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Entrepreneurship, Spain and failure

On Wednesday 11th of July, Mrs. Isabel Benjumea, founder and CEO of GREATNESS, spoke at the European Parliament to a group of young entrepreneurs from different nationalities, in a debate promoted by ThinkYoung’s Entrepreneurship Summer School.

By: EBR - Posted: Monday, September 3, 2012

by José Valls*

She highlighted the importance of being prepared for failure. Indeed, she went over her own personal experience to explain how a personal meltdown pushed her from being a civil servant at the World Bank to become an entrepreneur and start her own business. She comes from Spain. Does this country need people such as her? How is Spain at the moment? A quick reading of the newspapers' headlines may give us an idea.

"If we don't raise tax collections, salary payments for the public sector are at risk"(1), said the Budget Ministry of Spain, “the (International Monetary Fund) said the economy will likely contract 1.5% in 2012 and shrink a further 0.6% in 2013”, “the numbers confirm that there is an actual outflow of deposits from Spain right now”(2). Not to mention the fact that the unemployment rate in Spain is at 24.44%(3), the risk premium touched 559 basic points(4) and the country had to ask for external financial assistance in order to recapitalize its banking system. Some voices point out that the Memorandum of Understanding, which explains such assistance and the conditions surrounding it, reveals that Spain has de facto been intervened.(5) How did Spain get to this situation? And, more important, how can it recover?

The origins of the situation

It is, unfortunately, easier to answer to the first question. According to the European Commission(6), the period 2008-10 did not affect all Member States equally, because the most important origin of the recession is the inflation of the real state market, which provoked external imbalances. Therefore, those countries which were more exposed to such imbalances are having larger difficulties, specially in what refers to unemployment. Indeed, on one hand the construction sector has collapsed and it has not yet started to recover, on the other hand, households and firms have to reduce costs and increase savings which implies less consumption, thus business are less willing to hire. How exposed was Spain to the construction bubble? In 2006, the construction sector amounted to 10.8% of the country's GDP7 and, in fact, during the boom period employment in Spain increased by 32%. The role of the euro in such exposure arises from the fact that the capital flows among Member States grew, and Spain went from being a net lender to be a net borrowing, which is considered to be part of the origin of its imbalances.

Can Spain recover?

Not every sector has being affected the same way. The construction has collapsed and, therefore, Spain needs to find a new motor for its economy. It is true that this Spanish reconversion has a lot to do with public policies to, for instance, create an environment in which entrepreneurs can flourish or to become less dependent on carbon. However, the economic tissue cannot change nor these policies are to be effective unless there are new companies willing to reactivate the economy, thus Spanish entrepreneurs have to step in.

Taking in consideration the banks situation (as indicated before Spain had to ask for external financial assistance to recapitalize the banking system) an injection of capital into the start-ups is not foreseeable, which implies that future entrepreneurs must be prepared for failure. Nevertheless, as Mrs. Benjumea pointed out, one should always be prepared for it and, lets be honest, who in Spain is not familiar nowadays with what failure is and what does it mean?

1) Dire Signs for Spanish Economy, Mathew Walter and Christopher Bjork. Online version of Wall Street Journal July 18, 2012.
2) Spain Economy Shows More Strains, Mathew Walter and Christopher Bjork. Online version of Wall Street Journal July 19, 2012.
3) http://www.ine.es/  
4) La prima de riesgo se dispara tras reconocer Montoro “que no hay dinero” Online version of El País July 18, 2012.
5) Intervención bancaria Online version of El País July 15, 2012.
6) Unless indicated otherwise, the whole analysis of the situation in Spain is extracted from the European Competitiveness Report 2011 prepared in the Directorate-General for Enterprise and Industry.
7) El peso de la construcción en el PIB se sitúa en el 9.2% en 2010 y vuelve a niveles de 2003, Europa Press. Online version of El Mundo July 26 2011.

* José Valls, Research Fellow at ThinkYoung, the first European Youth Lobby

Born in Spain, he studied high-school at a military academy in the United States. Graduated in Spanish and European Union Law at San Pablo CEU University in Madrid, he also holds a Master in European Union Economics, Law and External Relations at Panthéon-Sorbonne University in Paris. He moved again to Brussels and, after passing through the Institut européen des relations internationales, he joined Think Young in July 2012.

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