One of the great victories of progressive forces in the Western world has been the establishment of the Welfare State, which includes those public transfers (such as, for example, retirement pensions) and public services (including healthcare, education, social services, kindergartens, social housing, family support, home help for dependent people, integration of immigrants, prevention of social exclusion, anti-poverty programmes and others) which are so important in defining the well-being and quality-of-life of citizens. All scientific studies which have analysed the level of individual and family satisfaction, happiness and well-being in a country have indicated the huge importance of the Welfare State in shaping this level. It is no coincidence that most studies analysing quality of life in a country have concluded that the Nordic countries of Europe, which have the most developed Welfare State transfers and public services, also enjoy the highest levels of quality of life (see Benjamin Radcliff, The Political Economy of Human Happiness).

Meanwhile, the countries of Southern Europe, including Catalonia and Spain, have less developed welfare states. If we analyse public social expenditure per capita as an indicator of development, we find that Catalonia, Spain, Greece and Portugal have the smallest budget in the European Union of Fifteen, the group of EU countries with a similar level of development to Spain. If instead of public social expenditure per capita we consider the percentage of adults working in public Welfare State services, we again find these countries have a percentage well below the EU-15 average. We likewise find that their public social expenditure as a percentage of GDP is much lower than the budget which they should allocate given their level of economic development. Catalonia, for example, should in accordance with its level of economic development be spending 17 billion euros more than it does on its Welfare State. Spain, meanwhile, should have a budget 60 billion euros greater than its expenditure. This situation is not widely known, as the message which predominates in the mass media is that the public sector, both in terms of expenditure and the number of people it employs, is overlarge. The figures do not support this perception. On the contrary, empirical evidence demonstrates that both the public sector and the public social sector are relatively underdeveloped and poorly funded. One figure demonstrates this circumstance quite clearly. While one adult in five in Sweden works in the Welfare State, in Spain it is one in ten, and in Catalonia an even lower percentage.

The reasons for this underdevelopment
The most significant cause of such underdevelopment is the country’s history and the defining political context. The dictatorship which was in place for forty years had little social sensitivity, and so when the regime fell public social expenditure as a percentage of GDP was by some considerable distance (17% of GDP) the lowest of any of the countries which were later to form the EU-15 (with an average of 22%). It was democracy which, by allowing the will of the people to take shape, gradually corrected this huge social deficit, such that by the Nineties public social expenditure, although it remained lower than the EU-15 figure, had gradually drawn closer to the average. Unfortunately, the attempt has been made to resolve the major recession witnessed in 2007 through public expenditure cutbacks, including the social budget, and this is once again opened up the social gap with the remaining EU-15. Such public social expenditure cuts have been presented as necessary, the argument being that the Welfare State had grown too big, creating a huge public deficit which had to be eliminated. The figures, demonstrate however, as I indicated above, that public social expenditure is: 1) much lower than the EU-15 average, and 2) much lower than the country’s economic level would allow. What is more, when the crisis broke, the Spanish State was running a surplus, not a deficit. The growth of the deficit which came with the crisis was not the result of an increase in public expenditure but a decline in State revenue (which had always been very low in Catalonia and in Spain) as a result of high levels of unemployment and the downturn in economic activity.

And that is the weak point of the Welfare State in Catalonia and Spain: low State revenue, partly because of very regressive fiscal policies and a high level of tax fraud, a situation likewise seen in Greece and Portugal. The Welfare State has no problem of viability, as we are wrongly misinformed. Catalan and Spanish society has enough economic wealth to fund a much more developed Welfare State.

It is often said that the demographic transition, with an ever greater number of old people and fewer youngsters, makes pensions unviable and unsustainable. The reality demonstrates the error of such a diagnosis, since Catalonia and Spain are at present exporting young people. The problem is not a shortage of young people but the fact that they cannot find work, and their salaries (and hence their Social Security contributions) are too low. If the percentage of the population in employment were the same as in such Nordic countries as Sweden (meaning that Spain would have five million more workers than it does), and their salaries were as high as they are there, pensions would face no problem for the next fifty years.

Vicenç Navarro

Professor of Public Policy, IDEC-Pompeu Fabra University