A critical and empirical analysis about how

Spain and the United Kingdom are

performing economically and their level of
competitiveness

Competitiveness
in Spain and
United Kingdom
Assessment and Comparison

BU51014 INTERNATIONALISATION STRATEGIES

Alfonso Hernandez Carmona

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BU51014 INTERNATIONALISATION STRATEGIES COMPETITIVENESS IN SPAIN AND UNITED KINGDOM

Contents
1.- Introduction ...................................................................................................................................... 2
3.- Competitiveness in Spain and UK over the past 10 (GCI) ....................................................... 4
4.- Gross Domestic Product in Spain and UK (The World Bank, 2017) ...................................... 5
5.- Gross Domestic Product per capita in Spain and UK (The World Bank, 2017).................. 76
6.- Inflation in Spain and United Kingdom (Eurostat, 2017) ........................................................ 87
7.- Minimum wage in Spain and UK (Eurostat, 2017) .................................................................. 98
8.- Unemployment in Spain and UK (Eurostat, 2017) ................................................................ 109
9.- Exports in Spain and UK (OEC, 2017) .................................................................................. 1110
10.- Conclusions ............................................................................................................................. 1211
11.- Recommendations ................................................................................................................. 1413
12.- References .............................................................................................................................. 1615

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1.- Introduction

The aim of this essayThis essay aims tis to comparecompares the difference in Commented [NA(1]: How about “This essay aims”?
competitiveness between two European countries: Spain and the UK.
As it is a research about competitiveness, my main primary source of information has been Commented [NA(2]: Man, you overused the word main!
for sure the institution that specialises in researching that field: The World Economic Forum, Try another vocab, like primary?
which publishes an annual report of the competitiveness of 140 countries. Commented [NA(3]: Publishes not publish

Competitiveness can beis defined as “the set of institutions, policies and factors that determine Commented [NA(4]: Deleted isis
the level of productivity of a country” (World Economic Forum, 2017)
It is more than obvious noticeable that the UK economy is currently much healthier and
competitive than the Spanish economy but What are the reasons? This essay will try to give
an explanation as more accuracy as possible by analysing several economic variables. such Commented [NA(5]: Man, this doesn't make any sense, I
as GDP, GDP per capita, inflation, exports, unemployment, and wages level. rewrite another one for you. Maybe in this introduction you
might wanna write the topics so the reader will understand
Currently, the UK economy is in healthier position and more competitive than the Spanish what those several variables are!
economy. Thus, this essay will investigate and analyse several economic variables in order to
reach rigid outcomes.

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2.- Literature review

What authors said ys about competitiveness? Commented [NA(6]: Pick one, either said or say! Cause
author(s)
Michael Porter explain in s “Competitive Advantage of Nations” that basically what a nation
Commented [NA(7]: Explains – but without (in)
needs to prosper is not only resources, workforce or interest rate, but the capacity of its
industry to innovate. An economy welfare depends mostly on that companies get an increasing Commented [NA(8]: The capacity or a capacity

a sustainable productivity, which requires continuous a continuous upgrade of the economy.

That is why Porter thing that productivity is the only thing that matters when we talk about
national competitiveness.
However, Paul Krugman criticises what Porter said in “Foreign Affairs”, by saying that each
nation is not like a big corporation competing ion the global marketplace and that trying to Commented [NA(9]: Competing in
define the competitiveness of a nation is much more complex that doing so for a company.,
as Wwhile companies have a rivalry, nations do not have to and a rise in competitiveness in
one nation can be even positive for other nations. He claims to avoid obsession with Commented [NA(10]: Too long and the meaning is not
competitiveness, as it can lead to bad economic policies such as protectionism and trade wars clear. Try to break it up
Commented [NA(11]: Who is he?
William W Cooper stated in his book “Omega” that a nation is a place for living and not a
corporation, which exists to generate profits a thus, pay its workers and owners.

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3.- Competitiveness in Spain and UK over the past 10 (GCI)

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As the chart displays the average score in Spain records the average score of 4.6/7, while it
is 5.4/7 for the UK points whereas in the UK is 5.4/7. In both cases, the standard deviation is Commented [NA(12]: Sentence fragment ;-
very low, which explain why the 2 two countries have very similar punctuations over the years Use “As the chart displays, Spain records the average
score of 4.6/7, while it is 5.4/7 for the UK “
and why both are frequently located in a range of no more than 5 five positions of difference.
Commented [NA(13]: Two not 2
Commented [NA(14]: five

4.- Gross Domestic Product in Spain and UK (The World Bank, 2017)

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GDP growth rate (2007-2015)

The the first detail to pay attention withinin the diagram is the abrupt downfall in the in the Commented [NA(15]: attention to within the diagram
middle of 2008. Both economies suffer an enormous huge shrinkage due to the recession: Commented [NA(16]: You used it a lot, try another
from a positive percentage of growing (4% Spain, 3% UK) to a negative rate (-3% Spain, - synonym
4%UK). In 2012, the bankrupt of Bankia bank caused a new shock in the Spanish economy, Commented [NA(17]: due to
which had to receive European funds to rescue the bank system from a crash. Bbut since
Commented [NA(18]: The b in but should be B, it is a new
2012 it looks positive. The UK has experienced an upward trend since 2009 until 2014. sentence
ButNevertheless, t this only reflects the percentage of growing, and although Spain have has Commented [NA(19]: Play with new words, bro
experienced a huge rise in this index in comparison with the UK, in terms ofregarding the real Commented [NA(20]: has
GDP the UK still have an enormous advantage over Spain, as the graph shows:
Commented [NA(21]: Maybe try, regarding the real GDP ?

Gross Domestic Product (2007-2015)

Formatted: Normal, Centered

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5.- Gross Domestic Product per capita in Spain and UK (The World Bank, 2017)

GDP per capita ($) (2007-2015)

After the economical crasheconomic collapse in 2008, the GDP per capita in Spain has fallen Commented [NA(22]: Economic collapse is an academic
from approximately $35,000 to $25,000 in 2015. The downfall was quite strong steep from term
2008 to 2010 (from $35,000 to $30,000). After that period, the trend continued was constant Commented [NA(23]: Try another vocab
until 2014, when the GDP experienced another strong fall from % $30,000 to $25,000 in only Commented [NA(24]: It is not clear what you want to
one year. present in here, maybe saying “the trend has been constant
until 2014”?
The recession affected to the UK GDP per capita even more strongly than to Spain. It fell from
$50,000 to approximately $37,000 in only 2 two years. After that, The UK GDP per capita has Commented [NA(25]: two
experienced a constant but solid riseproved stable, reaching the $46,000, until the first 3 Commented [NA(26]: Dude, hmm this is very hard to
months of 2014, where an outperformance of sectors such as industry, construction and express. Maybe “has proved stable”?
services made it fall abruptly for the next 2 two years ($40,000). Commented [NA(27]: two

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6.- Inflation in Spain and United Kingdom (Eurostat, 2017)

Inflation (harmonized), 12-month average (2005-2015)

2005 index=100
The trend of the inflation in Spain has been quite irregular over the period between 2005 and
2015. Between 2005 and 2008, the inflation band fluctuates between 2.5% and 4.5%. It was
after de recession when it fell dramatically to under 0, raising until 3% 2 two years after. Commented [NA(28]: two
Afterwards, the trend has beening negative, reaching a 0% in 2014 and going to negative Commented [NA(29]: been
numbers in 2015. However, in 2017 it has risen to 2.15%.
In the case of UK, it started with a 1.5% of inflation in 2005, rising smoothly until the 2.5% in
2008, moment in what it rose until almost 4% in 2009 just to come back to 2.5% in 2010. From
that point onwards, inflation started to rise again to reach a maximum peak of 4.5% in 2012.
From 2012 to 2015, the index fell until the 0% and even lower, but the trend from that point
until nowadays has been positive, reaching a 3% in 2017 (www.inflation.ue, 2017)

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7.- Minimum wage in Spain and UK (Eurostat, 2017)

Minimum wage (€ per month) (2007-2017)

As it can be appreciated in the diagram, the minimum wage in Spain has ve followed a linear Commented [NA(30]: Are you sure it can be
trend over the last ten 10 years. From 2007 to 2016, the minimum wage has increased in 100 “appreciated”?
€ (from 665,70 to 764.40). However, the Spanish political party “Podemos” proposed at the Commented [NA(31]: has
parliament to raise the minimum wage to 800€ in 2018 and to 950€ in 2020 (the proposal was Commented [NA(32]: ten
accepted). The wages were not affected by the recession in 2008 as the political party in the
power at that moment was the socialist party; tand they refused to lower the minimum wage. Commented [NA(33]: party; they refused

The minimum wage in the UK fell from 1,300€ in 2007 to 1,000€ in 2008 due to the recession.
The trend after that has been positive with up and downs until reaching a peak of 1,450€ in
2016.

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8.- Unemployment in Spain and UK (Eurostat, 2017)

Unemployment (Millions of people) (Eurostat, 2017)

Spain and the UK had a very similar number of unemployed people in 2007 (around 1.5
million). However, after the recession in 2008 the unemployment rose in both countries, but in
the UK the rise was of “only” 1 million, from 1.5 to 2.5 and got stack in that point until the end
of 2013 when started to fall constantly, whereas in Spain it began to raise dramatically over
the years until reaching the alarming figure of 6 million of unemployed people. From 2013 until Commented [NA(34]: millions
today the unemployment in Spain has fallen to 4 million people due to the restrictive policies Commented [NA(35]: To be accurate, I would advise you to
applied by the new government. Meanwhile, the UK also reduced it unemployment until levels rewrite this
of 2007.

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9.- Exports in Spain and UK (OEC, 2017)

Exports in Spain ($Billions)

Exports in the UK ($Billions) Commented [NA(36]: the UK

Like mostly other indicators, the exports present a positive trend until 2008, when the Commented [NA(37]: “Like mostly other” is nothing lol,
economic crash contracted the whole world economy. If we have a close look at to both maybe you want to say like most other
diagrams, we can see that Spain and the UK follows a practically identical pattern in the Commented [NA(38]: at
evolution of their exports. However, although the pattern is the same, the amount of exports Commented [NA(39]: the UK
in UK is much higher than in Spain.

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10.- Conclusions

Although Spain and the United Kingdom are both high developed countries (the two countries Commented [NA(40]: no need for high, “developed
are in the third and last stage of development according to the GCI), t the differencedifferences countries” is a well-known economic vocab
in competitiveness between them is quite remarkable. While United Kingdom has an average Commented [NA(41]: ,
of 5.4/7 points in GCI and it has been occupying positions between 7 and 13 in the ranking for
the last seven years, Spain has a much lower grade: 4.6/7 points in average and has been
fluctuating between 42 and 29.
Regarding to GDP, we have already seen that it is much bigger better in the UK than in Spain Commented [NA(42]: delete it
over the last ten years. If an economy is healthy is more likely that productivity in that country Commented [NA(43]:
raises. In the GDP per capita, the difference is quite clear too (almost $15,000 of difference).
Commented [NA(44]: use better or another word
The GDP per capita is a very useful to evaluate the relative performance of a country. Thus,
Commented [NA(45]: the Uk
a rise in the GDP per capita is a signal that the economy is growing which eventually will
influence positively in productively. If productivity raises, competitiveness also does so. Commented [NA(46]: use explicit
However, the Brexit and the recent attempt of Catalonia to get independent from Spain could
bring disastrous consequences for the GDP in the short-midterm.
If unemployment raisesboosted, i inflation will fall (the household income is lower, so families Commented [NA(47]: use (,)
cannot afford to pay high prices). We can see how this happen especially fundamentally when Commented [NA(48]: how about using boosted? Or
the economic crash occurred in 2008: unemployment raises dramatically in Spain from 2 grows?
million to 4 million in barely one year, and 2 million more until 2012 whereas inflation fell around Commented [NA(49]: How about mainly or fundamentally
4% in only one year (from 2008 to 2009).
For the last ten years, Spain and the UK have kept oscillating levels of inflation which is not a Commented [NA(50]: The UK
goodare not good news for the competitiveness of both countries as to make the economy run Commented [NA(51]: You mean good news? Or something
smoothly is needed to keep a stable level of inflation (deflation is not good either). new?

Unemployment has been a constant problem in Spain as it has become a structural problem,
but since 2013 both countries have experienced a negative trend in unemployment rates.
Nevertheless, while UK has reached in 2017 a level of unemployment of 4.3%, in Spain is still
17%. Full employment is one of the factors that defines national competitiveness, therefore in
this case UK is again more competitive than Spain.
According to empirical evidence, there is a positive correlation between wage rate a Commented [NA(52]:
productivity:

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Source: The International Monetary Fund, Bureau of Labour Statistics, and The Conference Board (2007)

High wages represent high levels of welfare and productivity, and in consequence, higher
competitiveness. As we have seen in the minimum rate evolution diagram, in every moment
during the past ten years, UK has had wager much higher than Spain. This is another indicator
of why the UK is more competitive than Spain.

Exports help the economy to growth, creating employment, raising GDP, and therefore
increasing welfare and competitiveness. The UK widely overcome Spain in this economic Commented [NA(53]: The UK
variable, as the profit obtained from exports in the UK is much higher than it is in Spain.
Therefore, in the light of all this evidence, the UK is much more competitive than Spain.

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11.- Recommendations

According to the GCP 2016-2017, the some of the most important problems for doing business
in Spain and UK are the follower:as follows: Commented [NA(54]: I will rewrite it

some of the vital problems in doing business within both Spain and the UK are as follow:

Tax Rates
Higher levels of taxation especially for small and medium companies. Self-employer employed Commented [NA(55]: It is especially, or use another
workers deserve special mention as they must pay a fixed tax of 264€ monthly independently synonym
of the revenues of that month (they must pay even if they have losses) plus quarterly Income Commented [NA(56]: Not clear, you mean self-employed?
tax and VAT (even if they have outstanding amounts of money for invoices that have not been
paid to them yet). This clearly disincentives the creation of new business, affecting the GDP
and productivity and therefore reducing competitiveness.

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My recommendation for this item is to reduce taxation or at least make it progressive: the more
you earn, the more you pay.
The UK also has very high rates, but at least self-employers which a low rate of revenue are
not as punished as in Spain: Class 2 NICs pays £2.85 tax per week if their revenue is above
the SPT (£6,025 for 2018)
Inefficient government bureaucracy and Insufficient capacity to innovate
I would like to comment these two items together as they represent the main problem in Spain
to set up a business. The next diagram compares the number of procedures that someone
who wants to set up a Start -up must face. Commented [NA(57]: a Startup = look Alfonso, "Start up" is
a verb, "start-up" is a noun for a phase of operation, and
"Startup" is a noun for type of company.

In SpainSpain, the process to set up a Start-up takes much longer than in the UK. Why I
havehave I chosen this particular kindkind of business model? Because Start-ups are small Commented [NA(58]: Have I
firms that begins with a bright and innovate new idea. Increasing the barriers to create those Commented [NA(59]: Without the (s)
kinds of business reduces the capacity of the country to innovate, which is one of the most
important pillars of an economy to achieve a high grade of competitiveness. In addition, in Commented [NA(60]: pillars
2016 the Spanish Government reduced the subsidies to Start-ups from 20 million € to 1.7 (-
90.1%).
My recommendation in this case for the Spanish government if they wreally want to improve Commented [NA(61]: delete it
the national innovation would be to reduce the procedures at the minimum point possible and
specially to increase the subsidies to the Start-ups.
Policy instability and government corruption
Both countries are facing a huge problem of instability due to independent movements
(Catalonia from Spain and UK from the EU).
In the case of Spain, I cannot offer any recommendation as it is a very complicated issue. We
are not talking about any economic matters, but about the people feelingsthe way people feel. Commented [NA(62]: matters
Many people in Catalonia do not feel Spanish and there is not much that the Spanish Commented [NA(63]: I don’t agree with this, yet you might
government can do to solve that. Although the independence process has been mitigated for write! But about the way of how people feel
the moment, the damage is already done: thousands of companies (Including many banks

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and IBEX-35 companies) have left Catalonia in the last month, causing many workers to lose
their jobs. Therefore, unemployment is raising and competitiveness falling.
In the case ofMy recommendation for the UK, my recommendation would be to cancel the
Brexit (they are still on time), as being outside of the EU it is likely to make them less
competitive. As an example: they will have to face tariffs to export goods to the EU.
The government corruption level is Spain is and hasave been worryingly high for many years.
The corruption cases occur very often (thousands of millions have been stolen), and the
society does not appreciate any kind of reaction or punishment coming from the legal system.
My recommendation for this point would be to highly increase penalties for corruption cases.
In the UK, corruption is not a serious problem. It is probably a matter of culture..

12.- References

https://www.weforum.org/
http://www.worldbank.org/ Field Code Changed

http://ec.europa.eu/eurostat Field Code Changed

www.inflation.ue
https://atlas.media.mit.edu (OEC)
www.investopedia.com Field Code Changed

https://www.datosmacro.com/paro Field Code Changed

https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for- Field Code Changed

2017-18/tax-and-tax-credit-rates-and-thresholds-for-2017-18#fn:22
https://www.elconfidencial.com/tecnologia/2016-07-04/gobierno-enisa-startups-rajoy- Field Code Changed
recortes_1227493/
Paul Krugman, ForeingForeign Affairs, 1999 Commented [NA(64]:

Paul Krugman, Obstfeld, International Economics: Theory and Policy, 2003

Michael Porter, Competitive Advantage of Nations, 1990
Trevor Swan, Swan Diagram

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