1. Sectorial distribution of active population in USA and Spain (%) 0 10 20 30 40 50 60 70 190019101920193019401950196019701980 0 10 20 30 40 50 60 70 80 1820183018401850 18601870188018901900191019201930194019501960197019801990 Agriculture Industr Servic USA SPAIN Agricultu Agricultur Industry Services

2. AGRICULTURE Structural change: from agriculture to industry and services Importance of agriculture –Finance the rest of the sectors –Supplier of cheap labor force –To secure the supply of food (nutritious, healthy, ecological) –Demand industrial goods and services –Preservation of rural environment –More international competition and liberalization

3. Traditional agriculture → → modern agriculture Problems since 1950: low productivity, low agricultural income, conflicts in property TRADITIONAL Abundant and cheap labor force Low capitalized SS ≤ DD Irregular property MODERN More expensive labor force Very capitalized SS > DD New problems

4. –Agricultural surplus –Greater international competition –Environment The weight of Spanish agricultural sector is higher than in EU Agriculture sector very imbedded in national economy: –Inputs (fertilizers, machinery, seeds, gasoline) –Outputs (sales to wholesalers) –Bank financing

5. The loss of positions of agriculture sector in the Spanish economy, 1985-2005 (%) Situation nowadays: A.Production and income B.Productive and commercial specialization C.Productive efficiency

6. A. Production and income ↓ Agriculture income Higher dependence on more expensive inputs Amortizations of capitalization > FAP PCI > selling prices of FAP ↑ Agriculture income Subsidies Lower occupation, so this increases per capita income >

7. B. Productive and commercial specialization Supply adapted to demand Specialization in meat, milk, fruits and vegetables Dependence in soybean, corn and barley The entry in EU provoked: –Higher (last) specialization –Higher competition taking advantage of comparative advantages in meat, fruits, oil and vegetables –Danger of international competition (LDC´s)

8. C. Productive efficiency Apparent labor productivity = = GAV / Labor force Productivity depends on: 1.Technology 2.Factorial allocation

9. 1. Technology GAV/Labor force = GAV/Agric Surface (AS) * AS/Labor force Chemical-biological tech.Mechanical technologies In spite of having small plots, farmers have used a lot of mechanical technologies because they rent them and they are relatively cheap (with respect to labor force) Low productivity with respect to EU because they use chemical-biological technologies (+ for environment). This difference is diminishing.

10. 2. Factorial allocation Capitalization: mechanization, irrigable, etc. Aged agriculture employment, familiar lands, part-time work 2 kinds of lands: –Lot of very small plots (where predominate ) –Fewer big plots, with higher productivity, wage workers, dynamics, exposed to international competition Integration with the rest of the economy

11. COMMON AGRICULTURE POLICY Objectives: –Increase productivity –Guarantee the level of life of farmers –Stabilize markets –Guarantee the supply of population General principles: –Market unity –Community preference –Financial solidarity

12. EU budget 50% EAGGF 95% 5% GUIDANCE section GUARANTEE section CMO´s Problems of CAP –A lot of surplus –Huge financial costs –Promote continental productions –Benefit bigger lands –Small funds to orientation section –Protectionism, complaints filed from outside UE

13. Partial reforms in 1984: –Corresponsability tax –Quotas –Lands and animals retired 1992 reform: –↑ guarantee prices –Substitute helps for production –Discourages chemical-biological technologies –Protect environment and rural places New reforms (1999, “2000 Agenda”) Future projects CAP reforms

14. INDUSTRIAL SECTOR Basic sector for economic development Spain: growth from 1950´s to 1960´s But afterwards lose importance, because of its higher dependence on the other sectors: –Agriculture sector efficient for traditional industries –Services of high quality (financing, energy, telecommunications)

15. CLASSIFICATIONS DEMAND –Income elasticity SUPPLY –Technological intensity MIXED –Advanced ( office machinery, computers, electric and electronic machinery, precision instruments, aeronautic and space, y pharmaceutics ) –Medium (chemical, rubber and plastic, mechanical machinery and material transport) –Traditional (basic metallic, metallic products, non-metallic mineral product, food, paper, textile and confection, wood and other manufactures) High Low High Low

16. Characteristics of advanced industries (compared to traditional industries): –Low intensity in labor and natural resources –Very intense in capital, technology and human capital (high labor productivity, high added value) –Greater dimension of establishments –More dynamic, competitive and globalized markets (attractive sectors) –With more foreign capital

17. Evolution of industrial sector Compared with other sectors: –1960-75: The key sector of the Spanish development, pulling the rest of the sectors: ↑ L productivity, ↓ prices (-) protectionism, local demand –1975-85: Industrial crisis, in supply (oil, wages) and in demand (local) –1985-2005: services take over the key economic role from industry. But is still + competitive, + inputs exporter and importer Compared to EU: very competitive sector (in spite of the serious crisis of 1970´s)

18. Role of industry sector in the Spanish economy 1966-2006 (%) Reduction of industry in Spain (services) : ↑ productivity, ↓ prices, internationalization Increase of industry comp. to EU (competition) Domestic demand increase more than industry: ↓ competition in some sub-sectors, ↑ importations

19. Productive and commercial specialization 19602004 Traditional ind.70 %59 % Advanced ind. 4 %11 % Why does this specialization exist?: –Low entrepreneur dimension –Plentiful and cheap labor force and natural resources –Physical capital, human capital, and technology less abundant, (because of economic backwardness) –Standardized technologies –Advanced industries controlled by foreign capital

20. Productive efficiency: LABOR PRODUCTIVITY Industrial growth labor productivity, because: –Capitalization of establishments –Increase of technology and human capital –Specialization in advanced industries –Improvement in product quality and price Going down since 1975, because: –Decrease in product growth –Decrease in capital investment and technology –Increase in labor cost –Decrease in entrepreneur benefits –Deficient management training –Increase in the price of services

21. Industrial policy: towards lower industrial public intervention Autarchy (1938-1963): INI, industrial regulations, protectionism 1960-75: partial liberalization 1975-85: crisis, industrial re-conversion Since 1986: low intervention. Problems: –Lack of help to SME –Deficient technological policy –Low competitive services

22. SERVICES The most important sector in Spain and in rich countries (production and employment ≈ 60-70 %) Strategically importance : –Its efficiency affects other productive sectors (banking, transports, telecommunications) or social wealth (health, education) –The new economy: new technologies, productivity improvement, macroeconomic stability

23. Difficulty to define Classifications: –Market vs. non-commercialized –Final consumption vs. intermediate consumption –Stagnated vs. progressive Problems: –A lot of non-commercialized services –Hard to weigh and compare the quality of different services –Services produced inside the firm

24. General evolution of services in Spain Increase of nominal production Same real production Increase of prices Increase of employment Low productivity Isolation from international competition

25. Role of service sector in the Spanish economy 1966-2006 (%)

26. Evolution of Productivity and Prices in the traditional sectors (1985-2006) Supply explains better than demand New technologies let services be more progressive if you can take advantage and assimilate them

27. Productive and commercial specialization ↑ non-commercialized services Commercial distribution: –Problems of price and productivity –Excessive regulation, small firms Hotel trade: –Big expansion because of tourism –Low productivity because of small firms

28. Transport and communications: –Technological advances –Higher productivity and lower prices Trade specialization –High competitivity of tourism firms –Competitive disadvantages in the other services, overall in financial services –Growing presence in computer services

29. Productive efficiency Very low productivity (↑ production ↑ employ) Causes: –Difficulties introducing technology –Scarce local competition because of high regulation Consequences: ↑ prices

30. Differences in productivity and price growth between services and industry in Spain, 1981-2004 (%)

31. Sector policies Very regulated historically 1980´s, anti-regulation in theory and practice: –Take away regulations –New regulations to obtain competition Measures: –Industry, reduce tariffs –Mobility of producers and consumers – Freedom of open firms –New technologies –European Union

32. Deregulation in Spain Starts in the second half of the 1990´s Gradual and unequal deregulation: –Telecommunications –Air transport –Commercial distribution –Pharmacies, petrol distribution