04 de setembre 2007

The viability of an independent Catalan State (and IV)

This is the last part of the article by Josep Desquens.

The viability of an independent Catalonia

As mentioned before, many Catalans do not support secession because they believe that it would not be economically viable. Yet thus far, there are no convincing arguments to support such a statement.

The argument that Catalonia is too small to be an economically sustainable independent state is incorrect. Not only is there no serious economic theory arguing that a country's economic success requires a minimum size, but the evidence suggests a different reality. Looking at the ten countries with the highest GDP per person in the world shows that the Catalan proverb "the good marmalade is in the small pot" is applicable to economics: Eight out of the ten richest countries in the world (measured by GDP per capita) have a population equal or lower to that of Catalonia's six and a half million inhabitants. Another element of the economic inviability speech refers to the availability of natural resources: An independent Catalonia will not be able to prosper because it does not have sufficient natural resources. Again, this logic is flawed. There is no established correlation between natural resources and economic prosperity: Though there are examples supporting this relationship, such as Norway; there are others refuting it. Oil-rich Venezuela has proved that abundant resources can lead to economic disaster if improperly managed, while a relatively poor country in terms of resources, such as Japan, is one of the richest in the world. The use of natural resources is indispensable for economic development and a country that wants to grow will need to obtain them. The way to do so efficiently is through international trade, not giving up political independence to a larger country.

A central theme in the anti-secessionist economic discourse is based on the fact that Spain is the main market of Catalonia. Thus, seceding from Spain would result in an economic catastrophe because Catalonia would lose its main market. The flaw in this argument is that there is no reason to expect Spanish trade embargoes or a boycott of Catalan products, particularly in the E.U. context. Secondly, Spanish citizens buy Catalan products due to their quality and price and not for some abstract Spanish national solidarity. Therefore, as long as secession does not increase the prices or lower the quality of Catalan products, no loss of market should occur. Finally, this argument overlooks an important reality: It is normal for a country that its main market is a neighboring country, particularly in the case of small countries. The Netherlands and Denmark's largest trading partner is Germany; Belgium's is France; Portugal's largest market is Spain, yet there is no suggestion that Portugal reunite with Spain.

Critics of secession can rightly argue that being part of Spain makes economic sense because it allows Catalonia to share the costs of public goods of the military, diplomatic representations, etc, among forty million people instead of six and a half million. Although this is undeniable, it overlooks two facts. First, the huge regional fiscal imbalance shows that today Catalans are paying for these services twice what they would pay in a separate Catalan state. Second, the cost of some of these public goods (e.g. monetary system, antitrust regulation) is being transferred to the E.U. supranational level (i.e. financed by all E.U. citizens).

In conclusion, there is no objective economic reason to believe that a hypothetical Catalan state should not be viable from an economic perspective. If Slovenia has performed well since seceding from Yugoslavia with its much smaller and less diversified post-communist economy, an independent Catalonia should also be able to do well economically. In the end, the success of a Catalan state will depend on its own government. Independence will be good for Catalans only if the Catalan state would be able to pursue sound macroeconomic policies that foster growth and economic welfare. While it is uncertain how well a Catalan government could manage its economy, we know that the performance of the Spanish government over the last century has been overall poor. Moreover, as independence would mean getting rid of the aforementioned fiscal imbalance with Spain at once, a Catalan state would enjoy significant room to maneuver.


It is often heard in Europe that it does not make sense to talk about the secession of stateless nations in the context of globalization. It is claimed that in an era of fading borders and boundaries, it is not the time to build new ones. This type of conventional discourse results in avoiding an open and objective discussion about the possibility of an independent Catalonia, Basque Country, Scotland, Flanders or any other European stateless nation.

As shown by Harvard University professor Alberto Alesina and his colleagues, the reality is rather the opposite: "Trade liberalization and political separatism appear to go hand in hand." The increase in free international trade directly relates to the economic viability of new states. Globalization makes the independence of Catalonia more viable because it guarantees access to international markets. Likewise, it makes secession much more desirable for the health of its economy, as fewer bureaucratic layers would increase Catalan competitiveness in global markets. In a context of international trade restrictions, large countries enjoy economic benefits because political borders determine the size of the market. In this context, small nations such as Catalonia find belonging to a larger state such as Spain to be in their economic interest because it gives them access to a larger market. Thus, from a purely economic point of view, being part of Spain has benefited Catalonia.

In a world of increasingly free trade and global markets, this rationale is no longer valid. Relatively small cultural, linguistic or ethnic groups have the possibility to benefit from creating new political entities that trade in economically integrated wider areas. With its own state, Catalonia could benefit from improved administrative efficiency and still have access to foreign markets in which to sell its products. In other words, free trade is a good substitute for a political union as a way to access bigger markets in the context of globalization.

It is important to highlight here that small countries appear to be among the main beneficiaries of freer trade. That should not surprise us if we look at the small European countries that have traditionally been active traders, like the Northern Italian city-states and the Low Countries. Professor Alesina has suggested that population explains a third of a country's openness to trade (i.e. trade relative to GDP). A study by the World Trade Organization (WTO) of 127 countries (both developed and developing) finds a clear relationship between the size of a country and its openness to trade. While the benefits of being a small country (e.g. easier to manage, greater homogeneity, specialization) remain, the drawbacks are decreasing with free trade and new technologies.

In addition, globalization is also compromising many of the traditional functions of mid-sized countries such as Spain, making them less desirable to their citizens - in particular, to differentiated groups such as the Catalans. On the one hand, these states are not big enough to solve global problems involving issues like international terrorism, international capital movements, regulation of transnational corporations, the HIV/AIDS epidemic or global warming. On the other hand, they are still too large to solve local problems. If Spain is not big enough to tackle global problems and not small enough to properly deal with Catalan specificity, then it should change or disappear. So far, it has shown no willingness to change. As professor Sala-i-Martín puts it: "at the end of the day, states and governments should serve the people and not the other way around."

The European Union

The process of European integration, supposedly based on the principle of subsidiarity, has long been at the center of the European stateless nations' ambitions to increase their degree of political autonomy. It is argued that talking about secession in the context of European integration is senseless because this process should lead to the disappearance of current borders and nation-states as we know them today. It is claimed that Europe will naturally become a loose confederation of independent regions.

These expectations are, however, proving unrealistic. Indeed, the principle of subsidiarity creates a perception problem: While for the majority of E.U. states (with the notable exception of Germany) it applies only to the relationship between the European Union and its member states, for these stateless nations it also fully applies to their administrative relationship with their respective states. Thus, in Catalonia the process of European integration has raised expectations of higher levels of political power that are not being matched by reality. In fact, expressions such as "Europe of the regions," so often heard in Barcelona, are rarely used in Madrid. Because for virtually all state governments, the E.U. project is to be built on the existing nation-states and the transfer of political power to the regions should never undermine the pivotal role of these central governments. The development of the current European Convention, which is drafting an E.U. Constitution, appears to confirm such position. Plus ça change ...

Even though the E.U. nation-states are not willing to give more power to their regions in the name of the principle of subsidiarity, the process of elevating state responsibilities to the European supranational level is clearly undermining their own raison d'être. The Spanish state has given up its sovereignty in key areas such as trade policy, antitrust regulation, environmental legislation and - through the European Monetary Union - monetary policy. Today, the number of functions that it undertakes for Catalan citizens has significantly diminished. In this context, it is legitimate for Catalans to ask themselves whether the remaining attributes of the Spanish central government (e.g. fiscal policy) could not be better managed by the Catalan government, one closer to them, with greater knowledge of their needs. The evidence shown above in relation to the fiscal imbalance seems to indicate that Catalonia would be better off if it could undertake those directly itself.

The process of European integration also provides a significant argument for the independence of Catalonia, Flanders or Scotland: administrative efficiency. The maintenance of the state's intermediary role between the European and local powers results in higher transaction costs that hamper economic development. Particularly in federal or semi-federal states like Spain or Belgium, keeping a central state that has less and less to offer to its citizens is becoming more expensive to maintain and very complex to manage. Thus, secession appears as an economically desirable option because it would result in lower costs and complexity that would reduce the burden carried by the Catalan economy.

We have seen how the European Union is calling into question the existence of old centralized European states such as Spain. In this context, becoming a small less bureaucratic state within the European Union would result in increased economic efficiency. It would also be the best way for Catalan interests to be represented in the process of European construction - as opposed to being represented by a Spanish government that has repeatedly refrained from defending important Catalan interests (e.g. language official recognition). Finally, the European Union is de facto lowering the potential cost of independence by providing Catalonia with a free trade area, as well as saving the need to incur costs such as creating a new currency.

Final reflections

Unlike many nations in Europe that have flourished due to the creation of a nation-state, Catalonia exists despite a unitary and centralist Spanish state that has repeatedly tried to eliminate it as a separate cultural entity. In this context, the mainstream Catalan nationalist movement - in particular, since the end of Franco's dictatorship's attempt at linguistic genocide - has traditionally focused on cultural and linguistic promotion. At the same time, it has allowed a damaging fiscal relationship with Spain to develop that might have led to a civil uproar in other countries. Years of permanent centralism have atrophied the perception of reality of many Catalans, making them accept this administrative relationship as perfectly normal even when it goes against their interests. Today, culturally-focused policies are insufficient. Catalan politicians need to ensure the continuity of the culture and language, but they also need to inform Catalans openly that they are paying a high price to be part of a unitary Spanish state. They have to make all Catalan citizens aware of the fact that, in the name of a questionable solidarity, the current fiscal imbalance results in serious public under-investment that will hurt their economy. And, more importantly, they need to tell them that this is a problem that affects all Catalans equally: first-generation and tenth-generation Catalans; Catalan-speakers, Spanish-speakers and Arabic-speakers; employers and employees; men and women; students and retirees. It is urgent that Catalans realize that only with a new administrative structure can Catalonia be competitive in the international markets and guarantee better public services, modernization of its infrastructure, social cohesion and economic growth. Among all possible options, it is independence that makes more sense economically, particularly in the context of globalization and the European Union. Why? First, secession would guarantee that the existing unfair fiscal imbalance would be eliminated. Second, an independent Catalonia would result in a smaller more efficient public administration. Third, a Catalan state would still have access to international markets in a free-trade world. Finally, full independence would mean a direct voice in the international forums that so much influence their lives.

No referendum on the question of independence will be a fully rational exercise. Independence from Spain is not simply a matter of economics or administrative rationality. Identity issues, in Catalonia and elsewhere, are highly complex. Some might want to be part of Spain even with an unfair fiscal treatment; others might want independence even if the cost is high. However, this does not negate the fact that economically, independence would not only be viable, but also significantly advantageous. Catalans might want to vote from their pockets rather than from their hearts.