The Czech Republic surpasses Spain in GDP per inhabitant | Economy

Three Skoda employees work on the manufacture of a tram at the company's factory in Pilsen, Czech Republic.
Three Skoda employees work on the manufacture of a tram at the company’s factory in Pilsen, Czech Republic.VLADIMIR WEISS (BLOOMBERG)

The Czech Republic, a country that emerged from communism in the 1990s and was a third less wealthy than Spain, has managed in three decades to beat the Spanish economy in GDP per capita corrected by purchasing power. And Estonia, Lithuania and Slovenia are close. The overtaking confirms a failure of Spain, which before the crisis of 2008, propelled by the bubble, had indeed cut distance with the most advanced countries. However, since then it has lost positions with the North, has stagnated with Italy and France, and those of the East are taking ground.

In the last 30 years, Spain has increased its GDP per capita by 50%. However, other countries have grown much more. The most advantaged in Eastern Europe already threaten to outpace the Spanish economy. Moreover, the gap that separates Spain from Germany has increased since the Great Recession to 1997 levels. And, therefore, in the almost 20 years of the euro there has been no convergence with the Germans. They are still around 25% richer.

At the end of 2007, President José Luis Rodríguez Zapatero proclaimed the overtaking from Spain to Italy. According to data collected by Eurostat at the time, Spaniards were ahead of Italians for the first time in GDP per capita adjusted for purchasing power. With the EU average being 100, Spain climbed to 105% of the community average – that is, it produced 5% more – while Italy fell to 103%. At the peak of the real estate bubble, the Spanish economy beat the transalpine, stagnant since the late 1990s. The Zapatero Executive sold at the time that it had finally converged with the EU after 21 years as a member.

However, shortly after the Great Recession took its toll. And the Spanish GDP figures were in the aftermath strongly corrected downward. Once these adjustments were applied to the 2006 and 2007 statistics, Spain never achieved the milestone of surpassing Italy, as now reflected in the Eurostat numbers. At the time it was closest, back in 2007, Spain scored 103% of the community average, four points below the 107% of Italy. Now it stands with the 2019 numbers at 91%. And the Italians, in 96%. The two countries have lost positions with respect to the union average.

Czech overtaking

And while the focus was on the transalpine boot, several Eastern European economies have overtaken Spain or are about to do so. Eurostat data are corrected for purchasing power and are those used by the EU to distribute European funds. But those of the OECD or the IMF also tell the same story. According to data from the recently updated European statistical agency, the Czech Republic surpassed Spain between 2018 and 2019. According to the OECD, the overtaking occurred in 2019. And in the IMF figures that it published in autumn, it did so in 2020.

According to OECD estimates, Spaniards obtained a GDP per capita of 38,128 dollars (31,644 euros) in 2019, below the 38,152 dollars of Czechs. Thus, this trend has occurred outside of the pandemic. What has happened so that a country that 30 years ago produced a third less per person than Spain is now richer? Much of the merit of the Czechs is summarized in that they have managed to become an industrial subcontractor of Germany. Industry and the foreign sector have a much higher weight in their gross domestic product.

Comparison with Czech statistics offers other significant clues. Unemployment in the Central European country is 3% compared to 16% in Spain. The temporality is less than half. And consequently inequality is much lower even with a less redistributive tax system.

“Between 1980 and 2019, the unemployment rate in Spain has been almost 17%. If we manage to lower it by 10 points by adopting reforms that change the functioning of the labor market and the markets for goods and services, Spanish GDP would grow by 13% more, a figure higher than what is expected to be achieved with European funds “, he points out Rafael Doménech, economist at BBVA.

The formation

Training is also decisive. In Spain, 30% of young adults only have compulsory secondary education at most. In the Czech Republic, this number of low-skilled people drops to 7%. Despite the fact that they have almost the same percentage of university students as in Spain, there are many more Czechs who have completed VET. Furthermore, the Czech Republic spends half a point of GDP more per year than Spain on R&D. And its public finances are more healthy. Before the pandemic it had a slight public surplus and its debt stood at 30% of GDP compared to 95% in Spain.

Since 1997, the Czech Republic has narrowed the gap with Germany from -40% to -23%. In contrast, Spain remains at -23%. The logical thing is that a country that lags behind grows faster as it incorporates the technologies and practices of the leading economies. Although Spain did cut distance with the richest countries until the burst of the bubble, since then the difference with them has widened, it remains the same with respect to France and Italy, two countries characterized by allergy to reforms, and those of the East eat ground.

As the book explains Growth and Employment, by economist Juan Francisco Jimeno, the GDP per capita gap is due almost in equal parts to two factors: higher unemployment and lower productivity. “We have grown by increasing the number of people working and investing in unproductive activities such as construction, but not improving efficiency and productivity,” says economic historian Leandro Prados de la Escosura.

The generalized diagnosis among economists is that training is inadequate, and that the legislation segments employment between permanent and temporary, which does not favor either job progression, investment in human capital, or efficiency improvements in companies.

Productivity, a term that sounds ethereal but is very important in the long term because it defines the income of countries, is a pending chapter. It does not figure as an objective of the country or of the politicians. And proof of this is that despite the European recommendation of 2016 Spain has not created a Productivity Council, something that does exist in France, Germany, the Netherlands or Denmark.