From the ashes of Guernica: what we can learn from the Basques

The Basque Country has come a long way since being blitzed by Franco. The world's first example of a bombing raid on civilians was so shocking at the time that it inspired Picasso's Guernica, one if the most moving pieces of  20th century art. The Basques suffered particular punishment during the long years of fascist dictatorship, but flourished after Franco's death and the advent of democracy. Today a leading Basque company is making a substantial investment in Scottish renewable energy and the First Minister flew out there today see Ibedrola's  release. This autonomous region of Spain has higher growth and a better credit rating than Madrid. Can we learn from them?

I thought it was a good opportunity to reprint The Scotsman column I wrote on the Basques a few months ago. It's been behind a firewall but enough time has elapsed to drag it blinking into the light..

There are many reasons to admire the Basque country. Its adventurous fishermen were the first to discover the Grand Banks and gave the world salt cod. Its most famous ex-pat, Simon Bolivar, was the revolutionary father of Latin America. Today it is notable for Rioja wine, the best food in Spain and the Guggenheim Bilbao, the world’s most iconic contemporary building.

 

But it’s not just foodies, wine buffs and cultural tourists who are drawn to the fat little region west of  The Pyrenees. The Basque country, which enjoys the widest and deepest autonomy of all the Spanish regions, is an attractive model for Scotland.

Holyrood politicians send all taxes south then squabble over how to cut up a shrinking cake returned by Westminster.  The Basques set, raise and collect all their own taxes, then negotiate an annual “cupo” with Madrid for central services, usually around 12%

 
You might think anyone keen to extend Scotland’s economic powers should avoid discussions of an Iberian nature. Spain is in meltdown, with Europe’s third worst deficit after Greece and Ireland. Austerity measures so far announced are unpopular. Savings banks are collapsing. The federal socialist government want to restructure the labour market, to end infamous  “Spanish practices”. Red flags will be raised in Bilbao as well,  But while the Basque country is not immune to the global crisis, it is better placed to survive. The area outperforms Spain on nearly every indicator. Its GDP per capita is 34% higher and it has half the rate of unemployment. The credit agency Standard and Poor’s gives the Basques a better rating than the central government – because of its low debt burden, wealthy, diverse economy and “special system framework granting the region control over most of its tax revenues”. That’s a recommendation – CBI bosses take note.

The Basque arrangement is similar to the system devised by the economists Andrew Hughes-Hallett and Drew Scott, which forms the basis of the Campaign for Fiscal Responsibility. Business leaders like Jim McColl and Tom Hunter and trade unionists such as Campbell Christie have backed the campaign, believing that fiscal powers offer Scotland its only option of growing the economy.  The tax regime would be designed to meet specific, local, needs.  The Basques for example, set a lower corporation tax than the rest of Spain and have borrowed to upgrade their infrastructure.

But can we really compare the wealthy, entrepreneurial communities of this sunny little enclave to Scotland? Actually, the more one looks, the more uncannily similar we appear – right down to the “oceanic” climate ie it rains a lot. The countries have the same craggy topography that allowed the indigenous languages to survive the incursion of the Romans.  We have famous seafaring communities. Like Scots, the Basques are over represented in the mother country’s army and navy. And though our business start-up rates are now worryingly low, it was not always the case. Scots, like the Basques, once took on the world, exporting everything from cotton thread to locomotives.

While both countries are known for their natural beauty, they are each highly urbanised, with populations concentrated in Scotland’s central belt and Basque’s Bilbao estuary. The latter, with its shipbuilding and machine tooling, was much like the Clydeside of old.  Both regions found wealth through natural resources, coal and iron ore. Both suffered the same industrial decline, triggered by the oil crisis of the early 1970s. But somehow, the Basques managed change better.

The London School of Economics studied eight cities in need of regeneration across Europe, including Bilbao. Its published paper, in 2007, is quite open about the difference full fiscal autonomy made to the efforts of the city fathers in turning around their town. “It is widely accepted among officials, practitioners and scholars that the autonomy of the Basque region was key to facilitating the recovery process in Bilbao. The return of democracy and the reinstatement of regional power in the late 1970s happened just as the industrial crisis was gaining momentum. Local decision makers gained power to design tailored policies for the first time.”

This translated as building the Guggenheim on the dilapidated waterfront  and modernizing the metro system – with stations designed by Sir Norman Foster. Other suburban rail networks were extended and upgraded and a high speed link to Madrid, much of it  tunneled through the mountains, is underway.

 

Instead of sweeping away manufacturing, as happened in Scotland in the 1980s, the Basques modernized. They are now home to Iberdrola, the multinational energy company who amalgamated with Scottish Power.  Gamesa, one of the world’s largest manufacturers of wind turbines, is Basque, Aeronautics and machine tool companies still thrive, guaranteeing export earnings denied to economies which placed too much trust in the service sector.

Alex Salmond  is known to support the Campaign for Fiscal Responsibility. But the SNP has historically avoided comparisons with the Basque Country because of the bloody reputation of ETA, the separatist terror movement. The violent insurgents, whose roots lie in Franco’s fascist state, are a small and marginalized force these days. The publicity generated by their campaign diverted attention from a real success story. In Scotland, we worry about the “distraction” of constitutional questions. The Basques became Spain’s most successful region despite the real distraction of bombings and assassinations.

Perhaps a greater difficulty for the Scottish Nationalists is the failure of the Basque Country to make the transition from full fiscal autonomy to independence. The moderate and business friendly Basque nationalists governed for three decades but lost the presidency last year when the socialists did a deal with the conservatives. Still, the financial crisis may put the relationship with Madrid into sharper focus. The Basques make up 2.2% of the Spanish population but contribute 6.2% to its GDP. Will Spain go to the Basque’s, cupo in hand, asking for more? Things could get lively.

The Iberian disagreement is more dignified than Scotland’s block grant dilemma or Calman’s flawed proposal. We will constantly be arguing for more. But we have no idea how much we put into the UK pot and no method of increasing  it. The Basque solution offers clarity, equality and self-respect.

Perhaps the last word should go to Bolivar, whose surname is taken from the Basque village where his family originated and who believed large, overly complex states were doomed to fail. “The distinguishing characteristic of small republics is stability,” he wrote. “The character of large republics is mutability.”

Pie suppers no more: Basque country has the best food in Spain 

Comments

[Hamish Scott]

Perhaps an obstacle to such fiscal autonomy here is that it would finally provide us with the real figures on the Scottish economy, and how they compare to the UK as a whole.

[Martin Meteyard]

I am surprised you don't mention the outstanding success story of the Basque economy: the Mondragon co-operatives.

[Bugger (the Panda)]

Small pedantic post but Rioja is not Basque because it is south.

There are Basques who spill over outside the borders and make wine in Rioja and Navarre.

I work there.

Basque wine usually carry the label Euskedi.

On the real meat of the article there are a great many similarities between the two lands and much can be learned from how the Basques have prospered by hard work and good banking pratices.

I think I am right that Banco de Bilbao (maybe Santander)and the Bank of Scotland (or was it RBS) had mutual shareholdings which were bought out as the Scottish bank went for bust and bust it went.

I wonder what would have happened had the mutual holding and the then shared values continued during the casino madness that hallmarked the implosion of the UK banking industry.

The banks of the Spanish NW held their ground and appear to be nowhere as touched by the housing banking collapse in Spain. That was almost entirely due to the local Caixas, or co-operative type banks who loaned heavily to local builders and speculators, often borrowing the oney at very low interest rates from Northern European banks, German and French but, mainly German.

The Spanish Government is trying to merge all the caixas into one big (w)hole. The true extent of their indebtedness is not fully understood far less recognised and should the true value of these loans (i e the going rate for the property) be put on the books the Spanish economy would go down on flames, if it is not there already.

Alex Porter in Scotland Unspun has a lot more detail on the nightmare.

http://scotlandunspun.blogspot.com/

Well worth a read

[el el]

Similar bunnets tae.