Migration: The drain from Spain

February 20, 2014 6:39 pm

Migration: The drain from Spain

By Tobias Buck / Financial Times /  http://www.ft.com/intl/cms/s/0/f7bdd5ce-995e-11e3-91cd-00144feab7de.html?siteedition=intl#axzz2tx7nxuv0

After years as a leading recipient of immigration, the exodus from the country threatens its recovery

Juan López reckons he has bid farewell to hundreds of friends and patrons of his small bar in Aluche, a working-class district in Madrid popular with Latin American migrants.

“Half of the people I know have already left, and people are still leaving,” says the bulky 44-year-old, leaning close to make himself heard above the noise. The neon-lit bar is shaking to the sound of Colombian dance music but the place is empty save for one table occupied by a sullen group of Latino drinkers. “I ask them: Why are you leaving Spain? The answer is always the same: there is nothing left here for me. If I have to be hungry, I would rather be hungry at home.”

Mr López came to Madrid from his native Peru more than two decades ago. In the years that followed, millions more migrants arrived in Spain in search of work and a better life. That turned the country into Europe’s largest recipient of migrants, fuelling an economic expansion.

Now the pattern has moved into reverse. Hundreds of thousands of migrants are heading back home every year, and the country’s overall population is falling for the first time since records began. The consequences of this dynamic for Spain – for its society, economy and even its politics – are likely to be profound, and will be keenly watched elsewhere. The country may be facing the challenge posed by long-term population decline earlier than others. Sooner or later, however, many of Europe’s large economies will find themselves in much the same predicament.

Spain’s population jumped from 40m in 1999 to more than 47m in 2010, one of the most pronounced demographic shifts experienced by a European country in modern times. The surge was almost entirely the result of migrants from countries such as Ecuador, Bolivia, Romania and Morocco. The number of foreigners living in Spain increased eightfold in just over a decade, while their share of the population soared from less than 2 per cent in 1999 to more than 12 per cent in 2009.

More often than not, the migrants were made to feel welcome. There was no xenophobic backlash, either at the political level or in everyday life. The new arrivals brought with them their food and music, their festivals and traditions, adding dabs of colour to a country that had remained extraordinarily homogenous for much of its recent history. They also transformed the economy, providing much of the labour and a fair bit of the demand that fuelled a decade-long – and ultimately disastrous – house price surge. When that boom turned to bust, Spain’s migrant communities were among the hardest-hit.

From his vantage point behind the bar, Mr López followed the decline in his customer’s fortunes. “When the crisis hit, people started spending less money. Then unemployment started affecting people. Then they stopped getting unemployment benefits.”

Now, increasingly, they are leaving Spain altogether. In 2008, one year after the start of the crisis, Spain still recorded 310,000 more migrant arrivals than departures. That number fell to just 13,000 the following year before turning negative in 2010. In 2012 there were more than 140,000 more departures than arrivals, and the pace of the exodus is picking up fast. According to the national statistics office, the foreign-born population now stands at 6.6m, down from more than 7m just two years ago.

No one knows how big the migrant outflow will be or when it will stop. Some believe that fears of a mass exodus are overdone, while others claim even the current figures underplay the size of the shift. The latest official estimate last December predicted the number of people living in the country will fall by 2.7m over the next decade, or more than 5 per cent of the population. Most of that loss will be the result of migration, with about half a million forecast to leave every year until 2023.

Analysts warn that the departure of so many workers, consumers and taxpayers will act as a severe brake on growth just as Spain is emerging from a long and painful recession. There will be fewer people to pay back the country’s public debt and fewer purchasers of empty homes. In the longer term, the migrant outflow will further darken its bleak demographic outlook. With one of the lowest birth rates on the planet, the country is already ageing faster than most of its European peers. Many experts argue that Spain – despite the lingering unemployment crisis – will need millions of new migrants to sustain its badly overstretched pension system.

What Spain is about to experience is the flipside of the migrant boom in the first decade of the new millennium. Economists argue that much of its stellar economic growth was driven simply by more people arriving, working and consuming.

“Spain grew a lot in that decade but it was growth without productivity growth. It was fuelled by lots of people coming to the country,” says Antonio Cabrales, a professor of economy at University College London. “Now that they are leaving there will be less growth. We are likely to see [economic] stagnation for a long time, a bit like with Italy.”

Edward Hugh, an economist in Spain and author of a forthcoming book about the country’s recent crisis, says: “This is an economy that was built for the consumption of 46m people but that is now heading towards 43m. Everything is too big.”

In immigrant areas such as Aluche, business owners are already having to adjust to that pattern. Liliane Díaz, who came to Spain from Ecuador, runs one of the district’s many locutorios, phone centres where migrants make cheap long-distance calls to their family and friends back home. “I bought this place in 2007. At that time we had 12 phone booths. Now we have four. Sunday nights used to be so busy it was terrible. Now it’s also terrible but because there are so few customers,” she says.

Her experience will be familiar to the bosses of Spain’s large mobile phone providers, which are struggling to extract more revenue from an ever-smaller market. According to the latest data from the national telecoms regulator, the number of mobile phone contracts has dropped by more than 2m over the past two years.

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Economists say it is hard to gauge the precise impact of the outflow on the country. But some key areas such as the housing market and retail sales are bound to be affected. Spain has, for example, struggled for years to rid itself of at least 600,000 empty flats and houses, one of the most pernicious legacies of the real estate bubble. A steady decline in the population will make that task harder and could push back even further the long-awaited recovery in property prices. The departures may also put a brake on the long-awaited return of domestic demand, a key weakness in the Spanish economy.

Another problem is Spain’s towering debt load, which is already on track to exceed 100 per cent of gross domestic product. “You are left with the same debt but now you have fewer people to share it,” warns Mr Hugh.

Lurking behind such worries is a deeper concern. “In the short term, this outflow may be seen as a relief, like opening a safety valve. Most of the people who are leaving are unemployed so this lifts a burden from the Spanish labour market,” says Joaquin Arango, a professor of sociology at Madrid’s Complutense University.

Yet in the long run, he warns that the outflow will worsen an already precarious demographic situation. “Ageing will continue to proceed very rapidly. In demographic terms, our prospects are very dark,” says Prof Arango. Like most southern European countries, Spain suffers from an exceptionally low birth rate, and has until now relied heavily on its migrant population to compensate. One-fifth of children are born to a mother from a foreign country.

In a paper published last year, academics at the Iese business school argued that Spain needed more migration to stabilise the country’s pension system. If current trends persist, they warned, less than four decades from now there will be just 1.6 Spaniards of working age for every pensioner – a wholly unsustainable ratio.

Will the pensioners of tomorrow come to rue the outflow? Not everyone is convinced. “There was always this argument that the migrants that arrived [during the boom years] will pay for our pensions. But that is a wrong argument,” says Carmen González Enríquez, an authority on migration at the Real Instituto Elcano, a Madrid think-tank. “Many of the people who came were never attached to the social security system, or their salaries were too low to make much of a difference.”

Ms González Enríquez views the current outflow as part of a normal adjustment that could be reversed once Spain returns to steady growth. She points out that the initial wave of migrant arrivals did little lasting good to Spain, arguing that the abundance of cheap, unskilled labour helped create a lopsided economy over-reliant on construction and other low value added activities.

Most analysts agree that the jump in Spain´s migrant population helped inflate a property and credit bubble that has cost both migrants and Spaniards dearly. But that does not lessen their concern over the long-term consequences of its shrinking population.

“I don’t know any population decline in modern times that has been healthy for the country affected,” says Mr Hugh, the economist. “Spain has a long-term, endemic problem with its labour market. There is very high structural employment so this attrition will continue. This is not a short-term squeeze but something durable that has to be addressed. It affects the long-term potential of the country. If they don’t turn this around it will affect the health system, the pension system and everything else.”

The challenge is to find the right blend of policies and incentives to prevent the exodus spiralling out of control. Keeping hold of the best and brightest is one pivotal issue and managing outsized infrastructure is another. Madrid has started tackling its looming pension crisis with an ambitious reform programme begun earlier this year.

It has also sent out strong – albeit politically contentious – signals that it remains open to new arrivals. The government has offered residency permits to foreigners who buy expensive properties, and this month said it would give Spanish passports to descendants of the country’s Jewish community, expelled in 1492.

For many of the migrant workers in districts such as Aluche, however, policies of this kind are unlikely to offer much comfort. Leaving Spain comes as bitter recognition that their long struggle to create a new home and build a new life has ended in failure. It means writing off a priceless personal investment. For those that stay, the loss is felt just as keenly. “It is so sad,” says Ms Díaz as she looks out from her call-centre to the empty playground across the road. “This used to be such a happy neighbourhood. Now it is just gloomy.”

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Emigration: Exodus of the elite

Most of the people turning their back on Spain today are migrant workers returning to their home countries. But Spaniards, too, are leaving their country to seek work in stronger European economies such as Britain, Germany or Switzerland, as well as in Latin America. Their departure has sparked anguish amid warnings that Spain is losing some of its brightest talent to foreign lands.

Numerically, the Spanish exiles are still a relatively minor phenomenon, says Carmen González Enríquez, a migration expert at the Real Instituto Elcano think-tank in Madrid. According to her research, the number living abroad rose by just 40,000 between January 2009 and January 2013, or less than 0.1 per cent of the population. The problem is their quality. Since the start of the crisis, Spanish universities and top-flight research institutions have suffered a painful exodus of talent. Under the government’s austerity programme, research spending has been slashed by 40 per cent. For every 10 professors and academic researchers who depart, only one is replaced.

The recent cuts mean many young researchers now see their paths towards a tenured position barred, forcing hundreds to leave the country. Even senior academics are heading for the exit. Professor Oscar Marín, a brain scientist at Spain’s CSIC research council, said this month he is leaving to head the Centre for Developmental Neurobiology at King’s College in London.

His parting shot in an interview with the El País daily this month summed up a widespread feeling: “There is nothing in Spain that allows me to move forward.”

Some analysts warn that the loss of high-skilled Spaniards will affect the country even more than the loss of millions of migrant workers: “This may sound harsh but I am less worried about 2m unskilled people leaving than 20,000 entrepreneurs and scientists leaving. There is enough unskilled labour power around the world. But people with ideas and entrepreneurs have other options,” says Antonio Cabrales, a professor of economics at University College London.

Like other Spanish academics, he warns that the country is at risk of hollowing out a scientific base painstakingly created over decades.