Ignacio de la Vega. Professor. IE Business School
11 February 2009
One rescue plan after another, millions and millions pledged, screaming headlines... but the real solution to the economic crisis lies in granting immediate and effective aid to SMEs.
As observers of the crisis with the most media coverage in history, we are getting used to different governments, federal reserves, central banks and other less united institutions at UEM level surprising us with rescue plans, lowered interest rates, multilateral meetings and other kinds of supposed injections of trust for markets almost on a daily basis. Thus far, they do not seem to have been overly effective. I will not, however, use this article to reiterate the depth of the systemic crisis and lack of global confidence we are suffering from, the harmful loss of its contagious effect at sector and geographical level and the dark scenario that threatens in 2009.
In view of the breakdown of business and economic activity in our country, begun by the shaking and trembling of the financial markets in the summer of 2007, we must admit that Zapatero’s government has reacted soundly, boosting the market in the last three months with all kinds of rescue plans at every level. 50,000 million plus an additional 200,000 in state guarantees for the banking sector, 8,000 million for local authorities, 3,000 more to encourage the economy and employment, 1,500 million in reductions in social security payments, formulas for capitalising 60% of unemployment for the self-employed, subsidies for paying mortgages and, above all, 28,900 million (euros, of course) allocated to various new lines and certain existing lines aimed at motivating and financing SME activities.
Of course, all these funds come from the present and future taxes paid by citizens and, in some cases, are subject to the capacity for public debt that will have to be issued by the Kingdom of Spain and which we hope it will be able to place on the market. In addition, our system will be able to receive the odd benefit from the miserly European Rescue Plan, set at €200,000 million, of which there are only €30,000 more than the state contributions that have already been promised. A poor show from Brussels that is slow, scant and uncoordinated.
From the entire Rescue Plan collection, in my opinion the ´Star Plan´ should be that used to rescue SMEs - beyond that used to safeguard the Spanish financial system, so highly praised by the administration and which ignores mistakes à la Madoff. Every day, in my work as a consultant, I see small and medium-sized Spanish firms with good products and services, healthy profit and loss statements, sound business models and much management talent, threatened by the market.
The classic view is that of the SME that sells less as a result of the fall in consumption or corporate activity, but it does sell; it suffers a huge default payment rate, especially if it works with local authorities; and it encounters great difficulties for obtaining finance on the market. In many cases, they have also suffered from the non-renewal of lines of credit and discounts that had been effective for many years. This company profile is a candidate for entering the SME cemetery that Spain is becoming thanks to the crisis. Some dare to estimate the total number of SMEs that might disappear next year at almost 20%. Imagine the consequences for this country´s GDP and for employment.
We are still able to reduce the future effects. Mr President, bring the implementation of the ICO line of 10,000 million as far forward as possible (today?). The end of January may be late for many SMEs. Increase the insufficient 600,000 million for encouraging entrepreneurship. Make the state, through its multiple resources, force the banks to inject the system (SMEs and families) with income from the liquidity auctions of your Rescue Plan in the same way that Brown has done in the United Kingdom, with immediate results.
Force the authorities and businesses to comply with legislation (60 days) and reduce the default rate. Generate tax incentives for SME activities by, yes, reducing taxes. Make the labour framework more flexible, something that is not incompatible with social protection. And, above all, invest talent in the development of the Productive Model Modernisation Plan and make a commitment to changing the model of our economic system. I am sure that many millions of voters would be grateful.