Will Spain Emulate the Chilean Economic Model?

Start-Up Chile board member Vivek Wadhwa recently wrote about his trip to Spain to encourage them to view Chile as an economic model:

I recently traveled to Bilbao, Spain, to talk to government administrators, business people and academics about growing an entrepreneurial economy. With 21 percent unemployment and a sinking economy — dragged down by massive government debts and the aftereffects of a real-estate bubble implosion — Spain badly needs a burst of entrepreneurship. After all, the Spanish and U.S. economies don’t differ greatly. In Spain, just as in the United States, start-ups create the majority of new jobs. And in Spain, an even larger chunk of the economy than in the United States is fueled by small businesses. There, small and medium enterprises supply 79 percent of all jobs. Because of Spain’s participation in the euro zone, however, it cannot devalue its currency to inflate its way out of its current and sizable debt overhang.

One reader summarized:

What a ridiculous ending to this article. The author lists all the burdensome, socialistic rules imposed on Spain’s own entrepreneurial citizens then calls for relaxing the rules for immigrants.

Shouldn’t the rules be relaxed for current citizens first?

Is Chile really a better place to earn money than Spain? According to the World Economic Forum (WEF), Chile ranks 31 in competitiveness and Spain ranks 36, making them the best in the Spanish and Portuguese world, ahead of Brazil (53), Argentina (85), and others. The WEF believes “the most problematic factor for doing business” in Chile is restrictive labor regulations, an opinion shared by guest writer Dane, describing his capital strike of Chile. Dane managed two companies in Chile and decided to retire, perhaps later to return to work as a consultant.

The WEF also cites as “problematic” the inefficiency of government bureaucracy and the inadequately educated workforce. The bureaucracy of the Extranjeria is annoying, consuming so much time to issue one year visas that Mary and I prefer to leave the country every 90 days and get new tourist visas when we return. Other government agencies are probably as bad or worse.

The WEF states that the workforce is better trained in Spain than Chile, which is to be expected because Spain is a much richer country. And, as in Chile, the biggest problems in Spain are the inefficiency of government bureaucracy and restrictive labor regulations. About half of the young people in Spain are unemployed, highest in Europe, and are known as los indignados (the indignant ones). The WEF cites “access to financing” as the worst problem in Spain, listed by 27% of the people surveyed, while being identified by only 5% in Chile.

The World Bank sponsors the Doing Business (DB) project, and they published a report that measures business regulations in many countries. They claim that Chile ranks 43 in ease of doing business, ahead of Spain (49), but lagging behind Mexico (35) and Peru (36). DB also states that in Chile, women’s ownership rights over movable and immovable property are not equal to men’s.

DB ranks the hindrance of government regulations in 9 areas, and Chile and Spain rank poorly:

Regulation category Chile Spain
Starting a business 62 47
Dealing with construction permits 68 49
Registering property 45 54
Getting credit 72 46
Protecting investors 28 93
Paying taxes 46 71
Trading across borders 68 54
Enforcing contracts 68 52
Closing a business 91 19

According to DB, starting a business in Chile is a costly process requiring 8 procedures and 22 days to complete, and closing a business is a 4 year ordeal. Spain requires 10 procedures to start a business, consuming 47 days, and a year to close a business. A business can open in the USA in 6 days and be closed in 18 months.

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