The Catalonian Labyrinth [Parts I & II]

[Updated with Part II, Oct. 10] The Catalonian problem required farsighted political leadership. We got the opposite, and now the patients are running the asylum, says Tano Santos of Columbia University.

 


While America is absorbed by its own tragedies, in Spain a confrontation is building up that can break apart not only the Iberian Peninsula, but the whole European project. This confrontation has its roots not only in history, but also in economics, and in political economy. For this reason, we have asked two experts on different sides of the fence to explain what is going on. The following is an article by Tano Santos, a professor of finance at Columbia University.  [Editor’s note: Part I of this article was published on October 7, 2017. Part II was added on October 10, 2017, with further perspective on recent events in Catalonia.]

 

Part I

 
Catalan independence protest, 2012. Photo by Ivan McClellan [CC BY 2.0], via Wikimedia Commons

The news reports are shocking and the images distressing. Violent riots in Barcelona, a city that the world has come to know, admire, and love.

 

As in many other issues confronting the world today—Brexit, the election of Donald J. Trump, or the ascendancy of the far right in Germany—there are multiple layers of meaning to what’s happening in Catalonia. The first one is of course the deep one: Does Catalonia have the right to self-determination? The second one is closer to the surface: What are the implications of a referendum on independence in Catalonia for Spain and Europe, and for democracy in Catalonia and in the rest of Spain? Finally, on the surface, immediate and urgent, are the politics and tactical missteps of the two or rather three parties in the conflict (pro- and anti-independence Catalonians and the rest of Spaniards).

 

The immediate politics

 

The immediate politics of the issue are simply catastrophic. Prime Minister Mariano Rajoy’s strategy on this matter, the drive towards independence of an important and sizable segment of the Catalonian political establishment, has been to follow the law to the dot. Not bad as a principle in a democracy, but sometimes not enough.

 

In fact, rather than the cabinet in Madrid, most of the actions undertaken by the central administration over the last few weeks have been initiated by the courts, including the Supreme Court of Catalonia and Spain’s Constitutional Court, that declared the actions of the Catalonian government unconstitutional. What the Catalonian government is doing, whatever one may think of its wisdom, is simply illegal under our constitution.

 

Spain may be a very imperfect country, but it is a democracy and a country of laws and one should expect the Spanish government and courts to enforce them. This is morally the just thing to do in a democracy. Otherwise one would have to argue that Spain is not a democracy, which I would submit is an absurd proposition. But following the law is not enough. We live in the age of politics, and Prime Minister Rajoy has completely missed the mark on this one. 

 

There are two reasons behind Rajoy’s decision to not engage with the politics of the matter at hand and instead follow administrative steps. First, and not entirely unfairly, Rajoy is the epitome of the Spanish civil service class: law-oriented and wedded to an idea of a state bound by regulations and norms, however absurd it may be to put one’s full faith in these norms in the face of an open rebellion. 

 

There is a second and more important reason behind this: Any (re)negotiation of the status of Catalonia within the state, even if it were to stop short of independence, would have far reaching consequences in Spain and even Europe.

 

First, it will obviously affect Spain’s political balance. There will be winners and losers of that negotiation, and Spaniards will reward or punish political parties depending on the outcome of these negotiations. It will radicalize some segments of the Spanish political spectrum and probably accelerate the splintering of the Spanish left.

 

Second, it may rekindle the Basque separatist movement and perhaps give wings to other separatist movements. 

 

Third, it will have an impact on the funding of the Spanish state and on the functioning of the welfare state in particular at a moment when its finances are stretched to the limit. The political economy of reform of the welfare state is always devilish, to put it mildly. These considerations, for instance, never played a role in the Basque Country, which is too small to matter (so to speak) for the larger issues of political economy in Spain. As a result, Spain can afford to let the Basque Country be fiscally separate of the rest of Spain, as it is, without any consequences for the social contracts in place in the rest of the country.

 

This is possible, and desirable, in the Catalonian case, but much more difficult to achieve.

 

In sum, a political engagement with the Catalonian issue involves thorny political economy problems in the rest of Spain and a major reconsideration of the Spanish state that springs from the 1978 constitution, one that would greatly destabilize the country politically and would probably seriously compromise the working of our democracy, at least in its current form. That is, Spain would have to simultaneously attempt to design a different status for Catalonia within Spain while transforming the basic architecture of the Spanish state, politically and, to a lesser extent, economically.

 

Because Rajoy (and the Spanish right in general) feels those problems are intractable (in particular for a man such as Rajoy), silence has been the response. This has been the political mistake. But the tactical decision to use administrative steps to check the actions of the Catalonian cabinet has also been disastrous. 

 

In a nutshell, the strategy of following “administrative steps” to check the Catalonian government’s drive towards independence is not working as well as Rajoy thought it would. The reason is that Spain is probably the most decentralized country in Europe, and thus the state does not have many of the instruments that, in most other countries, would render its actions supreme. In Catalonia and the Basque Country in particular, the police force is under the local government’s control.

 

Given the actions of the Catalonian government, the cabinet in Madrid decided last week to take control of the local police, the mossos, and to make sure that the schools where the referendum was supposed to take place remained closed. As a backup, some additional units of the national police were dispatched to assist with whatever contingencies might arise.

 

What we saw on Sunday is the result of the passivity of the local Catalonian police; they effectively disobeyed the central government. As the day progressed, it became obvious that the mossos had decided to step aside and that the national police could not count on their assistance in enforcing the law and the rulings of the different courts that declared the referendum illegal. The optics are of course terrible, but luckily no fatalities occurred. Though violence is always regrettable and has no place in a healthy democracy, all in all it was quite limited given the enormity of what was happening. As of this writing there is not a single serious injury reported.

 

The key is that on Sunday we learned that Madrid may not have the tools to enforce its laws in Catalonia—a discovery that left Spaniards of all political persuasions, including those in Catalonia, stunned. This limits the cabinet’s immediate options. A possible course of action will be to invoke article 155 of our constitution and fully take over the administration of Catalonia, suspending the region’s autonomous political institutions. This is of course a dramatic step, and the cabinet in Madrid is reluctant to take it. The reason is that once taken, the cabinet will fully “own” the situation in Catalonia. Indeed, article 155 empowers the cabinet to effectively take over any of the 17 autonomous regions if their local authorities pursue actions contrary to the constitution, which is obviously the case. Local elections will probably be called after a period of time. The cabinet needs the supporting vote of the senate to invoke article 155, but it has an absolute majority there and thus does not need any other party’s support to proceed with this option.

 

If this happens, all bets are off. The reason has less to do with local politics in Catalonia than with national politics. Rajoy, after all, has a very slim majority in Parliament and, should the situation in Catalonia deteriorate further (and there is plenty of runway for that to happen), it is likely that he will face a no-confidence vote in Parliament that he might lose. It is for this reason that the cabinet will wait as much as possible before invoking article 155, and will instead insist on the administrative strategy. 

 

A scenario in which Spain is running a national election with a large fraction of Catalonian society in open secession and with its political institutions in suspense is the worst possible one, but one that is looking increasingly likely. Spanish democracy will be under serious strain in that situation, mostly because the political parties are so weakened.

 

There are four main parties today in Spain: the conservative party (PP) of Mr. Rajoy, the socialist party (PSOE), the radical left which stands for election as Podemos, and finally Ciudadanos, a moderate, centrist party originally from Catalonia which has done very well in recent polls. Ciudadanos came to national attention thanks to its vigorous defense of the Spanish constitution in Catalonia and is the largest party in the opposition in the Catalonian parliament. It thus has a peculiar authority in this crisis. Spaniards do have options, though they are each imperfect for different reasons.

 

The socialist party is not of one mind on the Catalonian issue or many other issues, and it is poorly led by Pedro Sánchez. Podemos is not a viable alternative and is quickly burnings its credentials with Spanish voters. The Popular Party, in power under the leadership of Mr. Rajoy, is plagued by corruption scandals and has had its reputation greatly diminished by the poor handling of this affair. Ciudadanos waits in the wings to be given the chance to lead at the national level. But it is a new party, and Spaniards have been reluctant to vote for new options in uncertain times. People will be left with only the option of voting for the ineffective Rajoy, and paralysis will ensue. What happens after that, nobody knows.  

 

The Catalonian problem required farsighted political leadership. We got the opposite, and now the patients are running the asylum. It won’t end well but, dramatic as that might sound, we will soon learn whether Spain wants to continue being. 

 

Part II

 

The Catalonian crisis: The issues at stake

 

In the past five years, there has been a civic and non-violent political movement in Catalonia that seeks independence from the rest of Spain.  

 

Regional elections have become increasingly polarized around this issue. In the last election, the pro-independence parties formed a coalition, called “Together for Yes’’ (to independence), and ran on a single-issue platform: if they were to achieve a majority, a pro-independence Catalonian cabinet would be formed and negotiations with the central government in Madrid would be undertaken to achieve independence. They failed to receive such a majority. Still, they were able to form a cabinet with the support of a radical left wing party, the CUP, which supports independence, though their objectives are broader and involve a radical redesign of Catalonian society. The governing coalition is a peculiar mix of radical pro-independence parties, moderate nationalists, and the aforementioned radical left wing party. Their sole common platform is independence. They don’t agree on economic policy, social organization, cultural policy, or anything else.

 

The cabinet in Madrid has been largely passive throughout these years. The only strategy has been to wait for the contradictions of the pro-independence coalition in Catalonia to produce an implosion of the movement. When this did not happen, Madrid was caught without much of a plan B other than the administrative measures discussed in the previous post. The game is up, and one side is well behind.

 

On the right to Catalonian self-determination

 

Pro-Catalonian independence rally, 2012. Photo by Josep Renalias – Lohen11 [CC BY-SA 3.0], via Wikimedia Commons

I don’t believe in the expansive rights to self-determination put forth by many to support the referendum. Catalonians cannot declare themselves sovereign and dispose of Spain as they see fit, robbing other Spaniards of their own sovereignty. It is this exclusion from sovereignty that is deeply offensive to many in Spain who feel its laws and constitution give plenty of room to air grievances and address concerns. At the heart of the problem is a debate on who is the sovereign. The Spanish constitution states this unequivocally: All Spaniards. Radical nationalists believe otherwise: Only Catalonians. This is of course a divide that is impossible to bridge.

 

Similar arguments on self-determination and sovereignty were also made in the case of the Basque Country, then under the dreadful terrorism of the ETA. The reason that terrorism survived so long in democratic Spain, well after the death of Franco, is precisely because the radical Basque nationalists understood that the 1978 constitution, a remarkable political achievement by a Spanish society brutalized after forty years of fascist dictatorship, contained the promise of the full political freedom to which Spaniards were all entitled (not just Basques or Catalonians, but also Castilians, Andalousians, etc.).

 

ETA understood that stabilization of the 1978 constitution would deprive the independence movement of its fuel and repeatedly attempted to destabilize Spain and its laws. Once the scourge of terrorism was put to rest (mostly by placing terrorists in jail) and political, social and economic conditions improved, Basques were able to (re)discover their dual identity, as Basques and Spaniards, secure in their freedoms thanks to the liberal Spanish state and its radical decentralization. This is exactly what ETA wanted to prevent from happening. It is a remarkable achievement of the Spain of 1978 that this cruel nonsense came to a successful end, and today the pro-independence movement in the Basque Country is at its lowest in a generation, even when many of the local political institutions are controlled by the parties that once explicitly or implicitly supported ETA.    

 

But beyond these basic principles, there was nothing “practical” in yielding to the demands of those pushing for the right of self-determination in the Basque country. It would have led to the exodus and possible massacre of those, the majority in the Basque Country, who disagreed with it as a Spaniards. There are 800 bodies that can grimly attest to it. It would also have led to the rise of terrorism in the French Basque country as well as in Spanish Navarre, as ETA had made it clear repeatedly that those would be the next objectives. Nationalism is expansive and there is no reason to believe that an independent Basque Country would have behaved any different. 

 

Catalonian independence would equally lead to an exodus of people from Catalonia to the rest of Spain, with the attendant suffering and misery. This is typically what happens when countries break, though not always. It depends on the policies pursued by the new nations that arise out of the ashes of the old one. It is difficult to be optimistic about the sanity of the policies that would be pursued by an independent Catalonia, particularly by the new radical nationalist class in Barcelona. It is perhaps useful to elaborate on this further, because I know many of my Catalonian friends will find these sentiments offensive.

 

Recurrent Catalonian crises are fundamentally the result of a double failure: the failure of many Spaniards to accept Catalonian culture as a critical component of Spanish culture, and the failure of many Catalonians to accept Spanish culture as a critical ingredient of Catalonian culture. 

 

Many Catalonians feel that their language and culture are under constant threat. Barcelona is one of the publishing capitals of the world, but mostly in Castilian, which is how Spaniards refer to the Spanish language. This most remarkable of ironies is not lost on many of the most ardent pro-independence Catalonians. Catalonians suffer the curse of many people in a large globalized world: They feel constantly at peril and believe that only the tools of the modern state can guarantee the survival of their language and culture. Thus the insistence on the supremacy of Catalonian in all matters administrative in Catalonia. This is controversial, incidentally, mostly in Catalonia, for there are many Catalonians who feel comfortable with their dual identity as Spaniards and Catalonians and who consider, for example, Castilian and Catalonian both theirs, which is indeed the case, though Catalonian is of course “more theirs.” 

 

Castilian-speaking Spaniards instead live oblivious to these Catalonian cultural anxieties. They are secure in the vitality of Castilian as a universal language, rejuvenated continuously by the breath of cultural fresh air coming from Spanish America, increasingly including the United States. Because of this they display the lack of empathy of the satisfied. Overcoming this lack of empathy remains an important challenge.

 

As in the case of the Basque Country there is nothing practical in Spain allowing for a referendum on Catalonian independence. For instance, Catalonian independence would eventually lead to efforts to extend Catalonian sovereignty over the Balearic Islands and the region of Valencia (all of which speak a dialect of the Catalonian language). This will destabilize local politics in Mallorca and Valencia and lead to more misery and suffering and possibly meddling in each other’s politics. 

 

Spain also has a responsibility to defend the rights of Spaniards everywhere, and in an independent Catalonia in particular. This will lead to constant frictions and will surely change Spanish politics for the worse. It will likely rekindle the Basque pro-independence movement, and perhaps even reanimate the ETA. The Spanish state, for all its flaws, is the guarantee that none of this will happen, that all Spaniards will have their basic human rights defended by the Spanish state and be able to prosper and be free under its protective umbrella.

 

The right of self-determination was once associated with the dual ambition of achieving both independence from some exploitative imperial power and political freedom. Examples abound, from the Austrian empire to the Soviet republics. It is for this reason that the right of self-determination took on a shine that has persisted even when fundamental human rights were no longer the driving force. Support for the right of self-determination is warranted for those who live as an oppressed minority without basic human rights. But Catalonia is neither exploited by an imperial power nor lacking in political freedoms. Quite the contrary: It is a prosperous, culturally dynamic region that enjoys more degrees of self-government than most regions in Europe (the exception being perhaps the Basque Country), and that is as it should be.

 

To some extent the problems that the Spanish authorities are having to regain control of the basic levers of power in Catalonia is proof of the enormous extent of self-government in Catalonia. None of the conditions which relate to human rights that would justify self-determination apply in this case.

 

Did the 1978 constitution live up to its promise?

 

The death of General Franco brought democracy to Spain. A constitutional commission was formed and the draft was put up for a vote in 1978. Spain’s 1978 constitution was overwhelmingly favored by the majority of Spaniards (88.54 percent  voted ‘yes’ and only 7.89 percent voted ‘no’; incidentally, the vote in the city of Barcelona was 91 percent in favor, with a participation rate of nearly 70 percent, amongt the highest in the entire country).

 

A constant grievance, in particular by many pro-independence moderates, is that Spain has not delivered on its 1978 promise. Nothing could be further from the truth.

 

Consider where Spain was at the death of General Franco and where it is today, almost fifty years later: a prosperous country, with freedoms enjoyed by few other nations, socially, economically and culturally dynamic. Its success manifests itself in many things, from the rise of corporate Spain (who would have said in 1975 that forty years later a Spanish entrepreneur from Galicia would be one of the richest men in the world!), to the rise of Spanish cuisine and, most importantly, soccer. The country of course has many flaws, particularly in the design of some important institutions and markets (such as the labor market), but overall it is perhaps the best of times in Spain’s long history as a nation. Catalonia’s right to self-determination and possible independence would compromise the enormous progress Spain has made during the last forty years. It would compromise its hard-won democracy and freedoms as well as its political stability; it would deepen the crisis of the Spanish left and might even lead to the formation of extreme right-wing parties.

 

Catalonia would not fare better. It would become prey to the more radical elements in its political landscape, and there are plenty of those. Tensions would quickly escalate, as they already have. What in Spanish history suggests otherwise?

 

There is a remarkable achievement of the Spanish 1978 constitution that largely goes unnoticed and holds the key to some of the grievances. Catalonia has traditionally been the richest of the Spanish regions, but the constitution of 1978 has brought with it a healthy process of convergence. Catalonia remains wealthy but, for instance, in terms of income per capita Madrid is now a richer city than Barcelona. There is a lively debate about the causes of this convergence, and indeed redistributive public investments have played by all accounts a considerable part in it, but better designed institutions and more powerful local incentives have played a role as well, as one would expect.

 

One suspects that this convergence has been perceived as a loss for Catalonia, which no longer enjoys the relative position it once had. As a result, many think the “transfers” from Catalonia to the rest of Spain are no longer warranted.

 

This has led to much confusion. First, it is important to understand that Catalonia is not taxed nor does it contribute anything to the national budget: Spanish citizens in Catalonia are taxed and contribute to the national budget. Because there are more wealthy citizens in Catalonia than in other regions of Spain, and Spain has a progressive income tax, more taxes are collected in Catalonia than in those other regions. Catalonia is more heavily taxed than, say, the poor region of Extremadura, in the same sense that the state of New York is more heavily taxed than Alabama. Endless ink is wasted on calculating interregional transfers but this exercise is completely at odds with the spirit of the redistributive welfare state that Spain has built since the death of Franco. In having a strong distributive character, Spain is no different than many other modern states.

 

In countries where some regions are wealthier than others, this will necessarily imply interregional transfers. It is here that “ring-fencing” Catalonia from a fiscal point of view, say, giving it the same fiscal arrangement enjoyed by the Basque country, has implications, not as severe as many think, for the Spanish welfare state.

 

Also, that Catalonia transfers to the rest of Spain the most of any other region would come as a surprise to inhabitants of Madrid who are now the largest contributors, not just on a per capita basis but in absolute numbers. Neither Catalonians nor Madrileños should perhaps be taxed as much as they are, but the image of Catalonia as “contributing” to the national budget is misleading at best. 

 

A final word

 

Spaniards contemplate the events in Catalonia with a mixture of disbelief, horror, and despair. But most in Spain, both inside and outside Catalonia, want something rather simple: that our Constitution and laws be enforced and that the debate on the future of the nation follow basic democratic procedures. Americans are rightly in awe of their constitution. Spaniards are perhaps not as enamored of their constitution as they should be, but they respect it and understand that it guarantees their freedoms and protects them against their worst demons. 

 

The constitution clearly states that only Spaniards—all Spaniards—can decide on the future of their nation. They share this basic principle with most nations on earth. Neither the United States, France, Sweden, Japan, nor any of the other great democracies of the world contemplate the right to self-determination, and they are no less free or democratic because of that. The liberal state enshrined in the constitution of 1978 protects Spaniards of all regions against the oppression of an illiberal nationalism, whether it’s Catalonian nationalism, Basque nationalism, or even Spanish nationalism. Let us thus protect and defend that state: It is the only guarantee of the liberty and prosperity of all Spaniards.

 

Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.  

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