The future of Madrid: towards a change of model?

<a href="">Gildo Seisdedos. Director. Urban Management Forum. IE Business School</a>

6 May 2008

Madrid has been highly successful in leveraging opportunities derived from its status as capital of Spain, but now it’s time for a change of model if it wants to keep up the pace of growth.

The present reality of Madrid is certainly brilliant. The keys to this current success are not very different from those of the spectacular performance of the Spanish economy in recent years, with growth rates far above those of the other countries in the EU.

However, Madrid has developed an important multiplying factor by leveraging the cornerstone of its development: its central location in Spain.

The administrative and bureaucratic Madrid has been left behind, as has the Madrid of the siesta and come-back-tomorrow. The city has taken advantage of its geostrategic situation (and, of course, its status of capital city) to reinvent itself as the central point of modernity, innovation and economic vitality.

The quality of human resources, the fact that it serves as the base in Spain for leading multinationals, and moderate land and salary costs have catalysed the most advanced economy in Spain. An economy that is highly specialised in value-added services for business organizations. An economy that is one step ahead, at the forefront of everything that goes on in Spain.

But in a globalized world, strengths and opportunities disappear quickly and threats and weaknesses continue to grow. Being at the forefront has the advantage of being first to take advantage of the opportunities, but being first in feeling the consequences of changes of cycle, or model, is not quite so desirable.

And it seems that what we have before us is clearly a change of model.

The current economic model has hit the ceiling and a new productive model needs to be developed to increase productivity and international competitiveness, as well as develop a new productive system which places priority on the sectors that generate the highest value added per worker.

Globalisation and the population increase are sustaining growth, but the continuity of the current structure involves significant problems for the Madrid economy in the mid-term.

The current economic model has been based on the mass creation of employment, which has given rise to an alarmingly low growth in productivity at high inflation differentials. There are studies that attribute 88% of the Spanish economy´s current growth to the higher availability of labour, mainly from immigrants.

This must be joined by other magnitudes resulting from a model based on construction and the carefree financing of family consumerism: what some refer to as the Spanish economic model is, above all, a financial revolution that affects families in particular and its consequences have still to be assessed before the coming recession leaves us in disarray.

How can Madrid maintain its position as an attractive destination for investment? Two options seem viable, both based on improving value added.

On the one hand, the commitment to creating a cluster based on emerging sectors, using existing sectors (construction, pharmacy, telecommunications and the audiovisual and aerospace industry) and trying to extend them as far as possible.

And, at the same time, making a commitment to the micro concept, the role played by SMEs and entrepreneurs. Not only because they serve as incubators for new large enterprises, but also because of their essential role in the development of the innovation chain insofar as they usually focus on activities associated with new technologies.


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