Transport Infrastructure Failures in Spain: Political Interference and Corruption, Apuntes de Economía del Sector Público

¡Descarga Transport Infrastructure Failures in Spain: Political Interference and Corruption y más Apuntes en PDF de Economía del Sector Público solo en Docsity! JOBNAME: Soreide PAGE: 3 SESS: 4 OUTPUT: Tue Nov 19 13:36:05 2013 10. Transport infrastructure failures in Spain: mismanagement and incompetence, or political capture? Germà Bel, Antonio Estache and Renaud Foucart Although Spain ranks remarkably well in international comparisons in terms of access to transport infrastructures, it does not seem to meet demand, leading to well-documented mismatches between demand and supply. This is a recurring hot political theme in Spain as in many other countries, developed and developing. The consequences are costly, unfair and unsustainable in the current context of economic crisis. So what’s the problem? This chapter argues that bad governance, capture and political interests, rather than incompetence, are the main drivers of supply–demand mis- matches. The current state of transport infrastructure is above all the result of a strong political will to maintain Madrid as the centre of distribution of the economic benefits of all decisions on transport infrastructure investment.1 While it is fair for elected politicians to use their mandate to make tough decisions, it would be just as fair to make sure that they do not ignore the high economic and social costs for the country (Albalate and Bel, 2011; Bel, 2011, 2012; Bel and Fageda, 2011; De Rus, 2011). Moreover, there are reasons to suspect that key private actors have captured some policy decisions. The high concentration and strong political leverage of construction companies specializing in infrastructure have fuelled the sector’s overinvestment and high fiscal costs. This interference with the planning and implementation of key decisions in the sector has not reached the outrageous levels of corruption cases docu- mented in urban development projects, but the consequences are no less dramatic for Spain.2 129 Columns Design XML Ltd / Job: Soreide-Corruption_grabbing_and_development / Division: 14SoreideChapter10 /Pg. Position: 1 / Date: 17/10 Downloaded from Elgar Online at 01/07/2014 10:41:07AM via EEP Inc. JOBNAME: Soreide PAGE: 4 SESS: 5 OUTPUT: Tue Nov 19 13:36:05 2013 10.1 THE BIG PICTURE The Great Recession is an economic and social challenge to Spain, Europe’s fifth largest economy. Income per capita has been dropping steadily since the early days of the crisis, income differences are worsening, unemployment increasing, the informal market growing fast, skilled labour is migrating and capital is sneaking out. This downward spiral has been happening at the same time as Spain has been steadily dropping in its corruption ratings for almost 10 years.3 According to Transparency International (TI), in 2011, Spain’s perceived corruption level ranked 31st from 183 in the world, with an average grade of 6.2. This may help explain why it only ranks 36th in terms of competitiveness in the 2012–13 Global Competitiveness Report (GCR, henceforth). Political parties are seen as the country’s most corrupt institution.4 It does not help that the judicial power is not considered to be very independent. It only ranks 65th of 142 in the GCR. Corruption cases have been documented at all levels of government across political colours, a lot more than one would expect for countries at this level of develop- ment. Media on all sides of the political spectrum have been covering the issue quite aggressively (Lapuente, 2011; Rivero and Fernández- Vázquez, 2011; Villoria et al., 2011; Costas-Pérez et al., 2012; Jiménez and Carbona, 2012; Jiménez and García, 2012; Villoria and Jiménez, 2012). Corruption, incompetence and politics are blamed for everything that is going wrong. Somehow, it feels like Spain is on its way to underdevelopment unless it gets its act together. Until the recent explosion of its real estate bubble, things looked good. It is easy to forget that not that long ago, at the end of the 1970s, Spain was still eligible for loans from the World Bank (WB) – in other words, it was still regarded as a developing economy. Much of the WB’s support to Spain between 1963 and 1977 was used to finance transport infra- structure. In particular, a 1963 loan was instrumental in upgrading and redesigning Spain’s road network to increase the competitiveness of all regions. A poor and insufficient road capacity was seen as an impediment to diversified growth. Similar issues were raised for rail and ports. The message for all of these projects was that transport supply did not match demand. About 35 years after the last WB loan to Spain and after many more loans and grants provided by the European Union, Spain’s supply of infrastructure has increased a lot. The GCR ranks Spain’s infrastructure fifth in the EU, tenth in the world, and better than the United States and Japan. Only China has a longer high-speed train network (Albalate and 130 Corruption, grabbing and development Columns Design XML Ltd / Job: Soreide-Corruption_grabbing_and_development / Division: 14SoreideChapter10 /Pg. Position: 2 / Date: 13/11 Downloaded from Elgar Online at 01/07/2014 10:41:07AM via EEP Inc. JOBNAME: Soreide PAGE: 7 SESS: 3 OUTPUT: Tue Nov 19 13:36:05 2013 problem in a sector without an independent regulatory agency, with a history of bilateral negotiation and renegotiation of contracts, and a record of political interference with transport planning. On prices and subsidies, total infrastructure expenditures will be around EUR 10 billion in 2013 (around 0.9 per cent of GDP). About 90 per cent will go to transport, including 40 per cent to railways, focusing on high demand traffic, 29 per cent to roads and 6 per cent to support private investment in roads, 10 per cent to ports and 5 per cent to airports. The rest will finance various types of transport subsidies. Subsidy rates in the transport sector are among the highest in Europe.8 This would be fine if the subsidies were cost-efficiently serving public service obligations. But the extremely low demand for a large share of the traffic supply would lead to the deduction that public money goes more to subsidize the supply side of the market. Despite repeated calls from high profile actors of the sector,9 the government has picked a strategy that is likely to reinforce the role of supply signals rather than address demand signals. Indeed, whenever possible, the government also wants to rely on public–private partner- ships (PPPs) to reduce the short-term public financing requirements imposed by its involvement in the sector.10 This seems unreal. Indeed, the case for PPPs in Spain’s transport is happening in a context in which all the major private partners are going to be able to renegotiate their contracts to benefit from even more subsidies (through minimum income guaranteed schemes), longer contractual terms or other forms of endorse- ment which ensures that the risk component of the public-private partnerships is absorbed by the users or the taxpayers, without much concern for costs levels or effectiveness. Initially, the current Conserva- tive administration wanted the few firms in the sector to merge to reap any scale economies – ignoring the weak demand and without a fair assessment of the degree of scale economies in the sector! It is really hard not to suspect capture, collusion or other types of distortions in the market when the evidence of perverse behaviour is so strong. Too many top researchers have pointed to the weaknesses of current policies for anyone to be able to argue lack of knowledge or incompetence. Or then, incompetence has no limits. 10.3 THE POLITICS AND THE CONSTRUCTION BEHIND INFRASTRUCTURE To get a sense of the realism of the assumption of a strong risk of capture, it is useful to step back and have a look at the history of the Transport infrastructure failures in Spain 133 Columns Design XML Ltd / Job: Soreide-Corruption_grabbing_and_development / Division: 14SoreideChapter10 /Pg. Position: 5 / Date: 17/10 Downloaded from Elgar Online at 01/07/2014 10:41:07AM via EEP Inc. JOBNAME: Soreide PAGE: 8 SESS: 3 OUTPUT: Tue Nov 19 13:36:05 2013 intense and somewhat incestuous relationship between the political power (of all colours) and the construction industry. This history is quite long. For instance, during the 1940–50s, the Francoist regime provided polit- ical prisoners as cheap labour to companies involved in the construction of key infrastructures, in particular railways. Many of these workers were quite qualified and hence more productive than workers available on the regular labour market, yet their salaries were significantly lower (Olaizola Elordi, 2006). It also had a non-negligible impact on the launching of a strong, high-return, Spanish construction industry. It is sometimes easy to forget how strong industries are born. But we’ll come back to that. Since the beginning of democracy and the fast acceleration of infra- structure investment during the 1980s – partially thanks to EU funding – there are many more illustrations of the unhealthy interactions between politics and construction. The increased political and regulatory control and hence the higher level of transparency of the interactions between the public and the private sector provides more recent examples of poor governance and corruption in the design and implementation of infra- structure policy in Spain. The first major documented case of corruption that led to jail sentences took place in the early 1990s in the transport sector. It involved congressmen and administrators of the Spanish Socialist Party who had been in power from 1982 to 1996. It was based on ‘fake’ firms used to ensure the financing of the party’s expenditures through overbilling of public contracts for the construction and operating of the first Spanish high-speed train between Madrid and Seville. The latest significant case was in March 2012. It sentenced Jaime Matas, the previous president of the Baleares region, a member of the Conservative Party (Partido Popular) for corruption in the construction of a multi-sports arena. In between, there have been many more open corruption cases in Spain, about 400 pending corruption cases as of mid-2012, most of them involving real estate and public service contracts at the regional and local level. Overall, what seems clear is that many of these cases involve construc- tion companies, large and small. This is not to say that the vast majority of construction companies are not clean. But the somewhat conspicuous relationship between politics and construction seems always to be present. Moreover even if legality is usually respected, it is often at the limit of what is considered to be good governance in terms of trans- parency. Many key policy decisions and laws in transport are concerned with the supply side of the market, which is dominated by the transport companies. 134 Corruption, grabbing and development Columns Design XML Ltd / Job: Soreide-Corruption_grabbing_and_development / Division: 14SoreideChapter10 /Pg. Position: 6 / Date: 17/10 Downloaded from Elgar Online at 01/07/2014 10:41:07AM via EEP Inc. JOBNAME: Soreide PAGE: 9 SESS: 3 OUTPUT: Tue Nov 19 13:36:05 2013 In practice, many of the large companies have the necessary economic weight to have political leverage on all government levels, including the national level. In 2012, among the 35 firms tracked by the Spanish stock market index (IBEX-35), eight were construction and public works companies: Abengoa, Acciona, ACS, FCC, Ferrovial, OHL, Sacyr and Técnicas Reunidas. This means that the performance of these companies drives 25 per cent of the index. In all of them, except Ferrovial and Sacyr, the board includes individuals who occupied high-level political positions. Even if this is not that uncommon in Spain for large companies (Castells and Trillas, 2013), it is noteworthy. Indeed, Faccio (2010) has shown that the firms with the strongest political connections tend to obtain larger market shares than unconnected firms. More consistent with the average evidence on performance reported earlier, these connected firms also tend to show lower productivity. This productivity deficit of connected firms is stronger the higher the corruption level in the country. But incentive issues do not only arise from their relative importance in the IBEX-35. They can also be seen in the not-so-subtle management of human resources by the construction companies. An interesting illustra- tion is offered by the Association of Construction Companies at the National Level (SEOPAN). It was created in 1957 during the Franco era to represent the large firms in interaction with public administration. Since the 2008 election, which maintained the Socialists and the prime minister in power, SEOPAN designated David Taguas as its president. Taguas was director of the Economic Office of the Prime Minister until his nomination. In spite of the controversy raised by the nomination, it was eventually approved under the pretext that this lobbying association was a non-profit organization. There was thus legally no conflict of interest since there were no financial interests. This episode ended with the firing of Taguas by SEOPAN, 2 months after the return of the Conservatives to power. This close relationship between political parties and the construction sector offers the sector a strong national leverage, but also an important international leverage. In 2010, five Spanish companies (ACS, FCC, Sacyr, Ferrovial and Acciona) ranked among the top 50 construction firms in the world in terms of sales. This is where politics and policy converge again. Spain, like other countries with international geopolitical ambitions, wants to have national champions with an international standing. This is one of the drivers of its industrial policy that justifies what boils down to poor governance. It also explains the incentive to focus on the supply side of the market and on the need to overinvest in transport infrastructure to showcase Spanish capacity. The Spanish excess supply of transport networks is consistent with a marketing strategy to Transport infrastructure failures in Spain 135 Columns Design XML Ltd / Job: Soreide-Corruption_grabbing_and_development / Division: 14SoreideChapter10 /Pg. Position: 7 / Date: 17/10 Downloaded from Elgar Online at 01/07/2014 10:41:07AM via EEP Inc. JOBNAME: Soreide PAGE: 12 SESS: 6 OUTPUT: Tue Nov 19 13:36:05 2013 50 per cent. Some may be necessary, but accounting for the high levels of inefficiency in the sector, their costs could probably be cut. 9. Colegio de Ingenieros de Caminos, Canales y Puertos (2010). 10. The experience of the radial toll ways in Madrid shows that this may be a long shot. Three have indeed already filed for bankruptcy, and the public budget is likely to have to pick up the bill. 11. ‘Paso (de todo)’ in Spanish. 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