Spain’s Economic Transformation in the 1920s
Infrastructure Development Under Primo de Rivera
Roads: The road network expanded from 5,000 km to 10,000 km. Highways were established, modernizing the economy and unifying previously isolated areas.
Water Boards: These provided water for irrigation in the cereal-producing regions of Castile and generated electricity.
These projects were financed with debt.
Economic Growth and Structural Changes in the 1920s
There was significant growth in investment during the growth stage (1923-1929). However, this growth was not balanced across all sectors. The agricultural sector grew at a modest rate of 1.6%, primarily due to the emphasis on cereal production. Holdings expanded cereal production without significant innovation, capitalizing on increased European demand. This allowed for the import of raw materials and capital goods.
However, the lack of innovation in the cereal sector meant it couldn’t fully satisfy domestic demand, leading to imports and a reduced trade balance. The industrial sector experienced the highest growth, particularly in basic industries, capital goods, and power generation.
Between 1922 and 1929, the industrial growth rate was 5.5%. Capital goods advanced rapidly, while consumer goods and mining grew more slowly. Industries related to the First Industrial Revolution contributed capital goods. This period saw a structural shift due to:
- The weight of equipment industrialization; investment in equipment increased during the “Roaring Twenties” after being neglected during World War I.
- A booming construction industry, driven by changes in urban structure and growing cities. The construction sector had a dragging effect on sectors supplying raw materials.
- The progress of electrification, which was applied to industry and reduced the energy deficit.
This resulted in industrial specialization, with the industrial sector itself generating demand. There were two major unions: CNT (anarchist) and UGT (socialist).
Primo de Rivera’s Economic Policies
In 1923, Primo de Rivera led a military coup.
He implemented an economic policy similar to Italian fascism, protecting the internal market and using tariffs to correct the trade deficit. This also increased state revenue and substituted foreign goods. Minister Cambó imposed the tariff of 1922, which reduced tariffs on raw materials and electrical machinery, promoting the processing industry. It maintained tariffs on consumer goods and raised them on coal and steel.
The tariff was accompanied by an institutional structure that protected and regulated all sectors.
Prosperity of the 1920s
Primo de Rivera’s coup occurred during a period of economic difficulty. However, mirroring trends in Europe, the latter half of the 1920s saw a period of economic euphoria. The economic recovery allowed the dictatorship to undertake ambitious investments in infrastructure.
The banking sector was controlled, with the Bank of Spain becoming the Central Bank and the creation of the Higher Council of Banking. The aim was to control the money supply and correct the deficit.
In 1924, the 1917 Act was amended to promote national industry. This policy, however, did not encourage companies to produce more efficiently.
A council was established to calculate the range of products to match demand and set optimal prices.
Strict entry barriers were established for foreign companies.
A policy focusing on Public Works was also implemented. Regarding railroads, during the war, increased demand for rail transport led to overuse and accusations against railway companies with foreign capital. This prompted a review of railroad legislation. Primo de Rivera encouraged railway companies to buy domestic coal and vehicles, providing funds through debt. The Fund for Railway was created, sharing strategic benefits between partners, but halting investment in railroad maintenance. Primo de Rivera enacted a statute increasing working hours and salaries for railway workers.