SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A001000010017-0
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 9, 2016
• Document Release Date: July 26, 2000
• Sequence Number: 17
• Content Type: SUMMARY

Approved Fpr Release 2000108129: CIA-RDP79R01012A00'I000010017-0
kept for its manpower resources and actual or potential exportable
surpluses of certain strategic minerals, the Spanish economy at the
present time presents an almost unrelieved picture of stagnation and
deterioration, In brief, the main weaknesses characterising Spain's
economy are the followings
1) Depression of agricultural production as compared to
civil war,, which has had the effect of reducing exports and domestic
consumption sad has given rise to the used to import substantial quanti-
ties of foodstuffs, Spain before the civil war was self-sufficient in
basic foods,
2) Depreciation and deterioration of the transportation,
mining, and most manufacturing sectors as a result of the inability
to maintain plant and equipment for two decades,
3) Greatly reduced worker productivity as a result of
depressed consumption levels, state-enforced "feather bedding prat-
tiuss,' and general underemployment.
k) Administrative inefficiency sad corruptions
5) Repressed inflation of large dimensions which is becoming
increasingly difficult to contain, and which my at any time erupt into
open inflation,
6) General misallocation and misuse of scarce resources as
a result of militant economic nationalism and unrealistic appraisal of
the economy's limited indigenous capabilities,
State Dept.. declassification & release instructions on file
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The deterioration of the Spanish economy began at least two decades
ago. long retarded In Its industrial development, Spain found itself
even than, before the advent of the world depression, unable to absorb
the annual Increment to its labor force,
ihder conditions of domestic tranquillity, Spain might possibly
have succeeded is the early thirties in the formidable struggle to
Insulate its economy from the spreading impact of the international
trade collapse, to maintain its productive equipasat properly, and to
check the growing unamploymsnte
Instead of internal peace, however, it experienced the apocalyptic
sequence of a violent social revolution with all its traumata of strikes,
riots, boycotts, lock-outs, land.ssisurs, military counter-revolution,
civil war reprisal and exhaustion. The pacification of Spain by the
Franco forces had barely been achieved when'xorld star 11 broke out,
Economically prostrate, Spain was compelled by the Allies' control
of the seas and their. power to shut off essential supplies at first to
non-belligerency and later to neutrality, in spits of Its pro-axis
orientation., As a neutral, Spain traded with both Allies sad the Isis
and actually developed a small export surplus, but the total volume of
its trade was small, and it could not import the waohiaery, equipment,
raw materials and other producers goods needed to halt and reverse the
disinvestment process which bad been initiated in the early thirties,
The bitter realisation of the extent of Its dependence on foreign sources
of supply during the war, the postwar international shortages of critical
materials and manufactures, and its political Isolation have thus greatly
reinforced the Franco regime's inherent predilection to dirigism and
autarchy. The economic nationaliam which characterised Spain long
before Franco has consequently been exaggerated and sanctified to such
a degree and officially so identified as a cardinal precept of the
regime that it is difficult to see how the Franco Government can change
its economic program without subverting itself, This Is the moaning of
its complex. multiple exchange and import licensing gatem, its obdurate
curbs on private foreign capital, Its comparative neglect of agriculture,
and its ambitious industrial development schemes, with their long range
tie of virtual self-sufficiency.
Agriculture and forestry with an active labor force of some 51 perm
cent of the total labor force traditionally provided the Spanish economy
65-75 percent of Its export proceeds, and was thus the main source of
the capital equipment and industrial raw materials needed to maintain the
rate of industrialisatiou. Self-sufficient in foodstuffs before the
civil war, Spain experienced a deterioration of its agriculture in the
 last fifteen years which, combined with the large growth of its popular
sion, compelled it to divert a large share of its foreign exchange to
the import of basic foods, particularly cereals, It would time appear
that the reconstruction of agriculture should be the primary concern of
the Spanish Government. While to some extent the recovery of agriculture
has been impeded by factors beyond the control of the Branco regime the loss of natural markets during World War II, the world-wide shortage
of fertilisers in the early postwar periods, severe postwar droughts,
the lose of draft animals and the destruction and damage to farm struc-
tures as a result of the civil war -- to a greater degree the fault lies
with the regime itself. Confronted with a reconstruction task of Herculean
proportions in agriculture, mining, transportation, and manufacturing,
it has in effect concentrated the greatest part of its energies, with
mixed success, on the expansion of a few basic industries such as
electric power, cement, and heavy industry?
While it has poured billions of pesetas into its state-owned develop-
meat corporation, the Instituto Nacional de Industria to carry
out an industrialisation program that is unbalanced and beyond the
resources of the economy at the present tide, the regime has spent
annually less than 1 percent of its national budget on agriculture, It
has fallen behind the pre-civil war rate of reclaiming arid land by
irrigation projects. Its price policies and the way they have been ad-
ministered by a corrupt bureacracy have sustained a black market which
still flourishes today and encourages the diversion of agricultural
production from essential cereals to industrial crops such as cotton,
tobacco and esparto and to less essential foodstuffs such as meat; fraite
and vegetables. This two-fold misallocation of depleted agricultural
resources has thus aggravated the seriousness of the decline in general
agricultural production due to drought, fertilizer shortage and poor
transport.
Wary sector of the Spanish economy suffers today from the prolonged
inability of the country to maintain its capital resources intact, In
certain fields -- mining, electric power, manufacturing -- indexes of
total output exceed pre-civil war levels as a result of the concerted
effort of the Branco Government to increase the pace of industrialisan
tion, But even within these sectors, with the exception of electric
power, increases in output of many key products have not recovered their
prewar levels. Where production levels surpass those of prewar they
have been achieved at a staggering cost of labor input. Nor do the
indexes of physical output reflect the deterioration of quality that
is inevitably the consequence of improvisation, substitution of infer-
ior materials, diminished labor productivity, and poorly devised price
controls. The effect of these factors may be readily seen in those
areas where the Spanish Government has been most successfuls electric
power, cement, coal, and steel. Despite the tremendous emphasis placed
SCUT
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upon the development of hydro power, the average annual increment of
capacity (59,OOO kw) Ilk the period 1940-49 was roughly 34 percent less
than in the period 1931-35 (899000 kw)s Approximately 15 percent of
total real iavestmont is embodied in hydro projects whose huge con-
struction requirements In reservoirs, dame, spillways, *to. have absorbed
a large part of the total cement productions Yet the whole hydro program
has suffered immmenssly from transportation difficulties, Inefficiency of
construction labor and supervisory personnel, and the unavailability of
certain installation machinery, and critical materials which have meant
long periods of delay before additional power become available. And
despite the increase in electric power generated, roughly 75 percent
above the volume in 1935, demand,for power is still greatly in excess
of supply, particularly in the seasonal periods when the reservoirs are
low. Rainfall is always a critical factor in Spain, and the prolonged
droughts of the postwar years have considerably reduced the effective-
ness of the huge 2gdro program on Spanish Industry.
The drive to expand hydro-electric power has been intensified by
the inability of the Spanish economy to import the one million or so
tons of high grade coal and oaks it normally obtained abroad,. The
iranco Government has persisted in its endeavor to increase indigenous
coal production, and has effected a production rise of 60 percents
This figure was reached in 1945 and 1946. Despite continued emphasis,
by mesas of additional incentives and such higher pay this peak has not
been surpassed since then. At the peak of production, It was estimated
that 20 percent more workers could be employed, but there has been a
continual shortage of miners and the absenteeism rate is notoriously
high. The increase. in coal production has been achieved at a labor in
put proportionately greater than in the pre-civil war years and the
quality of coal, never too high, has dropped considerably 's a result
of poor washing practices, and the tapping of low grade Nina? Coal
production probably still remains the most serious bottleneck in the
Spanish econongy? and the iron and steel industry and the rail trans-
portation system have suffered thereby, The remarkable thing is that
production increases have been achieved at all. The depreciation of
mining equipment, the inability to import new machinery and pit props
in sufficient volume, and the increasing deterioration of the transport
system have been apparently offset by the greater input of labor which,
however becomes ever more difficult to sustain as safety measures and
working conditions continue to deteriorate.
Increases in capacity of blast furnaces and Dement plants have
permitted expansion of output, but, despite the pronounced emphasis of
the Franco regime on such development, the rate of growth In both these
indnstrtes has been considerably below the pre-civil war period. Blast
furnace capacity increased at an average annual rate of about 14 percaat
in the period 1929-35 and only about 5 percent per year in the years
1940-118, Cement capacity increased at an annual rate of 140,000 tons
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in the 1929-45 period as compared with an annual increment of 20,000
tons in the postwar period- Pig iron output in 1950 surpassed the 1935
level but was still significantly below the peak production of 1929.
Steel production also surpassed the 1935 level but was subetantiaxly
below the 1929 and 1930 levels.
In other fields of mining and manufacturing output the levels of
production so far attained have generally been below the 1931-35 levels,
and in sons highly important sectors, such as textiles and chemicals,
greatly below 1931-35 levels- In great measure, the paucity of foreign
exchange resources and the necessity for diverting a large part of them
to imports of cereals and other foodstuffs has prevented the Spanish
Aovernmant from importing the raw materials necessary to expand indus-
trial output. To a substantial extent, too, the effect on electric
power of the droughts and the shortage of coal have impeded manufactur=
4ng- But these bottlenecks have, on the other hand, concealed the
impact of the general disinvestment process that has characterized
the economy for twenty years. To the extent that plant and equipment
operates at 40 or 50 percent of capacity and is idle for long periods,
the actual effect of depreciation and obeolescense is masked. Only
the loss antiquated and more efficient equipment will be used and what
is carried on the books as idle capacity may when put to the test of
sustained operation turn out to be fictitious.
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%.1 sum
Nowhere in the Spanish economic is the failure to maintain capital
equipment and to replace machinery more in evidence than in the
transportation sector. On January 1, 1950 there were approximately
10 percent fewer steam locomotives and freight care and 50 percent
fewer passenger can than in 1935 in service in the state-owned
railroad system. In 1948, it was estimated that 35 percent of the
locomotives in operation were 45 an old or older. It is estimated
that annual track replacement should be 270 kilometers per year. in
the tea year period, 1940-49 average track replacement we 66
kilometers per year, with almost name replaced In 1936-39. The
accumulated cross-tie deficit is estimated at 4 million. In 1949,
for the first time, the normal tie replacement rate of 2 millions per
year was reached, With an accident rate ten times higher than that
of the U.S., with major overhaul machinery and equipment in poor
condition, with grave deficiencies in signal and switching equipment
it is no wonder that the average commercial velocity of freight trains
in 1949 was only 12.6 kilometers per hour *=pared to 17.4 in 1930,
and that passenger train velocity was 35.6 kilometers per hour in
1949 compared to 43.5 in 1930.
The merchant fleet was larger by 29,000 tons in 1949 than in
1935 but still not as large as in 19329 and consists in large part
of old ships of obsolete design. The number of commercial vehicles
is larger now than it was In 1935 but imports during the postwar
period were for below the estimated 139000 vehicles needed annually
to replace worn-out equipment; Seventy-five percent of the trucks
-in operation in 1948 were 15 years old or alder.
The limited industrial expansion that has occurred has thus been
in effect at the expense of agriculture, transportations the whole
infra structure of the economy -- housing, road network, farm structures;;
ports and harbors, and within manufacturing industry such as textiles,
chemicals and metailuryc, and within mining, such as iron ore, copper,
lead. In short, the partial development of a few sectors has been
achieved at a cost of depreciation and deterioration in all the other
sectors.
But in a fundamental sense it is the primary resource, manpower,
of the economy that has depreciated the moat. Consumption per head
of food and clothing has declined at least a third on the average and
for the urban working classes and fixed income groups it has probably
declined more than 60 percent. A housing deficit of 500,000 dwellings
was estimated in 1950 and according to Spanish housing authorities,
37 percent of total existing housing in 1948 was "unhealthy."
Reports from Spain continually stress the hardships of the urban
population and the need of workers to find extra part-time jobs to
supplement their income from their normal positions.
SPX:
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But the deterioration of morale and physical well-being is not
apparently limited to the urban population. In the extractive
industries the high rate of absentee Lea is continually being deplored
officially. In agriculture while heetarage cultivated to crops and
yield per hectare are still below pre-civil war figures, the
agricultural labor fares is believed to exceed the ratio it bore to
the total active population in 1930. In the manufacturing industries
frequent complaints are reported over the caspulsory retention of
labor ip slack periods, and padded payrolls in normal periods. The
tragic experience of the last two decades has left its mark on the
Spanish labor force and has no doubt accentuated certain traits,
i.e., "soldiering," resistance to new techniques, listlessness which
marked it even before the Franco regime. Spelling out greatly
reduced worker productivity, they are naturally mom, by in a stagnant
econany* characterized by a surplus labor force..
The effects of declining consumption levels ha" been aggravated
by a steadily growing suppressed inflation since 1935. In its origins
the inflation is basically the result of certain real factors which
have together diminished the total supply of goods and services in
the face of a rapidly growing population. The inflation has been fed,
however, by the monetary and fiscal policies of the government. The
combination of real and monetary factors has worked to build up an
inflationary potential that grawa each day more difficult to contain.
Even in its very best years, the Spanish econa y was characterized
by a relatively low rate of savings. Its normal savings capacity
permitted even with the help of foreign capital only relatively small
accretions to its productive structure. To repair the devastation of
the civil war alone it would probably have taken the normal savings
of many boom years. The reconstruction effort necessary to restore
SpaWWWs national wealth to its pre-oivil war position, to make up the
accumulated deficits of capital plant and equipment and stocks of
industrial raw materials of the war and postwar periods was certainly
far beyond the normal savings capacity of a population whose national
real income in 1939 was 3/4 or less of what it had been on the average
in the 1931-35 period. The total Spanish national mecca never
recovered its prewar levels in the post-civil, war years, and has
fluctuated around a level roughly 9 percent lose than the 1929-35
average. Real income per bead in the period 1940-49 has been roughly
20 percent less than in the 1929-35 years.
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Without new foreign private investment capital, the normal level
of voluntary savings is inadequate for the reconstruction and expansion
schemes projected by the Spanish Government. The consequence has been
"forced" savipga at the cost of financial instability and greatly
reduced consumption levels which have affected probably three-fourths
of the Spanish people.
The remarkable point about the Spanish inflation is neither its
severity nor its duration, but the fact that it has continued to
remain repressed. For avan with the inflationary shook which the
Eorean war imparted to all the, econceies of Western Europe, the rise
of am 26 percent in wholesale prices and 8 percent in the cost of
living in Spain, even allowing for the probable inaccuracy of the
indexes, is not too far out of line with the increases that have been
registered in Western Earope.
Me potential disruptive power of the inflationary forces up to
now more or less successfully repressed, should not, however, be
minimised. Since 1940, in addition to the monetary "overhang" inherited
from civil war financing, the accumulation of inflationary pressure as
a result of deficit financing, public investment programs, and pyramiding
coats has reached a critical phase which may soon turn into open, runaway
inflation, in the absence of sound corrective measures and large scale
Ubited States ecanomia aid.
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