Confidence indicators in Spain are at an all-time low. The reason is not so much the economic crisis as the country’s failure to introduce structural reform. The author discusses two partly complementary hypotheses, identifying the problem as one either of institutions or of values. The institutional hypothesis suggests that the political system fails to translate citizens’ preferences into effective reform. According to the values hypothesis, many citizens reject any reform that will require them to work harder or consume less. Based on the reforms carried out over the last half-century and the characteristics of Spain’s most successful companies and individuals, the author argues that what is needed to rebuild confidence and overcome the economic crisis is an injection of competition and responsibility.

Tools and Frameworks:
> A Changing Gap charts the narrowing and widening of Spanish GDP per capita compared with 12 leading European countries
> Five-Year Implied Probability of Default notes that prospects for Spain are not as bad as for some other countries, so there is hope that Spain’s leaders can react in time

Examples Cited:
Zara, Mango, Pronovias, Meliá, Barceló, Porcelanosa, BBVA, Santander, ACS, Ferrovial, Iberdrola, Telefónica

Research Basis:
Analysis of economic indicators and the author’s own research published in Economic Journal and his forthcoming book Building Market Institutions (University of Chicago Press)

About the Author:
Benito Arruñada is a professor of Business Organization at Pompeu Fabra University in Barcelona.