Spain is a high income economy and an OECD member. Furthermore, despite fairly
in-depth recent infrastructure studies by the World Bank, kilometers of paved roads is not
available for Spain.
Consumption of energy versus production shows a marked improvement in Spain's
ability to meet the needs of its citizens since 1975. From 1975 to 1985, Spain's production grew
by only 2.8 percent, while consumption grew by 4.1 percent. (See table 14.) Over the period
from 1980-1992, though, production grew by 5.8 percent while consumption grew only by 2.9
percent. This loss of production and consumption that is dramatically different from the figures
for the other nations may be a side-effect of the emigration from West Virginia or perhaps a
decline in infrastructure availability.
Since the figures on infrastructure were rather sparse, it is helpful to note these other
facts about Spain's infrastructure. Spanish trains are considered to be the worst and slowest in
Europe. With the exception of the AVE, a high-speed commuter train which now runs between
Seville and Madrid, most Spanish trains are the laughingstock of Europe. In fact, Spanish trains
are said to be more like African trains than like most other European trains. Energy costs are
another infrastructure problem. A load of laundry costs approximately $5.50 in Spain right now,
due to the high costs of water and electricity. While this may be useful in promoting energy
conservation, it certainly does nothing to improve Spanish lifestyles or promote business.
Telephone costs are also high in Spain. Local calls are metered like long distance calls are in
the US, and 30 seconds of local calling costs about the equivalent of $.20. The fee to install a
telephone is in the range of $1000. Driving is another great expense. Just to take the driving
test costs about $1500, and most people fail several times before actually getting their licenses.
In West Virginia, the statistics on roads and water were also difficult to obtain. Some
counties in West Virginia have people without access to clean water, but the state as a whole
only shows about .5 percent of the population without safe water. I suspect this number may
either be incorrect or misleading, since it is widely accepted that many parts of rural West
Virginia are without running water. In fact, one television commercial estimates that the number
of people without running water in West Virginia is in the six digits. Statistics on roads were not
available in West Virginia. Finally, energy consumption in West Virginia (see Table 14) has
been decreasing at a faster pace than production, which has also been decreasing.
Like Spain, West Virginia has infrastructure problems that these sets of statistics do not
make clear. Costs in West Virginia for telephones, energy and water are high in comparison
with the US and availability is sometimes a problem. West Virginia ranks second in the nation in
terms of number of people without telephones (census,318). It also has some people who do
not have electricity nor running water in their homes. The roads in West Virginia are some of
the worst, with the exception of the Toll Road. In fact, most roads in West Virginia do not have
shoulders, and most lane sizes in the cities are smaller than the average lanes in other states.
While West Virginia's infrastructure system is not at the level of a developing nation, certainly
there is room for improvement.
The next set of indicators, under the heading of human capital, refers to the factors that
make employees better workers. If workers are uneducated, flexibility and wages suffer. If all of
the intelligent, successful people leave a country, there is no hope for advancement. So, this
human capital section will focus on the failures of Spain and West Virginia in the promotion of
education and the retention of successful, intelligent people.
To do this, I will consider educational enrollment in primary, secondary and tertiary
schooling, and educational spending as a percent of total government expenditure. I will also
note the literacy rates for the population as a whole, to give some idea of how these areas
succeed in schooling their population. The next indicator is population per physician, chosen to
reflect the availability of health care. The final indicator in this section is net immigration. How
many people actually stay in the area in which they are educated? It is my conjecture that both
West Virginia and Spain are suffering from a "brain drain." The most highly educated people
tend to leave either the country itself or the productive sector, and the welfare recipients stay
and feed off the system.
Spain's educational spending is quite good (see Table 15). The only problem in relation
to the OECD's rate is that Spain's spending is starting to go down. If overall spending has been
increasing in Spain, as seen in the section on government, why is educational spending falling
as a percentage of that spending? It seems that the welfare state has abandoned education as
a cause, rather than continuing to promote it.
Educational enrollment in Spain shows the problem more fully. (See table and chart 15).
While primary and secondary enrollment is at or above average compared to the OECD, US,
and West Virginia, Spain lags behind in the tertiary sector. Additionally, Spain's success rate at
tertiary education is quite low, in fact about one-half of West Virginia's rate, which is 47th in the
Spain's illiteracy is also a problem. Starting off at 6 percent in 1975 and ending in 1990
at 5 percent is hardly a great stride. Although the statistics show a peak in 1985 at 14 percent,
this number does not seem to make sense and may be due to a statistical error. Therefore, I
have disregarded this number. Nevertheless, Spain's literacy rate is the worst of the OECD
Population per physician in Spain is quite high. See Table 16. Of course, one must
consider that, in Spain, to be certified as a doctor, until the EU recently enforced a change in
this policy, a Spanish person did not have to attend the normal four to six years of medical
school. In Spain, therefore, the numbers may seem a little higher than they actually are due to
the definition of "doctor."
Net immigration is the final indicator in this section. Contrary to my initial hypothesis,
emigration is not a problem in Spain. From 1979-1989 (Table 17), Spain lost only 0.2 percent of
its population to emigration. As aforementioned, Spain's "brain drain" is movement towards the
government and away from the private sector, rather than out of the country.
West Virginia has many striking similarities to Spain in the human capital area. West
Virginia devotes a large portion of its government spending to education. Of course, it is a state
responsibility to fund education in the federal system of the United States. Nevertheless, West
Virginia is ranked 38th among the states in terms of educational spending as a percent of
government spending. Educational enrollment in West Virginia is also similar to Spain. The
primary and secondary figures are about average, but the tertiary figures are quite remarkable
(Table 15). West Virginia falls well below the US on this point and, in fact, below Spain. The
success rate in West Virginia, while among the lowest in the US at 12.3 percent, is, however,
almost double Spain's success rate. Illiteracy in West Virginia, while higher than the US
average, is still less than Spain's. Illiteracy in West Virginia is at about 3.5 percent by most
estimates, while the national average is around 2 percent. I was struck by this difference, which
I thought would be much greater. Even in this area, Spain is losing to West Virginia.
Population per physician is very large in West Virginia, larger than in the US, the OECD, and
Spain. Medical care in West Virginia is clearly in short supply.
Net immigration in West Virginia is arguably the most interesting factor in this section.
Net immigration for the states was computed differently and listed in actual numbers, rather
than as a percent of the population. In 1986 alone (see Table 17), though, West Virginia lost
about 74,000 people due to emigration from the state. That is the equivalent of approximately 4
percent of the population. The "brain drain" is alive and well in West Virginia.
Chapter 4: Conclusions
Although it is impossible to cover every development area in this
thesis, the indicators
should be well-rounded and diverse enough to sketch out how these two countries are similar.
With the indicators, the facts behind them, and knowledge about how these two cultures
operate, I think it is possible to extract vital development information from this comparison.
Therefore, I will conclude by listing a set of five "guiding principles" for development that will be
useful for West Virginia.
Principle 1: Intrusive, self-aggrandizing government measures:
a) create corruption, weaken the middle class, and stifle upward mobility; and, b)
discourage small business and handicap the productive sector.
The oppressive taxes in Spain are burdensome for individuals and deadly for business.
By creating the welfare state, the government managed to redistribute income effectively
through the 1980's. But as soon as Spain began to be pressured by the EU to liberalize, that
equality which was the sole benefit of this system, was lost. The welfare state which is no
longer sustainable, is indelibly carved into the Spanish society, though. The government
sustains and insures its existence through heavy taxation, complicated legislation, and profitable
positions. The size and wealth of the government is attractive to the educated person because
government jobs have traditionally been "stable, high-paying, and decent jobs" (Lopez-Claros,
The reason they are high paying is due to rampant corruption. Additionally, Spain has
traditionally paid high transfer payments, so that the upper class distributors of welfare and the
welfare recipients both have "a piece of the pie." Unfortunately, this precludes the existence of
a strong, productive middle class.
Principle 2: Education, especially at the tertiary level
must be repaired and
Tertiary education has been neglected in Spain, and in West Virginia.
The welfare state
provided fishes for the masses, but forgot to teach the masses to fish. Without the essential
education needed to be competitive and productive in today's world, Spain and West Virginia
could be stuck indefinitely behind the pendulum of change.
Principle 3: The "brain drain" contributes to the vicious cycle of poverty.
In Spain, the brain drain is towards the attractive government jobs and away from the
productive sector. In West Virginia, people actually leave the state to seek their fortune. In both
cases, the country is failing to retain one of its most valuable assets--its human capital. Without
educated, trained people to lead the way, the masses flounder about in the welfare state trap.
Principle 4: Weak infrastructure is not conducive to competitive
Infrastructure is a great key to development. While Spain
and West Virginia may have
met basic infrastructure needs, the needs for competitive, growing productive sectors are much
different. Without affordable phone lines and energy, business will be unwilling to relocate to
these areas. Without reliable, affordable transportation, business will find these areas to be
Principle 5: Government economic and legislative policy must be focused
outward and upward.
Consistent borrowing and budget deficits hurt the long run earning
potential of Spain and
West Virginia. Despite the fact that some foreign companies are pulling out of Spain, due to
the restrictive labor laws, the heavy taxation, and the intrusive government, most of these
policies continue. West Virginia relies on outdated methods of production and labor unions
dominate the labor market. As a result, high unemployment continues to worsen, and labor
force participation drops as the situation becomes more and more desperate. Individuals, of
course, are not able to save and invest as much as they might like due to inflation,
unemployment, and economic instability. As a result, long-run growth is stifled and the "falling
tide drops all boats."
Clearly, in these two countries, the government has failed to exercise comparative
advantage in providing assistance to the people. The age of socialism and the welfare state is
nearly over, and West Virginia and Spain have both been slow to note this change, and have
hidden in the shadow of the pendulum. To provide a more competitive and dynamic economic
structure, the government must remove burdens from business and from consumers and stop
the negative effects of welfare. While welfare is fabulous as a humanitarian concept, it does not
work at present to promote long-run growth.
Additionally, the governments must simply provide an atmosphere which is focused,
from the inner ranks to the outer signs, on forming a competitive country. Without invaluable
infrastructure, human capital, and free markets, this task is impossible. The attitude of the
government as well as the steps it takes are key.
While changes in all these areas would be slow and possibly painful, they would create
systems that are focused and well-rounded. The main problem with the present government is
that it creates policies that are short-sighted, comfortable, and fragile. By incurring the cost of
change now, West Virginia may pay less later.