The Spanish Economy During and After World War I
The Spanish Economy During World War I (1914-1917)
Overview
World War I significantly impacted the global economy, including Spain’s, despite its neutral status and protectionist policies. The war presented both opportunities and challenges for the Spanish economy.
Positive Effects
The war created export opportunities for Spain’s industrial sector as warring nations turned to neutral countries for manufactured goods. This increased demand led to higher prices and allowed even marginal businesses to thrive. Additionally, reduced competition from traditional exporters of raw materials and consumer goods benefited certain sectors of the Spanish economy.
Negative Effects
The war also disrupted the supply of essential raw materials, intermediate goods, and capital goods, negatively impacting industries reliant on these imports. Freight costs also soared, hindering trade.
Sectoral Impacts
Industry
The industrial sector experienced significant growth due to increased demand and reduced competition. However, many businesses focused on short-term gains rather than investing in long-term improvements.
Agriculture
Mediterranean agriculture suffered, but the cereal sector benefited from reduced competition and increased labor availability due to decreased emigration. However, this hindered modernization efforts in the agricultural sector.
Mining
The mining sector experienced a decline in production due to reduced demand for mineral exports. The exception was the Biscay iron industry, which remained in high demand from British steel mills.
Coal
The war’s impact on freight rates made it more profitable to exploit domestic coal mines, even those with low production levels. This was further incentivized by the increasing adoption of electricity.
Manufacturing
While import substitution boosted domestic manufacturing, many businesses failed to invest in modernization and diversification, leaving them vulnerable to future economic downturns. However, newer sectors like chemicals and machinery manufacturing used the opportunity to grow and compete internationally.
The Spanish Economy After World War I (1918-1921)
Post-War Challenges
The end of World War I brought a period of economic readjustment and crisis for Spain. Traditional industries struggled to adapt, while newer industries lacked the scale to fully support the economy. The crisis manifested in falling prices, declining production, business closures, unemployment, and increased social unrest.
Distribution of War Profits
Wartime profits were unevenly distributed, primarily benefiting employers and some peasants. Inflation eroded real wages, but the rise of trade unions helped workers recover some of their losses. Railway workers launched strikes, and unions resisted firms acting as intermediaries.
Balance of Payments and Financial Instability
Spain’s wartime balance of payments surplus led to increased gold reserves, acquisition of foreign financial assets, and bank deposits. However, much of these resources remained idle or were lost due to post-war currency devaluations.
Trade and Banking Crisis
Imports surged after the war, erasing the trade surplus and leading to a record low in 1921. Many companies, particularly marginal ones, disappeared, and numerous commercial banks, especially in Catalonia, went bankrupt due to currency speculation.
Deflation and Unemployment
Deflation, particularly in coal prices, further reduced profits and production levels. However, strong trade unions resisted wage cuts, leading to increased unemployment.
Conclusion
The end of World War I marked a turning point for the Spanish economy, exposing the vulnerabilities of its traditional industries and the limitations of its newer sectors. The post-war crisis highlighted the need for economic modernization, diversification, and greater social and economic stability.