Spanish Economy During & After Civil War (1936-1950)
1. The Spanish Economy During the Civil War (1936-1939)
The Spanish Civil War erupted due to the failure of the coup led by Franco. Both resulting governments focused on mobilizing resources to finance the war.
Franco’s Advantages
Franco’s side retained control of the army and its senior ranks. They also held the agricultural lands and gained the support of businesses and significant capital. Crucially, they received substantial military support from Germany and Italy, while Great Britain remained neutral.
Republican Advantages
The Republic lacked significant military support. However, they held the major cities, along with most of the industrial and agricultural capacity. They also raised funds from Moscow, using these to purchase foreign currency from Russia.
Franco established a military-centric regime, placing all of society under the command of the army. In contrast, following the coup, labor unions within the Republic took control of many corporations.
The Republicans were divided into three main factions: those who wished to maintain a liberal democracy, revolutionaries who were further split between anarchists and Marxists.
The Republic ultimately lost the war due to a combination of factors, including a lack of resources and the inability to effectively mobilize them. The war resulted in a substantial loss of human capital, both during the conflict and in the subsequent reprisals.
2. The Age of Autarky (1939-1950)
Franco’s stated aim was to invest in improving wages and increasing worker benefits. However, real wages declined, leading to negative macroeconomic effects. Aggregate consumption demand decreased, altering consumption patterns: demand for manufactured goods fell, while consumption of essential and luxury goods increased.
This disparity worsened the gap between the rich and the poor. The decline in demand negatively impacted industry, reducing its output. The demand that remained was concentrated in low-productivity sectors.
Investment in machinery was neglected due to the availability of cheap labor. The rural population grew, while urban centers declined as the economy contracted.
While there was a boom in basic resource industries like coal and lignite, Spain faced a dramatic energy shortage. Franco distrusted businesses, believing them to be poorly managed and prone to manipulation and excessive spending. Personal favors often took precedence over sound economic principles. This fractured political landscape hindered economic growth and the post-war reconstruction process.
The regime’s policies also had a negative impact on education, hindering progress and development.
Franco’s policies limited Spain’s export capacity and hampered the recovery of energy and raw material imports needed for industry. Interventionist policies prevented the efficient allocation of resources.
Economic Policies
Public spending was largely directed towards the army and Civil Guard, while private consumption suffered. Tax revenues stagnated, leading to a public debt deficit that was addressed by inflationary measures, further harming workers while benefiting landowners.
Franco aimed to industrialize Spain, believing the country possessed the necessary resources and capacity to compete. However, this goal was not achieved due to the perceived inability of private entrepreneurs.
Two main policies were pursued: autarky (imposed by the circumstances) and interventionism. These policies were implemented through price controls and resource allocation. State-created institutions determined production targets, set prices below market equilibrium, and controlled consumption. This resulted in inadequate compensation for producers, leading to reduced production and scarcity.
Producers often diverted goods to the black market rather than selling them to the state. The resulting scarcity led to rationing, further impoverishing the population while enriching those who controlled the black market.
This created a snowball effect. Production in the energy sector declined, and the distribution of raw materials and equipment was controlled through quotas and import licenses, further limiting industrial production. This benefited certain capitalists, who would later drive economic growth in the 1960s.
Further interventions included regulating and restricting private investment in certain regions, with the public sector stepping in through entities like Renfe and INI.
Results
The interventions were often irrational, driven by personal favors. The results were catastrophic. By 1945, imports were only one-third of their 1929 levels, and Spain lagged significantly behind the European average.
The economy declined, energy prices soared, and access to machinery and other resources needed for recovery was limited. The recovery of high-value-added products was particularly slow. The peseta’s value was artificially inflated, further distorting the economy.