James Wilson outlines what Wales could learn from one of Europe’s success stories.

January 21st, 2016

The Basques arguably enjoy greater policy autonomy than any other sub-national region in Europe. Apart from defence, foreign policy, customs, economic regulation, social security and some large infrastructure projects, which are centralised in Madrid, the Basque Autonomous Community exercises control over all areas. Yet as in most places the story is not a simple one, and the reality is that Basque policy-making takes place in an extremely complex multi-level scenario. Three sub-regional provinces have tax-raising powers, alongside considerable policy competences of their own, and the funding for regional government activities is transferred from the provincial governments. A transfer also goes to the Spanish government to support the areas where they retain policy competences, and local municipal authorities play a key role too in many areas, in particular around the development of the three main Basque cities, Bilbao, Vitoria-Gasteiz and Donostia – San Sebastian.

This complexity of policy-making levels requires considerable coordination and has necessitated innovative governance solutions that are not without their problems. Yet that the Basque Country is seen as a long-term success case in economic development within this context suggests that there are interesting lessons to be learned. In particular, policy has been instrumental in driving a transformation of the economy: from the industrial decline and high unemployment of the late-1970s and early-1980s to industrial renaissance in the 1990s and from there to the consolidation of a diversity of industries that form the base for today’s innovation-oriented policies. It is in this context that the Basque economy has proved far more resilient to the present economic downturn than other Spanish regions.

While a whole range of policy tools across health, education, culture, employment, environment and other domains have combined to foster a strong Basque economy and society, it is the policies supporting the transformation of Basque industry that have drawn most attention internationally. A cornerstone was the early commitment of the newly autonomous government to support an ‘industrial reconversion’, at a time in the 1980s when it was unfashionable to talk about industrial policy. While much of the finance for the reconversion came from central government, it was regional government leaders who worked closely with Basque business leaders to ensure a real commitment to change that would lead to other cornerstones being laid that together would support the progressive upgrading of the competitiveness of Basque industry. For example, as pioneers of cluster policy in the 1990s, a culture of strong public-private partnership was fostered to address specific areas of weakness and to build on strengths. This was coupled with a targeted and evolving science, technology and innovation policy, built initially around technology centres and later around a wider range of institutions that today form the Basque science, technology and innovation network. Throughout, there has also been strong concern with internationalisation, and in particular with supporting the export activity of Basque firms and encouraging in-flows of talent.

So, what are the key lessons that can be drawn from these experiences, and from which Wales might learn? For me, three stand out.

Firstly, the boundaries between which policies work best at different levels are by no means clear-cut. Finding the right mix is a practical question that is highly context specific, but one that also can not easily be separated from the emotional attachment to territory that lies behind a desire for greater autonomy. Science and technology policy provides a good illustration. Regional autonomy has contributed to dynamism and agility in the development of innovative policies that have supported clear regional priorities, in part because different agents have pulled together behind the ‘project’ of the territory. Yet there are scale issues too that make certain regional priorities difficult to sustain in times of crisis and imply that certain infrastructure-intensive projects are more suited to national or European support. The exploitation of synergies across places is also a key consideration, especially if ‘lock-in’ is to be avoided. This means that it is not just a case of having policy autonomy at regional level, but also of how this policy is coordinated with that of other regions; an area where there is considerable room for improvement.

Secondly, the desirable level of policy autonomy cannot be divorced from the level of policy capability (including quality of institutions and stability), or from the desire to exercise that autonomy (which is strongly related to socio-cultural identity). In this respect, the Basque Country has counted on political stability, on strong leaders, and on capable people in government, which has enabled a long term strategy to be followed, guided by certain visionary policies (cluster policy, for example) and supported by strong institutions. Private-public partnership, and in particular the presence of government leaders capable of engaging business and building networks, has been critical. Moreover this has clearly been helped by the economic development of the Basque Country being seen as part of a wider cultural project of identity, with much of the multi-agent commitment being built around Basqueness.

Finally, perhaps what the Basque experience demonstrates above all is that effective economic competitiveness policy goes hand-in-hand with a coherent strategy. Policy supporting the competitiveness upgrading of the Basque economy has been developed in the framework of a long-term and flexible strategy, which has evolved over time and continues to do so. Moreover, the role of leadership in such strategy, emerging in parallel from different sectors of society – government, business, education and so on – illustrates again the importance of the often-forgotten human element in our understanding of what makes for successful economic development.

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James Wilson is Senior Researcher at Orkestra-Basque Institute of Competitiveness, Deusto University. This article first appeared in the Welsh agenda.

5 Responses to:“What can Wales learn from the Basque Country?”

  1. AledF says:

    James,

    It’s quite fascinating and compelling to make comparisons between Wales and the Basque country or the autononomous community. GVA is comparable to Wales, yet the population is only 2.1 million. The major cities are comparable in size and general demographics are intriguingly comparable. Since the GVA per head of population is almost 50% higher in the basque country than in Wales, it feels like there must be some lessons that we can learn.

    The similarities are intriguing, but the differnces are also quite stiking. We are not blessed with the superior infrastructure of the Basque region, in terms of three significant airports, an extensive high speed rail network coupled with the key international sea ports and perhaps these are very significant differences. Do these things make the Basque region more autonomous from Spain and more able to plan and develop their export trade links autonomously or are the links to Madrid and Catalonia, just as important in the Basque Country as the links to London and Liverpool/Manchester are to Wales?

    I am intrigued by the proponderance of SMEs and how these frequently function as large cooperatives, some of which like the Mondragon corporation even include a university. I am also intrigued by the role of the social councils within all the universities and how these function for the benefit of the region.

    Clearly the Basque region is significantly more autonomous than Wales in terms of its tax raising powers and other areas that impact on planning and strategy and I wonder how much of a difference this makes to the prosperity of the region.

    The level of unemployment in the Basque region is also intriguing since the region is significantly more affluent than Wales, but unemployment is apparently higher, suggestive of probable significant wage and perhaps skills differences?

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  2. Karen says:

    James, Why not ask what Wales can learn from Manchester and Merseyside or Birmingham and the West Midlands? Or London and surrounds?

    No need to look to poverty stricken Spain. The answers are to be found much closer to home.

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  3. Chris Johnes says:

    Karen

    why is James looking at “poverty ridden Spain” well perhaps for the simple reason that as Aled says the Basque country, Spain’s most prosperous economic region, has GVA 50% greater than Wales and is comparable with the German average? Of course there are many things that can be learned from other parts of the UK but the evidence for looking at the Basque country is reasonably convincing

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  4. William Dolben says:

    Karen: Aled did say “Since the GVA per head of population is almost 50% higher in the Basque Country than in Wales”. The issue is what can a peripheral and small country like Wales learn from another peripheral (and smaller) country like the Basque Country? There are undoubtedly lessons to be learnt from cooperatives, entrepreneurship and innovation in the Basque country. Central long-term planning has also played a role and the Basque country raises its own taxes. The poisonous legacy of ETA plays a role too and a Catalan commented caustically to me once that if Catalonia had bombed shopping centres and maimed children they would have had tax-raising powers by now. The Basque country is thus richer, keeps more of its “own” tax and the right wing PNV has balanced the budget ruthlessly and efficiently even during times of austerity. But before we get carried away we should look at some of the differences. The first thing to say is that the Basque Country might be peripheral to Madrid but it is closer than Madrid to the major market for all us in Europe, eurosceptics included: the EU.

    Welsh nationalists have looked for many years at Catalonia and the Basque Country as kindred spirits. While there is cultural common cause (language and identity), the economic comparison is more limited as historically both Spanish regions have been richer than the rest of Spain. Many Basque and Catalonian residents resent having to subisidise poorer regions and if Wales was part of Spain the Basque country and Catalonia would seek to reduce the transfer of tax to a poorer region rather than cuddling up to a distinctive “region” with its own language. To be blunt, the two Spanish regions are more like the SE and S of England than Wales or Scotland and seek to perpetuate their relative wealth

    Aled: the level of unemployment is higher throughout Spain because:

    1. No Spanish government made the 30 or so “adjustments” to the unemployment rate that Margaret Thatcher made to massage the figures. Thus the EPA (active population survey) which yields 20%+ is in fact an extrapolation from around 90,000 phone interviews where people are asked if they are available for work. I think it’s fair to say that if you followed that methodology in the UK a much higher percentage would appear to be unemployed. Does anyone believe that unemployment in the Rhondda is 10%?

    2. Until 3 years ago statutory severance for redundancy in Spain was 45 days per year served compared with one week in the UK unless of course you’re one of the million plus on a zero hours contract!. The maximum severance was 3 and half years pay after 27 years and while a labour law reform has reduced these to 20 days and with a maximum of 2 years, in practice judges normally only apply the reduced rate to the last 3 years. It’s a level of job protection that a die-hard trade unionist could only dream of in the UK. Even under Franco up to a year’s severance was allowed and a judge decided on the level taking into account the likelihood of finding another job, dependents etc. When democracy returned in 1976, 60 days and up to 5 years was mooted before a 1980 reform settled for 45 days per year served. What does this tell us? that the left in Britain is to the right of many centre-right parties in Europe when it comes to workers rights.

    and when you lose your job, the top rate of unemployment is over 1,000 pounds per month depending on salary for around 2 years (again dependent on how many years you’ve contributed NI)

    Right wingers believe that the high cost of redundancy and the inflexibility in the labour market lead to higher unemployment because national insurance contributions for the employer are high (31% of salary currently) and SME’s cannot staff up and down like their counterparts in the UK to cope with fluctuations in demand

    I’ve lived in Spain for almost 25 years and one of the reasons the bars and restaurants appear to be full in Madrid and the country doesn’t feel poverty-stricken is because the half of the population that has a full contract with the severance benefits mentioned above feels more secure than ANY worker in the UK. Pockets of severe poverty and hopelessness there certainly are but the picture is more complex than the nationalist rants you see in UK papers about “Europe”

    I also think that family and friends are more supportive in Spain of those with job and money problems so it is difficult to compare poverty in the Uk and Spain

    On a lighter note I would recommend the Basque Country as the culinary capital of Spain and possibly the world

    Cymro ym Madrid

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  5. J.Jones says:

    Thanks for that William. It’s always good to hear from someone with relevant information and insight.

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