A Weekly Dose of Hazlitt: In Franco’s Spain

In Franco’s Spain” is the title of Henry Hazlitt’s Newsweek column from December 1, 1958. Here, Hazlitt visits Spain and shows that it provides an excellent example of a fascist socialist economy: a mix of state run companies, licenses, price controls, sky high tariffs, anti dog-eat-dog laws, inflation, etc. In short, Franco’s Spain was an example of the type of economy that so many urge to be adopted today. The result in Spain was a standard of living that lagged far behind that of the rest of Western Europe. Despite the obvious failures of this Vampire Economy, it still has an appeal to all to many politicians and so called “economists” today.

Madrid —Spain today has one foot in the present
age, the other in the past. It is trying to jump without
intermediate steps from the candle to the fluorescent
light, from the burro to the Buick. One drives out of a
beautiful, expanding modern Madrid to villages where
people live much as they did centuries ago. In comparison
with all other Western European countries (except
Portugal), the Spanish people still have an extremely
low standard of living. As one editor put it to me: “We
have an Arab economy—without the oil.”

If Germany is the most dramatic example in
Western Europe of the miracles of recovery and production
that can be brought about by monetary discipline
and a free economy, Spain is the outstanding
demonstration of how an economy can be unbalanced
and shackled by socialism, government planning, and
a tangle of interventions and controls.

Take the situation in automobiles. Unless you are a
diplomat or have special governmental pull, it is practically
impossible to import a foreign car. In fact, the
hardest thing to get in Spain seems to be an import
license for almost anything at all. Major auto companies
are directly or indirectly government-owned or
government-operated.

How to Get a Car

If you want a SEAT (licensed by Italy’s Fiat), you must
first file an application accompanied by $400 (translating
pesetas into dollars at 50 to 1). A year or so later
you may be notified that your car is ready. You must
then pay, before delivery, 100 percent of the price of
the car—say $2,800. A month or two later you may
get actual delivery. But if you sell the car on the black
market you may get almost double what you paid for it.
At present, I am told, there are 22,000 signed orders
for SEAT’s, each accompanied by $400, yet the total
production of SEAT’s this year will be only 10,000 and
12,000 next year.

American industrialists here tell me that they
could sell 20,000 farm tractors over the telephone if
they could get the import licenses. But the government
insists that the farmers can wait until domestic industrial
production is adequate to take care of their needs.
All this, of course, slows down both Spanish agricultural
and industrial growth.

Special permission must be obtained not merely to
go into a new business, but to manufacture a prescribed
maximum of a specific thing. Thus in September a
number of firms were finally authorized to make television
sets. The Spanish Marconi Co. was allowed to
make 5,000; the Standard Electric, 5,000; the Spanish
RCA, 3,500 sets, etc.

Why It Functions

There is extensive price fixing and completely unrealistic
rent control. As a result there are periodic shortages of,
for example, oil, eggs, potatoes. Most new apartments
are not rented but sold. There are periodic power shortages
in Madrid, and the electricity is rationed or turned
off. There has been great inflation. Between 1950 and
1957 the wholesale price index advanced 84 percent.
Between July 1957 and July of this year the official cost of
living index jumped 13 percent. The official rate for
the peseta is 42 to the dollar, but the free-market rate
in Tangier has been between 58 and 60.

What is amazing is how such an economy functions
at all. And yet it does, and in some directions
shows surprising growth. One reason seems to be that
many of the controls that exist on paper are evaded or
laxly enforced. It is widely admitted that the Spanish
economy has been saved from grinding to a halt by the
smugglers and the black marketeers.

The other main reason for Spain’s recent economic
progress is that Franco has brought and kept domestic
peace and order. All criticism of his economic policy
(voluble in private conversation, but prohibited in
the press) is tempered by the feeling that Franco is
still the only alternative in Spain to the nightmare of
Communist rule. Peace and order have enabled people
to work, and the workers work hard for incredibly long
hours. But Spanish recovery would jump forward dramatically
if Franco could be brought to see that while a
rich country does not need socialism, monopolies, and
controls, a poor country cannot afford them.

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