Spain´s Crisis 2… EY! We really have a institutional mess here.

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As I said in my previous post, Spain and Europe have many  structural problems, but the chaos into the Corporate State is  so acute that demands its own chapter in the books of History, and its  own solutions.

I have not been the only one to realize. Back in 2010 the previous Spanish socialist government agreed with the regions to reduce (a mere 24,9%) the complexity (I must add, The Complexity didn´t mean The Budget. They  realized that their minions where out of their control and wanted to concentrate and simplify) of the regional branch of what I have called “The Spanish Corporate State”, by 2012.

This is a link to the latest progress-report, with the situation at April-01 2012, unfortunately not in english.

minhap.gob.es/Documentacion/Publico/PortalVarios/FinanciacionTerritorial/Autonomica/Informe%20Reordenación%20SP%20a%2001-04-2012.pdf

The real progress has been of a 5.9%, as you can see in the figures of the third page of the report.   But can you see this image, from page 5 of the report, with data in groups of three?

They represent (from left to right) the number of “entities”, the  initial state in 2010, the forecast for 2012, and the real situation in 2012.   But the main thing is what they ARE.   (1) “private” companies state-controlled but not considered public-enterprises (http://wp.me/p2KoGX-3);  (2) “Consorcios”, agreements between 2 or more public administrations to manage something in common – perhaps in the USA this would mean economies of scale, here it means extra bureaucracy, extra budget, and a cozy place for the ruling party with no place for the rest;  (3) “private” charities and alike, state controlled;  (4) state companies, branches of the state that act as companies; and last and less, real state-bureaucracy.  So, of all the entities, only a fraction of the smaller group COULD be part of what I consider The Democratic Administration. And these are only the official data…

What does it mean? I suggested a big list of reforms to Mr Mariano Rajoy last year but, who would be affected by them if most of the real State is out of the general laws? So, the first step is to clean up our institutional mess, and we have to  start recognizing that the main social-security debtor, rules-breaker (http://wp.me/p2KoGX-z), illegal  contractor in Spain, is the very State. Once you recognize this, dissolve the  facade entities, add its debt to the public debt, its liabilities, its  personnel and, of course, prosecute as much big-wigs as you can,  you might perhaps begin to REALLY reform the public sector.

The path has been marked by a recent (September 2012 ) sentence of a lower court in Andalusia. Its weird, to “legalize” a illegal situation to get rid of it, but it really is the only -legal- way I have found and with our regulatory framework and the modifications I propose, it really has very “elegant” consequences that I will explain in another post.

SO. BAILOUT FIRST CONDIDTION, NO MORE “REDUCING THE NUMBER OF PUBLIC ENTITIES”. ASSUME PERSONNEL. CONSOLIDATE DEBT. FIRE TOP MANAGERS.

BAIL-OUT SECOND CONDITION. REFORM THE POLITICAL PARTIES AND UNIONS FUNDING SCHEMES.  You only need to know that the Corporate State receives its blood via direct transfers from the budget and via subsidies “in exchange of services given to the State”, like training courses for employed and unemployed, foreign relations, legal assistance to people in need, etc… In another post I will tell you in five paragraphs “The ERE scandal”. 1.000 million euros that “ops” were devoted by the Andalusian government to a social need: To pay the (illegal) early retirement of e.g., trade union´s personnel in its 40s.

BAIL-OUT THIRD CONDITION: SIMPLIFY REGULATION ON PENSIONS AND UNEMPLOYMENT “BENEFITS”, PUBLIC HEALTH AND EDUCATION. Again, I will not add now on this although its a really controversial issue, but If we want mobility and civil rights, the social security scheme has to be a mere state-guaranteed alternative to the private sector in saving and services, not a “benefit” that is beg by citizens and given by politicians. We need price, not only for financial sustainability, but to recover our status. To remember the public sector managers that we are the ones that pay, the bosses, not the servants.

BAIL-OUT FOURTH CONDITION: REFORM THE PUBLIC ADMINISTRATION. (http://wp.me/p2KoGX-17) Focused in going from a XIX century one to, at least, a 1950S one, with a real Planning Programing Budgeting System. The general administration expenditure is around a 20% of the regional public sector while the rest is Health and Education, and (at State level) pensions anf unemployment benefits.  For the ones that say, “a mere 20%, who cares” I would add… who in hell do you believe that the contracts and working conditions of that 80% are forged?

As this is my playground, I will give a biT more detail here, but not much. RighT now there is a system of exams to become “funcionario”. If the exam is not rigged (in local entities is common, and into the Parliament as well. Neither in regions nor into the central government The Judiciary has it´s own problems) it is usually horribly difficult and guarantees that no merely “connected” person will pass. But once you are in, the control measures are scarce, random, and basically (Although no everywhere) absurd.

What I suggest is to turn upside down the state of things. Right now the Spanish administration is an Orwellian nightmare for citizens, and a anarchic paradise for some public sector workers, and specially for politicians. It should be just the opposite. I asked for open cameras at out workplaces, emails published, phone calls recorded and published… a transparency we lack. Perhaps we have no means for a proper control, but we have millions of unemployed people with time to connect to internet. The public TV channels (dozens) should be closed and re-opened as mean to increase transparency. A new, two rounds selection process would be establish, and (nuclear), public job descriptions and handbooks would be available (First, they ought be written).

I have realized that I should go on for a week for the situation and proposals to be fully understood by a foreigner. I will not make this post so long. I will have to devote at least an extra post to each bail-out-condition, but before the end, I want to emphasize something:

I am an insider in the public sector. Am I asking for financial measures? Deficit or debt targets? Incomes increases? No. Because that all are nonsenses if they are not pieces of a plan. Monetary policy has transformed the economic policy in a joke.

As with the IMF interventions in Latin America in the 1980s,  what we need is a meaningful project. Something that asks why it failed and what can we do. Which is the past and which the future will be.  This would allow the People, that is the main character in this play, to adapt, I tried to tell Mr Rajoy: We need a new model, with less money but, perhaps, with a better life standar. This is the bail-out that I am waiting for, the one I would ask for.

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1/?… a local politician confess his fraud-system, and nothing happen?

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This week has been a really busy week at home and at work. Nevertheless, a story caught my eye. The socialist (PSOE party) president of the “Diputacion de Sevilla” (a powerful local entity) has been accused by the opposition (PP party) of corruption. He would be hiring people freely (something he can do only in case of exceptional needs) and firing them when they have worked enough time to get social benefits. Then he contracts another, and fires the first person. And then another, and another, and another, and finally, the first one again. When asked, did he rejected the accusation? No, indeed, he affirmed proudly that although some “necessary” people would never be fired, it was a fair scheme to share scarce resources among “the others” in time of crisis. Of course, its to share taxpayers money with his people, but he looks unable to distinguish between the public budget, his party budget, and his own money. Although he ought to go to jail, and anyone in the public or private sector would go to jail (employer and employee) for the same fault, being a politician, he is outside and over the law, so we will have to wait and see…. Today he is still free, and his declaration has not deserve more than a couple of news.

Incredible? Spain.

Spain´s crisis 1… History rules…

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ABSTRACT: The spanish dictatorship survived under a democratic umbrella. Our political class (the biggest in Europe be it in absolute terms or related to population) is a olygarchy that governs the Corporate State. This duplicity is depleting the country and prevents it from finishing it´s transition from dictatorship to democracy.

To find several links to similar articles at the WSJ, Forbes, or El País, look at the end of the text.

HOW TO FIX… SPAIN. DISCOVERING THE CORPORATE STATE.

FULL  TEXT

During the spanish “Transition” from the national-social-catholic (fascist) Franco´s dictatorship to the current Democracy, a series of measures designed as exceptional were adopted to promote regime change. Politicians, outgoers and incomers, agreed on surrounding themselves with class privileges (some old, some new), to ensure the former a confortable retirement, and the later protection against a possible political involution. These privileges were extended to regional pressure groups (Basque, Navarrese, Catalans and, in a second row, Galicians and Andalusians) These measures, intended as temporary, or geographically limited, have become permanent and are today widespread in all the 17 spanish regions, and in thousands of local authorities… Besides involving improper personal benefits, their survival has also meant the perpetuation of a system of distribution of rents and positions that embodies the privileges. So the current status in Spain is that of a double Public Administration, a Corporate one, legacy of the Franco regime, formed by political parties (especially the hegemonic ones: PP, PSOE, and nationalists), trade unions, employers unions, local power, and NGOs (previously only religious, now diverse although the Catholic Church continues to have a significant role that ought to be quantified) versus a Democratic one, formed by the three typical arms, Legislative, Executive and Judicial, served by temporary (“laboral”) and permanent (“funcionarios”) staff.

The line between temporary and permanent staff in the Democratic Administration is the exercise of power over citizens. Where the state invades the society, it has to be done according to a ruled procedure and by permanent (and, that way, resilient to political pressure) staff. Police, Judges, and IRS Officials are typicall examples of this personnel, but doctors and teachers or librarians in public facilities, that must decide if a treatment is dispatched, or a fine for not returning a book is imposed, are supposed to be “funcionarios” as well. While other work (driving, cleaning the buildings) is made by “laboral” staff or by contractors.

But in practice, the Corporate Administration has positions at all levels, from the lowest to -mainly- the top ones, no matter if they imply the exercise of power or not, and despite the Law (and the un-executed court rules: ) that should oust them. As far as I know, although a 2008 report of the Andalusian Court of Auditors “detected” a 33% of the central-services-staff that belonged to the “paralell administration”, as the courts have labelled it, the real numbers of the Corporate State are unknown, even to its beneficiaries, due to a generalized lack of transparency (in public and private entities) but also, precisely, to the descentralized style of management and to the occultation techniques that the Corporate Administration has used to survive and thrive under it´s democratic umbrella. A recently known (August 2012) unprecedent request from the andalusian regional ministry of finance, asking to the other ministries about the neither funcionarial nor laboral personnel that they employ, directly or indirectly, backs this POV about how Corporate Administration spreads chaos.  Having largely disappeared the Franco´s tax and budget system after the 1977´s “Fuentes-Quintana´s” reforms, the Corporate regime is funded with “special laws”, “special rules”, and “exceptional mechanisms”, while the rest of the citizens are subject to the common law. The Act for funding  political parties, the historical memory law, or the rules related to the “repair of unions assets damaged during the war and the dictatorship” – even if the Union in question didn´t exist in the Franco´s era, while  the real opposition parties and unions as the CNT languish into the oblivion- are examples of the the-facto special laws. Special rules on pensions, unemployment … established within general laws, for the political class well being, are a source of funds an power too. But the main source of funding and power for the Corporate Administration lies (in my experience) straight outside the law, through mechanisms that were incorporated into our Democratic State as mere declarations of intent without compulsory force; through biased interpretations of rules; or through “exceptional” mechanisms established under severe conditions, but which in practice are common instruments,control-exempt unless any scandal explode and leads them to court: Government Agreements (even secret  ones are “enforced”), Social Partnership Agreements, Exceptional Grants, Nominative Grants, (false) Regulated Subsidies, (false) Conventions, (false) Concerts, (false) Open calls for tenders or for proposals … hiding under different names framework agreements between politicians and trade and employers unions, for sharing the pie of public funds; and rigged contracts awards or straight funding transfers, executing such agreements. The Andalusian Supreme Court of Justice has relpeatedly failed against the Government and it´s “open despise for the rule of law”, and its assertion has been ratified by the Spain´s Supreme Court of Justice (STS 29-November-2009 E.G.M.A.S.A. affair) and reiterated by the lower courts (The last one I know, attached, was released the 11-September-2012) with  no political or penal consecuencies – surprisingly, probably, for outsiders, but nor for locals (public opinion is largely unmoved by “technicalities”, and judges and prosecutors at penal courts, except for the judge Mercedes Alaya that got involved in this by chance, shiver at the prospect of starting a process against a whole government or, worst, agains most of the Members of the Parliament, for plainly violating the Rule of Law, with no direct robbery attached to sell the case to the Media).

The Democratic administration is then helpless, in practice subject to the Corporate administration, thanks to the control that the political parties elite has over  the party´s structure and over all the branches of government, including the judiciary (Thanks to the manner of appointment of members of the General Council of the Judiciary, Constitutional Court, Supreme Court, and the Judges “third shift”, that grants access to the judiciary without concour, for alleged “professional qualifications”), although the latter is less dependent on the three.

Given that each of the two management models is multiplied by at least 18 ( Central State plus 17 regions), plus thousands of local authorities, there can be no coordination between administrations. Moreover when each administration fights to have more power (budget), and when, while the Democratic Administration should not depend on the will of the parties, but on the Rule of Law, the Corporate Administration breathes and lives only for the will of the Parties, Trade Unions and Employers Unions. Taking into account this multiplicity and quintaesential differencies, coordination becomes impossible, and the final result for the citizen is chaos and waste. The services are usually set multiplied several times, overlap, and they all tend to lack planning and/or sufficient staff and resources to achieve their goals. (To say nothing about lacking legal basis, or guarantees for users) Seeing this, we mustn´t forget that dictatorships do not fall, giving way to democracies, because its principles are morally evil, but because his administration is inherently prone to corruption, ineffectiviness and inefficiency. Democracy (The Liberal one, the only one that deserves that name) is not a morally superior system, is simply a more effective management system, as explained by the New Institutional Economics. Living in a dictatorship is to live, sooner or later, ruined. And that is what is happening to us now.

And we must´t forget that most of the people that belongs to the Corporate Adminsitration, mainly in its lower ranks, work hard and believes in the way they do things. A common complain among politicians is that the plans fail due to the lack of “flexibility” of the budget rules, of the public administration and it´s decision procedures. Even though they rarely obey that laws, and it has no personnal or political consecuencies for them (Recently Sánchez-Gordillo, a mayor, orchestrated a series of assaults to supermarkets to rob food “for the poor”) . The usual political debate in Spain is how to tighten the regulatory grip over the evil sinners (the good citizens, of course, have nothing to worry about), and how can the benevolent politicians get rid of the same grip, specially of the one that rules the hiring, firing, and salaries of the staff. As a fascist oligarchy, our politicians (and most of citizens) truly believe that concentrating the power is good, when it is in the right hands. And mistrust “independent” or “foreign” organisms, what explains the poor shape of our Justice and Police, or our strange realtionships with the European Union.    Finally, the Union has not helped to improve things. On the contrary, European funds have become an incentive for corruption and lawlessness. The insistence of the European Commission authorities not to fund the Member States´ Public Administrations, arguing that a country that joins the EU already has a sufficiently sound administration, and that “sovereignty” should be respected, but to fund “independent entities” as corporations, especially of “auditors and advisers”, Unions, and other nongovernmental organizations (NGOs) …. has strengthened the Corporate Administration against the Democratic one. With open contempt and ignorance of the real situation of our country, dismissing the vital role of the “funcionarios” in resiting the oligarchy , the application of the “principle of partnership” has come in handy to our political class that has dedicated the funds to grant themselves directly (large companies, political parties, trade and employer´s unions) or through a horde of facade-companies and NGOs, with the support and blessing of Brussels.

When our former Prime Minister J.L.R. Zapatero said that Spain had not finished its Transition from dictatorship to democracy, I do not think this was the problem he had in mind. But this is the main problem we have, and the only one that the politicians can, but do not want, to fix: How to establish a real separation of powers, strenghthen the Administration of Justice, and get rid of the Corporate Administration, inherited from the Dictatorship, ruled by a despotic oligarchy, and covered with the veil of an imperfect democracy.

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A deeply concerned attempt to improve the situation (http://wp.me/p2KoGX-l)

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I must thank Wolf Richter for the support that the publication of a shorter (and better, first of all with better english) version of this post in his blog has been.

http://www.testosteronepit.com/home/2012/10/12/spains-unfinished-transition-from-dictatorship-to-democracy.html

I will add other links where a lively debate has taken place (Sometimes about other topics, like the quality of democracy in Germany -really interesting)

http://www.nakedcapitalism.com/2012/10/spains-unfinished-transition-from-dictatorship-to-democracy.html

http://maxkeiser.com/2012/10/12/spains-unfinished-transition-from-dictatorship-to-democracy/

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MORE ABOUT THIS TOPIC

A similar conclusion (the inner collision between politicians an general interest in Spain) but with a different basis, was in an article published last week in a newspaper, “El País” 09-09-2012 Sunday. Spanish Politics and  rent seeking. http://elpais.com/elpais/2012/09/12/inenglish/1347449744_053124.html

And was somehow repeated in the WSJ 2012-10-29

http://online.wsj.com/article/SB10001424052970204840504578086224291581676.html?mod=WSJ_article_comments#articleTabs%3Dcomments

A very similar article to mine, was published at the WSJ in august 2012, although it emphasizes the inheritance of the Spanish mindset from Franco´s era, while I prefer to focus on inherited management structures.

http://online.wsj.com/article/SB10000872396390443343704577555962210758008.htm

And a great and short explanation about the Corporate State, and the USA, was published at Forbes in 2010.

http://www.forbes.com/2010/08/26/government-business-labor-opinions-columnists-warren-meyer.html

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Now I only need to post the detailed suggestions for the spanish bail-out, and be able to get some of this meaures introduced.